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Keeping the shop open is harder than setting it up

Business closure data suggests Singapore's business hygiene factor is not as strong

Skyline photo of the Singapore Central Business District (CBD).


SINGAPORE'S pro-business environment has been recognised around the world by entrepreneurs, putting it consistently in the top spots when it comes to places to set up shop. But data suggests that viability may be a cause for concern.

According to figures from the Department of Statistics, the number of companies that closed rose from 9,973 in 2008 to a high of 21,661 the following year. In 2010, the number fell to 14,359 before staying in the high teens through 2011 and 2014. In 2014, a total of 17,618 companies shuttered their doors.

On a macro level, it could, of course, be a byproduct of Singapore's shift away from traditional industries.

Points out Associate Professor Hooi Den Huan, director at Nanyang Technopreneurship Centre, Nanyang Technological University: "Sometimes with the changing landscape there could be new business opportunities, and certain businesses may no longer be as relevant. This could be why some companies decide to close down. Or, they may close down and move to other areas of opportunity. Or, some businesses may close down because they want to have a new brand name as an e-commerce company."

Ang Ser Keng, senior lecturer of finance at Singapore Management University's (SMU) Lee Kong Chian School of Business, points out that succession planning could be another factor resulting in businesses closing. "What's interesting is that a lot of businesses fold up not because they don't have a good business but because no one takes over," says Mr Ang. "If you look at succession trends in Asia, this is becoming more pronounced."

It is not just that businesses seem to find it more difficult to survive post-2011 than before. Says Victor Tay, member of the REACH Supervisory Panel: "The question is, among all the businesses that closed, which formed the larger percentage? SMEs are the one - they are more vulnerable, and it looks like a lot of them have under six years of operation, so they are experiencing earlier closure than others.

"This suggests that maybe Singapore's business hygiene factor is not so strong. Singapore may be called the easiest place to start a business but it is not necessarily the most easiest place to maintain a business."

Data from DP Information Group's annual SME Development Survey 2015 supports this observation. Of the 2,847 respondents that took part in the annual survey, only 10 per cent had been in existence for fewer than 10 years, compared to 38 per cent in 2012.

Indeed, the biggest drop was seen in the segment of businesses with between three and 10 years of operation - in the 2015 survey, only 9 per cent of respondents fell into this category, versus 21 per cent a year ago.

"This period - between three and 10 years - is the make or break period for SMEs. It is during this period that they will either become sustainable or fail. The drop in SMEs in this group suggest fewer SMEs are making it through this challenging period, where SMEs' operations goes beyond the initial startup phase and is tested on its scalability and sustainability," noted DP Information in its report.

Another macro factor impacting businesses could be that Singapore lacks a complete ecosystem says Mr Tay, even as he acknowledges other commonly uttered grievances such as high business costs - particularly in the area of tenancy and manpower costs.

"(The lack of) an adequate ecosystem or value chain means that many manufacturing components, and/or services cannot be sourced from Singapore. Hence, an entrepreneur will have to assimilate all parts/components from local and overseas into one. This makes it more challenging for any startup."

On the other hand, businesses could be folding as entrepreneurs take one hard knock too many. With the education system encouraging entrepreneurship, many students now want to be entrepreneurs, notes Mr Ang, who is also the vice-chairman of the executive committee and director of the UOB-SMU Asian Enterprise Institute at SMU.

"There's the possibility that these people think setting up a business is very easy, but they meet some hard knocks and fold up. Of the ones I have encountered - but again we can't generalise to much - the next generations that have succeeded have generally taken over the family business and changed some things like segmentation and branding to become better. The younger businesses, on the other hand, quite likely fell on hard times and folded."

Indeed, it is worth pointing out that it is not all doom and gloom. Even as more companies are closing down, the number of companies being created have also increased. In 2008, a total of 23,715 new companies were formed. This figure has been on an uptrend, hitting a peak of 38,484 new companies being formed in 2014.

Says Mr Tay: "(If you imagine businesses as infants), and if infants keep dying, you'll eventually have a problem of not enough teenagers and adults. . . . The other argument put up by the government is that the number of startups is also expanding. In our analogy, it means that while many infants are dying, there are new babies created. While that may ensure certain continuity of replacement . . .  in a less than stronger hygiene country - perhaps the analogy of some African states - does it mean we stay as it is and people should continue to give birth, and the death rate doesn't matter?"

He concludes: "More analysis needs to be done to see what makes companies so susceptible to closure so that then we can strengthen the ecosystem."