The most widespread margin squeeze in at least 10 years pushing some S’pore companies out of the city

Updated: Monday February 25, 2013 MYT 8:08:55 AM

The most widespread margin squeeze in at least 10 years pushing some S’pore companies out of the city

SINGAPORE: The most widespread margin squeeze in at least a decade is pushing some Singapore companies out of the city state as rising costs and slow growth sap profitability.

A Reuters study of 268 listed Singapore companies showed that 57 percent reported a year-on-year drop in operating profit margin for the first three quarters of 2012. That was the biggest percentage for the nine-month period on record, according to Thomson Reuters data going back to 2002. Full-year data for 2012 was not yet available.

A severe labour shortage is hobbling businesses in Singapore as the government tightens its immigration policies, while growth has been hard to come by as exports languish in a dull global economy.

Across Southeast Asia, 54 percent of companies reported shrinking margins, equalling the percentage recorded in 2009, when the global economy had tipped into a recession following the Lehman Brothers bankruptcy.

In all, Reuters examined the balance sheets of nearly 1,000 companies in Singapore, Malaysia, Indonesia, Thailand and the Philippines with a market value of at least S$100 million ($80.8 million).

The pain is particularly acute in Singapore, a smaller and more mature market lacking the burgeoning consumer classes of its emerging market neighbours. Inflation has heated up, with the consumer price index, due on Monday, expected to show a 4.0 percent rise in January, according to a Reuters poll.

The head of a Singapore business association is among those moving their corporate headquarters elsewhere, in search of lower costs and a larger market.

Chan Chong Beng, head of the Association of Small and Medium Enterprises in Singapore and chairman of Goodrich Global, a carpet and wallcoverings company with a presence in eight countries, said he planned to move his firm’s headquarters and operations such as product development to Wujiang, China, near Shanghai. Sales and marketing will stay in Singapore, he said.

“Businesses today face a very awkward situation,” Chan said. “The worst is we can’t find the workers.”

“Potentially there’s a lot of room to grow in China. Over here, no matter how much I can push, there’s a limit to my growth,” he added.

PACKING UP

Singapore, a major financial and trading centre known for its business-friendly policies, faces a tightening labour market as authorities curb the influx of foreign workers, spurred by public grumbling about overcrowding and soaring property prices.

A survey conducted late last year by the American Chamber of Commerce in Singapore found 15 percent of respondents – U.S. businesses which are members of the chamber – were considering moving operations away, while 5 percent had already done so.

Andrew Tjioe, president of the Restaurant Association of Singapore which has more than 300 members, said the pressure from rising costs and a shortage of labour was unprecedented.

“I have gone through so many rounds of recessions – the 1997 recession, SARS and then 2008,” said Tjioe, who has been in the food and beverage industry for three decades. “I can feel the pressure right now. I believe this has got to be the worst.”

At Chan’s Goodrich Global, sales growth in Singapore has been slow in the past two or three years while rents have shot up around 30 percent and labour costs have risen as much as 20 percent.

Small and medium-sized businesses like Chan’s have been among the hardest hit. These companies collectively contribute more than half of Singapore’s gross domestic product and employ seven out of every 10 workers.

Last month, the American Chamber of Commerce in Singapore and eight other business organisations sent a joint letter to the city state’s government highlighting concerns about tighter limits on foreign workers.

“While Singapore continues to attract significant foreign investment we nevertheless fear current implementation of revised labour policy risks negatively impacting Singapore’s economy and reputation as an open economy,” the letter said.

Singapore’s Economic Development Board has acknowledged the impact of tighter immigration measures on industry and has taken steps including helping companies to boost productivity, the board’s managing director Yeoh Keat Chuan said.

Some companies will be reluctant to move completely out of Singapore, which offers a strong record in safety, regulation and transparency, although their expansion efforts will likely focus on neighbouring countries with faster growth.

That expansion can help them to weather some of the pressures at home.

Electronics and furniture retailer Courts Asia Ltd , which has 72 stores in Singapore and Malaysia, is setting up a 140,000 square-foot (13,000 square-metre) megastore in eastern Jakarta, which will be the group’s largest when it opens in 2014.

“We don’t want to discount Singapore in terms of growth potential,” said Courts Asia Chief Executive Terry O’Connor. “But of course Indonesia and Malaysia have more greenfield territories, there are more options. We go to Indonesia, we can be ‘big box’ from day one.”

Singapore bakery and restaurant chain BreadTalk Group Ltd , which aims to boost revenue to S$1 billion in the next few years, is expanding regionally – particularly in China and Thailand – to balance out cost pressures at home.

“In Singapore’s retail environment, rising costs are largely attributed to rent and labour,” said BreadTalk Chief Financial Officer Lawrence Yeo. “In response, we’ve had to fine tune our business model.” ($1 = 1.2382 Singapore dollars) – Reuters

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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