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A Winning Formula For An Economic Slowdown

It’s not often that I get to meet a Michelin-star chef in the flesh. But I did, recently.

I had the good fortune of running in Chan Hon Meng, better known to us foodies in Singapore as Hawker Chan, at his recently-opened Chinatown restaurant. His claim to fame is his award-winning Hong Kong Soya Sauce Chicken.

We even had time for a quick chinwag about his ambitious plans for the future.

Beyond Singapore  

Hawker Chan knows that the Singapore market has limitations. There are only so many soya sauce chicken establishments that the Singapore market can support.

So, Hawker Chan is taking his brand overseas.

Expanding a business overseas is not without risks. There are operational risks; cultural risks; management risks and, of course, the inevitable, currency risks.

But there are benefits too. There can be lots of benefits, if a company can get it right.

So, just as we, investors, should not be putting all our eggs into one basket, companies should also think seriously about spreading their investments around the globe too.

A dab hand  

In fact, some of our home-grown companies are quite accomplished at expanding overseas.

Singapore Telecoms (SGX: Z74), for example, makes more money from its overseas operations than it does locally. Additionally, the income from its overseas affiliates helps to fund the dividend payout that shareholders have come to expect.

Another example is ComfortDelGro (SGX: C52) that has around 11,000 taxis in China. Revenues from the UK, Australia, China, Vietnam and Malaysia accounted for nearly half of group sales last year.

Raffles Medical (SGX: BSL) is not pinning all its hopes on Singapore, either. Whilst it continues to have a strong foothold in the Lion City, it is roaring ahead with expansion in China. One day, its hospitals in China could rival that of Singapore.

I could go on. But I won’t.

Economic headwinds

Singapore, we have to recognise, is limited to a great extent by its physical size, which means that growth in some sectors could be limited too.

But the world can be the oyster for those companies that have the vision, the resources and the ability to expand beyond Singapore. Singtel, Comfort and Raffles are just three of many that are not constrained by the local economy.

Singapore still matters to them. But it probably matters less than we think.

While growth in their home market might be weak, thank goodness they have built strong businesses outside.

So should we, as investors, worry about the possible slowdown in the Singapore economy?

Get it right

It is true that Singapore is set to only grow at around half the rate that it has done in the past. But the Singapore we see around us today is very different to the Singapore in the 60s, which was when I first arrived in the Garden City.

Many of our companies have matured into world-beaters. They don’t have to hold a candle to anyone, anymore. If anything, they can hold their own anywhere in the world.

But not all companies have the knack to do so, even if they might have the desire.

Overseas expansion can be a costly mistake, if they don’t get it right. As investors we have to get our stock selection right too.

At Stock Advisor we spend our time picking through local and international companies. We like to think we are quite good at it. Let me show you what I mean here.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock — Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock -- Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned. Raffles Medical has been recommended by the Motley Fool.