Tap in to the growth potential of Australia’s top three ...€¦ · economy, South Korea (also known as the Republic of Korea (ROK)) is Australia’s fourth-largest two-way trading

EXPORTING TO CHINA, JAPAN AND SOUTH KOREATap in to the growth potential of Australia’s top three Asian export markets

Source: World’s Top Exports, Australia’s Top Trading Partners, February 2019; DFAT China Factsheet; DFAT Japan Factsheet; DFAT Republic of Korea Factsheet; DFAT United States Factsheet

New trade agreements put in place between Australia and all three countries mean there has never been a better time for Australian businesses to enter these markets.

GROWING YOUR EXPORTS IN AUSTRALIA’S TOP 3 ASIAN EXPORT MARKETSWorth nearly 45% of Australia’s total exports in 2018, Australia’s top three Asian markets for our goods and services are China, Japan and South Korea.

$106b $51b $24b

What you need to knowIn this guide, we provide insights into:

■■ economic and political conditions for doing business in China, Japan and South Korea■■ opportunities for your business in these markets■■ free trade agreements and how they can benefit your business ■■ accessing finance to support your international growth■■ where you can go for help and advice.

Total exports in 2018

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CREATIVE IMPACT IN ASIACase Study: Fin Design + Effects

Export Finance Australia’s Small Business Export Loan helped boutique design and special effects agency Fin Design + Effects deliver multiple large projects in China.

From the very start Fin Design + Effects (Fin Design) was exporting to the US – but then potential customers from Asia started seeking their expertise.

Emma Daines, Group Managing Director of Fin Design, said managing cashflow was one of the biggest challenges when working in China, where payment terms are very different from the rest of the world.

“You do get paid, but the terms are very long, sometimes up to six months,” said Emma.

As a service-based business without tangible security, Fin Design’s bank didn’t have the appetite to lend them money for exporting.

We helped Fin Design with three Small Business Export Loans so far – allowing them to deliver multiple contracts to China.

“ Export Finance Australia was very

important to our business and became

extraordinarily valuable when we had

a project that went over for a few months. Their support allowed

us to cashflow our projects and continue

to look for new opportunities. ”

Emma DainesGroup Managing Director

Fin Design + Effects

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Source: DFAT China Factsheet; The World Bank data, China (27 February 2019); CNBC, China’s stock drop this year reduces bubble worries, central bank official says, December 2018; Export Finance Australia World Risk Developments, February 2019; Australian Bureau of Statistics, 3401.0 – Overseas Arrivals and Departures, Australia, Dec 2018; Austrade, China Aged Care Training Opportunities

EXPORTING TO CHINA China is the world’s second largest economy and Australia’s largest export market. Since the signing of the China-Australia Free Trade Agreement (ChAFTA) in 2015, China offers local exporters even more opportunities.

Economic climate■■ China’s GDP growth has slowed from

9.4% to 6.5% over the last decade – with growth expected to be moderate over the medium term.

■■ China’s equity markets have been volatile due to international trade issues, an economic slowdown and corporate financing.

■■ Non-mining exporters may benefit from China’s weaker exchange rate.

Political climate■■ On 31 August 2018 the National People’s

Congress announced the adoption of China’s e-commerce Law. The Law entered into force on January 1, 2019. All merchants selling online in China, including individuals and companies based in China and abroad will need to register for an online selling certificate to be displayed in their online store.

■■ China’s Enterprise Income Tax Law applies to domestic and foreign enterprises in China. If you’re a company with high technology status or operating in Western China you may be able to access preferential tax rates.

■■ China is fast-tracking plans to introduce a new foreign investment law that promises to better protect foreign intellectual property, ensure equal legal treatment of foreign and domestic firms, and ban forced technology transfers.

Key opportunities Mining

Australia’s biggest exports to China continue to be iron ore and concentrates, coal and gold.

Healthcare It’s estimated that by 2020 there will be 248 million Chinese people over the age of 60. The opportunities for Australian businesses in aged care include education, training and skills development.

Agriculture China is Australia’s largest importer of Australian agricultural products including dairy, beef, high-value dairy products like baby formulas, and wool. Wine exports continue to grow, increasing 18% last year to $1.14 billion.

For more information on doing business in China, visit the Austrade website.

Lee Featherby Founder

PowerfulPoints

“ Our presentations are being seen by leading organisations in China, thanks to Export Finance Australia’s Small Business Export Loan. ”

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Source: The World Bank, The World Bank in Japan, 2018; IMF, Japan’s Economic Outlook in Five Charts, 2018; DFAT, Japan country brief, 2018; The World Bank, Worldwide Governance Indicators, 2019; DFAT, Japan-Australia Economic Partnership Agreement, 2018; Australian Bureau of Statistics, 3401.0 – Overseas Arrivals and Departures, Australia, Dec 2018; Austrade, Export Markets, Japan

EXPORTING TO JAPAN Japan is Australia’s second largest export partner. With an affluent, well-educated population, it has one of the world’s biggest markets for high-end goods, produce and services – making it an ideal destination for Australian exporters.

Economic climate■■ Japan is the world’s third-largest economy.■■ Despite its size, it has comparatively weak

economic growth compared to its peers, due to competition from other high-tech producers, a declining population, very low inflation and a shrinking workforce.

■■ In the past decade, the Japanese government has introduced new policies to liberalise the country’s economy and increase tax revenues.

Political climate■■ The World Bank ranks Japan in the top

quartiles for all areas of governance. ■■ Japan ranks especially high for rule of law

and control of corruption.■■ While Japan’s agricultural sector is highly

protected, the Japan-Australia Economic Partnership Agreement ( JAEPA), which came into force in January 2015, is improving opportunities for Australian agricultural exporters.

Key opportunities

Agriculture

Japan is Australia’s second-largest agricultural, forestry and fisheries export market, and Australia’s largest market for beef.

Natural and organic Products with natural ingredients and minimal additives and preservatives are in demand. Australian products are well regarded for their quality, but competitive pricing remains a challenge.

Tourism Japanese visitors make up the fifth-largest tourism market behind China, New Zealand, USA and United Kingdom.

For more information on doing business in Japan, visit the Austrade website.

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Source: The World Bank, The World Bank in the Republic of Korea, 2018; DFAT, Republic of Korea (South), December 2018; Thomas Kalinowski, Sang-young Rhyu, Aurel Croissant, South Korea Report: Sustainable Governance Indicators 2018; DFAT, Korea-Australia Free Trade Agreement (accessed 27 February 2019); DFAT Republic of Korea Factsheet, December 2018; Austrade, Export Markets, Republic of Korea

EXPORTING TO SOUTH KOREAHome to some of the world’s largest and most diversified companies and a strong economy, South Korea (also known as the Republic of Korea (ROK)) is Australia’s fourth-largest two-way trading partner. With its high-income economy that relies on exports, there is a strong market for quality Australian goods and services.

Economic climate■■ South Korea is the 15th largest economy in

the world.■■ The country successfully transitioned from

a middle-income to a high-income country, experiencing rapid economic growth while markedly reducing poverty.

■■ Government, business and university investment in smart technology, like self-driving cars, smart cities, smart homes and smart factories, will see South Korea as a leader in this technology.

Political climate■■ In 2016, South Korea’s change of government

introduced new measures to improve democracy and social justice.

■■ Korea ranked 5th out of 190 economies in the World Bank’s ease of doing business rankings in 2018, which is based on how conducive the regulatory environment is to business operations.

■■ The Korea-Australia Free Trade Agreement (KAFTA), which came into force in December 2014, has made it easier for the two countries to do business with each other, providing duty free access to over 80% of Australia’s exports.

Key opportunities Agriculture

South Korea is an important market for agriculture and food-related products with Australia exporting more than A$1.2 billion worth of beef in 2017-2018.

Fintechs Seoul is being positioned as an Asian fintech hub and Smart City. To grow this sector the government is easing regulations that constrain the startup business model or the end product.

Pharmaceuticals Korea’s pharmaceutical market is one of the most significant in Asia with sales forecast to grow to US$21 billion in 2025. All tariffs on Australia’s pharmaceutical exports to South Korea have now been eliminated.

For more information on doing business in South Korea, visit the Austrade website

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WHAT YOU NEED TO CONSIDER Australia’s International Business Survey 2018 asked over 1,200 Australian internationally active businesses about doing business overseas. When asked about the new countries they planned to do business with, 19% said China, 13% said Japan, while 11% planned to do business with South Korea.

What do you need to consider before taking your business overseas?

1. Local language and culture ■■ English isn’t widely spoken, so using an interpreter can

be valuable.■■ Business etiquette and practices are important in these

markets. In China and South Korea, ensure you respect hierarchy and seek introductions through mutual acquaintances – while in Japan, observe social rank, politeness and humility.

■■ Commit to developing personal relationships with potential on-the-ground partners, advisers and suppliers – especially if you don’t have a local presence in the country.

2. Local business practices■■ Use business cards in all three countries – and make sure

you get them translated into the language of the country in which you are doing business.

■■ When doing business in these markets it’s important to discuss any concerns you may have discreetly in private or use an intermediary.

■■ In South Korea, be cautious about buying meals or gifts for public officials or education employees, as the new Improper Solicitation and Graft Act forbids them from receiving meals worth more than about A$34, gifts over about A$57, and congratulatory cash gifts above about A$114.

3. Understanding local regulations■■ The World Bank’s ‘ease of doing business ’ gauge ranks

economies using metrics like labour regulations, access to finance and dealing with day-to-day operations, to determine how easy it is to do business there. In 2018, South Korea ranked fifth, Japan ranked 39th and China ranked 46th.

■■ In Japan, businesses may need to pay numerous taxes, including corporate, income, withholding, local and residents’ tax – so advice from a local accountant or tax adviser can help.

■■ In South Korea and Japan, tariffs and duty rates are constantly revised and are subject to change without notice – so it’s important to reconfirm them before exporting to these countries.

4. Finance and payment issues■■ Operating in international markets can be challenging

– so it’s important to protect yourself to ensure you get paid. Some steps are outlined below.

■■ Set a clear payment process with your customers – such as whether you require part payment before sending goods, or progress payments if work will continue over time.

■■ You should also use a safe way to collect overseas payments, such as a Letter of Credit or Documentary Collection. You can find out more about managing payments in our Five ways to manage your export cashflow eBook.

5. Protection of intellectual property rights■■ While laws are tightening in China around intellectual

property (IP), it is still a key concern in the Chinese market. Using patents and building strong relationships with local partners can help avoid IP risks. You should also check our Intellectual property specialist paper to find out more.

■■ Japan has strong IP policy and infrastructure in place already to help government, companies and the public to work together to enforce IP laws. Check IP Australia’s page on IP Protection in Japan to find out more.

■■ Foreign businesses that are without a place of business in South Korea are required to lodge patent, design and trade mark registrations through a South Korean IP attorney or IP professional. IP Australia is a good place to start to learn more about IP protection in South Korea.

Source: Austrade, Export Markets: Doing business – Japan, China, South Korea; The World Bank Doing Business 2018 – Reforming to Create Jobs, 2018; The World Bank, Doing Business – Measuring business regulations, May 2018

Austrade is an excellent source of information about doing business overseas: Check their China, Japan and South Korea profiles to find out more. Go to austrade.gov.au.

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FREE TRADE AGREEMENTS This decade, Australia entered into trade agreements with China, Japan and South Korea. Here are some key points you need to know and what they mean for Australian exporters.

China-Australia Free Trade Agreement (ChAFTA)■■ Duty-free entry for most of Australia’s goods exports.■■ Elimination of remaining tariffs on many agricultural

exports.■■ Duty-free entry for resources, energy and

manufacturing exports.■■ Beneficial treatment for services such as legal,

education, telecommunication, financial, tourism health and aged care services.

Japan-Australia Economic Partnership Agreement (JAEPA)■■ Preferential access or duty-free entrance for about

98% of Australia’s merchandise exports. ■■ Reduction or elimination of tariffs on key Australian

exports like beef, wine, dairy and seafood.■■ Access to Japan’s heavily protected agriculture market.■■ Better arrangements for Australian legal services,

some financial service providers, education providers, telecommunication providers and other Australian professionals.

Korea-Australia Free Trade Agreement (KAFTA)■■ Duty-free entry or preferential access for more than

99% of Australia’s goods exports.■■ Elimination of tariffs for agricultural products like raw

sugar, wheat, bottled wine and some horticulture; and progressive elimination of tariffs on beef and some dairy products.

■■ Duty-free entry for 88% of Australia’s manufacturing, resources and energy exports, and elimination of tariffs on priority products.

■■ Liberalised access for services, including legal, finance and telecommunications.

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FINANCING YOUR EXPORT BUSINESS Funding your business growth is a challenge faced by many businesses. The upfront costs associated with fulfilling international orders can put pressure on your cashflow, which in turn impacts other aspects of your business.

Finance optionsIf you need to access finance to fulfil your export order or secure your next export-related contract, here are some of the options available:

Export loans

Tailored for businesses that need additional working capital to support international opportunities, investment in production capacity or overseas expansion.

Guarantees

Working with your bank or your buyer’s bank, we can provide guarantees so your business can get access to additional finance to fulfil export-related transactions or build an overseas presence.

Bonds

We provide a variety of bonds including performance, warranty or advance payment bonds that may be required for an export-related contract.

Corporate or sovereign finance

A range of tailored financial solutions that support Australian corporates with their export activities, and finance for corporate and sovereign buyers of Australian goods and services, including project finance.

For more information on how we could help your export business enter Asia, visit exportfinance.gov.au.

Look at finance options early onWhen negotiating your next export opportunity, take the time to think carefully about how your business could make it work.

■■ Can you afford to take on these opportunities right now? ■■ Will your domestic business be able to maintain momentum with the increased

international orders?■■ Would your client or suppliers be able to help through upfront payments or better

invoicing terms?

Accessing grants to help you market your businessThe Export Market Development Grant scheme (EMDG), administered by Austrade, is a popular financial assistance program for aspiring and current exporters. The grant reimburses up to 50% of eligible export promotion expenses above $5,000, provided total expenses are at least $15,000.

For more information on how you can take advantage of the EMDG program, visit the Austrade website.

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WAGYU SUCCESS IN KOREACase Study: Oz Nature

Our Export Working Capital Guarantee helped Oz Nature, a wholesaler of chilled and frozen meats, secure finance from their bank to support export contracts in South Korea.

With growing demand, Oz Nature needed additional working capital to pay for increased orders from their South Korean suppliers, and to keep shipping and distribution running smoothly.

Unable to secure finance from its bank, due to the size of its business and the lack of security available, they talked to Export Finance Australia.

We provided Oz Nature with guarantees that allowed their bank to approve the finance needed to keep up with demand and allow the export business to continue growing.

“ The support from Export Finance

Australia allows us to continue exporting

more Australian-produced beef,

helping to strengthen our business. ”

Simon HongDirector

Oz Nature

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RESOURCESMoving into overseas markets offers a range of opportunities for businesses. But there’s a lot to understand and know. Here are some organisations and resources that can help you prepare for success.

Export Finance AustraliaThe Australian Government’s export credit agency provides government-backed finance solutions to Australian businesses to help them take on the world.

AustradeAustrade provides Australian businesses with information on current export opportunities, key export markets and EMDGs.

Export Council of Australia (ECA)The ECA provides education and assistance to help Australian companies succeed internationally.

Department of Foreign Affairs and Trade (DFAT)DFAT promotes and protects Australia internationally. One of the ways it does this is by helping Australian businesses, in partnership with other agencies like Austrade and Export Finance Australia.

Setting up key networksEstablishing strong networks with experienced peers is a great way to get support and valuable information about the country you’re going to do business with.

Attending events hosted by your industry association and local chamber of commerce is a great way to help build your peer networks.

You should also get in touch with organisations specific to your target market for up-to-date business information. These include:

■■ The Australia China Business Council: acbc.com.au■■ The Australia-Korea Business Council: akbc.com.au■■ Australia Japan Business Co-operation Committee: ajbcc.asn.au

Stephen Rae Director

Lee Mathews

“ This is a game changer for us. It was astonishing to me what an absolutely tremendous service Export Finance Australia has provided. What an incredibly essential factor it is to our success and we frankly could not have done this without them. I want everybody to know it! ”

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Discover how Export Finance Australia can help your business take on the worldAs Australia’s export credit agency, we offer options by working with your bank to provide supplementary finance, or support when your bank may be unable to help.

To find out more about how we could help your business, go to exportfinance.gov.au or call 1800 093 724.

This information is of a general nature and has been prepared without taking account of your business needs, financial situation or objectives. The information does not comprise advice or a recommendation. You should consider seeking independent legal, financial, taxation or other advice to check how this information relates to your unique circumstances. While Export Finance Australia endeavours to ensure this information is accurate and current at the time of publication, Export Finance Australia makes no representation or warranty as to its reliability, accuracy or completeness. To the maximum extent permitted by law, Export Finance Australia will not be liable to you or any other person for any loss or damage suffered or incurred by any person arising from any act, or failure to act, on the basis of any information or opinions contained in this document.

LDS

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