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Crisis a time to review and fortify

SMEs should fix faults revealed by Covid-19 and those relatively shielded from the pandemic may wish to explore strategic deals, say industry observers

With relief measures and gradual reopening, more SMEs should be thinking beyond survival. They need to think of growth, and how to support it. Loans are one way to do so, says Christie Chu.

Companies can take this opportunity to re-imagine the future and explore merger and acquisition opportunities to further enhance the value proposition of the business, says Derek How.

Businesses should scrutinise their supply chain upstream and downstream for weaknesses, and in the process, look for opportunities for vertical integration, says Kwan Chong Wah.

Businesses can build on current foundations to 'future-proof' themselves further and capture growth opportunities arising from the new normal, says Puneet Arora.

Roundtable panellists:

  • Christie Chu, head of emerging business and commercial banking cash, OCBC
  • Derek How, partner, RSM Singapore
  • Kwan Chong Wah, co-founder and CEO, Acorn Asia Pacific
  • Puneet Arora, CEO for Singapore and the Philippines and chairman for Thailand, GroupM

Moderator: Lynette Tan, journalist, The Business Times

SMALL and medium-sized enterprises (SMEs) in Singapore need to continuously assess their strategies and operations before government support starts to taper.

That's especially as the novel coronavirus crisis has revealed their various weaknesses, from being inept in fund sourcing to lacking well-diversified supply chains, said industry observers.

Even companies relatively shielded from the crisis would do well to fortify their core businesses, such as through strategic deals, the observers added.

They also share pointers on how SMEs can address some of their weaknesses, to emerge better prepared for future tests.

What weaknesses has this crisis revealed in SMEs' business models and operations?

Christie Chu: Although more SMEs have been going digital over the last few years, this crisis showed that this hadn't happened fast or pervasively enough.

As a result, many were unable to do business effectively - or at all - when the circuit breaker first hit. But it is a testament to the resilience of these businesses that they were able to implement digital solutions quickly.

Another takeaway from this crisis is the importance of having supply chain resilience. SMEs whose supply chains were not well diversified had to scramble to find alternative suppliers when border restrictions kicked in, often incurring higher costs as a result.

Derek How: To me, there are three lessons from this pandemic. First, liquidity is key to survival. Many businesses were badly affected by the lockdown of the economy, and some of them later went bust as they did not maintain sufficient cash to tide over the crisis.

Also, the crisis has amplified how SMEs have not been forward-looking enough to adapt to changes. Some businesses failed because their business models were not sustainable. In this fast changing world, traditional businesses may become obsolete in no time.

Finally, companies must be ready to change the way they do business. The pandemic has accelerated the pace of digitalisation exponentially. Processes must change to keep up with the new norms.

Kwan Chong Wah: I like that this question implies our SMEs have strengths, and it is this black swan event that has revealed their weaknesses. All the narratives about how SMEs must transform, digitalise, "pivot" and so on may be giving the impression that many of our SMEs are archaic entities, but I think it's far from the truth.

In the present crisis, many SMEs were caught on the wrong side of the balance sheet mainly because of the abrupt and extended cessation of revenue streams. Companies are tripped by cashflow. It may have less to do with their business model or operations. Hence, if there is one weakness revealed by this crisis, it would be that our SMEs lack the experience, savvy and willingness in fund sourcing and shoring.

Puneet Arora: As consumers adjust to a new normal, businesses are figuring out how to stay in business, to operate effectively, and to eventually recover. There's been an acceleration in digital transformation across the board. Smaller businesses such as SMEs are particularly vulnerable as they tend to be more financially fragile and cashflow dependent.

They face a need to change business strategies quickly to adapt to the pandemic, but are also facing a further reduction in opportunities to meet new clients and prospects. Internally, they need to migrate systems and operations online for business continuity.

How can firms address those weaknesses in the longer term, so that they will be better prepared for future crises?

Christie: Digitalisation is a journey and SMEs need to continuously look for ways to leverage technology. For instance, F&B businesses might already have implemented digital payments, but with the world going contactless, how about virtual bookings, waitlists and menus? E-commerce is another opportunity that should be captured.

SMEs should also take a closer look at supply chain risk management. They might need to build a network of alternative suppliers in order to reduce reliance on a particular country or region. Global supply chains are more integrated today than ever before, so if a country is compromised, it could have a domino effect leading to significant disruptions to supply chains across the world, and across industries.

Derek: It has to start with a change of mindset. Firms have to learn from this crisis and be prepared to make changes to future-proof their businesses. They must first be aware of the changes in the market, acknowledge where their businesses are lacking, be prepared to change the old ways of doing business, and adapt to the new norms.

Then, they must be prepared to invest in technology, upgrade, and equip their staff with the requisite skillsets.

Chong Wah: Our SME owners need to change their mindsets, particularly towards leveraging. Spending within our means is a virtue, but in business, some leveraging is OK.

Most of the SMEs I talk to in my line work are an enlightened lot. They understand the need to transform with the times, they have deep domain expertise, and they know what they are doing. But in a lot of cases, because of their reluctance to leverage, or "use other people's money", they delay or tip-toe around business transformations.

Therefore, for the next lap, start with a mindset change. Learn how to package and present your company's potential. Learn how and where to source for funds. Learn to be comfortable with outside investors or strategic partners.

Puneet: As we learn from this pandemic, there are already several measures that these firms are adopting to change future processes. Steps they can take, and most should have already been taken, are to shift operations to something cloud-based, move towards e-commerce channels as an alternative, and adopt new business strategies that minimise face-to-face interactions.

They are learning to adapt to the new business environment by "pivoting" to alternate business models that will be valuable learning for the future. It is crucial to test and learn types of digital operations and marketing that fit business needs.

For now, as government support will taper soon and the economic outlook continues to be clouded, what can SMEs do to make sure that they can sustain themselves?

Christie: Although the severity of the pandemic's impact has differed from industry to industry, no business has been entirely shielded.

All businesses must therefore review their strategies and operations. They must re-examine and re-work their business models in order to capture new opportunities.

To do this, an agile mindset is required. The very best entrepreneurs that I have come across - the ones who have been able to steer their businesses onto the path of recovery fastest - have this mindset. They have been quick to figure out how to capitalise on emerging trends in this new normal.

Derek: It's imperative for an SME to continuously assess the viability of both the business and the company. This means, for instance, developing strategies to stay resilient and adapt to changes in the market. Business models may also need to be re-shaped.

Having sufficient cash to sustain operations for business continuity is also key, meaning that SMEs should right-size cost structures and raise funds, if necessary.

At the same time, it's important for business owners to keep a positive mindset, motivate the core team and work with them to take immediate action.

Chong Wah: Before government support runs its course, some private or public sector initiatives ought to help bridge SMEs in need, and with good business prospects, to private funds.

Many SMEs have survived their make-or-break years. They are operated by passionate owners who have intimate knowledge of their businesses, including all the invaluable tricks-of-the-trade. They also have established networks of suppliers and clients. Yet, there is so little talk of such SMEs attracting private capital.

Perhaps, unlike startups, SMEs lack a platform to showcase themselves. Or perhaps SMEs are less exciting, or less likely to earn the multiples of startups. Or, more likely, SMEs are wary of seeking external investments.

Puneet: Some businesses are just focused on riding out each month as it comes, but they need to consider how they can diversify and grow their revenue streams amid the pandemic, adapting to the current situation where possible, alongside considering support schemes that they are eligible for.

They can consider pivoting into other areas for income, diversifying their offerings, to tide through this period. It's also about reskilling and upskilling workers to maintain a lean and efficient headcount.

For businesses that have been relatively shielded from the Covid-19 crisis, how can they make good use of this time?

Christie: The good news is that overall, we are already seeing green shoots. Cash flow is improving, thanks to the support that SMEs have received from the various relief measures as well as the as gradual reopening of the economy.

More SMEs should therefore be thinking beyond survival. They need to think of growth, and how to support it. Loans are one way to do so, and may be particularly attractive in this low interest rate environment.

Derek: It is a good time to think about the new norms post Covid-19, as new opportunities will arise. For example, increased confidence in technology will force companies to adapt to new trends, such as working from home. Automation of processes can be accelerated to minimise human intervention. Certain industries, such as healthcare and education, will be transformed.

Therefore, companies that have been relatively shielded from Covid-19 can take this opportunity to re-imagine the future and explore merger and acquisition opportunities to further enhance the value proposition of the business.

Where possible, businesses should also take this time to show their care and support to customers, suppliers, business partners, and employees who may be impacted by Covid-19. Building strong and lasting relationships with these key stakeholders will go a long way to benefit businesses.

Chong Wah: Apart from upskilling and transforming, businesses coming out of this Covid-19 pandemic with relatively strong balance sheets ought to do an honest self-audit of their businesses pre- and post-Covid. Even if their businesses are not affected per se, they ought to scrutinise their supply chain upstream and downstream for weaknesses.

In the process, they should also look for opportunities for vertical integration, either through a joint development or merger, in order to fortify their core businesses. I suggest doing a scan of adjacent businesses. Some may not have fared so well; there may be investment or diversification opportunities. While at it, keep a lookout for talent. And seek out potential investors, even if you don't need them now.

Puneet: The pandemic has forced businesses to start looking at how they can operate and even open markets remotely. The push towards digitalisation affects all businesses, even those that have been shielded from the impact due to lockdown measures.

With less operational demands on their hands, they can take the time to go beyond basic digitalisation efforts and look at more sophisticated technologies and fostering partnerships with other networks and platforms. They can build on current foundations to "future-proof" themselves further and capture growth opportunities arising from the new normal.

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