A lack of skills means smaller enterprises are not making the most of their potential to penetrate overseas markets.
Australia’s small- to medium-sized businesses are missing out on vital growth opportunities in Asia because the majority believe they do not have the skills to expand into overseas markets. That is the key finding from William Buck’s recent bi-annual CFO Pulse Survey, which gathers the views of Australia’s mid-market chief financial officers. More than 60 per cent of CFOs surveyed conceded that they currently don’t have the skills or expertise within their businesses to expand into Asia, despite the majority recognising the importance of the region to their long-term sustainability.
As expected, the survey highlights that the appetite for Asian markets has grown substantially over the last decade, with 34 per cent of the SMEs surveyed currently operating in Asia and a further 31 per cent considering a move into the region in the next 12 months. Advertisement Given the recognition of the importance of the region to the long-term health of their businesses, it is surprising how many SMEs are not prepared for expansion. It highlights the challenge many Australian SMEs face in a business environment where they are increasingly having to ‘think global’ in order to compete, but at the same time are having to cope with a range of constraints.
One of the keys to success for those wanting to expand their business into any overseas market is understanding the intricacies of the market and developing the skills, products and branding to effectively contend with local and international competitors. It is imperative for SMEs to define and understand the opportunity that exists in the target market. Asia can be an overwhelming place to do business, so any investment needs to make good business and financial sense. Cultural alignment is also vital and businesses must understand the unique nuances of different cultures in order to be successful. While this was among the lesser concerns of the CFOs surveyed, this may be due to a perception that the current multilingual skills within the business are sufficient. However, cultural alignment involves much more than simply speaking the language. The greatest barrier to business success in Asia is not respecting or gaining an understanding of Asian cultural and business practices. This is difficult to overcome and needs a significant amount of time and patience invested into it.
It’s also very important to remember that ‘one size doesn’t fit all’ when it comes to cultural alignment. Asia is made up of a diverse range of countries and cultures, so what is acceptable in one country may not be in others. For SMEs looking to expand into Asia, it is also hugely beneficial to have experience on-the-ground in the country that you operating. Providing autonomy and trust to these people is necessary to enable your business to take advantage of opportunities that arise and act quickly when required. Generally, businesses that have a permanent presence in Asia gain more traction that those that try to control their operation from Australia. The survey highlighted that many SMEs had concerns about their level of knowledge on the different tax and accounting regulations in Asian markets, particularly among those businesses already operating in Asia. This concern is well-founded, with some countries having severe penalties in place for offences such as tax evasion. Therefore it is imperative that any expansion into Asia is done so with a full knowledge and awareness of the different tax and accounting regulations. An expanding network of free trade agreements and double tax treaties across Asia present valuable opportunities for Australian SMEs in Asia, although the survey revealed that two thirds of respondents (60%) were unsure or had an incorrect understanding of which countries have tax agreements with Australia. It is clear that further education is required around these important agreements for mid-market businesses to enable them to exploit opportunities.
The Asian economy is sophisticated and rapidly evolving and SMEs need to develop a team that can drive their business in these markets.
Tony Hood is the corporate advisory director, William Buck Chartered Accountants and Advisors