The document discusses productivity challenges faced by small and medium enterprises (SMEs) compared to large firms, including lack of financing, manpower, economies of scale, infrastructure, and bargaining power. It provides evidence that productivity is typically lower for SMEs and outlines some government programs in Singapore, such as the iSPRINT program, that aim to address productivity gaps by encouraging SMEs to adopt new technologies. The document was prepared by Frost & Sullivan, a growth consulting firm, for an unspecified public sector entity.

1. 1Frost & Sullivan
The Productivity Challenge:
Addressing Productivity Gaps between SMEs and
Large Firms
Vikas Sharma
Director, Public Sector & Government Practice
Frost & Sullivan, Asia Pacific
Developed For:

2. 2Frost & Sullivan
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5. 5Frost & Sullivan
Productivity =
Output
Input
Common Measures of Output
Common Measures of Input
No. of employees Man hours Manpower Cost Capital
Sales Revenue Value Add Production
Volume
Production
Value
Defining the mantra of business efficiency
What is Productivity?
GDP/Capita
Vs.
GDP/Hour

6. 6Frost & Sullivan
Factors that influence Productivity
What is Productivity?

7. 7Frost & Sullivan
Purposes of Productivity Measurement
What is Productivity?
Objective
TechnologyTechnology
Real Cost
Savings
Real Cost
Savings
Benchmarking
Processes
Benchmarking
Processes
Living
Standards
Living
Standards
EfficiencyEfficiency
Description
• To trace technological progress.
“the currently known ways of converting resources into outputs
desired by the economy”
• To measure the maximum output that is physically achievable with
current technology, and given a fixed amount of input
• Firms generally practice allocative efficiency, where resources will
be channeled to maximize profitability
• Measuring the absolute cost to produce one unit of product/service
through the years
• Comparing value-added for one industry vis-à-vis from other
industries
• Metrics used are consistent and resistant to change
• Value add per hour worked, income per person as a unit of
productivity

8. 8Frost & Sullivan
SMEs are the growth engines of the economy, accounting for >99% of all establishments
Importance of SMEs to the Economy
Contribution to total GDP (%)
Contribution to total Employment (%)
With their ubiquitous
presence across industries
and integrated value chains,
productivity improvements
among SMEs will serve to
drive value across the
economy
Across developed economies,
SMEs account for the lion’s
share of total employment
and total GDP

9. 9Frost & Sullivan
SMEs face some unique business challenges compared to larger firms
Factors hampering SME Productivity
SMEs face an uphill task obtaining access to credit due to a lack of
collateral and inadequate documents/accounting knowhow to secure low-
cost and long-term loans. This is worsened by the long turnaround time for
the disbursement of loans, putting stress on their limited financial reserves.
Legislation and complex processes serve as high barriers for small
businesses that may not have the necessary knowledge to navigate in the
system.
Financing hurdles exacerbate a host of other problems including obstacles
in building new capabilities through R&D to compete with larger firms,
limited ability to expand operations or implement promising business ideas;
as well as increase the firms’ vulnerability in the face of crises
All SMEs face challenges attracting high-calibre skilled manpower without
the remuneration packages and stability of career development offered by
larger companies. Micro and young SMEs have an even smaller talent
pool, with even more limited managerial capability and skill sets. An owner-
manager will typically also have to fill most job functions.
Lack of Financing
Manpower Concerns
1
2

10. 10Frost & Sullivan
SMEs face some unique business challenges compared to larger firms
Factors hampering SME Productivity
SMEs are simply unable to reach the operational efficiency reached by
larger companies because they cannot access economies of scale.
Inability to access
Economies of Scale
3
SMEs are unable to invest in private infrastructure. If not situated in CBD,
they may lose out on several facilities
Lack of Infrastructure
4
In negotiating lending rates as well as terms of contracts, or in influencing
policy change, SMEs have almost negligible bargaining power compared
to larger enterprises
Lack of Bargaining
Power
5
Given the sheer size and age of larger companies, SMEs are unable to
amass knowledge at a similar scale. This includes explicit knowledge as
well as tacit knowledge, regarding procedures, systems (for various
functions, or for data management) and industry experience. Additionally,
SMEs lack available resources to engage consultancy services to make
optimal decisions.
Lack of Knowledge
6
It is difficult for SMEs to project their development over a long term period
given their survival rate amidst tough competition. Decisions must always
be made with a short-term perspective, which may not deliver best results
Short-term Vision
7

11. 11Frost & Sullivan
Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Industries /
Size of Operating Receipt
Food Services Biomedical
Value Added Value Added
Per Establishment ($) Per Establishment
ESTABs with < $1m $122,050 $194,444
ESTABs with $1m - < $5m $723,589 $984,529
ESTABs with $5m & above $5,555,556 $17,021,277
Example 1

12. 12Frost & Sullivan
Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Example 2
67
41 41
22
4449
245
102
123
143
Labour Productivity By Size and Sector (RM '000)
SMEs Large Organisation
At the aggregate level,
large Malaysian firms
exhibit >3 times
productivity than
Malaysian SMEs

13. 13Frost & Sullivan
Evidence suggests that when it comes to productivity – Size does matter!
Factors hampering SME Productivity
Example 3
At the aggregate level,
large Canadian firms
exhibit 27% higher
productivity than
Canadian SMEs

14. 14Frost & Sullivan
There is a plethora of assistance schemes available in Singapore that target SMEs
Addressing SME Productivity gaps
“10 percent increase in number of staff using technology increases productivity by
1.3 percent”
“ICT adoption in company’s process increases productivity by 12 percent” – OECD
“10 percent increase in number of staff using technology increases productivity by
1.3 percent”
“ICT adoption in company’s process increases productivity by 12 percent” – OECD
Increased use of Technology, in particular, has been shown to drive
productivity growth

15. 15Frost & Sullivan
IDA’s iSPRINT program is enabling SME productivity gains across industries
Addressing SME Productivity gaps
Retail Travel
Food & Beverage
SME success stories from various sectors

16. 16Frost & Sullivan
Addressing SME Productivity gaps
For
Who?
For
Who?
• All SMEs incorporated in Singapore
• At least 30% shareholding is local
• Annual group sales less than $100 million, less than 200 employees
• All SMEs incorporated in Singapore
• At least 30% shareholding is local
• Annual group sales less than $100 million, less than 200 employees
For
What?
For
What?
• To encourage the use of technology to improve business operations
• Increase efficiency/productivity
• Increase in revenue
• Increase in value add
• To encourage the use of technology to improve business operations
• Increase efficiency/productivity
• Increase in revenue
• Increase in value add
How
Much?
How
Much?
Packaged Solutions Customized Solutions
Up to 70% of the qualifying cost: (a)
basic package (b) SaaS (c)
Immediate Packaged Solutions
Customer Relationship
Management, Enterprise Resource
Planning, Supply Chain
Management
Software/Subscription cost, up to 12
months, Consultancy Services
Training
Consultancy Services, Manpower-
Related Costs, Consultancy
Services, Hardware/ Software,
Training
iSPRINT – Can I qualify?
IDA’s iSPRINT program is enabling SME productivity gains across industries

17. 17Frost & Sullivan
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Tel: +65 (0) 6890 0999
Fax: +65 (0) 6890 0988
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Vikas Sharma
Director
Public Sector & Government Practice
+65 91446844
vsharma@frost.com