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SME Development Survey 2006 Conducted by DP Information Group

SME Development Survey 2006 Conducted by DP Information Group “Managing Challenges for Sustainable Growth” Media Conference SPRING Singapore, 21 August 2006. Sponsors. Panelists Ms Chen Yew Nah, Managing Director, DP Information Group

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SME Development Survey 2006 Conducted by DP Information Group

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  1. SME Development Survey 2006 Conducted by DP Information Group “Managing Challenges for Sustainable Growth” Media Conference SPRING Singapore, 21 August 2006 Sponsors

  2. Panelists Ms Chen Yew Nah, Managing Director, DP Information Group Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore Mr Ted Tan, Deputy CEO, IE Singapore

  3. SME Development Survey 2006 Conducted by DP Information Group “Managing Challenges for Sustainable Growth”

  4. SURVEY OBJECTIVES

  5. SME Development Survey 2006 Survey Objectives SMEs’ growth strategies & issues faced at different development stages SMEs’ financial performance, risk appetite & credit SMEs’ business risk in going overseas SMEs’ strategies to achieve cost efficiency & productivity SMEs’ familiarity & use of E-banking/on-line facilities SMEs’ level of adoption of technology, automation & innovation Gain better understanding of ownership profile of SMEs

  6. SURVEY METHODOLOGY

  7. SME Development Survey 2006 Survey Methodology Sampling Base • Random sampling of 10,000 companies; Previous years’ respondents included • Proportion of SMEs selected from each industry based on 2005 GDP contribution • Companies must have : • at least 30% local equity ownership • not more than S$80m in annual sales/ turnover • not more than 200 employees (if it is a non-manufacturing SME)

  8. SME Development Survey 2006 Survey Methodology Survey Method • Primary Data Collection : • Questionnaire to capture opinions & general characteristics of SMEs -- Mail-out of questionnaire -- Posting of questionnaire on website at http://smesurvey.dpgroup.sg • Submission of financial statements to provide insight into SMEs’ • financial performance • Participation encouraged through : • Follow-up calls after mail-out of invitations to participate in survey • Reference to survey made on Enterprise One, IE Singapore, Infocomm • Development Authority & Spring Singapore websites

  9. CHARACTERISTICS OF RESPONDENTS

  10. SME Development Survey 2006 Profile of Respondents • 1,068 companies responded vs last year’s 1004 respondents • 21% of respondents participated in last year’s survey • Significantly higher no. of smaller companies responded • 41% with less than 10 employees • 55% are family owned businesses; only 9% have foreign investors as owners Respondents Breakdown by Paid-Up Capital

  11. SME Development Survey 2006 Profile of Respondents • Significant increase in Start-up participation in survey • Survey has become an important platform for voicing their issues and concerns • 23% with less than 10 years in operation; 11% being within 3 years of operation • 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 * 1 in 10 SMEs are Start-Ups

  12. SURVEY FINDINGS Challenges to Growth

  13. SME Development Survey 2006 Survey Findings - Challenges to Growth Competition remains the most cited challenge (45%) Manpower overtook Operating Cost as 2nd top 3 selected growth hindrance (37%)

  14. SME Development Survey 2006 Survey Findings - Challenges to Growth • Cashflow & Accessing Business Opportunity are the top concerns of Start-ups • Manpower is one of the top concerns of SMEs in Accelerating & Moderate Growth stages • Inability of SMEs to hire, • develop & retain people will • limit their potential to grow • Competition remain the top concern of SMEs in the Moderate, Mature & Decline stages

  15. SME Development Survey 2006 Survey Findings - Business Competition Domestic Market is small; Intense Competition Larger Overseas Market; More Growth Potential but need to be prepared to compete with global players

  16. SURVEY FINDINGS Business Strategies

  17. SME Development Survey 2006 • Survey Findings - Business Strategies Top 2 strategies: Improving Cost Efficiency / Productivity (22%) & New Overseas Market (19%) 2 next commonly cited strategies : New Products/ Services (17%) & Scaling Down/ Distribution (14%) 17% have indicated no specific business strategy to adopt, at the moment

  18. SURVEY FINDINGS Overseas Challenges

  19. SME Development Survey 2006 Survey Findings - Overseas Challenges Top favourites are Malaysia & Indonesia; due to warming ties & increased stability China took over Thailand as the 3rd most popular country to venture overseas India unchanged at 22%

  20. SME Development Survey 2006 Survey Findings - Overseas Challenges Most Popular Countries Currently : Malaysia , Indonesia & China Most Popular Countries SMEs expanded in the last 2 years : Malaysia, Indonesia & China New Destinations that SMEs likely to venture into : India, Middle East, Vietnam

  21. SME Development Survey 2006 Survey Findings - Overseas Challenges Past year of heightened FTA awareness promotion to SMEs as result of last year’s findings 87% of SMEs are aware or have heard of FTAs FTA usages have gone up from 7% to 11% Number of SMEs showing no interest in FTA has decreased to 5%

  22. SME Development Survey 2006 Survey Findings - Overseas Challenges • Key Reasons for Not Utilising • Difficulty in Understanding FTA • Not under Tariff Concessions • More in-depth knowledge sharing necessary for more SMEs to benefit from FTAs

  23. SURVEY FINDINGS Access to Government Projects

  24. SME Development Survey 2006 Survey Findings - Access to Government Projects 3 in 4 SMEs who tendered for govt projects had been successful Interest to secure government projects very high (63%) 74% of them are with low profits (<$0.5m) or making losses; Hunger for a bigger pie of public sector jobs out of survival needs SMEs need help to gain better access and bid successfully for public sector projects

  25. SURVEY FINDINGS Innovation & Technology

  26. SME Development Survey 2006 Survey Findings - Innovation & Technology 53% see improvement in productivity; 37% also find improvement in cost efficiency 92% who have adopted new technology and enjoyed its benefits, plan to invest further in the next 2 years 16% cite lack of funding as critical factor for new technology adoption

  27. SME Development Survey 2006 Survey Findings - Innovation & Technology 32% considers new technology having no impact for their business growth 62% of SMEs open but unsure of how to strengthen their technological capabilities 85% are with <25 employees; More help needed to reach out to the smaller sized SMEs

  28. SURVEY FINDINGS Financing & Funding

  29. SME Development Survey 2006 Survey Findings - Financing / Funding Still strong reliance on Overdraft (40%); though downward trend continues Next 2 most favoured options are Long-term loans (34%) & Trade Financing (32%) Continued increase in SMEs going for short & long term loans Better financing options for SMEs

  30. SME Development Survey 2006 Survey Findings - Financing / Funding Increase of SMEs with no banking/financing facilities – from 19% to 38% Attributable to higher % of Start-Ups in this year’s respondents 52% are with turnover < $1m; 68% are Start-Ups 37% face difficulties in meeting bank’s requirements of pledging collaterals Banks will only lend as according to SMEs’ ability to pay

  31. SME Survey Development 2006 Survey Findings - Financing / Funding SMEs’ suggestions for better access to external sources of funds 51% would like to see more shift towards Non Collateral based financing eg. Microloan 48% hope to see more industry specific financing schemes 37% see the use of SME Credit Rating; likely expressed by the better rates ones

  32. FINANCIAL PERSPECTIVES

  33. SME Development Survey 2006 Financial Perspectives - DP SME Credit Rating Distribution of Respondents by DP SME Credit Ratings Over past few years, general profile of credit worthiness of SMEs remain quite consistent with : 20% in Investment Grade (DP1 – DP4) About half in High Yield Grade (DP5 – DP6) Around 30% in the High Risk Grade (DP7 – DP8)

  34. SME Development Survey 2006 Financial Perspectives - Profitability Distribution of Respondents by Profit Margin & DP Credit Rating Majority (70%) of Investment Grade companies reported >5% in profit margin Majority (61%) of High Risk companies experiencing net losses

  35. Singapore’s First SME Credit Rating INITIATIVE www.smecreditrating.sg

  36. Singapore SME Credit Rating Initiative www.smecreditratings.sg In support of growing SME community for credit ratings Launch of Singapore SME Credit Ratings website with listing of over 10,000 SMEs previously rated by DP Info FREE credit rating access for SMEs that are prelisted from now till 30 September 2006 Non-listed SMEs can also approach DP Info for a FREE credit rating access SMEs may opt to have their credit rating grade displayed for FREE to the public for 12 months

  37. DP INFO’S RECOMMENDATIONS

  38. SME Development Survey 2006 DP Info’s Recommendation #1 - SME as A Rewarding Place to Work In Results : Lack of Adequate & Qualified Manpower for SMEs - 37% stated as Top 3 Concerns - 7% to 14% jump as Top Hindrance to Growth - 36% stated as Obstacle for Overseas Expansion Likely Reasons : a) Unable to compete with MNCs in attracting talents b) SMEs view as ‘second choice’ employers c) Perceptions relating to differing benefits Suggestions : Promote the advantages of working for SMEs - Profile the positive aspects of working for SMEs - Incentivise SMEs to structure employee profit sharing schemes through tax breaks

  39. SME Development Survey 2006 DP Info’s Recommendation #2 - Help SMEs with more Government Procurement Opportunities Results : 3 in 4 SMEs who tried, had been successful 63% not tried and are keen to explore these govt procurement opportunities Likely Reasons : a) Survival needs; 74% are with low profits or making losses b) Lack of experience in tender documentation c) Inhibiting with huge contracts requirements d) Short turnaround time to revert tender/quotation Suggestions : Create a different level playing field for SMEs to compete - Training on tender proposal writing & how to bid successfully - More communication about the award decision process

  40. SME Development Survey 2006 DP Info’s Recommendation #3 - SMEs to Leverage more on FTAs Results : 11% (up from 5%) utilize FTAs and 43% (up from 27%) are aware of FTAs 35% find difficulties in understanding the FTAs Likely Reasons : a) FTAs Documentation Compliance can be complicated b) Tariff Concessions; Non-compliance or Marginal c) Slow Adopters; Due to Resource Constraints Suggestions : Specifically engage SMEs to overcome inertia to Adopt - Leverage on IE’s Train-the-trainers programme - Walk-through with the SMEs for the first few applications - Qualified Consultants with grants approval

  41. SME Development Survey 2006 DP Info’s Recommendation #4 - Enhance Technology Management Skills for SMEs Results : 62% unsure how to strengthen technological capabilities; 42% with plans need funding support Likely Reasons : a) Resource constraint - time & finance b) Unwilling to experiment due to risk of failure c) Supply of qualified external consultants Suggestions : Communicate & deliver benefits to SME bosses - Train business managers/owners to deploy new technology for business advantage - Incentivise through tax breaks

  42. SME Development Survey 2006 DP Info’s Recommendation #5 - Innovative Financing for Better Credit Rated SMEs Results : Funding for SMEs have improved over the years - Over 4 years: 20%Investment Grade; 50% High Yield; 30% High Risk Likely Reasons : a) Banks lend according to firms’ ability to pay b) More understanding of SME Credit Risk required Suggestions : Promote industry adoption of SME Credit Rating - Differentiate those with high risk from the low risk - Benchmarks for better financial performance - Promote corporate governance, discipline and financial/cashflow management

  43. SME Development Survey 2006 DP Info’s Recommendation #6 - Start-Ups Beyond Capital Results : 1 in 10 SMEs are Start-Ups; Key concerns are cashflow and biz opportunities Likely Reasons : a) Lack of track record b) No economy of scale c) Higher risk of failure Suggestions : To develop a strong cluster of SMEs has to commence with the Start-Ups - Mentoring the Start-Ups with Business Opportunities - Equip Start-Ups for Regional exposure via IE programmes - Financing Bureau to match SME needs and other Financing options

  44. Thank You

  45. Speech Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore

  46. Speech Mr Ted Tan, Deputy CEO, IE Singapore

  47. Q&A

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