SMEs here not tapping region's potential

Report: They are not as willing as regional counterparts to escape comfort zone
By Chia Yan Min, Economics Correspondent, The Straits Times, 21 Sep 2015

Small businesses need a mindset shift, says report

Smaller firms here are missing out on the vast opportunities in emerging Asia because they are not as aspirational about expansion as their regional counterparts.

That is the view of the authors behind a new Boston Consulting Group (BCG) report, who warned that a mindset shift is necessary for small and medium-sized enterprises (SMEs) to escape their comfort zone and tap the region's full potential.

The report, which was launched over the weekend in conjunction with the Singapore Summit forum, found that emerging Asia's lack of infrastructure, talent and clear regulation can stymie business expansion.

But firms that want a piece of the region's rapid growth should not wait for these pieces to fall into place.

The report's authors studied companies that have been successful in the region and noted that they have one thing in common - rather than being paralysed by the region's many obstacles, or waiting until local conditions are friendlier, they helped to shape the environments around them.

"We found that companies need to have a different mindset if they want to succeed in Indonesia, Malaysia or China, compared to Europe, the United States, Hong Kong or Japan, where all of those things are more or less in place," said Mr Christoph Nettesheim, senior partner and managing director at BCG Singapore.

While it is tougher for SMEs to change existing regulations and infrastructure, "it starts with a mindset shift", said fellow co-author Michael Meyer, a partner and managing director at BCG Singapore.

"As an SME, will you be able to replicate (what these successful companies did)? Probably not to the same extent.

"But it starts with a mindset shift. Be aware of the barriers and address them, and also be aware of your competitive advantage," he said.

SMEs here can leverage on Singapore's reputation for quality and trustworthiness, added Mr Nettesheim.

Singapore is a "big exception in the region", he said, noting that firms and governments look to it to export their capabilities.

However, "there is a risk that companies which start here might assume that the operating models they have used here will work elsewhere".

Success in the region boils down to adaptability and a strong vision, added Mr Nettesheim.

In the oil and gas sector, for instance, large Singapore firms like Keppel are making waves globally but there are also significant opportunities for SMEs in the consulting or engineering segments.

"There are many more opportunities for smaller companies if they would be as aspirational as some of their counterparts in Indonesia, Malaysia and China," he said.

"They have so much more knowledge and experience than others in the region, so they could reshape the environment. But I don't see enough of that going on."

Mr Meyer agreed: "We often hear that it's difficult to get Singaporean talent to agree to go overseas. Instead people commute, they're not on the ground.

"This ties back to the infrastructure and regulatory certainty we're used to in Singapore.

"We need a mindset shift in order to deal with these different environments."

Creative strategies developed by some leading regional firms to navigate obstacles to growth
The Straits Times, 21 Sep 2015

A new Boston Consulting Group report analysed leading companies in the region to find out how they navigated obstacles to growth.

The report found that successful regional firms helped to shape infrastructure, regulation and talent where they were lacking, instead of waiting for things to improve.

This is how some firms coped creatively with constraints and gained a competitive edge in the region.

DEVELOPING TALENT

Astra International, one of Indonesia's largest conglomerates, has overcome the talent shortage in Indonesia by reaching out to talent early, and offering internships to students to learn technical skills.

The conglomerate, whose businesses include the auto sector, tractors, finance and agribusiness, has also set up a partnership with 14 Indonesian universities to recruit managerial candidates, and boost its profile among job seekers.

The firm has also been helping to develop the country's education system by building schools and funding scholarships. It has also set up its own polytechnic in Jakarta.

NAVIGATING REGULATION

Most Asian countries have laws preventing foreigners from owning majority stakes in industries like aviation.

But this did not stop AirAsia from establishing low-cost carriers in four countries. One of the keys was its willingness to enter cross-border joint ventures as a minority partner.

More established airlines would be worried about ceding control, but AirAsia picked its partners carefully - except for a venture in Japan, its partners tended to have no airline experience. These partners shared the firm's vision of budget travel, and were willing to allow AirAsia to manage the business.

AirAsia is now the region's largest low-cost carrier, serving 100 destinations in 23 countries.

COPING WITH POOR INFRASTRUCTURE

Despite China's overstretched transportation infrastructure, Shun Feng Express can deliver parcels anywhere in the country in one or two days because it has its own fleet of cargo planes.

Better known as S.F. Express, the firm has become Federal Express' biggest competitor in China.

Unlike any other privately-run express courier in China, S.F. Express controls its own fleet of 40 cargo planes - 18 of them owned by the firm - and 16,000 delivery trucks.

This means the company can dispatch planes and trucks anywhere, at any time.

The company also has a strong edge in the business-to-business market.

Leading multinational delivery services tend to focus on large companies and heavy cargoes, and local Chinese competitors serve the low end of the market.

More than half of S.F. Express' business is with SMEs.