sme development survey 2006 conducted by dp information group

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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

Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore

Mr Ted Tan, Deputy CEO, IE Singapore


SME Development Survey 2006 Conducted by DP Information Group

“Managing Challenges for Sustainable Growth”


SURVEY OBJECTIVES


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


SURVEY METHODOLOGY



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)



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


CHARACTERISTICS OF RESPONDENTS



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

Paid-Up Capital 2006 2005 2004

$2 - $50,000 18% 6% 9%

$50,001 to $0.5mil 53% 27% 41%

>$0.5mil to $1mil 6% 26% 20%

>$1mil to $2mil 13% 16% 14%

>$2mil to $5mil 5% 12% 9%

>$5mil 5% 13% 7%

Total 100% 100% 100%



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

11%

2%

20%19%

35% 36%

25%

29%

9%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Start-Up Acceleratinggrow th

Moderategrow th

Mature Decline

Respondents Breakdown by Development Stages

2006 2005

* 1 in 10 SMEs are Start-Ups


SURVEY FINDINGS

Challenges to Growth



Survey Findings - Challenges to Growth

Competition remains the most cited challenge (45%)

Manpower overtook Operating Cost as 2nd top 3 selected growth hindrance (37%)

45%

52%

37%

28%

34%

42%

28%

22%25%

32%

19%

34%

19%15%

8% 10%

0%

10%

20%

30%

40%

50%

60%

Top 3 Most Selected Hindrance to Growth

2006 2005



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

Development Stage

Top 1 Concern

Top 2 Concern

Start-up Cash Flow (57%)

Business Opportunity

(57%)

Accelerating Growth

Manpower (56%)

Competition (50%)

Moderate Growth

Competition (49%)

Manpower (45%)

Mature Competition (53%)

Operating Cost (34%)

Decline Competition (47%)

Operating Cost (45%)



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

Top competition faced in Singapore %

Local Competition 69%

Foreign Competition 37%

Do Not Face Any Competition 9%

Top competition faced in Overseas %

With Local Competitors 17%

With Foreign Competitors from other Countries 48%


SURVEY FINDINGS

Business Strategies



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

22%

30%

19%

32%

17%18%

14%

7%10%

6%

1%3%

17%

4%

0%

5%

10%

15%

20%

25%

30%

35%

Key Business Strategy for Next 1 - 2 years

2006 2005


SURVEY FINDINGS

Overseas Challenges



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%

64%

49%

40%

51%

43%

31%

41%

32%

24%

39%

32%

24%27%24%

19%26%23%

15%

25%23%

17%22% 22%

15%18%17%

12%

17%14%

0%

10%

20%

30%

40%

50%

60%

70%

Top 10 Overseas Countries

2006 2005 2004




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

Top 1 Top 2 Top 3

Countries Currently Presence in

Malaysia (64%)

Indonesia (51%)

China (41%)

New Countries Ventured in last 2 years

Malaysia (9%)

Indonesia (6%)

China (6%)

New overseas markets in the next 12 months

India (32%)

Middle East (27%)

Vietnam (25%)




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%

11%7%

43%

27% 28%

34%

13%16%

5%

16%

0%

5%

10%

15%

20%25%

30%

35%

40%

45%

Aware &utilizing them

Aware butnot utilizing

them

Heard ofsuch tariffbenefits &would beinterested

Never heardof such tariffbenefits &would beinterested

Notinterested

Awareness of FTA

2006 2005




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

35%

29%

19%

16%

7%

3%

16%

0% 5% 10% 15% 20% 25% 30% 35%

Difficulty InUnderstanding FTA

Products Not TariffConcessions

Products Doesn't MeetRule Of Origin

Customer Didn't AskFor Proof Of Origin

Marginal TariffReduction

Too Costly To Adapt

Not Exporting

Reasons for Not Using FTAs


SURVEY FINDINGS

Access to Government Projects



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

Local Government Procurement

No, but keen to explore the opportunities

63%

No, we are not interested

at all13%

Yes, we have secured at least one tender/

quotation18%

Yes, but have not been

successful so far6%


SURVEY FINDINGS

Innovation & Technology



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

53%

37%

23%

22%

17%

11%

32%

0% 10% 20% 30% 40% 50% 60%

Increased Productivity

Increased Cost Efficiency

Helped Meet Customer Expectation

Widened Market Coverage

Enhanced Image/Reputation

Afforded Greater Product Line ServiceRange

No Impact

Impact of New Tech on Business Growth



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

Most Critical Factor in strengthening SMEs' technological capabilities

Not sure62%

Funding support for adoption of

new technology16%

Availability of in-house

technological capabilities

6%

Awareness of technological capabilities &

resources7%Desirability &

ability of customers to accept new technology

4%

Availability of external

technology experts/providers/

infrastructure3%

Adoption of common industry standard for new

technology2%


SURVEY FINDINGS

Financing & Funding


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

Banking/Financing Facilities Used 2006 2005 2004

Short Term Facilities

Overdraft 40% 44% 47%

Trade Financing 32% 39% 29%

Term Loans 27% 25% 21%

Factoring 7% 6% 6%

Long Term Facilities

Term Loans 34% 29% 26%

Hire Purchase/ Leasing 31% 33% 35%

Equity Financing

Venture Capital 15% 5% NA

Business Angels 3% 2% NA

Funds From Friends Or Relatives 17% NA NA

Government Funding Schemes

Local Enterprise Finance Scheme 8% 4% NA

Microloan 4% 2% NA

SME Access Loan 2% 0% NA



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

2006 2005

No Banking/Funding Facilities 38% 19%

- No need for Funds 65% 64%

- Difficulties in Obtaining Funds 35% 36%


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

SMEs’ Suggestions for better access to external sources of funds %

Non Collateral Based Financing Instruments 51%

Industry Specific Financing Schemes 48%

SME Credit Rating 37%

SME Centric Financial Institution 25%


FINANCIAL PERSPECTIVES



Financial Perspectives - DP SME Credit Rating

DP Credit Rating 2006 2005 2004 2003

DP1 - DP4 20% 21% 19% 9%DP5 - DP6 49% 47% 53% 65%DP7 - DP8 31% 32% 28% 26%Total 100% 100% 100% 100%

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)

Distribution of Respondents by DP SME Credit Ratings



Financial Perspectives - Profitability

Majority (70%) of Investment Grade companies reported >5% in profit margin

Majority (61%) of High Risk companies experiencing net losses

Distribution of Respondents by Profit Margin & DP Credit Rating

Negative Margin

0% - <5% 5% - <10%10% or more

Total

Investment Grade (DP1 - DP4)

2% 28% 29% 41% 100%

High Yield (DP5 - DP6)

11% 65% 15% 9% 100%

High Risk (DP7 - DP8)

61% 36% 1% 2% 100%

TOTAL 26% 47% 14% 13% 100%

DP Credit RatingProfit Margin Range


Singapore’s First SME Credit Rating

INITIATIVE

www.smecreditrating.sg


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


DP INFO’S RECOMMENDATIONS



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’ employersc) 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



DP Info’s Recommendation #2- Help SMEs with more Government Procurement Opportunities

Results : 3 in 4 SMEs who tried, had been successful63% 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 requirementsd) 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



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 FTAs35% 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



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 failurec) 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



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 payb) 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



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 recordb) No economy of scalec) 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


Thank You


Speech

Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore


Speech

Mr Ted Tan, Deputy CEO, IE Singapore


Q&A

sme development survey 2006 conducted by dp information group

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