Expanding overseas still not an easy task for SMEs

Limited resources, unfamiliar regulatory environments and the challenge of building a strong local foundation are among the factors holding them back

SMALL and medium-sized enterprises (SMEs), faced with Singapore's small domestic market and slowing economic growth, are feeling more heat than ever to expand abroad.

The Singapore government has also made a greater push to support SMEs in internationalisation, with government agency Enterprise Singapore saying in March that it will embark on a new strategy to grow and develop local businesses, including an emphasis on helping a broader base of SMEs venture abroad earlier.

But there are still SMEs that have remained reluctant to take the leap. The Business Times posed questions to three industry leaders to find out what's holding them back and their strategies for going overseas.

Roundtable participants:

  • Maureen Low, head of Asean desk, RSM Singapore
  • Jonathan Yuen, Partner, Rajah & Tann Singapore
  • Chew Mok Lee, assistant chief executive officer, ICT and media and digitalisation, enterprise services and new industries, Enterprise Singapore
  • Moderator: Lynette Tan, journalist, The Business Times

What are the biggest challenges that continue to hinder firms venturing overseas?

Maureen Low: The main hindrance is the fear of failure and/or lack of resources. Going overseas entails more risks in various aspects such as financial risks, execution risks, credit risks, compliance risks and reputational risks.

SMEs have limited resources. Attracting and retaining talent for their domestic businesses are already challenging, let alone finding the right talent with the right values and skill sets to spearhead their overseas expansion. Even if SMEs decide to recruit talents in the targeted country, they may encounter difficulties in sourcing for operational support locally.

Also, financial resources are needed to sustain their overseas operations. SMEs may be constrained by their financial resources or the lack of available financing to see their overseas businesses to fruition before they become commercially viable.

Another challenge is operating in unfamiliar regulatory environments where the regulations, tax laws, labour laws and business practices are very different from Singapore. SMEs must understand the local market and adapt quickly to overcome these hurdles.

Jonathan Yuen: One major challenge has been the lack of understanding and unfamiliarity of foreign laws and regulatory, business environment, especially if the target market is one where English is not the dominant working language.

Chew Mok Lee: The first hurdle is understanding the product or service-market fit that influences which market to venture to. Next, the challenge of building a strong local foundation that enables smooth coordination of overseas operations and oversight from the headquarters. This could include finding the right talent that understands the local market's culture and nuances.

It's also important to equip yourself with sufficient knowledge to navigate new waters. With this, adapt the business model and strategy accordingly as replicating the same model as Singapore will not work overseas. Alignment in goals and vision, as well as having the right capabilities to execute that vision, is therefore crucial.

How should SMEs ready themselves to go abroad?

Maureen: SMEs can explore tapping on government support and resources to learn about the target country, market, business environment and practices before venturing overseas. If the SMEs are better prepared, they have a better chance of succeeding.

One way is to get in touch with business contacts who have operations in the target countries, tap their experience and networks to understand the local culture and business practices when navigating the local environment.

Before venturing full swing into the target countries, SMEs could consider collaborating with local partners on a project basis or work with local distributor networks.

When they are ready to commit more resources to operate in the target country, they could better prepare themselves by drawing up a robust business plan and gathering the needed funding.

In addition, it is critical for SMEs to groom and send their best talent to run the overseas operations after they have groomed the second-level core team to be in place to manage the existing business. It's also important to put in place proper governance and reporting structures.

Jonathan: They should seek to properly understand the local laws and regulatory frameworks by engaging trusted local consultants such as law firms that can help them to navigate the cultural, legal and regulatory landscape.

It is important to engage only with advisers who are vested locally in the market, rather than foreign advisers who are not even based in the market.

These SMEs should also be prepared to spend the time and resources to localise their business practices and operations.

For instance, labour laws in Asean can vary quite significantly from those in Singapore that companies may be more familiar with.

Mok Lee: Keep an open mind and brace yourself for a different business environment that is often more competitive. Invest in time and resources to understand the landscape, competitors and market needs. It is critical to have a clear, unique selling point.

Be mindful that every market, and even city, is different. Business offerings and strategies need to be customised as it's not a one size fits all.

Don't hesitate to probe and ask for help. Seek like-minded partners who can give you an advantage in a new market. Finally, plan for the long term and don't expect quick returns.

In the recent Budget, there were announcements towards government-to-government (G2G) projects and trade alliances, but some believe the government can still do more to support SMEs going overseas. What kinds of initiatives would be helpful?

Maureen: Currently, the local government offers a number of schemes and grants to help SMEs internationalise. Beyond Singapore, Enterprise Singapore also provides on-the ground assistance and support to SMEs overseas, such as making market connections and facilitating business matching. However, more can be done to help SMEs expedite the commercialisation of their overseas expansion plans such as putting in place an ecosystem and industry specific resources where they can seek consultation.

Mok Lee: We have different help for companies at different stages of growth. For those new to internationalisation, participation in trade shows can be a way to test the market interest and build networks.

Last year, we supported 45 trade associations and chambers and 3,800 enterprises to participate in over 250 overseas trade fairs.

Market immersion workshops also help them understand the complexities of the overseas business environments.

Financing is another area of help. We work with the private sector to curate and offer relevant financing instruments for companies expanding overseas.

We are always on the lookout for business opportunities and will connect SMEs to potential partners and projects. We also bring companies with complementary strengths together for a stronger value proposition.

A number of SMEs see Asean as a growth region. What are the main prospects and challenges particular to the region?

Maureen: Asean as a region provides potential growth opportunities. SMEs can improve their cost competitiveness if their production facilities are located in a country with a lower cost base. They can introduce their products or services to the new and larger markets to tap on the growth potential.

However, the uncertain economic and political conditions in the region may discourage companies from venturing abroad.

Political instability may invariably lead to more frequent changes in laws and policies, thereby disrupting the business environment and creating more volatility.

Jonathan: While Asean is often termed as an economic block, it is in reality made up of a patchwork of not-as-yet homogenised legal frameworks - what works in one country won't necessarily work in the rest.

In addition, there is not as yet a strong common "Asean" identity, as opposed to say, the European Union, whose members have much more established and uniform cultural, economic and legal values and frameworks.

The challenge therefore is that while the Asean countries are grouped as an economic growth block, they are in essence quite different markets with very different segments and needs, and hence needs very different approaches by companies that wish to do business there.

Mok Lee: One challenge is navigating the unfamiliar bureaucratic and business environment. Asean is not homogenous - within each market, even provinces and cities have different demographics and needs.

Decision-making could also be decentralised, so companies need to understand and build relationships with various authorities.

But opportunities are aplenty. Asean's infrastructure gap, growing middle-income class and push towards Industry 4.0 present opportunities in several sectors, including urban solutions, food, retail, technology solutions for automation or robotics and more.

The region is also increasingly digital, giving rise to opportunities such as e-commerce and logistics. The region's availability of resources too, makes it an ideal place to locate relevant parts of business activities. In other words, Asean can be part of the company's value chain.