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The Australian market - how to benefit from the opportunities.

The Australian market is relatively unknown to many exporters in developing countries because of its somewhat isolated geographical location. Yet it offers attractive opportunities to new overseas suppliers because it is dependent on imports for a wide range of products not produced locally. Its purchases of foreign goods have increased rapidly over the last several years, more than doubling between 1984 and 1991 to reach over A$49 billion. At the same time, however, this market presents certain challenges to exporters abroad because of its strict quality standards, tight delivery deadlines and competitive prices. Furthermore, Australian importers require considerable convincing before moving away from established sources of supply.

If these conditions can be met, however, exporters in developing countries should be able to find numerous sales possibilities in this market. Import prospects in the next few years are expected to be particularly good for a wide range of industrial inputs and machinery and also for finished consumer goods that are offered at more competitive prices than those of current suppliers.

Import channels

Australian import channels are similar to those in other industrialized markets. In general importers in the country can be divided into the following categories:

* Importers and wholesalers: They import either a specialized range of products or operate as general importers and wholesale their merchandise to retailers or end-users. Unlike in many other markets, relatively few general importers operate in Australia. Most importers specialize in a particular segment of the market (for example, toys, household textiles, travel goods or plastic products) and do not generally consider new business in areas in which they have little knowledge. A large number of importers also specialize in particular subsegments of the market -- for example, in educational toys, table linen or expensive travel goods, and usually do not consider moving away from their market niche.

* Commission agents: They source products for other importers or end-users but do not import direct themselves (they usually receive their commission from the overseas supplier, and their activities are mainly in commodities and textiles).

* Manufacturers and end-users: A number of manufacturers and end-users import their raw materials or other inputs direct from overseas suppliers, but it is more common for these companies to source through specialized importers.

* Retailers: The large retailers import up to 20% of their merchandise requirements through their buying agents overseas. (Suppliers interested in the Australian market should contact these agents to make sure that they are placed on their "acceptable suppliers" list for negotiations with the retail buyers during their overseas trips.) The balance is sourced either from local manufacturers or through specialist importers. Few of the smaller retailers do any direct importing.

Because of the small size and the competitive nature of the Australian market, commission agents, general trading houses, and bulk "cash-and-carry" import and wholesale operations have never established a strong presence in the country. Overseas suppliers of consumer products attempting to sell to Australia therefore usually have only two options for sales -- an importer or wholesaler, or a large retailer. Overseas suppliers of commodities, industrial inputs, machinery and so on sometimes have more alternatives, but these are usually limited to specialist importers or to manufacturers and end-users.

In individual cases the import channels may be more complex than the pattern described above. A large food manufacturer may, for example, import its spice requirements direct and sell excess stock to other food manufacturers, while at the same time it may source some of its specialized spice requirements from one or more importers. A large retailer may import direct a children's wear line that sells in large volume, source the more "difficult" sets or ensembles through an importer and buy the bulk of its requirements from over a dozen local manufacturers.

In simple terms, however, the import distribution channels can be summarized according to the box on page 19.

Importers' requirements

An Australian importer's first question to a new overseas supplier usually relates to the FOB price of the product. Importers of complex machinery and similar equipment are, of course, equally interested in the quality of the item. But importers of consumer goods are particularly concerned about the price. The landed, duty-paid cost of the product should be considerably lower than the locally made equivalent, with a price difference of at least 5% to 7% FOB.

Some of the reasons for the importance of price are:

* The strong competition in the import and retail sectors, with quite low net profits.

* The large number of exporters in neighbouring countries trying to sell to Australia.

* The fact that the Australian buying seasons are the reverse of those in the northern hemisphere and that many overseas suppliers are consequently prepared to offer "off-season" discounts for seasonal merchandise sales to Australia.

Another important characteristic of the Australian importer is a dislike of bargaining. An importer is usually prepared to negotiate an acceptable price but will not "bargain down" a price. If an overseas exporter offers an unrealistic price, the importer will most likely not even consider the offer. When quoting for Australia it is therefore important to offer the "best price" first. This price should usually be lower than that offered to U.S. or European buyers - with no more than a 3% to 5% negotiating margin.

Most importers insist on having exclusive Australian rights to either the full range of products from an overseas supplier or at least particular models. The situation that importers and wholesalers especially dislike is offering an "exclusive" product to a retailer, only to find that it is also being offered by another importer or wholesaler to that retailer.

Approaching importers

Many overseas suppliers first try to approach Australian importers by writing to them. But this method is usually unsuccessful. The average Australian importer receives many such letters every week, and most of them are thrown away unless the importer happens to be looking for a new supplier at the time. The only way that such an approach may get results is if the overseas supplier writes a brief letter that shows an understanding of the market, offers very competitive prices, suggests reasonable minimum order quantities and, where appropriate, is able to supply good retail packaging.

The most successful way of approaching most importers is through a visit to the market for personal discussions with the Australian companies. For most overseas suppliers a visit to Sydney and Melbourne is sufficient to meet with major buyers, but it is important to arrange appointments in advance. This may be done through the exporter's official commercial representative(s) in Australia or by facsimile direct to the Australian company.

(Facsimiles are widely used in Australia and have almost completely replaced telex.)

It is unusual for an Australian importer to finalize an order with a new overseas supplier before personally inspecting the supplier's manufacturing or processing operations to check quality control procedures, manufacturing operations and the general reputation of the company. Australian importers and retail buyers travel regularly overseas for this purpose.

When first dealing with a new overseas exporter an Australian importer often places two or even three trial orders to make sure that the supplier performs according to standards. Once business is going well, the volumes ordered may become considerably larger.

Most Australian importers are conservative and are slow to switch to new overseas suppliers. They are, on the other hand, prepared to work closely with their established sources to keep business going and are not likely to drop a regular supplier suddenly.

Overseas buying agents

An increasing number of Australian importers of consumer products use the services of an overseas buying agent to source the right suppliers, assist in negotiating the deal, check quality, and arrange shipment and payment. This is particularly the case when importers buy from an unfamiliar country or supplier.

Buying agents are also important for sales to large retailers, as mentioned above. The large Australian retailers have buying agents in the main supplying countries, and in some cases more than one. New overseas suppliers should therefore contact these agents rather than the retailers directly.

Buying periods

The fact that the Australian seasons are the reverse of those in the northern hemisphere obviously affects the buying patterns for seasonal merchandise, such as clothing. This reversal in seasons is, in fact, one of the reasons that the Australian market is so competitive, as mentioned above - many overseas suppliers are prepared to offer lower prices to Australian importers during their slow periods in the northern hemisphere.

Because of the relatively mild Australian climate, importers and retailers generally think in terms of two rather than four buying seasons - only summer and winter. They do not usually buy specifically for spring and autumn. Retailers may refer to "early summer" or "late summer," but they usually make purchases for one overall summer season.

For seasonal merchandise, such as clothing, the usual buying periods are as follows:

* Summer: Orders are placed from October to January for delivery to the Australian port in May or June.

* Winter: Orders are placed from April to July for delivery to the Australian port in December or January.

In other words, summer clothing orders are usually placed during the previous Australian summer season for delivery to the Australian port in the winter. Summer merchandise is generally displayed in retail stores in late July or early August, when the weather is often at its coldest. In the same way, winter orders are placed during the Australian winter for delivery in the summer.

The buying periods around special holidays are the same as those in other industrialized markets, that is:

* Christmas: This is a key selling period for gift items, toys and so on. Most Christmas season products are ordered in January and February for delivery to the Australian port in September.

* Mother's Day (May) and Father's Day (September): Retailers often run special promotions for these events and expect deliveries up to two months in advance.

* Easter (March or April): This is an important selling period for confectionery and stuffed toys, but not a significant one for clothing as it coincides with the Australian autumn rather than the spring, in contrast to markets in the northern hemisphere.

Overseas suppliers should also remember that the December and January period is the summer vacation period in Australia, and a large number of companies in the country close for at least one-half of January. In addition the Australian financial year ends on 30 June, and the period from mid-June to mid-July is thus usually not a good time to visit Australia for business.

Order volumes

Australia's small population means that most of the orders placed by importers and retailers are less in volume than those for the U.S. and European markets. Large importers and retailers, however, are prepared to place bigger orders for popular products.

Some examples of the volumes frequently required by Australian importers for products of interest to overseas suppliers are:

Clothing: up to 300 dozen per style in three colour combinations; the figure can, however, be as low as 50 dozen per style.

Shirt fabrics: up to 1,000 metres per colour combination or 3,000 to 4,000 per design in three to four colour combinations.

Sheeting: 3,000 metres for a new design or 800 metres from an existing pattern; large importers will accept minimum orders of 6,000 to 10,000 metres.

Towels: 3,000 to 5,000 pieces, in one width, in four to five colour combinations.

Cushion covers: 3,000 to 4,000 covers per order.

Sports shoes: a trial order of 4,500 to 5,000 pairs; a regular order of 10,000 pairs in two or three colours.

Toys: for smaller importers, 50 to 200 dozen; for larger importers, up to 10,000 dozen.

The size of trial orders of Australian importers from new overseas suppliers is usually quite small.

Lead times for Imports

The lead time for orders of overseas merchandise varies considerably from one supplying country to another and from product to product. Clothing from countries in Asia, for example, is often ordered 12 months before shipment. Importers usually have a slightly longer lead time than retailers who import direct, because importers need to warehouse the stock prior to delivery to the retailer's distribution centre or the individual retail outlets. On the other hand, the lead time for "stock lot" purchases (special offers on the excess stock or cancelled order stock holdings of suppliers) can be as short as two to three months from the time of confirmation of the order to the product's retail sale.

Freight

Most of Australia's imports come in by sea container to either Sydney or Melbourne. Several other important ports are, however, also used for this purpose. Over 80% of all cargo containers used are the 20-foot size.

The average shipment time from Asia to Australia is four weeks, and a vessel from Europe usually takes six weeks. Australia's ports are, however, quite busy, and the clearance time for less than full container load (LCL) shipments can be up to four weeks. Facilities exist to remove full container load (FCL) shipments from the wharf to bonded warehouses. A growing number of importers accept only FCL lots.

Only a very small part of Australia's imports comes by airfreight.

Packaging

Because Australia is a large country, imported shipments may be broken down into smaller lots and sent several thousand kilometres to small retail outlets. "Order multiple packs" (that is, the inner packs in the shipments) should therefore be strong enough to survive this treatment. One of importers' most common complaints is overseas suppliers' lack of attention to inner packs, as they are often not according to specifications.

The packs should contain the assortments, colours and quantities exactly as specified. High labour costs make repacking and sorting of multiple order packs expensive and can discourage an importer from placing a second order from a source that is negligent on this aspect.

Promotional activities

The Australian market requires a slightly different promotional approach than that for other markets. A relatively small number of major international trade shows are held in Australia, and in-store promotions play a less important role than in Europe and North America. An increasing number of specialized exhibitions are staged, however, that are often suitable for overseas suppliers of products ranging from giftware to foodstuffs.

Some of the options available to overseas suppliers to promote their products in Australia are discussed below.

Specialized selling missions:

A large number of supplying countries have successfully adopted the approach of sending specialized selling missions to Australia. It is important, however, to plan such activities carefully, as importers are increasingly reluctant to meet with these missions unless they are well prepared. A properly planned selling mission allows the exporter and the buyer to meet personally to discuss business. A poorly planned mission can, on the other hand, waste time and money, as well as harm the supplying country's image with importers. The companies visiting Australia should have products that are suitable for the market and are competitively priced. Appointment schedules should be arranged well in advance at the importer's or end-user's office (the importer should not be expected to visit the supplier at a hotel or other venue).

Specialized exhibitions:

Participation in specialized trade displays can also be an effective way for exporters to promote their products in the Australian market. Participation fees usually include extensive advertising and promotion. Attendance by buyers is often high.

The number of specialized trade displays in Australia is increasing. Most are held in Sydney or Melbourne. An exporter's commercial or official representative(s) in Australia should be able to provide details on such forthcoming events. In general terms, very good exhibitions exist for overseas suppliers of building and construction material; computers and communications and office equipment; electronic products and components; giftware, jewellery and household decorator items; food-stuffs; engineering equipment and services; and toys.

Individual country shows:

An individual country display can be a useful way for exporters unfamiliar with Australia to test their products in the market. It is important, however, to plan such an activity with care. An increasing number of importers are not enthusiastic about visiting an individual country display unless they believe that the exhibitors are showing appropriately priced products that are suited to the market.

The Market Advisory Service of the Australian Department of Foreign Affairs and Trade can assist official commercial representatives of developing countries in planning country- or product-specific displays at the International Trade Development Centres in Sydney and Melbourne (see below). These Centres, which are funded by the Australian Government, can provide an appropriate and inexpensive location for exporters in developing countries to promote their products and to learn more about sales opportunities in Australia. The Centres can assist in attracting the right importers and contacts to these displays.

Bying missions:

One of the more successful types of promotional activities undertaken by foreign suppliers in recent years has been programmes in which individual Australian buyers are flown to the supplying country to meet with exporters. This approach has usually proved successful because Australian buyers will not confirm their orders until they have personally inspected the supplier's operations.

This technique tends to be most successful when it follows a promotional activity in Australia and the buyers have had preliminary discussions with the exporters.

Once again, however, success depends on careful planning. There is no point in bringing buyers to meet with suppliers who do not produce what the market requires.

Market Advisory Service

The Australian Market Advisory Service (MAS) provides market advice and assistance to exporters in developing countries.

This takes the form of market research and market development advice, participation in trade displays, training courses and seminars, contact with Australian importers and other trade promotion services.

Many of these activities are held in the International Trade Development Centres in Sydney and Melbourne. These Centres can provide marketing advice, supply reports on the Australian market for a range of products and be used for either country or individual company trade promotion activities.

Each International Trade Development Centre has fully equipped display facilities that are occupied regularly by developing countries.

The MAS operates on a government-to-government basis, and initial inquiries by developing country firms regarding the potential of products in Australia should be directed to their local authority responsible for trade promotion matters, for instance the trade ministry, or to the exporting country's representative in Australia.

Officials of the MAS and of the International Trade Development Centres do not actually market products or become involved in any contractual arrangements or sales negotiations between the exporter and the importer.

Details on these and other services available from the MAS can be obtained from: The Director, Market Advisory Service, Department of Foreign Affairs and Trade, Administrative Building, Parkes ACT 2600, Australia. Telephone: (61) 62-619111; telex: AA621007; facsimile: 062-61-3262.

Colin Robbie is Director of the Market Advisory Service of the Australian Department of Foreign Affairs and Trade. This article is based on a presentation that he made at the recent annual meeting of Directors of Import Promotion Offices organized by ITC.
COPYRIGHT 1991 International Trade Centre UNCTAD/GATT
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Robbie, Colin
Publication:International Trade Forum
Date:Oct 1, 1991
Words:3165
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