Sophia Chua interviews Mark Vaile, Deputy Prime Minister and Trade Minister, Margaret Ward, GM of the EMDG at Austrade and Ivan Kaye of BSI about improved incentives for exporters 10 July 2006

AUSTRALIAN manufacturing exporters face a number of challenges, with high exchange rates and major competition coming from China and other manufacturers around the world. In this increasingly competitive marketplace it is vital for manufacturers to fully understand their overseas markets and strategically plan their export initiatives.

The Export Market Development Grant (EMDG) is a key initiative in helping companies to develop sustainable export markets, reimbursing up to half their eligible promotional costs above a threshold amount

According to Mark Vaile, deputy prime minister and trade minister, the scheme delivered 3,277 grants valued at $123.9m to Australian businesses in 2004-5, with 77% going to SMEs earning annual incomes of $5m or less.

Due to such success, it has been extended for a further five years, pending the passing of legislation.

“The EMDG scheme makes an important contribution to lifting Australia’s export performance by assisting businesses to lower the costs and risks of getting their products into international markets,” said Vaile.

“Extending the scheme will give greater certainty for exporters, because they can plan their long-term export promotion activities in the knowledge that the EMDG scheme will be there to help,” he said.

Key changes for SMEs

As further good news for exporters, the Government will also make a number of key changes to the scheme to make it more accessible for small businesses.

For applicants who lodge from 1st July 2007 onwards, claimable allowances for overseas visits will increase from $200 a day to $300. More nebulous export sectors (such as those dealing in intellectual property) which may not currently meet the status requirements of a grant will be given more flexibility.

Export performance testing will be removed, making the scheme simpler to understand and more accessible for SMEs. Rules that currently deal with changes in business ownership will be revised and amended.

Margaret Ward, GM of the EMDG at Austrade, believes that the increase in the overseas allowance is one of the most significant changes in the grant, as it provides an incentive for companies to actually visit their customers in overseas markets.

“Australian exporters need to gain access to overseas markets and have a really strong knowledge about them - so they can win these markets not just through price, but also through being well known for providing a good product,” Ward told Manufacturers ’ Monthly.

“Last year, over 30% of total expenditure claimed on the scheme was related to overseas visit allowances. It was the largest issue talked about during the review of the scheme, as people felt that the expenditure category, which hadn’t been varied for a long time, provided an allowance that was too low and out of date.

“Now, the allowance is the biggest expenditure category claim. It’s a simple change, but one that will be of great help to many applicants,” she said.

Ward also outlined the Government’s efforts to “modernise” the EMDG scheme in light of new technologies and changing international markets.

Under current rules, the EMDG provides grants only to the owners of the product being exported, rather than agents or consultants. However, this excludes intellectual property exporters with business structures that use one company to own the intellectual property and another company to promote it. Changes will include more flexibility in handling businesses with high value-added intellectual property content.

“While in the past people had to ‘own’ the products they were exporting and be the intended seller overseas, now there will be a little more flexibility in these rules to support emerging sectors. This modernises the scheme,” said Ward.

Getting the most out of EDMG

Considering how to approach the EMDG as part of initial business planning is essential for companies. Ward recommends exporters attend an Austrade EMDG seminar or consider enlisting the help of consultants to get the most of the EMDG.

One such consultancy firm is Business Strategies International (BSI), which assists exporters in structuring and lodging an EMDG. CEO Ivan Kaye believes the key issue is to plan ahead so that companies can maximise the relevant grants.

“A lot of companies say, ‘we’re just going to claim our airfares and accommodation because we’re going overseas’, but if properly planned, they can get back $150,000 by putting together a plan – maximising their upside and limiting their downsides.

“For example, one of the major expenses incurred by manufacturers is overseas representatives and marketing consultants. If you spend up to $200,000 a year on overseas representation, you can possibly get a maximum grant of $100,000 but to get that, you must make sure you have the right agreements and are in accordance with what Austrade requires for eligibility.

The expenditure can’t be commission based. Businesses have to structure the agreement so that they’re actually paying a fee, as opposed to paying commission,” said Kaye.

Kaye also highlights the removal of the export performance test as another key change, particularly for exporters who are in years three to seven of the EMDG scheme.

This means a grant payment will no longer be restricted to a certain percentage of export earnings, which was a diminishing percentage after the second EMDG claim. Irrespective of the level of export sales achieved each year, approved EMDG applicants will receive an export grant equivalent to 50% of their eligible marketing costs above the initial $15,000 threshold.

“In the past, exporters would only claim years one to three, but after that, they wouldn’t claim or would get a very little amount of money back.

This change enables companies that have claimed for one or two years in the past to go back and plan their export promotion activities so that for every dollar they spend, they can get fifty cents back. It’s a huge incentive,” said Kaye.

Finally, Ward reminds exporters of an old but important lesson: those who are first in are first served.

“I urge people to lodge their claims early. Our application period is from July until November and we get 50% of our applications in the last month.

“Unavoidably, those that lodge in the last couple of weeks may wait several months before they get their grant paid, whereas on average, people who lodged in August got their grant payment within 6 weeks,” she said.

Austrade 13 2878.

BSI 02 9212 5505. 10 July 2006