The 7 key factors driving the success of Offshore Growers – Livewire Markets

In the first part of this series, we discussed the emergence of a new generation of Offshore Growers. So why have the Offshore Growers succeeded now when the past is littered with the failed expansion moves of Australian companies? What makes them different? What changed?

Based on our exclusive interviews with the CEOs, chairpersons, directorsand founders of leading Offshore Growers, seven key factors emergedas being decisive in their ability to win in the world.

Australian companies have benefited from the globalisation and greater integration of the worlds economy.

In recent decades, Australia and many other countries liberalised trade by removing or cutting tariffs taxes levied on imports -- and other rules that restricted trade.

Australia has become more integrated with the world economy and has boosted trade. Merchandise trade has risen from 26% of nominal GDP in 1986 to 31% in 2016.

Australia has 11 free trade agreements: China, Japan, Republic of Korea, New Zealand, Singapore, Thailand, US, Chile, the Association of South East Asian Nations (ASEAN) (with New Zealand), Malaysia, and Canada and Mexico (1).

That environment has made it significantly easier and cheaper for Australian companies to do business internationally.

Gains from trade liberalisation and tariff reductions are obviously threatened by the emergence of trade wars, particularly the US-China trade war launched by US President Donald Trump in early 2018.

But, despite that, most of the gains of liberalisation will be protected and continue to facilitate international trade and company expansion.

One of the major factors underpinning the successful international growth of a new generation of Australian companies is technology.

Technology enables businesses to build scalable platforms across borders, and at the same time drives better consumer engagement and operational efficiencies. Technology is also delivering Australian management greater control, connection and collaboration.

The key globalisation technologies include

Technology is making successful global expansion from Australia possible because businesses can centrally control their global activities from Australia.

Lovisa, which launched in April 2010, now operates in 15 countries. Fallscheer remembers in the early 2000s doing global video calls. The sound didnt work and the frames constantly froze. Now it is so easy to communicate, he says.

In the past if a company wanted to build a global brand, they would need to spend huge sums on advertising and support those efforts with a large local sales force.

But the Offshore Grower is tapping into the huge global audiences that social media offers.

The explosive growth of social media networks has made it easier for companies to leverage the viral network effects of platforms such as Facebook, Twitter and Instagram to drive brand recognition.

A 20-year-old girl is inspired by the same global social media that other girls are around the world, Lovisas Fallscheer says. It is much easier to create a presence using social media and other forms of marketing. Once upon a time that was hard.

As at July 2019, the world had 4.3 billion internet users; some 3.5 billion are active social media users. That represents 46% of the worlds population (2).

Many senior directors have fantastic experience and add significant value. But many have been burnt by the spectre of failed global expansion by Australian corporates like AMP and NAB. Its not difficult to see them counselling against going offshore.

The Offshore Growers say a key to their success has been younger, more dynamic boards, with directors who boast international experience and are prepared to back it. They have the confidence to take on the world and win.

In the past, Australian companies expanded overseas with little competitive edge. It was expansion for expansions sake.

But the new generation of Offshore Grower has a laser-like focus on their value proposition and how it is going to solve the needs of their clients, especially overseas.

A2s Babidge was very much of the belief his product, by removing the a1 protein, was going to benefit those who were milk intolerant.

One of the biggest strategic shifts Offshore Growers have made is to expand offshore not through acquisitions, but organic growth: growing their own businesses in international markets.

They have learnt from the mistakes of the past.

Most of the overseas mis-steps have been acquisitions rather than organic, a2s Babidge says.

Former Afterpay executive director David Hancock says the past model was more buy than build. For Offshore Growers it is now build rather than buy.

Kay says that organic growth is a measured way of going global.

Lovisas Fallscheer says they key is to move in slowly and allow yourself to learn from your mistakes. He says the biggest mistake going global is letting ego get in the way.

Its not about flagship stores, he says. You cant take the eye off the end goal profitability.One of the reasons Offshore Growers tend to favour organic growth is they recognise the value of their products and services. A2s Babidge says the company believed it was unique so wanted to grow organically rather than being distracted with an acquisition.

Afterpay and Nearmaps Rosenberg says that Australian companies often have clients in the Australian market who have an international footprint. Those clients often request the Australian company to expand offshore to service their other locations. This can help facilitate global expansion in a less risky manner given these clients can help justify the (often considerable) investment required for overseas expansion.

Finally, rather than making all-out bets on global expansion, the Offshore Growers have adopted a test-and- learn strategy that typically follows three main steps.

Test

Firstly, they test their competitive advantage in the small open economies of Australia and New Zealand. Australia is a good test market, says IMF Bentham and City Chics Michael Kay. It is easy to get around and communicate.

Learn

Secondly, the Offshore Growers then pivot their businesses after learning from their mistakes in Australia. It is much easier to make mistakes and learn from them in Australia than in the US or Europe.

Expand

And thirdly, after testing and refining their model at home, the Offshore Growers then shift that model overseas.

More from this series

In the first part of our series, we discussed the emergence of a new generation of Offshore Growers.

Hit the 'follow' button below to be notified when we publish the third part in this series, How to identify Offshore Growers.

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(1) Free trade agreements (FTAs), Australian Government Department of Agriculture.

(2) Global Digital Statshot, We Are Social/Hootsuite, published July 17, 2019

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The 7 key factors driving the success of Offshore Growers - Livewire Markets