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MEDIA CONFERENCE6 October 2008

SME DEVELOPMENT SURVEY 2008- Conducted by DP Information Group

Enhancing Business Competitiveness Among Singapore’s SMEs

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Understand & highlight following issues relating to SMEs:

Business strategies & challenges faced locally & overseas

Extent of internationalization & contribution to Singapore economy

New financing requirements in next 1 year

Rate & benefits of technology adoption & innovation

IT spending in next 1-2 years

Staff development & succession planning

SME Development Survey 2008 - Survey Objectives

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5% increase in participation from SME Community

1,656 companies responded to this year’s survey (last year: 1,206 respondents)

23% repeat respondents from last year’s survey

SME Development Survey 2008 - Characteristics of Respondents

Respondents by Business Sector

Commerce (Retail & Wholesale)

43%

Manufacturing 15%

Services 15%

Transport / Storage

8%

Construction 10%

Hospitality/ F&B1%

Finance 1%

Property 2%

Information & Communications

5%

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7% increase in participation from SMEs with smaller capital

7% increase in smaller SMEs with paid-up capital of no more than S$0.5m

Percentage of SMEs with >S$1m in paid-up capital reduced from 39% to 33%

Respondents by Paid-Up Capital

SME Development Survey 2008 - Characteristics of Respondents

Paid Up Capital 2008 2007 2006

S$2 - S$50,000 8% 7% 18%

S$50,001 - S$0.5m 40% 34% 53%

> S$0.5m - S$1m 19% 20% 6%

> S$1m - S$2m 14% 14% 13%

> S$2m - S$5m 10% 12% 5%

> S$5m 9% 13% 5%

Total 100% 100% 100%

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More experienced SMEs responding to survey:

- 76% in business for >10 yrs (4% increase) - Continued decline in Start-up participation from 6% to 2%

No. of companies experiencing accelerating turnover growth increasing but at slower pace

Mature & Decline companies on the rise

SME Development Survey 2008 - Characteristics of Respondents

2%

6%

11%

29%27%

20%

32%

37%35%

30%

24%25%

7% 6%

9%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Start-up Acceleratinggrowth

Moderategrowth

Mature Decline

Stage of Development

2008

2007

2006

Stages of Development • Start-up: First 3 years of operation• Accelerating Growth: turnover growth of > 10% p.a.• Moderate Growth: turnover growth of up to 10% p.a.• Mature: Zero turnover growth • Decline: Negative turnover growth

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SMEs registered stronger profitability

Further drop in no. of loss-making companies from 21% to 13%

Almost a quarter (24%) generated profit >S$1m

Upward trend in respondents generating >S$0.1m in after-tax profit

SME Development Survey 2008 - Characteristics of Respondents

13%

21%

23% 23%

26%

30% 29%

26%

22%

11%

8% 8%

12%10%10%

5%3%3%

7%6%

4%

0%

5%

10%

15%

20%

25%

30%

Losses(<S$0)

S$0 toS$0.1m

>S$0.1mto S$0.5m

>S$0.5mto S$1m

>S$1m toS$3m

>S$3m toS$5m

>S$5m

Respondents by Net Profit After Tax

2008 2007 2006

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SMEs looking more to expansionary plans to grow sales in locally & overseas

Improve Cost Efficiency / Productivity remain top strategy but accorded less emphasis

Increasing emphasis on expansion: - New overseas market - New products/ services - Expand local distribution channels

Growing importance : - Improve Customer Service (key strategy for those in Retail) - Branding

SME Development Survey 2008 - Business Strategies

26%

43%

22%24%

21%19%

15%

9%

14%

10%

17%

9%6%

10%8%

3% 2% 2%

14%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Improve costefficiency /productiv ity

Expand newmarket

overseas

Improvecustomerservice

Offer newproducts/services

Expand localdistributionchannels

Branding Scaling down/consolidation

Key Business Strategy in next 1-2 years

2008 2007 2006

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Increasing operating costs foremost in minds of SMEs

Increasing operating costs (58%) overtook Increasing competition (49%) as top obstacle

Manpower remains one of top 3 concerns; more so for SMEs in Start-up (42%) & Accelerating Growth (50%) stages

Concerns regarding Cash flow & New Financing have fallen; Cash flow more of a concern for those in Start-up (37%) & Decline (28%) stages

Downward trend continue for Difficulty in accessing biz opportunities & Market size constraint

SME Development Survey 2008 - Challenges to Growth

58%

53%

34%

49%

58%

45%

39%

45%

37%

20%

30%30%

19%24%

12%

20%

25%

9%9%

19%

6%10%

19%

0%

10%

20%

30%

40%

50%

60%

Increasing

operating

costs

Increasing

competition

Manpow er

issues

Cash flow Market size

constraint

Difficulty in

assessing

business

opportunities

Uncertain

economic

env ironment

New

financing

Hindrances to Growth

2008 2007 2006

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Increasing Labour cost key cost component affecting SMEs’ profitability in next 1-2 yrs

Most affected are those in Information & Communications (73%), Construction (68%) & Services (63%)

Increasing Cost of sales ie. raw materials will continue to have major impact on SMEs’ profitability;

SMEs in Construction (82%), Manufacturing (81%) & Wholesale (59%) greatly affected

Rental costs remain a challenge for most SMEs

More SMEs reducing their expenditures on optional cost factors

Advertising & Promotion less regarded as key cost component

SME Development Survey 2008 - Challenges to Growth

58%61%

57%55%

42%37%

20%20%

20%17%

14%18%

5%13%

0% 10% 20% 30% 40% 50% 60% 70%

Labour costs

Cost of sales

Rental of premises

Currency fluctuation

Transportation costs

Utility costs

Advertising & Promotion

Cost components affecting profitability

2007

2008

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Export growth to Asian region reached an unprecedented level – All Top 10 overseas countries from Asia

Upward trend in SMEs serving China & India markets

China overtook Indonesia & catching up with Malaysia as most favoured destination

Japan & Korea did not get into the top 10 last yr, but overtook Australia & USA to emerge among the top 10 this yr

At least three-fifths of SMEs that ventured to Middle East are serving Saudi Arabia & UAE

Cambodia, Myanmar & Taiwan increasing in popularity

SME Development Survey 2008 - Overseas Expansion

69%

81%

64%67%

65%

41%

60%

71%

51%48%

56%

39%39%45%

26%

38%34%

22%

37%41%

25%25%20%

15%

25%19%

13%

20%23%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Top 10 overseas countries

2008 2007 2006

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Local Enterprise Finance Scheme (LEFS) remains the most popular scheme but SMEs accessing down 10%

More SMEs accessing :

- Microloan (up 3%) - Loan Insurance Scheme (up 1%) - Internationalisation Finance Scheme (up 2%)

Start-up Enterprise Development Scheme (SEEDs) assisted 5% of respondents in Start-up stage

Low take-up rate (1%) for Internationalisation Finance Scheme (IFS) among those in Accelerating Growth stage

SME Development Survey 2008 - Financing/ Funding

53%

63%

53%

28%25%

28%

11% 10%

4%7%

5%2% 4% 3%

0%0%

10%

20%

30%

40%

50%

60%

70%

LEFS Microloan LIS IFS SEEDS

Government Funding Schemes

2008 2007 2006

External financing 2008 2007 2006 2005

Govt Funding Schemes 7% 10% 8% 6%

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Majority of SMEs are sufficiently funded

70% do not see the need to seek new financing in the next 1 yr

Among those who seek new financing, majority (60%) looking at >S$0.5m in new financing

SME Development Survey 2008 - Financing/ Funding

70%

2% 3% 4% 4%

18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

None <$50k $50k -$150k

$150k -$300k

$300k -$500k

>$500k

Amount of new financing required in next 1 year

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2 most prominent benefits reaped from technology innovation:

- Increased Productivity - Improved Cost Efficiency

Good opportunity to share with SME community especially since Improving Cost Efficiency will be adopted by 26% as top business strategy in the next 1 year

SME Development Survey 2008 - Information Technology & Innovation

Benefits of adopting technology innovation

%

Increase productivity 76%

Improve cost efficiency 59%

Widen range of products / services available

20%

Shorten turnaround 14%

Enhanced image/ reputation 13%

Widen market coverage 11%

Facilitate customization 7%

Majority reported an improvement in actual turnover or profit through technology innovation. No

20%Yes80%

Material impact of technology innovation adoption

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More than half of respondents plan to adopt technology innovation in the next 1-2 yrs

Among those who have already adopted technology innovation, a high majority (88%) plan to further embrace technology innovation in the next 1-2 yrs

Half of those who have not adopted technology innovation are considering making their first attempt in the next 1-2 yrs

SME Development Survey 2008 - Information Technology & Innovation

Technology Innovation

Planning to adopt in next 1-2 yrs

Yes No

Already adopted

88% 12%

Have not adopted

48% 52%

Overall 59% 41%

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SMEs have very little budget for technology innovation

51% who intend to adopt technology innovation in next 1-2 yrs do not wish to incur any costs on such adoption

Only 12% willing to spend beyond S$100,000 on technology innovation

SME Development Survey 2008 - Information Technology & Innovation

51%

26%

11%

6%

3%

3%

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

None

S$1 - S$50k

> S$50k - S$100k

> S$100k - S$300k

> S$300k - S$500k

> S$500k

Amount willing to spend on technology innovation

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SMEs are willing to invest in training

79% find it useful to send their staff for training

Majority looking for training to upgrade Technical / Job Related Skills

With more SMEs identifying Improve Customer Service as their key business strategy in next 1-2 yrs, Customer Service is the 2nd most cited area where training is needed

Note: Technical / Job Related Skills and Customer Service were not provided as options on last year’s survey

SME Development Survey 2008 - Training & Management Development

64%

35%25%

29%22%

27%

20%19%19%

20%14%

21%

8%

4%

3%7%

0% 10% 20% 30% 40% 50% 60% 70%

Technical / Job-Related Skills

Customer Service

Leadership & Mgt Development

Marketing & Advertising

Strategic Planning

Information Technology

Accounting & Finance

Human Resources

Corporate Governance

Policies, Law s & Regulations

Areas of training required

2007

2008

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Available training options may be limited for those who budget <S$100 per employee for training

Only 55% set aside training budget of >S$300 per employee

Respondents from Manufacturing have set a lower budget for staff training compared to other business sectors 34% not willing to spend >S$100 per staff

SME Development Survey 2008 - Training & Management Development

20%

25%

15%

25%

10%

3%

2%

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

< S$100

S$100 - S$300

> S$300 - S$1000

> S$1000 - S$2000

> S$2000 - S$5000

> S$5000 - S$8000

> S$8000

Dollar per headcount spent on training

46%

27%

14%

4%

9%

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

< 1%

1% - 3%

> 3% - 6%

> 6% - 10%

> 10%

Training budget as percentage of staff cost

Though SMEs are supportive of staff training, close to half (46%) set aside <1% of staff budget for training

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SMEs have demonstrated an improved credit risk profile

Increase in Investment Grade (DP1 – DP4) companies (Up 3%)

Increase in High Yield (DP5 – DP6) companies (Up 3%)

Drop in High Risk (DP7 – DP8) companies (Down 6%)

Distribution of Respondents by DP Credit Rating

SME Development Survey 2008 - DP Credit Ratings

DP Credit Rating

2008 2007 2006 2005

Investment Grade (DP1 – DP4)

17% 14% 20% 21%

High Yield (DP5 - DP6)

58% 55% 49% 47%

High Risk (DP7 - DP8)

25% 31% 31% 32%

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Recommendations

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• Strategizing for International Growth • Encouraging SMEs to collaborate and pool together their resources in bidding for

overseas projects.

• SMEs to Collaborate in Overseas Ventures • Assisting SMEs who are keen on internationalising to develop and implement a

sustainable overseas growth strategy.

• SMEs to Change Mindset on Technology as Investment & to Embrace Technology to Improve Cost Efficiency

• Encouraging SMEs to have a mindset change on technology (cost vs investment) & to embrace technology through greater use of managed or hosted services to improve cost efficiency.

• Banks to Review Evaluation of Innovative & Deserving SMEs • Reviewing existing lending criteria for innovative SMEs using DP Credit Rating.

• Groom present & future leaders among SMEs• Facilitating SMEs’ bosses and key managers in training and capabilities

development through greater funding support, customised curriculum and at flexible timing.

SME Development Survey 2008 - Recommendations

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Thank You

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SME DEVELOPMENT SURVEY CONFERENCE 2008

Wednesday, 15 October 20088.45am – 1pm NTUC AuditoriumNTUC Centre, One Marina Boulevard

Special presentations 1. Mr Sareth Menon, US State Representative from Pennsylvania

– “An Insight into American SMEs”2. Mr Terence Swee, Founder and CEO of muvee technologies

- “moving muvee” – home-grown technology company

Supported by SPRING Singapore, IE Singapore & EDC@SICCISponsored by HSBC

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Q&A