Overseas expansion is not for all local SMEs

Instead of focusing on venturing abroad, SMEs need to find out why they're not transforming in tandem with the resources that have been expended

INTERNATIONALISATION, the process of expanding a company's operations beyond Singapore, has been at the forefront of many recent government initiatives.

The Business Times posed questions to four industry leaders to find out the challenges and strategies of going abroad.

Roundtable participants:

  • Tan Chor Sen, head of international, global commercial banking, OCBC Bank
  • Chew Mok Lee, assistant chief executive officer, ICT and media and digitalisation, enterprise services and new industries, Enterprise Singapore
  • Kwan Chong Wah, chief executive officer and co-founder of Acorn Marketing and Research Consultants
  • Maureen Low, head of Asean desk, RSM
  • Moderator: Neo Shi Wei, journalist, BT

There has been an ongoing push to have more Singapore companies expand abroad, yet a survey in January this year found that only 14 per cent of SMEs intend to do so, and nearly half have no interest in taking their businesses beyond Singapore in the near future. What can be done to encourage more companies to venture overseas?

Tan Chor Sen: In that same survey, the top two barriers to overseas expansion according to the companies surveyed were funding and unfamiliarity with the standards and processes of foreign markets.

There are actually many more options in the market today, ranging from government-backed loans to grants and even venture capital. Sometimes, the inability to get funding is due to the lack of proper documentation - making business and personal transactions from separate accounts, for instance, and having proper book-keeping is a must.

Sharing such learnings is important and more platforms can be set up to facilitate mentorship and exchanges of ideas among SMEs.

The second hurdle pertaining to unfamiliarity can be resolved by finding the right partners. Banks can be helpful here, so SMEs should tap on their expertise and networks. In addition, to assist SMEs in finding business partners, more overseas trips can be organised by government agencies and private organisations.

Chew Mok Lee: The Industry Transformation Maps are targeted and industry-focused initiatives that help companies to prepare for growth opportunities through four key pillars: productivity, innovation, jobs and skills, and internationalisation.

Our industry partners, like the Trade Association and Chambers, also play an instrumental role in supporting our SMEs in capability-development and making inroads overseas.

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Kwan Chong Wah: I am not against the arguments for SMEs to venture abroad, but I would argue that most local SMEs are not suitable for venturing abroad.

I would also argue that resources and noise should be devoted to transforming local SMEs, to enable them to operate more effectively in the local environment.

To be fair, there's already a lot being done in this area. But what I sense is the emphasis has shifted to 'venturing abroad'. But instead of shifting focus, we should look deeper into why SMEs are not transforming as much as expected, or in tandem with the resources that have been expended.

The point I am trying to make is, if we don't understand the reasons behind this under-performance, I'm afraid we would see this same sub-par performance recurring in the efforts to 'venture abroad'.

Maureen Low: Overseas expansion may not be the right growth strategy for all SMEs. Even if it is, the risk of failure is as high as that of a startup in a new country. It is important for SMEs to conduct their own analysis and assessment on what it takes for them to increase the rate of success and find the right model for venturing abroad.

In light of the above, to encourage more companies to venture overseas, we need to help SMEs overcome the fear of failure and provide them with assistance in grooming talents that can spearhead their overseas expansion plan.

Assistance can also be provided to help them assess their readiness for overseas expansion, such as clarifying the funding structure and operating model, analysing the capabilities gap and building capabilities to bridge the gap, and accelerating their acquisition of relevant knowledge to manage expansion risks.

From your experience, what are some of the main challenges that companies face when they internationalise?

Chong Wah: If you ask me what is the most important factor to avoid failure, it would be choosing the right local partner or local staff. It is always about the people.

Maureen: The first dilemma is always if they should send their existing team to manage the overseas business or to recruit local talents in the target country to lead. Sending their existing team may impact the current business. The team may also lack the local knowledge to navigate unfamiliar issues in the target countries. Local talents, on the other hand, may not have the necessary product or service knowledge, and the values and culture they build in the overseas office may not sync with the Singapore office.

The next challenge is having sufficient financial resources to sustain the overseas operations to fruition. It takes time to realise commercial viability.

The third challenge is that of navigating in an environment where regulatory compliance, business practices and culture are completely different from Singapore's.

Chor Sen: Cultural differences will always be a key challenge. This goes beyond language barriers and time differences - the way people work is fundamentally different. For instance, in countries with less transparency in their regulatory and business environments, instead of talking business straight away, more time and effort have to be put into relationship building first.

Mok Lee: Getting to know the market and sector developments, analysing market risks, and familiarising themselves with overseas regulations may all seem daunting to any business aspiring to expand overseas.

Finding the right partners is also of equal importance as they often can offer valuable insights to mitigate some of the steep learning curves facing such companies.

How should companies and their staff prepare themselves to overcome some of these challenges?

Chor Sen: A trustworthy company that has prior experience in this new market that you are entering and shares your vision is invaluable. It can help you surmount cultural hurdles and find the right talent that can drive your business.

It isn't easy to find the right partner, and businesses shouldn't rush into it. Do your due diligence, or better yet, look through your list of contacts to see if anyone that you have worked with over the years is a suitable partner.

Alternatively, talk to people who may have good recommendations to make.

Chong Wah: Once you have set up the company, put in place a training-cum-grooming programme. Hire young local talents for the future. Envisage them to be your managers in three to five years.

Keep up a pipeline of these young local talents. Skills can be taught, but acculturation takes time. Bonding takes time. And it is best to start from young.

I understand that for most companies, you need to hit the ground running. You need to hire middle or upper-middle managers. That's an immediate need. But don't neglect the mid to longer term. And in time to come, be prepared to give up some equity to key and deserving local staff.

Maureen: Draw up a robust plan, get funding ready, groom and send the best talent to run the overseas operations after the deputy succeeds in managing the existing business. It is also important to put in place proper governance and reporting structures.

SMEs should also explore governmental support and resources so that they can learn as much as possible about the target country, market, business environment and practices before setting up overseas operations.

Mok Lee: For companies making their first steps overseas, the Market Readiness Assistance Grant helps them by supporting direct in-market expenses, such as market set up, feasibility projects and marketing campaigns.

Our Plug and Play Network of nine partners provides pre-entry market advisory, business-matching services and market set-up via co-working spaces in China, India and South-east Asia markets.

For those who have started their journey and continuing to build their global presence, our Global Company Partnership Grant helps to defray some of the costs involved in entering overseas markets, such as market research, marketing, manpower and establishing new operations.

Our network of overseas centres in more than 30 cities can also help connect companies for partnership opportunities and in facilitating in-market projects. We also work with companies to develop capabilities for better competitiveness, adopt new technology, plug into new networks, and embark on mergers and acquisitions to deepen market presence, among others.

What are some of your plans to grow your business overseas in the next five to 10 years?

Maureen: We focus on helping our clients grow and internationalise and we aim to grow with them. Our overseas expansion plan depends very much on the needs of our clients and what we can do to help them venture overseas successfully.

In the next five to 10 years, we will continue to tap into our international network and intensify our direct presence in China and Malaysia to rigorously help our clients expand their footprints internationally.

Chor Sen: SMEs in Singapore as well as around the region, that want to internationalise, tend to look closer to home - the focus still tends to be on Asean as well as China. Therefore we will continue investing in our core markets of Singapore, Malaysia, Indonesia and Greater China in order to build on our strong presence in Asia and South-east Asia.

Chong Wah: Our focus has never been on 'growth' in terms of revenue or setting up offices in more countries. In our line of business, which is highly hands-on and client-centric, our focus is on training and grooming our managers.

When they are good, they will get and keep their clients. When the managers have grown up with the company, they will value the company as their own. When we achieve that state, 'growth' would then be a by-product.