Collaboration key for SMEs to go global

Goh Beng Kim, head of Commercial Banking, Standard Chartered Bank Singapore

Internationalisation has been a focus for ASEAN enterprises for decades. In fact, a majority of ASEAN business leaders plan to broaden their footprint over the next three years. According to PwC’s APEC CEO Survey 2017, over half are looking to boost their global investments to increase access to overseas markets.

But despite this aspiring trend, small- and medium-sized enterprises (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.

Governments in the ASEAN have taken the lead in promoting co-operation as a way to support SMEs’ business growth. 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. Vietnam has also mandated measures to support MNC-SME linkages for SMEs engaged in ancillary industries.

There are also national programmes to help SMEs move up the value chain. For example, the Partnerships for Capability Transformation initiative by Enterprise Singapore encourages collaboration between larger enterprises and SMEs, and Malaysia’s Third Industrial Master Plan includes a strategy for enhancing partnerships between SMEs, government-linked companies, and local and overseas MNCs. These programmes enable SMEs to upgrade capabilities from technology to productivity and supply chain management.

Access to finance

While partnerships between companies of different sizes help transfer knowledge and skills, one of the biggest challenges facing SMEs – access to additional capital – remains. The lack of available working funds limits smaller companies’ ability to plan ahead or take advantage of opportunities to grow and diversify.

According to the 2017 ADB Trade Finance Gaps, Growth, and Jobs Survey, the global trade finance gap is estimated at $1.5 trillion – 40 per cent of which originates in the Asia-Pacific, and 74 per cent of rejected transactions come from SMEs and mid-cap firms.

Besides collaborating with larger companies or MNCs, SMEs also need to partner financial institutions with a well-connected network to gain access to capital. With MNCs as the anchor, financial institutions can bank their entire supply chain of suppliers and distributors. In this way, banks support the smaller players in the supply chain through lower pricing and less collateral requirement. The freed-up liquidity leaves room for smaller suppliers to invest in additional capabilities to meet MNCs’ demand. In turn, MNCs can also benefit from better vendor loyalty, vendor discounts, and preferential payment terms from their suppliers.

In addition, there is merit in SMEs and MNCs leveraging their comparative advantages. When compared to their larger peers, SMEs have fewer resources to achieve efficiencies and economies of scale.

By working with their bigger peers, SMEs can prioritise their limited resources to focus on where they add the most value in the supply chain and rely on MNCs to conduct market due diligence, hire and develop local talent, as well as build manufacturing and technological capacity in overseas markets.

Going places

That said, venturing into a new market can still be daunting. It is more than learning a different language and culture or navigating differences in social, political and legal systems. It is also about finding suitable business partners and forming effective partnerships.

Tying up with international banks with deep local knowledge and international networks is what will connect the dots. These banks can share with SMEs insights on business practices and regulations in the new markets, as well as introduce these enterprises to potential business partners, all of which are critical for success overseas.

International banks, such as Standard Chartered, also leverage their own partnerships to help SMEs succeed in new territories. In working closely with the Singapore Chinese Chamber of Commerce & Industry and Singapore Business Federation, the Bank has been able to connect Singapore companies with overseas local businesses and share market insights during business missions to Bangladesh, Sri Lanka and Kenya this year.

The bank’s decades of experience serving clients in various sectors makes it well-positioned to help Singapore companies and foreign businesses in these markets to form meaningful partnerships.

Exploring new territories is taking a leap of faith. Putting it into action requires greater collaboration, and that means strengthening the partnerships between SMEs, MNCs, and financial institutions. Together, they can go places.