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Collaborations key to going global
INTERNATIONALISATION has been a focus of Singapore and local enterprises for decades. In fact, Singapore companies engaged in overseas business activity has risen to an all-time high (83 per cent), according to the Singapore Business Federation (SBF) National Business Survey 2017/2018.
Despite this encouraging trend, SMEs are still facing challenges in upgrading their capabilities and conquering new ground.
Enterprises' collaborations can be key to encourage more SMEs to internationalise and play a bigger role on the global scene.
Enterprises' collaborations can help SMEs move up the value chain
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. This is a noble cause which will support SMEs' continuous growth and lift Singapore Inc's productivity and competitiveness in the global economy.
We have seen the shift towards some SMEs playing a bigger role in the global supply chain. These companies are differentiating themselves by providing value-added services, customised, high quality and lower cost products with faster speed to markets.
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. Through this programme, hundreds of SMEs have upgraded their capabilities in various areas including technology, productivity and supply chain by working with MNCs.
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 financing
Various surveys have confirmed that one of the biggest challenges that SMEs face when going aboard 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 which we can help as a bank is to engage our clients to bank their whole supply chain, which includes international and domestic networks of suppliers, distributors and customers.
With MNCs as the anchor, we support the smaller players on the supply chain through lower pricing and less collateral requirement. This way, these smaller suppliers can convert the freed-up liquidity to invest in capability to meet the MNCs' demand. 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 the efficiencies and economies of scale.
By working with MNCs, SMEs can prioritise their resources to 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 sector in many markets which makes it very challenging for SMEs to enter. By collaborating with larger Singapore companies and finding partners in local markets, SMEs can 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 also takes time to come to fruition and become commercially viable. Collaborating with MNCs which have the market insights or partnering with local companies can help drive success quicker.
Venturing into a new market requires much more than navigating a different language and culture; differences in social, political and legal systems are all barriers that can discourage SMEs from pursuing new ground for growth.
Collaborating with local partners is the most direct and effective way for SMEs to gain insights and manage risks of a new market. However, finding suitable overseas partners continues to be a top challenge for SMEs.
Tying up with international banks with deep local knowledge and international network to connect the dots - gain insights into regulatory environment and business practices, meet potential partners and improve cultural intelligence - is a way SMEs can extend their collaboration network.
For example, Standard Chartered has been working closely with Singapore Chinese Chamber of Commerce & Industry and SBF to connect Singapore companies with local businesses and share market insights during business missions to Bangladesh, Sri Lanka and Kenya this year. Our decades of experience in these markets serving clients in various sectors allow us to connect Singapore companies with local businesses to collaborate and build meaningful partnerships.
Initiatives like Asean Economic Community and Belt & Road are poised to drive better connectivity and prosperity within the region and with the world. More collaborations between Singapore companies and between foreign and local enterprises will allow SMEs to take a leap of faith to go after cross-border growth opportunities.
- The writer is head, commercial banking, Singapore, Standard Chartered Bank.