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06 October 2008
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TECHNOLOGY THE KEY TO SME SURVIVAL IN TOUGH TIMES
Top 9 markets targeted
by SMEe now all in Asia
06, October 2008 [Singapore]
In challenging economic times all companies – large and small – must find ways to stay competitive. For SMEs the key is technology adoption, according to the 2008 SME Development Survey.
The Survey identified a strong link between technology adoption and increased revenue and/or profitability, indicating technology use is crucial if SMEs are to remain competitive. A testimony to this is the high 80% of respondents citing technology adoption as having led directly to improved turnover and/or profits.
The most prominent benefits from technology adoption are Increased Productivity (76%) and Improved Cost Efficiency (59%). One-fifth used technology to widen the range of products or services they offer while 14% stated technology helped them meet their commitments quicker.
Now in its sixth year, the Survey is conducted by DP Information Group (DP Info), Singapore’s leading provider of credit and business information services. This year's Survey achieved a record response of 17% with participation from 1,656, compared to 12% in 2007. More than half (52%) of the respondents had a paid-up capital of $500,000 or more.
The strategic partners of the Survey are SPRING Singapore and IE Singapore. HSBC, Standard Chartered Bank, GE Commercial Finance, BDO Raffles and Stone Forest Corporate Advisory are the Survey's sponsors.
According to Ms Chen Yew Nah, Managing Director of DP Info, the current global economic turmoil places pressure on SMEs to remain competitive. "With 4 in 5 SMEs improving their financial performance by using technology, it is a strategy that no SME can ignore. If you want to compete on the world stage then you need to recognise the critical role of technology adoption in strategic planning for SMEs."
"Among those who have already adopted technology innovation, 88% plan to invest further in the use of technology during the next 1-2 years. Almost half (48%) of the SMEs that have not adopted any technology innovation are considering doing so in the next two years," Ms Chen said.
SMEs SHIFT FOCUS TO ASIAN MARKETS AND THE MIDDLE EAST
Singapore SMEs have turned their focus away from Western markets choosing to target their Asian neighbours instead. According to the Survey, the top 9 countries where Singapore SMEs are doing business are in Asia. The 10th is the Middle East.
Last year only two western countries - the US and Australia – made this list but this year they were displaced by Japan and South Korea. According to the survey two-thirds (64%) of SMEs are engaged in overseas activities.
Ms Chen said the shift towards Asia and the Middle East has been timely and may help cushion our SMEs from the financial turmoil in the US and Europe.
"The next few years will be challenging for SMEs as the outlook for the world economy is uncertain. Whether by chance or design, our SMEs have moved their focus to countries in Asia while maintaining their interest in Europe and the US."
"The percentage of companies operating in Europe, Australia and the US has remained relatively static. What has happened is a huge surge of SMEs moving into emerging markets such as India and China."
"China and India both have enormous domestic demand and, recognising this potential, SMEs are targeting both countries in a big way. In the last two years, interest in China has increased 26% and interest in India has increased 16%. What is important now is for us to monitor their sustainability in the years ahead," added Ms Chen.
There has also been a shift in focus within Asia. Malaysia was the dominant choice for SMEs expanding abroad. It still tops the list with 69% of SMEs doing business there. However, China has overtaken Indonesia as the second most popular market with 67% of SMEs doing business there, China may soon topple Malaysia from the top spot. Indonesia, where 60% of SMEs generate some revenue, is now the third most popular choice.
SMEs RECEPTIVE TO STAFF TRAINING – BUT RELUCTANT TO SPEND
Singapore SMEs view staff training positively, with 79% acknowledging the benefit of sending staff on training courses. While the Government has been encouraging SMEs to spend between 2-3% of their staff costs on training, 45% of SMEs spend less than $300 a year per person, of which 20% spend less than $100 dollars.
Ms Chen said: "SMEs are on tight budgets and deadlines. Many are reluctant to send staff on training courses because they see it as a cost with the employee spending time away from work. There is a need for SMEs to change their mindset and adopt a more progressive attitude to training and development. Rather than treating training as an unnecessary financial burden they should view it as an investment in their company's future."
CONCERNS AND HINDRANCES
Compared to last year, the major concerns and hindrances nominated by Singapore SMEs have changed little – with one exception, increased costs.
The top three issues remain increasing operating costs, increasing competition and manpower issues. However the number of SMEs nominating costs has increased from 53% to 58%, making it the most cited concern this year. In contrast, competition has declined from 58% to 49% this year while manpower problems have also declined from 45% to 39% this year.
STRATEGIES FOR GROWTH
Improving cost efficiency and productivity remains the top strategy, but has declined in relative importance. While it was the focus of 43% of SMEs last year, it is being pursued by 26% this year.
The strategic emphasises has changed to other areas including expanding overseas (24%), improving customer service (15%) and offering new products and services (14%). Encouragingly branding is receiving greater emphasis from SMEs with 8% adopting it as a business strategy, up from just 3% last year.
"Improving customer service and branding demonstrate a more holistic approach to growth, so it is encouraging that SMEs are more aware of these issues," noted Ms Chen.
ACCESS TO FINANCING
The take-up rate for government funding schemes has remained relatively flat. This is positive as it indicates that there are widely available commercial financing schemes and loans available to the SME community over the years.
A high 70% of SMEs indicated that they do not require financing for the next year. With the abundance of financing options and schemes available commercially, it would appear that SMEs have no lack of choice. However, it might also serve as a sign that the growth and expansion ambitions of SMEs are leveling off as they do not require additional financing.
DP CREDIT RATING
The number of SMEs with investment grade credit ratings of DP 1-4 increased from 14% to 17%. This shows there is a sizeable number of SMEs that have excellent credit worthiness and low probability of defaulting.
Given this, banks and lending institutions should consider providing differentiated lending rates to SMEs that have excellent credit standing. In this way, SMEs that maintain a strong credit rating can be rewarded with access to more favourable interest rates and terms.
The DP Credit Rating, which takes into account the unique circumstances faced by Singapore SMEs, can play a pivotal role in determining which SMEs are worthy of preferential lending terms.
DP Info has for many years, emphasized the adoption of credit ratings as one of the key measures banks can use to differentiate SMEs that are deserving of better lending rates, rather than to treating all SMEs as a homogeneous group.
RECOMMENDATIONS
To address the key concerns and issues highlighted in this year's survey, DP Info has five recommendations to assist the SME community in Singapore:
1) Encouraging SMEs to collaborate and pool together their resources when bidding for overseas projects;
2) Assisting SMEs that are keen on internationalising to develop and implement a sustainable overseas growth strategy;
3) Encouraging SMEs to change their mindset on technology investments and to embrace technology through greater use of managed or hosted services to improve cost efficiency;
4) Reviewing existing lending criteria for innovative SMEs; and
5) Facilitating SMEs' bosses and key managers in training and capabilities development through greater funding support, customised curriculums and at flexible timing.
(NB: Details of the recommendations are in the full report)
SME DEVELOPMENT SURVEY CONFERENCE 2008
DP Information Group will be holding the SME Development Survey 2008 Conference on Wednesday, 15 October 2008, from 8.45am – 1pm at the NTUC Auditorium, Level 7, NTUC Centre, One Marina Boulevard.
Join us for this conference where SMEs gather to share and discuss the issues affecting their growth and development. A special presentation will be made by US State Representative on American SMEs, their concerns and issues. Founder and CEO of muvee technologies, Singapore's home-grown SME, will also share their story and internationalisation experience.
The SME Development Survey 2008 Conference is supported by SPRING Singapore, IE Singapore, EDC@SICCI and sponsored by HSBC.
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Contact: Matthew Shaw
April Ng
Rubicon consulting
DP Information Group
O: (65) 6465
3029 P: (65) 6507 2340
H:
(65)
9851 9340 H: (65) 9820 1080
matthew@rubicon.com.sg
april@dpgroup.com.sg
Lorraine Chua
Rubicon Consulting
H: 9819 9151
lorraine@rubicon.com.sg
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APPENDIX 1
SME Development Survey Methodology
Sampling Base
• Random sampling of 10,000 companies
• Proportion of SMEs selected from each business sector reflects 2007 GDP contribution of each sector
• Companies must have:
o At least 30% local equity ownership
o Not more than S$80m in annual sales/ turnover
o Not more than 200 employees (if it is a non-manufacturing SME)
Survey Method
Primary Data Collection:
Questionnaire to capture opinions and general characteristics of SMEs
- Mail-out
- Posting on website at http://smesurvey.dpgroup.sg
Financial statements to provide insight into SMEs’ financial performance
Participation encouraged through:
• Follow-up calls after mail-out of invitations
• Reference to survey made on Enterprise One, IE Singapore and SPRING Singapore websites
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APPENDIX 2
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ABOUT DP INFORMATION GROUP
DP Information Group (DP Info) is Singapore’s leading credit and business information bureau. A veteran of nearly 3 decades, we currently service 95% of Singapore’s financial institutions and some 75% of leading law firms. Through our 24/7 online information portal, QuestNet, we enable our clients to make confident credit management decisions everyday based on comprehensive, accurate and reliable information.
DP Info Group offers a credit management score for the national credit consumer market and is also a developer of DP Credit Ratings, its own proprietary corporate credit ratings model based on the global probability of default approach.
DP Info is a strong advocate for the SME and entrepreneurial segment, managing and operating an ACRA-appointed service bureau, DP Bureau, which assists SMEs and entrepreneurs in starting their business and operating them effectively and efficiently through their initial years.
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