SMEs affected by rising labour costs and foreign worker restrictions

Rising labour costs are hitting small and medium enterprises (SMEs) hard, but most of these firms are failing to counter its impact by raising productivity.

In the SME Development Survey by DP Information Group, the majority of SMEs (72%) said that their profits last year were most deeply eroded by labour costs.

Those in the construction sector were most affected by rising manpower costs with 87% of them agreeing that it is the main reason for the eroding profits. This is followed by the information and communication at 79%, services sector at 77% and manufacturing sectors at 75%.

The survey also revealed that more than half of SMEs (56%) felt that the manpower policies on foreign workers, such as high levies and reduced quotas, were a problem and had impacted the business environment.

Nine in 10 firms felt that the policies resulted in higher manpower costs for them. A smaller number of firms also raised the issue of a manpower crunch for critical roles.

Less than one-third of firms said would look into raising productivity to manage rising costs. The adoption of the Productivity and Innovation Credit (PIC) remained low at 27% in 2012. However, this is a big jump from the six per cent which applied for the scheme in 2011.