SMB Insider: Challenges and pathways

The small domestic market, the lack of access to financing and ineffcient production methods are some of the challenges facing SMBs today, says SMa's Roger Low.

Small and medium-size businesses (SMBs) employ around 51 percent of Singapore's workforce and generate 34 percent of the economy's total value added. They comprise about 92 percent of total establishments.

As the Singapore economy continues to mature, its growth trajectory will continue to be shaped by the accelerated adoption of information and communication technologies, and technologically driven innovations. The patterns of trade and market demand are also fast changing amidst a highly globalized world.

In this context, local SMBs must acclimatize quickly to changes in the new economic landscape so as to compete effectively against global SMBs and not be left behind. While problems that SMBs face are not new, if left unaddressed, they will be exacerbated in today's context.

Some challenges that SMBs face
Many challenges, most of which are not new, confront the SMBs in Singapore. They are:

  • The lack of modern technology
  • Singapore's small domestic market
  • A shortage of professional manpower
  • The lack of access to financing
  • Inefficient production methods and inadequate logistics support

Financing for growth
One of the major challenges that local SMBs face is the problem in getting funding. Over the years, Spring Singapore has introduced a number of grants and loans schemes to help SMBs. These include the Local Enterprise Finance Scheme (LEFS), Local Enterprise Technical Assistance Scheme (LETAS) and Micro Loan scheme.

Members of the Singapore Manufacturers' Federation (SMa) have benefited from such schemes in the use of working capital for daily operations and for expansion of their businesses.

Going forward, Singapore may need to explore other avenues such as Islamic banking and funding from foreign banks as present schemes may not be adequate.

Another way to circumvent this problem is to create other avenues for financing through capital markets. Perhaps SMBs can be pooled together and structured as a capital market product similar to a mutual fund or "exchange traded fund".

In this way, retail and private investors can invest in this basket of firms who in turn benefit from increased financing. This will benefit firms who do not have the resources to go for an IPO or an individual listing yet.

Given that many Asian countries are reducing their technological cycles into shorter time frames... Singapore cannot afford to lag behind its counterparts.
Accelerating the adoption of e-commerce
There is also the problem of technology adoption. SMBs in general tend to be late adopters of technology for many reasons. For one, this could be due to the lack of implementation know-how. Secondly, it is the lack of funds.

However, given that many Asian countries are reducing their technological cycles into shorter time frames, from the R&D stage to the final manufacturing stage, Singapore cannot afford to lag behind its counterparts.

With the aid of the government, Singapore SMBs must tap on new IT resources such as radio frequency identification (RFID). RFID offer new possibilities manufacturers, consumers, logistics companies, healthcare institutions, super and hypermarts.

RFID enables data to be transmitted via waves and captured electronically in chips. With this, the entire manufacturing chain can be integrated, from warehousing requirements to end-user needs.

For example, manufacturers will be able to track each item from the factory to the warehouse, the ship or airplane, the store, and to the consumer's home. A major advantage of RFID is the savings manufacturers get due to the decline in theft and pilferage.

Another advantage is that data captured will be stored so that consumers' preferences for, say, brands and diets will be recorded. This can be transmitted directly to the manufacturers, allowing for better inventory management.

The next time consumers visit the same supermarket and log in at their shopping cart, the chip will prompt them on what is new that is in line with their preferences. In short, the entire manufacturing supply chain will benefit from the adoption of RFID.

Cold chain management is another area that local SMBs should look into. However, its applications are limited to fresh chilled food and certain pharmaceuticals whereas RFID is applicable to nearly all products.

The application of cold chain management will ensure that foods imported into and exported out of Singapore remain fresh and healthy.

In Singapore, GS1 Singapore, a division of SMa, will spearhead the adoption of RFID and manage the Cold Chain Centre. The launch of the Electronic Product Code (EPC) Global in Singapore will help anchor Singapore as the RFID hub of Asia.

Furthermore, the Cold Chain Centre will conduct training, standards development and logistics on cold chain management and will make Singapore the regional hub for cold chain management.

Another problem SMBs face is buying the right technology that suits their needs. SMBs have a different buying cycle and different user requirements from MNCs. SMBs may only need a fraction of the IT requirements of MNCs. To address this, technology companies such as Microsoft and SAP have specially packaged their software to meet the unique requirements of smaller businesses.

Internationalizing the Singapore brand

With the influx of products from China, India and the rest of the world, Singapore firms need to create their own identities and not be lost in the myriad of products.
With a small domestic market, Singapore SMBs will be severely constrained if they do not expand their operations overseas or if they do not export their products. With the influx of products from China, India and the rest of the world, Singapore firms need to create their own identities and not be lost in the myriad of products offered on sale.

Where product attributes are concerned, brand value and designs will take on increasing significance. The solution for SMBs is to first create a discernible brand and build upon this brand value.

A company may choose to first establish its brand locally before exporting its brand name overseas. Examples include Akira, BreadTalk and Osim. Or it can choose to concentrate on the export route first, depending on its business environment.

A notable example would be the case of Food Empire, a SMa member whose success and branding are well known in the Russian and Eastern European markets.

Franchising is another way to help SMBs become regional players.

Entrepreneurship in the new century
To produce good thinkers and professional managers, Singapore must nurture a new breed of dynamic entrepreneurs. The Singapore government has taken the lead in creating a conducive environment for entrepreneurship to flourish.

For example, the NUS Centre of Entrepreneurship and the Action Community for Entrepreneurship (ACE) were recently established to nurture entrepreneurs.

ACE organizes BlueSky Evenings regularly to allow SMBs and budding entrepreneurs to network and exchange business ideas. Only by learning from the best in each field and actively exchanging ideas will SMBs improve.

SMBs form an important part of Singapore's economy. In a highly competitive globalized economy, SMBs need to constantly upgrade themselves to survive. This can be achieved by adopting IT, improving management and production methods, and building Singapore brands that can be exported.

Dr. Roger Low is secretary general of the Singapore Manufacturers' Federation (SMa).