Productivity push the top priority for SMEs in an uncertain 2020

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According to a survey by United Overseas Bank (UOB) conducted in late November 2019, there will be a focus among SMEs on boosting productivity as they grapple with a mixed business outlook in 2020. Digitalization, electronic payments and sustainability are among the other areas of focus for this sector.

For the 615 local SMEs that responded, after implementing productivity measures (51 per cent), their other top priorities for 2020 include reducing costs (43 per cent) and developing new sources of revenue (42 per cent).

SMEs’ emphasis on ensuring profitability is set against varying expectations for the year ahead. Just under half (46 per cent) of the 615 SMEs surveyed said they hold a positive outlook for their business for 2020. In contrast, one in three SMEs (31 per cent) said they have a negative outlook, while the remainder of SMEs are neutral.

The top concerns driving sentiment in 2020 are the continued slowdown in global demand (23 per cent), the impact of ongoing US-China trade tensions (18 per cent) and the strengthening of the Singapore dollar, which SMEs worry will impact their competitiveness (17 per cent).

When looking across sectors specifically, companies in the business services sector are the most optimistic about their outlook in 2020. This may be due to the positive growth they experienced in 20193. On the other hand, those in the wholesale and retail sectors have the least positive outlook, given the negative growth in the sector last year.

Mr Mervyn Koh, Managing Director and Country Head of Business Banking, Singapore, UOB said that the survey results indicate that factors such as trade tensions are weighing down on SMEs’ outlook.

“As such,” he continued, “they are focused on prioritizing productivity improvements for better performance against an uncertain macro environment. One of the ways SMEs are planning to achieve their productivity goals is to increase their investments in technology, which not only helps with increasing efficiency but also enhances their competitiveness in the long term.”

SMEs to continue to digitalize in 2020

The survey found that SMEs across all sectors are taking the need to digitalize seriously, with 65 per cent already using digital solutions in at least one area of their business. The processes which SMEs have digitalized include accounting (46 per cent), payroll (45 per cent) and marketing (38 per cent).

While good progress is already being made in the digitalization journeys of SMEs, 38 per cent said they would continue to digitalize more processes in 2020. The top three areas where digital solutions will be implemented are expense management (24 per cent), customer relationship management (24 per cent) and sales (23 per cent).

“We can see from the survey results that more SMEs have started integrating technology into their business, especially for internal processes such as accounting and payroll,” said Mr Koh.

“In particular, as SMEs increase the use of technology to digitalize their business processes, they should also consider electronic invoicing which provides an added benefit of helping the entire payments value chain. By doing so, businesses will not only become more efficient but also benefit from the ability to invoice their customers more quickly for better cash flow,” he added.

SMEs increasing their use of electronic payments this year

In the area of payments, 88 per cent of SMEs indicated that they plan to increase their use of electronic payments this year. SMEs that remained hesitant to using electronic payments indicated concerns such as acceptance from their customers or suppliers (33 per cent), the security of electronic payment services (33 per cent) and the need to provide their employees access to the account (31 per cent).

Most SMEs have yet to make plans for the planned GST increase

Despite most SMEs being aware of the planned goods and services tax (GST) increase to nine per cent between 2021 to 2025, less than half (41 per cent) have made plans to manage the increase. Small businesses, those with less than $20 million in revenue, said they are less prepared for the GST increase. Only 24 per cent reported they have started implementing measures such as investing in technology (66 per cent), raising productivity (64 per cent) and moving up the value chain (52 per cent).

“The measures chosen by SMEs to manage the anticipated increase in GST suggest that are looking for ways to mitigate the increase in costs without passing it on to customers. This will ensure that they remain competitive without jeopardizing customer loyalty,” Mr Koh said.

Sustainability on the minds of SMEs

SMEs (59 per cent) also said they were looking at how they could improve the sustainability of their business operations. This focus was given higher importance by those in the business services, info-communications and technology and transport and logistics sectors.

To enhance their business’ sustainability, SMEs indicated that they have either implemented or plan to incorporate the more efficient use of resources (47 per cent), clear operational policies and processes for better governance (43 per cent) and energy-efficient equipment and technologies (40 per cent) within their business operations.