By Goh Beng Kim, Head, Commercial Banking, Singapore, Standard Chartered Bank
Despite this encouraging trend, SMEs continue to face challenges in upgrading their capabilities and conquering new ground. For it takes more than a silo approach to venture into uncharted territory.
Collaboration among enterprises is key when it comes to SMEs’ internationalisation efforts to play a bigger role on the global scene.
In Singapore, the Committee on the Future Economy has flagged collaboration between MNCs and SMEs as vital to the country's growth in the next five to 10 years. Increased partnership will support SMEs' continuous growth and lift Singapore Inc.'s productivity and competitiveness in the global economy.
The public and private sectors are working together to promote the SMEs in moving up the value chain. The Partnerships for Capability Transformation initiative under Enterprise Singapore is one such programme that encourages partnerships between larger enterprises and SMEs. This initiative enables SMEs to upgrade capabilities from technology to productivity and supply chain management.
Trade associations and chambers in Singapore have also been connecting enterprises of different sizes through their membership platform and activities such as overseas business missions.
Through collaborating with larger companies or MNCs, SMEs can also manage some common challenges better when expanding overseas.
Access to finance
Various surveys have confirmed that one of the biggest challenges that SMEs face when going abroad is gaining access to additional working capital.
According to The Singapore Working Capital Study 2017, medium-sized companies (with turnover of S$10 million to S$100 million) struggle the most in managing their working capital.
The Asia Development Bank's 2017 Trade Finance Gaps, Growth, and Jobs Survey states that the global trade finance gap is estimated at US$1.5 trillion - 40 per cent of the gap originates in Asia-Pacific, and 74 per cent of rejected transactions come from SMEs and mid-cap firms.
One way that global banks, such as Standard Chartered, can help is to bank their clients’ whole supply chain of international and domestic networks of suppliers, distributors, and customers.
With MNCs as the anchor, banks can support the smaller players on the supply chain through lower pricing and less collateral requirement. This enables the smaller suppliers to convert the freed-up liquidity to invest in additional capabilities to meet MNCs' demand. In turn, MNCs can benefit from better vendor loyalty, vendor discounts and payment terms. The whole supply chain becomes more efficient.
When compared to their larger peers, SMEs have fewer resources to achieve efficiencies and economies of scale.
By working with MNCs, SMEs can prioritise their resources where they can add value most in the supply chain, and rely on MNCs to conduct market due diligence, hiring and developing local talents, as well as building capacity in overseas markets.
Take the infrastructure sector as an example - this is a highly-regulated industry in many markets that is very challenging for SMEs to enter. But when SMEs collaborate with larger Singapore companies and partners in local markets, they get to participate in overseas projects while focusing their resources on building their distinct capability and expertise in the value chain.
Gaining market insights
Another challenge that SMEs often face is the lack of familiarity with overseas markets before entering new markets and ventures. Once an overseas operation is established, it takes time to come to fruition or become commercially viable. SMEs can achieve quicker success by collaborating with MNCs that have the market insights or partnering with local companies with in-depth local knowledge.
While collaborating with local partners is the most direct and effective way for SMEs to gain insights and manage risks of a new market, finding suitable overseas partners continues to be a top challenge for SMEs.
After all, venturing into a new market requires much more than navigating a different language or culture; differences in social, political and legal systems are barriers that SMEs need to overcome when pursuing new ground for growth.
Tying up with international banks with deep local knowledge and well-connected networks is what will help SMEs connect the dots. These banks can help SMEs gain insights into a foreign regulatory environment and new business practices, as well as meet potential business partners, all factors critical in helping SMEs achieve success quicker.
For example, Standard Chartered has been working closely with Singapore Chinese Chamber of Commerce & Industry and Singapore Business Federation to connect Singapore companies with local businesses and share market insights. In 2018, these two associations organised business missions to Bangladesh, Sri Lanka, and Kenya. Standard Chartered’s decades of experience in these markets serving clients in various sectors make it well-positioned to help connect Singapore companies with local businesses to form meaningful partnerships.
Programmes such as the Asean Economic Community and the Belt & Road Initiative are poised to drive better connectivity and prosperity within the region and with the world. Greater collaboration between Singapore companies and foreign and local enterprises will empower SMEs to take a leap of faith to go after cross-border growth opportunities.