By Francis Chan

WHILE the jury is still out on the impact of tightening credit conditions on businesses in Singapore, prudence seems to be the watchword for smaller firms.

Fifty-eight per cent of small and medium-sized enterprises (SMEs) polled in the latest SME Development Survey cited escalating business costs as their top concern.

And despite the looming danger of a global recession, seven out of 10 said they were still not planning to raise new funds for the next 12 months.

DP Information Group (DP Info) polled more than 1,600 SMEs in the third quarter for the annual survey - up from 1,200 polled last year.

The survey, now on its sixth year, found that rising costs finally emerged as the No. 1 worry for SMEs, overtaking perennial concerns like competition, financing and Singapore's limited market size.

Spring Singapore, the lead agency for enterprise development, said that although the survey highlighted ongoing concerns, it also painted a positive picture of the country's SMEs.

'In view of the crisis, we expect SMEs to face a slowdown...But it is heartening to see that even prior to the crisis, SMEs here have already been prudent,' said Spring chief executive Png Cheong Boon.

'As you can see from the survey, 70 per cent don't intend to raise (funds) for the next 12 months - probably because they have made good money from the last two to three years of good growth.'

More SMEs said they would try to improve local sales by offering new products or services, improving customer service, expanding distribution channels and investing in branding.

But the survey, released yesterday, also highlighted some critical areas where SMEs were tightening their belts - and not necessarily in a good way.

Almost half of the respondents - 46 per cent - said they were willing to set aside only 1 per cent or less of their staff cost on training.

DP Info managing director Chan Yew Nah said: 'SMEs are on tight budgets and deadlines. Many are reluctant to send staff on training courses because they see it as a cost, with the employee spending time away from work.'

Ms Chan said there was a need to change the mindset of SMEs to adopt 'a more progressive attitude towards training and staff development'.

Investing in technological innovations was another area SMEs should heed, said Ms Chan, who pointed out more than half of the respondents said they did not want to incur any costs on technology improvements in the next one to two years.

This was despite the fact that over 80 per cent of SMEs said technology adoption had directly lifted profits.

'With four in five SMEs improving their financial performance by using technology, it is a strategy that no SME can ignore,' stressed Ms Chan.

Some SMEs do have ambitious growth plans, with more looking to expand, both at home and abroad.

Last year, only one in five respondents said they had plans to expand overseas but this year that went up to one in four.

Mr Ted Tan, the deputy chief executive of International Enterprise (IE) Singapore, welcomed the news that SMEs were 'embracing a global outlook', but he warned against complacency when going abroad.

'When (SMEs) go overseas, they should develop clear internationalisation strategies,' said Mr Tan.

He added that because of the credit crunch, it was even more important for SMEs to focus on the right markets where they could add value.

According to a joint statement by the two agencies, Singapore has about 161,000 SMEs that make up 99 per cent of all enterprises.

These smaller firms employ six out of every 10 workers and also account for up to 46 per cent of the total value added to the economy.

Spring and IE Singapore said they would continue to monitor the SME situation as the financial crisis unfolded.

This article was first published in The Straits Times on October 07, 2008.