Rethinking SMEs in Singapore [by Chu Ho Ting]

Small and Medium Enterprises (SMEs) in Singapore account for an estimated 99% of the total number of business enterprises in Singapore, generating 49% of nominal value add and 66% of total employment in Singapore[1].

smebreakdown

Without a doubt, SMEs are an integral feature of the Singapore business space, both economically and socially. Their continual growth remains an essential pillar to the enduring success of the Singapore city-state.

Against this backdrop, the Singapore government has initiated its first steps in enhancing its support to SMEs by providing support in the areas of productivity, innovation and capability upgrading. However, the recent year’s performance of SMEs presents a much more concerning trend.

For one, while the global economy has been on its path to recovering, SMEs in Singapore have not been able to participate fully in its recovery. On average, about 50% of SMEs have not experienced new top-line growth in FY2014, and 15% of SMEs still make a net loss in the latest FY2013 [2].

smebreakdown
smebreakdown
Clearly, SMEs in Singapore are facing stronger obstacles in the new global hyper-competitive markets of today. Over the past years, we have tried to understand these challenges facing SMEs as well as approaches that could potentially help them thrive better. Our work has consisted of working with numerous SMEs owners in their strategy formulation, surveying SME owners to obtain better market awareness and intelligence, and partnering SME owners to further their growth.

The Singapore SMEs of today are in need of a radical paradigm shift. Singapore has benefitted greatly from the early effects of globalization. Through trade, Singapore was able to artificially enlarge its apparent hinterland, and grow by importing and utilizing the resources of others. However, much of these competitive advantages were constructed through government policies rather than market action of SMEs.

To a certain extent, traditional sources of competitive advantage such as importing cheap neighbouring foreign labour to participate in the SMEs manufacturing value chains are no longer as effective as those years in retrospect. In fact, the government recognizes this and has, through the tightening of labour regulations, attempted to coerce SMEs to restructure themselves off this over dependence on imported labour for the future economy. And once again, we see the hands of the state take a leading role in redeveloping the SMEs for the future.

That said, SMEs are often too slow to adapt to changes in the economy. Despite the great advancement in technologies in the last decade, SMEs have seemingly lagged behind in the application of new technologies within their businesses. On a 5-year average basis, only 60% of SMEs have taken efforts to further enhance their in-house technology capabilities. In general, SMEs often base their investment decisions on the direct impact of their balance sheet. The lack of direct contribution to revenue often remains the primary reason why these enhancement initiatives are often delayed [3].

That brings us to our final point in this article. SMEs in Singapore need to take further ownership of their own business strategies and visions. Throughout our experiences, Singapore SMEs tend to be more reactive than proactive in their business directions. Indeed, this may be the result of the paternalistic nature of the state economy that chooses to select and champion only winners. However, we believe that SMEs need to look beyond these boundaries. May it be re-innovating the local domestic markets, venturing overseas or re-engineering their value chains, SMEs need to recognize that opportunities are aplenty if they could view it in an alternative perspective.

Understanding the current challenges is just another starting point for SMEs in Singapore today. The ability to capture and mitigate the challenges of new opportunities is what matters the most, and all these could only start if SMEs are willing to partake in a shift in paradigms and potential loss of familiarity.


[1] http://www.singstat.gov.sg/statistics/visualising_data/Singapore-Economy13102014.pdf

[2] SME Development Survey, DP Information Group. Page 27, 28 and 30.

[3] SME Development Survey 2014, DP Information Group, Page 45.

 

by Chu Ho Ting.

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