For businesses that face difficulties preventing the expansion of domestic operations such as an oversaturated market or lack of demand for the product, a logical step for business growth would be to journey abroad to seek out alternative opportunities through overseas expansion. This view is echoed by Minister for Trade and Industry Lim Hng Kiang who, at the inaugural Internationalisation Forum, expressed concern that a sustained period of “low economic growth and low commodity prices” is “becoming the reality” for Singapore’s economy[1]. To address this problem, he added that “companies need to venture into new and diverse markets, expand their international footprint and gain economies of scale[2].”

Benefits of expanding your business overseas

– Untapped market: Expanding into untapped markets where there is an appetite for its products allows a business to take advantage of the high demand low supply situation – especially relevant for businesses facing an oversaturated domestic market. This would mean that the business could replicate its operations in the new market and without competition, its margin will not be squeezed.

– Even out sales: Businesses can utilise the countercyclical fluctuations of markets with different seasonal demand trends to stabilise their product sales. This enables them to diversify their revenue stream and continue operations when the domestic market is experiencing a downturn, a core aspect of Business Continuity Management – a critical concept we touched upon in a previous article.

– Potentially lower cost:  By expanding operations, businesses can capitalise on various economies of scale such as technical economies and purchasing economies. Moreover, some governments also offer incentives to foreign firms such as low corporate taxes since the arrival of foreign firms would indubitably bring about a boost to the economy by creating jobs.

– New ideas and concepts: The technological know-how in the foreign market can be exploited to enhance a business’ production process in its own domestic market. Analysing the business models of overseas companies may also provide valuable lessons that the business can use to improve their own operations.

Challenges

Of course, such a move is not without its risks and challenges. Apart from the significant costs of setting up a business overseas, the following hurdles should also be considered:

– Rushed, unfinished product being released into the overseas market which would end up damaging the business’ reputation instead of enhancing its global footprint. It is crucial to tailor your product to different markets.

– The increased demand may put massive pressure on operations – threatening product quality and customer satisfaction due to reduced customer intimacy[3]. For instance, their business IT systems may be unable to “cope with managing a larger, more complex business model[4].” This would be an example of dis-economies of scale.

– “Difficulty of navigating an unfamiliar business and bureaucratic environment[5]” which is perhaps the most complicated of all.

How to go about the overseas expansion

– Assess company readiness: It is extremely necessary to analyse the business’ current operations to see if the company is able to withstand the impact of an overseas expansion where many aspects of the business such as management and production capacity will be put through enormous strain.

– Conduct market research: The target market has to be studied extensively to determine various factors such as infrastructure, culture, language, consumer characteristics and preferences as well as familiarity with your product.

– Seek advice and assistance: To address the issue of cost, the Government has introduced various measures aimed at supporting businesses who are looking to expand overseas such as IE Singapore’s Market Readiness Assistance Grant and Global Company Partnership Programmes.

– Partner up: Businesses may partner together to form consortiums[6] to help with overseas expansion, pooling their knowledge and resources to improve their chances of success in a foreign market. They can also piggyback on larger, more established companies who possess considerable experience in that particular market. For example, CapitaLand regularly encourages Singaporean retailers to populate their overseas shopping malls as it “adds a Singapore dimension to (their) malls[7]”.

Financial solution – overseas expansion

It is imperative that businesses do their due diligence before expanding overseas. If you want to grow your business overseas but are worried about cashflow, we at Invoice Interchange are more than happy to help. We provide an innovative way for businesses to optimise their working capital through our fast, flexible and transparent invoice trading platform.

[1] Wong, W.H. (2016, June 23). Going overseas key for Singapore firms as domestic growth will be lower for longer: Lim Hng Kiang. Retrieved July 18, 2016, from http://www.straitstimes.com/business/companies-markets/going-overseas-key-for-singapore-firms-as-domestic-growth-will-be-lower

[2] Ibid.

[3] Gill, S. (2016, July 12). The growth challenges facing Singapore’s SMEs. Retrieved July 18, 2016, from http://business.asiaone.com/sme-central/news/the-growth-challenges-facing-singapores-smes

[4] Ibid.

[5] Wong, op. cit.

[6] Wong, W.H. (2016, June 24). Government ‘ready to back firms going overseas’. Retrieved July 18, 2016, from http://www.straitstimes.com/business/economy/government-ready-to-back-firms-going-overseas

[7] Ibid.