Despite the challenges facing Singapore businesses in an uncertain economic climate, nine in 10 businesses now recognize the importance of business transformation to maintain competitiveness and competency. Nearly two in three companies (66%) also view technology adoption as fundamental in transforming their businesses.
Internationalization has picked up pace among businesses, with SMEs (78% versus 68% in 2018) expanding overseas at a greater rate than seen previously. Eight in 10 businesses also reported having a presence overseas.
These were among the key findings in the Singapore Business Federation’s (SBF) latest National Business Survey 2019/2020. The annual survey, which was carried out from 26 August to 25 October 2019, drew responses from more than 1,000 companies across all major industries.
Business transformation now seen as critical
Nearly a decade after the Government began its push for companies to innovate, companies now view business transformation as critical. Nine in 10 (94%) Singapore companies acknowledged the importance of transformation to stay relevant and competitive (78%), and to improve business efficiency (66%), in the face of changing market dynamics. One in two (50%) also see business transformation as key to improving customer experience.
Technology continues to play a major role in transformation. While two in three (66%) believe that adopting new technology is fundamental to their own transformation and survival, the biggest roadblock is perceived cost (69%), followed by challenges such as training/adapting staff to use new technology (49%), and cyber security risk (40%).
Nevertheless, 27% of businesses saying they are optimistic about getting positive returns from their investment in digitalization and e-commerce transformation.
According to SBF CEO Mr Ho Meng Kit, “the shift in mindset is a big step in the right direction and we hope to see this increased awareness translate into action. The perceived high cost of technology adoption is a common misconception. Companies can start small, such as setting up a website or getting on social media.”
He also suggested investing in the existing workforce and developing digital talent internally though access to quality digital skills training, encouraging a company culture of continuous learning and providing employees opportunities to take on roles that are more valued-based and rewarding.
Uncertainties Not Stopping SMEs Expanding Internationally
Despite current economic uncertainties, Singapore businesses continue to venture out and expand overseas.
Eight in 10 businesses said they now have an overseas presence. Internationalization picked up pace particularly among SMEs (78% versus 68% in 2018). In comparison, 93% of large companies said they have expanded overseas (90% in 2018). Furthermore, 41% of businesses reported that more than half of their sales turnover originates from overseas.
Southeast Asia remains the most popular region for expansion, with 82% of Singapore businesses reporting a presence in the region. Malaysia (61%), Indonesia (48%) and Thailand (40%) are the three most popular countries, while China (46%), Japan (29%) and India (28%) are the top countries of interest outside of Southeast Asia.
Amongst companies with an overseas presence, 25% indicated that they grew in 2019. Companies point to increased demand for their products or services (98%), as well as the Free Trade Agreements (FTAs) that Singapore has secured with other countries (75%) as crucial to their overseas business growth.
SBF Chairman, Mr S.S. Teo noted that it is critical for Singapore companies to expand overseas to access new markets, diversify their supply chains and to support sustainable growth, given the limitations of Singapore’s small domestic market.
“It is encouraging that our SMEs are extending their global footprints more aggressively despite the economic uncertainty that shrouded 2019. The growing e-commerce and digital economy provide our businesses with new opportunities as they can expand into new markets with little to no physical presence,” said Mr Teo.
He also advised taking advantage of Singapore’s extensive FTA network, and highlighted SBF’s FTA advisory services for businesses.
Uncertainty Weighs on Business Sentiment
While Singapore companies embraced transformation and internationalization in 2019, business sentiment remained soft, as economic uncertainties took hold, partly in the shadow of the US-China trade dispute.
Over half of all businesses (51%) felt the Singapore business environment had worsened over the last 12 months. 49% anticipated a more challenging year ahead while 44% expected it to stay the same. There was also increased concern over the global economic climate compared to 2018.
Key concerns include increasing business costs (e.g. rental, raw materials, etc) (64%), rising wages (56%), the uncertainties created by the US-China trade tensions (46%) and China’s economic slowdown (42%).
Manpower Issues Continue to Frustrate Businesses
Although Singapore is now seeing the green shoots of business transformation across many sectors, talent remains a key challenge.
For businesses, the top three challenges are manpower costs (67%), business competition (62%) and finding new or better ways to grow revenue (56%).
Manpower issues appear to be multi-layered. While many businesses struggle with rising labor costs (78%), the dynamics arising from tighter government policies on hiring foreigners (48%), and the competition to secure the best local talent (44%) are putting real pressure on many companies. Four in 10 (41%) businesses also said they face challenges in attracting or retaining younger workers.
To mitigate these challenges, Singapore businesses are looking to invest in new systems or processes (25%) and investing in better training for existing employees (22%). To reduce their dependence on new hires or training, some businesses (19%), however, say they are turning to automation and technology.
Mr Ho added that SBF initiatives such as Beyond Lab and the SBF Business Institute (SBI) offer training and courses to address these concerns.
Wishlist for Budget 2020: Tax Rate Reduction & Tax Rebate
The sluggish economic climate has seen companies return to basics in their Budget wishlist for 2020. Both large companies and SMEs rank tax reduction (55%) and rebate (55%) as the top two priorities for Budget 2020. However, they are also keen to see support in other areas, such as easier access to information and resources from government agencies (49%), incentives for industry-related training (47%) and corporate venturing (47%).