Multilateralism has come under greater threat over the past few years. Sino-US trade tensions have escalated, and Brexit demonstrates the rise of populism and protectionism. Thus far, ASEAN has resisted these threats. Within the region, trade, investment, and visitor numbers have nearly tripled since 2017.
The combination of these factors makes it important for SMEs, particularly in Southeast Asia, to focus on cross-border expansion. As the US and EU turn protectionist, they are likely to lower import volumes, leading to general economic slowdown. A solution to this is for ASEAN nations to trade more with each other – a step that seems to be taking place. However, greater integration could also mean more competition. For those who fail to expand, free trade may mean more competition and consequently, a smaller market share.
As such, it is time for SMEs to move their expansion plans off the drawing board and towards these concrete steps.
1. Understand how your business purpose interacts with regional realities and prove the model
It is important to first prove the business solution or model; similar to creating a prototype that validates a technical solution but on a larger scale. When validating the value of your business solution, first identify and understand the market need or opportunity, before planning and executing a pilot or local rollout to see the traction and gauge market response.
For instance, Validus, an SME financing platform founded in 2015 in Singapore, had built and proven its data and technology capabilities to successfully handle over a record $250 million in SME funding, before expanding into Indonesia and Vietnam.
Validus’ business purpose – to drive financial inclusion and build better business communities in emerging markets – is an exact fit for the region. When Validus was launched in Singapore, it was with a clear understanding of the regional reality; there was a US$175 billion financing gap in Southeast Asia, with SMEs struggling to secure business loans from banks.
Similarly, ensure that your business purpose fits regional realities. This can be done by addressing existing pain points or offering solutions for current inefficiencies. This necessitates a high degree of qualitative, as well as quantitative research, since numbers alone may not reveal cultural realities.
2. Conduct in-depth market analysis
At the most basic level, the following facts should be determined:
Potential market size
Growth potential given underlying factors (e.g. digital services growth is usually proportionate to the country’s internet connectivity/mobile penetration)
Operational costs (particularly shipping, storage and rental)
Availability of distribution channels
Besides the above, the regulatory requirements of the intended destination should be studied to ensure compliance with local laws.
3. Build key partnerships with other businesses or government bodies
Even before expanding into another market, businesses should identify firms with which they have synergy. For example, if a business is transport related, it may wish to collaborate with local furniture companies to handle their delivery service.
This is made easier today by initiatives like Enterprise Singapore’s Plug and Play Network. These supported programmes can help in a range of ways; from simply finding the right office space to introducing the right business partners.
Businesses should also be on the lookout for government bodies that can give investment direction. For example, InvestHK (Hong Kong) or SAGIA (Saudi Arabia) provide more than regulatory aid. They also have programmes to channel foreign businesses towards areas such as infrastructure projects.
With growing global headwinds driving SMEs to pursue longer-term growth within ASEAN, it is a necessity for SMEs facing small domestic markets to capitalise on opportunities for growth and expansion.
Cross-border expansion for SMEs in such situations is not merely an aspiration. It is a matter of survival in the decades to come. For many, the challenge of going international is due to financing as SMEs need capital to expand. This may not be easily obtained from mainstream banks that may not be well-positioned to work with them. As such, SMEs should consider alternative sources of financing, such as trade or invoice financing on platforms like Validus, as a means to expand its business footprint globally.
X.Y.Ng | VP, Brand and Digital | Validus
With over 10 years' experience across Singapore and Australia, X.Y. heads Marketing and Communications at Validus, Singapore's largest SME financing platform. X.Y.'s team develops and implements data-driven marketing and communications programmes that drive revenue growth and market share in the ASEAN region. Her responsibilities include brand, digital, public relations, events, partnerships and B2B marketing for the business.
X.Y. holds a Bachelor of Commerce in Marketing and Public Relations from Murdoch University. She regularly speaks about FinTech lending, and has published articles on SME financing and peer-to-peer lending.