The Global Landscape
Given our small domestic market, overseas investments are the natural way for Singapore companies to create good jobs for their employees and value for shareholders. This ensures Singapore’s economic sustainability in today’s uncertain global climate.
Modes of Internationalisation
There are multiple ways that a company can bring their business overseas. Before deciding on the mode of internationalisation immediately, it is good to consider what the options available are.
A joint venture is a strategic alliance between two or more parties who form a partnership to share markets, assets, knowledge and profits without any transfer of ownership of any party. Joint ventures can help smaller companies punch above their weight by joining forces with similar or larger companies to better compete in tough markets. In some cases, joint venturing with a local business may be the only way to penetrate certain highly regulated markets.
Exporting is the process of sending goods or services to another country for sale. Exporting can help companies increase their profitability while reducing their dependence on the local market. This also helps to spread their risks out and protects them from a downturn in one of their markets. Exporting also helps companies get exposed to new ideas and ways of doing business that they would not otherwise experience in their local market.
Franchising & Licensing
Franchising is the combination of the reputation, innovation, technical expertise of one party with the energy, industry and investment of another to conduct business. A franchising agreement usually includes training, mentoring and marketing support for the franchisee as well as the rights to the franchisor’s logo and trademark.
A licensing agreement only allows the licensee to use, make and sell the product without censure, but the initial investment and on-going charges are usually much less than franchising.
Overseas Direct Incorporations
Companies can expand into new markets by setting up a branch office, representative office or subsidiary company. Regulations governing each differ according to country, but they each have their benefits and limitations.
Generally speaking, branch offices are extensions of the parent company and can conduct business as non-resident entities.
Representative offices are temporary vehicles with fewer legal obligations but cannot be revenue generating.
Subsidiary companies generally behave as independent resident entities which can be locally or foreign owned.
Mergers and Acquisitions
Mergers and acquisitions (M&A) is the buying, selling, dividing or combining of different companies and differs from joint ventures in that no separate entity is created. For larger companies, M&A increases their market share and generates cost efficiency through economies of scale. Smaller companies can also benefit from being acquired especially if they are weathering tough times and having difficulty remaining competitive.
Contractual Entry Modes
Contractual entry modes refer to other business agreements such as co-research, co-production (OEM), co-sales), distributorship agreements and project-based arrangements.
Co-sales refers to when companies help each other sell products in their respective markets whereas project-based arrangements include large-scale industrial wide government-to-government or government-to-private projects.