SMEs grapple with rising costs, stiff competition: survey

Singapore

THE recent economic data in Singapore may paint a rosy picture, but a recent report found that small and medium-sized enterprises (SMEs) are not out of the woods yet.

The Annual Business Survey 2017 by the Singapore Chinese Chamber of Commerce & Industry showed mixed findings; business sentiment may have gone up marginally, but more SMEs face rising business costs compared to the year before.

The survey polled 710 respondents during May to July 2017, out of which 94.4 per cent are SMEs.

Some 72.3 per cent face increased costs in 2017 - an increase of 10 percentage points compared to 2016. But despite the rising costs, 67.7 per cent of companies have increased or stable revenue this year, up from 63.7 per cent previously. Those with an increased or stable profit margin also went up by 2.8 percentage points to 54.4 per cent this year.

Not surprisingly, rising business cost was cited as the biggest challenge by 68.4 per cent of firms.

This was followed by stiff competition in the Singapore market at 56.7 per cent, and manpower shortage at 46 per cent.

While the above three challenges have all eased in intensity compared to 2016, they still pose significant threat to the survival of SMEs here.

Other challenges of note include that of disruptive technology, which was a new addition in this year's survey. More than one in five (21.7 per cent) considered it a top business challenge.

On a more positive note, the challenge of financing and cashflow fell from 24.8 per cent in 2016 to 20.4 per cent this year.

A breakdown of rising business costs found that employees' salaries (excluding work levies) was the biggest contributor at 74.4 per cent, followed by the cost of goods, raw materials and equipment at 54.2 per cent.

More significantly, the survey revealed that rental cost has declined, falling 7.7 percentage points to 50.5 per cent, while compliance cost went up 6.8 percentage points to 27.8 per cent.

Strategies to manage business concerns include innovation of products and services at 57.1 per cent, and stepping up to find opportunities in new growth markets at 53.8 per cent. About half (49.2 per cent) resorted to cost-cutting measures, while 45.5 per cent are adopting business restructuring or a change in business model.

The report also found that more are shedding jobs in 2017; firms with a decline in staff strength went up two percentage points to 16.6 per cent compared to the previous year.

Similarly, businesses which expect an increase or no change to their headcount went down from 85.4 per cent in 2016 to 83.4 per cent this year.

In relation to the findings of the survey, the SCCCI has proposed that the government extend and enhance schemes such as the Productivity and Innovation Credit Scheme (PIC) for another three years to continue the "productivity improvement momentum of businesses". The PIC scheme will lapse in 2018.

The PIC allows businesses to enjoy 400 per cent in tax deductions up to S$400,000, or 60 per cent in cash payouts of up to S$100,000, for investments in innovation and productivity improvements.

The business chamber also wants the government to tackle the concerns of cost and resource constraint to speed up SMEs' adoption of e-commerce in the digital economy, as well as leverage manpower statistics to help businesses improve their recruitment process to get workers with the right skills.

Finally, the SCCCI also urged trade associations to be proactive in engaging the government in the implementation of industry transformation maps.

Roland Ng, president of SCCCI, said that with improved business sentiments, companies are in a better position to continue with their upgrading effort, such as through productivity improvements and digitalisation.

He added: "As these efforts require investment and expert know-how, individual business, especially our SMEs, may face challenges. Our trade association leaders should therefore come together, aggregate their wisdom and resources to help their members to transform in a practical way."