Erratic Government Grant Policies Hamper SME Business & Export Growth

One of the greatest inhibitors to growth in Australia is the constantly changing policies at the influential levels of government.

While industries, on the whole, go about their business on a daily basis without any reference to grants, there are a number of companies that can look to government grants and identify these as being influential in achieving success, particularly in exports.

Exports are one of the areas where government is influential. Many countries we deal with have a centralist government policy, or have a history and culture of government with great influence and a high degree of respect in their respective societies. To this end, working with government is an advantage, and one that should be seized on by most Australian businesses contemplating exports to most parts of the world.

The problem with the government, however, has been their oscillating policies between supporting small business and supporting large business. In this uncertainty, medium business usually does quite well, especially those companies in the $20-40 million turnover bracket.

If we include these medium size companies with small business, they are actually the powerhouse of Australia and the future that the government should be looking to. But lately I have noticed that there is a trend back to supporting big business, and forgetting about the small end of town.

This is a pity because every time the government changes policy, it sends businesses confusing messages. This creates inequality for the small and emerging medium size business, and it rewards big business which if examined, apart from the mining industry and certain key sectors, on the whole cannot grow because of the nature of our society today.

I would not have great difficulty stopping people in the street, even those who do not know much about business, and asking them about the future of large companies. Most of the people would (except for mining, telecommunications, and energy) express the view that we are not going to see great numbers of new large companies emerging in our society today. Merger and acquisition is the way to grow because large companies “eat each other up” in their tremendous appetite for quick growth and they are not prepared to “do the time” with entrepreneurial or generic growth and development.

Large organisations feed on the medium and emerging entrepreneurial companies driven from the small and medium size sector. This trend has been accentuated by the growth of the web-based companies that can emerge and grow to a substantial size very quickly. Because of their culture and their strong entrepreneurial base, companies such as these, that embrace new technologies and new market opportunities, are more capable of fast growth than those in the more “constipated” larger organisations where there are many checks and balances on risk, idea generation and the general motivation to follow, invest and achieve new and exciting market growth opportunities.

Where am I going with this?

Well, what I’m saying is that small to medium companies are the powerhouse of the modern society and will continue to be, aided and abetted by online web-based technology. Large companies will be very static and will continue to flourish in our society, but will not be the area where we will see great replication or emergence of new business ventures.

If government wants growth, rather than re-investing most of its successful funding programs in the same companies time after time, then it must push towards where the growth is.

The growth is in the small to medium business (SME) area.

My frustration is not only this, but the frustration that the grants available are being purposely targeted to the large companies, starving this sector of much-needed support and funding at a time when our world economy is under pressure, and at a time when we have many business growth segments in our society that cannot be supported because of this lack of funding.

One good example is in exports. Government departments and agencies at Federal, State, and even local government level, are all dedicated to expanding exports. Austrade has offices that reach out into local government areas, and are often aligned with business development areas created by State Governments. In most grant situations, government ask for export potential or export achievements as part of their funding process.

Many small to medium companies can demonstrate a pathway to exports, and many of them can even demonstrate exports (due to the growth of online e-based commerce) that have added to the bottom line, even in early years of growth.

However, the problem is that under the Export Market Development Grant (EMDG) currently administered by Austrade, many of the small to medium companies can get very little return on funding for their export effort. This inhibits their ability or their desire to go into exports.

I have worked in exports for 32 years, and I find it very disappointing that a company that makes strides to captivate or follow up on export leads, or even to visit markets and create export opportunities, gets very little funding under the current EMDG.

Under this grant, a company gets $10,000 deducted immediately from any export expenditures to pursue export opportunities. If they travel overseas, say to Japan or America, attend a trade fair, follow up with another visit, which is usual in the first year of operation and necessary for business development and relationship creation, then that first $10,000 is easily spent. At this stage, they have received no extra funding. They are at zero return. If they send samples, entertain an inbound visitor in Melbourne (which most of them do not do because they are not very inbound conscious), or they complete another trip overseas within the yearly period stipulated by Austrade, they might get up to $15,000 or $17,000 in eligible EMDG expenditure.

Taking out an odd side trip for a visit, which is usual when most people go overseas, they may be able to claim $15,000. In total, they will be lucky to get 50% of the $5,000 they can claim (remember $10,000 comes off the initial claim), leaving them with $2,500 for their effort.

It is no wonder that small business is disillusioned with the government. Consultants such as ourselves often find it hard to convince small businesses to get proactively involved with exports. It’s no wonder that small business considers that the grant returns are not really substantial, and not worth seeking when, on a daily basis, they are fighting for cash flow, trying to achieve high levels of growth, and trying to stay afloat in their initial growth years despite any huge growth in the actual market segment in which they compete.

Governments should make an exception for small businesses or emerging businesses, and they should make it more lucrative for them to achieve these grants. Large businesses, by the nature of their size, can afford to put $50,000 into an export opportunity, send three staff to a trade show to man the booth etc., and can easily achieve a $25,000 or $30,000 rebate from Austrade, giving them a powerhouse for future export growth based upon their initial investment and export thrust funded with the help of the government.

It is difficult for a small business struggling to get overseas with $15,000 – $20,000, to make this initial leap, and to gain the necessary “beachhead” for export growth.

We are an island. We depend on exports. Exports are essential for our future growth, and we must have exports that are greater than the materials we take out of the ground. We need an export market grant that truly reflects the nature of our business today in Australia, and the tremendous growth that small business creates for Australia today. In the future, it is the SME vision that underpins our growth, not the large end of town consisting of the major corporations.

We also need an emphasis on urban and regional SME growth with creative and contributing grants. By definition, large organisations have had their contribution and should be self-funding.

If you are interested in strategic advice on exports and the Export Market Development Grant, please call us on 03 9853 1899, or email us on: comedge@comedge.com.au