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Business Times, Singapore 1000/SME 500 - 19 Jan 2007

Take note before you venture abroad

By TAN SIEW MENG

WHILE most small and medium enterprises can probably pinpoint their successful start to an initial focus on the domestic market, they recognise that international competitiveness is fast becoming essential to ensuring long-term survival and growth.

Venturing overseas can be an exciting and rewarding prospect for these businesses, given the rising challenges in the domestic market such as increasingly high costs and a small domestic market in Singapore.

However, venturing abroad also has its problems as businesses will have to contend not just with business challenges, such as the lack of cash flow and payment facilities, increased exposure to financial risks and finding the right talent to support the overseas expansion, among others; they would also have to deal with the additional burden of working through the unique business climate and practices, laws and regulations, as well as social and cultural norms of the countries they seek to enter.

Local businesses should thus assess their readiness to expand overseas. They should consider key factors relating to their financial resources, management competence, operational proficiency and marketing expertise. They should also ensure that the following pointers are reviewed before venturing forth.

• Getting financing: Small businesses need more than just cash. SMEs should look for a financier that would provide not only capital, but also support and expertise to the overseas business. They should look to follow these basic steps to raise finance for the expanding business - prepare a business plan; decide on how much financing is needed; review the various financing options; and assess the risks.

• Getting legal and taxation advice: Legal problems can tie up critical resources for months or even years, and leave the business vulnerable. Businesses should see a professional adviser about the range of laws that are likely to affect the business, and ensure that tax liabilities are met. They should be aware of restrictions, if any, on sales activities in the overseas market and comply with local employment legislation, particularly in hiring or dismissing personnel.

• Watching out for tariffs or quotas: Each country has its own tariff and quota system, so it is essential that the SMEs, who are looking to do business overseas, are knowledgeable on the trade tariffs and quotas in their target market, particularly those that would affect their business. For example, Japan imposes tariffs on imports of many agricultural products, while all Singapore tariffs for US goods are bound at zero.

• Tailoring marketing efforts for the target market: Trade fairs can provide a useful source of contacts for potential customers and help the businesses to research the new markets. Through these, businesses should find out who the potential customers are. What are their lifestyles, needs and habits? How will they use the product that is being introduced? What is the best way to reach potential customers?
  
  Marketing and publicity efforts should be localised for the target market, as what works in one market may not work in another.

• Insuring the business: Small businesses should look to protect themselves against potential risks they face when trading overseas, which may include bad debt and losses due to disruptions such as customer insolvency, protracted payment, or payment default.
  
  Trade credit insurance offers safer penetration into new export markets where the businesses may be working with new international partners and customers. It can also protect against political risks, which may include disruptions such as the cancellation of import licenses, import bans and currency restrictions.

• Recruiting the right people: Businesses should familiarise themselves with recruitment procedures and employment laws in their target markets. The local labour department may also offer some free recruitment and employment services. SMEs should assess the kind of work that needs to be done and plan ahead for potential future needs. They should also explore all options, including hiring full-time, part-time, temporary staff or even outside contractors.
  
  Businesses should ensure that workers are fully trained and are able to operate to a high standard, as investments in training can pay long-term dividends.

The writer is head of commercial banking at HSBC Singapore