Why go global in small business?

What are the opportunities and risks associated with engaging in the global market as a small business? David Coleman outlines developments in our region.

Even in small business, the increasingly interdependent global economy is leading many small business operators to look at international expansion as an option for growing their business. There are many reasons why this might be attractive. It may allow the business to utilise cheaper raw materials and labour. It may open up new markets for the products and services of the business and reduce the vulnerability of the company to changing economic conditions in a local region. In many cases, this can make global expansion a necessity rather than simply a preference.

There are also risks associated with this strategy which might emerge from increased costs, compliance with foreign regulations and standards, increased operational complexity and the need to comply with foreign business cultures which are not fully understood and require significant organisational learning in order to adapt the business model to alternative cultures. It may also require adjustments to the business control model which is currently in place.

Despite the challenges, statistics indicate that small businesses in Australia are increasingly engaged in the global market for goods and services. The products and services we consume and produce increasingly are transported to or from another country between production and consumption. In 1970, around 25 percent of the merchandise consumed or produced in Australia was bound for or came from overseas. Now, nearly 45 percent of the products we consume or produce go to or come from overseas. It is becoming the norm that small business is engaged in exporting its product or service.

In our region, there are currently a number of developments which are reducing the regulatory barriers to the international expansion of small business. Many small businesses are not aware of the trade benefits that have accrued to Australian exporters under the Japan Australia Economic Partnership Agreement (“JAEPA”) or the Korea Australia Free Trade Agreement (“KAFTA”), or the China Australia Free Trade Agreement (“ChAFTA”), the Singapore Australian Free Trade Agreement (“SAFTA”), the Australia United States Free Trade Agreement (“AUSFTA”) or the Thailand Australia Free Trade Agreement (“TAFTA”). There are also a number of other international arrangements between Australia and its neighbours that improve the economic relations of Australia with its region. There is an Australian economic partnership agreement with India and Indonesia, New Zealand, Chile and the governing agreements of the World Trade Organisation. Taken together, all of these agreements can provide substantial benefits to Australian exporters across a very broad range of industries and provide a viable basis for global expansion.