SME’s are internationalizing to various countries, we pick 2 countries and give you an insight on them.

Doing business in India and Vietnam

The 2008 SME Development Survey has seen export growth rate to the Asian region reaching an unprecedented level, with all top 9 overseas countries served by our SMEs originating from Asia.

India, in particular, has recorded the strongest growth rate in the proportion of SMEs exploring this market from 22% in 2005 to 34% in 2006 and 38% in 2007. Besides China, India has the largest domestic market in the world. With the growing affluence and size of the middle-class, there is great potential in this market even with the looming economic downturn.

The strong growth rate recorded was due to the influx of foreign investment and businesses setting up shop in India. In turn, this led to the creation of more jobs contributing to the rising spending power, especially for professionals living in city centres. Reserve Bank of India (RBI) data shows that between 2000-01 to 2007-08 period, FDI inflows rose by 8-fold to US$32,435 million from US$4,029 million. This has also led to the upward trend of demand in luxury goods such has household electronics, branded fashion wear etc.

Besides the domestic market opportunities, one of the main draws to India for foreign investors is the large pool of relatively inexpensive skilled labor force available for various industries. Not only are they able to speak Hindi and English, the number of Indians who are picking up new languages such as French, Russian and other languages are on the rise.

Furthermore, there are other general incentives such as it's proximity to Asia and Europe. Infrastructure-wise, India also surpasses other traditional centres such as Vietnam. India has its own supply of raw materials especially coal and natural gas for power generation as well. These factors, amongst others, have made India an increasingly attractive market.

Based on data from IE Singapore, export to India grew by $8,293 million (544%) to $$9,817 million between 1992 and 2005. In 2005, a noticeable rise in export (45.3%) and re-export (34%) contributed to a significant increase in total exports from Singapore to India. It saw an appreciable increase of 39.2% over the prior year to S$9.8 billion. Similarly, in the first quarter of 2006, export numbers grew by 14.8% to S$2.62 billion. Key export items driving this increase include electronic components, printed circuit board assemblies, data communication equipment, telecommunication equipment and disk media products.

In the 2008 SME Development Survey, Vietnam emerged 5th as a popular destination among Singapore SMEs in venturing overseas. In fact, Vietnam is an emerging economy in South-east Asia, recording real GDP growth of 8.5% in 2007, Vietnam's economic growth was mainly driven by 2 main business sectors - construction & industrial sector and services sector, which contributed 41.8% and 40.4% respectively to the country’s GDP in 2007.

As economic reforms continue to take place in the nation with an attractive foreign investment policy and the commitment to a liberalizing the economy, we have seen the abolishment of double price systems, as well as the reduction of import and export restrictions.

Investment climate in Vietnam has also improved. As of 20 October 2006, foreign direct investment (FDI) into Vietnam as of October 20, 2006 is worth US$8,037 million in registered capital with 447 FDI projects. Asia accounted for 64% of total FDI into Vietnam, followed by Europe at 21%. And according to statistics from Vietnam's Ministry of Planning & Investment (MPI), Singapore is the top investor with a registered investment of US$7.639 billion since 1988.

Due to its close proximity and cultural similarities, Vietnam has seen an increasing number of businesses from neighboring countries such as Singapore, South Korea, Taiwan and Japan setting their footholds in the country. In addition, with 95% of the populations younger than 65 years old and above 90% literacy rate, foreign investors are keeping their eye on Vietnam for its competitive advantages in engaging labor-intensive production processes at low wage levels. In fact, Vietnam has emerged as a major export platform for labour-intensive manufacturers originating from the garment, footwear and furniture industries.

The Vietnamese government has also taken a proactive approach in facilitating international trade by removing, if not reducing, self-imposed and externally levied tariff and other trade barriers. In addition, Vietnam's accession into the ASEAN Free Trade Area (AFTA) has been an important step in its integration into the world economy.

Furthermore, corporate income tax in Vietnam is considered low as compared to other countries in the region. Since June 2008, the standard rate reduced from 28% to 25% and preferential rates range from 10% to 20%. Foreign investors are exempted from import duties to create fixed assets, such as machinery, means of transport, and construction materials that are not produced locally. Further exemptions are also available for raw materials, spare parts, parts and materials imported for production of goods for export. Moreover, foreign investors are also given the option to carry their losses forward for up to five years.

Emerging markets such as India and Vietnam has grown tremendously in recent years, bringing about abundant business opportunities for Singapore companies to venture into these once under-served markets. However it is important to note that as applies to any part of the world, in order to do business in India or Vietnam, one has to know how the business, political and cultural environment works before venturing into a new market. This requires extensive research before trying to enter the market. For those equipped with adequate knowledge of the environment the business will be operating in, the chances of overseas success and sustenance will be higher.