© Copyright 2007. DP Information Group. All Rights Reserved. RESTRICTED SME DEVELOPMENT SURVEY 2007 - Conducted by DP Information Group “SME Challenges

© Copyright 2007. DP Information Group. All Rights Reserved. RESTRICTED

SME DEVELOPMENT SURVEY 2007- Conducted by DP Information Group

“SME Challenges & Changes for Continued Growth”


Strategic Partners Supporting Organisation

Sponsors


SURVEY OBJECTIVES


1. Impact of domestic cost competitiveness on SMEs

2. Strategies adopted by SMEs for overseas expansion & growth

3. SMEs’ competitiveness & opportunities with MNCs & GLCs

4. Adoption rate of process automation & impact on productivity

& cost efficiency on SMEs

5. SMEs’ needs & readiness to tap on alternative equity financing

6. SMEs’ recruitment issues & staff training needs

SME Development Survey 2007 - Survey Objectives


CHARACTERISTICS OF RESPONDENTS


This yr: 1,206 coys responded (2006: 1,068 respondents)

Significantly higher no. of larger companies responded - 59% with paid-up capital >S$0.5m - 13% with >100 employees vs 8% last year

Respondents by Paid-Up Capital

SME Development Survey 2007 - Characteristics of Respondents

Paid Up Capital 2007 2006 2005

S$2 - S$50,000 7% 18% 6%

S$50,001 - S$0.5m 34% 53% 27%

> S$0.5m - S$1m 20% 6% 26%

> S$1m - S$2m 14% 13% 16%

> S$2m - S$5m 12% 5% 12%

> S$5m 13% 5% 13%

Total 100% 100% 100%


SURVEY FINDINGS


Improved turnover & Strong profitability

26% posted turnover > S$20m; as compared with 20% over last yr


Turnover 2007 2006 2005

<S$0.5m 12% 18% 17%

S$0.5m-S$1m 9% 10% 8%

>S$1m-S$5m 21% 21% 12%

>S$5m-S$10m 18% 15% 24%

>S$10m-S$20m 14% 16% 14%

>S20m-S$50m 14% 12% 8%

>S$50m 12% 8% 17%

Total 100% 100% 100%

Profit 2007 2006 2005

Losses 21% 23% 23%

<S$100,000 26% 30% 30%

>S$0.1m-S$0.5m 26% 22% 21%

>S$0.5m-S$1m 8% 8% 4%

>S$1m-S$3m 10% 10% 9%

>S3m-S$5m 3% 3% 9%

>S$5m 6% 4% 4%

Total 100% 100% 100%

Drop in no. of loss-making companies

Increase in no. of SMEs generating profit >S$5m; from 4% to 6%


Increasing no. of companies experiencing accelerating turnover growth of >10% p.a.

Downward trend in no. of companies with turnover on the decline

Stages of Development • Start-up: First 3 years of operation• Accelerating Growth: turnover growth of > 10% per annum• Moderate Growth: turnover growth of up to 10% per annum• Mature: Zero turnover growth • Decline: Negative turnover growth


6%

11%

2%

27%

20%19%

37%35%36%

24%25%

29%

6%9%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Start- up Acceleratinggrowth

Moderategrowth

Mature Decline

Respondents by Stages of Development

2007 2006 2005


Competition remains the most cited challenge (58%)

Operating Cost overtook Manpower as 2nd topmost selected growth hindrance (53%)

Market size constraint is a new hindrance cited by 24%

Downward trend observed for Difficulty in accessing biz opportunity, New Financing & Uncertain economic environment

SME Development Survey 2007 - Challenges to Growth

58%

45%

52% 53%

34%

42%45%

37%

28%30%28%

22% 24%20%

25%

32%

10%

19%15%

9%

19%

34%

0%

10%

20%

30%

40%

50%

60%

Increasingcompetition

Increasingoperating

costs

M anpowerissues

Cash flow M arket sizeconstraints

Difficulty inaccessingbusiness

opportunity

New financing Uncertaineconomic

environment

Top 3 Most Selected Hindrance to Growth

2007 2006 2005


Increasing Labour cost top concern across most business sectors especially Construction, Services and Food & Beverage; will significantly affect profitability in the next 1-2 yrs

2 other cost components that will have major impact on SMEs’ profitability are Cost of raw materials/ intermediate or final products & Rental of premises

Increasing Cost of raw materials/ intermediate or final products of greater concern for Construction (78%) & Manufacturing (77%) sectors

Increasing Rental is the third most cited cost concern amongst Food & Beverage, Retail, Finance & Services

SME Development Survey 2007 - Challenges to Growth

61%55%

37%

20% 18% 17%13%

0%

10%

20%

30%

40%

50%

60%

70%

Cost components affecting profitability


SME Strategies for Growth


Significant jump on cost-related issues (11% up) : - Improving Cost Efficiency - Productivity

Less emphasis on New Products / Services (7% drop)

Decline in Scaling Down / Consolidation; 80% of them are making losses or have low profit margin

Growing importance on 2 new business strategies : - Improve Customer Service (9%) - Branding (3%)

SME Development Survey 2007 - Business Strategies

43%

22%

30%

21%19%

32%

10%

17%

18%

9%

6%

10%

6%3%

2%

14%

7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Improve cost

effi ciency/

productivity

New overseas

market

New Products/

Services

Improve

customer service

Expand local

distribution

Branding Scaling down/

consolidation

Key Business Strategy for next 1-2 years

2007 2006 2005


Financing & Funding


Continued increase in SMEs having access to Term Loan

Downward trend continues for Overdraft

Government Funding Schemes still low; though upward trend continues

SME Development Survey 2007 - Financing/ Funding

Types of external financing obtained

2007 2006 2005 2004

Debt Financing

Term loan 47% 43% 37% 33%

Trade financing 39% 32% 39% 29%

Overdraft 32% 40% 44% 47%

Hire purchase / Leasing 29% 31% 33% 35%

Factoring 6% 7% 6% 6%

Equity Financing

Venture capital 13% 15% 5% NA

Funds from friends or relatives 12% 17% NA NA

Business angels 2% 3% 2% NA

Govt Funding Schemes 10% 8% 6% NA


Local Enterprise Finance Scheme still the most widely used govt funding scheme

More SMEs accessing : - SME Access Loan (up 3%) - Loan Insurance Scheme (up 6%) - Regionalisation Finance Scheme (up 3%)

Downward trend continues for Microloan

Low take-up for Variable Interest Loan Scheme & Start-up Enterprise Development Scheme


63%

53%

68%

25%28%

36%

15%12%

4%

10%

4%4% 5%2%2% 3% 2%

5%2% 3%

0%0%

10%

20%

30%

40%

50%

60%

70%

LEFS Microloan SMEAccess loan

LI S RFS V-Loan SEEDS

Government Funding Schemes tapped by SMEs

2007 2006 2005


3 new concerns : - High Interest Rates - Extensive documentation required by banks - Short loan repayment period

Only half of those without financing facilities express need for external funding (9.5%) High Interest Rates charged by banks replace Lack of Access to Bank Financing as top concern


52%36%37%

26%

24%

17%14%15%

13%15%15%

14%14%

0% 10% 20% 30% 40% 50% 60%

High loan interest rate

Lack of collaterals

Extensive documentation

Short loan repayment period

Poor financial performance

Reached maximum credit limit

Complex loan application procedures

Lack of business track record

Top 3 Concerns in obtaining financing

2007 2006


SMEs fared better than previous year with 10% drop in those reporting losses

Nevertheless, SMEs continue to register low profit margin

Distribution of Respondents by Profit Margin

SME Development Survey 2007 - Profitability

Profit Margin FY2006 FY2005 FY2004 FY2003

Negative margin 16% 26% 30% 28%

0% to <5% 54% 47% 40% 43%

5% to <10% 15% 14% 12% 17%

10% or more 15% 13% 18% 12%


Despite Govt & Fund Investors efforts, majority of SMEs not looking to IPO, OTC or Private Equity Investment to provide alternate sources of financing

More informative sessions/ programmes needed to help SMEs to better understand these alternate financing options

Of those who have expressed . some interest in such alternate financing : - Majority (70%) looking for >S$1m - 28% looking for >S$5m of additional capital injection


Source of equity financing

Initial Public Offering

Over the counter

Private Equity Investment

Yes 6% 3% 5%

Would like to knowmore before deciding 7% 8% 7%

Maybe 14% 11% 13%

No 73% 78% 75%

Total 100% 100% 100%

Quantum of Fund sought from IPO/ OTC/ Private Equity

<S$0.5m10%

>S$1m - S$3m27%

>S$3m - S$5m15%

>S$5m28% S$0.5m - S$1m

20%


Overseas Expansion


SMEs have expanded their overseas biz activities

70% have overseas interests

Almost 60% of respondents have biz activities in overseas markets for more than 3 years

Among those with no overseas biz (30%), one-fifth of them intend to venture overseas in the next 12 months

SME Development Survey 2007 - Overseas Expansion

24%

40%

6%

1%3%

7% 8%7%

14%

5%

45%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

None Intend toventure

J ustStarted

1 to 3years

>3 to 5years

>5 years

Percentage of respondents with Yrs in Overseas Biz Activities

2007 2006


70% of respondents have revenue generated from overseas; increase of 11% from previous year

7% jump in those who derive >70% to 100% of their revenue from overseas markets


30%

41%

31%

25%26%

32%

13%

8% 9% 10%10%10%

22%

15%18%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

None Up to 30% >30% to50%

>50% to70%

>70% to100%

Turnover as % of Revenue

SMEs with turnover from overseas

2007 2006 2005


High initial investment/cost on engaging overseas biz activities, especially within the first 3 years

Long-term sustainability of SMEs venturing into overseas markets remains a concern as profits remain relatively similar to that when they were about to venture overseas


Years of overseas biz activities

Net Profit

LossesS$0 to S$0.1m

>S$0.1m to S$0.5m

>S$0.5m to S$1m

>S$1m to S$3m

None 18% 24% 29% 7% 23%

Intend to Venture 18% 29% 24% 5% 24%

Just Started 11% 29% 22% 7% 32%

1 to 3 years 17% 23% 38% 12% 10%

>3 to 5 years 26% 22% 18% 9% 26%

>5 years 18% 25% 27% 10% 21%


Malaysia, Indonesia & China remain the Top 3 favourite destinations

Middle East overtook USA as 9th most popular destination

Overall reported increase in all of the top 10 countries for overseas expansion


81%64%49%

71%51%43%

65%41%32%

56%39%32%

45%26%

23%41%

25%23%

34%22%22%

27%18%

17%24%

15%22%

17%14%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Malaysia

Indonesia

China

Thailand

Vietnam

Philippines

India

Australia

Middle East

USA

Top 10 Overseas Countries

2007 2006 2005


Vietnam overtook India as the most popular new market for SMEs to venture into in the next 12 months

China has also emerged as one of the Top 3 preferred destination in the next 12 months

Noticeable absence of Middle East amongst the Top 3 preferred destinations for overseas expansion in the next 12 months


New overseas market in next 12 months

2007 2006

Top 1Vietnam(36%)

India(32%)

Top 2India

(28%)Middle East

(27%)

Top 3China(26%)

Vietnam(25%)

Top 4Middle East

(25%)China(21%)

Top 5Indonesia

(21%)Malaysia

(15%)



Top 3 critical success factor for overseas operations %

Finding the right overseas partners 61%

Overseas market knowledge 57%

Adaptive to local business practices / customs 56%

Sufficient funding / financing 34%

Product differentiation 31%

Manpower 25%

Branding 21%


Human Resource


SME Development Survey 2007 - Human Resource

Higher than average

16%

Average68%

Lower than average

4%

Do not benchmark / Do

not know12%

68% claim to pay the market average

16% pay higher than average



Business Sector

Average monthly earning per employee

SME respondents 2007 MOM Release 2006[1] % Difference

Commerce - Wholesale S$3,504

S$3,017[2]

16%

Commerce – Retail S$2,854 -1%

Communications/ Transport/ Storage S$3,154 S$3,507 -10%

Finance S$4,252 S$5,949 -29%

Manufacturing S$2,935 S$3,495 -16%

Property S$2,956 S$2,732 8%

Construction S$2,217 S$2,513 -12%

Services S$3,520 S$3,498 1%

Food & Beverages S$1,243 S$1,360 -9%

[1] Source: Report on Wages in Singapore 2006, Ministry of Manpower [2] As released by MOM, the Commerce sector includes both Wholesale and Retail. No breakdown was provided


87% have expressed the need for staff to be trained

3 areas that most SMEs identified for training are : - Leadership & Team-building - Marketing & Promotion - Business Planning


Business Sector

2 key areas of training needed

Leadership & Team building

Marketing &

Promotion

Business Planning

Accounting & Finance

Information technology

Strategic Planning

Policies, laws &

regulations

Retail 20% 39% 37% 16% 18% 14% 2%

Wholesale 22% 33% 30% 25% 24% 17% 5%

Comms/Transport/Storage 36% 17% 26% 21% 20% 19% 7%

Construction 38% 12% 24% 20% 14% 24% 11%

Finance 17% 24% 14% 38% 14% 10% 10%

Food & Beverages 52% 19% 26% 11% 11% 22% 7%

Manufacturing 30% 34% 21% 17% 19% 21% 8%

Property 28% 39% 22% 17% 6% 0% 6%

Services 30% 26% 26% 18% 23% 19% 6%

Overall 29% 27% 26% 21% 20% 19% 7%


Process Automation & Infocomm Technology


SME Development Survey 2007 - Process Automation & Infocomm Technology

Top challenge faced in adoption of technology is High Cost involved; this is of great concern especially for Start-ups & lack of funding support exacerbates the problem

2nd most cited challenge is the lack of staff capabilities; reinforces the need for training to be provided

20% of SMEs have no difficulty

Key challengesin adopting technologies

Overall

Stage of Development

Start-up

Accelerating growth

Moderate growth

Mature Decline

High cost involved 52% 65% 53% 55% 45% 47%

Lack of staff capabilities 35% 34% 37% 33% 34% 35%

Lack of funding support 19% 25% 22% 17% 14% 22%

Complexity of software licensing

9% 14% 8% 10% 7% 7%

Inability to keepup with technological advancement

8% 10% 6% 8% 9% 10%

Security concerns 6% 6% 6% 6% 6% 4%

No difficulty 20% 9% 19% 21% 24% 22%



Low level of automation among more than two-fifths of SMEs (43%)

On positive note, slightly more than a quarter have automated more than half of their functions/ process

Level of automation increases with staff strength

Employee Size

Percentage of functions & processes automated

<25% 25% - 50% >50%

<10 53% 24% 23%

10 – 25 46% 26% 28%

26 – 50 36% 33% 31%

51 – 75 44% 37% 19%

76 – 100 36% 32% 32%

>100 31% 37% 32%

Overall 43% 31% 26%



Spending on R&D still low among SMEs

50% spend <1% of turnover in R&D

SMEs in Accelerating Growth stage investing more in R&D, followed by the Start-ups

More than half in Moderate Growth, Mature & Decline stage not spending on R&D

Stage of Development

Amount spent on Research & Development

None <S$0.1mS$0.1m

to S$0.3m

$0.3m to

S$0.6m>S$0.6m

Start-up 44% 35% 14% 4% 4%

Accelerating growth 39% 39% 11% 1% 11%

Moderate growth 51% 34% 8% 4% 4%

Mature 63% 28% 5% 2% 3%

Decline 68% 28% 0% 0% 5%

Overall 73% 18% 4% 2% 3%


DP INFO’S RECOMMENDATIONS


#1 : Managing Overseas Competitiveness

#2 : More Training Assistance Schemes & Funding #3 : Adoption of technology as an Investment rather than a cost #4 : Enhance partnerships between SMEs and the GLCs/MNCs

#5 : Adoption of risk-based financing

SME Development Survey 2007 - 5 Recommendations


Top barrier identified by our SMEs• Intense competition overseas for 2 consecutive yrs; 2007(58%) & 2006(45%)• 13% SMEs have difficulties in obtaining financing for overseas expansion

Likely reasons SMEs appear to be going through a learning process when they engage in

international activities Successful venture overseas hinges on finding right overseas partners,

overseas market knowledge, limited funding and manpower shortages

SME Development Survey 2007 Recommendation #1 - Managing Overseas competitiveness


What our government can do - with IE Singapore taking the lead? Increase awareness of overseas financing schemes – IFS, LIS More in-depth, timely & relevant overseas market knowledge More substantial business networking & engagement opportunities in

the right markets overseas Raise National awareness via regional print & media SME sharing development and use of ICT platforms (e-clustering or

networked communities) for marketing at global level Render shared services overseas :

• technology (secure platform, back-office),• info collective and dissemination, business intelligence, capacity-

building and• collective services (marketing, payment, branding)

Focus on overseas-based activities for SMEs operating overseas

SME Development Survey 2007 Recommendation #1 - Managing Overseas competitiveness


Manpower & training needs identified by SMEs 87% identify more training to be required Hiring difficulties of Supervisory (35%) & Operational staff (45%) with technical

skills Identified “Leadership/Mgt” & “Marketing/Promotion” as 2 main training needs

Likely reasons SMEs are unlikely to have readily available resources, both time and funding SMEs are a diverse group Ensuring initiatives such as the Management Development Programme reaches

out to wider SME community

SME Development Survey 2007 Recommendation #2 – More Training Assistance Schemes


What is needed – How WDA can help? Develop management training programmes to address specific soft

skill needs Encourage & incentivise short duration & off-site training programs Accelerate industry-focused training (such as the Retail Scholarship

Programme & sharing of training resources Rating system on local training providers; assurance of quality Allocate more training funding from Government especially

for soft skills development; Such expenditure should be deem as investment for our next generation workforce ( $7-$16 per trainee-hour is low! )

SME Development Survey 2007 Recommendation #2 – More Training Assistance Schemes


Key challengeICT & Process automation adoption rate low amongst SMEs with 43% automating

<25% of their processes & business functions73% do not spend on R&D with 50% spending just <1% of turnover on F&D

Likely reasons Cost is one of the top challenges faced by 52% in adopting technology; next

being staff capabilities & competence Many SMEs do not understand nor appreciate the benefits that ICT can bring

SME Development Survey 2007 Recommendation #3 -Technology Adoption as an Investment


How can our government help thru IDA?• Overall Funding support for SMEs – to be included in

Infocomm@SME• Funding ICT trainings of owners & staff – to be included in

Infocomm@SME(Usage)• Incentivise SMEs to extract advantages from the existing technologies – to

be included in Infocomm@SME(Growth)• Active profiling of SMEs that have successfully adopted innovation in process

technology• Ensure Technology Innovation Programme reaches/appeals to majority of

SMEs

SME Development Survey 2007 Recommendation #3 -Technology Adoption as an Investment


ConcernLow level of business engagement with MNCs & GLCs; only 7% of SMEs have business dealings with GLCs & 15% with MNCs

Likely Reason GLCs & MNCs do not proactively engage SMEs as their business partners Little acknowledgement for those who had done so

Suggestions which SPRING can help?• Promote effective networking between MNCs and potential SME value chain

via MNC sponsored event inviting SMEs to participate• Government to officially recognize & award exemplary GLCs & MNCs • Regular industry networking sessions involving GLCs, MNCs & SMEs• Selected government tenders to stipulate requirement for consortia

approach for GLC/MNC to partner with SME• Elect some GLCs to ‘lead by example’

SME Development Survey 2007 Recommendation #4 - Partnerships with MNCs & GLCs


Top concern for financingHigh interest loan rate top concern of 52% of SMEsShort loan repayment period highlighted as a challenge by 24%

Likely reasonAre financial institutions charging higher interest rate to compensate for greater

perceived risks?

Encourage “lean” SME loans by introducing Credit process automation and emphasizing high predictive power of rating A risk-based, individualized and fair pricing for SME’s Rejected applicants understand better how to improve to qualify Proactive approach by SMEs to understand rationale of high interest rates

& how loan repayment periods may be extendedIn the SME sector, fast loans and cost-effective processes are at least as important as risk

sensitive obligor selection …... but often highly discriminative rating systems are one major precondition to simplify

and accelerate loan processes

SME Development Survey 2007 Recommendation #5 - Risk Based Financing


Conclusion


SME Development Survey 2007 Recommendation for SMEs

SMEs should take charge Examine the findings Find the applications to your business Stay relevant Reexamine/reflect on your business Actively source for assistance Reflect your needs and challenges through appropriate

channels Never give up


THANK YOU


SME Development Survey 2007 Forum

10 October 2007 8:30am – 2pmNTUC Auditorium (Level 7)One Marina Boulevard

The forum that brings together the SME

community to discuss the findings of the

survey and reflect their views on the

challenges to their growth.

Documents

© Copyright 2007. DP Information Group. All Rights Reserved. RESTRICTED SME DEVELOPMENT SURVEY 2007 - Conducted by DP Information Group “SME Challenges