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Cost and manpower pressures force SMEs to rethink how they do business

21 October 2014 [Singapore] - We have been associated with DP Information Group in this survey for the past three years as it is an important development study of our SMEs. Many of the respondents are our members and the results therefore represent the views of our SME members. 

I will make a few key observations that reflect SMEs' current status and sentiments.

In general, prevalent domestic issues such as rising business cost and manpower challenges have eroded SMEs' confidence in the local market.

  • Some 15% of survey respondents expected losses, an increase by 2% from last year.
  • Only 8% of respondents are expanding presence in local market. This is a 9% drop from 17% in 2013.
  • This year's survey recorded highest proportion of SMEs (45%) with a High Risk rating (DP 7- DP8).
  • Liquidity has also dropped with average cash reserve falling by some 24% from last year. This has been the trend for the past 3 years.

Not surprisingly, SMEs' top concerns pertain to manpower challenges. Manpower costs continue to top the list of cost concerns for the third year running since 2012.

Nonetheless, we are seeing firmer signs that Singapore SMEs are at a turning point in their growth and development. Companies are challenged to revisit the way they operate amid the ongoing economic restructuring. SMEs are embracing business restructuring, productivity enhancement and business expansion overseas to overcome challenges. For example, some 20% of respondents are expanding overseas presence, up from 14% in 2013.

Whilst an increasing number of SMEs are embracing innovation and technology in their bid to up productivity levels, this is in its early days and more sectors and companies need to come on board so that businesses as a whole maintain their competitive edge. Importantly, whilst in 'fire-fighting' mode, businesses must also plan for growth, or be left behind. This was the main reason why we organise the National Productivity Month during this month with many business organisations and associations involved so that this message gets to more companies.

On our part, SBF is working on the following initiatives to help SMEs:

  • Helping businesses to explore overseas opportunities in a bigger way
         - The ASEAN Economic Community 2015 and opportunities in Asia, Africa and other emerging    markets.
  • Firming up recommendations for broader SME participation in government procurement as a strategy for SME development.
  • Putting together a Fair Tenancy Consideration Framework to help SMEs negotiate fairer tenancy agreements.
  • Collaborating with SPRING Singapore in the Partnership for Capability Transformation (PACT) programme to help accelerate capability development of SMEs

To help SMEs cope with the economic restructuring, we welcome the assurance provided by PM recently that government will not drastically tighten manpower policies further to allow businesses room to adjust to the pace of restructuring. The recent IMF economic report on Singapore also acknowledged the tough challenges of our economic transformation adding that Singapore's competitiveness could be impacted by the foreign labour curbs and our exposure to the volatile external markets.

I make two additional points for government's consideration:

  • Government charges increasingly have impacted SME's cost competitiveness. In the last three years, more SMEs view government charges as a top five cost component. Government charges are more controllable costs and they should be reviewed so that they do not add to the cost burdens of our small businesses.
  • After five years of economic restructuring, Government should consider fine tuning its policies and incentives to address the needs of different industry sectors. Many of its current policies and schemes are broad-based, setting a level playing field and general conditions for all enterprises. With more feedback now on how SMEs in different sectors are responding to restructuring, restructuring policies can be more sector specific, targeted to help transform companies in key sectors.

 

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