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Rising costs, declining profitability pushing companies out of Singapore [26-02-2013]  
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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% reported a year-on-year drop in operating profit margin for the first three quarters of 2012. That was the biggest percentage for the ninemonth 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 South-East Asia, 54% 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$100mil (US$80.8mil).

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% 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% of respondents US businesses which are members of the chamber were considering moving operations away, while 5% 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% and labour costs have risen as much as 20%.

Small and mediumsized 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.

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