Background

The exporting of goods and services makes a significant contribution to the Australian economy. Australia exports around 70 per cent of its agricultural produce, around 80 per cent of resources production and just over 18 per cent of manufactured goods. Exporting also makes a significant contribution to employment, especially so for the rural sector:

Exports make a particularly significant contribution to the economy of rural and regional Australia, with one in four regional jobs relying on Australia's ability to export. ¹

The Australian and State and Territory Governments have agreed to work co-operatively towards achieving an Australian Government target of doubling the number of exporters by 2006, to 50 000.² The Australian Trade Commission (Austrade) has the role of lead Australian Government agency for this initiative.

The TradeStart program aims to assist Small-to-Medium Enterprises (SMEs) to commence exporting on a sustainable basis and to convert irregular exporters to regular sustained exporting. In addition, the program considers the particular needs of regional Australia and industries that have high potential for export growth. The program also aims to enhance the coordination of public and private sector export facilitation assistance to small and medium new exporters.

TradeStart, which is part of the New Exporter Development Program (NEDP), principally targets regional and outer metropolitan areas. It is delivered through a network of export advisers, employed under outsourced service delivery arrangements between Austrade and service providers. The service providers are referred to as ‘allies' and include, inter alia, State Government organisations.

The export advisers provide a package of free export coaching services. This includes initial information and advice about exporting, along with more detailed services such as mentoring; and information about export opportunities in overseas markets. There is also access to assistance from Austrade posts in-market.

TradeStart was launched in its current form in the 2002-03 Budget, when funding of $21.5m over four years was announced, to commence on 1 July 2002.

This audit

The objective of this audit was to assess the provision of export assistance and support to new and irregular exporters in rural and regional Australia through the TradeStart program.

The focus on rural and regional Australia reflects the priority given by the Government to providing effective business and trade assistance to small businesses and rural and regional businesses. However, broader aspects of TradeStart management, such as contract and risk management, have been assessed across the program as a whole.

Key findings

Contractual and management arrangements (Chapter 2)

The process employed for selecting allies for TradeStart, to commence on 1 July 2002, was a request for proposal (RFP) sent to selected organisations. Austrade did not use systematic selection criteria to choose organisations to participate in the RFP. Austrade has subsequently recognised that fully open processes allow broader canvassing of possible new solutions and used these to select TradeStart providers for additional locations in 2002 and 2005.

The RFP method of procurement is generally used when the solution that is chosen depends on what the market can provide. The use of an RFP, rather than a request for tender, therefore reflected Austrade's aim to have flexibility in solutions offered (for example, in terms of coverage of service, types of skills and facilities available).

The ANAO found that, overall the process for selecting providers had rules that were clear, open, and applied equally to all parties in the process. There was sign-off by a probity auditor, and value-for-money for the selected group was addressed in assessment of proposals.

The ANAO also found that the evaluation report was not accepted by the Austrade delegate and the applications were re-evaluated. However, the reason for this decision was not recorded in detail. Critical decisions such as this involving changes to competitive selection processes, particularly those leading to altered outcomes, as occurred in this case, warrant more transparency. At the least, this requires recording and filing of decisions and their reasons, as a fundamental aspect of accountability.

In 2002, Austrade considered the location of TradeStart offices and their catchment areas, in the context of the RFP. Since then, Austrade has sought to establish additional locations in other areas of identified need. In addition, it has considered the suitability of existing locations as part of the consideration of the performance of individual export advisers.

It would be consistent with good program management to determine the extent to which locations in the overall TradeStart network align with assessed need and priorities. Austrade has advised that it intends to assess office locations at the expiry of the current contracts, in 2006, if the Government extends the program.

The TradeStart contracts are performance-based, with basic payments accounting for less than 40 per cent of the maximum amounts payable under the contract. This arrangement provides a degree of risk sharing between the Australian Government and allies. Other payments depend upon the number of potential exporters recruited and clients' success in exporting.

All contracts examined by the ANAO had been appropriately signed and executed.

Austrade has not had a risk management plan specifically for TradeStart; it has relied on risks identified in a broader plan for the NEDP. Austrade has now established a risk management plan for TradeStart to address this omission.

Managing the TradeStart export advisers (Chapter 3)

TradeStart allies deliver export coaching services through export advisers. These are employed directly by the ally with whom Austrade has a contract. The contracts provide for Austrade to approve these appointments. The ANAO found that Austrade has appropriate processes to approve the appointment by allies of these advisers, in line with its contractual requirements.

Austrade has a structured approach to training TradeStart export advisers, which is linked to strategic priorities. This includes induction training and coaching for newly appointed export advisers. There is also regular ongoing training and a range of online training modules. The ANAO found that the training is relevant to job requirements; is monitored by Austrade; and is generally well regarded by export advisers.

Contracts require that Austrade network managers supervise TradeStart export advisers in their export coaching responsibilities. The ANAO found that export advisers in rural and regional Australia were satisfied with the support and assistance provided, and considered the working relationship with network managers to be effective.

However, many of the interactions between the network managers and export advisers are not recorded. There was also variable practice and quality in documentation by export advisers of client information. This increases the risk that Austrade will not be able to defend the validity of some decisions or provide sufficient support to export advisers.

Austrade has recently sought to address some of these limitations, introducing a requirement for documentation of decisions made in the assessment and management of clients. This has been supported by improving access to the key management information system and the implementation of an additional client information database.

Austrade has well-established contract monitoring processes, based upon biannual review of ally performance. Allies were generally satisfied with the review process, and the ANAO found that they were appropriately informed of any performance concerns.

TradeStart export advisers advised, however, that there was limited feedback from Austrade network managers in relation to their regular reporting to Austrade, as well as on the results of the biannual reviews with their ally employers. Austrade has now sought to address this by requiring network managers to provide regular and structured coaching and feedback to TradeStart export advisers.

Identifying and recruiting potential exporters (Chapter 4)

One important role for TradeStart export advisers is to find potential clients and assess their suitability, and the correct timing, for participation in the NEDP. The ANAO found that the approaches used by export advisers for targeting companies were generally well-considered and innovative, and adapted to local conditions. The mobility of the export advisers and access to local networks enables them to identify potential clients in rural and regional locations remote from TradeStart offices.

Export advisers have individual targets for the recruitment of clients to the program, with part of contract performance payments depending on achievement of the targets. Overall, they perform well in meeting these targets.

Eligibility for inclusion in the program includes both minimum requirements and an element of subjective judgement, reflecting the difficulty of quantifying the attributes of a successful exporter. To assist these judgments of export capability and readiness, Austrade has developed checklists. However, export advisers are not required to complete the checklist. This increases the risk of inconsistency and disputes about decision-making where the export adviser decides not to proceed with a prospective client.

Where an export adviser does decide to recommend a potential client for inclusion in the program, the company completes an application form. The ANAO found that this is accompanied by appropriate information and documentation addressing program criteria, including an assessment by the export adviser of the applicant's export readiness.

Applications are determined by the Austrade State Manager following review by the network manager. For the applications examined by the ANAO, Austrade's decisions were appropriate and consistent with eligibility criteria.

Austrade's timeliness standard for processing applications is five working days from receipt of all the required information. However, it does not monitor performance against this standard, which would be consistent with good performance management of client service. The ANAO estimated that the standard was met for 92 per cent of applications examined.

TradeStart export advisers work closely with local communities. Circumstances may arise therefore where the export adviser has a perceived interest in, or close association with, the principals of a business that has applied to join the program. Austrade advised that it relies on a code of ethics in its contract with allies to manage such issues. However, procedures and guidance for export advisers do not explicitly address how to manage the potential for perceived conflicts of interest, nor establish a mechanism to address such situations. The implementation of more structured procedures would provide assurance that key elements of conflict of interest are addressed in a consistent manner and protect all parties.

Assisting clients to export (Chapter 5)

Assistance to TradeStart clients initially involves identifying areas where the client requires more detailed coaching and advisory services. The ANAO found that TradeStart export advisers provide a range of initial assessment and preparatory services to clients that are consistent with Austrade requirements, sometimes drawing on other government advisory services. Discussion of financial considerations?oa key criterion for export success—has improved.

Companies have been expected to develop an export plan during the next stage of assistance. However, this often did not occur. Austrade has now concluded that a less formal articulation of key export directions will be sufficient in future.

The export adviser can seek the assistance of the relevant overseas post to provide an assessment of the prospects for the product or service in that market. However, this process has not always operated effectively. Export advisers frequently did not use the designated Austrade channel and framework for requests, and the content of the post responses was considered by the export advisers to be of varying quality, and untimely. Austrade is testing different arrangements for obtaining this information.

About 45 per cent of TradeStart clients visit the selected market to assess suitable opportunities with the assistance of the post. Such visits are effective in achieving export sales.

Where clients are unable to visit posts, there are electronic options for contact between TradeStart clients and potential buyers and post staff, such as teleconferencing facilities. TradeStart clients can also engage with the market through the visits of post staff to Australia.

The ANAO also found that export advisers provide further coaching and follow-through after market contact, which is one of the intended features of the program.

Austrade has not monitored TradeStart export advisers' observance of, and performance against, its client service standards. Austrade has advised that it will do so later this year.

TradeStart performance (Chapter 6)

Austrade has performance criteria for TradeStart, which enable it to assess performance against the overall objective of the program.

While Austrade assesses the performance of the individual rural and regional offices, it does not publish a report for this part of the network. It would aid accountability if such a report were provided. In addition, Austrade could also seek ally views on TradeStart impact in its target areas.

An Austrade client survey indicated that 82 per cent of TradeStart clients in 2003-04 rated satisfaction with service as good or better, which was equal to its target for the year. Satisfaction exceeded that for Austrade's Local Export Adviser Network (LEAN) service.

The program is quite successful at achieving exports by the target SMEs. The rate at which clients converted to exporters in 2003-04 equates to 48 per cent of the number recruited that year for rural and regional Australia. In 2004-05, the rate was 41 per cent. These rates of export conversion compare favourably with averages for the program as a whole.

Many clients interviewed by the ANAO advised that they would not have achieved an export sale without the assistance of Austrade through the TradeStart program. This suggests that the program has considerable impact in rural and regional Australia, at least to assist companies to commence exporting.

Half of export sales in 2003-04 were for amounts under $20 000, reflecting the program's targeting of SMEs. This compares with an average program cost for each export sale of around $20 000. The high relative cost reflects, in part, the model for TradeStart, which is generally resource-intensive, as well as the nature of the target group.

The relative cost of achieving export sales underlines the importance of sustaining exports after these initial sales. Austrade data show that, of clients who graduated from the program 12-24 months ago, 18 per cent have had a subsequent sale using Austrade's assistance. However, a large number of clients do not continue to use Austrade's services, therefore sales are not recorded, and are not counted in the 18 per cent. An Austrade survey indicates that 72 per cent of former NEDP clients achieve further sales after exiting the program. However, these survey data do not disaggregate the performance of TradeStart clients.

The ANAO found that Austrade has also implemented a series of initiatives to encourage sustainable exporting by TradeStart and other clients. These include a project to identify the characteristics of sustainable exporters and the contribution Austrade can make towards developing these attributes.

Overall audit conclusion

The ANAO concluded that Austrade's management of TradeStart provides potential new and irregular exporters in rural and regional Australia with accessible and well-managed export coaching services.

Austrade has generally sound contractual and management arrangements for TradeStart. The contract payment structure provides a strong performance focus, providing a degree of risk sharing between the Australian Government and contracted allies. Export advisers are appropriately selected and trained, and contractual performance is reviewed biannually.

There is good communication with, and supervision of, export advisers by Austrade. However, there have been limitations in recording of some valuable client management information and in performance feedback to individual export advisers. Recent developments by Austrade seek in part to improve these areas, to enhance effectiveness of the TradeStart network.

The extent to which existing locations of export advisers align with needs and priorities warrants assessment in any future development of TradeStart, for greater effectiveness. Any future tendering processes also require greater transparency in key decision-making, for improved accountability.

TradeStart provides the flexibility to identify and support potential exporters in rural and regional Australia. Export advisers travel extensively and use local networks to identify potential clients in rural and regional Australia. They are generally successful at meeting or exceeding their targets for recruitment.

Austrade's processes for accepting applicants provide reasonable assurance that decisions are appropriate and consistent with eligibility criteria. However, transparency and accountability would be strengthened by more standardised use of assessment checklists, and structured processes for managing potential for conflict of interest.

Overall, TradeStart export advisers provide an appropriate range of coaching services to approved clients, which enable them to make worthwhile overseas contacts. The one-on-one export coaching is valued by SMEs, many of whom advised the ANAO that they would not have achieved an export sale without this assistance.

However, initial assessments by posts of market conditions have had weaknesses in process and interactions. Austrade is considering better ways to provide this information.

Performance criteria for TradeStart facilitate the assessment of performance against the overall objective of the TradeStart program but not in rural and regional Australia, which is a secondary objective.

The program is successful at assisting rural and regional small-to-medium sized businesses commence exporting. It assists businesses that consider they would not otherwise have exported. However, relatively few entrants to TradeStart have been recorded as sustaining exporting in the medium-term. Other Austrade data indicate that new and irregular exporters (including TradeStart clients) in fact perform well with regard to sustainability of exporting. As well, Austrade has several initiatives underway aimed at improving sustainability.

Recommendations and Austrade's response

The ANAO made six recommendations aimed at improving Austrade's provision of export assistance to rural and regional Australia.

Austrade's summary response to the ANAO's report is as follows:

Austrade agrees with the findings of the ANAO report. In particular we welcome the ANAO's conclusions that “TradeStart provides potential new exporters in rural and regional Australia with accessible and well-managed export coaching services”, and that “Austrade has generally sound contractual and management arrangements” with the contract payment structure providing a “strong performance focus”. Austrade supports the specific recommendations in the report.

In creating the TradeStart program to assist new exporters, Austrade has directly involved a wide range of program partners from the Private and Public sectors. Drawn from State Governments, Industry Associations, Local Governments and Regional Development Bodies, the program partners extend and supplement Austrade's services and provide improved services for business.

This coalition across all levels of government and the private sector is a new and creative approach, which enables the evolving needs of small business to be met in their local communities. TradeStart utilises the service delivery infrastructure of local agencies that have a growing interest in export assistance. Austrade has developed new management protocols that can be equally effective and efficient in both the private and public sectors. Austrade believes that it has been successful in developing these approaches and considers that the findings of this ANAO Performance Audit support this view.

Austrade is committed to continuous development of its service delivery methods, and as these methods develop, a parallel continuous incremental improvement in management systems is required. Some of the issues covered by the ANAO are matters that Austrade has committed considerable resources to resolving, having the ANAO support this development work is very positive. Some other matters are recommendations and suggestions to the detail of the management of the program, which are helpful additions.

Footnotes

1 Department of Foreign Affairs and Trade (DFAT) and the Australian Trade Commission (Austrade), Trade 2005, Commonwealth of Australia, Canberra, 2005, p. 3.

2 National Trade Consultations Ministerial meeting, Memorandum of Understanding on Cooperation Towards a National Doubling of the Number of Australian Exporters, 4 April 2002.