It’s banks turn to think global

Oct 12 2012, 01:36 IST
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SummaryBanking industry can do more to support the growing number of SMEs trading overseas.

Small and medium-sized enterprises (SMEs) play an increasingly important role in the global economy, with a growing proportion now doing business internationally. This burgeoning overseas trade – not least in Asia – is the inevitable result of globalisation and advances in technology, which have lowered the barriers to trade for even the smallest and youngest companies. Yet, while world markets have become increasingly interconnected, SMEs are yet to benefit from the seamless cross-border banking services typically offered to large corporates.

At Standard Chartered, we are seeing a rapid growth in the number of smaller businesses that are either expanding directly into foreign markets, or sourcing or selling their goods abroad. Trading beyond borders is an obvious way for SMEs to expand their businesses and tap into new pockets of demand and supply. With growing consumption and a rapidly expanding middle class in China and many other markets across the region, Asia has become a popular choice for SMEs looking for faster revenue growth.

A 2011 report by the Economist Intelligence Unit suggested that around half of European SMEs are now active in emerging markets, with a further one-third considering expanding into these markets in the near future. Likewise, the number of Asian SMEs doing cross-border business appears to be growing. Singapore, for example, has seen a 50 per cent increase in the proportion of SMEs citing overseas expansion as a key strategy, according to a 2011 survey by DP Information Group.

As SMEs become increasingly internationalised, their financial needs change. Trading overseas comes with numerous risks, such as managing the quality of goods produced abroad, getting comfortable with new buyers or suppliers in a new market, complying with complex local regulations, managing volatile exchange rates and commodity prices, or accessing the right capital, labour and raw materials. SMEs with insufficient liquidity – including lack of access to debt – may struggle to ensure business continuity in their operations. Others may run into difficulty due to a lack of understanding of foreign markets or because they don’t yet have sufficient size for overseas expansion.

Banking services for cross-border trade – including payments and facilities such as letters of credit – are well established. SMEs have access to a wide variety of solutions from international banks. However, when it comes to direct expansion into foreign markets, banks could do more to support SMEs.

Multinational and large local corporates expanding into new markets have traditionally been well supported

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