Outward bound: Why Australian companies should look offshore for growth

As Australian companies shift their focus back to growth, they should assess how the global pandemic has created new opportunities for international expansion.

As tempting as it may be, now is not the time for Australian businesses to seek comfort through a return to business as usual. Our research on previous crises has shown that the way in which companies emerge from a downturn sets the tone for their performance over the following decade. As the world emerges from the “strategy lockdown” of 2020, successful companies will be those that commit to reinventing themselves and making bold moves to win in the new era.

To make the moves that will define the winners of the next decade, companies will need to challenge conventional thinking. For many companies, charting a path to success in the postpandemic era will require rethinking past assumptions and looking for new avenues of growth. One of the areas many companies are considering is whether now is the time to expand internationally.

Dislocations resulting from the COVID-19 pandemic mean that many comparable markets may now be more accessible to Australian companies seeking to grow offshore. This is particularly true for companies with digital or tech-enabled business models, which are more suited to operate easily across geographic boundaries and take advantage of the significant acceleration in digital adoption caused by the pandemic.

The relative stability of the Australian economy throughout the pandemic has led many companies to focus—or refocus—on the home market. However, the stability of the home market also offers Australian companies a strong platform relative to players in overseas markets. We believe Australian businesses have the potential to steal a march on competitors that are still recovering.

Of course, pursuing international expansion is not without challenges and risks. There are many examples of Australian businesses that have run aground in unfamiliar territory. However, our research shows that international expansion can be a material driver of outperformance in Australian companies that have a clear view of the formula that will allow them to win, even when they don’t have a home-market advantage.

The risks of going international and challenging conventional wisdom

There is a healthy skepticism in many Australian boardrooms about the potential for creating value by pursuing international growth. This is, in part, well founded, with some famously unsuccessful attempts at offshore growth in the 1990s and 2000s. Many of these failures followed a pattern: an Australian company entered a highly competitive international market by acquiring a weaker local player, falsely believing that their strength in Australia could be applied to lift the performance of a very different player in a very different market. These highly visible stories of failure have left scars on the risk appetites of Australian business leaders to this day, leading to a view that growth overseas should be pursued at one’s own peril.

Yet the numbers clearly say otherwise. Nearly half of the ASX 1 100 generate more than 30 percent of their revenue from overseas, 2 and our research suggests that international growth can be a significant driver of value creation for Australian companies. For ASX 100 companies, increasing international revenue was typically correlated with higher shareholder returns from 2010 to 2019 (Exhibit 1). With the right business model, international growth can, in fact, be a real driver of outperformance in Australian companies.

ASX 100 companies that grew offshore had the highest shareholder returns.
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Four models for successfully scaling overseas

Over the past decade, four successful models have enabled Australian companies to achieve profitable growth through international expansion:

  1. Global commodities players: These companies secure access to resources with a globally competitive position on the cost curve and focus on driving operational efficiency to win shares in price-driven global commodities markets. They grow offshore either by scaling international sales from local assets or by applying their capabilities to identify and scale cost-competitive assets overseas. The best-known examples are Australia’s global mining companies, such as BHP, Rio Tinto, and Fortescue, but this model can also be applied in other commodity industries, as Fonterra has done in agriculture.
  2. Product innovators: These businesses develop or acquire an innovative, world-leading product that they can sell to international markets. They constantly reinvest in innovation and R&D to maintain product advantage and scale internationally by taking their product into new markets or by acquiring similar products established in existing markets. For example, CSL, Cochlear, and ResMed have driven growth by taking innovative medtech products overseas.
  3. Business model pioneers: These companies develop a distinctive business formula in Australia and then scale internationally by identifying overseas markets where that formula can apply. The key factor in success is that they either take advantage of similar conditions that already exist in overseas markets or identify a market dynamic in which Australia is ahead of the global curve. For example, the pallet company CHEP (originally the government-owned Commonwealth Handling Equipment Pool) used a surplus of military pallets in post–World War II Australia to develop a pallet-pooling business model, allowing customers to access pallets at a much lower cost than owning them directly. CHEP has since expanded its business model into developed and emerging economies to become the world’s largest reusable pallet and container company. Another example is Macquarie Group, which expanded overseas, in part, by taking innovative approaches to financing and operating infrastructure assets to meet growing demand for long-term yield assets.
  4. ‘Built for global’ digital natives: These software-based businesses expand rapidly overseas by leveraging a scalable technology product to target a global customer base. While the home market may be the proving ground before scaling overseas, these companies consider a global customer base from day one, and they build their products on flexible technology that can be adapted to meet customer needs across geographies. This model has been used to great effect by a growing number of Australian-based tech unicorns, such as Atlassian, Afterpay, Canva, and WiseTech Global.

The lines between these models can blur. Many “built for global” digital natives have a distinctive business formula embedded in their digital products or services. Similarly, some business model pioneers are digital natives but also have business models that rely on local market factors, which may mean they are less immediately scalable to global markets. For example, the accounting-software player Xero is a digital native, but entering new markets requires the company to make significant investments in tailoring and maintaining its product to meet local accounting regulations. Another example is SEEK, a digital native whose success in new markets rests on its ability to establish itself as the leading job-listing platform in a local market within a set of industries or job categories.

These four business models have proved to be robust through the COVID-19 pandemic. As part of our research into how companies have performed through the global pandemic, we looked at which companies have delivered higher returns to shareholders between February 2020 (the pre-COVID-19 peak in global capital markets) and June 2021. The top 20 performers on the ASX 100 during this period generated approximately ten times greater returns to shareholders than the average ASX 100 company and had an average international revenue of approximately 56 percent—about two times the average international revenue for the rest of the ASX 100 (Exhibit 2).

Companies that generated higher shareholder returns during the COVID-19 crisis had higher international revenue exposure.
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Of these top 20 performers, 15 fall into one of the success models for international growth outlined above. One group that has outperformed is global commodities players, having benefited from increased commodity prices. But the other big winners have been “built for global” digital natives and tech-enabled business-model pioneers. For example, the biggest winner in market capitalisation on the ASX since before the pandemic has been Afterpay. 3 These companies have been well positioned to capture growth from accelerating digital tailwinds.

Investing up front to set up for success

Choosing the right model for international expansion is not enough. There are examples of companies whose international expansions have failed, even though they were aligned to one of the four models outlined above. Our research suggests that Australian companies that have successfully pursued international growth overinvest up front to make sure the foundation is in place for success. They do this in four ways:

  • Identify attractive markets. The starting point for any international expansion strategy is to understand which markets offer the greatest growth potential. In doing this, companies must invest time in understanding the fundamental market structure (including the competitive landscape) and the resulting potential profitability, not just focusing on headline revenue growth. It is also important to study markets at a granular level; average growth and profitability patterns may mask potential in specific cities or segments.
  • Ensure relative advantage. To scale overseas, businesses need a transferable source of advantage to beat out the many competitors in the new market, including local players who are operating with a home-market advantage. Too often, companies mistakenly attribute their success in Australia to a distinctive capability rather than to local incumbency, unique conditions, or market structure. Prior to expanding overseas, companies must clarify the true source of their relative advantage and determine how well this will translate to a new market.
  • Adapt to the local market. Even in markets that offer potential or appear similar in dynamics, local variation must be expected. Companies should ensure their planning not only accommodates but embraces opportunities to adapt to local conditions, needs, and consumer aspirations. This includes not overestimating their ability to turn around poorly performing local assets or to overcome local headwinds.
  • Focus on disciplined execution. International expansion can be much like launching a new business, so establishing a strong foundation is critical. Too often, companies launch an expansion with fanfare and promise but fail to put sufficient effort in putting foundational elements in place, such as building the right local leadership team, establishing local partnerships, and investing in stakeholder relationships.

How to get started

Our research shows that international expansion can be a highly lucrative path but also that it requires careful preparation. Many failed attempts at overseas growth have involved companies that tried to make quick, decisive moves to achieve scale in international markets, whereas most success stories were years in the making. The question for current leaders is not only whether there are immediate opportunities for overseas expansion but also whether they are doing enough to nurture future international growth. For some companies, it may also be necessary to unwind prior moves in order to reset their international ambitions.

For example, Lendlease scaled back its international business by selling its US real estate investments arm (which had been built through a series of acquisitions during the 1990s) in 2003 and then consolidating its global operations from 40 countries to a set of international gateway cities following the Great Recession. The company has since scaled its integrated model for urban regeneration, developed through flagship Australian projects such as Barangaroo, to build a more than AU $100 billion (about US $75 billion) development pipeline, more than 80 percent of which is from projects in Asia, Europe, and the United States. 4

The following questions can help you think about which of the four success models for international expansion might be a viable path for your business:

  1. Global commodities player: Do you have access to resources that would have a cost advantage in a global commodities market with strong future demand (for example, lithium, hydrogen, or rare earth metals)? What would it take to build a competitive position on the global cost curve?
  2. Product innovator: Do you have an innovative, world-leading product that you can take to other markets? Is the product’s success due to a characteristic that is unique to the Australian market, or does it take advantage of globally relevant trends? Are you developing new products that have the potential to meet the unmet needs of customers in multiple markets?
  3. Business model pioneer: Is Australia ahead of a trend that is now taking off in other markets? Do you have a distinctive business model that takes advantage of this trend? Are there low-cost options to establish a beachhead in a new market so you can learn about local conditions and lay the foundation for a broader expansion?
  4. ‘Built for global’ digital natives: Have you identified a globally applicable use case that can be solved by a software-based business? Does your business bring advantages to help scale that business? Is there a core competency that others could use if you offered it as a digital service?

Digital is an increasingly important factor in enabling international growth strategies under each of these models. Global commodities players invest in analytics and automation to achieve and maintain their position on global cost curves. Digital and technology are at the heart of product and business model innovation. They are often also the key to efficiently delivering products and services to customers across more international markets and to managing a more global team and supply chain.

Leaders and innovators are mindful that digital disruption is both a local threat and a global opportunity. While international tech-enabled players can attack your local market at any time, this is absolutely a two-way street. In particular, we believe that any digital product or service innovation currently in design should be tested to assume overseas scalability so that it can be “global ready” from day one.

Perhaps most importantly, Australian businesses need to use 2021 to take a fresh look at their strategies, understand their underlying sources of value creation, and, where necessary, reposition their core offerings. As part of this process, we believe leaders should keep an open mind regarding international growth strategies grounded in the examples outlined above.


Culturally, Australia has always had at least one eye offshore, and while Australian citizens may still be domestically constrained in 2021, Australian businesses are not. They can—and should—reexamine the opportunities that lie offshore with fresh eyes, an innovative mindset, and optimism.

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