What SMEs need to know about exporting into new markets

international market, new markets
Manager in front of a chart / world map.

The pandemic has had a dramatic effect on many businesses, especially SMEs, which are more likely to be in industry sectors that have been hard hit by lockdown restrictions. But with economic conditions beginning to improve as lockdowns ease, new markets are being sought, including overseas ones. So, what do SMEs interested in exporting their goods and services overseas need to consider?

First … is it good idea?

There are likely to be plenty of SMEs currently eyeing the export market to boost their revenue. But just because you have a product that works well locally, it doesn’t mean it’ll translate well overseas. You need to do your homework to ensure the profit margin is enough to absorb the additional costs of exporting, such as marketing and foreign exchange costs, or any costs around having to adapt your product to suit overseas regulatory requirements.

Understand your market

If you asked an SME several years ago, which export market it was likely to focus on, the most likely answer would have been China. In fact, in 2016, an Export Finance Australia survey found 26 per cent of SMEs exporters named China as their most important export market, followed by Oceania/New Zealand (20 per cent), India (11 per cent), and the USA (10 per cent). However, China-Australia trade tensions have escalated since then, and a number of trade bans have been implemented. This means SMEs should consider other markets to diversify into. When looking at potential markets you need to determine the countries with the best potential for your product along with any trends that relate to it, and what competitors exist.

Find the right partner

Unlike larger organisations, SMEs can’t afford to hire teams of experts to assist with their export plans. If you’re unable to establish a local presence yourself, then you need to find the right distribution partner. This partner will need to be a good cultural fit, be very focused on your customers, and know how to best market your product. Make sure you spend time on establishing this relationship as choosing the wrong local partner can lead to disaster.

Make sure you can get paid – but without the high fees

Unless you are in the country, typically it’s very difficult to build a relationship with a banking party. But in many cases, you need a local bank account, even if what you’re selling doesn’t require a bricks-and-mortar presence. In this instance, SMEs can engage fintechs that specialise in cross-border banking and can help you gain access to the local banking infrastructure without you needing to be in the country to deal with the associated administration.

A common issue when SMEs first enter into a new export market is they don’t enter foreign currency amounts on their invoice; they’ll invoice in Australian dollars regardless of what currency their customers are using. This means they wear high currency conversion fees for an extended period of time, usually until their overseas revenue becomes an important part of their overall revenue.

Ensure your documents are in order

It’s crucial to understand your administration obligations, especially in different regions. If you don’t ensure your documentation is correct, you may find you don’t have a legally binding contract, you don’t have the transport or freight you require, and consequently, you don’t receive payment for your goods or services. Working with a partner to help you sort through your due diligence at the start of the process will save you headaches in the long run.