THIS WEEK’S TOPIC: How might Singapore companies combat rising economic nationalist tendencies when seeking to expand abroad?
Tan Chong Huat
RHTLaw Taylor Wessing LLP
THE US decision on the Broadcom-Qualcomm deal should act as a wake-up call that business is about openness and trust.
Singapore companies should prioritise collaborations with countries which are open for business, and make sure they are viewed as loyal and reliable partners abroad. This is key to successful internationalisation of Singapore businesses.
Protectionist rhetoric has always been one of the key issues to be resolved in any cross-border M&A transaction.
In addition to targeting the right deals in an increasingly protectionist environment around the world, Singapore companies must determine very early on in the deal cycle whether the deal involves strategic assets that are likely to be subject to protectionist controls or local government hostility.
Not focussing on this issue early could potentially have a negative impact on the deal value and execution risk.
WHEN it comes to growth and expansion geographically or capability wise, I follow the 3B model - Build, Borrow or Buy.
- Build - If you can build it, with star talent, they will come
- Borrow - Partner for expansion and success
- Buy - Acquire for footprint or capability
I follow these steps in order, as I have found acquisition isn’t the answer to every question. As leaders we have to feed the insatiable hunger for growth that business is rewarded for, so if Singapore companies are finding it difficult to acquire growth in this geoprotectionist environment, perhaps they should walk their way back through the B’s.
Chong Ik Wei
Managing Director, Asia
Clyde & Co Clasis Singapore
SINGAPORE companies looking to expand and grow through investment in other jurisdictions will increasingly need to deploy a range of strategies to address the impact of “economic nationalism” and specific policies adopted by some countries to further that agenda.
In some cases, this may involve adjusting their investment strategy to reduce the level of direct investment to a locally acceptable level, in other cases it may involve implementing commercial arrangements that will deliver broadly similar returns and strategic control but with limited or no direct investment.
No single strategy will suit all potential scenarios however; what is critical is that Singapore companies maintain flexibility in pursuing their business goals and accept that while it is not possible to “combat” local regulation, such restrictions can in fact produce opportunities for those who are prepared to think outside the box.
FORTUNATELY, events such as the termination of the Broadcom-Qualcomm deal tend to be the exception rather than the rule. Populist reactions are often driven by short-term political factors, irrationality and can be the result of uninformed knee-jerk reactions. This makes these situations difficult to predict and manage.
In the first instance, Singapore companies should take a view on whether their industry is likely to be considered “strategic” or “sensitive”. Many are not and their transactions should be at low risk of being impeded.
On the other hand, in higher risk situations, there seems to be little alternative other than to employ political advisers and lobbyists in the acquiree’s market to try to influence the key stakeholders. Alternatively, companies will have to delay the transaction until circumstances are more conducive.
Walter de Oude
Singapore Life Pte Ltd
THE first rule of international expansion is - Is there demand for my product in the new territory? The second question is then: Can I buy into a footprint that can help me either distribute or manufacture more quickly? But the key need for superior product capability should be paramount.
It is clear that expansion to acquire large-scale fresh skills or new capabilities is now being assessed through protectionist lenses. Better to focus then on value-added to the new market than value gained from it.
When Singapore Life expands regionally, it will be because we have a great digital product platform that empowers people to get their life insurance sorted out quickly and efficiently. In our case, both the two rules above apply.
Chua Soon Ghee
Partner, Head of South-east Asia
(and author of “Asian Mergers and Acquisitions: Riding the Wave”)
SINGAPORE companies can focus on three things to ensure that their overseas acquisition efforts are successful in the face of potential nationalistic opposition:
- In regulated or sensitive industries, they need to work behind the scenes to secure tacit approval from the government - this may require leveraging government-to-government relationships, and working with relevant parties to lobby the case on their behalf;
- There are often local stakeholder groups such as the employee unions, local suppliers, long-term customers and the local communities that have vested interests in the operations of the target company. Singapore companies need to invest time and effort to understand the potential concerns of these vested stakeholders upfront and devise strategies to address them;
- Pro-active communication is critical in this age of social media and instant messaging where information can be sensationalised easily and unfavourable news cycles can put pressure on the deal. A well-thought-out communication strategy and execution will be important.
Shell Fellow of Economic Transformation
Professor, Economics and Political Science
AMID a rise in nationalism and populism, it is a small step from patriotism to protectionism, with political and economic decisions inextricably linked. The zero-sum view of the world is not good for the global economy, for open countries like Singapore, and for global companies, but companies have to adjust quickly to this reality. This is especially true for those operating in sectors that either have national security implications or those that derive their competitive advantage from intangible assets such as copyrights, trademarks, brands, and so on.
A temptation for companies is to build relationships with key decision-makers and politicians (the Broadcom strategy). However, this strategy can also create more risks. A single election with a change in government, intensive lobbying by other interest groups, and any range of economic shocks can unravel such ties quickly.
Importantly, these risks are difficult to foresee. Far better for companies to focus on fundamentals by demonstrating their competitive advantage, staying above local politics, and putting better corporate governance practices in place.
ICAEW South-East Asia
SINGAPORE companies looking to expand their geographical footprints will need to be agile and adapt to the potential of economic nationalism. This can come through a number of internationalisation strategies, such as establishing joint ventures or local subsidiaries in the target market to navigate any local regulatory and financial barriers.
Alternatively, business leaders can also look to diversify their expansion outside of the United States or China, by exploring opportunities right at our doorstep.
A growing commitment to regional economic integration among Asean economies, boosted by the recently inked CPTPP, means that Singapore companies will be better placed to tap growth opportunities and increased market access in the Asia-Pacific region.
Priority Consultants Group
AS the global economy goes through an increasingly volatile phase, nations are looking to protect their local political and economic bases through various anti-competition moves cloaked in nationalistic mandates.
As Singapore companies (especially SMEs) expand, especially in the region, they need to relook their plans for international growth and plan for the potential challenges of protectionism. The key to success lies in the intellectual assets of the organisation - the people, the systems, the methodology, and ultimately the value they bring to their global customers.
As the Singapore economy matures, it is critical that companies recognise the need to think differently, to become nimble and value intellect, experience and services. No longer will competing on lower-cost (or even higher-end) manufacturing be a sure-win.
Being able to innovate, create, design and provide niche/critical services is going to deliver the winning template. Protectionism typically follows high volume, low innovation industries including steel, agriculture, and even wafer fab industries. Re-positioning ourselves in high-value, next-generation solutions will ensure that Singapore-made goods and services will be in demand.
Country Director, Singapore
SINGAPORE has benefited greatly from the liberal economic order that was created at the end of World War II. Singapore companies know that they do not grow stronger by closing the door to other markets - they should continually leverage the provisions in the various free trade agreements for easier access overseas.
To counter rising protectionism, Singapore companies need to make technology a competitive advantage and foster innovation, as well as consider new business models or strategies beyond the usual takeovers, to capture new opportunities in today’s digital economy that transcend borders.
It is also equally important to forge strong partnerships globally, by engaging in regular exchanges to build friendships and networks that will go a long way in creating goodwill and tangible collaborations.
Schweizer World Pte Ltd
IT appears to be the first time the Committee on Foreign Investment in the United States (CFIUS) has intervened on a deal before it has been finalised, a signal that it may play a more prominent role in the future.
Several other countries are starting to establish foreign investment review mechanisms, mainly in the field of technology, due to national security reasons - for example, Germany.
Technology has long been disruptive, but never has it been so pervasive, infiltrating virtually all corners of business. As emerging technologies such as IoT and AI are increasingly intertwined with various industries, most deals will need to carefully navigate review mechanisms to avoid rejection.
Having a sophisticated CFIUS counsel to determine whether CFIUS review may be applicable, and to handle filings and navigate investigations is ever more critical.
Despite these political and economic hurdles, several large-scale Asian investments have cleared the CFIUS process and stand as proof that opportunities exist for prudently structured and strategically focused deals.
Chief Executive Officer
General Storage Company Pte Ltd
ECONOMIC nationalism is the politician’s bogeyman used to divert attention from real problems within the country.
While Singapore companies have no control over the rise of global protectionism, they should tap the free trade agreements between Singapore and emerging markets in Asia and further afield to offer specialised services that are in demand, such as project development and technical expertise.
Lim Soon Hock
PLAN-B ICAG Pte Ltd
BUSINESSES must expect countries where they seek to operate to pay special attention to national security. Singapore too accords top priority to our homeland security. That said, this policy must not be abused to thwart commercialisation.
Businesses will have to be mindful of this potential pushback in their pursuit of expansion overseas. More homework will have to be done to ensure that any objection by governments would not come as a surprise.
Other than an outright or hostile acquisition, a company like Broadcom can explore other ways of collaboration with a target such as Qualcomm, to access technologies for expansion overseas, without infringing on national security laws. In the high tech world, it is common for competitors to compete and yet complement one another for the larger benefit of all.
Edwin Khew Teck Fook
The Institution of Engineers, Singapore
IMPOSED tariffs are no longer the only cause of concern for Singapore businesses looking beyond the home market. Rising nationalism worldwide is increasingly limiting opportunities and intensifying risks for overseas business expansion.
Persistence of such movements will redefine norms and standards of success for companies venturing and operating abroad. Yet for Singapore businesses, the small and saturated local market makes overseas expansion a necessary step for growth.
To make such endeavours successful, it is imperative for businesses to establish robust forward-looking risk management and innovation-driven strategies. Being reactive is no longer an option in the face of new global realities.
Robin C Lee
Bok Seng Group
AS a country with limited resources and a small market, it is imperative for Singapore to expand beyond our shores to extend our economic reach and sustainability. Unfortunately, rising economic nationalist sentiments pose a dire threat to our economic goals.
To combat this seemingly backward movement, Singapore companies should remain exceedingly transparent and upfront in our business expansion objectives in the host countries, with mutual economic benefits clearly stated and shared. This is no panacea: Our actions can and sometimes will fail as regardless of what we do, national security and interests will continue to be cited as reasons for opposition.
Regardless, we just have to respect their prerogative but remain sincere in our zeal to find common avenues for economic cooperation.
Zaheer K Merchant
Regional Director (Singapore & Europe)
QI Group of Companies
AS political rhetoric for restrictive economic policies intensify, Singapore companies must simply continue to advocate multilateral trade. We then need to prepare contingency plans and strategy on the steps to be taken to reorganise business models by taking into account the ease of movement of human resources, access to information and free flow of money in the light of policy changes in the country where expansion is envisaged.
Ideally, perhaps utopianly, an Asean grouping in the form of the EU may well solve numerous issues, such as one currency and ease of business dealings (minus any Brexits).
But apart from that, business leaders and companies must collectively take a strong stand against economic nationalist policies - after all, they have benefited from free trade and free markets, and it is now up to them to stand up against anti-multilateralism.
FOREIGN investments always involve a greater degree of risk than domestic operations. With more countries becoming increasingly nationalistic and protectionistic given the current global political climate, this risk is greater than ever. The rules of engagement can change at any time.
The risks stretch far beyond foreign exchange risks to even the expropriation of foreign-owned assets, more so in less developed countries and where those foreign-owned businesses operate in strategic sectors such as mining, power, petrochemicals, telecommunications and high technology.
Businesses seeking to expand abroad need to prepare for an even more challenging international investment climate now and in the future. It calls for greater strategic planning and forward-looking risk management.
To mitigate these risks, businesses have to be more nimble than ever. They cannot afford to be reactionary. They must constantly re-evaluate existing activities and analyse new opportunities against potential threats in the light of the rapidly changing global investment climate.
They must establish effective risk management procedures — before any problem emerges. This includes conducting realistic scenario planning and stress testing. That said, they must certainly also ensure they have enough reserves and resources to deal with unforeseeable fallouts.
Co-founder and Managing Director
Beautiful.me & Synagie.com
THERE is no escaping for the next two (or even six!) years. President Trump is going to continue blocking companies from any country, not just Singapore, from making corporate acquisitions that could affect America’s national security.
But I have to admit I am a little disappointed that Broadcom’s purchase was blocked, considering Broadcom is a Singapore company and both Singapore and the US have excellent bilateral relations. I’m ok with Mr Trump having a protectionist attitude to protect American companies, but he should not stand in the way of foreign companies wanting to make huge deals in the US - Broadcom, for example, was even willing to relocate from Singapore to the US. This would bring revenue and jobs to the country, and raise US standing in the world as a hub for technology development!
THE human race is getting more and more self-serving and self-centric. As more and more countries turn inwards, towards their own interests, nationalist tendencies will intensify.
Singapore companies can combat this by collaborating and partnering one another in such markets. As we become stronger we have an opportunity. We can learn from the Taiwanese and Japanese companies who support one another. Beside collaboration among Singaporean companies, we should also look at joint ventures when doing business overseas to benefit from being considered quasi-local to counteract nationalist tendencies.
EVIDENTLY, economic nationalist tendencies are seen in failed international mergers and unwarranted opposition. Bringing in national security issues into the picture is certainly unmerited. However laughable the excuse is, it still holds legitimate legal grounds. And this is very much cause for concern for Singapore corporations and its trade-dependent economy.
Expect policy changes. Expect changing sentiments. Expect companies to act in their own self-interests. However, companies should not cease to deepen diplomatic ties. Protectionist measures are sure signs that the world is only becoming more interconnected.
Group CEO/Managing Director
Best World International Ltd
FROM my last 20 years’ overseas expansion experience in South-east Asia and Greater China, the biggest challenge for most Singapore companies would be high import tax, product licences and cultural differences.
Therefore, besides having a committed management team, a viable business plan and unique products and services that can be easily adapted into the local market are of utmost importance. Singapore firms should also have a strong brand identity that can help differentiate them from competitors.
We are looking forward to APEC’s efforts to make the tax, trade and licence policies favourable when trading within APEC countries.
Founder and CEO
DUE diligence will be required for any company considering a merger or reverse takeover, particularly across borders. While rules and regulations are out of our control, the question is, would you take the risk and still expand overseas? What are the present and future costs?
Analyse the market, do research on the industry and country. From a startup point of view, joint ventures are perhaps the most reasonable and accessible option if Singapore companies really want to spread their wings.