Productivity Top Priority for SMEs in 2020’s Uncertain Business Environment

January 14, 20202:51 pm313 views
Generic placeholder image

Small- and medium-sized enterprises (SMEs) plan to focus on boosting productivity as they grapple with a mixed business outlook this year, according to a survey 1 by United Overseas Bank (UOB). After implementing productivity measures (51 percent), their other top priorities for 2020 include reducing costs (43 percent) and developing new sources of revenue (42 percent).

Their emphasis on ensuring profitability is set against varying expectations for the year ahead. Just under half (46 percent) of the 615 SMEs surveyed said they hold a positive outlook for their business for 2020. In contrast, one in three SMEs (31 percent) 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 percent), the impact of ongoing US-China trade tensions (18 percent) and the strengthening of the Singapore dollar, which SMEs worry will impact their competitiveness (17 percent).

When looking across sectors specifically, companies in the business services 2 sector are the most optimistic about their outlook in 2020. This may be due to the positive growth they experienced in 2019. On the other hand, those in the wholesale 4 and retail 5 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, “Our survey results indicate that factors such as trade tensions are weighing down on SMEs’ outlook. As such, they are focused on prioritising 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.”

SME to continue to digitalise in 2020

The survey found that SMEs across all sectors are taking the need to digitalise seriously, with 65 per cent already using digital solutions in at least one area of their business. The processes which SMEs have digitalised include accounting (46 percent), payroll (45 percent) and marketing (38 percent). While good progress is already being made in the digitalisation journeys of SMEs, 38 per cent said they would continue to digitalise more processes in 2020. The top three areas where digital solutions will be implemented are expense management (24 percent), customer relationship management (24 percent) and sales (23 percent).

“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. In particular, as SMEs increase the use of technology to digitalise 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,” Mr Koh said.

SMEs increasing their use of electronic payments this year

In the area of payments, 88 percent 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 percent), the security of electronic payment services (33 percent) and the need to provide their employees access to the account (31 percent).

To help SMEs adopt electronic payments, UOB has launched solutions such as UOB mCollect, a QR- based collections solution that digitalises the cash-on-delivery model. With UOB mCollect, businesses will be able to collect payments from their buyers via PayNow at the point of delivery, helping them reduce the risk inherent in handling cash while also improving cash flow and productivity.

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 percent) 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 percent reported they have started implementing measures such as investing in technology (66 percent), raising productivity (64 per cent) and moving up the value chain (52 percent).

“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 jeopardising customer loyalty,” Mr Koh said.

Sustainability on the minds of SMEs

SMEs (59 percent) 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 percent), clear operational policies and processes for better governance (43 percent) and energy-efficient equipment and technologies (40 percent) within their business operations.

Read also: New Year, New Job? Try Your Luck at SMEs