SMEs expect lower turnover in 2018; sentiment weighed down by trade war: survey


MORE small and medium-sized enterprises (SMEs) in Singapore are expecting a decline in turnover this year, citing the challenging business environment as the main culprit for the dampened outlook, weighed down at least partially by the US-China trade war.

The 2018 SME Development Survey by DP Info found that 15 per cent of SMEs project revenues to fall this year, up from 11 per cent in 2017, and 12 per cent in 2016. Only two in five SMEs expect turnover growth in 2018.

The survey, now in its 16th edition, received responses from 2,557 SMEs. It was conducted between June and August this year, which was also when the US-China trade spat began in earnest. According to the study, one in five SMEs said that they were affected by the ongoing trade conflict between the US and China.

Among those impacted, 54 per cent said that it would affect the competitiveness of exports, while 40 per cent said that it reduces overseas sales. Some 28 per cent of SMEs said that it would affect or delay their internationalisation plans.

As for firms that said they were unaffected by the trade war, the majority of them (63 per cent) felt that they were sufficiently protected by the free trade agreements that Singapore has signed.

But survey findings suggested that Singapore SMEs made less headway in their overseas activities in 2018. There was a slight dip in the proportion of SMEs reporting revenue from outside Singapore, falling from 47 per cent in 2017 to 45 per cent this year.

This comes on the back of keen competition in destination markets and the lack of manpower to focus on overseas activities, according to DP Info. This was a development that Ho Meng Kit, CEO of the Singapore Business Federation (SBF), said that he is keeping an eye on.

"SMEs must continue to set their sights beyond our shores and expand to overseas markets to tap the available growth opportunities, including those in Asean," he stressed. "This is important to overcome the limitations of Singapore's small domestic market."

But despite the easing in overseas activities in 2018, the report found that SMEs are still looking to push ahead with their internationalisation plans. Asia continues to be the main region of focus in the search for new markets by SMEs, with greater interest seen in Asean, possibly due to geographical and cultural proximity.

In particular, Vietnam and Myanmar are the top two countries that firms are most keen to venture into. But the two countries that had the greatest spike in interest compared to a year ago are the Philippines and Thailand, said the report.

Even as companies seek to spread their wings overseas, SMEs are still dogged by many of the same ongoing challenges.

High manpower costs continue to be the top concern for 36 per cent of SMEs, followed by increased domestic competition at 32 per cent. There was also a rise in labour-related issues, with more firms citing difficulty in hiring staff (28 per cent) and retaining staff (11 per cent) compared to a year ago.

Cash flow also remains a pertinent concern of SMEs. While one in three firms faced external finance-related issues, which was similar to last year, there was an upward swing in those facing delayed payments from customers.

Delayed payments from customers - which was the top finance-related issue faced by SMEs - went up from 81 per cent in 2017 to 84 per cent this year.

This, in turn, had an impact on SMEs' ability to control their purse strings; 44 per cent of firms indicated that they faced internal difficulties managing their finances.

When it came to managing finances, half of firms said that their top concern in 2018 was the difficulty in managing cash flow, liquidity and credit risk - up significantly from 38 per cent in 2017.

James Gothard, general manager, Credit Services & Strategy SEA of Experian (parent firm of DP Info), noted that SMEs are "facing tough and challenging times on multiple fronts", and that more can be done to increase opportunities for Singapore firms, such as to resolve their finance-related challenges.

But he said that he was heartened to see that firms are "proactively driving productivity improvements and business transformation", as well as heeding the calls of the government and industry leaders to take advantage of Singapore's digital economy push.

SBF's Mr Ho concurred that the overall business outlook remained "challenging" for SMEs due to the trade conflict, even as firms grapple to press on with their restructuring and transformation plans.

But SMEs must step up their efforts, especially in the digital space, he pointed out. "Companies can, and must, transform to find new ways of doing things across business functions, activities, processes and models, while continuing to offer innovative products and services," he added.