Landing like an eagle in the USA

  • Date:01 Aug 2014
  • Type:Company Director Magazine
With the US economy finally recovering, Christopher Niesche provides some tips on how to target this highly competitive market.

After years of standing still, the US economy is finally gaining traction and bouncing back from the global financial crisis (GFC). With the improved prospects come opportunities and Australian companies are again exploring doing business with the world’s largest economy, be it by importing, exporting or investing. US companies have cash to invest, its interest rates are still low and the political gridlock that threatened a budget crisis earlier this year is over.

“It’s big and it’s coming back to life – the recovery is upon us and there are strong signs of continuance,” says Richard Leather, senior trade commissioner to the US and Canada at the Australian Trade Commission (Twitter @AusTrade). “The speed at which the US can mobilise capital to opportunities is a testament to its optimism, resilience and entrepreneurial spirit. So if Australians engaging with Americans can connect with [that], they’ll do well.”

US investment bank JP Morgan (Twitter @jpmorgan) expects annualised growth in the US of around three per cent over the next four quarters – a sustainable rate, according to its chief Australian economist Stephen Walters, as the US corporate sector increasingly invests and creates jobs.

The outlook – which depends on oil prices staying where they are and the US Federal Reserve keeping interest rates at zero in the foreseeable future – is the best since the GFC. “Cyclically things look a lot better,” says Walters.

However, he notes that the US economy still has a long way to go in its recovery. It will take a long time for the tens of millions of long-term unemployed to regain their skills, for instance.

For the Australian economy overall, the benefits will mostly flow in an indirect way, says Walters. As US consumers gain confidence and start spending again, they will buy more goods from China which, in turn, will boost demand for Australia’s hard commodities. Nonetheless, this does not mean the improved economic outlook will not also open up new opportunities for individual Australian companies.

In terms of direct trade, the US is Australia’s fourth most important market for goods, with $9.5 billion worth of merchandise trade exports in 2013, consisting of beef and aircraft and aircraft parts, with the latter due mostly to a Boeing facility in Melbourne. We import a lot more – $26.7 billion worth in 2013, with cars and engineering equipment and parts the most important. Australia exported nearly $6 billion in services to the US, with business services and tourism travel at the top of the list.

Leather, who is based in New York, says the US economy is coming back to life and there are a couple of areas where the recovery is taking the strongest hold. “These are the things that should pique the interest of Australian corporations whatever their interest, be it export, import or investment,” he says.

An increased focus on energy independence in the US has led to significant investment in energy exploration and production, opening up opportunities for Australia to export its mining services and expertise. The rapid growth in the production of oil and natural gas is also making the US more competitive in energy intensive manufacturing.

Secondly, innovation is picking up again. “Part of the driver of the resurgence in the US economy has been this continued growth in innovation, particularly in the technology sector, in digital services, advanced manufacturing and biotech,” says Leather.

US exports have also picked up – with $700 billion worth of export growth between 2009 and 2014 – and US companies are increasingly turning their focus to Asia-Pacific. “That provides a unique opportunity at a number of levels for Australian organisations,” says Leather.

Australia’s high skills base and strong relationships into Asia are encouraging many US companies to set up operations in Australia using it as headquarters to grow into the region. Australian organisations which provide services and have expertise, relationships and distribution channels into Asia may find themselves well-placed to provide services to US corporations looking to this part of the world, adds Leather. And Australian corporations which have as clients those American companies who are ramping up their expansion into Asia may see increased benefits in participating in this growth.

Leather says the size of the US makes it a complicated market to do business in. Really it is several markets – California alone would be a top 10 global economy if it were a standalone nation and Texas has a gross state product not much smaller than Australia’s GDP and a larger population.

“Coming to the US and saying ‘I’ve got a US strategy’ and expecting to capture the US in one go would be very, very difficult,” he says.

“You need to understand the differences between the west coast markets, the mid-west markets, the north-east markets and the southern markets – they all have their own characteristics. They all have significant local players, different distribution channels and different characteristics.”

He says different industrial sectors also have different entry points – Houston for energy and the west coast for tech, for instance.

“A lot of Australian businesses underestimate how hard it is to crack the US market,” says Nicholas Alford, an international trade consultant at Australian
Business Consulting & Solutions.

The US market is vast. While this brings a lot of opportunities, it also means a lot of competition. Indeed, the $15 billion or so worth of Australian exports to the US in 2013 made up just 0.4 per cent of the US’s total imports.

Alford says directors need to be prepared to invest three to five years of work before they succeed in the US market. “Competition is huge in the US. There are so many brands so anyone who does look at moving to the US has to do the legwork and do the multiple trips,” he says. “It’s going to take time to build a brand. It’s about the quality of the product and about maintaining the integrity of all the products that are going into the US.”

Australia has a reputation as a producer of quality products and should use this to its advantage because it cannot compete on price.

Another advantage in the notoriously parochial US is that Americans are already familiar with Australia. When they do business, Americans are looking for experts and want to get down to the details of a deal quickly. “A director of a company might not be the right person to do the meetings if he or she is not an expert of whatever the product or service might be,” says Alford. “It’s ensuring that you can answer all the questions, not just the overview.”

Alan Oxley, an adviser on trade at ITS Global, says doing business in the US is easier than Asia, where forming relationships is paramount and time consuming. However, while Americans are predictable once they agree on a deal, their business ethos is quite tough, he says.
“They’re pretty hard-nosed,” says Oxley, a former diplomat, who has served as Australia’s ambassador to the GATT, the predecessor of the World Trade Organization. “If the business deal is not going to work, they’ll be inclined just to cut it off and not persist. People going there need to set aside the idea of goodwill - most people in business do anyway.”
Of course, doing business with the US is not just about importing and exporting – there is also an investment relationship between the two nations.

According to data from the Department of Foreign Affairs and Trade, Australian businesses invested $472 million in the US last year, with $122 million of that being foreign direct investment – that is, direct investment by an Australian business into production in the US or into a US business, as opposed to more passive portfolio investing.

US companies invested $658 million in Australia in the same year, with $149 million in foreign direct investment.

Niels Marquardt MAICD, CEO of the American Chamber of Commerce in Australia, says there is a lot of potential for that two-way investment to grow. For example, the managers of Australia’s vast pool of superannuation savings are always seeking higher returns. And, Marquardt, who took part in the Prime Minister’s trade delegation to the US and Canada in June, says there was interest in finding ways to build infrastructure in the US by using those funds.

Also, following years of conservative financial management and cautious business investment in the wake of the GFC, US companies have more cash on their balance sheets than ever before.

“Now there’s several trillion on the balance sheets of American companies that can be used for investment,” says Marquardt, a former US diplomat, who had a stint as US consul general in Sydney. “Those companies cannot let that money sit on their balance sheets yielding no return for very much longer, so what are they going to do? It’s a good chance to look for investment in places like Australia.”

Australia and the US share a common language. We are major consumers of American culture and Americans are more familiar with Australians than most of the other nations of the world. This means there are no cultural differences that have to be accommodated when doing business in Asia or even Europe.

But that is not to say there are not differences which Australian directors should be aware of before they head to the US.

As Marquardt points out, the very good relationship between Australians and Americans can be a double-edged sword.

“We have this incredible relationship. Aussies and Yanks get along – it’s a very easy conversation, probably easier than between any two nationalities I can think of,” he says. “But it can mask, if you’re not careful, the fact that the US is probably the most competitive market in the world and while you feel you have a good relationship, you shouldn’t forget that you need to do your homework.”

Because trust between American and Australian companies is so quickly and easily established, things can happen very quickly when businesspeople from the two nations negotiate a deal – and Australians can be taken by surprise about how quickly the Americans want to get into specifics, says Marquardt.

“If you’re successful, the demand on you to ramp up and meet their obligations is beyond your imagination,” he adds.

Austrade has a couple of other tips for dealing with the US.

The first is that appearances matter. “US business people are generally quite sensitive to dress standards, so it’s wise to dress on the conservative side,” Austrade says.

Secondly, do not confuse politeness with acquiescence. “Make sure you clarify what you understand to have taken place at a meeting because Americans are generally courteous and positive in listening to your presentation, which can give a false impression of interest (or commitment) on their part.”