PBA Expansion Cited in The Business Times

28 Dec 10

The Business Times article entitled "SMEs fear cost crunch after a good year", published on December 27, 2010, has cited PBA as one of many SMEs in Singapore undergoing business expansion in 2010 — 25 new staff have been hired, weekly training has been held and about $200,000 has been invested in new equipment.


SMEs fear cost crunch after a good year

Originally Published on December 27, 2010 The Business Times

By CHEN HUIFEN

[SINGAPORE] Small and medium enterprises (SMEs) in Singapore were in expansionary mood in 2010, but many will be approaching investments next year more cautiously and with a sharp eye on rising business costs.

Lawrence Leow, president of the Association of Small and Medium Enterprises (ASME), said 2010 was generally a good year for most SMEs here, with many investing in training, new hires, branding, new equipment and new branches in the past 12 months.
“This year, the government’s Budget actually encouraged companies to go into training, driving up productivity and all that,” said Mr Leow. “So I think that helps.”

Hock Lam Beef is one SME that has undertaken a number of expansionary measures. It invested in branding to refresh its look and give its brand a more distinctive positioning. “We’ve also opened our third store while exploring locations for a fourth store,” said the company’s Tina Tan. “In terms of service, we’ve begun to expand our middle management, aiming to improve service quality and customer experience in our restaurants.”

Over at precision bearings and automation firm PBA Group, 25 new staff have been hired this year, weekly training has been held and about $200,000 has been invested in new equipment.

Pu Tien Restaurant, meanwhile, ramped up its training, updated the facade at its main outlet and planned for an improved customer relationship management system, while opening its eighth outlet during the year.

“In 2010, we also implemented an ERP (enterprise resource planning) system to facilitate our supply chain function and maximise cost-efficiency and increase productivity,” said Pu Tien founder and CEO Fong Chi Chung.

While SMEs that BT spoke to said they would continue to seek growth next year, the mood is likely to be more subdued, given that inflation is expected to hit 2.9 per cent and GDP growth to moderate to 4-6 per cent. Rising rental rates for office and retail spaces is one of the key concerns.

“The rapidly rising positive sentiment, while having done its good part of raising hopes, has also brought rising costs to the forefront again, which will be a challenge to surmount for our businesses,” said R Dhinakaran, managing director of Jay Gee Enterprises. “The rising costs of doing retail business, including attracting and retaining scarce talent, will continue to be a challenge through 2011.”

Already, a June-August survey carried out by the Singapore Chinese Chamber of Commerce and Industry (SICCI) is showing the strain that rising costs pose. While 45 per cent of the more than 1,000 SMEs polled are seeing an increase in revenue, they are not seeing a corresponding increase in profit margins.

Only 34.6 per cent are seeing an improvement in profit margins, while 31.8 per cent said there is no change and 22.5 per cent are expecting a decline in profit margins. The finding underscores the rising operating costs and intense competition faced by SMEs here, according to SCCCI.

Apart from rents, SMEs will also be watching the costs of commodities, transportation and labour like a hawk.

“Keeping a close watch on our business costs will be high on our agenda in 2011 as price competitiveness is critical to the success of our business,” said Raymond Tan, executive director of Tan Seng Kee Foods. “Our concerns include the rising operational costs, mainly in staffing, rental and utilities. The tightening of the government’s foreign labour policies will also exert some pressure on SMEs, particularly one like ours which is a manufacturing concern, that is labour-intensive and operating almost 365 days a year.”

Industrial property firm Kingsland Development will be monitoring the price of crude oil.

“While there is a direct dependency between crude oil and asphalt cement, the relationship between crude oil prices and the costs of other construction materials – such as concrete cement, steel, as well as the cost of construction operations – is less direct, but equally important,” said Kingsland executive director Shann Sok. “In the most recent periods, the prices of asphalt and diesel fuel displayed volatility.”

With the cost of doing business set to go up next year, ASME’s Mr Leow is of the view that some companies may pursue productivity improvement strategies more enthusiastically or explore relocation options.

“If you have a situation where costs are certainly going up, then you must make sure that your output and growth are faster than your costs,” he said. “The other way is to relocate to a lower-cost area. I think companies have to really think of both methods.”