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How Singapore SMEs are embracing internationalisation

Dr Biz • Aug 05, 2020

Internationalisation has been a challenge for many of Singapore’s small and medium sized enterprises (SMEs), who have historically been reluctant to expand their operations abroad. In a 2018 survey from QBE, for example, only 14 percent of the country’s SMEs said that they planned to go global, with more than half (56 per cent) stating they had no plans at all to internationalise.

This attitude is, however, changing. With business conditions at home growing more competitive and greater opportunities opening-up abroad, more and more of Singapore’s businesses are going global. According to the Enterprise Singapore, 2,600 businesses expanded overseas in 2019, with over half from the wholesale trade, professional services, IT and communications, and retail sectors.

QBE’s most recent poll, infact, shows that 22 percent of SMEs are now looking at internationalisation - up an incredible 10 percent from just two years ago. This is supported by data from the Singapore Business Federation (SBF), which found that eight in 10 businesses in Singapore now have an international footprint. This is an increase of 9 percent in just one year and demonstrates the appetite for expansion that is now growing among Singapore’s SMEs.

Even more encouraging is that it is Singapore’s smaller businesses leading the global charge. QBE reports that, among those that had not yet internationalised, smaller SMEs were more willing to seek out international opportunities than their medium and larger-sized counterparts. This underlines the tenacity of the country’s start-up sector, which is internationally recognised as one of the most vibrant in the world.

ASEAN and Hong Kong lead global destinations

Perhaps unsurprisingly, those Singapore SMEs considering internationalisation are most keen to explore opportunities in neighboring markets, with Malaysia the standout destination of choice for local businesses looking to go global. This is closely followed by Indonesia and Thailand. In-fact, the SBF reports that 82 percent of Singapore’s businesses that do business abroad have a presence in ASEAN (Association of South East Asian Nations).

Outside of the region, China’s megalithic market takes up the lion’s share of Singapore’s international business activity. There is also growing interest in expanding into Hong Kong, with 34 percent of Singapore’s larger businesses surveyed by QBE choosing the region as their second favourite for expansion, after Malaysia. This is, perhaps, unsurprising given the current economic and political situation in Hong Kong, which is making it difficult for businesses in the formerly autonomous region to operate.

Indeed, according to Bloomberg, the unrest in Hong Kong could create a number of opportunities for businesses in Singapore, who can look not only to provide services in the region, but also to capture some of its global market share. The benefits of a stable, supportive government combined with favourable business conditions and international reach make Singapore a strong contender for Hong Kong’s crown as Asia’s first global city.

Reluctance to internationalise remains

Despite this clear trend toward greater internationalisation, however, fears remain among Singapore’s SMEs over expanding their operations abroad. Some of the key barriers reported include different business practices in neighboring ASEAN countries, as well as in India and China. For example, Myanmar and Cambodia do not operate under common-English law, which can make it harder to do business.

Other barriers include financing, with some SMEs less confident about cash-flows and financing options for internationalisation, while currency fluctuations – especially in frontier markets inside Asia and Africa – are also a big concern. Finding trusted local partners is seen as another potential problem, with cultural and also language barriers featuring among SMEs’ top fears.

In answer to these concerns, the government has introduced a number of schemes and measures to help Singapore’s SMEs internationalise. These include the Double Tax Deduction for Internationalisation (DTDi), which offers a generous 200% tax deduction on eligible expenses for international market expansion and investment development activities, helping to offset the cost-related risks.

Overcoming global barriers

Singapore SMEs with international ambitions can also access funding through the Market Readiness Assistance (MRA) grant, which allows businesses to claim up to 70 percent of eligible costs up to S$100,000 for activities such as overseas market promotion and business development. As part of the Enterprise Grow Package introduced in Budget 2020, companies using the MRA can also consult the government on how to utilise the free trade agreements Singapore has agreed with other countries.

The Enterprise Development Grant complements the MRA with assistance for mergers and acquisition (M&A) activity, pilot projects as well as all important standards adoption, allowing companies to understand and implement key standards and certifications in other regions. Recent figures show that, in 2019, these and other government grants provided assistance to 600 projects that are expected to generate S$8.8 billion of overseas sales and S$8.9 billion of overseas investments.

Further government initiatives include Enterprise Singapore Overseas Centres, where businesses can find information and business leads for over 35 international locations; the Global Ready Talent Programme, which helps businesses to find the right international talent; the LEAD International Fairs & Missions, which provides funding for SMEs to attend overseas missions and trade fairs; and the Grow Digital programme, which can connect SMEs directly with e-commerce platforms abroad. Check out Enterprise Singapore for more.

Accessing new markets and customers can be tough for any business, and many have good reason to be cautious. After all: sometimes it’s better to do one thing well rather than do many not quite so well! However, in an increasingly global and digital world, it is becoming more and more important to consider overseas markets. Internationalisation, while perhaps daunting, contains significant opportunities for Singapore’s dynamic and diverse SMEs. It is now up to more of the country’s smaller businesses to seize them, and thrive.

At Dr Biz, we provide tailored and comprehensive solutions for our client's business needs. From incorporation to accountancy, tax and payroll, to professional advisory services, we help businesses in Singapore assess potential risks and become more cost effective and efficient.

To find out more, please feel free to contact us.

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