producitivity challenges of small and medium enterprises
DESCRIPTION
These are slides that I presented at the 2014 SME Biztech Summit in Singapore. I talked about productivity-related challenges that are particular to small and medium sized businesses.TRANSCRIPT
1Frost & Sullivan
The Productivity Challenge:
Addressing Productivity Gaps between SMEs and Large Firms
Vikas Sharma
Director, Public Sector & Government Practice
Frost & Sullivan, Asia Pacific
Developed For:
2Frost & Sullivan
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5Frost & Sullivan
Productivity = Output
Input
Common Measures of Output
Common Measures of Input
No. of employees Man hours Manpower Cost Capital
Sales Revenue Value Add Production Volume
Production Value
Defining the mantra of business efficiency
What is Productivity?
GDP/Capita
Vs.
GDP/Hour
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Factors that influence Productivity
What is Productivity?
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Purposes of Productivity Measurement
What is Productivity?
Objective
TechnologyTechnology
Real Cost Savings
Real Cost Savings
Benchmarking Processes
Benchmarking Processes
Living Standards
Living Standards
EfficiencyEfficiency
Description
• To trace technological progress. “the currently known ways of converting resources into outputs desired by the economy”
• To measure the maximum output that is physically achievable with current technology, and given a fixed amount of input
• Firms generally practice allocative efficiency, where resources will be channeled to maximize profitability
• Measuring the absolute cost to produce one unit of product/service through the years
• Comparing value-added for one industry vis-à-vis from other industries
• Metrics used are consistent and resistant to change
• Value add per hour worked, income per person as a unit of productivity
8Frost & Sullivan
SMEs are the growth engines of the economy, accounting for >99% of all establishments
Importance of SMEs to the Economy
Contribution to total GDP (%)
Contribution to total Employment (%)
With their ubiquitous presence across industries
and integrated value chains, productivity improvements among SMEs will serve to
drive value across the economy
Across developed economies, SMEs account for the lion’s share of total employment
and total GDP
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SMEs face some unique business challenges compared to larger firms
Factors hampering SME Productivity
SMEs face an uphill task obtaining access to credit due to a lack of collateral and inadequate documents/accounting knowhow to secure low-cost and long-term loans. This is worsened by the long turnaround time for the disbursement of loans, putting stress on their limited financial reserves. Legislation and complex processes serve as high barriers for small businesses that may not have the necessary knowledge to navigate in the system.
Financing hurdles exacerbate a host of other problems including obstacles in building new capabilities through R&D to compete with larger firms, limited ability to expand operations or implement promising business ideas; as well as increase the firms’ vulnerability in the face of crises
All SMEs face challenges attracting high-calibre skilled manpower without the remuneration packages and stability of career development offered by larger companies. Micro and young SMEs have an even smaller talent pool, with even more limited managerial capability and skill sets. An owner-manager will typically also have to fill most job functions.
Lack of Financing
Manpower Concerns
1
2
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SMEs face some unique business challenges compared to larger firms
Factors hampering SME Productivity
SMEs are simply unable to reach the operational efficiency reached by larger companies because they cannot access economies of scale.
Inability to access Economies of Scale
3
SMEs are unable to invest in private infrastructure. If not situated in CBD, they may lose out on several facilities
Lack of Infrastructure
4
In negotiating lending rates as well as terms of contracts, or in influencing policy change, SMEs have almost negligible bargaining power compared to larger enterprises
Lack of Bargaining Power
5
Given the sheer size and age of larger companies, SMEs are unable to amass knowledge at a similar scale. This includes explicit knowledge as well as tacit knowledge, regarding procedures, systems (for various functions, or for data management) and industry experience. Additionally, SMEs lack available resources to engage consultancy services to make optimal decisions.
Lack of Knowledge
6
It is difficult for SMEs to project their development over a long term period given their survival rate amidst tough competition. Decisions must always be made with a short-term perspective, which may not deliver best results
Short-term Vision
7
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Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Industries / Size of Operating Receipt
Food Services Biomedical
Value Added Value Added
Per Establishment ($) Per Establishment
ESTABs with < $1m $122,050 $194,444
ESTABs with $1m - < $5m $723,589 $984,529
ESTABs with $5m & above $5,555,556 $17,021,277
Example 1
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Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Example 2
6741 41
224449
245
102123
143
Labour Productivity By Size and Sector (RM '000)
SMEs Large Organisation
At the aggregate level, large Malaysian firms
exhibit >3 times productivity than Malaysian SMEs
13Frost & Sullivan
Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Example 3
At the aggregate level, large Canadian firms exhibit 27% higher
productivity than Canadian SMEs
14Frost & Sullivan
There is a plethora of assistance schemes available in Singapore that target SMEs
Addressing SME Productivity gaps
“10 percent increase in number of staff using technology increases productivity by 1.3 percent”“ICT adoption in company’s process increases productivity by 12 percent” – OECD
“10 percent increase in number of staff using technology increases productivity by 1.3 percent”“ICT adoption in company’s process increases productivity by 12 percent” – OECD
Increased use of Technology, in particular, has been shown to drive productivity growth
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IDA’s iSPRINT program is enabling SME productivity gains across industries
Addressing SME Productivity gaps
Retail Travel
Food & Beverage
SME success stories from various sectors
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Addressing SME Productivity gaps
For Who?
For Who?
• All SMEs incorporated in Singapore• At least 30% shareholding is local• Annual group sales less than $100 million, less than 200 employees
• All SMEs incorporated in Singapore• At least 30% shareholding is local• Annual group sales less than $100 million, less than 200 employees
For What?
For What?
• To encourage the use of technology to improve business operations• Increase efficiency/productivity• Increase in revenue• Increase in value add
• To encourage the use of technology to improve business operations• Increase efficiency/productivity• Increase in revenue• Increase in value add
How Much?How
Much?
Packaged Solutions Customized Solutions
Up to 70% of the qualifying cost: (a) basic package (b) SaaS (c) Immediate Packaged Solutions
Customer Relationship Management, Enterprise Resource Planning, Supply Chain Management
Software/Subscription cost, up to 12 months, Consultancy ServicesTraining
Consultancy Services, Manpower-Related Costs, Consultancy Services, Hardware/ Software,Training
iSPRINT – Can I qualify?
IDA’s iSPRINT program is enabling SME productivity gains across industries
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Vikas SharmaDirector
Public Sector & Government Practice
+65 91446844