Enabling Growth: Challenges Faced by Singapore’s Small Businesses

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OVERVIEW

Made iconic by the Back to the Future movie franchise, the innovative gull-wing doors of the Delorean Motor Co’s cars. suffered from a lack of actual consumer demand. HMV, once Singapore’s biggest music retailer, closed its last outlet in the country in 2015 after struggling to manage disruption in the form of digital streaming providers.

From PanAm to the U.S. Woolworth’s, some of the world’s most iconic brands have shut their doors due to financial losses and bankruptcy. As consumer preferences shift, failing to innovate and meet evolving customer needs is a key risk facing today’s businesses – regardless of industry. Failure to innovate comes in as the ninth top risk facing organizations globally in 2019 and number eight for those in APAC, according to the Aon 2019 Global Risk Management Survey. A closely-related risk, increasing competition, is the fifth top risk globally and second in APAC.

Small and medium-sized enterprises (SMEs) in Singapore are not exempt from the pressure to innovate either. Failure to innovate and meet customer needs tops the risks these enterprises face in today’s challenging business environment, according to Aon Inpoint’s 2019 SME Insurance Survey. So, how can Singapore SMEs stay ahead of the curve?

IN DEPTH

According to the Singapore Department of Statistics, the country’s SMEs account for around two-thirds of employment, constitute 99 percent of all enterprises and contribute just short of $148 billion (S$200 billion) to the economy – translating to nearly half of the country’s gross domestic product).
Increasingly, SMEs in Singapore struggle to innovate and understand their customers. According to Aon Inpoint’s 2019 SME Insurance Survey, these enterprises see failure to innovate and meet customer needs as their top risk, followed by reputational risk to the brand, and increasing competition.

While digitalization is a natural step towards staying competitive today, SME business owners in Singapore struggle to implement basic digital solutions, according to S. Iswaran, Singapore’s Minister for Communications and Information. He also notes this could be especially true for companies that are still using manual systems and traditional processes.

“The government recognizes the challenges faced by this particular part of its business community,” says Andrew Hare, Managing Director – Asia, Aon Inpoint. “As a result, it has focused its national budget to help SMEs in their quest for innovation and growth.”

Under the government-funded SMEs Go Digital program, these companies can look forward to subsidies of up to 70 percent on the cost of tools supporting cyber security and artificial intelligence, among a host of other digital technologies. The program allows SMEs to access a guide on digital solutions and training required for each stage of business growth, and even obtain expert advice in implementing digital solutions. So far, the scheme has helped about 4,000 SMEs in Singapore in basic automation.

An additional feature of the SME Go Digital Program allows SMEs to have better access to loans for qualifying technology projects such as large-scale automation of a company’s operations to help improve overall productivity and efficiency. The Singapore government, in partnership with participating financial institutions, is helping to offset up to 70 percent of the cost associated with such large-scale technology-based initiatives ¬– whether they involve automating manual processes, redesigning existing workflows or processes, or adopting new technology.

“The Singapore government has played a critical role in creating a healthy ecosystem where SMEs can thrive, turning the country into an international center of business,” says Hare. “However, SMEs still need to think of creative ways to innovate and stay competitive.”

The Singapore government has played a critical role in creating a healthy ecosystem where SMEs can thrive, turning the country into an international center of business. However, SMEs still need to think of creative ways to innovate and stay competitive.
– Andrew Hare, Managing Director – Asia, Aon
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Opportunities beyond Singapore’s shores

For Singapore SMEs, growth can be challenging if limited to the domestic market. “With relative proximity to, and the considerable potential market size of countries such as China, Indonesia, and Vietnam, overseas expansion is seen as a logical next step for SMEs – particularly those who have already accomplished sustainable scale in their home market,” Hare explains.

Aon Inpoint’s 2019 SME Insurance Survey shows that around half of the polled firms are considering expanding overseas. Over 60 percent of companies with less than $7.4 million (S$10 million) turnover already have an international footprint, while only a quarter of companies with sub-million-dollar turnover operate beyond Singapore.

However, international expansion is difficult for many SMEs. “To achieve sustainable growth on a regional and global scale, SMEs in Singapore need to mitigate new risks in new territories through risk transfer such as insurance and explore financing options to boost their expansion plans,” says Hare.
“But, it is difficult for business owners to find time to consider and implement new ideas beyond managing the challenges of day-to-day business, let alone ways to increase capital to further business operations offshore,” he adds.

Creative financing and safeguarding capital

Cash flow and liquidity is another concern identified by SMEs in Singapore, indicating that more can be done. A lack of capital is a major challenge for SMEs to adapt and innovate, with Aon’s study finding that more than 60 percent of SMEs are seeking external financing via bank loans to help with cash flow financing and power their growth plans.

Lending data shows that the relaxation of restrictions by the Monetary Authority of Singapore has led to several SME financing companies, including Grab – which has recently made a foray into the lending business, setting up business in Singapore to help these enterprises with cash flow financing.

As with most areas of business, there are risks related to cash flow and liquidity that should be mitigated for optimal business operations. This can be done with the help of credit solutions such as trade credit insurance, which enhance financing and protect the balance sheet. Working capital can also be improved using surety guarantees, issued by insurers as an effective alternative to bank issued guarantees.

“Cash flow is crucial and financial loss can be devastating to an SME – so it is critical to ensure the optimal coverages are in place to protect against exposures such as customer insolvency,” says Steve Taylor, Head of Credit Solutions, Asia, Aon.

Cash flow is crucial and financial loss can be devastating to an SME – so it is critical to ensure the optimal coverages are in place to protect against exposures such as customer insolvency.
– Steve Taylor, Head of Credit Solutions, Asia, Aon
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Leveraging available resources, having a deep appreciation of evolving risks, and acting in a timely fashion to mitigate them can make or break business ventures. “As SMEs look to grow, they must have the right risk management process in place to create a more thriving and innovative environment, as they continue to play an increasingly important role in the new global economy,” Hare concludes.