TLDR: Many successful Singaporean SMEs inadvertently fall into a "growth trap" by over-optimising for hyper-local moats, which ultimately cripple their regional scalability. To unlock this latent value and expand across SE Asia, founders should embrace improvements in technology, corporate governance, and outside investment.
A ChannelNewsAsia (CNA) feature (below) earlier this year highlighted that less than 50% of Singaporean businesses plan to expand overseas in 2026, representing a sharp decline from prior years.
This posed a more fundamental question, given the number of sub-scale businesses we have come across in Singapore (and in SE Asia): Does initial local growth lock-in practices that make it too difficult to scale regionally?
Below, we outline the anatomy of the "Singapore SME Growth Trap" based on our proprietary deal-flow data and propose an alternative framework for regional breakout.
The Singapore SME “Growth Trap” – what is it?
It is often remarked that despite Singapore’s economic success, there are few indigenous companies that are regionally dominant, despite its positioning as a regional hub.
From our experience, we often encounter respectable, albeit sub-scale opportunities. These typically generate revenues around SG$1m ±0.5m and are modestly profitable.
Reviewing over 90 businesses we have evaluated beyond an initial conversation, in Singapore, each of these started with addressing a specific local need, before forging their competitive position based on one of:
- A longstanding relationship with 1-3 large, dominant industry player(s) – replicating a monopsony-style relationship. An example are various vendors that cater to Singapore’s real estate industry (e.g. safety certification, facility management, etc)
- Establishing a local monopoly through virtue of specialisation or brand equity – patient-facing healthcare and wellness businesses come to mind
- Benefiting from a regulatory or subsidy regime that favours local players – for vocational education, the Singapore government provides approved vendors of Workforce Skills Qualifications (WSQ) programmes at least 70% of course fees, rising up to 90%. Combined with citizens having a learning account that subsidises attendance, the full cost of training may be covered via different subsidies.
This creates a favourable domestic environment for owners, generating reasonable levels of profitability akin to incomes within the top 10% of the Singapore population. The incentive for owners is to reinforce these endeavours, with these avenues representing low-risk profitability once proven.
This works great in an economy that grows robustly. However it encourages domestic concentration over a sustained period, raising both monetary and non-monetary barriers to international expansion. When domestic growth begins to lag, these costs, though latent, feature far more prominently.
Examples vary from a lack of regional knowledge, be its of customers, competitors, suppliers, or other parties, through to internal systems and processes that fail to adopt modern best practices. These elements don’t sound profound – but are immensely costly both financially, in resourcing, and in time. Relative to maintaining the status-quo, they represent an obvious disincentive for change.
Consequently, we find SMEs stuck at a cross-road. There are owners prepared to exit, but where valuations are depressed vs their expectations. There are equally owners keen to expand, but unwilling to invest and risk profitability that supports their present lifestyle.
The Matsu Partners Framework: How SMEs Can Scale Beyond Singapore
Though by no means comprehensive, when we have sought to establish a business case for investment, we believe the following could apply more generally:
- Partnering-up: Sounds obvious. But it depends on what type of partner. A local industry player seems evident, however such relationships do not form overnight, whilst other competitive tensions may exist.
Our form of partnering centres on technology, providing capital, and relying on our wider network to kick-start overseas expansion. As a minority equity partner, we find this works well, as owners continue to retain control (should they wish) to grow the business to its potential, or in establishing a pathway where they can step-back, without this undermining the company’s valuation.
- Skilling-up: The use of AI and technology can help with market discovery and initial revenue generation (amongst a bunch of other things), whilst minimising upfront spend. This represents a vast difference compared to commissioning market research and entry studies, and taking-on substantive upfront investment without anything immediate to show for it.
- Governing-up: This is perhaps the most challenging, but where improving corporate governance through introducing best-practices around financial planning and analysis, internal audit, HR organisational design and talent progression, and wider marketing and customer intelligence, provides the foundations, discipline, and confidence to tackle the challenges represented by international expansion. Most SMEs at present do not have these structures – this is not their fault – ultimately, “you don’t know, what you don’t know”.
Unlocking Latent Value in Southeast Asian SMEs
Singaporean SMEs retain substantial latent value. Whether that value is realised or eroded depends entirely on an owner’s willingness to look past short-term domestic comfort and commercially engage with institutional growth models. For forward-thinking founders, the current macroeconomic shifts represent a prime window to pivot from domestic defence to regional expansion. Overall, we do believe that such SMEs have a lot to offer, and look forward to working with some of them!