Small countries can be big: just woo Asia’s small and medium-sized enterprises (SMEs) in a big way. South Korean firm CS FiberTech is an SME that has been producing polyester and nylon draw textured yarn for the past 50 years. Although it has only 47 employees, it generates $40m in annual revenue, owns a small office building and creates jobs for people – a model corporate citizen.

Among its global investments, CS FiberTech is a player in El Salvador, a small Central American country. Not many Asian CEOs have heard of El Salvador, let alone know that it offers competitive advantages like speed and access to the North American market; a dollarised economy; attractive investment opportunities in sectors such as textiles, electronics, auto parts, logistics, call centres, public infrastructure and agro-industry; an excellent telecommunications infrastructure; and qualified labour. But Joo In Tae, CEO and president of CS FiberTech, says the biggest reason for investing there is the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), which offers many advantages.

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Competition pressures

Also, the competitive threat from China, India, Indonesia and Pakistan was severe to Korean yarn producers and the company needed to find a location where it could grow, he says. With South Korea facing oversupply and El Salvador facing good demand for its yarn products and offering good investment incentives, the opportunity to invest there was too good to pass up.

When asked about other Asian countries, such as Vietnam and China, offering cheaper wages and closer distance, Mr Joo says: “Labour costs form only one cost component. DR-CAFTA’s cost advantages more than compensate for the cheaper wages in Asia. Besides, El Salvador offers a big market close by: the US.”

In Asia, SMEs provide 70%-80% of national employment, with big multi-national companies and governments providing the rest. Asia SMEs spend much of their time growing their domestic businesses and sometimes are ignorant of better pastures overseas. Armed with good overseas market information, the few Asian SMEs that dare to venture beyond their crowded shores stand a better chance of survival and growth than coping with national and regional business landscapes.

Information is needed

One factor that causes CEOs of Asia’s SMEs to shun investing overseas is a lack of, or the wrong kind of, information. This could easily be prevented with better market information and insights from the right sources.

Business associations in Asia often provide wrong information about overseas investment climates; and SMEs look up to their chambers and association leaders for advice. Better market information and education is vital to avoid missed opportunities.

Good advice for economic development or investment promotion agencies of small countries is to start small. Seed countries should not neglect to serve small companies. Big companies can afford to choose and invest in big countries due to different investment location requirements and host country offerings. Occasionally, a small country will receive medium or big investments but they may not be the norm.

Wise SMEs that look for pockets of overseas investment opportunities, analyse them closely, take calculated risks in several locations, bring the right people on board and work patiently at giving excellent product or service offerings will, in time, grow to be big. The small host countries that had initially welcomed them will be blessed in turn, for having been faithful in serving the needs of small companies.

Patience is the watchword

A common problem is short-term thinking and impatience, not looking beyond short-term hard metrics such as the number of confirmed investment leads generated within three months. Good SMEs will not remain small or medium forever. Hence, the strategy of attracting SMEs should be formulated differently from the usual MIGA-style methodology and not adopted or copied verbatim.

Many Asian CEOs of small companies now turned big and successful will remember ruefully the early days when they were snubbed by their own bigger Asian host countries but warmly embraced by smaller foreign countries. That is Asia’s loss and another government’s gain. For every big Asian company wooed by a big country, a small country can consider attracting several hundred smaller Asia investors. That’s a good investment promotion strategy.

Lawrence Yeo is CEO and principal consultant at AsiaBIZ Strategy, a Singapore-based consultancy providing Asia market research, lead generation and investment/trade promotion services.

E-mail: Lawrence@asiabizstrategy.com