Singapore SMEs are struggling to meet customer needs, according to a study conducted by Aon, a global professional services firm providing a broad range of risk, retirement and health solutions. Aon Inpoint’s 2019 SME Insurance Survey incorporates insights from over 300 SMEs in Singapore.
Failure to innovate tops the list of risks faced by Singapore SMEs. The adoption of technologies such as Artificial Intelligence, drones, and advanced robotics have made SMEs vulnerable to new threats. With the speed of change in the global economy, these risks are becoming more unpredictable and SMEs find it difficult to prepare for them.
In addition, there is a clear link between the failure to attract and retain top talent and the ability to deal with increasing competition. Workforce shortage is another risk as organisations look to fuel growth through people. This becomes more pronounced as companies strive to hire high performers and strike a balance between local and foreign talent.
In an interview with SME Horizon, Andrew Hare, Managing Director, Asia, Aon Inpoint discusses the risks and puts forward recommendations on the right approach in dealing with these risks.
Can you shed some more light on each of the risks and its impact on local SMEs?
Aon’s research identifies that several of the top 10 risks that SMEs face in Singapore relate to their ability to compete successfully in an increasingly challenging business environment.
We see lack of funding as a major challenge for SMEs to adapt and innovate to meet evolving customer demands. In addition, our research identified increased competition for talent and workforce shortage as important risks faced by SMEs in Singapore. The ability to attract and retain suitable talent is paramount to the growth and competitiveness of SMEs. From a scalability perspective, many SMEs have limited resources. It is difficult for business owners to find time to consider and implement new ideas beyond managing the challenges of the day-to-day businesses.
At the same time, we see that SMEs in Singapore have demonstrated increased resilience relative to other countries and regions. SMEs account for around two-thirds of all employment and contribute just short of $200bn to the Singaporean economy. We also see the importance of the SME segment increasing within the Singaporean economy over the past years- a trend we do not necessarily see in other regions where larger corporations are increasingly dominant. From our analysis, we believe Singapore SMEs are relatively more successful in innovating and adapting to change, although contending with the accelerating speed of change is increasingly difficult within a limited domestic market.
At the same time, it is interesting to observe that – despite a stable number of SMEs – there is a high frequency and turnover both entering and exiting the market in Singapore. The SME market is in a constant state of flux and evolution, which is a fact hidden behind the aggregated numbers
At a time when SMEs need to adopt newer technologies to keep pace, your study has indicated that it is tech adoption that makes them vulnerable. Please comment.
The world of technology is changing at an unprecedented pace. For example, computer processing speed doubles roughly every 18 months. In parallel, today’s consumers are a highly connected one. With over 6 connected devices per individual by 2020 and people spending more than 6.5 hours on mobile devices daily (Global Digital 2019 Reports), they are used to a consumer grade experience. This creates challenges for SMEs who do not typically have the resources or required scale to keep up with this everchanging business environment.
The second element that can add to SMEs tech-vulnerability is the increasing threat of cyber-attacks which can severely disrupts businesses. Our survey indicates that the loss of intellectual property or data is a top 10 risk for SMEs in Singapore. Currently, however, less than 10% of SMEs are covered by a cyber insurance policy. At the same time, SMEs tend to be less prepared for cyber-attacks than larger firms. In fact, around 25% of all surveyed SMEs stated they would like to understand more about their exposure to cyber risks.
However, SMEs are often able to operate with greater agility and flexibility than larger firms, which offers them a competitive edge. We often observe the implementation of policy and regulatory change can often take significant time and investment in large corporations with complex organisational structures or legacy systems. In contrast, SMEs can adapt quickly to the changing working environment and are often more willing to take a ‘test and learn’ approach when developing new products/solutions. As a result, we regularly see SMEs who are both flexible and strategic, growing by leaps and bounds.
The second area of opportunity we see is, increasingly, SMEs can be superior at winning the hearts and minds of consumers relative to larger corporations. There is an ongoing trend that consumers are becoming more community- and socially-conscious and want assurances their dollars spent contributes to their local community and economy. For example, millennials often prefer going to their local independent coffee shop over going to one of the international chains.
Singapore also has a strong SME ecosystem underpinned by government support, flourishing business investment, mentorship of large corporates and cooperation between SMEs. SMEs should leverage the resources available and collaborate further to create a more thriving and innovative environment. In summary, we believe SMEs are going to play an increasingly important role in the new global economy and the resilience – and future opportunity – of the SME market in Singapore is a great example of that.
Any recommendations on the right approach for SMEs to take while dealing with these risks?
At the heart of Aon’s work is our mission to empower economic and human possibility, and through our broad range of risk and talent solutions we strive to empower organisations – large and small – to take risks in ways that create economic growth and empower results. Applying this specifically to the SME segment, we believe SMEs have three key areas to consider:
Firstly, insurance plays a critical role in providing peace of mind and empowering SMEs to focus on the key priorities of growth and innovation. The impact of a financial loss can be devastating to an SME – so ensuring the optimal coverages are in place to protect against exposures such as Property Damage and Employers Liability is critical.
Secondly, workforce shortage is ranked as a top risk. A structured talent management plan can help to mitigate against this. For example, Aon supports SMEs by enabling them to attract and retain top talent and ensure future growth and competitiveness. Our Talent and Reward consultants work with organisations to ensure total reward structures (including salaries / benefits) are optimal, managed efficiently and competitive to the wider market. Furthermore, we are working with many clients to support and promote employee wellness programmes.
Finally, cashflow and liquidity risk ranked as a top 5 risk can also be mitigated with the help of credit solutions. For example, Aon’s Credit Solutions offers Trade Credit insurance, Surety, and Bonds to ensure SMEs have sufficient balance sheet and cash flow protection. In addition, SMEs in their growth ambitions can look for M&A solutions around Due Diligence and Transaction Liability Insurance.