The 2023 action plan for SMEs

For many of us, 2023 is off to an unusual start, due in part to recent economic forecasts and headlines reporting worrying business outlooks.

Amid all of this, few seem to be talking about the thousands of small and medium sized enterprises (SMEs) that represent nearly half of Singapore’s GDP – and are more likely to feel the pinch. While the weakening global economy and inflation affects the performance of trade-dependent industries, overall SMEs have been found to be generally positive about their near-term business outlook.

The reality is that SMEs cannot afford not to invest in transformation efforts, especially in areas of digitalisation and sustainability – now neither fresh concepts or buzzwords, but rather, an urgent need. As someone who works closely with local businesses and industry partners on growth and transformation, I’m sharing some recommendations based on past recessions and industry insights to help SMEs navigate the challenging year ahead.

Identify immediate areas for digital transformation

With the right technology, SMEs can quickly unlock new opportunities for growth and transformation. Additionally, they could take advantage of their smaller size to be more agile and react quickly, using the right tech to reinvent themselves and respond to the changing market conditions.

Fortunately, many SMEs already have a healthy appetite for growth and transformation. A 2022 ASEAN SME Transformation Study found that a majority (55%) of ASEAN SMEs were optimistic about their outlook. Importantly, a significant proportion (45%) of SMEs feel pressure to transform business models to better respond to shifting priorities.

The worries of maintaining a healthy cash flow and customer engagement levels follow closely (44%). Last but not least, operational expenses such as labour costs and rent and utilities are immediate concerns for 28% and 26% of businesses, respectively.

It’s abundantly clear that Singapore-based SMEs have the right concerns and appetite to effectively navigate the challenges ahead.

Adopting the right tech

Although moving quickly is key, it is equally important to understand exactly what tech solutions your business needs to address the most pressing problems. From automating business functions to data-driven decision making – there is such a wide spectrum of digital solutions, but no business should attempt to do everything at once, especially in this environment.

At The FinLab, we urge businesses to take a gradual approach to ensure that they have picked the right solutions for their needs. Through our Digital Spotlight Programme, a series of functional knowledge-sharing workshops, businesses can evaluate their digital readiness, and determine what solutions are right for their business model. For new entrants into the business world, there are thematic programmes to help various communities and budding business owners go digital.

Going “green” to remain sustainable in the long run

Beyond digitalisation and technology initiatives, sustainability has emerged as a megatrend shaping the way SMEs think about their businesses. Environmental, social and governance (ESG) priorities are a growing strategic thrust amongst both large corporates and SMEs alike.

The UOB SME Outlook Study 2022 revealed 65% of SMEs view sustainability as an area of importance and concern. However, high initial costs such as investment in new talent, training, research, insufficient dedicated resources and time and a lack of know-how pose key roadblocks to adopting or meeting ESG objectives.

Government and regional directives toward a net-zero near-future provide additional pressure that ESG measures are a key driver of long-term business viability. In the same vein of seeking out a support network, SMEs need to be based in an ecosystem that provides resources, knowledge, advisory and finances for them to make the transition to a “greener” model.

Look both beyond and within their existing resources

SMEs have long been operating in silo, in a fragmented market. However, with aggregators such as public service organisations, banks and accelerators, they can tap on existing strategic partnerships to access alternative funding, connections, innovation and overseas markets.

Finally, it would be remiss not to highlight the importance of SMEs betting on themselves, or more specifically, their own people. Innovation and transformation require talent and the challenge of finding and retaining skilled talent remains just as prevalent this year. To combat high recruitment and training costs, SMEs need to engage, upskill and motivate their current workforce so they are more likely to stay.

Beyond this, it’s important to continue taking a long-term approach where possible. Based on your immediate and long-term priorities, start implementing what is feasible and maintain an ongoing review loop to take lessons into consideration when planning new activities.

In a time of cost-cutting and grim growth forecasts, SMEs need to sustain their expected growth and development by remaining flexible and adaptable, and I am excited to continue working closely with our local and regional businesses to chart their way forward.