Australia’s major banking, retail and manufacturing brands are often regarded as less interested in the aggressive overseas expansion being pursued by market leaders in other countries. Some have tried – with mixed success.
The latest major acquisition attempt was the near sale of Hong Kong chain ParknShop, which operates 345 supermarkets. The media speculated that Woolworths was the leading candidate to purchase the company, valued at just over US$3 billion.
But now Woolworths' bid for ParknShop is off the table, we are left with the question: how are Australian companies performing overseas?
Is Woolworths’ interest in foreign expansion typical of Australian companies – as well as its slow and faltering steps towards this goal?
Concern about Australia’s international trade and investment performance prompted the Rudd Government to initiate the Mortimer Review – Winning in World Markets – which was released just before Lehman Brothers collapsed in 2008. The report found that the rate of Australia’s export growth, both in terms of volume and value, had declined substantially in the period 2001-2007.
Outward foreign direct investment (FDI) was an ostensibly better story, with overall stocks almost doubling in that period, thanks largely to the finance and mining sectors.
Given its timing, the Mortimer Review could not anticipate the severe headwinds that Australian companies have experienced in recent years, notably the recessionary conditions in advanced economies and a high Australian dollar.
Recent trade figures reveal that if the mining sector – which accounts for more than half of Australia’s exports – is excluded, Australia’s exports have stagnated. Outward FDI has also been sluggish.
Australian companies do not face a level playing field for international trade and investment. The tyranny of distance persists even in the internet age. Australia’s geographical isolation also means that it remains a fringe player in terms of regional trade agreements.
It’s not a surprise that a far lower percentage of our small and medium-sized companies export compared to their Dutch counterparts – the Western European country whose population is most comparable in size to that of Australia’s.
Despite growth in the past decade, our outward FDI (the category into which Woolworths’ acquisition would have fallen, had it proceeded) is also considerably smaller than those of the Netherlands.
Compounding this isolation is Australia’s small population. The country has always been a “branch office” economy – a disadvantage now that multinationals are consolidating their production and R&D, at best leaving behind hollowed-out sales and marketing offices.
Inward FDI is hard to attract and even harder to retain, as the town of Orange has recently experienced with the announcement of the impending closure of Electrolux’s factory there. Yet as the Electrolux example shows, inward FDI can be critical to outward flows such as exports.
Australia’s geographical isolation and small population are disadvantages that cannot be removed. But they can be redressed through the right policy settings, which have been notably absent in recent years.
The Mortimer Review’s recommendations were never properly implemented. On the contrary, the Gillard government’s trade initiatives were counter to those recommended in the review. The main scheme for supporting Australian exporters, Export Market Development Grants, had its budget cut and not increased.
Austrade has expanded its footprint in emerging markets such as China, but at the expense of its presence in developed countries. Australian exporters targeting the US or Europe can no longer call on Austrade’s services, as in these markets they have been redirected away from trade facilitation to the promotion of inward investment and education.
Ian Murray, the executive chairman of the Export Council of Australia, believes the recent decline in Australia’s performance in global markets was masked by the resources boom. “While the resources boom was at its peak, the government could get away with not doing anything”, he said.
With the Gillard government desperate for budget savings, exporters were a constituency that could be ignored.
We now wait to see whether the new government will take up the challenge of improving Australia’s trade and investment performance. While in opposition, the Coalition railed against cuts to the Export Market Development Grants scheme, for example.
If the new trade minister introduces funding certainty and indexation of the scheme, expands access to export finance for smaller firms, and improves the efficiency of Customs, we will know that finally we have a government serious about improving Australia’s performance in global markets.
In the meantime, there is also a need to supplement the aggregate figures of official statistics with a firm-level perspective on what Australian companies are currently doing offshore and the challenges they face.
Last week the Export Council of Australia launched an international business survey, the first comprehensive data collection exercise of its kind since the 1990s.
Comprehensive data on the international activities of Australian companies, the current lack of which is a symptom of the broader policy neglect of trade, will hopefully provide the basis for more evidence-based policymaking in the future. At least we will find out the extent to which Woolworths’ tentative steps into Asia represent a trend among Australian companies more generally.
You can participate in the Export Council of Australia survey here.