Guide

How small businesses in Singapore are especially at risk of being impacted by this financial crisis

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Compared to banks, alternative financing platforms have less dry powder to pass around. But they have the flexibility to tweak their credit criteria or issue loans to sectors deemed too risky for banks. With these risks, SMEs must contend with higher interest rates, but it’s still a lifeline when they need it most.

Barriers that prevent small businesses from accessing alternative lending

Funding Societies sees its efforts as complementing government measures, which may not be enough for SMEs. The platform is helping to provide “deserving SMEs with short-term bridging loans to tide over the short-term cash-flow concerns,” said Jain.

Unlike banks, alternative financiers offer short-tenure loans and invoice financing to all SMEs. They can help SMEs tide over short-term cash-flow concerns. June Tang, director of honey wholesaler Xali Pte Ltd, said she uses banks for import financing but turned to Finaxar for invoice financing.

The pandemic looks set to be an inflection point for the alternative financing sector. There is a fast-growing mismatch between supply and demand. With the economic downturn, there is more demand for working capital due to increased liquidity challenges. This also means lenders’ risk appetites are declining, resulting in less funding available for SMEs.

Companies like Validus are poised to capitalise on this situation. The institutional lenders and high net-worth individuals that lend on its platform are looking to target SMEs, seeing them as opportunities to diversify from volatile markets.

Validus, however, is still likely to be affected by the liquidity crunch to some extent. Investors who might lend through its platform are smarting from losses in the stock markets. Finaxar, on the other hand, is more insulated from this since it co-funds loans with development funds. It is essentially tapping on funds that are already available just for this purpose. And as businesses look to keep the lights on, options like Finaxar, Validus, and the like are more likely to be considered than ever.

Managing risks

Managing risks

Even as the SME lending opportunity looms large for the alternative lending companies, though, risk looms larger.

Lending in a downturn has obvious risks. With companies in sectors such as oil and gas turning insolvent, banks are increasingly seeing their non-performing loans (NPL) rate rise. SMEs, which are looking for cash loans rather than invoice or contract financing at the moment, are likely to further contribute to this.

At the beginning of the year, there were more contract and invoice financing requests, said Funding Societies’ Jain. But March and April saw a significant reduction, with Covid-19 disrupting trading activity.

Banks are already steeling their books for NPL increases caused by Covid-19 by increasing their general reserve to absorb credit losses. MAS has also adjusted regulatory requirements, such as tweaking banks’ capital and liquidity requirements to sustain lending.

Alternative lending platforms have also tightened their lending criteria during this period. Funding Societies said its NPL percentage has only gone up marginally; its default rate currently stands at 1.3%. It expects a marginal increase in defaults in the near-term as a majority of the loans it gives out are of short tenure. “We have and will continue to provide restructuring options to qualified SMEs as a means to assist them during this trying time,” said Jain.

Ke Dezhuo Distrupting Entrepreneurial Production through Managing Platform Balance of Customers & Partners

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That was the case for Chasen Holdings Limited, an SGX-listed firm that provides engineering, logistics and relocation services across Asia. “Prior to using Lark, we found it difficult to navigate the China firewall, leaving us with very limited solutions,” William Soo, the firm’s Group HR & Admin Manager, told us. English-Mandarin text chat translation is also a key feature, he added.

Everyone wants to be Zoom

Everyone wants to be Zoom

Zoom has become a household name worldwide and that has inspired Chinese companies to offer meeting services for free. Alibaba, ByteDance and Tencent have all released free video conferencing services both in China and for overseas audiences.

“Companies often try to implement services like Teams or Slack, but wonder how they can get the local Chinese team to use them,” he said. “Chinese colleagues will prefer tools for locals.”

WeChat—China’s most popular messaging service—often becomes the platform used, added Tay. This would leave sensitive company information exposed outside of their IT system, which makes services like Lark, DingTalk or Tencent’s WeChat Work appealing alternatives.

On the flip side, however, the China link could put off enterprise customers who are concerned about where data is stored and whether it can be accessed, Tay said. Two IT managers at regional technology firms based in Singapore told us that they opted for Western tools rather than Lark because of its links to China. Neither person would comment on the record as they are not allowed to discuss company IT strategies in public.

Tough battle

Messaging apps have become ecosystems, with WhatsApp looking to enter payments in India and WeChat pioneering the concept of ‘super apps’ in China. Productivity tools, too, can be valuable at scale.

In China, for example, it is common for merchants who sell on Alibaba services to use DingTalk to communicate with suppliers or even customers, said Leilei Wang, a China-based analyst with consultancy firm Kapronasia. Wide adoption of DingTalk has boosted Alibaba by driving traffic to its services, which range from business-to-business sourcing to social media and video streaming.

Alibaba could be hoping to do something similar with SMEs in Southeast Asia. Its affiliate, Ant Financial, is among the bidders for a licence that would allow it to offer digital banking services in Singapore.

But efforts to cross-promote Alibaba’s Southeast Asia services—Lazada and Alibaba—with DingTalk haven’t been fruitful. Two merchants told us that they prefer to use Western consumer messaging apps and have little need to contact merchants directly. Customers, they pointed out, can be reached through e-commerce app messaging features.

Online learning push

Built as management tools, the services have been adopted by schools, and not only in Covid-19 times. In one example, the Universitas Islam Negeri Sultan Syarif Kasim Riau—an Indonesia-based university—used Lark to onboard 30,000 students across nine faculties within three days after toxic haze in Indonesian province Riau made turning up to class hazardous.

The firm currently uses a free version of Lark, but Soo told us it plans to upgrade in the future.

Even without the internet restrictions, there are also local consumption habits to overcome, according to Gartner’s Tay, and that can favour tools with a Chinese footprint.

Controlling Travel Routes, Automated Race Tracks

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Malaysia-headquartered research firm CGS-CIMB estimated AirAsia’s total monthly cash burn rate to be around RM527 million (US$122.3 million). In a research note published on 7 April, it assumed if 20% of the cash balance was refunded to consumers due to flight cancellations, the remaining kenbalance of RM2.4 billion (US$560 million) will last AirAsia less than five months. Realising that giving cash refunds would further drain its coffers, Fernandes offered credits for replacement flights instead.

The core business of AirAsia

The core business of AirAsia

To conserve cash flow, the airline will not take in any new aircraft deliveries this year, leaving it with 242 aircraft, one less than 2019. It is also relooking its orderbook with Airbus and has restructured a major portion of the fuel hedges—all with an expectation to reduce 30% of its year-on-year cost for 2020.

It also doesn’t help that its overall earnings are constantly dragged down by AirAsia X. As of 31 December 2019, AirAsia X had a cash balance of only RM358 million (US$83 million) and borrowings of RM6.32 billion (US$1.5 billion).

Its net loss widened 62% year on year to RM489.5 million (US$113.55 million) in the year ended March 2019, while revenue fell 4% year on year to RM4.4 billion (US$1 billion). Which is probably why Fernandes is seeking out a loan from the Malaysian government to cushion the blow. But it won’t be easy.

AirAsia was said to be exploring options to fundraise for ‘X’. It could seek help from Malaysia’s sovereign wealth fund Khazanah Nasional Bhd, integrate AirAsia X into the parent group, or shut the division down altogether. But the government is already straddled with the ailing national carrier Malaysia Airlines Bhd that is fully owned by Khazanah, and it may not have enough resources to support other local airlines.

It would be a wise move for AirAsia to shut down the long-haul unit, says Shukor Yusof, founder of aviation consultant Endau Analysis. “Whether the owners have the courage to do that remains to be seen.”

While the albatross around AirAsia’s neck remains its problem child ‘X’, it also has other pressing concerns to address in the short term. Especially now that it has resumed its domestic flights within Malaysia and Thailand. (AirAsia’s domestic flights in the Philippines, Indonesia and India remain grounded, at least till mid-May.)

Not everyone can fly

For the first quarter of 2020, from January to March, AirAsia recorded 80% group-wide load factor—which indicates the airline’s capacity utilisation—ahead of its 77% target. Higher load factor is positive because it increases revenue and profitability. But the coming months or years will not be as rosy.

For one, airlines are recommended to practice social distancing for each passenger flight by emptying one-third of plane seats. However, such a move will render the airline business uneconomical. In turn, to ensure a minimum profit, airlines will then have to increase ticket prices by at least 50%.

In other words, cheap travel is over. This would be the biggest blow to low-cost carriers, who rely on cramming as many people as they can into their flights. AirAsia, which has shaped its entire business around the motto of “now everyone can fly”, will have to brace for a huge hit in its future earnings.

Explore the Limits of Teleportation, Whats the Future of Transportation?

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“We continue with diversification of our revenue base during this tough period, with a more rigorous and market-friendly approach to further expand our digital and ancillary businesses such as [AirAsia’s in-flight many brand] Santan, Teleport, and BigPay,” he said.

In 2019, Teleport also managed to achieve profitability after a full year of operations, making it the leading digital business of AirAsia. During Covid, while over 96% of AirAsia flights were grounded, Teleport has stepped up its services and tapped into the food delivery and e-commerce space.

It’s not to say that the company hasn’t met its own share of Covid conflicts.

While AirAsia has managed to retain all of its staff, they have been taking pay cuts ranging between 15% and 75%, depending on seniority. The co-founders Kamarudin and Tony Fernandes are not taking any salary at all.

It’s a problem across the board

In March, local airline Malindo Air said it would cut up to 50% of its employees’ pay in addition to reducing their number of working days by up to 15 days a month. Meanwhile, national carrier Malaysia Airlines is reducing senior management’s salaries by 10% and waiving allowances for all of its 13,000 employees.

But unlike its competitors, AirAsia has been ramping up its non-airline businesses from before the pandemic. Thereby reducing its dependency on the core business in the long run.

It has invested heavily in technology in the past few years, starting with transferring all of its non-airline businesses to RedBeat Ventures in December 2018. AirAsia also reshuffled its leadership to facilitate a digital transformation in August 2019 and launched a US$60 million tech fund in partnership with Silicon Valley-based 500 Startups.

Its foresight of banking on tech seems to have given it an advantage over its peers.

British budget carrier Virgin Atlantic—whose founder Richard Brandson is apparently a dear friend of AirAsia’s Fernandes—is reportedly seeking a buyer as it fails to lobby for a government bailout.

Singapore Airlines, which owns Scoot—the budget carrier that competes directly with AirAsia—had to turn to the city-state’s investment fund Temasek Holdings to raise US$6.2 billion funding to keep its operations afloat. It got US$13 billion instead.

Although it sits on a RM2.6 billion (US$600 million) cash reserve, AirAsia is still mulling a government loan to lend a helping hand to its business. The reason? AirAsia’s long-haul unit, AirAsia X, is bleeding out the company—it’s listed as an airline on the brink of bankruptcy.

But AirAsia still has a few tricks up its sleeve. Starting with its ability to Teleport.

Hot iron struck

In 2019, the first full year of its operations, Teleport generated US$114 million of revenue at a growth rate of 125% year on year. It actually beat its initial target of RM400 million (US$92.8 million). It also claims that it is profitable.

The logistics arm also contributed about 4% of AirAsia Group’s total revenue. And despite the impact of Covid-19 in China, Korea, and Southeast Asia, the business grew over 30% year on year for the first quarter of 2020, between January and March.

How Udaan Found the Path Towards Success Despite Crushing it One Step at A Time: Innovation!

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“If you have Rs 6 lakh (US$7,943) credit and Rs 3 lakh (US$3,971) is pending, Udaan can’t do anything,” one of the employees said.

As of August 2019, the company’s loan book was around Rs 200 crore-300 crore (US$26.3 million-$39.4 million). It’s target was Rs 800 crore-900 crore (~US$105 million-$119 million) by the end of 2019, which was not met, the former credit executive said.

Udaan is already working to shore up its lending business. It approached Redington India and Ingram Micro, India’s largest IT distributors, offering to provide loans to their thousands of distributors, according to one of the current executives mentioned earlier. This offers the company a steady base of borrowers, which are potentially more reliable as well due to their ties with big companies.

The issues with its core business

The issues with its core business

With most of its ground staff laid off and only operating in two categories, Udaan is back to the basics. It intends to build out both pharma as well as food and FMCG, said multiple employees, both current and former.

Fortuitously for Udaan, food and FMCG accounted for almost 40-50% of Udaan’s revenue last year, a former business analyst in the category said. The category also offers the highest order values—between Rs 3,000-5,000 (US$39.7-66), according to two current executives—and sees organic demand. This is unlike less popular categories like toys or stationery, which Udaan shut in February, cutting 200 jobs, said one of the executives.

The problem for Udaan, though, is that the food and FMCG space is rife with competition. India’s most valuable company, Reliance Industries, is one of the claimants to the grocery throne. Its JioMart grocery service has tapped into kiranas. Amazon is also ramping up its grocery play, while there is plenty of VC-funded competition through the likes of agritech startup Ninjacart and B2B groceries startup Jumbotail. Flipkart, too, is increasingly focussed on grocery, and even made an investment in Ninjacart alongside Walmart.

B2B2C focus

In Dec 2019, Udaan’s made its first investment of $2 million in restaurant billing platform PetPooja to expand its fresh business to supply to hotels, restaurants and cafes

Udaan, meanwhile, is bracing for impact. Having already cut back on its human resources, it is looking to get more efficient. Where it once relied on swarms of ground staff to visit stores, drum up demand and upsell banner ads and credit, one city manager will now handle an entire category horizontally, two former employees said. Without ground staff, Udaan is now asking its retailers and suppliers to place their own orders and manage inventory.

It’s also looking to reinforce its logistics operations by building more warehouses, according to three former and current employees.

The good news for Udaan is that it has time. Its last big funding round in October, and a US$30 million infusion from its parent entity Trustroot Internet in March have given it a 24-48-month runway, the core member said. Now, it needs to use both, the time and money, to fix the cracks in its business.

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The flat shipping costs are to encourage higher average order values since the platform has no minimum order value, the core member mentioned above said. This has worked in Udaan’s favour, with the average order value currently hovering between Rs 5,000-6,000 (~US$66-79.4), according to one former and one current executive.

“After it becomes more robust, we can change it again,” the core member said.

How Companies are Taking an AI Drive for Success?

The biggest issue with managing logistics, however, is that Udaan needs to handle returns. This is a huge problem for the company, which sees a 40-50% return rate across categories, according to employees both current and former.

While several buyers we spoke to said the flat fee was attractive, Udaan’s processing of returns meant it was not worth the bargain. “They don’t approve returns easily; out of 100 items, if 10% is spoiled, we need to dump it and absorb the losses,” said the Delhi-based buyer, who used the platform to procure groceries and vegetables. He has been waiting for a Rs 1,350 (~US$17) refund for the last four months and has instead switched over to one of Udaan’s rivals, Ninjacart.

A buyer who wants to return a product has to raise a request on the Udaan app, with clear pictures of the product in the original packaging and the damaged goods post unwrapping, said Sonu Shrivastava, a computer parts retailer. Shrivastava has been on Udaan since 2016 and his only grouse is the returns and customer service. Shrivastava paid 10% of the cost of an order in advance and is still waiting for a refund.

On the other hand, suppliers bear the cost of returns and non-delivery. One month before the lockdown, Udaan informed suppliers that packaging delays or cancellations will now cost them Rs 50 (US$0.7), Gupta said. Suppliers are also expected to take 360-degree videos of shipments before they are picked up if they wish to contest potential returns. This isn’t par for the B2B course. “Sellers have to take 360-degree videos to say it’s not my fault it was returned,” the formal zonal manager quoted earlier said. “Their logic was that it happens with Amazon and Flipkart, but B2B doesn’t work like that.”

With both sellers and buyers on the platform feeling hard done by, Udaan’s early gains are in serious danger of coming undone.

Charting a new course

Even Udaan’s most ambitious bet, providing credit to buyers and sellers, hasn’t panned out the way it hoped. Udaan was granted a non-banking finance company (NBFC) licence in 2019, which allows it to offer small loans—from Rs 10,000-2 lakh (US$130-2,650). The loan size is increased based on a buyer’s purchasing history and frequency of transactions, a former executive at the company’s credit unit said. While buyers are charged an interest rate of 3.25%, sellers don’t pay interest at all.

Lending to small retailers, though, means that defaulting is a serious concern. Udaan doesn’t ink any formal agreement to hand out credit. Instead, executives visit stores, clicking pictures of the shop and tracking the buyers on the app, two former employees said.

We believe that community building is the most critical aspect of RedDoorz because it replicates what we have learnt at OYO to

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There’s little doubt that the company can afford to pay these vendors back—aside from the aforementioned regional investment pledges, OYO is in talks to raise $1.5 billion, which would take its total funds raised past $3 billion.

With its expansion in the region hitting hurdles, OYO announced in August that Mandar Vaidya, a 15-year veteran of McKinsey, would head its Southeast Asia and Middle East operations. The firm is keen to dismiss any suggestion that there could be a repeat of China, where OYO is reported to have made layoffs due to “unethical practices” despite initial claims of rapid success. OYO has denied the allegations of layoffs in China.

While OYO’s issues in the region are cause for hope for RedDoorz, investors are still treading with caution. “We thought they were the best performing in that sector, particularly in terms of reducing dependence on OTAs (online travel agencies) for customers. But there was still a lot of noise and competition in the region, most notably from OYO,” a prominent investor who passed on investing in RedDoorz told us on condition of anonymity.

According to one VC professional, uncertainty around the viability of RedDoorz business model put their firm off a potential deal. Despite that, the person said that RedDoorz now “has a good window of opportunity” given OYO’s broad focus on global markets.

But there’s also a wider concern around the more fundamentals elements of the business.

By the wayside

By the wayside

Tinggal, a rival in Indonesia that previously raised $1 million from one-time OYO India competitor Wudstay, is no longer around. Nida Rooms is another that was forced to make cutbacks after struggling with financial problems. Founded by ex-SpiceJet executive Kaneswaran Avili, it downed shutters despite raising some $12.2 million, according to data from company tracker Crunchbase. (Image via Mike Rasching/Unsplash)

“By combining single hotels under one brand and using one technology stack, the budget hotel network definitely creates synergies of scale. These are hotels that would no way have mobile solution or new types of POS individually,” said Bart Bellers, CEO of Singapore-based travel, tourism and hospitality fund Xpdite Capital Partners.

“But basically they are building their own hotel, and ultimately they are stuck with long term leases. What if there is a downturn in the tourism industry? That’s a big big risk.

“Sometimes it has me wondering if this has similar high risks as the WeWork model,” Bellers said in an interview. “Scalable? Yes. Sustainable? To be seen.”

An IPO for RedDoorz

Those concerns didn’t weigh down Asia Partners, a new growth stage fund that announced a $70 million first close of its maiden fund in June. The firm led the RedDoorz Series C deal in what was the first public investment for its fund, which is believed to be targeting a final close of up to $300 million.

Growth funds are a new trend in Southeast Asia venture capital, and this new kid on the block has serious credibility. Asia Partners is founded by ex-Sea President Nick Nash, the man widely credited for taking the Singapore-based gaming and e-commerce company public in 2017, and Oliver Rippel, whose past includes leading Nasper’s business-to-consumer and online services businesses.

How RedDoorz Revolutionized the Hotel Industry in Southeast Asia

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He did have his doubts over this conservative approach though. Especially in 2016, when competition peaked with players like Rocket Internet-backed Zen Rooms and OYO prowling the region. “I was thinking something was wrong,” he said. “We hadn’t figured out how to do business in Jakarta, let alone the rest of Indonesia or Southeast Asia.”

Still, RedDoorz stayed true to its ethos, refining its business model. Today its business is comprised of a combination of revenue-share models to suit different types of hotel owners and operators. That is typically full-lease, with revenue-share options including a split of gross revenue, or specific sharing of revenue once it passes a minimum threshold.

Saberwal said he keeps just 70% of the business model “set” because flexibility of the remainder is “what makes the difference.”

RedDoorz- The Unknown Hotel Giant To OYO?

RedDoorz- The Unknown Hotel Giant To OYO

“The market isn’t a one-size fits all, that’s what makes it defensible and sticky,” he said. “Owners are different, owner psyche is different and customers are different. I can’t make a business on the dead bodies of my suppliers.”

With this degree of optionality baked into its model, the company began expanding to Singapore, Vietnam and the Philippines.

Today, RedDoorz is up there with the market leaders. The company claims to have more than 1,500 hotels on its platform, ahead of rival Singapore and Philippines-based Zen Rooms—which claims “over 1,000”—and on par with OYO, which also says it has over 1,500.

RedDoorz has focused on Indonesia, which has been its primary market since its inception. The country is the most attractive in Southeast Asia for internet companies, which are drawn by its 260-million population, and that makes for plenty of competition.

In the 3rd installment of our series on RedDoorz

Just weeks after RedDoorz announced its Series C funding round, OYO one-upped it by stating that it would invest $100 million into the country. That’s part of a wider strategy to deploy $200 million in Southeast Asia over the next two years, another hostile announcement.

The ‘my number is bigger than yours’ tactic is increasingly common for SoftBank-backed companies. This year has seen Grab and Gojek embark on a game of one-upmanship waged through press releases announcing funding rounds and new investors. This peaked with SoftBank increasing Grab’s Series H round to $6.5 billion by pumping in an additional $2 billion. There have also been country-specific pledges. SoftBank has promised to invest $2 billion into infrastructure in Indonesia via Grab, while Grab itself announced that it will deploy $500 million to bolster its business in Vietnam.

But OYO isn’t the only competitor to worry about. Zen Rooms, also founded in 2015, is another. Zen Rooms ran into financial trouble last year after a funding round from an undisclosed Chinese investor fell through at the last minute, a source with knowledge of events told us. Consequently, the company downsized its business in Thailand—having already exited several markets outside Southeast Asia. It eventually found a saviour in Yanolja, a South Korean hospitality company valued at $1 billion.

Initially, Yanolja invested $15 million into Zen Rooms in July 2018 in exchange for an undisclosed “strategic non-controlling stake” with the option to buy 100% of the business. Just this month—October 2019—it followed up with a second undisclosed investment.

The Hotels of the Future Today: Unraveling the Future of Travel with RedDoorz

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While the battle may not centre around taxis, the budget hotel opportunity is no less impressive. Still in its infancy, revenue from online hotel bookings in Southeast Asia is tipped to grow to $38 billion per year by 2025, according to a report jointly produced by Google, Singapore sovereign fund Temasek and Bain & Company. This is up from an estimated $13.6 billion in 2019. RedDoorz wants to ride this wave to every founder’s ultimate dream—an initial public offering (IPO).

Starting up

Starting up

Saberwal is nearly old enough to be 25-year-old Agarwal’s father—his undergraduate daughter is just a few years younger than the OYO CEO. In fact, when OYO was officially founded in 2013 (a pivot from Agarwal’s original startup, Oravel), Saberwal was still employed by online travel platform MakeMyTrip (MMT), which had gone public that January.

Based out of Singapore, Saberwal headed the company’s Southeast Asia operations, successfully building out the supply side of MMT’s business in the region. Saberwal, though, couldn’t shake the urge to build something new in a region that he believed had vast potential.

At the end of 2013, on a business trip to Phuket, Saberwal bit the bullet and ended his nine-year stint at MMT. “I’m a builder by nature, MakeMyTrip was a great story and I loved every minute,” Saberwal told us in an interview. “I enjoyed being at a public limited company and expat life for the first year or two, but then began to feel I wasn’t doing enough with my time.”

Saberwal’s next move was to call his friend and former colleague Kunwar Asheesh Saxena, who had left MMT nearly a year earlier. Alongside Saxena, now the CTO of RedDoorz, he brainstormed ideas in the travel sector. Seven months later, the duo launched Commeasure in July 2014. A business-to-business service, the company allowed hotels to take online bookings in July 2014. But while the business raised a $1 million seed round led by Singapore’s Jungle Ventures and grew to 450 hotels, Saberwal felt the growth “wasn’t exciting”.

Battlelines drawn

Unlike its Indian rival, however, it took a more conservative approach to growth, focused instead on understanding the space. “Our investor Jungle had done studies on Southeast Asia, showing it was better to focus on city-by-city rather than a six-country focus. So, we went hotel by hotel in [Indonesia’s capital] Jakarta, and built our technology around the problems,” Saberwal recalls.

More fundamentally, there was a lot of hand-holding required. Hotels simply weren’t comfortable using the system despite its considerable benefits. This sowed the seeds of what would eventually become RedDoorz, a business that goes well beyond aggregating bookings to offer standardised features and a common brand for smaller hotels. A la its Indian rival OYO.

The Right Event for the Major Considerations

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According to market research firm IDC, the PSG grant is most helpful to micro-SMEs—businesses with fewer than 10 employees and annual revenues under S$1 million (US$710,000). “These are typically family-run shops in the heartlands that have difficulty in digitally mechanising their products and services for sale, and automating parts of their business process,” said Sandra Ng, group vice president heading IDC’s Asia/Pacific Practice Group.

In 2016, Singapore also launched a S$4.5 billion (US$3.17 billion ) Industry Transformation Programme, which has roadmaps to help each industry be more competitive and utilise digital solutions. The government has also formulated Industry Digital Plans, which provide SMEs with step-by-step guides on evolving digitally. They also have training programs to enhance employees’ digital skills.

The resistance

The resistance

Despite the significant incentives provided by the government, Singapore’s SMEs have long resisted digitisation as it still involves time and monetary investment from them, said Ecosystm’s Gupta. “The need to retrain and upskill their teams is also a perceived roadblock to the uptake,” he added.

Just throwing money at it might not always be the answer, as some digital solutions require scale before the economics make sense. The F&B owner quoted earlier recounted a seminar he attended, where a speaker demonstrated automated cooking solutions. However, the solutions only made sense for large restaurant groups. “Not everyone has the volumes to invest in it,” the owner said.

Covid solutions

Recognising the changed environment, the IMDA set aside S$10 million (US$7.05 million) to help businesses move from paper invoices to digital ones

Digital solutions also require buy-in from not just the senior management, but also the staff using them on a daily basis. With the median age of Singapore’s resident labour force being 44, there is a significant chunk of the economically active population that is older and less likely to be receptive to changes in their routine.

The pandemic and the ensuing economic slowdown, though, has turned everything on its head. Digitisation is not so much a choice as an imperative. SMEs, after all, are among the most vulnerable during slowdowns, as many live paycheck to paycheck, said IDC’s Ng. “Most non-essential SMEs will feel the brunt of this shutdown as their costs continue to pile while zero revenues come in [assuming they do not have a digital presence],” she added.

The move to digital is also unlikely to be a one-off blip, said Ecosystm’s Gupta. As consumers get used to interacting with businesses online and via apps, the trend is likely to continue even after the restrictions are lifted. From a talent standpoint as well, employers that lag behind their counterparts in the uptake of digital technology will find themselves at a disadvantage in the future, he added.

“It’s unfortunate that you have a forced situation,” said Sean Liao, founder and CEO of Imaginato, a technology development partner for web and mobile platforms. “People had time, they could have been investing in transformation, investing in connectivity outside of brick and mortar.”

Now, with companies forced to make remote working a reality, and customers no longer coming in via the traditional avenues, digital solutions are beginning to catch on among SMEs.