EXPORT MARKET DEVELOPMENT: 'SPORTING GOODS' - AUSTRALIA
Pakistan enjoys a tradition of manufacturing and exporting world-quality sporting goods
By MUBEEN M. ASLAM
Mar 17 - 23, 2003
Sport of all types is "a national obsession" for Australia. Her national sports are cricket and rugby, although Australian rules football, European football and field hockey are fairly popular. Tennis and golf courses, with exquisite facilities, abound in the country. As 83% of the population lives within 50 km of coastline, water sports such as water-skiing, deep-sea fishing, sailing, windsurfing, swimming, surfing and skin-diving are dominant pastimes. Skiing in the southeastern mountains, camping, hiking, bush-walking and horse racing are also common. The recreation, lifestyle and sporting goods sectors, expected to be prime growth areas as Australians enjoy more free or leisure time through reduced working hours and earlier retirement from the work force, offer a window of opportunity for manufacturers of sports and recreation goods in Pakistan.
With sound craftsmanship and entrepreneurial skills, Pakistan enjoys a tradition of manufacturing and exporting world-quality sporting goods. Her hand sewn sports balls such as soccer balls, volley balls, hand balls, rugby balls, American footballs, basket balls; complete range of cricket and field hockey equipment and accessories; boxing, martial arts, equestrian, polo, saddlery and camping equipment; tennis, squash & badminton racquets, and sports apparel are a symbol of quality and excellence in the international markets. This article, therefore, aims to evaluate the prospects of exporting sporting goods from Pakistan to Australia.
EXTERNAL MARKET ENVIRONMENT
The family income of the Australians has gradually increased with the consistent economic growth over the last two decades. With the GDP per capita over A$20,000, the real income of the majority has now improved. Inflation & unemployment, at 2.8% & 6.3% respectively, are low and the real GDP grew by 4% in 2001-02. The exchange rate has improved against all major currencies making foreign manufactured goods relatively cheaper for the Australian consumers. It is stable and stood A$1 = US$0.5696 or PRs34.2523 in June 2002. Moody's Investors Service has recently affirmed Australia's Aaa credit rating and stable economic outlook. The Closer Economic Relationship (CER) agreement between Australia and New Zealand is a comprehensive bilateral free trade agreement that has removed all tariffs between the two countries allowing free movement of goods and a wider market in Oceania now. Currently, Australia is negotiating free trade agreements with Singapore, Thailand, and the USA too.
Australia was Pakistan's 19th export destination in 2001, and enjoyed a positive trade balance with Pakistan, exporting goods worth A$477 million & importing merchandise valued A$200 million in the year 2001-02. However, Pakistan came out as Australia's 39th trade partner, contributing to a meagre 0.3% of Australia's total merchandise trade. The major Australian exports to Pakistan were oil seeds and oleaginous fruits 'soft', cotton, fresh vegetables, coal, and animal oils & fat whereas she imported mainly textile manufactures, woven cotton & synthetic fabrics, clothing and crude petroleum from Pakistan. The Australian market is highly competitive, growing, and has a high technology level but low entry barriers.
The public policy towards sports goods has largely remained lax and the current trend has been towards the reduction of import duties. Importing goods into Australia requires compliance with Australian Customs, Quarantine and related laws. Rates of customs duty and/or sales tax vary according to the type of goods and the country of origin. Some indicative duty levels are Clothing & Textiles (2000), 25%; Footwear (2000), 15%; boats free to 5%; Guns, free; Plastic Goods 5-15%; Sports Goods, 5%; Fish Hooks, free. With a few exceptions, GST is payable on all goods imported for domestic consumption into Australia, usually at 10% of the value of the taxable importation. However, goods originating from developing countries are largely eligible for tariff concessions under the 'Tariff Concession Scheme' (TCS).
Customs does not require an import licence. However, depending on the nature of the goods and regardless of value, owners may need to obtain permits to clear the goods. Formal Customs clearance is required for entry of goods above set value limits, currently A$250 for goods imported by sea and air cargo, and A$1000 for goods imported through the postal system. Australian Customs only applies duty and collects the duty where the amount of duty to be paid is or is greater than A$65. At an applied duty rate of 5% on FOB price, the invoice or paid value of the consignment can be up to A$1,300 before duty is collected. Stringent inspection and control is applied to airfreight, courier and shipping consignments. The goods invariably require a Packing declaration and a Fumigation certificate for clearance by Australian Quarantine Inspection Service (AQIS). There are heavy penalties for not complying with the Customs and Quarantine laws, especially for false or misleading invoicing, not declaring goods, smuggling and importing prohibited goods and violating quarantine requirements.
Australia has a growing market of around 19 million literate people, 85% of whom live in metropolitan cities. The states of Queensland and Western Australia are growing much faster than others (at approx. 1.8%), and there is a general population shift to the sporty warmer States, particularly of older people. The population is also ageing at an increased rate, and less than 50% of the households have children now. In only 60% of the couples both partners are native born, whereas over 20% of the population speaks a language other than English at home. The Australian household expenditure on sports & recreation rose from A$5.93 billion in 1993-94 to A$7.34 billion in 1998-99, whereas the per capita weekly spending on sporting, recreation and camping equipment are highest in Western Australia, Northern Territory & Queensland. The 1996 population census gives an estimate of 276,000 people employed in sport and recreation industry, whereas 1,581 sports grounds and facilities across the country employed around 21,563 people and generated a business of over A$796 million in 1998-99.
Prior appointments are essential for business meetings, which run punctual and frequently over drinks and meals. Meetings are not usually scheduled during the evening or on weekends. With a history of geographic isolation, and reliance on imported manufactured goods, Australians are very sensitive to product reliability and after-sale service. It is important to maintain an arm's length of personal space during conversation. Dress suits are necessary in Sydney and Melbourne while Brisbane people often wear shirts, ties and shorts. Visiting business people should wear light tropical suits for initial meeting, with country areas being more informal.
MARKET & CONSUMER ANALYSIS
When we analyse the current overall import profile and the top ten imports to Australia, and the consumer trends, we find increased opportunities for software & IT services, pharmaceutical products, medical equipment & surgical instruments, telecommunications equipment, auto parts, industry chemicals, processed fruits, vegetables & fishery products, besides textile & clothing and sporting goods, for the Pakistani exporters.
Broadly speaking, the sporting goods industry-mix in Australia includes sports equipment, sports apparel and sports footwear. In 1997, the total world exports of sports goods were estimated to be around US$9 billion with a growth rate of 7% p.a., whereas the Australian wholesale and retail trade in sports goods industry grew at 1.9% p.a. and, its net retail sales were worth A$7.75 billion in 1997. The share of sport & recreation goods is estimated at around A$1.5 billion in the gross merchandise imports of A$119.65 billion for 2001-02. Currently, the market for all kinds of clothing (including sports apparel) and footwear in Australia is estimated at over A$10 billion, whereas amongst the key sub-segments of sporting goods, a recent study has put just the Victorian market for fishing gear and by-products at around A$1.3 billion p.a. There are 550,000 registered boats (10 ft.+ and over 4 HP) in Australia, with around 129,126 households in Queensland owning at least one boat for recreational fishing, and the total turnover of the boating sector in Australia is A$1.34 billion. In terms of Ansoff Matrix, this indicates good development and tremendous market penetration opportunities for a Pakistani sports goods exporter in all categories of sporting goods especially boating, angling, surfing, golf, tennis, squash, soccer and cricket equipment, and sports apparel/footwear.
The age group 20-44 are the biggest spenders on sports goods, whereas the majority likes to participate in walking, swimming, aerobics/fitness, tennis, golf, and fishing activities. Participation rate in sports and physical activities is the highest in Australian Capital Territory & lowest in South Australia. Women are increasingly being viewed as a major segment, and the industry is now developing and offering a broader product-mix to them. Sportswear is still largely bought as leisurewear. FIFA has recently granted direct entry to Oceania for the next soccer world cup, furthering interest and popularity of soccer in Australia, thereby, stimulating market demand for soccer balls and accessories.
The Australian market for sports goods can, therefore, be segmented as given in
SEGMENTATION OF SPORTING GOODS MARKET IN AUSTRALIA
Consumer life style
Utilitarian (Health-conscious Functionalists), Relaxed (Pastimes), Greens (Nature-lovers & Environmentalists), Funky Fits (Hip-Hops, Hormones & Braces)
Consumer tastes and habits
Outdoor Active (running, camping, trekking, bush-walking); Recreational (fishing, boating, water-sports); Arena Active (cricket, rugby, soccer, hockey, tennis, squash, etc)
Gender / Family Status
Males / Females (FLYERS: Fun-loving- Youth-EnRoute to-Success), Families or Couples (DINKS: Double Income No Kids), OPALS (Old Pals with Active LifeStyles)
15-24, 25-44, 45-54, 55-64, 65+ years.
Amateur / Professional, Regular / Casual,
By State, Metropolitan or Rural areas.
Exporters from China, Taiwan & India dominate the Australian sporting goods market. Import of Chinese-origin sporting goods valued at A$696 million in 2001-02. Strong competition exists in all sports goods market segments between Australian distributors and retailers who vie for the market share and are discussed in the section on distribution channels. "Bass Pro", a large US retailer, competes in recreational, fishing/angling sports, offering catalogue-mail products too. Major competing brands include Adidas, Reebok, Nike, Dunlop Slazenger, Callaway Golf, Wilson, Daiwa Sports, some of whom already source from Pakistan for their European and North American operations. Sourcing from China, India and Pakistan would carry practically equal factor costs for the Australian market. There are some competitive barriers for the Pakistani exporters such as the first-mover advantage of the Chinese or Indian-origin firms and products, better market intelligence of their exporters, the Australian quarantine certification requirements and the quality standards, and weak international branding of Pakistani products. However, the Pakistani exporters, having sound experience in other developed markets and their capacity to offer a high quality product at reasonable price, can use 'quality' as a differentiating factor to ward off this competition.
MARKET ENTRY OPPORTUNITIES
The use of agents and distributors is the common way to sell products in Australia. Because of market size and geographic remoteness, it is common practice for Australian distributors to ask for exclusive geographic and/or product rights. Prospects exist to explore, negotiate, and launch "Private Labels/In-house store brands" with the major retail chain stores (e.g. David Jones, Grace Brothers). At present, direct export and piggybacking through sales agents, merchant distributors and retail chains is being suggested to enter the market, before considering any deeper involvement such as local warehousing or subsidiary operations. Franchising, licensing, joint ventures, and direct marketing may be beneficial alternative market entry techniques in the long run, but entail more investment and commitment. To explore such likely opportunities, it may be advisable to visit Australian International Franchising & Business Opportunities Expo in Sydney (March 21-23, 2003) or Melbourne (Oct. 3-5, 2003), or Australian Toy & Hobby Fair (ATHF), scheduled for March, 2003 in Melbourne.
Direct export through use of indirect channels such as local distributors, importers or sales agents is initially preferred to reach the Australian consumer. Although there are a number of importers and distributors, sports goods' retailing is still somewhat diverse and fragmented in Australia. A few independent specialty stores, and national specialty and sporting goods stores (sports multiple chains) dominate the market, along with some supermarkets, concept stores, non-specialist retailers and internet retailers (e-shops).
Sports Stores primarily concentrate on the active sports and offer a full range of equipment and clothing. There are specialist sports goods retailers for firearms, hunting and angling products, such as "Compleat Angler" which offers specialist angling products through a broad country-wide chain of retail stores and a significant mail order client base. Specialty Stores, such as "Barbeques Galore" carry specific and/or combinations of product groups, and are positioned and marketed as "camping and outdoor leisure stores", mostly with a focus on a particular sub-segment. The larger Concept Stores are run by a particular supply house (such as "Rebel Sport", Sports Power", "Sportsco", "GotOne"), manufacturer or brand name (such as "Nike") and are either stand-alone stores, or located within a large department store. The largest retail group in Australia, both in turnover and number of stores, "Coles Myer Ltd." has sports concept floors in its major department stores.
Catalogue and mail/phone order selling, a common distribution channel aimed at encouraging "in-store visit" and purchase, is the key to access the Australian consumers. Catalogues and brochures may also offer web links for electronic sales of sports goods. Direct retailing and marketing by manufacturers, using low price as a key strategy, is also increasing rapidly.
The sports goods retailers usually work on margins ranging from 100-150% at the top end, but many popular and competitive products are discounted and sold at margins closer to plus 65%. Transport costs to and within Australia are a significant part of distribution costs that must be covered by the importer/distributor or retailer. Air/sea cargo from Karachi to Sydney will invariably require trans-shipment via Hong Kong or Singapore. Karachi - Sydney Ocean freight is around A$620 per cubic metre.
In view of the above discussion, we can now summarise the prospects of exporting sporting goods by a Pakistani firm to Australia in the matrix as shown in Table 2.
1. Cottage industry.
2. Entrepreneurial skills.
2. Cheap & skilled labour.
3. Exquisite traditional craftsmanship.
4. High Quality standards (ISO/QS).
5. Established niche in the developed markets of EUand North America.
1. Post 9/11 country image!
2. Relative small-size firms with capital constraints.
3. High utilities, transport, and ancillary costs.
4. Inadequate market intelligence.
5. Weak international branding.
6. Late mover to the Australian market.
7. Weak web presence and poor Cyber marketing.
1. Geographic diversification.
2. High growth market (volume/value).
3. CER agreement with New Zealand.
4. Proximity to wider Oceania & South East Asian markets.
5. Market presence in the forthcoming FTAs with Singapore, Thailand, USA!
6. JV & Licensing arrangements!
7. Export Trading Companies! (bypass problems of size, capital, outreach.)
1. Strong domestic and international competition.
2. Australian quarantine requirements, labour & quality standards.
To conclude, the Australian sporting goods market appears to be in the growth stage, with high market and sales potential. The active, sporty life style of a largely urban, growing multiethnic Australian population, with higher purchasing power, in a growing economy with sound infrastructure and developed distribution channels, present potential business opportunities in the sporting goods industry for a Pakistani exporter. All this makes Australia an attractive market, and a favourable export destination that has so far been ignored because of various reasons. As our established European and American market get saturated and increasingly competitive day by day, it is imperative that we diversify into new geographic markets at priority basis. In the light of the preceding paragraphs, Pakistani exporters must endeavour to explore the tremendous opportunities in the Australian market and fine tune their individual product-market plans accordingly.