Addressing the top 4 globalisation challenges faced by Singapore SMEs

With just seven hours of flight or less, people and goods from Singapore will be able to reach a total of 2.8 billion¹ population in ASEAN, Australia, India, and China. Singapore's strategic location is a valuable asset that reinforces our position as a regional business and logistics hub.

It also guarantees that our local SMEs, which form 99 percent of enterprises in Singapore, are well-positioned to tap on the region's growth opportunities. In addition, it is essential for SMEs to capitalise on foreign markets for continual growth beyond the borders of our domestic market, which can help ensure their survival and prevent the stagnation of our economy.

Despite the benefits of globalisation, the number of SMEs that have expanded overseas have declined. According to the DP Information Group, SMEs with international business elements have reduced from 54 percent in 2012 to 46 percent in 2013².

So why the disconnect? As an international express services provider who works closely with SMEs, we see four major challenges hindering the globalisation of SMEs in Singapore.

Finance
SMEs in general have smaller budgets and will need to focus their funds on core activities that either generate profits or raise productivity. As such, the upfront investments required for overseas expansion are often prohibitive.

Internationalisation can also be a painful move for SMEs as they risk having insufficient working capital to cover short-term liabilities when they divert their cash flow overseas.

Manpower
Manpower has always been a top challenge for Singapore SMEs³ and this scarce resource is usually used to meet core business needs.

Additionally, SMEs are very selective in the training opportunities they offer employees and often require these trainings to be tied to the firms' core competencies or raising productivity. As such, many SMEs do not have the personnel with specialised skills to establish and maintain cross-border operations.

Capacity
Most SMEs run lean operations and do not have the capacity to scale their production to meet additional demands. This can limit their capability to explore growth opportunities abroad.

SMEs are also unable to achieve the efficiencies and economies of scale that multinational corporations (MNCs) can achieve. As a result, it might not be profitable for them to ship their products overseas due to the cost of exportation.

Knowledge and Networks
International trading requires extensive knowledge of foreign markets, regulations, and business norms. Having the right network in the target market is also necessary for companies to grow their footprint there.

However, SMEs usually have limited access to this information and their networks are frequently confined to Singapore. This hinders their internationalisation plans and makes it difficult for them to thrive overseas.

Recommended Strategies to Overcome Challenges

The good news is that the Singapore government recognises the need for SMEs to expand abroad and has put in place several measures to help them globalise.

The Singapore Budget 2014 has announced that the maximum loan supported by the Internationalisation Finance Scheme has been raised from $15 million to $30 million for two years⁴. This will further help companies to obtain the necessary financing to invest overseas or have the required working capital to secure projects in other countries.

The Global Immersion Program (GIP) from Workforce Development Agency (WDA) is another government initiative that was established to equip SMEs with the required skills and mindset to compete well internationally. It will focus on facilitating cross-border expansion for companies as well as train a pool of Singaporean executives and managers who are able to lead such efforts effectively⁵.

Besides government initiatives, SMEs can also partner with certified international specialists and logistics service providers to overcome those challenges. These partners will be able to provide effective cross-border support and logistics services with reduced risks, allowing SMEs to focus on their core businesses.

In addition, these services are typically customisable, giving SMEs the flexibility to tailor their export requirements and accommodate spikes in demand. This empowers SMEs with the needed capacity to explore new cross-border opportunities.

By collaborating with an international trade specialist, SMEs can also tap on their knowledge and networks to access their target customers. These organisations usually have an extensive customer base as well as relationships with chambers and industry associations in foreign marketplaces.

This highly-valued network of contacts can help SMEs reach their desired buyers efficiently and effectively. They can also advise SMEs on the economic situations and business norms in other countries, enabling SMEs to better plan for their success.

With Singapore's 20 Free Trade Agreements (FTAs) with 31 trading partners, SMEs in Singapore are able to enjoy easy and quick access to the regional markets. While this trade connectivity and market access offer significant advantages for local SMEs when they are increasing their footprint overseas, the key to growth and success still lies in each SME's appetite to venture abroad.

As an important economic pillar, SMEs will need to kindle their growth aspirations and soar overseas in order for Singapore to continue to uphold a vibrant economy and enjoy sustained progress.

¹SG Press Center, Asia Competitiveness Institute Conference Dinner
²DP Information Group, Singapore SMEs Need to Get Their ‘Mojo’ Back
³DP Information Group, Singapore SMEs Need to Get Their ‘Mojo’ Back
⁴Singapore Budget 2014, Measures for Businesses
⁵WDA, Factsheet on Global Immersion Program