With new free trade agreements, shipping costs down, and remote work widely accepted, there’s never been a better time to step into a new market.
Yet Kiwi companies are often reluctant to test those international waters. According to our latest Grant Thornton biannually survey, only 5% of businesses moved into international markets over the past year; 76% of respondents have no plans to expand internationally.
The risks and returns of exporting
Why do so few Kiwi businesses export? Sometimes, the uncertainty just feels too risky. When your company is succeeding locally, why would you risk your profits on exploring an unknown overseas market?
A first foray into an international market is daunting, not least because the costs are uncertain and the customers aren’t well understood. And, even if consumers love your product, other issues can crop up. For example, while NZ products are often seen as attractive options in overseas markets, local competitors have been known to band together to pressure retailers into not stocking them. This kind of hard-to-predict risk understandably makes Kiwi businesses nervous.
Exporting is a risk. But it’s a risk with the potential for a return far higher than you can squeeze out of our tiny market. If you can establish a successful export revenue stream, you can build a highly valuable business.
For example, we’ve had several local clients whose tech businesses haven’t been enormously profitable. They’ve invested heavily in R&D, creating outstanding products, but selling only to Kiwi clients could never cover their investment. Selling into international markets has brought them to the attention of the big players, and they’ve sold their businesses for big sums to offshore purchasers. There’s rarely a viable buyer for this kind of company in New Zealand, so exporting has delivered returns of enormous magnitude for these organisations.
Similar companies have appeared in the news in recent years, like Ninja Kiwi (sold for $203m) Vend ($445m) and Seequent (sold for a whopping $1.45b).
Starting small can minimise your risks
One of the most successful approaches to exporting goods is to begin with a low-commitment arrangement. For example, selling online and shipping directly to international buyers is a great way to discover more about what consumers in that market like.
Alternatively, a local distributor is an excellent way to leverage local expertise without overcommitting to a full international office.
If you provide services, you can work directly with offshore clients. Kiwis often provide high-quality work at a slightly lower cost than Australian or American companies might pay for local workers. Exporting services is more feasible than it’s ever been, thanks to the massive surge in remote work and widespread acceptance of teams across diverse locations.
Still not convinced? Here’s 5 tips for trading offshore
Take a fresh look at the possibility of exporting
You may have decided in the past that exporting your goods or services is too expensive. But take another look – new free trade agreements, lower shipping costs and other factors mean that exporting may stack up better than ever.
Identify the easiest ways to dip your toe into an overseas market
Choose a product or service that you can deliver with the lowest effort – and think about where it will most easily translate to another market, preferably one with some untapped demand. For most Kiwi businesses, Australia or the Pacific Islands are the obvious choices for an initial foray into operating offshore.
Build relationships with locals
You need to do some research on the ground – get a feel for your new market. Trade shows are an excellent place to start; you can learn about the local environment your business will operate in and meet potential clients.
Find out about tariffs and tax implications
What tariffs will you encounter? Are there free trade agreements in place? It’s important to understand what will trigger tax obligations in another country. You need to know about any costs that might trip you up, and how to manage your tax footprint overseas.
Test the market before you set up a permanent establishment
Can you start with a local distributor or agent in your new market? Once you know there’s a market for your offering, you can consider whether a more permanent structure is worthwhile. That might eventually mean setting up an office or warehouse - but start small.
As the world of trade gets smaller, New Zealand becomes less isolated all the time – so let’s make the most of our ingenuity and expertise to show the world just how much we have to offer.