Top Challenges Faced by SMEs in Singapore

Singapore’s economy relies heavily on its small and medium enterprises (SMEs), which contribute nearly half of the nation’s GDP and employ approximately 70% of the local workforce. Over the past twenty years, Singapore has solidified its position as a thriving SME hub within the ASEAN community of ten member nations.

The number of businesses in Singapore surged from 273,100 in 2019 to 291,600 in 2021, with SMEs comprising 99% of this total. Among these SMEs, 80% are locally owned, while the remaining 20% are foreign-owned. These enterprises have played a crucial role in Singapore’s economic progress, fostering resilience and driving innovation through their characteristic agility, dexterity, and inventiveness.

In this blog, we will explore some of the challenges faced by SMEs in Singapore.

Limited Resources and Workforce for Expansion

One of the small business obstacles in Singapore is the acquisition of qualified personnel, staff retention, and handling expansion.

In Singapore’s competitive labor market, sourcing workers with the requisite skills and experience can prove to be challenging. This is particularly pronounced when seeking individuals for specialized roles, digitalization initiatives, or highly technical positions.

As your SME experiences growth, it becomes necessary to adjust your operational frameworks and infrastructure to accommodate the escalating demands. This transition can feel overwhelming, especially if you lack a seasoned team to guide you through the expansion process.

For SMEs, outsourcing certain functions such as accounting and finance operations, payroll management, and Human Resources through Professional Employer Organizations (PEOs) could present a more viable solution.

Rising Cost

Amidst the challenges posed by the pandemic, SMEs are grappling with the task of managing escalating costs. A study conducted in August 2022 highlighted a concerning reality: more than half of Singapore’s SMEs lack sufficient cash reserves to sustain operations for over six months.

This predicament is compounded by record levels of inflation and the looming spectra of a recession, coupled with the increasing prices of essential materials and utilities. Singapore’s relatively higher business operating expenses compared to its Southeast Asian counterparts further exacerbate the situation.

Industries heavily reliant on cash flow, such as the F&B sector, face heightened concerns. To navigate these turbulent waters, SMEs must explore strategies to enhance cash flow and trim expenditures wherever feasible to maintain competitiveness in the market.

Funding

Securing funding is also a pressing concern for many SMEs in the nation.

A study by a company called Mambu looked at over 1,000 SME owners worldwide and found that many SMEs in Singapore depend on their connections for money instead of banks.

The study found that a big 86% of SMEs in Singapore struggled to get the money they needed in the last five years. They faced problems like not having enough cash, needing to provide expensive things as guarantees, dealing with complicated paperwork, strict rules for getting loans and getting turned down because they didn’t have good business plans.

So, SME owners often use their own money or ask friends, family, or business partners for help to start or keep their businesses running. Banks haven’t been lending to them as much. Only about 29% of SMEs got loans from banks.

Even though SMEs play a big part in the economy, banks often don’t help them much because they think they’re risky or don’t have enough information about them. According to the International Finance Corporation, there’s a massive gap in funding for small businesses worldwide. They estimate it’s about US$5.2 trillion every year, with a lot of that needed in East Asia and the Pacific.

Talent Management and Retention

Retaining and managing talent is also one of the key challenges for SMEs in Singapore.

If the latest report from the World Economic Forum is to be believed, managing the workforce is going to be one of the biggest challenges for small and mid-sized businesses in the future.

Almost half of the people surveyed in their study (48%) said it’s tough to find and keep the right employees with the right skills. The report also mentions something called the “Great Reshuffle,” which means a lot of workers are quitting their jobs to find ones that fit them better. This makes it even harder for small businesses to find good workers.

Competition from Big Companies

Small and medium-sized businesses (SMEs) face tough competition from big companies. To stay in the game, they have to keep coming up with new ideas and offer special things that others don’t have.

In Singapore, there are lots of huge international companies, and more are coming. This makes it hard for SMEs to get noticed. To stand out, SMEs have to offer something different that people want.

It’s also important for them to create a strong image for their brand. Even though they’re smaller, SMEs can still do well by focusing on specific groups of customers. This way, they can compete better against the big players.

Supply Chain Problems

Small business owners in Singapore often face tough challenges with their supply chains. From getting raw materials to delivering finished products, every step can be tricky. One big issue is managing how much stuff to keep in stock – they need enough to sell, but not so much that they spend too much money.

It’s also important for them to keep good relationships with their suppliers and make sure things arrive on time. If there are delays or problems, it can slow down production and make customers unhappy. Talking and working closely with suppliers helps solve these issues.

Sometimes, unexpected things like natural disasters or problems between countries can mess up the whole supply chain. This makes it hard for small businesses to get the things they need to make their products. So, it’s smart to have backup plans and not rely too much on just one supplier or place.

The Bottom Line

From managing the workforce to securing funding and getting competition to limited resources, there are various challenges faced by SMEs in Singapore.

However, it cannot be ruled out that Singapore is one of the most fertile landscapes for businesses in the world due to infrastructure, connectivity, location, services like it maintenance services, services related technology and political stability. Therefore, while it’s true that many SMEs are currently facing difficulties, there’s reason to remain optimistic. As Singapore continues to evolve and adapt, measures will likely be implemented to address the concerns faced by small and mid-sized businesses.