Challenges new and old confronting SMEs

Although internationalisation has been widely encouraged by the government, trade associations and business chambers, not all firms have managed to make the leap.
Although internationalisation has been widely encouraged by the government, trade associations and business chambers, not all firms have managed to make the leap.ST PHOTO: LIM YAOHUI

Many lament lack of opportunity to work with GLCs when seeking growth overseas

By all accounts the economy had a stellar year in 2017 but many small and medium-sized enterprises (SMEs) missed out on the gains, so hopes are high that the benefits might finally start trickling down.

But even if 2018 is a better year, smaller companies still face a considerable number of challenges.

The perennial gripes about cost and manpower have not disappeared, although they have lessened somewhat in the face of other more urgent issues.

One is the lack of collaborative opportunities with larger local players - the government-linked companies (GLCs) in particular - to venture abroad for growth together.

Another major sticking point is cashflow management, with an increasing number of firms struggling with delays in client payments.

The SME Development Survey by DP Info in November found about 35 per cent of SMEs saying they had finance-related issues - 13 percentage points more than a year earlier and the highest since the survey began tracking the issue in 2011.

And among these 35 per cent, the proportion experiencing delays in payments from customers skyrocketed from 14 per cent in 2016 to 81 per cent last year.

A separate Spring Singapore poll out last month showed that 64 per cent of SMEs said they were facing some form of delay in receiving payments from customers.

Mr Ho Meng Kit, chief executive of the Singapore Business Federation (SBF), says SMEs would do well to put in place better reviews and controls on financial reporting to ensure that potential issues with billing, cash collection and credit terms with customers can be promptly addressed.

HURDLES

This is especially true for emerging markets, where there is great potential but laws are complicated... Another issue is our lack of understanding and experience of a different culture. It's difficult to do business when you don't understand the language and customs.

ITC GROUP EXECUTIVE DIRECTOR TERESA CHONG, on the challenges SMEs face when venturing overseas.

One tactic some SMEs use when dealing with delayed payments is to increase the number of days needed to pay their creditors to offset cash constraints.

Issues of financing and payments all boil down to relationship-building, says Mr Toby Koh, group managing director of Ademco Security Group.

"We have built a relationship with a lot of our clients that makes it more of a partnership. They treat us fairly. Even if they tell me they need longer credit terms for whatever reason, I know they will pay me when the time comes. Planning becomes a lot easier," he adds.

The other major SME bugbear is the obstacles faced when trying to expand abroad. Internationalisation has been widely encouraged by the government, trade associations and business chambers, but not all firms have managed to make the leap.

The SME Development Survey 2017 found that almost half the SMEs polled had some form of overseas engagement, but success has been patchy. Some sectors, such as infocommunications and retail, have made inroads overseas, but others, like construction, continue to face difficulty in securing contracts.

Currency fluctuations, keen competition and difficulty in finding partners are often cited as the biggest challenges venturing overseas.

Executive director Teresa Chong of cold-chain logistics solutions provider ITC Group, which has operations in Myanmar, suggests that the lack of understanding of how other markets function could be one reason internationalisation has not taken off yet.

"This is especially true for emerging markets, where there is great potential but laws are complicated to navigate," she adds.

"Another issue is our lack of understanding and experience of a different culture. It's difficult to do business when you don't understand the language and customs," she says.

Even as they acknowledge the help they get from government agencies such as IE Singapore, SMEs lament the lack of opportunities to collaborate with GLCs to go abroad.

SBF's Mr Ho agrees that there are few opportunities for SMEs to collaborate with more established large enterprises.

"There are also other challenges, such as coming to an agreement for all parties, as well as bureaucracy and associated legalities when dealing with larger companies, which are concerns for SMEs."

But he says the SBF is making this issue its "new strategic focus to sense and prioritise the needs of Singapore businesses".

A version of this article appeared in the print edition of The Straits Times on January 10, 2018, with the headline 'Challenges new and old confronting SMEs'. Print Edition | Subscribe