Rising cost of business hurting margins, but SMEs look to new growth markets, innovation

Singapore

THE rising cost of business may be outpacing revenue and suppressing profit margins, but SMEs are actively finding new growth markets and innovating their products and services, according to the Annual Business Survey conducted by the Singapore Chinese Chamber of Commerce and Industry (SCCCI).

The preliminary results were revealed by SCCCI president Roland Ng at the opening of the Chamber's SME Conference on Wednesday. It surveyed 960 respondents, of which 93 per cent are SMEs.

Although the full report will only be released later this year, Mr Ng let on that 78.9 per cent of respondents said business costs have increased, up from 72.3 per cent a year ago. But only 41.4 per cent indicated that their revenue has risen, though the figure was slightly higher than the 36.8 per cent from the year before.

It is no wonder that profit margins took a hit, with 45.4 per cent noting that they have seen a decline in margins. Not all is bleak, though. SMEs are stepping up to the challenges faced, with 43.3 per cent looking for opportunities in new growth markets, and 35.7 per cent turning to innovation.

"Our chamber is actually trying very hard to look at new markets that are suitable for our SMEs," Mr Ng told The Business Times. He added that many South-east Asian countries have Chinese chambers as well, and SMEs should leverage on SCCCI's close connections to enable them to enter overseas markets.

Mr Ng brought up three key challenges faced by SMEs today: rising business costs, manpower shortages and stiff competition in the local market. On productivity, he noted that 75 per cent of businesses let their employees go for professional training to gain industry knowledge, as well as understand the latest developments in the market and allow them to extend their network.

Meanwhile, government schemes have seen some measure of success as well, with 67 per cent of respondents saying that they have benefitted from them. But more than half also indicated that they hope the authorities can make rules and regulations less rigid.

Finance Minister Heng Swee Keat, who gave a speech at the conference's opening ceremony, reminded audiences that the economic weight is shifting to Asia, and that new technology is emerging faster than ever.

He then urged SMEs, academia and the government to collaborate and drive economic and social development. This tripartite model of growth is called the "Golden Triangle of Innovation", he said.

Mr Heng shared how he was inspired by a recent trip to the Netherlands where he learnt how different communities and stakeholders help to maintain polders, which were built to reclaim land from the sea and is at constant risk of flooding. Much of the Netherlands is at or below sea level.

This practice has given rise to a culture where businesses, government bodies and universities come together to identify common challenges, "and I think this is something that a small global economy like Singapore must do", said Mr Heng.

He emphasised the importance of setting aside differences - even those between competitors - for the greater purpose of advancing the industry.

He noted how just last year, Enterprise Singapore announced the Group-based Upgrading initiative, which encourages SMEs to pool resources and ideas to find collective solutions to common business challenges.

He urged SMEs to make use of such schemes to build more capabilities. "In our businesses, of course we compete, but we must also collaborate," said Mr Heng.