SINGAPORE - Increasingly more small and medium- sized enterprises (SMEs) are heading to overseas markets, to seek greater opportunities and to expand their market in order to achieve sufficient scale for greater productivity.
A survey conducted last year by International Enterprise Singapore also found that 67 per cent of SMEs are aiming to increase the number of overseas markets they are in, a stark increase from 14 per cent a year earlier.
The Business Times held a roundtable with three industry players to find out what SMEs - often bereft of resources - would need to look out for in expanding their footprint regionally and globally.
The Business Times: Expanding to overseas markets is increasingly seen as a popular way to increase sources of revenue. What do SMEs need to do internally to prepare for overseas ventures?
Lim Lee Meng: It is important that the SMEs conduct feasibility studies before they pursue any overseas venture. Firstly, research to understand the market, for example, to determine if there is a demand for their products. Are there substitutes for their products? What are the competitive advantages? Are their products more affordable, of better quality, or have more functions? What are the spending habits of the target customers? What are the channels that they can tap to reach out to the target customers?
Secondly, SMEs need to understand the country's political environment, as well as the rules and regulations of operating the ventures. For example, what does it take to set up a company, the licences they would need, custom duties that will be imposed on the import of their products, foreign exchange control, manpower issues, foreign investment restrictions in certain trades, tax rules, etc.
Thirdly, SMEs are encouraged to draw up their business and financial plans. Set realistic goals and ascertain the financial resources needed to fund the expansion. They will need to consider capital expenditure and the working capital requirements of the new business. If external financing is required, they will need to evaluate how they can go about securing the funding prior to embarking on the ventures.
Lastly, one of the most important questions that SMEs need to ask themselves is if they have the right people with the experience and skills to help them roll out the plan.
Vincent Patru: For SME owners assessing if they are ready to expand, the very first thing on the checklist is to ensure that the core essentials of having strong operational fundamentals, streamlined processes and a well-managed cash flow system are ready to be duplicated into a new market.
Cost control, data availability and policy compliance become critical not only to plan budgets, but also increases negotiation power with preferred suppliers in new markets. Internally, companies should invest in systems that are simple, secure and which work for them, freeing them from the effort and time spent on consolidating expenses and filling up paperwork.
Particularly, for companies that handle numerous transactions as part of their daily operations (eg retail and service industries), allowing acceptance of electronic payments extends its reach to customers and suppliers all over the world.
Danny Lai: We find that SMEs seeking to expand are usually financially sound and operate profitably, but do not always know what makes them successful or what makes them distinctive even within their local market.
A company which is strong locally primarily because of its distribution or long heritage in the market may not enjoy the same advantage as they venture into the region. As such, it is important for SMEs to crystalise their reason for being, or their defining strengths, within their local market before expanding.
Business owners and managers operate and see their companies at such depth that it may not be apparent why customers choose them. The simplest way to get a view of why customers like you and what makes you different is to talk to customers.