WITH the rise of globalisation, Singapore companies have become more attuned in recent years to the importance of moving beyond traditional markets in the region.
A different culture: When doing business in the Middle East, who you know is more important than what you know
Many small and medium-sized enterprises (SMEs), along with the country's larger companies, having benefitted from Singapore's growing economy and strong trade links, have started to venture further abroad in search of new and exciting growth markets.
However, moving into new areas brings its own sets of issues and problems - including the rising importance of understanding the intricacies involved in forming overseas relationships.
A key question every company faces when going overseas is: 'How do I do it?'
While a seemingly easy question, it belies the complexity of choices that companies face on what strategy they should adopt - and industry professionals say there are a number of different factors that companies must consider before taking the plunge.
Chong Lit Cheong, chief executive of International Enterprise Singapore, says which overseas strategy to adopt depends mostly on market circumstances - including the existing framework of legal and tax regulations, as well as the requirements and preferences of foreign partners.
He also points out that structuring the best option is contingent on the resources available as well as the importance of speed to market.
'Mergers and acquisitions are more invasive in nature as compared to joint ventures,' Mr Chong says. 'In integrating a business with its accompanying best practices and methodologies into a foreign market, the process needs to be carefully thought through and handled.'
There is also a need for communication and change management to be discussed in the context of the local culture, and in all circumstances, it is important to give due respect to the culture and capabilities of the partners involved, he points out.
'Understanding the concerns and thinking of the partners will help minimise misunderstanding which can arise from different social and cultural backgrounds,' Mr Chong says.
Phillip Overmyer, executive director at the Singapore International Chamber of Commerce (SICC), says that a big challenge for those who choose a joint venture with a foreign company is to make sure there are very clear expectations and a common understanding of what is expected from each partner.
'What resources does each partner bring into the venture, what management responsibility does each have for ongoing operations, and what termination rights does each partner have?' Mr Overmyer says.
On the issue of culture, Mr Overmyer says that there are two important facets to consider - the culture of the target country or region, and the culture of the company.
'There is only one way to understand the culture of your target geography - and that is to go there!' he says. 'Spend a lot of time, shop for products or services in your sector, make local friends, ask lots of questions, eat the food - don't run out for a bowl of rice every day - and most importantly, don't assume that because people look the same and talk the same as you do, they have the same cultural standards you do.'
In fact, Mr Chong says that in certain markets, the old business adage 'who you know is more important than what you know' really does apply. 'In the Chinese or Middle East business culture, for instance, who you know counts for everything,' Mr Chong says. 'This makes knowing the right persons critical to your business success. In order to establish and maintain such connections, significant investment of management time and patience is required.'
But despite the difficulties and challenges, Mr Overmyer says that there are 'great opportunities' for Singapore firms overseas. Still, firms must plan thoroughly and pace their growth realistically.
'Have a clear thesis for your new venture, and understand how to exploit its advantages,' he says. 'As you get started, make integration issues and communications with your new employees your top priorities, and as the business develops, focus on sustainable profit growth, not just market share growth.'
Plan well before spreading wings
WHAT are some of the key issues that a company needs to address before venturing overseas? International Enterprise chief executive Chong Lit Cheong cites some points from a Bain study that are required for companies to be successful:
Internationalisation business plan
Some companies penetrate too many geographical regions all at once. This results in insufficient financial commitment to any one place and the lack of high-quality management talent in all their overseas offices.
Conducting proper market research
Due diligence on the local competitive environment, products, and customers is necessary prior to expansion into any market.
Assessing globalisation readiness
Companies need to guard against entering markets because of 'we have to be there' mentality. This herd instinct needs to be weighed carefully against what value you can add abroad and whether you have the financial capability, since such a strategy will inevitably dilute returns for a while.
Growth strategy
To ensure sustainable growth in the long run, companies need to develop repeatable formulas in foreign markets.
Manpower
Another common mistake is that they tend to rely too long on expatriates at key executive positions.
Size
A key challenge confronting SMEs when they internationalise is size limitation. One way to overcome this is to band together to share resources, pool risks, increase collective bargaining strengths and achieve economies of scale.
