© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Conducted by DP Information Group “Managing Challenges for Sustainable Growth” Media Conference SPRING Singapore, 21 August 2006 Sponsors

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Panelists Ms Chen Yew Nah, Managing Director, DP Information Group Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore Mr Ted Tan, Deputy CEO, IE Singapore

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Conducted by DP Information Group “Managing Challenges for Sustainable Growth”

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY OBJECTIVES

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Objectives SMEs’ growth strategies & issues faced at different development stages SMEs’ financial performance, risk appetite & credit SMEs’ business risk in going overseas SMEs’ strategies to achieve cost efficiency & productivity SMEs’ familiarity & use of E-banking/on-line facilities SMEs’ level of adoption of technology, automation & innovation Gain better understanding of ownership profile of SMEs

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY METHODOLOGY

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Methodology Sampling Base Random sampling of 10,000 companies; Previous years’ respondents included Proportion of SMEs selected from each industry based on 2005 GDP contribution Companies must have : at least 30% local equity ownership not more than S$80m in annual sales/ turnover not more than 200 employees (if it is a non-manufacturing SME)

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Methodology Survey Method Primary Data Collection : Questionnaire to capture opinions & general characteristics of SMEs -- Mail-out of questionnaire -- Posting of questionnaire on website at Submission of financial statements to provide insight into SMEs’ financial performance Participation encouraged through : Follow-up calls after mail-out of invitations to participate in survey Reference to survey made on Enterprise One, IE Singapore, Infocomm Development Authority & Spring Singapore websites

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© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Profile of Respondents 1,068 companies responded vs last year’s 1004 respondents 21% of respondents participated in last year’s survey Significantly higher no. of smaller companies responded 41% with less than 10 employees 55% are family owned businesses; only 9% have foreign investors as owners Respondents Breakdown by Paid-Up Capital Paid-Up Capital $2 - $50,00018%6%9% $50,001 to $0.5mil53%27%41% >$0.5mil to $1mil6%26%20% >$1mil to $2mil13%16%14% >$2mil to $5mil5%12%9% >$5mil5%13%7% Total100%

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Profile of Respondents Significant increase in Start-up participation in survey Survey has become an important platform for voicing their issues and concerns 23% with less than 10 years in operation; 11% being within 3 years of operation Stages of Development Start-up: First 3 years of operation Accelerating Growth: turnover growth of > 10% per annum Moderate Growth: turnover growth of up to 10% per annum Mature: Zero turnover growth Decline: Negative turnover growth * 1 in 10 SMEs are Start-Ups

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY FINDINGS Challenges to Growth

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Challenges to Growth Competition remains the most cited challenge (45%) Manpower overtook Operating Cost as 2nd top 3 selected growth hindrance (37%)

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Challenges to Growth Cashflow & Accessing Business Opportunity are the top concerns of Start-ups Manpower is one of the top concerns of SMEs in Accelerating & Moderate Growth stages -Inability of SMEs to hire, develop & retain people will limit their potential to grow Competition remain the top concern of SMEs in the Moderate, Mature & Decline stages Development Stage Top 1 Concern Top 2 Concern Start-up Cash Flow (57%) Business Opportunity (57%) Accelerating Growth Manpower (56%) Competition (50%) Moderate Growth Competition (49%) Manpower (45%) Mature Competition (53%) Operating Cost (34%) Decline Competition (47%) Operating Cost (45%)

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Competition Act Singapore’s Competition Act was introduced in 2004 with the objective of removing or limiting practices that have adverse effect on competition in Singapore. Most SMEs (60%) felt that they were not well informed on the usefulness of Competition Act & its benefits for SMEs 16% may gain from the introduction of the Competition Act 24% felt that there is no benefit to be gained from the introduction of the Competition Act

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Business Competition Domestic Market is small; Intense Competition Larger Overseas Market; More Growth Potential but need to be prepared to compete with global players Top competition faced in Singapore% Local Competition69% Foreign Competition37% Do Not Face Any Competition9% Top competition faced in Overseas% With Local Competitors17% With Foreign Competitors from other Countries48%

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© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Business Strategies Top 2 strategies: Improving Cost Efficiency / Productivity (22%) & New Overseas Market (19%) 2 next commonly cited strategies : New Products/ Services (17%) & Scaling Down/ Distribution (14%) 17% have indicated no specific business strategy to adopt, at the moment

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY FINDINGS Overseas Challenges

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Overseas Challenges Top favourites are Malaysia & Indonesia; due to warming ties & increased stability China took over Thailand as the 3rd most popular country to venture overseas India unchanged at 22%

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Overseas Challenges Most Popular Countries Currently : Malaysia, Indonesia & China Most Popular Countries SMEs expanded in the last 2 years : Malaysia, Indonesia & China New Destinations that SMEs likely to venture into : India, Middle East, Vietnam Top 1Top 2Top 3 Countries Currently Presence in Malaysia (64%) Indonesia (51%) China (41%) New Countries Ventured in last 2 years Malaysia (9%) Indonesia (6%) China (6%) New overseas markets in the next 12 months India (32%) Middle East (27%) Vietnam (25%)

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Overseas Challenges Past year of heightened FTA awareness promotion to SMEs as result of last year’s findings 87% of SMEs are aware or have heard of FTAs FTA usages have gone up from 7% to 11% Number of SMEs showing no interest in FTA has decreased to 5%

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Overseas Challenges Key Reasons for Not Utilising Difficulty in Understanding FTA Not under Tariff Concessions More in-depth knowledge sharing necessary for more SMEs to benefit from FTAs

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY FINDINGS Access to Government Projects

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Access to Government Projects 3 in 4 SMEs who tendered for govt projects had been successful Interest to secure government projects very high (63%) 74% of them are with low profits (<$0.5m) or making losses; Hunger for a bigger pie of public sector jobs out of survival needs SMEs need help to gain better access and bid successfully for public sector projects

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY FINDINGS Innovation & Technology

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Innovation & Technology 53% see improvement in productivity; 37% also find improvement in cost efficiency 92% who have adopted new technology and enjoyed its benefits, plan to invest further in the next 2 years 16% cite lack of funding as critical factor for new technology adoption

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Innovation & Technology 32% considers new technology having no impact for their business growth 62% of SMEs open but unsure of how to strengthen their technological capabilities 85% are with <25 employees; More help needed to reach out to the smaller sized SMEs

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SURVEY FINDINGS Financing & Funding

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Financing / Funding Still strong reliance on Overdraft (40%); though downward trend continues Next 2 most favoured options are Long-term loans (34%) & Trade Financing (32%) Continued increase in SMEs going for short & long term loans Better financing options for SMEs Banking/Financing Facilities Used Short Term Facilities Overdraft40%44%47% Trade Financing32%39%29% Term Loans27%25%21% Factoring7%6% Long Term Facilities Term Loans34%29%26% Hire Purchase/ Leasing31%33%35% Equity Financing Venture Capital15%5%NA Business Angels3%2%NA Funds From Friends Or Relatives17%NA Government Funding Schemes Local Enterprise Finance Scheme8%4%NA Microloan4%2% NA SME Access Loan2%0% NA

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Survey Findings - Financing / Funding Increase of SMEs with no banking/financing facilities – from 19% to 38% Attributable to higher % of Start-Ups in this year’s respondents 52% are with turnover < $1m; 68% are Start-Ups 37% face difficulties in meeting bank’s requirements of pledging collaterals Banks will only lend as according to SMEs’ ability to pay No Banking/Funding Facilities38%19% - No need for Funds65%64% - Difficulties in Obtaining Funds35%36%

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Survey Development 2006 Survey Findings - Financing / Funding SMEs’ suggestions for better access to external sources of funds 51% would like to see more shift towards Non Collateral based financing eg. Microloan 48% hope to see more industry specific financing schemes 37% see the use of SME Credit Rating; likely expressed by the better rates ones SMEs’ Suggestions for better access to external sources of funds% Non Collateral Based Financing Instruments51% Industry Specific Financing Schemes48% SME Credit Rating37% SME Centric Financial Institution25%

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© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Financial Perspectives - DP SME Credit Rating Over past few years, general profile of credit worthiness of SMEs remain quite consistent with : 20% in Investment Grade (DP1 – DP4) About half in High Yield Grade (DP5 – DP6) Around 30% in the High Risk Grade (DP7 – DP8) Distribution of Respondents by DP SME Credit Ratings

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 Financial Perspectives - Profitability Majority (70%) of Investment Grade companies reported >5% in profit margin Majority (61%) of High Risk companies experiencing net losses Distribution of Respondents by Profit Margin & DP Credit Rating

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Singapore’s First SME Credit Rating INITIATIVE

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Singapore SME Credit Rating Initiative In support of growing SME community for credit ratings Launch of Singapore SME Credit Ratings website with listing of over 10,000 SMEs previously rated by DP Info FREE credit rating access for SMEs that are prelisted from now till 30 September 2006 Non-listed SMEs can also approach DP Info for a FREE credit rating access SMEs may opt to have their credit rating grade displayed for FREE to the public for 12 months

© Copyright DP Information Group. All Rights Reserved. RESTRICTED DP INFO’S RECOMMENDATIONS

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #1 - SME as A Rewarding Place to Work In Results : Lack of Adequate & Qualified Manpower for SMEs - 37% stated as Top 3 Concerns - 7% to 14% jump as Top Hindrance to Growth - 36% stated as Obstacle for Overseas Expansion Likely Reasons : a) Unable to compete with MNCs in attracting talents b) SMEs view as ‘second choice’ employers c) Perceptions relating to differing benefits Suggestions : Promote the advantages of working for SMEs - Profile the positive aspects of working for SMEs - Incentivise SMEs to structure employee profit sharing schemes through tax breaks

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #2 - Help SMEs with more Government Procurement Opportunities Results : 3 in 4 SMEs who tried, had been successful 63% not tried and are keen to explore these govt procurement opportunities Likely Reasons : a) Survival needs; 74% are with low profits or making losses b) Lack of experience in tender documentation c) Inhibiting with huge contracts requirements d) Short turnaround time to revert tender/quotation Suggestions : Create a different level playing field for SMEs to compete - Training on tender proposal writing & how to bid successfully - More communication about the award decision process

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #3 - SMEs to Leverage more on FTAs Results : 11% (up from 5%) utilize FTAs and 43% (up from 27%) are aware of FTAs 35% find difficulties in understanding the FTAs Likely Reasons : a) FTAs Documentation Compliance can be complicated b) Tariff Concessions; Non-compliance or Marginal c) Slow Adopters; Due to Resource Constraints Suggestions : Specifically engage SMEs to overcome inertia to Adopt - Leverage on IE’s Train-the-trainers programme - Walk-through with the SMEs for the first few applications - Qualified Consultants with grants approval

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #4 - Enhance Technology Management Skills for SMEs Results : 62% unsure how to strengthen technological capabilities; 42% with plans need funding support Likely Reasons : a) Resource constraint - time & finance b) Unwilling to experiment due to risk of failure c) Supply of qualified external consultants Suggestions : Communicate & deliver benefits to SME bosses - Train business managers/owners to deploy new technology for business advantage - Incentivise through tax breaks

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #5 - Innovative Financing for Better Credit Rated SMEs Results : Funding for SMEs have improved over the years - Over 4 years: 20%Investment Grade; 50% High Yield; 30% High Risk Likely Reasons : a) Banks lend according to firms’ ability to pay b) More understanding of SME Credit Risk required Suggestions : Promote industry adoption of SME Credit Rating - Differentiate those with high risk from the low risk - Benchmarks for better financial performance - Promote corporate governance, discipline and financial/cashflow management

© Copyright DP Information Group. All Rights Reserved. RESTRICTED SME Development Survey 2006 DP Info’s Recommendation #6 - Start-Ups Beyond Capital Results : 1 in 10 SMEs are Start-Ups; Key concerns are cashflow and biz opportunities Likely Reasons : a) Lack of track record b) No economy of scale c) Higher risk of failure Suggestions : To develop a strong cluster of SMEs has to commence with the Start-Ups - Mentoring the Start-Ups with Business Opportunities - Equip Start-Ups for Regional exposure via IE programmes - Financing Bureau to match SME needs and other Financing options

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Thank You

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Speech Mr Png Cheong Boon, Deputy Chief Executive, SPRING Singapore

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Speech Mr Ted Tan, Deputy CEO, IE Singapore

© Copyright DP Information Group. All Rights Reserved. RESTRICTED Q&A