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SINGAPORE BUDGET 2019

Singapore Budget 2019: Fixing mindsets against F&B, retail jobs - not quotas - is key

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"For an already manpower-lean business of ours, the tightening may mean that we could be down from having a body to nobody at all running the store." - Homegrown lifestyle brand Benjamin Barker's COO Damien Tan. The firm has 10 retail and two F&B outlets in Singapore.

Singapore

ALTHOUGH tighter foreign manpower restrictions will force food and beverage (F&B) and retail firms to transform, there are challenges to getting started and limits to how far transformation can go, say business associations and firms.

"For an already manpower lean business of ours, the tightening may mean that we could be down from having a body to nobody at all running the store," said local lifestyle brand Benjamin Barker's chief operating officer Damien Tan. The firm has 10 retail and two F&B outlets here.

Where customer service is key, "you still need humans", said Singapore Retailers Association president R Dhinakaran - and hard-to-hire locals make foreign workers indispensable. "This cutting of the ratio really makes it difficult for us to operate."

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F&B and retail were cited by Finance Minister Heng Swee Keat as two segments that remain "very labour-intensive", in Monday's Budget speech announcing the changes.

The services sector's foreign worker dependency ratio ceiling (DRC) - the maximum proportion of foreign workers in a firm - will go down from 40 per cent now to 38 per cent on Jan 1, 2020, and again to 35 per cent on Jan 1, 2021. It does not apply to Employment Pass holders.

The services sub-DRC for mid-level skilled S Pass holders will be lowered from 15 per cent now to 13 per cent, and then to 10 per cent.

Mr Dhinakaran highlighted that in retail, the lower S Pass DRC tends to be the one that constrains firms. In services, Work Permit holders are allowed only from a few countries - such as Malaysia, China, and South Korea - and it is "very hard" to attract workers from those countries to work at Work Permit salaries, he said.

To support firms in adjusting, the 70 per cent funding support levels for the Enterprise Development Grant and Productivity Solutions Grant will both be extended beyond their original expiry dates to March 31, 2023.

Yet Benjamin Barker is "close to" the new limits, despite efforts to leverage technology.

For instance, the firm has reduced its backend headcount thanks to improved digital processes and systems - but as its overall headcount goes down, so does the number of foreign workers it can have.

Maybank Kim Eng economist Chua Hak Bin warned that higher labour productivity may not necessarily result. "Beyond a certain threshold, I think further DRC cuts are more likely to hurt service quality, shorten operating hours and force some F&B or retail outlets to shut down."

"These DRC cuts will likely hurt fresh investments into retail and F&B, especially given the headwinds already coming from e-commerce and food delivery services," he said.

Firms that have not yet embarked on the productivity journey will be hardest hit, "as they may now need to consider changes in operations to maintain service standards", said Restaurant Association of Singapore (RAS) president Vincent Tan, noting that the labour-intensive industry depends greatly on foreign workers.

The RAS has been encouraging members to explore digital and productivity solutions, but "implementation may be challenging to new entrepreneurs due to the capital outlay required, and their challenge to be profitable and survive the initial years of operation". There is also the dilemma of investing in technology versus maintaining adequate cashflow.

"In these challenging times ahead, members will continue hiring (locals), and will also work with RAS to explore possible productivity solutions that is likely to help alleviate the impending manpower shortage," said Mr Tan. The RAS is the largest F&B association here, with more than 400 members running over 3,600 outlets.

Not all firms are fazed. Said Koufu Group chief financial officer Chua Sher Lin: "The early adoption of technology has allowed us to be prepared to face the key challenges in F&B, including revision to policies and manpower shortages."

The food court and coffeeshop operator has introduced measures such as cashless payment, tray return robots, self-payment, and ordering via its mobile application.

Still, the nature of the service sector limits the extent to which humans can be replaced. Compared to other sectors, technology such as automation and robotics have limited applications in retail, said Mr Dhinakaran.

"Not every job can be automated or productivity increased," said Bynd Artisan chief executive officer Winnie Chan, citing the retailer's personalisation services.

CIMB Private Banking economist Song Seng Wun said wages might have to rise to attract local workers, with the higher costs potentially being passed on to consumers.

But the root challenge, said firms, is that Singaporeans are reluctant to join the retail and F&B industries.

Tackling this is the way forward to cope with DRC cuts, said local shoe label Pazzion founder Tom Ng, who is looking at tapping government schemes to attract local workers.

Benjamin Barker pays "above average remuneration" for frontline staff but still finds it hard to get locals, said Mr Tan, who sees mindsets - not wages - as key. "Ultimately, Singaporeans need to learn to be proud of work in the service industry."