Singapore Business Sentiments START-UP ENTERPRISE CONFERENCE Devan Nair Institute of Employment & Employability (E2I) Lam Kong Hong Director, SME Committee Singapore Business Federation Singapore Business Federation Mission Nationally, SBF acts as the bridge between the government and businesses in Singapore to create and enhance a pro-business environment. Internationally, SBF represents the business community in bilateral, regional, and multilateral fora for the purpose of promoting trade expansion and business networking. • Active advocacy between businesses & government • Business intelligence & insights Advocacy Capacity Building Global Business • Active business facilitation & international market access • Singapore’s business voice overseas • Growing globally competitive companies and leaders • Capability upgrading • Singapore Economic Backdrop Singapore Economic Transformation The Singapore economy has evolved to stay competitive Singapore Economic Transformation Mapping out Singapore economic transformation in next decade High Skilled People • boost skills in every job Innovative Economy • deepen corporate capabilities to seize opportunities in Asia Distinctive Global City • make Singapore a distinctive global city and endearing home Budget Measures: Elevated Manpower and Costs Issues Towards Quality-led Growth; Reduce Reliance on Foreign Manpower An Inclusive Society, A Stronger Singapore Boosting Skills and Productivity, Supporting Enterprise Growth • • • Enhanced PIC Increase Employer CPF Contribution Rate Increase in Foreign Worker Levies • • • • Enhanced PIC Reduce Dependency Ratio Ceilings (DRCs) Reduce Man-Year Entitlement Quota for Construction Increase in Foreign Worker Levies A Better Singapore: Quality Growth, An Inclusive • Society • • • • • Enhanced PIC Wage Credit Scheme Increase Foreign Worker Levies for Work Permit and S Pass holders in 2014 and 2015 Increase in S Pass Qualifying Salary • • Opportunities for the Future, Assurance for our Seniors Enhanced PIC Increase in Foreign Worker Levies for Construction sector Increase in Employer CPF Medisave Contribution Rates (effect from January 2015) Increase in CPF Contribution Rates for Older Workers (effect from January 2015) • Current Business Challenges Key Business Challenges High labour cost is the top concern over the years Top 3 Challenges 2013 Top 1 High Labour Costs (73%) Top 2 Increasing Competition (64%) Top 3 Uncertain Economic Environment (56%) 2012 2011 2010 High labour costs High labour costs High labour costs (79%) (79%) (75%) Uncertain economic environment (73%) Uncertain economic environment (69%) Increasing competition in area of sales (72%) Slow growth in sales (67%) Increasing competition in area of sales (61%) Increasing competition in other areas (60%) • High Labour Costs continues to affect most companies (73%) • As more certainty emerged, the number of companies citing Uncertain Economic Environment has dropped (▼17%) • With a pickup in business activities, Increasing Competition comes back as a key challenge, cited by 64% of the respondents Key Business Strategies Key Business Strategies • Overcome rising business costs • Innovation • Internationalisation • Overcome tight labour market More Cessation of Businesses • Official data seem to suggest companies ceased operations doubling the rate before Lehman Brother crisis years • Is the policy instrument too blunt a blade which maim all sectors? Business cessation doubled in wholesale & retail, transport & storage, F&B, Infocomm, Finances and other professional services SMEs with double digit growth lowest in 10 years history Has economic restructuring come “too fast too furious”, given the percentage of SMEs with double digit growth is lowest in 10 years ? Fewer expecting growth in performance • • • 44% facing stagnancy SMEs with double digit growth lowest in 10 years history at (7%) Companies reporting negative growth dropped to 9% this year Varying sectors • • significant turnover conditions amongst Manufacturing & Information & Communications reported largest increase (24%) in SMEs with zero growth Retail see significant change with 16% experiencing negative growth Source: SME Development Survey 2013 Darwinian Policies: Higher number of High Risk SMEs The DP Credit Rating sees higher number of High Risk SMEs over the years DP Credit Rating 2013 2012 2011 2010 2009 2008 Investment Grade (DP1 - DP4) 22% 21% 18% 23% 22% 17% High Yield (DP5 - DP6) 35% 40% 44% 47% 49% 58% High Risk (DP7 - DP8) 43% 39% 38% 30% 29% 25% Total 100% 100% 100% 100% 100% 100% Greater divide between the stronger & weaker SMEs • Over 6 years, there is a ▲5% of that are in the investment grade • Continued sluggish economy & worsening of financial performance see higher number of High Risk SMEs for 2013 Source: SME Development Survey 2013 Challenges in Manpower & Productivity Most companies, especially SMEs are affected by manpower policies Response to changes to foreign worker quota and levies No impact Employ more local staff No solution at the moment Focus on productivity Outsource/ look for shared services Downsizing Step up automation Construction 18% 27% 33% 29% 9% 9% 6% Information & Communications 49% 18% 18% 15% 8% 3% 5% Manufacturing 33% 24% 22% 24% 7% 9% 7% Retail 42% 28% 19% 15% 4% 4% 5% Services 48% 22% 23% 16% 2% 2% 2% Transport/Storage 39% 27% 23% 23% 5% 4% 7% Wholesale 56% 19% 19% 11% 2% 2% 1% Overall 45% 22% 22% 17% 4% 4% 3% 55% affected by changes in government policies on foreign workers • • • SMEs in Construction most affected More in Construction (29%), Manufacturing (24%) & Transport/ Storage (23%) looking to productivity Some in construction (9%) & Manufacturing (9%) may plan to downsize Challenges in Manpower & Productivity The Productivity Myth or Mystery … despite a slew of new productivity measures since Budget 2010 Labour Productivity Growth Challenges in Manpower & Productivity Main obstacles faced in promoting productivity Lack of manpower with the right attitude and mind-set  88% of SMEs had promoting productivity % 22% Lack of relevant knowledge and skill 15% Lack of money 12% Lack of time to manage productivity 11% Others 11% Construction Information & Communications Manufacturing Retail Services Transport/Storage Wholesale Overall challenges 29% Lack of manpower with the right skills Areas of consultancy assistance needed to improve productivity encounter  Main obstacle: Manpower issues; SPRING or MOM could further assist in this  12% cited the lack of money; 15% lack relevant knowledge Improve the productivity of my staff Review operations and processes for areas of improvement Develop a roadmap of actions to take Implemen t ICT solutions Automate Implement the identified productivity measure 65% 32% 21% 9% 14% 13% 54% 35% 15% 19% 15% 6% 52% 47% 59% 49% 45% 53% 36% 53% 33% 42% 45% 39% 19% 18% 18% 23% 12% 17% 20% 11% 14% 31% 12% 15% 24% 13% 11% 23% 6% 13% 12% 3% 7% 17% 6% 9%  86% of SMEs have indicated that they require some form of consultancy assistance to aid in their company’s productivity drive  40% find programmes useful training most Challenges in Internationalisation Decline in Turnover from Overseas Singapore based SMEs generating lower % of Turnover from Overseas ▼8% in SMEs with Overseas Revenue  Most generating a smaller proportion (▼11% in >50%) Push Factors Growing markets in Asia, particularly ASEAN & China Pull factors Reasons for companies to take a serious look at opportunities overseas Severe resource constraints and rising business costs in Singapore Challenges in Innovation Weaknesses in innovation output despite high ranking in Global Innovation Index (GII) GII Overall Score Innovation Input Index 1st Areas of Weakness 3rd Innovation Efficiency Index 83rd Innovation Output Index 11th ▪ Low commercialisation rate of intellectual properties (IPs) and successful Made-inSingapore products ▪ Lack of ideation and design companies ▪ Technology innovation requires financing stamina ▪ Local community’s inability to assess IPs as collaterals pose difficulty in securing traditional bank loans. Funding by foreign venture capitalists can lead to Singapore’s loss in retaining valuable IPs ▪ Weak defense against patents infringement Challenges in Financing More SMEs facing financial challenges in 2013 – Cashflow issues and bank financing More (+4%) are facing financing challenges  Attributed to slower turnover performance in FY2012  Main challenge: Cash flow problems (▲4%)  More stringent assessment criteria for such SMEs with lower turnover figures Financing Issues 2011 2012 2013 Experiencing cash flow problems 62% 71% 75% Difficulties in obtaining bank financing 34% 25% 26% Lack of funds to build internal competencies 21% 16% 16% Do not meet criteria for Government Schemes 17% 9% 9% Financial Challenges 2013 2012 17% 13% 2011 15% 2010 38% • Deep Diving into Land & Rental Challenges of Land & Rental According to SBF National Business Survey, 90% of members experienced an Operating Costs increase of up to 30%. o About half are affected by high rental costs. o Changes to foreign worker policies coupled with tight labour market contributed to high labour costs 18% are planning to relocate (locally or overseas) o Stronger Sing Dollar helped lower costs of imported materials o o Lower oil prices aided members affected by High Transport Prices Reasons due to higher relocation cost, unable to find / purchase own premises & long term leasing contract Challenges of Land & Rental Rental being a significant component of Retail and F&B (15.9% – 32%) Challenges of Land & Rental: Lease Terms CHALLENGES: RENTALS & LEASE TERMS High rentals is exacerbated by unfair lease terms for tenants: •Tenant is not to engage in similar business within a radius of 1 km •Landlord has the right to terminate, move, alter the boundaries of the tenants premises •Rental = Base Rent + Percentage of Gross Turnover •Landlord has the right to pre-terminate the lease •Landlord is not liable for any impact due to works done to the building •Landlord insists on their own POS system, but tenant bears expenses •Compulsory renovations for every lease renewal •Banker’s Guarantees not accepted as Security Deposits •Onerous tenancy clauses Holistic approach to tackle rental costs and tenancy terms 1 Promote transparency in rental costs and practices; to improve decision making 2 Improving small businesses’ understanding of tenancy terms 3 Encourage adoption of standardised model tenancy terms Promote Transparency in Rental Costs and Practices 1 Promote transparency in rental costs and practices; to improve decision making • Publication of rental data by government agencies to reduce information asymmetry • Disclosure statement by landlord for major decisions such as early termination ; non-renewal or others such as refurbishment • Obligation by landlord to provide copy of lease; information brochure and calculation of effective rents Improving small businesses’ understanding of tenancy terms 2 Develop easy-to-access guide that familiarises small business with tenancy contracts •Term of lease and options to renew •Rent and basis of rental review •Outgoing or shared operating expenses •Obligations to repair •Permitted use of premises •Sub-letting or assignment Case study: UK Code for Leasing Business Premises in England and Wales (2007) Easier access to information explaining the commitments both parties are making in clear and easy to understand language. Checklist and model lease templates, to better help serve small businesses in lease negotiation and renewal Encourage adoption of standardised model tenancy terms 3 Adoption of Standardised lease terms Government agencies as early adopters of model standardised lease terms Subsequently, followed by efforts to encourage adoption by private sector landlords Case study: • Deep Diving into Government Compliance Costs Government compliance Government compliance costs impose compliance effort and high fees on SMEs Non-streamlined backend licences processing Resources directly proportionate to processing costs Source: SBF National Business Survey 2013/14 SMEs face staff and time costs involved in interface with the various agencies during application, documentation and inspection processes Fees are further increased and passed on to businesses Budget 2013 Recommendations The SBF-led SMEC recommends a review of licensing requirements to reduce the complexity and compliance costs. Licensing requirements for starting up an F&B outlet Recent press coverage Personal Data Protection Act Workplace Safety and Health Act Consumer Protection (Fair Trading) Act Ideal outcomes General outcomes • Keep fees stable • Reduce duplicity and effort in compliance, through better streamlining • Communicate and consult fee increases in a timely manner, bearing in mind overall impact on business costs • Assess impact of new fees to businesses in totality Specific outcomes Lower compliance costs passed down to businesses Reduced complexity for licensing through simplified application and approval processes where multi-agencies are involved Streamlined licencing requirements within government agencies that will result in increased cost efficiency Reduced processing time for application/approval of permits, licenses and approvals • Deep Diving into Improving SME Access to Government Procurement Advantages of increasing SME Participation Sustain and increase growth Government contracts given to bigger spread of SMEs Greater proportion of SMEs build track record and capacity to… Internationalise Advantages of increasing SME Participation For Government… Competitive bids Greater range of goods & services Greater rate of SME participation Developmental tool for SMEs Challenges in SME Participation Inflexible qualifying criteria • Smaller and newer SMEs do not possess requisite track record • Some SMEs do not meet required Expenditure and Procurement Policies Unit (EPPU) rating Insufficient access to information on available opportunities • Access to information on Government projects fragmented and not comprehensive • SMEs may need lead time or collaborative efforts to build capacity for projects Institutionalised procurement framework • Majority of contracts are of values beyond SMEs’ tendering capacities? [MTI figures required] • Smaller SMEs without track record unable to compete with established ones • Conclusion Views on Singapore Economic Transformation Important to leverage on growth in next decade, one that is unusual both for its opportunities and its challenges • More business opportunities from regional and global integration • Greater domestic constraints on growth: land, manpower, etc • Growth through innovation, internationalisation, collaboration To register: http://smeconvention.sbf.org.sg Thank You Singapore Business Federation SME Committee Secretariat email: [email protected]