Challenges facing SMEs in South East Asia

November 2012 | Servcorp

The world is just emerging from a catastrophic recession, and small and medium enterprises (SMEs) in South East Asia have been affected just like other regions. Yet, small and medium enterprises are the cornerstone of many countries in the region. A closer look at the region's economies reveals that there is a few common challenges that should be dealt with if they are to increase their productivity and experience ongoing growth.


Most SMEs in South East Asia find it difficult to recruit and maintain workers, and this mainly has to do with remuneration concerns. Different reasons have been advanced for this, including financial constraints and the general state of the local and global economy. While some managers have been calling on their respective governments to help them become more productive, there are a few things they can do to deal with the situation. For one, they can use the resources they have to recruit and maintain workers, and in the process increase productivity. For example, sending staff for further training tends to increase their loyalty. Managers should also consider upgrading current equipment to leverage new technology. Businesses that upgrade their capabilities tend to become competitive and enjoy increased opportunities in the market.

Reliance on foreign workforce

Many businesses in South East Asia rely on foreign staff to maintain and even expand their operations. This problem is particularly relevant in Singapore where there is some concern over the long term viability of the practice. Although the Singaporean government has implemented measure to address the issues it still a concern for SME's wishing to remain competitive. One way of dealing with this challenge is by utilizing the available course subsidies for SMEs employees to upgrade their skills.

Cash flow

Cash flow is one of the major problems stifling growth of SMEs in South East Asia. When banks are not willing to offer favourable credits to businesses and big companies squeeze suppliers, then potential sources for finance for small and medium enterprises are limited.  Over-reliance on bank drafts and equity funding is not enough, and alternative sources must be sought. The good news is that using alternative sources for financing can actually increase a business operations and productivity in the long run. For example, invoice financing leads to increased cash flow as a business gains more customers, and it is also relatively cost effective. This means that firms that find alternative sources of funding can lower their credit charges.

Reduced Export Opportunities

It is a fact that SMEs in many South East Asian countries including Malaysia and Singapore have performed well as cogs in the global supply chains. The problem is that, in recent times, export opportunities have declined. This is mostly the case with Western markets, which have been hard hit by the global financial downturn. Asian exporters should use this opportunity to broaden their markets, especially within the Asian continent.  Indeed, focusing on domestic markets can also be a viable option. To get domestic and regional markets, reshaping corporate strategies to deal with stiff competition within the internal markets may be necessary.  In the long run, the experience of re-branding and product differentiation will prove beneficial to the industry as a whole as SMEs become more productive with access to more diverse markets.