Voice of Small and Medium Enterprises

Thank you, Sir. In Mandarin, please.

(In Mandarin): [Please refer to Vernacular Speech on Pg 1182-1185.]  Mr Speaker, Sir, fellow Members of Parliament, good afternoon! Firstly, I would like to declare that I am the President of the Singapore Chinese Chamber of Commerce & Industry (SCCCI) and Managing Director of Pacific International Lines. Of late, Singapore's SMEs have once again become a focal point among social circles and sparked off much discussion everywhere. I have heard and seen much in relation to this. These few months, I have been in contact with many interest groups getting their feedback. Therefore, today, I still want to dwell on the voice of SMEs, to articulate their predicament and their aspirations.

We understand and support the Government's view that there is no turning back on the tightening of the foreign worker policy and that SMEs should adopt innovative and productive measures to develop. However, increasing productivity is a long-term and continuous process, especially for the labour-intensive industries; it cannot be rushed and needs time to be refined and improved.

This year, local SMEs face many challenges, both internally and externally. The global economy is experiencing a slowdown, and is bordering on the risk of a double-dip recession. Businesses are facing concurrent pressures of low growth and high inflation, making the problem even more severe. The overall situation has become even more arduous. There are four main factors. First is the manpower problem; given the difficulty of hiring Singaporeans and the tightening of the foreign manpower quota, the labour shortage has become even more acute. Second is soaring rentals, driving up business cost. Third is Government assistance schemes. Although quite a few have been amended and improved, the qualifying conditions and criteria are difficult to administer and thus not many tend to benefit, in particular the SMEs. Fourth is the impact on society of vanishing traditional trade and business.

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Firstly, allow me to cite two examples on the manpower problem. Zero Spot Laundry Service Pte Ltd is a laundry service established for more than 20 years and an SME with almost 300 workers. Its clients range from five-star hotels, garment companies and the healthcare sector. Business is fairly good. Local employees operating the laundry machines are between 40-60 years of age. Within the past year, with the tightening of the foreign manpower policy, they had to reduce their workforce by 40 workers, and is now facing a dire shortage of workers handling the operations.

They have tried all alternatives, but are still unable to recruit Singaporean workers. The company's future expansion plan has to be put on hold. The first thing they need to deal with is to restructure the company and reduce the impact due to manpower shortage. Currently, Zero Spot is restructuring its business model, including plans to move part of its operations to neighbouring countries, and actively training its workers to adapt to the change. However, Rome was not made in a day, and the process of restructuring and change needs time. Results cannot be seen in the short term.

Another case study is Katong Flower Shop. Being a partner of National Parks Board, it sponsored the training programme to recruit five local Singaporeans and sent them for training at National Parks Board. When the training concluded, none had taken on the job. The reason given by the trainees was that they did not like the working environment because they had to be exposed to the sun and needed to move heavy objects.

Ever since the Government started to implement the tightening of its foreign worker policy, the impact has not really been felt by large enterprises, high value-added and new industries. However, the home-grown SMEs, especially in the service industry, have been badly affected by this policy, and have been hard pressed for changes!

Last month, the Ministry of Manpower published the foreign worker statistics. As of June 2012, foreign workers holding Employment Passes increased by 22,600 compared to November 2011, and S-Pass workers increased by 14,200. We found this rather bewildering. SMEs have been raising grouses about the inability to recruit foreign workers, but the statistics revealed by the Ministry of Manpower showed that, in fact, there has been an increase in foreign workers. Then, how do we account for the decreased number of foreign workers in the service sector?

Secondly, on the soaring rentals. Although this has always been the case, increase in recent shop rentals has been huge, rentals and prices of industrial space have likewise increased, REITS have driven up commercial rentals, and these have all become the bugbear of the SMEs with a grave impact on their ultimate survival. Recently, SCCCI interviewed Kenny Leck, the owner of an independent local bookstore located in Tiong Bahru called BooksActually. According to Kenny, he started his bookstore in October 2005, and his first location was at a shophouse at Telok Ayer Street. His bookstore had to move four times within seven years, and each time it was due to rental increase. The lease is up for renewal next February, and the rental which is under negotiation is likely to go up substantially. But Kenny has accepted this reality and hopes he does not have to move again. BooksActually does not employ any foreign workers. All its employees are Singaporeans. Three are full-time staff, while four or five are part-time workers. Last Thursday, I spoke to Kenny on the telephone, and really appreciate the fighting spirit and positive attitude of this young entrepreneur. I wish him all the best and that his business will grow from strength to strength. But how many micro-enterprises can be as resilient as Kenny?

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According to the feedback from the Restaurant Association of Singapore, the rapid rise in rentals is related to the "innovating" of rental structures, and setting such benchmarks are led by the large property developers and Real Estate Investment Trusts (REITs). Whereas in the past, rental used to be a flat base rate, it now also comes with a percentage of Gross Turnover. If business is good, it would attract a higher rental, and moreover, increases can be expected every year. Upon renewal of a lease term, some rentals have increased by 80%, and some landlords impose a mandatory renovation to the tenanted space, or even give a six-month notice for the operator to vacate, should they make asset enhancement plans, often without compensation to the operator. Restaurant operators have to face escalating rentals, amidst the pressure of rising wages; these are all challenges difficult to surmount.

Thirdly, the practicality of the Government assistance schemes. As a means to help the SMEs, the Government has pushed forward many Government assistance schemes, hoping to use innovation and productivity to help in the restructuring of enterprises. However, the application for the schemes is not an easy task at all for small companies.

A pastry manufacturer in Bedok Industrial Park had applied for the Productivity and Innovation Credit (PIC) to buy equipment, but hit a brick wall on its application. The reason was that the pastry making machine did not come under the automation machinery allowed under the PIC scheme. A restaurant also wanted to buy a dish-washing machine, but was also unsuccessful because it did not come under the approved list.

In reality, a simple tool, or a suitable piece of equipment, would be able to help to improve productivity of an SME. Even if the purchase of expensive automation equipment can be subsidised through a Government assistance scheme, some micro-enterprises may not be able to afford such a capital expenditure.

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The Government has tried very hard and invested much effort into designing many assistance schemes for enterprises. But what actual results have been achieved? If the carrots are hung too high up, rabbits are unable to consume them. According to a survey jointly conducted by the SCCCI and NTU, 93% of respondents understand the importance of innovation, 62% of respondents reported not being able to find suitable schemes and thus are unable to apply, while 32% of the companies surveyed said that the application procedures of Government assistance schemes are very tedious and burdensome.

Fourth, on the matter of vanishing traditional trade and business. I believe we should not view our SMEs purely from an economic standpoint. SMEs play an important role in maintaining our community's social cohesion. Not long ago, Turtle House Original which had a 50-year history of business operations in Geylang ceased operations. At the end of last month, 36-year-old Soon Heng Restaurant, which sold fish head curry, also closed its doors. These local dishes are an integral part of the collective memory of many Singaporeans. The disappearance of these uniquely Singapore trademarks which help build a sense of identity and belonging among Singaporeans will have a great impact on our social cohesion and be a tremendous loss to the community.

Given our strengths as an advanced and thriving player on the international stage, Singapore has always been regarded as a preferred location by MNCs. In the latest Global Competitiveness Report published by The World Bank, Singapore has retained its ranking as the best business destination for the 7th consecutive year. Last month, HSBC also announced the results of a survey on expatriates, indicating that Singapore was the most favoured destination for foreign professionals. Besides the good work of the Singapore Government and a pro-business environment, this can also be attributed to the support provided by Singapore's SMEs. The Singapore SMEs support the large companies in the value chain and contribute to the comfortable and vibrant lifestyle of foreign talent, making Singapore one of the most liveable cities. Thus, when we look at "BIG", we cannot neglect the "SMALL".

On 29 September this year, Prime Minister Lee Hsien Loong said at the 80th anniversary celebration of the Singapore Manufacturing Federation that SMEs are important to our economy. If SMEs' development falls into the doldrums, the whole enterprise eco-system would be affected and, ultimately, this would have an impact on Singapore's overall business environment. If that happens, will Singapore continue to be the choice destination for MNCs and expatriates?

As 2012 draws to a close, I would like to express three wishes on behalf of the business community. Firstly, the rate at which the foreign worker policy is tightened needs to be slowed down in order to give businesses some respite. Given the stringent control of the inflow of new foreign workers into Singapore, businesses hope that the Government would take a discretionary approach in handling the renewal of existing foreign work passes and not be too hasty in curtailing them. According to statistics provided by the Ministry of Manpower in October, Singapore's unemployment rate was 1.9% in the third quarter of the year. With the country nearing almost full employment, it will become increasingly difficult for SMEs to hire local employees. Based on my understanding, the food and beverage industry is facing a shortage of up to 3,000 workers. In particular, there is an urgent need for workers during the coming busy festive periods, such as Christmas, New Year's Day and Chinese New Year. I sincerely request that the Government reassess the manpower needs of the various industries, including the need for foreign labour, if the situation permits.

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Secondly, businesses hope that the Government can assist in alleviating the pressure of rising operation costs, particularly with regards to skyrocketing shop and factory rentals. The Government could consider assisting SMEs by providing rental subsidies. This would fulfil the needs of promising SMEs with the potential to grow and develop.

Thirdly, we hope that there can be a review of the criteria of grants offered by Government Ministries and agencies, based on the actual needs of SMEs and provide the most appropriate and practical assistance. If the barriers are set too high, SMEs would not stand to benefit. We also hope that Government agencies could strengthen its faith and trust in SMEs.

SMEs make up 99% of our country's enterprises and provide 70% of employment. If SMEs fall ill, many others will be afflicted. Singapore's inflation rate reached 4.7% in September, and commodity prices have increased, leading correspondingly to a higher cost of living, increased wages and greater pressure on our SMEs. This will have a negative effect on the rate of Singapore's economic development.

There is a Chinese adage that says we will overcome all obstacles no matter how challenging the years are. I believe that we will prevail over our difficulties if the tripartite partnership of workers, employers and the Government can unite and work hand-in-hand with one another, and we need to have more bosses like Kenny Leck with a remarkable fighting spirit! Hence, I sincerely hope that the Government will take into greater consideration the situation of SMEs in Singapore in Singapore Budget 2013. At the same time, we also hope businesses will have the courage to embrace innovative solutions and adopt a spirit of inclusiveness to overcome their challenges together.

Tomorrow, our fellow Indian Singaporeans will be celebrating Deepavali, the Festival of Lights, and I would like to take this opportunity to wish all fellow Indian Singaporeans a Happy Deepavali. And my wish for all Singaporeans is to overcome all challenges! Deepavali Warthakkal!

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Mr Speaker, Sir, I would like to thank Mr Teo Siong Seng for introducing this Motion. Indeed, SMEs are a lifeblood of our economy. Although individually small, they are collectively a very key part of our economy. Our growth is closely tied to the success of our SMEs. Our goal is to have a vibrant, resilient and innovative SME sector. My Ministry and the other Government agencies pay close attention to the needs and challenges faced by our SMEs.

Recently, as Mr Teo pointed out, some SMEs have expressed concerns about the cost of doing business here, particularly increasing rental and manpower costs. Overall business costs have indeed risen in Singapore. The Unit Business Cost Index for the manufacturing sector increased by 4.6% in the first half of this year compared to a year ago. Given our size, the stage of our economic development and the aspirations of Singaporeans, we cannot expect to compete on costs. Indeed, we must compete on value and develop new markets for our exports. We monitor our international competitiveness very closely.

Mr Teo expressed concerns about rising rentals for commercial space. While commercial rentals have increased since 2010, the increase has been moderating since the beginning of 2011. Commercial rentals remain below the previous peak in mid-2008. Our objective is to maintain a stable and sustainable market where rentals are competitive and affordable for businesses. We do so by injecting adequate supply of commercial space to meet the medium- to long-term demand. MND had earlier announced that based on committed projects we will have about 200,000 square metres of new office space and 90,000 square metres of new shop space per annum over the next five years. This is higher than the historical demand of 140,000 square metres for office space and 70,000 square metres for shop space over the last five years.

Mr Teo also spoke about rising manpower costs and difficulties in applying for and renewing work passes. To give our businesses ample time to adjust, the Government has since three years ago signalled the need to tighten the inflow of foreign workers. In fact, MOM announced a two-year schedule for foreign worker levy increases in Budget 2010. The qualifying criteria for the Employment Pass and S-Pass have also been raised. Earlier this year, Deputy Prime Minister Tharman also announced the tightening of the dependency ratio ceilings. We have to manage the pace of manpower tightening carefully to make sure that the changes are gradual and companies have enough time to adjust and that it strengthens our competitiveness, and does not stall growth. In short, we need to re-position ourselves for the future. We need to usher in a new phase of productivity-driven growth.

To do so, the Government has established the National Productivity and Continuing Education Council (NPCEC) to champion and coordinate our productivity efforts. Already, $950 million of the $2-billion National Productivity Fund has been committed to support a wide range of productivity measures. These include the 12 sectoral maps jointly developed with the key stakeholders, including companies themselves. We are encouraged by the fact that many companies have come forward to participate in productivity improvement initiatives. One example is Lintec Engineering. Established in 1988, Lintec has grown to be a firm specialising in oil and gas engineering, welding and repair. Leveraging on SPRING's Technology Innovation Programme, Lintec developed a fully-automated robotic welding system for repair jobs. Because the system runs completely unmanned, welding control personnel are now able to concurrently perform other tasks. The automation has led to faster and higher quality welds with less consumables used. Overall, the firm raised its labour productivity by 300%.

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Recently, SPRING and IE Singapore have also raised their grant support level from 50% to 70%. SMEs can make use of the programmes to build new capabilities in many areas – process automation, IT adoption, product branding, service quality development, human resource development, and export market development. The programmes are flexible and can be customised to meet the specific needs of the individual SMEs.

We agree with Mr Teo's emphasis for our assistance programmes to be user-friendly. Currently, our agencies use a number of in-person and online channels to cater to the different needs of SMEs. The channels include public seminars and workshops as well as the EnterpriseOne portal and call centre to assist SMEs in the enquiry and application process. In addition, we also partner trade associations and chambers to reach out to their SME members.

In 2011, the five enterprise development centres assisted more than 12,000 SMEs, 14% more than the year before. In all, SPRING and its partners served more than 112,000 SMEs in 2011. But we want to do better. My colleague, Minister of State Teo Ser Luck, is currently chairing a review effort to ensure that our strategies, schemes and programmes remain SME-friendly. The review will consider ways to streamline existing schemes and simplify application processes and reimbursement procedures. Minister of State Teo will announce the recommendations when ready.

Mr Teo Siong Seng also highlighted that some SMEs have faced difficulties in claiming under the Productivity and Innovation Credit (PIC) scheme as their equipment do not fall within the list of the equipment approved. Besides the approved list of equipment, companies can also apply for PIC for their equipment on a case-by-case basis. Where shown to be helping in work processes and improving productivity, IRAS will allow the claim for PIC.

Mr Teo gave two examples of the PIC claims which were not approved. MOF and IRAS will be happy to work with the Member to look into the claims upon more information being provided. Sir, I would like to speak in Mandarin.

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(In Mandarin): [Please refer to Vernacular Speech on Pg 1186.]  Sir, for our economy to continue growing and remain competitive in the global economy, we must restructure and position themselves for higher productivity and growth. This is not just a challenge facing SMEs. Many multinationals, some of whom used to be global leaders in their sectors, are facing relegation to obsolescence and insignificance because they have failed to adapt and improve.

In the context of Singapore, we will not have the luxury of land and manpower, as we used to enjoy, in our next phase of growth. To be sure, we will have sufficient land resources for future use, and can accommodate a calibrated inflow of foreign workers and talents to support our growth. But we have to make use of these resources judiciously. Our growth strategy must be fundamentally sound, market-competitive, and underlined by constant value-creation and innovations.

Sir, towards this goal, we must re-double our efforts in restructuring our economy. Yes, the process of change and restructuring can be painful. But as we benchmark industries in other leading economies, we know for a fact that others have achieved productivity 30%, 50% or 100% more than ours. Hence, we are not trying to do the impossible. On the contrary, raising productivity is achievable. This is why I am leading an F&B business delegation to study the best practices in Taiwan in January 2013. We have to learn from others and reinvent ourselves.

Mr Speaker, Sir, let me end by way of a success story. Putien Restaurant Group operates a network of Chinese restaurants serving Heng Hwa cuisines. For many years, Putien operated as a single restaurant at Kitchener Road. In recent years, Putien started modernising and adopted a different business model. It started to increase the number of outlets. Soon, with SPRING's help, it set up a central kitchen, adopted Enterprise Resource Planning (ERP), and introduced the 5S Housekeeping Initiative. Investing in a central kitchen and technology enabled them to reduce by an average of four staff strength per outlet, and free up 10% of each outlet kitchen space for more seating capacity. Putien also embarked on an eight-month rebranding exercise, re-positioning its value propositions with a new menu. In fact, it also started in-store merchandising by selling their popular "La Ma" (Spicy Mum) chilli sauce from their outlets for customers to enjoy at home. So the central kitchen and ERP system helped reduce costs. Increased outlets and merchandising helped increase sales. Doing both helped Putien raise productivity and profits.

(In English): Mr Speaker, Sir, there are many other success stories in addition to the ones I have shared. Restructuring for higher growth and productivity is challenging but achievable. The Government remains fully committed to help willing SMEs on their restructuring journey. Together, we will be able to make the transition into a vibrant and highly competitive economy. I echo Mr Teo Siong Seng's optimism. We have done this before and we can do it again.

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*Question put and agreed to.*

*Resolved, "That Parliament do now adjourn."*

Adjourned accordingly at 7.03 pm.

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