Singapore SMEs anticipate a looming recession; going global can help them survive

Low Cher Hao, Director, SME and Growth, Singapore, Airwallex

Small and medium-sized enterprises (SMEs) in Singapore are already grappling with numerous headwinds – rising inflation, supply chain disruptions, geopolitical tensions, and the lingering effects of the pandemic, have significantly increased costs for businesses. What’s more, 7 in 10 Singapore SMEs are also anticipating a potential recession, according to a survey conducted by Airwallex.

SMEs are the economic backbone for many reasons. They represent nearly 90% of businesses and support more than 50% of employment worldwide. Post-COVID, they will play an even more vital role in the global economy. With recessionary pressures, SMEs are having to broaden their scope and sourcing new streams of revenue for future growth opportunities. For many, that means looking across borders and identifying new markets where their businesses can continue to thrive and grow.

The trend is similar for SMEs in Singapore where rising supplier costs, employee expenses, and logistics disruptions were identified as the primary factors contributing to their rise in costs.

Amid the challenging macro environment, nine out of ten Singapore SMEs surveyed have plans to expand their business abroad. The most common reasons cited for expanding beyond borders were sourcing new customers (61%), establishing new partnerships (59%), expanding marketing activities (55%) and sourcing new suppliers (51%).

Despite the appetite for expansion however, expanding internationally isn’t an easy task. To successfully navigate today’s challenging economic environment, there are a number of considerations SMEs need to be mindful of, as they look to globalise.

Targeted expansion to mitigate and manage risks

Risks associated with compliance and financial exposure are top of mind among SMEs in Singapore. The same Airwallex survey found that close to half (45%) of SMEs listed legal, regulatory and compliance barriers as among their top challenges as they expand overseas.

As SMEs venture into new territories, they face a range of potential risks and challenges. Doing the right due diligence is one of the key first steps when businesses decide to start exploring overseas opportunities, and provides SMEs with a good understanding of the market they plan to enter. It helps them better understand the local business environment, cultural nuances, legal and regulatory frameworks, and competitive landscape. Identifying relevant schemes and grants as businesses conduct their due diligence – such as Enterprise Singapore’s Market Readiness Assistance (MRA) grant, for example – can help SMEs defray the costs of overseas market promotion, business development, and set-up.

The recent bank collapses are a reminder of the inherent risks in any financial system and the need for SMEs to manage their financial risk exposure where they are based at and as they expand overseas. Here in Singapore for example, the Singapore Deposit Insurance Corporation (SDIC) insures deposits up to S$75,000; SMEs should consider spreading their cash reserves across more than one financial institution to ensure their funds are protected. Different markets have different safeguards and measures when it comes to financial risk exposure, making it imperative for SMEs to thoroughly research and adapt their risk management strategies as they venture into global markets.

It is important to understand that risks can never be completely eliminated, but by proactively addressing the risks and implementing appropriate measures, SMEs can position themselves for successful expansion and mitigate potential pitfalls in new markets. Careful planning – proper market research, strategy, logistics and hiring can go a long way to ensuring success.

Accelerated adoption of digital solutions

Embracing digital transformation is crucial for SMEs looking to expand globally, and is key to improving productivity, and keeping expenditure low.

Automating manual processes such as inventory management and various accounting procedures, can help SMEs save valuable time and money by alleviating employees from repetitive tasks and labour intensive processes. This time-saving aspect allows employees to focus on more strategic and value-added activities, enhancing overall productivity.

Additionally, automation enables SMEs to allocate their resources more efficiently. With routine tasks automated, employees will have more opportunity to explore, and dedicate more time and energy towards creative thinking, problem-solving, and identifying growth opportunities for the business. This encourages a culture of innovation, driving the SME towards continuous improvement and adaptation to changing market demands.

By leveraging automation technologies, SMEs can unlock significant advantages that positively impact their operations.

Manage cost efficiently

Many SMEs pursue expansion into international markets as a means to achieve long-term growth. Effectively managing the associated expenses becomes crucial in order to achieve and sustain profitability.

Historically, the process of moving money around globally, whether for supplier payments or handling payroll for remote employees, has been cumbersome, slow, and costly. Not only would certain transactions take days to complete, but they also require physical presence to open bank accounts in the target market, adding to the inconvenience. Additionally, a multitude of fees and related expenses compound the financial burden.

When utilising conventional payment methods, businesses may incur substantial costs when moving significant sums of money internationally. For instance, a transaction involving $10,000 could incur fees of $100 or even more, and these costs escalate proportionally with larger amounts.

Opting for financial services that minimise conversion and international transaction fees can help SMEs reduce costs and increase revenue. Fintech providers that offer competitive exchange rates and low transaction fees, are enabling businesses to optimise their international transactions and improve profit margins.

Singapore-based fashion e-retailer Saturday Club achieved substantial savings through digitalisation, saving over 90% on cross-border transaction and associated fees, and gaining full visibility into their payment process, ensuring transparency and efficient operations from Singapore.

Similarly, Hey! Chips, Singapore’s first award-winning fruit and vegetable chips brand, was able to bypass the SWIFT network and make overseas payments with zero transfer fees and market-leading FX rates, all by adopting digital solutions for their telegraphic transfers.

In the dynamic global business landscape, SMEs must be adaptable in order to survive and thrive. Going global is part of many SMEs’ plans as they navigate through this period of relative uncertainty, and adopting a comprehensive approach that includes risk management, digitalisation will enable them to remain competitive. Businesses will come out stronger if they continue to pivot and transform alongside the ever-changing economic environment, and are constantly looking at ways to grow and expand their businesses.