With the global financial crisis, businesses especially our SMEs, have been badly affected with many struggling to survive. This article turns the spotlight on our SMEs and highlights some of their concerns.
Amid signs of an expected prolonged recession at home, virtually all businesses, regardless of size or industry, are feeling the squeeze as they try to stay afloat. Our small and medium-sized enterprises (SMEs) are particularly vulnerable.
Concerns of increasing business costs
A recent SME Development Survey conducted by DP Information Group revealed that rising costs is the top concern among SMEs in Singapore. This was ahead of other perennial concerns such as competition, manpower and cash flow issues.
Mr Thomas Ng, Director for NKH Fluid Engineering Pte Ltd, a one-stop manufacturer for water pumping systems, has found the increasing cost of doing business a challenge with every year. Part of his strategy for NKH in remaining competitive has been to look for cost-effective industrial land for his factory. Not limiting his choice within our shores, he is also looking at neighbouring countries as possible sites.
“With land a natural scarcity in Singapore, it is imminent that property cost which contributes a large portion of my business cost will spiral upwards,” said Mr Ng. “Re-locating all if not part of my operations will also give us more options for lower labour cost for low-skilled jobs.”
Mr Ng’s concern seems to be representative of the sentiments of the majority (58 per cent) of SMEs in Singapore. When polled by the Singapore Manufacturers’ Federation (SMa), SMEs indicated that the increasing labour cost continues to be the key cost component that will significantly affect their profitability in the next one to two years.
However, the concerns on increasing labour cost are not limited to the employees’ wages alone. Another SME manufacturer, Utopia-Aire Pte Ltd, which manufactures metal casing for clean air filtration, raised another manpower-related matter.
For some time, Utopia-Aire has observed a number of its employees with S-Passes resigning after working a few months. When the situation was investigated, Dr Jeremy Chia, Utopia-Aire’s Managing Director, found that employees with S-Pass holders could now have direct access in applying for their Singapore Permanent Resident (PR) status through the Internet.
“This newly implemented procedure has affected our business in terms of recruitment costs, loss of time in recruiting, loss of invested time and cost in training,” said Dr Chia. He added that “this has disrupted our work and productivity where contractual obligations are not fulfilled.”
According to Dr Chia, the new implemented process of PR application via the Internet now takes only 2 to 4 weeks and does not require the approval of the employer. This he feels has allowed foreign employees to take advantage of the easy accessibility in gaining Singapore PR status at the expense of the SMEs who recruit them.
The list of concerns for SMEs such as NKH Fluid Engineering and Utopia-Aire continues with cost of sales (i.e. raw materials / intermediate or final products) ranked second at 57 per cent, an increase of two per cent from a year ago. Rental costs also remain a challenge for most SMEs, with a higher 42 per cent highlighting that increasing rental of premise is eroding their profitability.
With concerns of rising costs at the back of their minds, it is not surprising that improving cost efficiency and productivity is a key business strategy that our SMEs will be adopting for the next two years.
Opinion: Moving forward and growing SMEs
With our SMEs making up about 90 per cent of the total number of businesses operating here, they are no doubt a backbone to our nation’s progress and future. They contribute up to six out of every 10 jobs in Singapore and account for almost half of the total value-add in our economy. It is, therefore, not surprising that our government responded to the cries of “S.O.S” from SMEs with the Budget 2009 on 22 January 2009.
Though not intended as a bailout, the Budget released a set of targeted initiatives aimed at helping viable businesses help themselves. From the Jobs Credit Scheme to the reduction in corporate tax to 16 per cent, our government looks to have provided our SMEs with the right ballast to stay afloat for now.
Having said that, much remains for us to do more in helping our SMEs to expand and become home-grown big companies like Asia Pacific Breweries Ltd, Creative Technology Ltd or OSIM International Ltd. We need more of such companies that can enhance our nation’s stability and security in terms of investments and employment in downturns.
Therefore, it is encouraging to note that our government has started being pro-active in engaging our SMEs and promoting their growth through SPRING and with the support of enterprise development centres (EDCs) from some trade associations. However, as highlighted above, more can be done in the area of helping SMEs minimize costs and having a keener grasp of the impact of manpower policies on business.
With our SMEs playing a bigger role in the economy, this might be a timely long-term strategy to strengthen Singapore’s economic capabilities.