What Are the Obstacles in Getting Singaporean SMEs to Go Overseas?

By the SMU Social Media Team

Although Singapore is wealthy, its small size means that the domestic market for products and services is small and highly competitive. For ambitious small- or medium-sized enterprises, the only way to grow is to expand beyond the borders of the island, either into neighbouring countries or into developed markets further afield.

A 2016 survey by Enterprise Singapore found that SMEs that had expanded into foreign markets found that their overseas revenues quickly outstripped their domestic revenues. In fact, the survey showed that overseas revenue had accounted for 53 per cent of total revenue when it came to SMEs, while for large enterprises overseas revenue formed only 40 per cent.

For the government, it is important that companies do this—such a small, open economy needs to build home-grown, global companies to complement the multinationals that have based themselves in Singapore. However, encouraging local companies to move into international markets has proven difficult.

A recent study by insurance company QBE found that only 14 per cent of SMEs in Singapore intend to expand overseas in the near future; 45 per cent said that they have no intention at all of going international.

As Dr Tan Wee Liang, Associate Professor of Strategic Management at Singapore Management University’s Lee Kong Chian School of Business says, many SMEs simply are not equipped to go beyond their immediate market. Small food and beverage outlets and very local family companies have enough challenges getting by without thinking about expansion.

Even those companies that may have a desire to expand internationally find themselves limited by a lack of manpower and financing, Dr Tan adds.

“There could be a preoccupation with the fact that I am trying to surviveI have an urgent, immediate, local concern—I haven’t got the capacity to go overseas,” he says. “You have to have excess capacity of some sort. If you don’t have the time then you won’t be thinking about going overseas yet.”

The QBE study found that funding was the main barrier for SMEs, closely followed by a lack of familiarity with the operational environment in foreign markets.

Financial constraints can be hard to overcome, as small businesses already face difficulties in securing credit, and local banks are often reticent in supporting SMEs. However, public sector support is available—such as a scheme in which the Singapore government guarantees local banks’ lending to local companies for overseas expansion, Dr Tan says.

In the 2018 budget, the government announced new measures to support internationalisation, including the ASEAN Leadership Programme, which will help companies to build their networks and talent base in the rest of Southeast Asia; the Partnerships for Capability Transformation initiative, which sets aside funding for collaborations between Singaporean and overseas companies; and the Open Innovation Platform, which connects digital businesses to opportunities.

The budget also includes enhancements to the tax rules for internationalising companies, and a new Enterprise Development Grant.

“So there are schemes, but it requires you to find out, and then sit there and think: how can it be used?” Dr Tan says.

He points out there are SMEs who have been astute in seeking the right assistance. These companies engage consultants who lend their expertise in areas such as international brand building and conducting market intelligence overseas, and their fees are subsequently reimbursed through relevant government support schemes. He cites an example of an F&B business that was expanding through franchising, and had engaged a consultant for a mystery dining assignment in a prospective franchisee’s place of business in Kuala Lumpur. This, he noted, was a very “smart thing to do and within the scope of the government assistance scheme.”

Dr Tan says that there are some lessons to be drawn from his research into companies that have succeeded in their international expansions. One is that partnerships with overseas businesses, either through contracts or equity joint ventures, can help to reduce the risks of operating in an unfamiliar market and create a more bankable prospect for financial institutions.

Another is that successful entrepreneurs match their own abilities and objectives with the right markets.

“They must know why they’re going in the first place. It’s going to be difficult. So there must be an objective in mind. Second, if you go overseas, you must have a viable product or service that other people overseas want,” he says.

There is also a component of psychology and personality involved, he adds. Some people thrive on taking risks, others do not. SMU gives students the opportunity to go overseas during their studies on exchanges, and to visit Singaporean companies that have succeeded internationally. However, he has found that simply travelling during university does not necessarily mean that people will “get the bug” for working in other markets.

“You can take a horse to the water, but you can’t make it drink,” Dr Tan says. “Human beings tend to prefer certainty and comfort to risk. They will have to examine the trade-off. Some people have the capacity for risk, and they take the risk.”