A recently published survey has shown SMEs in Singapore turning more towards domestic expansion in response to the continuing global economic downturn.

According to the DP Information Group's (DP Info) poll of more than 2,500 small and medium-sized businesses in the territory, foreign currency losses and a lack of confidence in the international economic situation have led to an increased focus on the domestic market, and a commensurate drop in the amount of overseas revenue generated.

Chen Yew Nah, Managing Director of DP Information Group observed that:

“SMEs have become cautious about the prospects of the global economy. This can be attributed to Singapore’s strong economic performance compared to the developed markets of Europe and US.”

She went on to add that:

“However it is important that in their efforts to grow their local customer base, they do not lose sight of where their long term future lies – in overseas expansion. While the focus of SMEs has switched to looking for opportunities in the safer surroundings of Singapore, a relatively high 29% still believe overseas expansion is a key strategy they need to pursue.”

Stressing the financial advantages enjoyed by SMEs with overseas operations over their purely domestic counterparts, the DP Info chief suggested that:

"It is too early to tell whether this shift to the domestic market will continue beyond the current period of uncertainty. Despite the global economic turbulence, more SMEs are citing overseas expansion as a key strategy (from 20% in 2010 to 29% in 2011). When the global economic outlook stabilizes, we believe SMEs will regain their thirst for internationalization.”

The survey results further suggested that increased investment last year in recruitment, training and technology was often financed by debt (with the increase mainly coming in the form term loans (with 47% of poll participants employing this financing strategy, up from 27% previously) and hire purchase/leasing (which showed an increase from 11% to 22%).

As a result of this, the finances of a significant number of the SMEs questioned by DP Info are in a "precarious" state. However, it seems that many are
taking steps to strengthen their balance sheet and improve their cash position.

The survey revealed that reducing spending is now a priority for 24% of SMEs and the number of SMEs that have stopped taking on new employees has more than doubled, from 21% to 44%. This is a reversal of the previous year's situation, where 45% of SMEs had intended to increase their permanent staff headcount.

SMEs reported that they are also seeking to reduce expenditure in the areas of brand building and advertising, training, and research and development activity, and would look to hire fewer, but more highly skilled workers. It also emerged that recruitment of personnel from overseas is slowing, although it was not suggested that this was happening as a result the ongoing programme of increases to the foreign workers levy.

Ms Chen explained that:

“There has been a turnaround in the intention of companies to hire more foreign
workers. Last year, when expansionary plans were being pursued and the manpower shortage was acute, 69% of SMEs were turning to foreign labour to fill the gap. This year only 29% of SMEs have plans to employ foreign workers in the next 6 months.”

And continued:

“The drop in SMEs hiring foreign workers was not triggered by the increase in the foreign worker levy. Among the 71% of SMEs that are not hiring foreign workers, the vast
majority (88%) said they had no requirement to do so. After a period of aggressive hiring, SMEs are now holding off on new hires until the economic situation becomes clearer.”