How can Singapore SMEs succeed in expanding overseas in the face of trade disruptions?

Singapore’s small and medium-sized enterprises (SMEs) have encountered significant challenges in recent years. The onset of the COVID-19 pandemic brought about new disruptions, ranging from travel restrictions, supply chain disruptions, to cost inflation. These posed issues for Singapore companies looking to expand internationally, from client prospecting, production to product delivery.

Despite the hurdles, there is a strong desire amongst Singapore companies to grow internationally. This is not surprising given our small domestic market. According to an excerpt from a case study recently published by SBF, Hong Guan (Tackle), a Singapore company with products marketed in more than 30 countries, commented, “Singapore is just too small for most businesses. You really need to consider, at least, Southeast Asia as your platform.”^[i]

Indeed, Singapore remains a trading nation. Singapore’s trade openness has been notable, with the ratio of exports plus imports to Gross Domestic Product (GDP) remaining above 300% of its GDP over a decade, from 2011 to 2020^[iii]. With the coming into effect of the Regional Comprehensive Economic Partnership (RCEP), an ASEAN-centred free trade agreement that builds on Singapore’s existing trade relationships with 15 countries, together with 26 existing Free Trade Agreements (FTAs)^[iv] and 2 FTAs currently under negotiations, trade ties between Singapore and various economies are likely to strengthen.

According to the SBF SMEII June 2022 study, companies are motivated to internationalise for a variety of reasons, including the need to increase sales by tapping into customer bases in foreign markets, getting closer to their overseas clients, diversifying operations to take advantage of lower-cost resources and infrastructures and compensating for home market decline or saturation.

There is considerable interest from Singapore companies to continue their international expansion. More than half of the companies with business operations outside of Singapore (55%) plan to further expand in the next 3 years, and 1 in 5 of the companies (19%) that have not gone overseas, intend to venture abroad within the same time frame^[v]. As economies reopen, along with the resumption of business travel, and the relaxation of pandemic measures in overseas markets, almost half of the companies with overseas business (46%) anticipate double-digit overseas sales growth in the next 12 months^[vi].

Based on conversations SBF had with businesses, many enterprises are now ramping up operations, expanding product offerings, and entering new markets to grow revenue. On the internationalisation front, businesses are also aligning their capabilities with potential overseas business partners to maximise competitive advantages in foreign markets.

While internationalisation presents opportunities and benefits, it also carries risks that must be managed. These risks include determining whether a product is suitable for and priced rightly for an overseas market, finding trusted overseas partners or agents, developing trade-ready operations and logistics models, as well as managing trade compliance and financing.

For companies to create value in overseas markets, they need to adjust to the overseas market’s framework by tailoring products and services, generating value propositions that offer competitive advantages. If a business is unable to offer better value than its competitors through differentiation, it may not be able to sustain its operations in the overseas market. Choosing between different ways of entering a market and complying with local regulations are also key considerations when it comes to international expansion.

Moreover, companies may consider relevant trade finance options to mitigate counter party risks such as buyer non-payment via facilities such as a ‘Letter of Credit’ issued by the buyer’s bank. Businesses may arrange with their banks to receive cash through trade finance, to improve their cash flow to fund production and purchases from their buyers. They may also tap into various government support schemes that can help facilitate their internationalisation journeys, such as the Market Readiness Assistance (MRA) Grant^[vii] from Enterprise Singapore.

GlobalConnect@SBF, an initiative led by SBF and supported by Enterprise Singapore, also assists companies that seek to venture into new markets. Its ‘Learn, Land, and Localise’ model guides businesses through the process of internationalisation. With a comprehensive model that helps companies raise their overseas market knowledge, GlobalConnect@SBF offers companies practical guidance and connections to partners, thereby positioning Singapore businesses for a more successful overseas venture.

While internationalisation often refers to more established businesses operating on a global scale, even SMEs with limited resources can internationalise successfully if they play their cards right and put in place proper strategies and execution.

For more information on the Singapore Business Federation’s SME Internationalisation Index Survey, case studies and video features on successful Singapore companies which ventured overseas, visit www.sbf.org.sg/business-advocacy/sbf-research-reports

For more information on GlobalConnect@SBF, visit globalconnect.sbf.org.sg
 
By Mr Solomon Huang, Deputy Director, Research and Publishing, Advocacy & Policy Division, Singapore Business Federation.

[i] https://www.sbf.org.sg/images/CS_No_10__Hong_Guan_Tackle_Final_copy_10_May_updated_v2-1.pdf
[ii] SBF SMEII Internationalisation Study June 2022, page 15
[iii] https://www.statista.com/statistics/1113850/singapore-trade-to-gdp-ratio/
[iv] https://www.enterprisesg.gov.sg/non-financial-assistance/for-singapore-companies/free-trade-agreements/ftas/singapore-ftas
[v] SBF SMEII Internationalisation Study June 2022, page 9
[vi] Ibid, page 10
[vii] https://www.enterprisesg.gov.sg/financial-assistance/grants/for-local-companies/market-readiness-assistance-grant