Techblog
Why Singapore SMEs struggle to internationalise
Despite internationalisation being a key engine of growth for Singapore companies, many SMEs are still reluctant to expand internationally.
A recent QBE study showed that only 14% of Singaporean SMES intend to internationalise while nearly half remarked that they prefer to keep their business within Singapore in the future.
The Singapore government has, in the past few years, consistently announced measures to support SMEs in their efforts to internationalise. This includes the $600 million International Partnership Fund, a co-investment scheme for local firms to increase their presence on the global market.
The government has consistently maintained that as domestic growth continues to slow down, it is crucial for small businesses to generate revenue by expanding internationally. But SMEs continue to be reluctant to expand.
Challenges that prevent SMEs from internationalising
SMEs tend to hold back from expanding internationally because they are wary of the different business cultures abroad – particularly of the Southeast Asian market as well as the Chinese and Indian market. Executive director Teresa Chong of cold-chain logistics solutions provider ITC Group, which also operates in Myanmar said that emerging markets have great potential but its laws are often complicated to navigate.
A difficult market to penetrate would be Cambodia, said director of private investment firm Pacific Equity Group. He said that the Southeast nation is a frontier market and is not based on the English common-law legal system and so it can be difficult to have a comprehensive understanding of the laws and business regulatory regime there.
Apart from a difficulty understanding different markets, SMEs also cited currency fluctuations, keen competition and a struggle to find partners as some of the key challenges for businesses venturing overseas.
What to learn before entering a new market
Fintech startup GoBear CEO Andre Hesselink, which has successfully expanded in ASEAN, stressed the importance of research to understand the market one is entering into. Mr Hesselink said: “We conducted market research with people from the markets we wanted to step foot in. People from different countries often have different preferences – even with seemingly small details like font and colour.”
Businesses should also look out for assistance from both the government as well as the private sector and trade associations. For example, RHB has worked with the Singapore Manufacturing Federation to support business missions for Singaporean businesses to Southeast Asian nations. This has allowed the firms to have a better understanding of the market potential as well as the business regulations there. Such steps allow businesses to be more prepared for internationalisation.
Mr Hesselink also stressed the importance of having local support. He advised SMEs to have a local legal entity to ensure that the business complies with all the local regulations.
Summary:
- Only 14% of Singapore SMEs have plans to internationalise.
- Reluctance to internationalise stems from the challenges of understanding the overseas markets and their laws and regulations.
- Market research in these potential markets is therefore important.
- Besides government support, businesses should look out for support from trade associations as from the private sector.
- It is important to have local legal support in the market that you wish to enter into.