By Chen Huifen

DESPITE calls to move to higher-value products and services, many SMEs continue to hobble, with thin profit margins that threaten to stunt their growth and drain their sustenance.

According to a survey of 1,024 SMEs by DP Information Group (see table), 47 per cent of respondents reported a net profit margin of 0-5 per cent, little changed from 49 per cent last year.

Only 18 per cent posted a net profit margin of more than 10 per cent, while a further 18 per cent recorded profitability of 5-10 per cent.

The remaining 17 per cent recorded losses.

'Many SMEs lack the economies of scale to generate large profit margins,' said DP Information Group's managing director Chen Yew Nah. 'But in the current economic environment, it is encouraging that there was an increase in the percentage of SMEs generating profit margins of 5 per cent or more - from 31 per cent in 2008 to 36 per cent in 2009.'

Since profitability is an indication of a company's ability to accumulate reserves for expansion, low net profit margins tend to limit growth.

This is especially so for SMEs, since they typically use retained earnings or internal resources to fund expansion.

This article was first published in The Business Times.