Taxation Issues Holding Back Globalization of Hong Kong and Singapore Businesses

Taxation issues have been identified by Hong Kong and Singapore businesses as among the Top 3 challenges to internationalization, according to the findings of a Frost & Sullivan study commissioned by NetSuite.

According the "The Born Global Business " study,  which surveyed more than 800 senior executives (CEOs, CFOs and finance managers, CIOs and other senior managers) across Australia, Hong Kong, New Zealand, the Philippines and Singapore, overseas expansion is viewed as a major growth engine for businesses in Singapore and Hong Kong, which often face limited growth potential domestically due to the small population size and falling growth rates in their local markets.

"Our research has shown how industry change is not just continuing, but accelerating. Two new key factors that are driving this change have emerged from this study: significant increase in business costs and evolving customer needs," said Mark Dougan, Managing Director for Australia and New Zealand at Frost & Sullivan. "These trends may create new challenges for organizations, but at the same time they also create significant opportunities for growth, with internationalization topping the list.”

The study shows that in 2016, 38 percent of senior executives believe their industry is changing "fast" or "very fast," compared to 28 percent in 2014 and only 7 percent in 2010. A critical area that businesses are exploring is to expand their international footprint, in part supported by increasing economic integration in the Asia-Pacific region.

According to the study, while not all businesses have yet entered overseas markets, globalization is currently seen as an opportunity rather than a threat by 83 percent of organizations, particularly in Singapore, New Zealand, and the Philippines.

"For Hong Kong in particular, a significant majority of small businesses are already internationalized at 75 percent, well above Singapore's figure of 54 percent," Dougan said.

Hong Kong Businesses Plan for Expansion but Legacy Systems Can Hold them Back

According to the survey, Hong Kong trailed only the Philippines in the number of businesses that said they plan to enter additional overseas markets in the next five years, at 67 percent. However, Hong Kong -based companies face the biggest challenges with existing business software, with 31 percent of executives reporting that their existing software is not effective in supporting international expansion.

The research also found that despite efforts to drive economic integration between Hong Kong and mainland China , such as the Closer Economic Partnership Agreement (CEPA), 50 percent of Hong Kong executives still view mainland China as the most challenging non-domestic market. Regulatory issues can hamper entry into the Chinese market; for example, it takes over 30 days to set up a business in  mainland  China compared to only two days in Hong Kong.

According to the research, the top three challenges to internationalization in Hong Kong are: taxation issues; IT issues; and recruiting suitable employees.

Cloud Winning Converts in Singapore

According to the survey, companies in Singapore appear particularly susceptible to increasing business costs, with 48 percent of executives respectively say it is having a very significant impact on their industry. Additionally, changing customer needs are particularly noticeable for businesses in Singapore, with 42 percent citing it as a significant impact on their business. Cloud users in Singapore were some of the biggest proponents, with 73 percent seeing it as a competitive advantage.

According to the research, the top three challenges to internationalization in Singapore are: recruiting suitable employees; taxation issues; and IT issues.

While the opportunity for international expansion is not new, many businesses have yet to exploit it, particularly smaller firms. According to the research, the trend is most apparent in Australia and New Zealand , where 61 percent and 62 percent of businesses respectively are domestic only, in comparison to 42 percent in Singapore and only 30 percent in Hong Kong , countries with greater geographic and economic contiguity to overseas markets.

Rise of the 'Born Global Business'

The survey also showed how the rapidly-evolving environment has paved ways for a new type of business to emerge. The 'born global business' refers to new businesses that have successfully internationalized by leapfrogging the traditional expansion stages and entering overseas markets at an extremely early stage of development. One distinctive feature of born global businesses is their ability to leverage IT solutions and platforms to quickly scale their business into overseas markets.

These businesses typically undertake critical business functions such as accounting, order processing, taxation and statutory reporting using cloud-based software that is already adapted for international markets, instead of the earlier generation of on-premise software requiring substantial and costly enhancements to support overseas operations.

Cloud Adoption Plays Key Role in Internationalization

Survey insights show that respondents view the main competitive advantages of cloud computing as lower operating costs (particularly in Singapore , where 29 percent of respondents cited it as a significant advantage, the largest percentage by region), increased responsiveness to customer needs and an enhanced ability to enter overseas markets. Other benefits also include the ability to introduce new products and services faster and enhanced productivity.

Yet, the findings also show that a very low percentage (less than 20 percent) of businesses that have expanded overseas found their existing IT platforms fully effective in doing so, highlighting the critical need for businesses to equip themselves with the right cloud solutions to accelerate innovation, expansion and business transformation.

According to Zakir Ahmed, Vice President and General Manager, NetSuite Asia: "Today's enterprises need to be agile and flexible enough to continually adapt with the fast-changing business pace, but factors such as aging IT infrastructure remain as major hindrances, holding businesses back from capitalizing on growth opportunities abroad."

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