SMEs moving, scaling down or closing due lower foreign worker quotas from 1 July 2012

SMEs gird themselves for tighter foreign worker quotas
The Straits Times, 11 Jun 2012

WITH weeks to go before foreign worker quotas are further tightened, small and medium-sized enterprises (SMEs) are bracing themselves for the squeeze.

They expect labour shortages to worsen - at a time when they are already struggling to fill vacancies - and higher wage costs.

The biggest impact is likely to be on their growth plans.

Half the 25 SMEs The Straits Times spoke to cited this as the key fallout of lower quotas for the services and manufacturing sectors which kick in next month.

Some SMEs in the services sector said they have had to turn away business. That is because they find it near impossible to recruit locals and also to automate much of their work.

Companies in the transport, food manufacturing and restaurant lines are the most likely to face practical limits to automation, said Mr Teo Siong Seng, president of the Singapore Chinese Chamber of Commerce and Industry.

As for manufacturing SMEs, some are thinking of relocating to lower-cost locations in the region. That is because not only are foreign worker quotas coming down, but also levies are going up.

The Manpower Ministry has said that the lower quotas will hit about 8,500 services-related firms and 500 manufacturing companies that are highly reliant on foreign manpower, but not the vast majority of firms.

At the same time, it seems many SMEs have made headway in raising productivity, which helps them cope with the labour crunch.

Some 31,000 SMEs benefited from the Productivity and Innovation Credit (PIC) scheme last year, the Inland Revenue Authority of Singapore said. The scheme grants tax deductions or cash payouts for changes such as automation, staff training, and research and development.

Firms seeking ways to deal with new foreign worker quotas next month
By Janice Heng , Cai Haoxiang, The Straits Times, 11 Jun 2012

THE last time warehouse logistics firm Ocean Pearl Shipping managed to hire a Singaporean was back in 2006.

The small enterprise has 14 workers and needs more if it wants to take on more jobs.

But it cannot find Singaporean workers for the back-breaking task of moving goods up and down staircases to lorries.

Nor can it hire more foreign workers, because it has already reached its maximum number - six - allowed under the new dependency ratio ceiling (DRC) that will kick in next month.

The DRC is the maximum number of foreign workers a firm can hire for every Singaporean.

'I don't dare accept big jobs,' says Ms Lim Bee Lay, 48, who runs the firm. 'And since levies are getting higher, I'd rather do less than do more.'

Mr Raj Mulani, 42, an executive partner at The Alchemy Partnership, an advertising agency, faces a similar problem.

In January, he lost an art director from Switzerland when her S-Pass was not renewed. The 'production' of ideas, he says, cannot simply be cranked up. 'Everything comes from talent.'

Such is the plight of many small and medium-sized enterprises (SMEs), with foreign worker quotas due to be tightened in three weeks' time.

Many of them are already having trouble filling vacancies, and are bracing themselves for the worst. Some construction firms have put projects on hold or prepared to scale down operations, while several manufacturers are considering moving to cheaper locations like Malaysia, Indonesia and Vietnam. And some are wondering whether they might be forced to close down altogether.

Such worst-case scenarios are being floated as Singapore moves to reduce its reliance on foreign labour.

While many Singaporeans want to stem the inflow of foreigners, businessmen worry about the impact of these moves on the 160,000 SMEs which account for the bulk of employment here.

From next month, the DRC will be lowered from 65 to 60 per cent in the manufacturing sector, and 50 to 45 per cent in services.

The ceiling for higher-skilled S-Pass holders will also be lowered from 25 to 20 per cent.

At the same time, foreign worker levies will be gradually raised, so employers may be paying $150 to $330 more per worker by next year.

When The Straits Times did a quick check of 25 SMEs with annual sales revenues of between $10million and $100million, it found half expected the resulting labour shortages and higher wage costs to affect their expansion plans. Two-thirds said they had been hit when foreign worker levies were raised in 2010 and last year.

Business leaders say the companies hit hardest will include those in construction, manufacturing, wholesale, logistics, food and beverage and retail.

Lucky Joint Construction is one of them. 'We will scale down, make sure projects that we take are profitable,' says its managing director, Mr Yeow Kian Seng.

'Otherwise, we are paying salaries, CPF, levies every fortnight or month. If we don't have enough cash coming in for projects completed, it is dangerous - the company might go bankrupt.'

And while the changes aim to encourage companies to hire more Singaporeans, SMEs argue that locals are simply not interested.

Singaporeans, they say, prefer office jobs, do not want to work as loaders, shop assistants or factory workers, and try to avoid working in industrial estates.

Mr Warren Teh, general manager of an IT retailer, says he has tried to hire more Singaporeans, but they do not stay for long.

He also tried to hire older workers past the age of 62, but only one person expressed interest - and did not turn up for the interview.

And when locals quit, it effectively reduces the number of foreigners he can hire. 'If we can get some Singaporeans in, it's like striking the lottery,' he says.

Automation not for all firms
By Janice Heng , Cai Haoxiang, The Straits Times, 11 Jun 2012

LIKE many small companies, Pine Garden's Cake is constantly reminded of the need to boost productivity by automating or improving workflow.

One option would be to bring in tunnel ovens, which are used in mass production and can churn out 600 to 1,000 cakes an hour.

The problem is, the Ang Mo Kio bakery sells 40 cakes a day - far from enough to justify spending anywhere from $1 million to $3 million for such an oven.

'It's not a matter of not wanting to automate, or being resistant to change,' says business development director Wei Chan, 39. 'For this business, it is actually counterproductive to automate.'

Many small or medium-sized enterprises (SMEs) like Pine Garden are trying their best to replace ageing machinery or use technology and software to upgrade their operations. However, they are discovering that not everything can be automated - which means they will be less able to cope when foreign worker quotas are tightened and levies are raised.

The president of the Singapore Chinese Chamber of Commerce and Industry, Mr Teo Siong Seng, notes that some firms can automate their operations. They include companies in the engineering, printing and media sectors.

Others, including many in the transport, food manufacturing and restaurant businesses, face practical limits.

Says general manager Joe Tan of Ban Choon Marketing, a wholesaler of fresh produce: 'We can't use robots to type invoices, drive vehicles or pack products.'

Still, official figures show that many SMEs have made some headway.

According to the Inland Revenue Authority of Singapore, around 31,000 SMEs benefited from the Productivity and Innovation Credit scheme last year.

That comes to about one in three of all active SMEs, that is, companies with an annual turnover of $100 million or less.

The scheme was introduced in 2010 to encourage businesses to boost productivity and innovation, by giving them tax deductions or cash payouts for initiatives such as automating, sending staff for training, or conducting research and development.

One SME that has reaped gains in productivity is Laundry Network, which provides laundry and dry-cleaning services.

Rising foreign worker levies have pushed up its wage costs by around 20 per cent, but these costs have been offset by a radio frequency identification technology system it introduced five years ago to track laundry bags. The system helped boost annual revenues from $8 million in 2008 to $15 million last year.

Says chief executive Chan Tai Pang: 'We are reaping the benefits of technology, but it took us a long time to get here.'

HOCKHUA TONIC

Factory jobs may go to Johor
By Cai Haoxiang, The Straits Times, 11 Jun 2012

HIT by rising costs and labour shortages, traditional Chinese medicine manufacturer and retailer Hockhua Tonic is thinking about moving some factory operations to Malaysia.

It has its eye on the Iskandar region, a development region in Johor where labour and land are cheaper. If it cannot find Singaporean workers to replace its ageing workforce and costs continue to go up, Hockhua Tonic will have to move, says chief executive Chan Tiong Cheng.

'It is cheap to invest in Malaysia. It is also much easier to find people to work,' he says. 'I can get people for RM1,500 (S$600) a month, which is near what the foreign worker levy will be next year.'

The only thing stopping him from relocating now is that it would mean retrenching 150 factory workers - 100 of whom are Singaporeans.

'Some have been with us for 10 to 20 years. We don't want to affect their livelihood. But after a few more years, if there are no more Singaporeans coming in and our people are getting old, we may have to move,' he says.

Higher levies and quotas have pushed Hockhua Tonic's labour costs up by $30,000 to $50,000 a month.

The company has around 1,000 employees, two-thirds in retail and a third in manufacturing. Some 30 per cent to 40 per cent of its staff in retail are foreigners.

Mr Chan says the company has tried to find younger Singaporeans to supervise its foreign workers, but has been unsuccessful.

He adds that there are limits to raising productivity at either end. Sales staff cannot be reduced in case it affects customer service, and its herb processing operations cannot be automated because machines cannot differentiate between plant roots of various shapes and sizes - unlike workers with sharp eyes.

THAIEXPRESS CONCEPTS

Restaurant group happy to hire older Singaporeans

By Cai Haoxiang, The Straits Times, 11 Jun 2012

THE boss of restaurant group ThaiExpress Concepts often greets new staff with an unusual question: 'Does your mum or dad want to work for us?'

Chief executive and co-founder Dellen Soh usually receives an amused glance or smile in response, but he has a good reason for asking.

Hiring older workers has worked well for the company in addressing manpower shortages in its restaurants and kitchens.

Some 25 per cent of its 1,100 employees are aged 50 or above. Hired under the company's Golden Folks Programme which began two years ago, they do both service and kitchen work in the group's chains such as ThaiExpress, New York New York and Xin Wang Hong Kong Cafe.

While older workers will not replace foreign labour - which makes up 40 per cent of ThaiExpress Concepts' workforce - Mr Soh says they are a good source of manpower for its labour-intensive operations.

Older workers, he notes, are more stable - their turnover rate is just 2 to 3 per cent a year, compared to 8 per cent across all workers.

'They have staying power, dedication and take pride in their duties,' says Mr Soh.

He discovered their strengths, he says, when he chatted to older workers at hawker centres and petrol stations.

'Many do not mind repetitive job duties, and prefer to work closer to home and not in shifts that are too long,' he says.

ThaiExpress Concepts also tries to deploy these workers according to their preferences. For instance, someone who does not like to talk to customers but who does not mind clearing plates will be hired to do just that.

And someone who likes talking will be put in charge of helping customers apply for the group's membership rewards programme.

By hiring older workers, the company also gets another benefit: an 8 per cent wage subsidy from the Special Employment Credit introduced in this year's Budget.

ROYAL PETS PARADISE

Expansion plans put on hold
By Janice Heng, The Straits Times, 11 Jun 2012

PET care firm Royal Pets Paradise is used to smoothing out tangled fur. But strict foreign worker policy has it in a bind of its own.

Its small staff strength allows it to hire only one S-Pass holder: a groomer from Taiwan.

Director Chris Wee says the firm would like to set up more branches in Singapore, which means recruiting more staff.

But local talent is hard to find, he says, as many animal groomers choose to set up their own businesses after they complete training. Those who do apply tend not to meet Royal Pets Paradise's requirements and standards.

By contrast, groomers from Taiwan and Japan, for example, are 'well-trained and ready to work without guidance'.

However, under the new S-Pass dependency ratio ceiling of 20 per cent, which takes effect next month, the company cannot hire more foreigners unless it first employs more Singaporeans - which it cannot afford to do.

'We don't have the capacity to hire another four workers for each new foreign worker,' says Mr Wee.

In the services industry, foreigners can form up to 45 per cent of the workforce. But this includes both work permit and S-Pass holders.

As grooming is a skilled job, groomers cannot be hired on work permits, which are for unskilled or semi-skilled workers.

At the same time, they do not qualify for employment passes, which are not limited but have higher requirements.

Mr Wee wishes quotas could be more sector-specific, so that well-trained professionals could help fill the gaps in Singapore's workforce.

'There are grooming schools in Taiwan we work closely with, and there are times when graduates would like to come over to experience working in Singapore,' he says.

'But under the current quota regulations, we are unable to provide that opportunity.'



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