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SMEs Flourish Despite Economic Downturn By Aekapol Chongvilaivan For The Business Times, Dated 3 November 2009 THE little guys got hit the hardest by the global economic unrest. So says public perception. But evidence shows that small and medium-sized enterprises (SMEs) have not only been resilient in the global economic hardship but have also helped Singapore set the stage for a full recovery. It is generally believed that an SME is weaker than a larger company. Given the relative importance of SMEs to Singapore's economy, entrepreneurs and practitioners are concerned that SMEs will lose out to bigger players, thereby undermining the country's competitiveness in the global market. Optimistic outlook However, recent evidence paints an optimistic picture of the business fortunes of SMEs, which have by and large been a key engine of Singapore's economic growth. The latest survey done by the Singapore Department of Statistics indicates that 99 per cent of firms in the Republic are SMEs. They account for approximately 60 per cent of total employment and generate 49 per cent of total value-added. According to Doing Business 2010, released recently by the World Bank, for the fourth straight year Singapore tops the global ranking on the ease of doing business in 183 economies even though it has slipped into its worst recession and undergone the deleveraging process by multinational enterprises and foreign investors since late 2008. The seventh annual SME development survey conducted by DP Information Group substantiates the upbeat findings that 78 per cent of SMEs in Singapore remain confident of their ability to cope with the economic slump, notwithstanding their slower sales and sweeping pressure from competition, among other bad economic conditions. The Swiss Re Survey of Risk Appetite: Asia Pacific 2009 says that Singapore SMEs are among respondents willing to take risks for growth even in the midst of financial distress and escalating business uncertainty. Institute of Southeast Asian Studies, 30 Heng Mui Keng Terrace, Pasir Panjang, Singapore 119614. E-mail: email@example.com. Telephone: (65) 6778 0955.Fax: (65) 6775 6264. Web: http://www.iseas.edu.sg/ Among other examples is food and beverage franchise BreadTalk. It announced that its net profits in the second quarter of 2009 were up 3.4 per cent, reaching $3 million, with double-digit revenue growth across all product segments in spite of the tough business environment around the corner. The buoyancy of SMEs in a sharp economic contraction is not new. Existing studies highlight some key attributes that explain their exceptional ability to bust economic cycles. First, and perhaps most important, several cross-country, cross-industry studies found that in contrast to large enterprises, SMEs would be typically less likely to retrench employees in a recession. Cushioning stocks SMEs offer a natural cushion against downside shocks that emanates from their relatively intensive human capital investment in more general and more adaptive skills training such as communication skills and computer literacy. In this sense, SMEs encountering hard times are inclined to switch job functions rather than cut back employment. Additionally, the proliferation of SMEs in the high-income economies, including Singapore, serves as an employment safety net against the unemployment spikes caused by big business shutdowns. A study undertaken by the International Labour Organization shows that, against the backdrop of the global economic crisis, a considerable number of workers laid off by large firms were absorbed by either existing SMEs or start-ups. Last but not the least, SMEs are on average more innovative than their large business counterparts. Recent research reveals that the number of product patents belonging to SMEs on a per employee basis is double that of large companies. The ability to rope in innovation and know-how allows them to remain competitive in the markets and thrive on lower production costs and higher value-added. Even though the long-term business outlook is rather good amid signs of the economy turning around, it has been acknowledged at the 16th Apec SME Ministerial Meeting that some major short-term challenges continue to face SMEs in Singapore, including tighter credit constraints on top of inadequate access to external financing and foreign markets. 'Most of the financial institutions would favour large companies, and so when you have a financial crisis and economic crisis, the SMEs tend to suffer more,' said Lee Yi Shyan, Minister of State for Trade and Industry and Manpower. SMEs as the powerhouse of the Singapore economy stand in good stead to weather the global economic storm and potentially help buffer the domestic economy during a sharp global depression. Every effort must be made to prioritise SME-promoting policies that unwind credit restraints and enable them to tap new business opportunities arising from new markets and innovations. The writer is a fellow at the Institute of Southeast Asian Studies
"SMEs Flourish Despite Economic D"