If the experience of the past few years has proven anything, it is that the world is in for a long period of economic readjustment.
Since the global financial crisis of 2009, the world’s developed economies seem to have lurch from one crisis to the next. With this, the operating environment for many of Singapore’s small and medium sized enterprises (SMEs) has remained challenging.
With Singapore’s economic growth dependent on major global economies, it is almost inevitable that SMEs will have to navigate the uncertain economic environment and prepare for more economic volatility ahead.
This year, Singapore’s Budget 2012 also saw more regulatory changes first mooted in Budget 2011, imposing further constraints on labour. This has been a perennial problem for SMEs.
The Government has already announced some measures taking effect by July 2013, which will tighten the foreign labour quota to seemingly impossible levels for many local enterprises to operate.
SMEs will need to adjust their business strategies, build on existing strengths and develop new capabilities to compete effectively in this new normal.
Riding out a downturn
First and foremost, SMEs should consider how they can reshape their business in line with current economic conditions.
This does not necessarily mean cost reduction alone. Rather, there are three areas which enterprises should think about as they contemplate the issue. If we refer to this simply as the ‘three key Cs’, these would be credibility, cash and communication.
Enterprises should have a credible plan. This means that in the event of a downturn, they are well-prepared with contingency plans and alternatives. Credibility therefore means having realistic plans and forecasts for the business moving forward, and this is vital.
In such a scenario, cash is then ‘king’. This has always been the case but even more so now. Keeping adequate cashflow allows an enterprise to pay its bills and remain liquid to take advantage of unexpected opportunities, such as buying up an insolvent competitor or supplier if the time is right.
The last ‘C’, communication, is about avoiding future nasty surprises for your stakeholders, creditors, and employees. SMEs should take the time to communicate regularly with their stakeholders. This can serve as an invaluable means of market intelligence, giving the enterprise time to prepare for expected difficulties or to take advantage of opportunities.
The art of resilience
From our observation of the E50 winners, we are seeing a trend towards enhanced risk management practices which support business resilience. This is again crucial for SMEs if they are to ride out economic uncertainties.
To survive, SMEs must build a sound system of risk resiliency in its finances, operations and management of its people.
For example, financial resiliency is the ability of the company to safeguard financial resources to meet current obligations and capitalise on opportunities during times of crisis.
Enterprises should therefore consider implementing a sound and robust financial risk management framework. This means putting in place processes and monitoring the business for any warning signs that something has gone wrong with the financial health of the company.
For this to be effective, enterprise owners must also understand how tolerant of risks their enterprise is. They should then identify and manage the risks which are likely to jeopardise business operations.
In addition, SMEs must also look into their operational resiliency- their ability to respond swiftly to any external threats, as well as to maintain a high degree of operational effectiveness and efficiency.
Enterprises should therefore consider implementing a Business Continuity Management (BCM) framework. An effective framework should include structures, policies and processes to respond, recover and carry on business operations after any crisis while minimising disruptions and financial losses.
Last but not least, the most important component of a company is its people.
In uncertain times, human talent play an even more pronounced role in steering the enterprise safely through the storm. Enterprises therefore need to take a longer-term view to people management.
This will involve forging and reinforcing a strong and cohesive organisation culture. It also means ensuring that the business owners must communicate regularly and effectively with staff, regardless of whether the messages are positive or negative.
Seeking an alternative labour resource
Many enterprises in Singapore are currently struggling with foreign labour restrictions. However, they can consider seeking alternative sources of labour. This may include tapping on older workers, adopting flexible work arrangements or hiring contract staff to meet the labour shortage.
For this purpose, the Government is providing the Special Employment Credit (SEC) for the next five years to encourage companies to attract and retain older workers and graduates from the Special Education schools. This funding is given to companies based on the monthly wages of the employees.
Other tax concessions are also being provided, along with funding and grants, for those who are willing to make the transition- from relying on low cost foreign labour to the harnessing of technology, innovation and skills.
SMEs, more than any other types of companies, would do well to make full use of the incentives and grants the Government has to offer.
Our past Enterprise 50 winning enterprises understand that even though the economy may volatile, there are still new areas to pursue growth.
They take calculated risks and come up with innovative ways to enhance existing products, build new strategic relationships and seek new markets.
Therefore, enterprises that have diversified their range of products and services, and who have penetrated new markets early are more likely to survive.
Every economic downturn has an upside. To make the most of this upside, businesses must look for opportunities during the hard times and muster the courage to seize them.
This article is contributed by Mr Owi Kek Hean, Deputy Managing Partner and Head of Enterprise Services, and Mr Chiu Wu Hong, Head of Enterprise Incentive Advisory at KPMG in Singapore.