31 January 2013
SMEs face challenge of slower growth in workforce
Wong Wei Han

SINGAPORE — With slower workforce growth in the long term and challenges to improve productivity in the near term, concerns are being raised that some small and medium enterprises (SMEs) here may struggle or even fail as they face mounting manpower issues.

Singapore’s workforce is set to grow by 1 to 2 per cent in this decade and 1 per cent between 2020 and 2030, according to the White Paper on population released on Tuesday, and these numbers may create a challenging environment for SMEs, said Mr Victor Tay, Chief Operating Officer of the Singapore Business Federation (SBF).

“A workforce growth of 1 to 2 per cent going forward is substantially lower than the 3.3 per cent we saw in previous decades. Without a sufficient inflow of foreign workers to fill their manpower needs, some SMEs will have difficulties to grow. We may also see the impact cascading to customer experience, leading to a deterioration in service quality.”And the worst-case scenario is that more SMEs will simply go out of business. “Already we had over 1 per cent of survey respondents — mostly SMEs — closing down last year due specifically to manpower constraints, according to our National Business Survey 2012,” said Mr Tay.

SMEs are the cornerstone of the Singapore economy: They employ seven out of every 10 workers, and contribute over 50 per cent of the national Gross Domestic Product (GDP), according to SPRING Singapore.

The constraints they face are unlikely to go away, with the Government set to continue limiting the import of foreign labour.And with two out of three Singaporeans expected to hold a PMET (professionals, managers, executives or technicians) job by 2030 — compared to about half today — businesses may find it even harder to address their non-PMET manpower needs.

“The next two to three years will be a critical period. As the supply of foreign workers continues to narrow, we believe that the number of SMEs closing down will increase if businesses can’t improve their productivity or restructure to move up the value chain,” said Mr Tay.

Similarly concerned about the workforce challenges, the Singapore Chinese Chamber of Commerce & Industry (SCCCI) yesterday said it hopes the Government will devise appropriate policies to ensure that “our local enterprises, especially the SMEs which form the core of the business community, could also sustain their growth over the long term.”

“We believe that the business community would still require a good number of foreign workers to fill positions for skills that Singaporean do not have and which are at the lower rung of the workforce … and allow Singaporeans to concentrate on upgrading themselves and move into higher-skilled occupations,” said the SCCCI.

Meanwhile, the Government is pushing for improved productivity to address the slowing workforce growth. It says that if productivity grows by 2 to 3 per cent in this decade, GDP could grow by 3 to 5 per cent. The White Paper described that productivity growth target as “ambitious”.

But limiting the inflow of foreign workers does not automatically mean productivity will improve, argued Mr Wei Chan, a council member of the Association of Small and Medium Enterprises. He is also Business Development Director of Pine Garden’s Cake, a micro-SME comprising two heartland shops with over 20 employees.

“The Government likes to equate low productivity to the usage of low cost foreign labour. But the truth is, despite the introduction of productivity schemes and the tightening of manpower policies, productivity has not improved at all, and the whole business community is crying foul that we don’t have enough people.”

Mr Chan also owns Baguette, a franchise business that sells Vietnamese sandwiches. In the past year, manpower concerns have forced two franchisees to give up. And as the inflow of foreign labour is set to keep shrinking, Mr Chan is warning that micro-SMEs like his are heading towards a “perfect storm”.

“What do we have now? A higher levy to hire foreign workers, high rental and manpower costs, a reduction of foreign worker quotas and artificially inflated salaries. These factors are going to leave micro SMEs no room to move forward.”

- Source; TODAY