Survey among SMEs points to growth plateau, slimmer profits

Singapore

JUST over half of Singapore's small and medium-sized enterprises (SMEs), 53 per cent, have hit a plateau in their growth or even registered negative turnover, the latest SME Development Survey has found.

Add to this the fact that the number of SMEs with high-risk credit ratings is nearing the halfway mark. DP Information noted that 46 per cent of the SMEs surveyed were given a "high-risk" rating , given their struggles with the the slowing economy and cost pressures.

The profit margins of these businesses has shrunken; 35 per cent of them - eight percentage points more than a year ago - reported profit margins of between 0 and 5 per cent.

However, fewer companies had negative profit margins - 24 per cent, compared to 28 per cent a year ago; 6 per cent reported negative turnover growth, down a shade from 7 per cent in 2014.

Forty seven per cent of the survey respondents, one of the highest in recent history, reported zero turnover growth; the figure was 40 per cent last year.

Fewer SMEs - 9 per cent vs 12 per cent a year ago - are in an accelerated stage of development, defined as an increase in annual turnover of 10 per cent or more.

A record of 2,847 responses were received from SMEs in the survey, conducted amid a muted outlook largely brought on by global headwinds and restructuring on the local front.

Singapore Business Federation's chief executive officer Ho Meng Kit said that internationalisation remains an important growth driver for SMEs, and that there is scope for government and trade associations and chambers to introduce the opportunities made available through the Asean Economic Community (AEC), the Trans-Pacific Partnership and other free-trade agreements.

But while the survey found that more SMEs are doing business overseas - 54 per cent are generating revenue outside Singapore, up from 50 per cent last year - it also found that fewer are generating the bulk of their revenue from such overseas activities. The proportion of overseas revenue generated by SMEs has been falling since 2013.

The key challenges highlighted included competition (cited by 41 per cent of respondents), lack of knowledge and information (16 per cent), and currency fluctuations (11 per cent).

Mr Ho noted a separate area of concern - a fall in the proportion of younger SMEs. Only 10 per cent of the responses came from businesses that have been around for a decade or less, compared to 37 per cent in 2012. As SMEs go through a "make-or-break period" between their third and their 10th year, there is a need to analyse this drop, he said.

Despite the subdued outlook, DP Information's chief operating officer Lincoln Teo stressed that it is not a "doom-and-gloom" situation, and that SMEs are showing great resilience and making changes that will stand them in good stead down the road.

Indeed, these businesses have become more decisive, and have clearer strategies on what they must do to stay competitive. These include improving customer service (26 per cent), raising productivity through IT (21 per cent) and expanding their range of products and services (20 per cent).

This is a definitive step forward from last year, when about half (51 per cent) of the SMEs surveyed said their main business strategy was to rethink their business model.

This year, a record 68 per cent of SMEs had invested in their in-house technology and innovation capabilities. This is on top of the 64 per cent which had made investments last year, as SMEs turned to technology and innovation to bolster their competitiveness and sustainability, while reducing their dependency on manpower.

Andrew Khaw, senior director of productivity growth through information and communications technology (ICT) at the Infocomm Development Authority of Singapore (IDA), said companies are starting to take new approaches to address manpower constraints and increasing competition.

"In particular, in a shift from traditional manpower optimisation, 47 per cent of SMEs have deployed ICT to overcome their labour shortages. Through the use of specialised tools and software, two-fifths of SMEs are also harnessing their business data to increase their competitiveness."

Notably, although the difficulty in hiring staff and higher manpower costs continue to dominate SMEs' list of business concerns, fewer SMEs cited these concerns than in the 2014 survey.

Difficulty in hiring staff fell 8 percentage points to 41 per cent in this year's survey; high manpower costs fell 9 percentage points to 39 per cent. But the uncertain global economic environment weighed more heavily on companies, climbing 6 percentage points from 23 per cent to 29 per cent.

DP Information's Mr Teo said: "Technology remains the key to SMEs unlocking greater productivity gains and offsetting the challenge of a tight labour market. Investment in technology is making our SMEs lean, efficient, and more competitive."