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Singapore’s SMEs plan to expand their operations and increase their sales during the next six months, according to the latest SBF-DP SME Index. With the majority of SMEs expecting to enjoy business growth between April and September 2011, they are now looking at ways to increase their capacity – either through hiring more staff or increased capital investment.  Compared to the previous quarter, the sustained optimism of SMEs is now more likely to result in new jobs and new spending.

The SBF-DP SME Index is a joint initiative of the Singapore Business Federation (SBF) and DP Information Group (DP Info).  The Index is a forward-looking measure of SMEs’ sentiments for the upcoming six months.

“SMEs are telling us they intend to be busy during the next two quarters.  All sectors are expecting increased sales, with the Index indicating the Service sector to be the most aggressive in pursuing expansion, closely followed by the Manufacturing sector.  Services companies are the most likely to make new hires during the next six months,” says Chen Yew Nah, Managing Director of DP Information Group.

"The enhanced Productivity and Innovation Credit (PIC), announced in the 2011 Budget, appears to have had the desired effect with more industries contemplating increasing their capital investment expenditure.  The Services sector is the exception as its growth strategy appears focussed on new hires,” Chen adds.

According to Victor Tay, Singapore Business Federation Chief Operating Officer, increased sales did not translate into higher profit margins, as they were moderated by rising costs and inflation. As such all SME sectors leveraged on business expansion as an essential strategy to cover the top line.

The Services sector showed an assertive expansion plan fuelled by growth in human capital. However, the services sector is still lagging in capital investment to automate manual processes. "The productivity mindset has yet to take off within the Services SMEs community," adds Tay.

Turnover

Expectation of higher sales during the next six months has increased across all four industries.  The commerce sector saw the highest change in SMEs anticipating positive turnover growth in the next six months  from a score of 5.21 in 4Q10 to 5.50 this quarter, driven by the positive outlook of SMEs in the solid/liquid/gaseous fuels and computers/IT/ Telecom/ Office Apparatus industry sectors.

Profit

Profitability expectations for the next six months is the one area where SMEs are less positive than the previous quarter.  Across all sectors, SMEs are feeling the impact of higher business costs and more foresee constraints in their profit growth.  Cost pressures are coming from a range of sources including higher raw material and commodity prices, as well as the increased labour and utility prices.

In the Services sector, profit expectations fell slightly from a score of 5.59 to 5.47.  With its high demand for manpower and the current tight labour market, the increased costs of hiring staff may have adversely impacted their sentiments on profitability.

Business Expansion

The Index indicates that SMEs in the Manufacturing, Services and Transport Storage sectors all plan to expand their operations during the next two quarters.

Compared to last quarter’s Index, SMEs in the Manufacturing, Services and Transport/Storage sectors have a higher expectation that their businesses will grow during the next six months.  The Commerce sector’s expansion outlook remains the same as the previous quarter – but still indicates they expect to grow.  The Services sector continues to be the most committed to expansion, with its score increasing from 6.32 to 6.56.

Hiring

Given the anticipated pick-up in business activity and sales, all four industries have indicated they are now more likely to engage new staff in the coming six months.  Services recorded the highest Hiring index score of 6.02 as their turnover growth is more closely linked to a greater need for more manpower.

Manufacturing employment is expected to increase at a slower rate due to a moderation in the growth of this sector.

Capital Investment

The next six months’ outlook for capital investment has seen a sharp turnaround this quarter.  The trend in the last quarter of 2010 was towards lower levels of capital expenditure.

The Transport/Storage sector stands out as the most committed to new capital expenditure over the next six months.  The areas where they are looking to invest are in IT systems, machinery and equipment.

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