8 March 2016
SMEs 'at an inflexion point'
Mindy Tan

SINGAPORE: ASME chief flags the struggles of SMEs, which are mostly in traditional trades and may go out of business amid push to transform the economyThe president of the Association of Small and Medium Enterprises (ASME) has warned that smaller businesses in Singapore, the bulk of which are in traditional businesses, might be in danger of being run to the ground.

Mr Kurt Wee said: "You can talk about transforming the landscape and economy, and having breakthroughs in new industries. I think we need that, and that is part of economic evolution. But the reality is also that the bulk of these SMEs (small and medium-sized enterprises) are in traditional and conventional businesses."

So although economic evolution and being "future ready" are important, care must be taken not to push these businesses past the tipping point, beyond which they cannot cope anymore, he added.

The signs are already there. These businesses have, since the Chinese New Year last year, "more or less" stopped filling vacancies; they have been facing problems in collecting account receivables since the middle of last year.

"It is quite a serious situation on the ground. And then we realised, in December and January, that there had been a rise in the number of bankruptcies and auctions," said Mr Wee.

And even as these SMEs have been languishing, calls have come in the last few months by various parties to expand the number of types of leave available to parents - leave which these struggling companies would be hard put to give their employees because they constitute direct and indirect costs to these businesses, whether the government pays for it or not.

Mr Wee said: "In the last few years, we have issued so many different kinds of leave - we have maternity leave at four months now, and we have one week of paternity leave - which only 40 per cent of eligible fathers have taken up - so why are we in such a hurry to implement a second week?"

It would seem that these calls put the cart before the horse as far as these SMEs are concerned, for they have other more pressing issues before them now.

Mr Wee suggests that the parental-leave issue is better revisited in two years. At the moment, the focus should be on supporting SMEs in expansion efforts beyond Singapore, and on increasing financing options, particularly for those considering mergers and acquisitions.

He added that in the matter of taking maternity and paternity leave, those who work for SMEs would testify that their employers are often willing to lend support and be flexible about it.

Under its drive to encourage SMEs to internationalise, the ASME has come up with a global immersion programme, which entails activities such as working with businesses to identify foreign markets, conducting market evaluation and profiling potential partners, through to training SMEs on the legalities, customs, culture and economics of the target market.

The plan extends to establishing incubation services in neighbouring countries to accelerate the setting-up process for SMEs; doing this can include matching the SME to a domestic player or establishing the SME in the target market itself.

Mr Wee said: "If you don't own the factors of production in the overseas market, it's hard to consolidate or broaden your cost base. When you start to also own the factors of production overseas, then your overall cost base can come down.

"So if you imagine an SME that has all the systems in place to effectively have their data and information on their desktop, have operations in pockets of markets where they can drive revenues and locate their factors of production where these are the most cost-effective - that by itself whether you look at time sustainability or regional competitiveness, will give them the best chance of surviving the competition."

The association is looking to open dialogues with partners they are hoping to work with in the coming weeks.

Meanwhile, the ASME's shared-services project is expected to enter its development phase, and hit pilot testing in the coming six to nine months. This platform, which the ASME has been working on for over a year, will include accounting and human resource administrative functions that will be stored in the cloud.

Mr Wee has identified two thrusts that will determine whether SMEs will survive: One is the ability to use limited resources intelligently (including leveraging shared services if this works for their business model); the other is internationalisation.

After all, the Lean Enterprise Development (LED) Scheme, which the Ministry of Manpower unveiled last September, sends important signals of transformation to SMEs. Primarily, it means that the jobs SMEs provide from now on have to be better, labour-lean jobs, because this will have an impact on how Singapore businesses need to be run.

Mr Wee said: "We are always going to be at a premium to the region, so this backbone principle is very, very, important. Businesses have to think about their sustainability beyond the next two to three years - and these two to three years make up the last phase during which they have the room to transform themselves.

"It's not only because of (government) policy. It's also about social considerations like the fact that we will have shrinking domestic workforce growth and that the growth level of our foreign labour workforce in the foreseeable future is also going to stay low."

On top of this, the demographic of the working population is such that as it evolves, people are going to have aspirations for better jobs.

But Mr Wee sees a silver lining.

"One rule of every contraction is that those that last through it will come out stronger. I think this is something SMEs need to keep in mind and focus on - that if they strengthen themselves now, through this period of time, they will become even stronger, and even better competitors in the market. So this is something I will ask all the SMEs to keep their focus on."

CR: The Business Times
Link: http://www.businesstimes.com.sg/government-economy/smes-at-an-inflexion-point