By Mr Ang Ser Keng
There are many reasons as to why a Singapore SME may wish to venture abroad. An often-cited reason is that the domestic market is too small, and that moving businesses abroad is crucial for survival. Other SMEs see the overseas markets as an opportunity to extend the reach of its superior or unique products and services. Regardless of the underlying motivations for venturing abroad, there are a number of key considerations that an SME needs to address in order for this significant endeavor to yield positive results.
As the first step in preparation for venturing abroad, an SME should conduct a thorough strategic review of itself, specifically its internal strengths, capabilities and readiness to venture abroad. Only when a firm has determined that it is capable and ready, then it will avail itself of the full opportunity set for the endeavor.
The next critical step is to understand the alternative means for venturing abroad. These include basic methods such as exporting and riskier methods such as acquisitions. The ideal choice of a method depends on several factors that will be discussed later in this article.
If the SME cannot conclude that it is fully ready, it can only consider the most basic form of expansion abroad, which is simply to engage in exporting, the first step. Otherwise, it may consider adopting an active approach to ascertaining what it lacks, in order to avail itself with the full opportunity set for venturing abroad.
Meeting the basic requirement: strong domestic business
One of the key outcomes of venturing abroad is the introduction of uncertainties to the business. In the extreme case of an acquisition of an overseas company, it can be highly stressful for the organization, since the action will invariably thrust the business into a state of flux. Unless the domestic business has a good foundation, the entire business may be adversely affected. In perspective, an SME can ill afford to focus on its overseas operations, while leaving the backdoor open to danger of attacks from competitors.
A strong domestic business forms a solid foundation upon which the overseas venture can leverage on. It becomes a base upon which you can launch an international business strategy – the SME should use the capabilities, cash flow and resources from the local business to support its overseas business.
Clarity of the rationale for the overseas venture
Assuming that the conclusions from the prior exercises are positive, the next step is to gain clarity on the rationale of establishing its business abroad. The result of this exercise will guide the SME in the choice of methods applied to expand abroad while at the same time assist in the evaluations of different companies. Subsequently, this would allow for a more informed decision on which company to acquire, if applicable, enabling for a more successful and compatible overseas venture.
In this respect, it is useful for the SME to be sure about its rationale for the overseas venture. Specifically, it needs to be clear about what this effort aims to achieve. Some critical questions that an SME needs to ask itself include: Is it access to foreign markets? Is it to gain knowhow? Is it a brand that can be used in the domestic market? Is it lower cost of production? Is it to gain market share? How does this venture relate to the future and vision of the firm? What is the level of risk does this venture entail? What happens if the firm does not venture abroad?