Many SMEs have no growth strategy: Poll

Companies are busy trying to cut costs and raise productivity

By Yasmine Yahya, The Straits Times, 22 Nov 2013

SINGAPORE'S small and medium-sized enterprises (SMEs) seem to have lost their appetite for growth.

They are too focused on grappling with an ever tougher business environment, a new survey has found.

The study by DP Information Group found that local firms are spending time and energy on internal changes such as cost-cutting and productivity gains, instead of looking for ways to expand.

First the good news: SMEs now understand the importance of lifting productivity, with 58 per cent of the 2,708 firms polled planning to implement measures to raise productivity over the next year.

But their efforts come amid tough times. Only 7 per cent expect to achieve double-digit growth - the lowest level in the study's 11-year history.

Nearly half, or 44 per cent, expect no discernible growth, while another 9 per cent expect their revenues to decline.

There are also markedly fewer firms doing business overseas: 46 per cent, down from 54 per cent last year.

And this year, 75 per cent said they had a business strategy, down from 85 per cent last year. That means a quarter of the firms polled this year said they had no strategy at all.

DP Info managing director Chen Yew Nah said the lack of ambition may be due to adverse economic conditions and rapidly rising business costs.

However, she added, SMEs should strive to "get their mojo back" or risk declining fortunes.

"SMEs need to understand that the riskiest thing to do is to stand still. After a period of stagnant growth the balance sheets of SMEs have weakened and more SMEs are now considered to be high credit risks."

The share of SMEs with an "investment grade" credit rating has risen in the past six years to 22 per cent, from 17 per cent in 2008. But the proportion of SMEs considered to be high credit risks has shot up even faster, with 43 per cent now in this group, up from 25 per cent in 2008.

Singapore Business Federation chief executive Ho Meng Kit said the findings were unsurprising. SMEs have been struggling with day-to-day challenges as a result of tighter manpower constraints and escalating costs, so they have little resources left to plan for business expansion overseas.

"Our message to Government is not to tighten policies further. Companies have clearly shown that they will reduce the number of foreign workers hired."

The survey showed that 74 per cent of SMEs polled had foreign workers among their staff this year, down from 76 per cent last year.

But only 53 per cent said they will continue to employ foreign workers over the next year and an even lower share, 35 per cent, said they will have foreign workers in the next two to three years.

While this shows that SMEs have received the message loud and clear that they need to stop being so reliant on foreign workers, Ms Chen said this will bring on another challenge.

"Obviously if our SMEs are employing fewer foreign workers, they will need to replace them with local hires. However, this is not an easy thing for them to do," she noted.

"Fewer local employees want to work for a small SME, believing their careers are better served in a larger company, and the cost of employing a local is rising as larger companies with deeper pockets offer wages and benefits that smaller companies cannot match."

TOUGH TIMES

- Only 7 per cent expect to achieve double-digit growth - the lowest level in the study's 11-year history.

- 44 per cent expect no discernible growth, while another 9 per cent expect revenues to shrink.

- Markedly fewer firms are doing business overseas: 46 per cent, down from 54 per cent last year.

- 75 per cent this year say they have a business strategy, down from 85 per cent last year.