How Singapore’s middle market is underpinning its soaring growth ambitions with overseas expansion and artificial intelligence
Singapore’s dynamic middle market is among the fastest-growing in the world, EY Growth Barometer 2018 discovers. Company leaders are targeting soaring revenue growth while expanding full-time headcount and investing in new cognitive technologies and machine learning to create process efficiencies. Singapore’s middle market oozes confidence as government reforms boost growth, driven by strong manufacturing and the country’s traditional focus on export markets. The single greatest challenge is the availability of sufficient working capital to realize growth opportunities, in common with peers with the rest of the world.
EY Growth Barometer survey methodology
EY commissioned Euromoney Institutional Investor Thought Leadership to undertake an online survey of 2,766 C-suite (60% CEOs, founders or managing directors) in companies from 21 countries and with annual revenues of US$1m-US$3b. The survey was conducted from 15 January-1 March 2018. EY further invited the network of EY Entrepreneur Of The Year™ alumni from across the globe to take the survey. The survey was available in English and six other languages. Further in-depth interviews were carried out during March-April 2018 to provide additional specific insights.
Choo Eng Chuan
Asean Growth Markets Leader, EY
Business confidence is rocketing in Singapore. Almost 4 out of 10 (39%) middle-market business leaders expect to grow by more than 10% this year, way above the International Monetary Fund’s growth forecast of 2.9%,1 according to the EY Growth Barometer. As the global economic focus tilts firmly eastwards, the country ranks fourth in global growth expectations, behind fellow Asia-Pacific nations Australia, India and China.
Revenue Growth Projections
This chart shows growth expectations for Singapore and the rest of the world.
Reflecting Singapore’s small domestic marketplace, growth is set to come from abroad. Overseas expansion is both the overall strategic growth priority, cited by 30% of respondents (23% in the rest of the world), and the most important aspect of a new business opportunity, for 30% of respondents (20% in the rest of the world).
For this outward-looking nation, M&A are the second-most cited growth strategy (19%). On the other side of the coin, one in four (25%) Singapore middle-market leaders intend to divest part of their business. Choo Eng Chuan, Asean Growth Markets Leader, EY comments that divestment — like acquisition — can be a route to international expansion. “Many Singaporean entrepreneurs are open to overseas collaboration,” he says. “This can take many forms. For example, by selling part of their business to an external partner, they can access new markets and explore greater opportunities.” This collaborative bent may explain why strong alliances with external partners is the key path to boost agility for more than one in four (26%) of the country’s respondents. In a further reflection of business confidence, almost two-thirds (65%) are considering an IPO, compared with 44% in the rest of the world.
“Many Singaporean entrepreneurs are open to overseas collaboration. This can take many forms. For example, by selling part of their business to an external partner, they can access new markets and explore greater opportunities.”
Challenges to growth
Given Singapore businesses’ overseas ambitions, slow or flat global growth is the main external risk for more than 4 out of 10 respondents (41%), compared with 25% in the rest of the world. In contrast, geopolitical uncertainty is the main risk for just 3%.
Externals risks to growth
This chart illustrates company leaders’ ranking of the key macro risks to growth.
The squeeze on cash
The greatest operational challenge to growth, cited by 38% (compared with 34% with the rest of the world), is insufficient cash flow. This may reflect the constant pressure to stay abreast of change, as evolving sales cycles, industry convergence, unpredictable online buying patterns, the move from bricks-and-mortar to e-commerce, and the need to invest quickly to satisfy developing consumer demands and increase demand for ready money. EY’s Choo thinks it could also mirror the impact of overleveraging. “In Singapore, there was a period of very low interest rates, which resulted in increased enterprise borrowing. Even if they are enjoying strong growth, financing their repayments may be very demanding.”
Singapore businesses’ concerns with cash may explain why improving supply chain and operations efficiency is considered one of the top growth accelerators (29%), and why more than one-third (35%) see economies of scale as the key factor for improving productivity.
Embracing business change
The Singapore middle market is embracing the potential of new technology. The country has the third-highest adoption rate of artificial intelligence (AI) at 9%, closely behind China and the Netherlands (both with 10%). And a further 72% of companies plan to introduce AI in the next two years.
This chart shows the number of companies that intend to embrace artificial intelligence (AI) over the next 10 years.
One Singapore company that already exploits AI is Nanofilm Technologies International Pte Ltd (Nanofilm), a global leader in vacuum coating systems. “AI is more efficient and faster and has the potential to transform the world we live in,” says Dr. Shi Xu, Nanofilm’s Founder and Executive Chairman. “The human brain will increasingly embrace AI; human arms will be robotics and the sensory system will be artificial, networked sensors. At Nanofilm, we already have partially automated assembly and picking, but we see AI as transformative for many business processes.”
Despite readily embracing AI, the Singapore market is not a leader in the mature application of new technologies. Many businesses still identify technologies with the traditional roles of improving process efficiencies (29%) and financial data (25%), before the more innovative roles of improving customer experience and creating new business models. Meanwhile, one in five (20%) consider technological disruption as the greatest challenge to growth, behind cash flow.
Regulation drives innovation
Contrary to popular wisdom that red tape stifles creativity, regulation is the top driver of innovation for more than 3 out of 10 (31%) respondents, above the rest of the world (25%). More regulation is also cited by 22% — compared with 18% in the rest of the world — as the best thing government can do to boost growth. EY’s Choo says this reflects the government’s efforts to incentive new ways of working. The Singapore Budget 2018, for example, included company grants for adopting productivity boosting technology; financial support for international expansion, and tax breaks for R&D.2 “In Singapore, there are many innovation initiatives that have been kick-started by the government and taken up by local companies,” comments Choo.
The customer, however, is somewhat overlooked by businesses: customer demand is the main driver of innovation for just 5% of Singaporean respondents, far below the rest of the world at 17%. More positively, 36% cite customer data as their primary way to increase innovation — higher than the rest of the world (29%).
Building stronger teams
The middle market wants to grow its headcount along with its revenues, with 4 out of 10 (40%) aiming to hire more full-timers. Just 13% intend to keep current staffing levels, compared with 35% with the rest of the world. Singapore business leaders also want additional part-time employees and, against the worldwide trend of fewer casual workers, more contractors and freelancers. This divergence from the global norm is in line with shifts in working patterns being cited more highly as a disruptive megatrend in Singapore (23%) than in the rest of the world (16%).
This chart illustrates companies’ hiring priorities and the use of artificial intelligence (AI).
The C-suite has a clear idea of the optimum skill sets. For more than half (54%) of respondents, the ideal organization is one that attracts younger, digitally native talent. Having talent with the right skills is one of the top growth accelerators, identified by 29% of respondents. Despite the current global talent squeeze, just 5% of Singaporean business leaders, compared with 13% in the rest of the world, see lack of skilled talent as the primary challenge to growth. Since 2018 marks the first year that Singapore has had the same number of citizens aged over 65 as under 15, this is surprising.3 However, with demographic trends cited as the most disruptive force by more than one-third (34%), the talent war is likely to be a cloud on the horizon, even if it is not an immediate concern.
Diversity trumps skills
When it comes to what executives want in an ideal recruit, almost half (48%) say diversity is their priority, compared with 41% in the rest of the world. This may reflect the fact that just 1% of the Singaporean cohort have female CEOs, compared with 4% with the rest of the world. EY’s Choo suggests that in Singapore’s multicultural society, diversity is defined broadly to include factors other than gender, such as race and socioeconomic background.