SME Spotlight

Big firms gain from efforts to raise productivity

The hospitality/food and beverage sector was the best-performing industry with a 12.1 per cent increase in combined turnover, leading to a 6.7 per cent improvement in combined profit. The weaker Singdollar during the ranking period helped attract mor
The hospitality/food and beverage sector was the best-performing industry with a 12.1 per cent increase in combined turnover, leading to a 6.7 per cent improvement in combined profit. The weaker Singdollar during the ranking period helped attract more foreign visitors here, driving up economic activity in this sector.ST FILE PHOTO

They post record combined profit; SMEs' weak performance reflects challenges faced

For more than three decades, the Singapore 1000 (S1000) has ranked the nation's largest 1,000 companies by their financial performance.

The current 2018 rankings (based on financials from June 1, 2016 to May 31, 2017) confirm the strength of Singapore's corporate sector. The top 1,000 companies here delivered a record combined profit of $182.8 billion, up 10.5 per cent compared with last year.

This record profit performance comes at the end of a five-year period during which the combined profit of the top 1,000 companies increased by a healthy $36 billion.

A remarkable aspect of this year's record profit is that it was achieved on the back of a largely flat turnover performance. The combined turnover of the S1000 companies rose by just 1.1 per cent to $2.79 trillion in the 2018 rankings.

The average profit margin of the S1000 companies grew from 10.3 per cent last year to 11.4 per cent this year, which suggests companies are benefiting from their efforts to raise productivity and investing in technology that allows them to reduce costs by using resources more efficiently.

Unlike previous years, the profit improvement was not limited to one or two sectors. Profits were up in most industries, which is a sign of an improved business environment and a strengthening economy.

Having strong and profitable corporations has a flow-on effect on the wider Singapore economy. As large companies see their bottom lines improve, they are more likely to increase spending on investments such as wages and new hires.

The increased spending of larger companies also creates opportunities for smaller firms to supply their goods and services.

But while the largest companies performed strongly in the 2018 rankings, the same could not be said for the top 1,000 small and medium-sized enterprises (SMEs).

This year, the combined turnover of Singapore's top 1,000 SMEs (SME1000) fell 11.8 per cent to $26.7 billion. There was also a drop of 17.1 per cent in combined profit to $2.9 billion.

SMEs are emerging from a difficult period. Many have struggled with factors beyond their control, such as slow gross domestic product growth, weak global trade, and the need to spend on technology and productivity improvements in response to manpower challenges and rising competition.

However, there were some bright spots within the performance of the SME1000 companies. The hospitality/food and beverage sector was the best-performing industry with a 12.1 per cent increase in combined turnover, leading to a 6.7 per cent improvement in combined profit. The weaker Singapore dollar during the ranking period helped attract more foreign visitors to Singapore, driving up economic activity in this sector.

Another encouraging aspect of the SME1000 is the performance of the e-retail, construction and manufacturing sectors. These three sectors were among the most affected by restrictions on foreign labour and they were forced to improve their productivity. Each of them achieved an increase in profit compared with last year despite having lower turnover. This is a sign that they have adjusted to the tighter labour market and found ways to become more efficient.

Singapore is conveniently located at the heart of emerging and developing Asia, which is the fastest-growing regional economy in the world. But while Asia's growth offers opportunities, it also means greater competition for Singapore firms.

The importance of embracing digitalisation and innovation to stay competitive has become a priority for Singapore companies.

Singapore, like the rest of the world, is entering a phase in its economy where growth is increasingly innovation-driven. Companies not only need to search for growth opportunities outside of the country but also to transform themselves from within. And for SMEs, in particular, innovation is essential if they want to compete with larger companies as well as international competitors.

This stimulus is similar for the larger S1000 companies; if they are to achieve sustained performance to post yet another record year in combined profit, larger corporates must embrace innovation and business transformation and execute with confidence and alacrity.

• This article is contributed by DP Information Group, ranking body and producer of the Singapore 1000 family of rankings. www.dpgroup.com.sg/s1000

A version of this article appeared in the print edition of The Straits Times on April 25, 2018, with the headline 'Big firms gain from efforts to raise productivity '. Print Edition | Subscribe