1. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED MEDIA CONFERENCE 6 October 2008 SME DEVELOPMENT SURVEY 2008 - Conducted by DP Information Group Enhancing Business Competitiveness Among Singapore’s SMEs

2. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Understand & highlight following issues relating to SMEs:  Business strategies & challenges faced locally & overseas  Extent of internationalization & contribution to Singapore economy  New financing requirements in next 1 year  Rate & benefits of technology adoption & innovation  IT spending in next 1-2 years  Staff development & succession planning SME Development Survey 2008 - Survey Objectives

3. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED 5% increase in participation from SME Community  1,656 companies responded to this year’s survey (last year: 1,206 respondents)  23% repeat respondents from last year’s survey SME Development Survey 2008 - Characteristics of Respondents

4. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED 7% increase in participation from SMEs with smaller capital  7% increase in smaller SMEs with paid-up capital of no more than S$0.5m  Percentage of SMEs with >S$1m in paid-up capital reduced from 39% to 33% Respondents by Paid-Up Capital SME Development Survey 2008 - Characteristics of Respondents Paid Up Capital200820072006 S$2 - S$50,0008%7%18% S$50,001 - S$0.5m40%34%53% > S$0.5m - S$1m19%20%6% > S$1m - S$2m14% 13% > S$2m - S$5m10%12%5% > S$5m9%13%5% Total100%

5. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED  More experienced SMEs responding to survey: - 76% in business for >10 yrs (4% increase) - Continued decline in Start-up participation from 6% to 2%  No. of companies experiencing accelerating turnover growth increasing but at slower pace  Mature & Decline companies on the rise SME Development Survey 2008 - Characteristics of Respondents Stages of Development Start-up: First 3 years of operation Accelerating Growth: turnover growth of > 10% p.a. Moderate Growth: turnover growth of up to 10% p.a. Mature: Zero turnover growth Decline: Negative turnover growth

6. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SMEs registered stronger profitability  Further drop in no. of loss-making companies from 21% to 13%  Almost a quarter (24%) generated profit >S$1m  Upward trend in respondents generating >S$0.1m in after-tax profit SME Development Survey 2008 - Characteristics of Respondents

7. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SMEs looking more to expansionary plans to grow sales in locally & overseas  Improve Cost Efficiency / Productivity remain top strategy but accorded less emphasis  Increasing emphasis on expansion: - New overseas market - New products/ services - Expand local distribution channels  Growing importance : - Improve Customer Service (key strategy for those in Retail) - Branding SME Development Survey 2008 - Business Strategies

8. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Increasing operating costs foremost in minds of SMEs  Increasing operating costs (58%) overtook Increasing competition (49%) as top obstacle  Manpower remains one of top 3 concerns; more so for SMEs in Start-up (42%) & Accelerating Growth (50%) stages  Concerns regarding Cash flow & New Financing have fallen; Cash flow more of a concern for those in Start-up (37%) & Decline (28%) stages  Downward trend continue for Difficulty in accessing biz opportunities & Market size constraint SME Development Survey 2008 - Challenges to Growth

9. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED  Increasing Labour cost key cost component affecting SMEs’ profitability in next 1-2 yrs Most affected are those in Information & Communications (73%), Construction (68%) & Services (63%)  Increasing Cost of sales ie. raw materials will continue to have major impact on SMEs’ profitability; SMEs in Construction (82%), Manufacturing (81%) & Wholesale (59%) greatly affected  Rental costs remain a challenge for most SMEs  More SMEs reducing their expenditures on optional cost factors Advertising & Promotion less regarded as key cost component SME Development Survey 2008 - Challenges to Growth

10. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Export growth to Asian region reached an unprecedented level – All Top 10 overseas countries from Asia  Upward trend in SMEs serving China & India markets  China overtook Indonesia & catching up with Malaysia as most favoured destination  Japan & Korea did not get into the top 10 last yr, but overtook Australia & USA to emerge among the top 10 this yr  At least three-fifths of SMEs that ventured to Middle East are serving Saudi Arabia & UAE  Cambodia, Myanmar & Taiwan increasing in popularity SME Development Survey 2008 - Overseas Expansion

11. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED  Local Enterprise Finance Scheme (LEFS) remains the most popular scheme but SMEs accessing down 10%  More SMEs accessing : - Microloan (up 3%) - Loan Insurance Scheme (up 1%) - Internationalisation Finance Scheme (up 2%)  Start-up Enterprise Development Scheme (SEEDs) assisted 5% of respondents in Start-up stage  Low take-up rate (1%) for Internationalisation Finance Scheme (IFS) among those in Accelerating Growth stage SME Development Survey 2008 - Financing/ Funding External financing2008200720062005 Govt Funding Schemes7%10%8%6%

12. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Majority of SMEs are sufficiently funded  70% do not see the need to seek new financing in the next 1 yr  Among those who seek new financing, majority (60%) looking at >S$0.5m in new financing SME Development Survey 2008 - Financing/ Funding

13. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED  2 most prominent benefits reaped from technology innovation: - Increased Productivity - Improved Cost Efficiency  Good opportunity to share with SME community especially since Improving Cost Efficiency will be adopted by 26% as top business strategy in the next 1 year SME Development Survey 2008 - Information Technology & Innovation Benefits of adopting technology innovation % Increase productivity76% Improve cost efficiency59% Widen range of products / services available 20% Shorten turnaround14% Enhanced image/ reputation13% Widen market coverage11% Facilitate customization7% Majority reported an improvement in actual turnover or profit through technology innovation.

14. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED More than half of respondents plan to adopt technology innovation in the next 1-2 yrs  Among those who have already adopted technology innovation, a high majority (88%) plan to further embrace technology innovation in the next 1-2 yrs  Half of those who have not adopted technology innovation are considering making their first attempt in the next 1-2 yrs SME Development Survey 2008 - Information Technology & Innovation Technology Innovation Planning to adopt in next 1-2 yrs YesNo Already adopted 88%12% Have not adopted 48%52% Overall59%41%

15. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SMEs have very little budget for technology innovation  51% who intend to adopt technology innovation in next 1-2 yrs do not wish to incur any costs on such adoption  Only 12% willing to spend beyond S$100,000 on technology innovation SME Development Survey 2008 - Information Technology & Innovation

16. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SMEs are willing to invest in training  79% find it useful to send their staff for training  Majority looking for training to upgrade Technical / Job Related Skills  With more SMEs identifying Improve Customer Service as their key business strategy in next 1-2 yrs, Customer Service is the 2 nd most cited area where training is needed Note: Technical / Job Related Skills and Customer Service were not provided as options on last year’s survey SME Development Survey 2008 - Training & Management Development

17. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED  Available training options may be limited for those who budget <S$100 per employee for training  Only 55% set aside training budget of >S$300 per employee  Respondents from Manufacturing have set a lower budget for staff training compared to other business sectors  34% not willing to spend >S$100 per staff SME Development Survey 2008 - Training & Management Development Though SMEs are supportive of staff training, close to half (46%) set aside <1% of staff budget for training

18. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SMEs have demonstrated an improved credit risk profile  Increase in Investment Grade (DP1 – DP4) companies (Up 3%)  Increase in High Yield (DP5 – DP6) companies (Up 3%)  Drop in High Risk (DP7 – DP8) companies (Down 6%) Distribution of Respondents by DP Credit Rating SME Development Survey 2008 - DP Credit Ratings DP Credit Rating 2008200720062005 Investment Grade (DP1 – DP4) 17%14%20%21% High Yield (DP5 - DP6) 58%55%49%47% High Risk (DP7 - DP8) 25%31% 32%

19. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Recommendations

20. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Strategizing for International Growth Encouraging SMEs to collaborate and pool together their resources in bidding for overseas projects. SMEs to Collaborate in Overseas Ventures Assisting SMEs who are keen on internationalising to develop and implement a sustainable overseas growth strategy. SMEs to Change Mindset on Technology as Investment & to Embrace Technology to Improve Cost Efficiency Encouraging SMEs to have a mindset change on technology (cost vs investment) & to embrace technology through greater use of managed or hosted services to improve cost efficiency. Banks to Review Evaluation of Innovative & Deserving SMEs Reviewing existing lending criteria for innovative SMEs using DP Credit Rating. Groom present & future leaders among SMEs Facilitating SMEs’ bosses and key managers in training and capabilities development through greater funding support, customised curriculum and at flexible timing. SME Development Survey 2008 - Recommendations

21. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Thank You

22. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED SME DEVELOPMENT SURVEY CONFERENCE 2008 Wednesday, 15 October 2008 8.45am – 1pm NTUC Auditorium NTUC Centre, One Marina Boulevard Special presentations 1. Mr Sareth Menon, US State Representative from Pennsylvania – “An Insight into American SMEs” 2. Mr Terence Swee, Founder and CEO of muvee technologies - “moving muvee” – home-grown technology company Supported by SPRING Singapore, IE Singapore & EDC@SICCI Sponsored by HSBC

23. © Copyright 2008. DP Information Group. All Rights Reserved. RESTRICTED Q&A