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Producitivity Challenges of Small and Medium Enterprises
The document discusses productivity challenges faced by small and medium enterprises (SMEs) compared to large firms, including lack of financing, manpower, economies of scale, infrastructure, and bargaining power. It provides evidence that productivity is typically lower for SMEs and outlines some government programs in Singapore, such as the iSPRINT program, that aim to address productivity gaps by encouraging SMEs to adopt new technologies. The document was prepared by Frost & Sullivan, a growth consulting firm, for an unspecified public sector entity.
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Producitivity Challenges of Small and Medium Enterprises
- 1. 1Frost & Sullivan TheProductivity Challenge: Addressing Productivity Gaps between SMEs and Large Firms Vikas Sharma Director, Public Sector & Government Practice Frost & Sullivan, Asia Pacific Developed For:
- 2. 2Frost & Sullivan Weare a growth consulting firm with presence in over 40 countries worldwide Introduction to Frost & Sullivan Bangkok Kuala Lumpur Singapore Jakarta Mumbai Beijing Tokyo Toronto Frankfurt New York San Antonio Shanghai Sao Paulo Buenos Aires Sydney Paris London Milan Warsaw Dubai Mexico City Cape Town Bangalore Seoul Delhi Chennai Tel Aviv Bogota Calcutta Mebourne
- 3. 3Frost & Sullivan Ouranalysts and consultants provide coverage of over 200 industries Introduction to Frost & Sullivan Aerospace & Defense Automotive & Transportation Chemicals, Materials & Food Energy & Power Systems Environmental & Building Technologies Healthcare Industrial Automation & Electronics Information & Communication Technologies MarketEngineeringResearch EconomicResearch&Analysis TechnicalInsights FinancialBenchmarking&Analysis CustomerResearch GrowthWorkshops ExecutiveSummitEvents CorporateTraining GrowthConsulting Industry Practices Service Offerings Electronics & Security Measurement & Instrumentation Consumer Technologies Minerals & Mining
- 4. 4Frost & Sullivan Wework with public sector entities to create, improve, compare and measure initiatives Introduction to Frost & Sullivan
- 5. 5Frost & Sullivan Productivity= Output Input Common Measures of Output Common Measures of Input No. of employees Man hours Manpower Cost Capital Sales Revenue Value Add Production Volume Production Value Defining the mantra of business efficiency What is Productivity? GDP/Capita Vs. GDP/Hour
- 6. 6Frost & Sullivan Factorsthat influence Productivity What is Productivity?
- 7. 7Frost & Sullivan Purposesof Productivity Measurement What is Productivity? Objective TechnologyTechnology Real Cost Savings Real Cost Savings Benchmarking Processes Benchmarking Processes Living Standards Living Standards EfficiencyEfficiency Description • To trace technological progress. “the currently known ways of converting resources into outputs desired by the economy” • To measure the maximum output that is physically achievable with current technology, and given a fixed amount of input • Firms generally practice allocative efficiency, where resources will be channeled to maximize profitability • Measuring the absolute cost to produce one unit of product/service through the years • Comparing value-added for one industry vis-à-vis from other industries • Metrics used are consistent and resistant to change • Value add per hour worked, income per person as a unit of productivity
- 8. 8Frost & Sullivan SMEsare the growth engines of the economy, accounting for >99% of all establishments Importance of SMEs to the Economy Contribution to total GDP (%) Contribution to total Employment (%) With their ubiquitous presence across industries and integrated value chains, productivity improvements among SMEs will serve to drive value across the economy Across developed economies, SMEs account for the lion’s share of total employment and total GDP
- 9. 9Frost & Sullivan SMEsface some unique business challenges compared to larger firms Factors hampering SME Productivity SMEs face an uphill task obtaining access to credit due to a lack of collateral and inadequate documents/accounting knowhow to secure low- cost and long-term loans. This is worsened by the long turnaround time for the disbursement of loans, putting stress on their limited financial reserves. Legislation and complex processes serve as high barriers for small businesses that may not have the necessary knowledge to navigate in the system. Financing hurdles exacerbate a host of other problems including obstacles in building new capabilities through R&D to compete with larger firms, limited ability to expand operations or implement promising business ideas; as well as increase the firms’ vulnerability in the face of crises All SMEs face challenges attracting high-calibre skilled manpower without the remuneration packages and stability of career development offered by larger companies. Micro and young SMEs have an even smaller talent pool, with even more limited managerial capability and skill sets. An owner- manager will typically also have to fill most job functions. Lack of Financing Manpower Concerns 1 2
- 10. 10Frost & Sullivan SMEsface some unique business challenges compared to larger firms Factors hampering SME Productivity SMEs are simply unable to reach the operational efficiency reached by larger companies because they cannot access economies of scale. Inability to access Economies of Scale 3 SMEs are unable to invest in private infrastructure. If not situated in CBD, they may lose out on several facilities Lack of Infrastructure 4 In negotiating lending rates as well as terms of contracts, or in influencing policy change, SMEs have almost negligible bargaining power compared to larger enterprises Lack of Bargaining Power 5 Given the sheer size and age of larger companies, SMEs are unable to amass knowledge at a similar scale. This includes explicit knowledge as well as tacit knowledge, regarding procedures, systems (for various functions, or for data management) and industry experience. Additionally, SMEs lack available resources to engage consultancy services to make optimal decisions. Lack of Knowledge 6 It is difficult for SMEs to project their development over a long term period given their survival rate amidst tough competition. Decisions must always be made with a short-term perspective, which may not deliver best results Short-term Vision 7
- 11. 11Frost & Sullivan Evidencesuggests that when it comes to productivity – Size does matter! Factors hampering SME Productivity Industries / Size of Operating Receipt Food Services Biomedical Value Added Value Added Per Establishment ($) Per Establishment ESTABs with < $1m $122,050 $194,444 ESTABs with $1m - < $5m $723,589 $984,529 ESTABs with $5m & above $5,555,556 $17,021,277 Example 1
- 12. 12Frost & Sullivan Evidencesuggests that when it comes to productivity – Size does matter! Factors hampering SME Productivity Example 2 67 41 41 22 4449 245 102 123 143 Labour Productivity By Size and Sector (RM '000) SMEs Large Organisation At the aggregate level, large Malaysian firms exhibit >3 times productivity than Malaysian SMEs
- 13. 13Frost & Sullivan Evidencesuggests that when it comes to productivity – Size does matter! Factors hampering SME Productivity Example 3 At the aggregate level, large Canadian firms exhibit 27% higher productivity than Canadian SMEs
- 14. 14Frost & Sullivan Thereis a plethora of assistance schemes available in Singapore that target SMEs Addressing SME Productivity gaps “10 percent increase in number of staff using technology increases productivity by 1.3 percent” “ICT adoption in company’s process increases productivity by 12 percent” – OECD “10 percent increase in number of staff using technology increases productivity by 1.3 percent” “ICT adoption in company’s process increases productivity by 12 percent” – OECD Increased use of Technology, in particular, has been shown to drive productivity growth
- 15. 15Frost & Sullivan IDA’siSPRINT program is enabling SME productivity gains across industries Addressing SME Productivity gaps Retail Travel Food & Beverage SME success stories from various sectors
- 16. 16Frost & Sullivan AddressingSME Productivity gaps For Who? For Who? • All SMEs incorporated in Singapore • At least 30% shareholding is local • Annual group sales less than $100 million, less than 200 employees • All SMEs incorporated in Singapore • At least 30% shareholding is local • Annual group sales less than $100 million, less than 200 employees For What? For What? • To encourage the use of technology to improve business operations • Increase efficiency/productivity • Increase in revenue • Increase in value add • To encourage the use of technology to improve business operations • Increase efficiency/productivity • Increase in revenue • Increase in value add How Much? How Much? Packaged Solutions Customized Solutions Up to 70% of the qualifying cost: (a) basic package (b) SaaS (c) Immediate Packaged Solutions Customer Relationship Management, Enterprise Resource Planning, Supply Chain Management Software/Subscription cost, up to 12 months, Consultancy Services Training Consultancy Services, Manpower- Related Costs, Consultancy Services, Hardware/ Software, Training iSPRINT – Can I qualify? IDA’s iSPRINT program is enabling SME productivity gains across industries
- 17. 17Frost & Sullivan Frost& Sullivan Singapore 100 Beach Road #29-01/11, Shaw Tower Singapore 189702 Tel: +65 (0) 6890 0999 Fax: +65 (0) 6890 0988 www.frost.com Vikas Sharma Director Public Sector & Government Practice +65 91446844 vsharma@frost.com