In today's economy, competition comes from all corners of the globe. SMEs can no longer focus on the domestic market alone so going regional or global has become a business imperative.

With its outward oriented and business-friendly policies, the government has been providing support to facilitate SMEs in exploring business opportunities overseas. For instance, Singapore's extensive network of bilateral Free Trade Agreements provides SMEs with preferential access to the major markets of the world, allowing them to enjoy a comparative advantage. Specifically, Asia has been enjoying strong intra-regional trade and investment flows as a result of increased regional integration.

According to the International Monetary Fund (IMF), emerging Asiai accounted for more than one-third of world trade flows in 2006ii. Trade between the economies in emerging Asia has risen from about 30% of total exports by the region in 1990 to more than 40% in 2006. Intra-regional share of total imports is approaching 50%.

Indeed, the number of SMEs in Singapore doing business overseas has been growing steadily over the last five years according to the SME Development Survey. In 2007, 70% of SMEs have revenue generated from overseas, compared to 59% the previous year.

Last year, Singapore's external trade reached S$846,607.5 million, a 7% increase over 2006, with trade flows between Singapore and rest of Asia in 2006 having increased 2.5 times since 1996.

How your bank can be your partner
Trade across borders, however, is not without its risks. Selling products and services overseas can be fraught with complications for small exporters. To overcome these challenges, SMEs should tap on the expertise and network of their banking partner to avoid common pitfalls related to international trade.

1. Protect against risk of defaulting customers
Many exporters underestimate the risks of extending credit to overseas customers. It can be difficult to obtain background information and financial data to perform checks on your buyer's reputation and track record. Exporters should consider protecting or insuring themselves against the risk of default by customers with banking products such as documentary credit or trade credit insurance.

2. Partner with an international bank
Granting open account credit is often essential to getting orders, but how do companies get overseas buyers to pay? Partnering with a bank that has its own offices in the seller's home base as well as the buyer's country can prove most advantageous, since the bank will have staff who speaks the local language of the buyer and understands how business is conducted there. The bank can help the exporter to determine a reasonable credit period while avoiding customers' unreasonable delays.

3. Be sensitive to local business culture
Understanding the culture of the country, including the unwritten business rules, can make all the difference between getting an order and failing. It is better to get current advice from people who have been there recently or specialists providing inter-cultural training on business effectiveness. Your international banking partner can also be of great help.

4. Keep proper records
Businesses should ensure that the whole order/invoice cycle is properly documented so there is clear evidence of what terms are agreed with suppliers and customers and that any conflicting terms are resolved. Businesses should get into detailed discussions with customers about terms and payment processes early on. It is also worth investing in good legal advice to ensure their interests are protected and that all parties can reasonably fulfil conditions.

5. Be prepared to deal in foreign currencies
Assess whether customers are considering what are the cost and risk of dealing in a foreign currency to them. It may be better to quote prices in the buyer's own currency. Exporters may be put off by the currency risk of selling in the buyer's currency.

There are, however, more ways than ever for the exporter to manage that risk cost effectively and thus ensure their terms appear at their competitive best. For instance, the exporter can arrange a foreign exchange contract, which allows them to buy or sell a specific amount of foreign currency at a certain rate on or before a certain date, to protect their business against future currency fluctuations, or open a foreign currency account to make and receive payments.

6. Be flexible over finance
Exporters have to balance the interest of the buyer with their own. The more risk the seller takes on the easier it is for the buyer to purchase. Find the right financial partner and those risks can be managed and shared to maximise sales at an acceptable risk. They can go to their bank to get marine cargo insurance cover which can be tailored to suit their company as well as expert advice from the bank's marine insurance specialists.

Above all, collecting payment should be the top priority once the products or services have been delivered to customers.

Banks should be able to offer a range of collections options for businesses to choose from. Talk to your bank to optimise the flow of cash in your business. ET

Tan Siew Meng is HSBC Singapore's Head of Commercial Banking

NOTES
i - Emerging Asia, as defined by the International Monetary Fund (IMF) refers to China, India, Hong Kong SAR, Korea, Singapore, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

ii - Sources: IMF, October 2007, "The Evolution of Trade in Emerging Asia", Regional Economic Outlook: Asia and Pacific (Washington, DC); and IMF, 6 February 2008, "Intra-regional Trade Key to Asia's Export Boom," IMF Survey Magazine: Countries & Regions.