With e-commerce sales in the Asia region projected to grow by 14.2% y-o-y to reach USD1.2 trillion in 2019, expanding into new markets in ASEAN and beyond is becoming more attractive to small and medium enterprises (SMEs) in Singapore. While international expansion offers a wealth of potential opportunities, there is also an element of risk involved in entering new and unfamiliar markets. I would recommend following these five tips to help local SMEs kickstart their international expansion:
1.Know the rules and regulations
To consumers, buying something online typically ends with the confirmation of their purchase and estimated delivery date. The seller, though, would need to navigate the different import, taxation and logistics-related regulations. Exporting into new markets without a clear understanding of such regulations could mean a failure to comply without the necessary paperwork on hand. This may result in costly mistakes, additional unforeseen expenses, and poor customer experience.
A case in point would be the Goods & Services Tax (GST) or Value Added Tax (VAT) that is applied to imported goods. Some importers may not realise that the European Union requires businesses to apply for VAT registration in each Member State that they want to sell their products. Others often make the mistake of excluding the duties incurred in the customs value before determining the actual GST or VAT upon importation. I’ve also seen SMEs incorrectly classify their goods using the Harmonised System Codes, which consequently resulted in erroneous amounts of duties and taxes incurred.
Thankfully, most Asia Pacific countries offer free government advisory services that businesses can refer to when they are planning entry into other markets. Such help could come from local chambers of commerce or customs brokers. SMEs should take advantage of such resources to get a leg up on their expansion.
2.Test the waters
Astute business owners would take the opportunity to conduct market testing before they take the plunge. Testing the consumer response and reactions to their products would help SMEs assess the feasibility of their market expansion plans. One quick and cost-effective method would be to list their offerings on e-commerce platforms to ascertain the demand for their product in the target market.
A more immersive method would be to visit these target markets in person to observe cultural differences, consumer behaviour and also the activities of their potential competitors. This will help firms to plan better and understand how they can tailor their offerings to each market.
3.Clear knowledge of potential distribution challenges
Coming from a small country with relatively manageable traffic conditions means that distribution challenges are less obvious hurdles to SMEs in Singapore. They may underestimate several logistics processes due to a lack of awareness of a different operating environment. A commonly neglected aspect of international shipping is taking that extra step to find an accurate estimate of time and cost needed to deliver packages.
It is important to anticipate and avoid potential points of delay to deliver service excellence and maintain brand reliability. The accurate estimation of transit time is crucial so that SMEs can plan around this and manage their own customers’ expectations. There are reputable courier services that can help take the guesswork out of this task with web-based tools, so SMEs can easily get an accurate calculation.
4.Get expert help
When SMEs export to consumers in other countries, they typically adopt the “Duty and Tax Paid on Import” model – this means that the firm, rather than the consumer, is responsible for all the customs compliance in the country they are exporting to.
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This tends to be a challenging mantle to bear – the business would have to work with multiple agents to handle duties, taxes, and other procedures throughout the entire process, which is not the most effective use of limited resources. Partnering with an established logistics service provider is one way to plug the aforementioned gaps and take the guesswork out of these tasks.
For example, here at DHL, our door-to-door service is supplemented by our MyDHL+ web portal that helps SMEs easily find duty rates and import rates in their target markets. To help SMEs manage their customers’ expectations on delivery times, we also provide the track-and-trace function so SMEs, in turn, can provide real-time location of the parcels to their customers. With our services, SMEs can rest assure that they can uphold their own service promise to their consumers.
5.Leverage the local ecosystem
Every market would have long-established business ecosystems that include alliances, partnerships and distributorship programs. Since the distributors would have the existing knowledge to provide industry-specific advice and handle the local regulations for SMEs, it takes the guesswork out of the customs process. While this arrangement spells lower profit margins, it enables SMEs to confidently ship their orders and in the long run, save on time and money spent on customs-related troubles.
Overseas expansion is a natural evolution for any business. Factors such as globalisation, digitalisation and the advancement of technology have also opened new doors for growth outside the domestic market. Businesses shouldn’t be afraid to go big.
The article appeared originally on SBO under the title ‘5 Tips To Help SMEs Kickstart Their Overseas Expansion”