In December 1941, after the fall of Singapore in World War II, Australia’s war time Prime Minister, John Curtin, announced that Australia “looks to America” in terms of its national security. This forged the beginning of the Australian-American alliance that has endured over six decades.
This past week, Australia is again looking to America. But this time it is about trade. In an historic breakthrough, United States Trade Representative Robert Zoellick, the Prime Minister, John Howard, and the Australian Minister for Trade, Mark Vaile, have announced that the United States and Australia will begin negotiations for a Free Trade Agreement (FTA). This follows on from the successful negotiation of the bilateral agreement between Australia and Singapore just two weeks ago.
Whilst negotiations for the FTA will begin in early 2003, and it is a lengthy process, why is the USA important to Australia in terms of trade and investment opportunities?
Firstly, it’s just a question of size. The USA is a large market of diverse innovative regions and wealthy consumers. Its 284 million plus population, US$10,200 billion GDP and US $36,000 GDP per capita means there is critical mass and a wealth of opportunities to be had. The USA was the second largest destination for Australian exports in 2001-02 (A$16.8 billion or just over 11 per cent of total exports) and the largest source of imports (A$28.4 billion or just over 18 per cent of total imports). Closer trade ties with the USA would therefore lead to greater access to agricultural markets, harmonisation of standards on food and manufactured products and better access to service industries.
Secondly, it’s the new economy..stupid (at least according to the slogan of former US President Bill Clinton). The USA is still the growth centre of the new economy. Sure, we have had an IT stock crash and there may be an overall slowing in the rest of the economy, but the technologies associated with the new economy will still impact on business systems and practices all over the world. The USA is the home of innovation and has a remarkable ability to re-invent itself when times are tough. Closer economic integration with the USA would give Australians access to knowledge, technology and intellectual capital that would help us prosper in the information age. It would also help Australia demonstrate its new economy credentials to the rest of the world.
Thirdly, there’s investment to consider. Australia’s investment relationship with the USA is healthy. The USA is the main destination for Australian outward investment at A$177 billion out of A$417 billion in total (based on 2000-01 data). In turn, the US itself provides Australia’s largest individual source of total inward investment at A$235 billion out of A$815 billion total (on 2000-01 data). Equity in US companies is important in providing Australian companies secure access to US technology, knowledge, finance and distribution networks.
So that’s the ‘big picture’ trade – wise. But there must be more to it. What do we know about developments in the USA at the industry and company level?
On the industry level, Australia exports significant levels of food and beverage products, crude petroleum, steel and automotive parts to the American market. Of course, wine exports are a well-known success story with Australian brands well known by US consumers.
Capilano Honey Ltd is one food and beverage company that recognised the challenge of the US market. Capilano used Canada initially to gain a foothold in North America in 1998 before tackling the Pacific Northwest and the North East of the USA. Since their first market visit to North America a company representative has been to the continent at least every six months.
Robert Eustace, Capilano’s Business Development Manager, has emphasised the need to ‘learn before you sell’ because ‘thorough research on regional markets in the USA is an important component of our market entry strategy’. Clearly patience (and persistence) has paid off with further expansion expected throughout the North American continent.
Services are important too. Austrade Los Angeles concentrates on film and entertainment from big name Hollywood productions to smaller producers. Examples include success in attracting The Matrix and Mission Impossible II to Australia along with our emerging musical talent that can ‘go global’ instantly via the Internet.
A major focus has, of course been on information technology. The Minister for Trade, Mark Vaile, through Austrade, promotes an annual competition for ten of the best Australian ICT companies to visit Silicon Valley and in turn has brought US industry executives to Australia. As the new economy accelerated, Austrade put more resources in its San Francisco post which focussing on IT, biotechnology and venture capital. Australian companies such as Looksmart have their base there, close to the cluster of IT companies and venture capitalists in the Bay Area.
But what are the problems? There’s market entry costs, regulatory requirements, information overload as well as the time needed to understand the complex and competitive US distribution channels. Australian exporters also need to be savvy with their market entry strategies and not treat the USA as one big market.
As Austrade’s Executive General Manager (EGM) for the Americas, Gerard Lanzarone, put it:
“Australian exporters need to understand that the USA is actually many markets in one, that is, Californians’ tastes, needs and style is very different from those of the Mid West, which is in turn different from New England and so on. So companies need to understand that the selling pitch and in-market promotion has to be adjusted to reflect these differences, just as if you were trying to enter many markets”.
So in conclusion, Australian businesses can succeed in the vast, dynamic but fiercely competitive US market. Let’s hope for more success stories to inspire other Australian businesses to make their way in the United States with the assistance of the FTA.
