SMEs lack understanding on Foreign Direct Investment
Announcement posted by Bentleys 11 Jun 2015
11 June 2015: New data from Bentleys’ The Voice of Australia Business Survey reveals a distinct lack of knowledge among Australian small-medium enterprises on both the scale of foreign direct investment in the economy and the potential benefits to small business.
The survey found 64% of Australian small-medium enterprises (SMEs) have ‘no idea’ of the contribution of foreign direct investment (FDI) to Australia’s GDP. The remaining 36% estimate it’s an average of 35%; nearly ten times the actual rate of 3.7%.
The data also showed 37% of SMEs want to see less foreign investment in Australia; while 46% want to see more.
Alan Ling, Director, McLean Delmo Bentleys, believes a lack of knowledge on FDI and its benefits means Australian SMEs may miss out on a potential source of business growth.
“The lack of understanding of foreign investment highlights in our survey was surprising. The research shows that SMEs are either not thinking about foreign investment at all, or believe the amount of foreign investment in Australia is much higher than the true figure. In fact, foreign investment is a very low proportion of our overall economy and is an untapped resource for Australian SMEs. Businesses are potentially missing out on both the cash injection and the access to new markets that foreign investors can provide,” he said.
“The vast majority of foreign investors are in the same industry and want to be partners in growing the business by opening up new markets and mining their networks overseas. In a country with a small population such as Australia, there is a natural ceiling on organic business growth. By partnering with foreign investors, Australian SMEs can take their products or their intellectual property into new markets,” said Mr Ling.
In addition, the findings also showed that the vast majority (87%) of Australian SMEs are not proactively preparing their business for foreign investment.
Currently, Australia receives its greatest source of FDI in the mining and agriculture industries. However, according to Mr Ling the attractive nature of the Australian market means international parties are increasingly looking at investment opportunities in other industries, particularly aged care, healthcare and environmental technology.
“International investors are looking to invest in Australian SMEs but the key to maximising these opportunities is in ‘business readiness.’ Foreign investors generally require audited accounts, an independent valuation of the business and a robust governance framework before they can enter into discussions, but most SMEs do not have these in place.”
Other key findings include:
The survey found 64% of Australian small-medium enterprises (SMEs) have ‘no idea’ of the contribution of foreign direct investment (FDI) to Australia’s GDP. The remaining 36% estimate it’s an average of 35%; nearly ten times the actual rate of 3.7%.
The data also showed 37% of SMEs want to see less foreign investment in Australia; while 46% want to see more.
Alan Ling, Director, McLean Delmo Bentleys, believes a lack of knowledge on FDI and its benefits means Australian SMEs may miss out on a potential source of business growth.
“The lack of understanding of foreign investment highlights in our survey was surprising. The research shows that SMEs are either not thinking about foreign investment at all, or believe the amount of foreign investment in Australia is much higher than the true figure. In fact, foreign investment is a very low proportion of our overall economy and is an untapped resource for Australian SMEs. Businesses are potentially missing out on both the cash injection and the access to new markets that foreign investors can provide,” he said.
“The vast majority of foreign investors are in the same industry and want to be partners in growing the business by opening up new markets and mining their networks overseas. In a country with a small population such as Australia, there is a natural ceiling on organic business growth. By partnering with foreign investors, Australian SMEs can take their products or their intellectual property into new markets,” said Mr Ling.
In addition, the findings also showed that the vast majority (87%) of Australian SMEs are not proactively preparing their business for foreign investment.
Currently, Australia receives its greatest source of FDI in the mining and agriculture industries. However, according to Mr Ling the attractive nature of the Australian market means international parties are increasingly looking at investment opportunities in other industries, particularly aged care, healthcare and environmental technology.
“International investors are looking to invest in Australian SMEs but the key to maximising these opportunities is in ‘business readiness.’ Foreign investors generally require audited accounts, an independent valuation of the business and a robust governance framework before they can enter into discussions, but most SMEs do not have these in place.”
Other key findings include:
- 48% of the Australian SMEs were not aware of the existence of the Foreign Investment Review Board; awareness of the board was highest among non-metro regions, as well as small and micro businesses (54%)
- Metro and small businesses are the most receptive to an increase in the current rate of foreign direct investment: 67% and 55% respectively indicating they think there should be more
- 34% of metro businesses expressed interest in attracting foreign investment to their business, compared to only 19% of non-metro businesses
- 15% of SMEs indicates they would be concerned about the impact of foreign investment on control within the business
- A further 7% would be largely resistant to the notion of foreign ownership of Australian properties and enterprise in general.