For Australian businesses, exporting your product or service presents an attractive opportunity for growth, and grants access to new and potentially larger markets around the world. A trade mark can be a valuable tool for exporters when launching new products and seeking to secure a market position in export markets. As the COVID-19 pandemic has laid bare, exporters face considerable uncertainty in deciding to compete abroad, given their potential exposure to supply chain disruptions, trade disputes, and institutional and financial market volatility. Also unclear to many businesses is how to seize market opportunities created by the expansion of international trade agreements.

Noting the above, in 2020 IP Australia’s Office of the Chief Economist used Australian customs and firm microdata to examine whether trade marks facilitate access to export markets and shape exporter resilience to shocks. The research found that trade mark activity is a forward indicator that businesses are more likely to become exporters, and, after filing a trade mark in an export market, they perform better, become less reactive to exchange rate changes and increase exports more in response to reductions in tariffs. We estimate that trade mark owners increase their export revenue by around 70 per cent when they face a tariff fall from 10 per cent to zero, nearly double the revenue increase experienced by the average exporter.

Trade marks shape exporters’ behaviour and resilience to shocks

The study uses data on all Australian manufacturing firms that filed at least one IP application (be it a trade mark, patent, design or plant breeder’s right) and was active over the period 2004–05 to 2016–17.1 The empirical strategy involved comparing the behaviour of the same firm selling the same product in different country markets where the firm faces different shocks and may have filed for trade marks at different rates.

We linked Australian customs data with information on firms’ annual trade mark filings in select destination markets (US, UK, Canada and 8 Eurozone countries),2 this data sourced from TM-LINK, a global database of trade mark applications developed by IP Australia with research partners, in particular the Centre for Transformative Innovation at Swinburne University of Technology.3 We sourced information on tariffs from the World Trade Organization, and exchange rate data from the OECD and International Monetary Fund.

Trade mark activity is a forward indicator of export entry and performance

The results suggest that after a business files a trade mark the likelihood of exporting increases. We estimate that if a business moves from having one trade mark registration to two in the export market, it is 25 per cent more likely to export to that market compared to a similar business that did not. For exporters with six or more years of continual activity in the market, filing that additional trade mark is associated with a 30 per cent increase in export revenue. As the average long-term exporter earns $1.3 million in export revenue per year, the increase amounts to an estimated $416 000.

Unlike other exporters, trade mark owners earn more when the Aussie dollar appreciates

Our research has found that after filing for trade marks in a destination market, exporters benefit from changes in real exchange rates unlike firms that do not hold trade marks overseas.

Exchange rate appreciation (a rise in the value of the Australian dollar relative to the currency of a foreign buyer) typically leads to a reduction in exports because the foreign buyer will instead buy local goods rather than the more expensive Australian good. With an appreciation of the Australian dollar, the relative costs of advertising and marketing overseas however decrease. Firms with destination-country trade marks are well-positioned to capitalise on the reduced costs of advertising and marketing, as they can build and protect their brands.

Consistent with this idea, our results show that for the average exporter, an appreciation of the Australian dollar against an export market reduces the firm’s likelihood of entering that market and, for incumbent exporters, reduces export revenue. After a firm files a trade mark in the export market, however, that same currency appreciation increases the firm’s entry likelihood and its export revenue. On average, given a 10 per cent appreciation of the real exchange rate, the trade mark owner’s entry likelihood increases slightly (by less than one per cent ) and its export revenue increases by up to 40% depending on the number of trade marks filed (Figure E1).

For economists, these results help explain why, when we analyse international trade, exports appear less sensitive to real exchange rates than to tariffs.

Figure E1. For exporters, as their recent trade mark filings overseas increase, so does their expected growth in exports given a 10 per cent appreciation of the home currency against the export market

Notes: Graph charts average marginal effects of tariff changes on export revenue (at time t) at different levels of trade mark activity (at time t-1) for long-term exporters with 6 or more years of continuous exporting a given market. Revenue estimation uses a log-linear OLS regression model, with the sample comprised of export participants with market tenure of 7 or more years. Analysis is at the firm-product-market-year level. Destination markets in focus include US, Canada, the UK and 8 Eurozone countries (Austria, Belgium, Finland, France, Italy, Netherlands, Portugal and Spain).

Source: BLADE (ABS. 2019); International Merchandise Exports (ABS, 2019); TM-LINK (IP Australia, 2020); World Trade Organization Tariff Download Facility (WTO, 2019); International Financial Statistics (IMF, 2019); National Accounts Statistics (OECD, 2019).

Trade marks owners benefit more when tariffs drop

Since the 2008 Global Financial Crisis, support for and use of tariffs and other protectionist trade policies has increased in G20 countries. In 2020, despite international trade being essential to countries fighting the COVID-19 pandemic, many countries imposed export restrictions, including on medical supplies, to boost local availability. At the same time, Australia is negotiating free trade agreements which could create new market opportunities for Australian exporters.

We found that trade mark activity tends to increase the sensitivity of exporters to tariff reductions. For trade mark owners, the reduction in tariffs (from 10 per cent to zero) will induce an increase in export revenue by 71 per cent, more than double the 32 per cent increase for firms without trade marks (Figure E2). For the same tariff reduction, the average exporter’s entry likelihood doubles from a modest 0.12 per cent to 0.25 per cent; but if the firm has recently filed a trade mark in the export market, its entry rate doubles again to 0.53 per cent.

Figure E2. For exporters, as their recent trade mark filings increase, so does their expected growth in exports given a fall in tariffs from 10 per cent to zero.

Notes: Graph charts average marginal effects of changes in the real exchange rate on export revenue (at time t) at different levels of trade mark activity (at time t-1) for long-term exporters with 6 or more years of continuous exporting a given market. Revenue estimation uses a log-linear OLS regression model, with the sample comprised of export participants with market tenure of 7 or more years. Analysis is at the firm-product-market-year level. Destination markets in focus include US, Canada, the UK and 8 Eurozone countries (Austria, Belgium, Finland, France, Italy, Netherlands, Portugal and Spain).

Source: BLADE (ABS. 2019); International Merchandise Exports (ABS, 2019); TM-LINK (IP Australia, 2020); World Trade Organization Tariff Download Facility (WTO, 2019); International Financial Statistics (IMF, 2019); National Accounts Statistics (OECD, 2019).

Trade marks encourage export diversification when trade barriers fall

Australian manufacturers tend to respond to tariff reductions and appreciations of the domestic real exchange rate by decreasing the variety of products they export to a country market.

Trade marks provide opportunities for firms to enter new markets that may have opened up through established international trade agreements. Consistent with this idea, we found for incumbent exporters that after they file a trade mark in a given country, reductions in tariffs there tend to encourage the exporters to diversify their exports.

Conclusion and key policy implications

This study provides evidence for how exporters can build resilience against shocks and seize new market opportunities, including those created through international trade agreements. The results also suggest that there may be complementary economic effects between policies – negotiated through trade agreements – that reduce tariffs and enhance exporters’ access to IP protections overseas.

Trade marks filed both domestically and, to a greater degree, overseas are a forward indicator of export readiness so trade mark data provides a useful indicator for Government in targeting export assistance. Equally, as trade marks appear to play a significant role in shaping export behaviour, trade mark data can be used in predictive models of international trade, helping to explain why exporters are far more responsive to tariff changes than to exchange rate movements and how exporters become more resilient to economic shocks.

The full report of the study, ‘Exporter responses to shocks: The role of trade marks,’ will be published in mid-2021 as part of IP Australia’s Economic Research Paper Series.


Disclaimer: The results of these studies are based, in part, on ABR data supplied by the Registrar to the ABS under A New Tax System (Australian Business Number) Act 1999 and tax data supplied by the ATO to the ABS under the Taxation Administration Act 1953. These require that such data is only used for the purpose of carrying out functions of the ABS. No individual information collected under the Census and Statistics Act 1905 is provided back to the Registrar or ATO for administrative or regulatory purposes. Any discussion of data limitations or weaknesses is in the context of using the data for statistical purposes and is not related to the ability of the data to support the ABR or ATO’s core operational requirements. Legislative requirements to ensure privacy and secrecy of this data have been followed. Only people authorised under the Australian Bureau of Statistics Act 1975 have been allowed to view data about any particular firm in conducting these analyses. In accordance with the Census and Statistics Act 1905, results have been confidentialised to ensure that they are not likely to enable identification of a particular person or organisation.

Endnotes

  1. A criterion for inclusion in our sample is that a firm must have filed at least one application for an IP right (patent, trade mark, design right or plant breeder’s right) in Australia and have been active in the period 2004-05 to 2016-17. Firms in-sample are likely to have a higher export propensity than the average Australian firm.

  2. The Eurozone countries that we focus on are Austria, Belgium, Finland, France, Germany, Italy, the Netherlands, Portugal and Spain. For tractability, in estimating export entry, we restrict our focus to the US, UK and Canada.

  3. Petrie, S., M. Adams, B. Mitra-Kahn, M. Johnson, R. Thomson, P. Jensen, A. Palangkaraya, E. M. Webster (2020), “TM-Link: An internationally linked trade mark database.” Australian Economic Review.


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