Every business, small or large, aims at maximizing revenues. And at the same time, boosting profits by reducing the cost of production remains the top priority for management. The Singaporean economy is dominated by small and medium enterprises (SMEs) that generate most of the exports and employ the majority of the workforce. SMEs can be said to have a narrow maneuvering space as compared to big corporate players. The latter can sustain for a relatively long period without generating profit from core business activity. However, SMEs have little leverage in this regard. In the year 2020, what are the top factors that will shape the growth of SMEs? Let’s discuss this.
One can pick any book on business management, and a few items of study will be standard in every book. The first is productivity. Productivity in simple terms is output per unit of input. Any worker who produces ten items when churns out 12 at the same time and using the same resources can be understood to have bettered her productivity. The second is the cost of production. Profit margins for any business depend on how much cost gets incurred on producing the item. Reducing costs is always one of the critical areas of focus for the management. The third in the list is expanding the market for goods and services produced by the business. It can be understood as generating new sources of revenue and can include tapping an untapped foreign market or diversifying the product range in the existing market.
Lately, United Overseas Bank (UOB) conducted a survey, and the spotlight got shone on the mood of SMEs in the year 2020. The global economy is under pressure, and the economy of Singapore hasn’t remained untouched. It reflects in the survey where UOB found that out of all SMEs surveyed, less than half of them, 46 percent to be precise, are positive about the outlook for business in the current year. 31 percent of the participants had a negative outlook, and the remaining had a neutral stance. One reason behind the not-so-upbeat sentiment can be the slower-than-expected growth in 2019. Last year the GDP grew at its slowest pace in a decade. The factors that are shaping the sentiments are covered in the survey and include the US-China tariff war, slowing the global economy, and the Singaporean dollar is performing better than other major currencies. Another factor that will decisively be impacting the economy, as is highlighted by many experts, is the COVID-19 outbreak.
Almost half of the SMEs surveyed by UOB are upbeat about implementing productivity measures. They very well understand that increasing competition and thinning margins are compelling reasons why productivity has to get boosted. And what can be the best way of increasing productivity than to adopt the digitization of business operations? New digitized methods of doing work, for example, the UOB survey talks of digitizing accounting and payroll departments, are not only reducing the costs but, at the same time, increasing productivity. As many as 65 percent of SMEs have already digitized at least one area of activity. The study further points to more than a quarter of SMEs being hopeful of digitizing more areas in the present year.
Productivity remains a dominating force behind the sustainability of the business, as far as the government of Singapore is concerned. SkillsFuture is a program run by the government where Singaporeans are encouraged to attend training sessions and are given S$500 as encouragement. Enterprises, including SMEs, are also awarded for their work in the field of skill development of employees. The Singaporean economy and its participants are increasingly facing competition from across the globe and well understood by the government. For example, in e-commerce, it’s the Alibaba-owned Lazada, and in ride-hailing tech, it’s the Malaysian-founded Grab that is raising the bar of competition for local SMEs.
As quoted by Mr Mervyn Koh, MD and Country Head of Business Banking, UOB –
They are focused on prioritizing productivity improvements for better performance against an uncertain macro environment. One of the ways SMEs are planning to achieve their productivity goals is to increase their investments in technology, which not only helps with increasing efficiency but also enhances their competitiveness in the long term.
Indeed, tech can be the single most influential force behind bettering productivity levels. For example, many businesses are implementing such solutions as chatbots, which can engage with the customer faster than an employee in the customer relations team. Chatbots send standardized replies to queries of the customer in virtually no time. The result is an increase in the productivity of the customer service team. Here, companies like DBS Singapore, which has implemented Chatbot in its recruitment process, and Singapore Airlines are notable examples. It is one of many such solutions that can help SMEs post better productivity numbers. Digitization of as many activities as is feasible and financially viable is the need. Artificial intelligence and other tools, including robotics, are generating buzz for their roles in pushing productivity to higher trajectory. Companies like NuTonomy Singapore, which is using AI for building software for self-driving cars and autonomous robots, and Evie, which provides AI solutions for interview scheduling, are prominent examples.
Reducing the cost of production is another significant element in achieving better profits. The same got highlighted in the UOB survey of 2020, where 43 percent of the respondents have committed to focus on this area in the present year. SMEs very well understand how critical it is to bring down costs in an environment where prices are more often than not determined by the market. A large number of sellers of any product or service removes any monopoly from the market, thereby lowering the price. The only available option in such a scenario is to emphasize cost reduction.
Tech drives a reduction in cost. For example, those SMEs which have implemented digitization in areas of business activity are more likely to save on cost. Indeed, there is a one-time outgo of money on acquiring and executing digital solutions; the long-term benefits far outweigh incurring high charges on non-digitized solutions. As many SMEs have today digitized their accounting and marketing activities, as is highlighted in the UOB survey, they are optimistic about carrying out such exercises in 2020 and using digitization in other activities that include sales. Here, virtual reality and artificial intelligence hold the key. Virtual reality tools are helping businesses to acquire new customers who can now feel the product without having to visit the physical store. Commune is one such company that enables customers to have an immersive shopping experience where the company’s range of furniture products can be experienced through augmented reality, thus boosting buying confidence. The tool scans the space and places three-dimensional virtual models of products in it.
Another way of achieving a reduction in cost is to have a better-skilled workforce. Digitization can only succeed for a business when the people handling these tools are well-equipped with the tech and know-how to best reap the benefits. It is the reason why more and more data scientists are in demand in the market today. Similarly, resources can capably put to use only when the workforce using them gets trained regularly.
New Revenue Sources
42 percent of the respondents in the UOB survey was upbeat about this. SMEs have started to believe that the traditional sources of revenue may not be sufficient to tide over the triple whammy of the slowing global economy, the US-China trade war, and the negative impact of COVID-19 (n-coronavirus that has gripped China, South Korea, Southeast Asian countries and even far-off regions like Italy and Iran). Therefore, various corporates are entering the e-commerce space, and those in the e-commerce-only setup are exploring the brick-and-mortar space. Tech has a significant role in how SMEs can expand their existing market. Exporters can sell their goods to overseas buyers by exploiting e-commerce. Now that China, the largest trade partner of the city-state, is reeling under troubles caused by COVID-19, SMEs of Singapore are to look at other markets for exports.
The development of new avenues of revenue may not be a short-term exercise. It needs continuous study of the market and exploring untapped sources to generate revenue. SMEs of the city-state has this as the critical agenda for 2020. It reflects their understanding of the contemporary market, where one has to expand to sustain continuously. Digitization again can be a significant driver. From tapping the online marketplace to using data analytics to explore markets where there can be demand for business, tech is what can shape the policies of the management. Data can be the single most resource that can locate new revenue sources. For this to happen, SMEs will need to deploy machinery and deep-tech like IoT, Edge computing that can collect and study data following the contours of business activity.
All that said, it is notable that despite the challenges, the UOB survey reveals the optimistic outlook of Singaporean SMEs for the year 2020. That a fraction of those surveyed may have a negative stance for this year cannot be the reason for not implementing much-needed changes to how business gets conducted. Many SMEs will be undertaking measures to boost productivity and reduce costs, besides exploring new sources of revenue. The government of Singapore is well-known for its timely and well-intentioned support to the business sector. Various incentives are in place for cheering SMEs to undertake research and development activities and have training and skill development as a part of personnel growth, and these will act as driving force. All in all, the year 2020 calls for some rethinking of how business gets conducted, and digitize as much as possible to harvest the benefits of the latest tech.