A costly case of export jitters

Australian family businesses are floundering in the international marketplace. While other countries dominate, just 5 per cent of Australian family businesses sales come from overseas.

A global PricewaterhouseCoopers report shows that Australian family businesses are way behind their counterparts in other parts of the world. According to the report Australian family businesses just don’t want to be part of the global economy. They don’t want to leave their comfort zone and are focused on the domestic market, which crimps any growth. A pity as so many would have export potential.

The report reveals that Australian family businesses had the lowest rate of export to world markets, much lower than anywhere else. Singapore family businesses were at the top of the tree with 60 per cent of their total revenue coming from international sales. That was followed by family businesses in Hong Kong (58 per cent), Taiwan (49 per cent), Austria (48 per cent), Italy and Belgium (43 per cent), Denmark (41 per cent), Turkey (33 per cent), Switzerland (32 per cent) and Germany (31 per cent). Australia was right at the bottom with just 5 per cent, trailing the USA (7 per cent), Britain (11 per cent) and Ireland (20 per cent).

The average proportion of foreign sales for family businesses around the world is 25 per cent, but owners predicted this to rise to 30 per cent within the next five years. Those looking to radical growth were tipping 35 per cent. Cutting the figures another way, 67 per cent of businesses overall had international sales in 2012, but 74 per cent expected to be in this position by 2017. The countries most likely to see an increase in exports were Romania (77 per cent), Greece (70 per cent), Italy (67 per cent) and Turkey (64 per cent). Australia isn’t even in the ball park.

To an extent, this might reflect a general unwillingness of Australians to become global citizens. An Essential report last year found that most Australians resisted the idea of closer ties with the rest of the world and preferred the status quo. That was true for not only Asia but also the United Kingdom, the United States of America and even New Zealand. And only a third of Australians wanted closer ties with Australia’s biggest trading partner China.

That’s not surprising given Australia’s place as an island – cut off from the rest of the world. There are differing cultures and ocean divides. As companies like BHP Billiton and News Limited have shown, the success of any business expansion overseas depends on the ability of the business model to operate cross-borders. This is not a problem just for Australian family businesses.

Few Australian businesses generally have had massive success overseas. For sure there have been some family business successes overseas like Australian automotive suspension company Pedders, which has taken its products and expertise to the USA and also exports to Korea, Thailand, Indonesia, Kenya, Tanzania, China, South Africa, Malaysia, Japan, New Zealand and the Middle East. But as with CSL and Cochlear, these sorts of stories are far and few between and there have been some significant failures in the past. Consider for example NAB losing money in the UK with the inefficiency and poor profitability of its Clydesdale bank. Similarly, Telstra lost millions in its costly 11-year partnership in Reach with PCCW, the Hong Kong telecoms company owned by Richard Li. Significantly, Woolworths recently decided to pull out of its bid to buy Hong Kong supermarket chain ParknShop.

According to the PwC report, the biggest barriers for many family businesses were understanding a different business culture (20 per cent), competition (19 per cent), local regulations (19 per cent), exchange rate fluctuations (16 per cent) and local economic conditions (16 per cent). There was also the challenge of managing a complex international supply chain.

PwC says the big issue is developing risk management skills. Australian family businesses have to do this if they want to crack world markets. “Some family businesses may be wary of exporting because they lack the specific skills and experience they need to do this effectively, but their reluctance may also spring from an understandable caution, or an inadequate understanding of the real nature of the risks that international expansion would entail. It’s clear from our survey that the identification, assessment, and management of risk – in its broadest sense – is one of the wider skills that many family firms need to develop.”

The problem for many Australian family businesses it that Australia offers limited growth opportunities. Sooner or later, they will have to look overseas. But to do that, they must develop the skills that can translate the capability from one market to the other, create partnerships overseas and playing the long game and hanging in there in markets to gain the respect and relationships. As is the case with China (Why China plays hardball, August 21), that requires patience, understanding how the system works and knowledge of the cultural mores in a different market. They could learn from the counterparts in places like Singapore.