CONSIDERING international expansion is a natural form of progression for SMEs as a way to remain competitive, particularly for those in the retail sector. This is especially vital given the burgeoning e-commerce industry globally.
In fact, according to a DHL report published last year, cross-border retail volumes are predicted to increase at an annual average rate of 25 per cent between 2015 and 2020 (from US$300 billion to US$900 billion) - twice the pace of domestic e-commerce growth.
There is opportunity for businesses to boost sales by up to 10-15 per cent on average, simply by extending their offerings to international customers.
Yet, despite the attractive opportunity, a QBE poll released earlier this year revealed that almost half (45 per cent) of the 400 firms surveyed in Singapore have no interest in internationalising and will not explore expansion across borders in the near future. This is due to numerous reasons, including insufficient financing and a lack of familiarity with other markets.
I've witnessed these challenges in my line of work and have also learnt that there are multiple ways to overcome them and successfully grow an e-commerce business. Here are three things I've narrowed down for SMEs to consider before crossing borders:
- Understanding target market's customs requirements
One of the first and most critical aspects is for SMEs to know their target market's customs requirements. More than half (54.5 per cent) of the respondents in the Singapore Chinese Chamber of Commerce & Industry's Annual Business Survey 2018 cited unfamiliarity with the standards and processes of foreign markets as their top challenge when venturing overseas. Different countries have different customs regulations, so a lack of understanding can incur costly mistakes, including additional unforeseen expenses, and a fall in customer satisfaction.
Firms also need to take note that certain countries charge Goods & Services Tax (GST) or Value Added Tax (VAT). Importers often do not include the duties incurred in the customs value before determining the actual GST or VAT upon importation, so SMEs that lack technical understanding might not correctly classify their goods using the Harmonised System Codes that is used by most customs authorities to determine the duties and taxes incurred.
This, and other factors such as shipment valuation, can impact the duties and taxes payable and can cause confusion.
While these can be easily bypassed by engaging an experienced partner that is well-versed in the customs regulations across the world, it is still good for firms to have an overview of the basic requirements.
- Getting on top of distribution challenges
Coming from a smaller country also means that distribution challenges are less obvious hurdles to SMEs in Singapore. They may underestimate several logistics processes due to a lack of awareness from a different operating environment. A commonly neglected aspect of international shipping is taking that extra step to find an accurate estimate of time and cost needed to deliver packages.
Anticipating and avoiding potential points of delay is crucial in delivering service promise and maintaining brand reliability in the eyes of your customers. The accurate estimation of transit time is crucial, so that customers can plan around this and manage their expectations. Thankfully, there are reputable courier services that can help take the guesswork out of this task with web-based tools, so SMEs can easily get an accurate calculation.
- Test the waters
Lastly, SMEs ought to consider testing their product's performance in various target markets before deciding on a full expansion. One inexpensive and fast way to do so without having a physical presence overseas is through listing products with e-commerce platforms. This way, they can find out the demand for their product in the target market and gauge the value of their offerings.
Another direct and more immersive method is to visit these target markets to observe cultural differences, consumer behaviour and the activities of their potential competitors. This will allow firms to strategise better and understand how they can personalise their offerings to each market.
As rightly pointed out by Boston Consulting Group's report, SMEs in Singapore need to shift their mindsets and move out of their comfort zone, or risk missing out on potential opportunities in the region.
That said, jumping into cross-border trade is no easy feat, so firms must ensure that they have the right know-how before committing to customers or business partners. Failure to do so can impact both the company's business and reputation.
Partnering with an established logistics service provider is one way to plug the aforementioned gaps and take the guesswork out of these tasks. Their international network and experience with different markets allow them to provide valuable insight and advice, and have a spread of core services such as calculating duties and taxes, or even manage the entire process on behalf of the SME.
SMEs in Singapore are also well-backed by the government which helps to take care of other areas. The recent measures unveiled during Budget 2018 presented higher access to financial support such as grants and tax deduction for internalisation expenses, as well as an online portal for firms to understand and take better advantage of the current free trade agreements.
Overseas expansion is a natural evolution for any business. Furthermore, globalisation, digitalisation and the advancement of technology have paved the way for growth beyond the domestic market.
Ultimately, brands don't have to try to be everything to Singaporeans. They just have to be themselves to the world.
- The writer is managing director for DHL Express Singapore.