December 23, 2015

Where are the opportunities for Australian SMEs in 2016?

NAB’s Dean Pearson shares his economic outlook for small-to-medium business owners in 2016 as Australia prepares for life after the mining boom.

The time is ripe for Australian small-to-medium enterprises (SMEs) to look abroad, particularly in the services sector, with low-interest rates supporting economic activity, says NAB’s Dean Pearson. He shares his economic outlook for 2016.

While the end of the mining boom presents challenges for the Australian economy, it also presents an opportunity for SMEs to innovate and explore untapped opportunities in 2016.

Australia’s economic outlook is clouded in the aftermath of the mining boom, says NAB’s Head of Industry Analysis, Dean Pearson. Falling commodity prices and China’s economic slowdown have combined to weigh on corporate profits and government revenues, but now is the time to look forward.

“The end of the mining boom has forced us to ask what the future is going to look like, it was a great opportunity for us, but now we’re transitioning to other areas,” Pearson says. “There’s no silver bullet to offset to the mining boom. Instead, a whole range of industries will contribute to Australia’s future economic prosperity.”

Expanding trade opportunities

The time is ripe for Australian SMEs to look abroad, particularly in the services sector, with low interest rates supporting economic activity and the low Australian dollar acting as a stabiliser for trade-exposed parts of the economy. Meanwhile, Australia’s trade agreements, with China, Japan and South Korea, continue to reduce barriers to exports of both goods and services.

“There are major opportunities here because, compared to other developed economies, our trade in services is very narrow – mostly relying on education-related trade and tourism,” Pearson says.

“Australia is the third largest education market in the world after the US and the UK but the gap is in advanced services – areas like legal services, accounting, health, engineering, architecture and finance – they’re all growing strongly within Australia but they’re not growing very strongly regarding exports. Opportunities for SMEs lie here.”

China is ready and waiting

Australian SMEs are already highly engaged with China through imports, but exporting to China can be a growth engine for Australian SMEs. The services sector is the largest part of the Chinese economy, Pearson says, and Chinese businesses are keen to do business with Australia.

The NAB-ACRI Australia-China Business Engagement Index, launched December 3, found that 94 per cent of Chinese businesses look favourably on doing business with Australia, with 76 per cent citing ChAFTA as a factor. They’re more favourable to doing business with Australia than any other country.

“China clearly wants to do business with us, but when you talk to some Australian businesses they’re not as focused on China as they could be, despite the opportunities,” Pearson says.

“Ask Australian small businesses what’s holding them back from China and they cite issues such as the transparency of the legal system and protection of intellectual property – they’re genuine concerns but these are issues that can be addressed.”

Innovate and commercialise

As the mining boom subsides, Australia’s foreign trade is relying more on education and tourism but the time is ripe for innovative small businesses to look further afield.

Innovation is firmly on the agenda of the Malcolm Turnbull-led government with the December 7 launch of the National Innovation and Science Agenda, a $1.1 billion investment to incentivise innovation and entrepreneurship, reward risk taking, and promote science, maths and computing in schools.

It also augurs well for trade, according to Turnbull. “We are on the doorstep of Asia, the world’s economic engine room and our new trade agreements with China, Japan and Korea are opening up more doors in Asia for our business,” he said in announcing the fund. “There has never been a more exciting time to be an Australian business. There have never been more opportunities on the horizon for Australians. The internet and the technologies it enables mean we are now part of a truly global marketplace. It means there are fewer barriers to entry for Australian businesses, no matter where they are located, right across Australia they can sell their products and services to just about every corner of the globe.”

There’s no shortage of good ideas in Australia, Pearson says, where we fall short is commercialisation of those ideas.

The key barriers to innovation among Australian SMEs are a lack of access to funds and the lack of skilled people. Australia also ranks the lowest in the OECD when it comes to collaboration between business and universities, according to the Department of Industry & Science’s Australian Innovation System Report.

“We have to challenge the idea that Australia is not an innovative place. We’re highly innovative, but we don’t tend to back ourselves,” Pearson says.

Only 13 per cent of Australian businesses believe we are a highly innovative nation, according to the NAB Special Report: A Survey of Business Innovation in Australia released in September 2015.

This is despite the fact that more than 25 per cent of Australian businesses of all sizes identify themselves as highly innovative – with those businesses tending to outperform others in their sector.

Opportunities for growth

The Chinese healthcare market offers clear opportunities thanks to ChAFTA, as the country’s population is ageing but its health system is less advanced than Australia’s. This presents major opportunities, not just for Australia’s private health sector but also for a range of related professional services.

High-skilled manufacturing is another key area, with strong export rises in areas like scientific equipment and specialised machinery – some of which were thriving even when the Australian dollar was high.

“Quality food and wine exports are other areas where Australia can excel,” Pearson says.

“We don’t need to be the food bowl of Asia. Instead, we can be the best market for premium, high-quality, safe and reliable products – the demand is there and Australian businesses are well-placed to take advantage of it if they’re prepared to expand their horizons.”

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