SINGAPORE : Singapore companies are wetting their toes in a brave, new market – Africa.
While the vast continent presents a tremendous growth opportunity, experts warn that it comes with its unique challenges.
Shipping goods from Singapore to Africa could be much cheaper than what it costs to truck them after they reach the port.
One Singapore company, Asiatic Agricultural Industries, found out that the cost of transporting its pesticides and other crop-protection products inland in Africa could be nearly double because of poor infrastructure and lack of security in many areas.
Asiatic said it roughly costs US$5,000 to truck one container of its goods from a port to one of the landlocked countries, while shipping costs could be around US$3,000. Some of the company's key markets in Africa are landlocked.
Lawrence Chan, MD of Asiatic Industries, said: “This is something we have to factor in when making our costing computation, and having long inland transport route means delays can happen and we have to factor in the possibility of long delivery lead times.”
And that is not the only challenge Asiatic has faced working in Africa.
Mr Chan said: “We sent emails to our customers, expecting as usual the Singapore prompt response. After several days not having heard from them, we called, thinking that they might not be interested in the business.
“We learnt that they were having power shortages for the last couple of days so they were not able to operate their computers and therefore not able to respond to us. So we have to appreciate the fact that a delayed reply does not mean they're not interested in our business, but rather they have other constraints.”
Despite those obstacles, Asiatic is bullish on Africa's growth prospects. The continent currently accounts for about 12 per cent of its turnover. Asiatic aims to double that in the next two to five years.
It is one of the companies working with the Singapore Business Federation (SBF) to explore further opportunities in Africa.
The SBF has received such strong interest in that region from its members that it has set up a business group in July to build up a network.
Teng Theng Dar, CEO, Singapore Business Federation, said: “We started the Africa business group. Since then, we've launched the Africa-Singapore business forum, where the African representatives came to Singapore and we had a business forum to understand what the market means, because Africa is not one country.
“It is made up of 53 countries, and everyone has got its own different opportunities and challenges. You're talking about oil and gas, infrastructure, urban solutions, agricultural products, training opportunities, all actually on the ground. When you go to the marketplace, opportunities are plentiful because most of them are virgin markets.”
Experts say that while expanding overseas may seem rewarding, there are many risks to consider.
Tah Wee Han, director, Management Consulting, BDO Consultants, said: “What we often find out is that a lot of them are basing it on gut feel. And just because they hear it from a fellow businessman who has gone over there and done well, they think they can probably replicate the same thing or do just as well, if not better.”
These include making accurate assessments of the suitability of one's products in the new market, and the intensity of competition. Another key consideration is the extra cash required to sustain an international operation.
Mr Tah said: “If you talk about cash flow, you need to link it back to having done your feasibility studies on that particular market. It's going to cost me X dollars to go in, then you have to look back at your own existing cash flow to sustain your ongoing operations.
“Do you on a year-on-year or month-on-month basis, have sufficient buffer which you can set aside as part of your internationalisation efforts? If you're not even in a position to do that, then one should really think twice.”
BDO Consultants says that taking steps to protect intellectual property will also be important. Steps to address this could include compartmentalising processes to reduce information leaks, or shortening product design cycles to keep ahead of competition.
Still, there is no dearth of brave hearts. The number of small and medium enterprises from Singapore that expanded overseas could be 30 per cent higher this year compared to 2009.
That is based on estimates from IE Singapore, which helped 3,701 SMEs venture abroad in the first half of the year and is currently preparing the full-year tally. The figure is already past the half-way mark of 5,499 SMEs it assisted in 2009.
The 3,701 companies received grants and loan financing amounting to S$1.477 billion in the first half of 2010.
Channel News Asia