Feb 25 (Reuters) - 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
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
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.
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
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
($1 = 1.2382 Singapore dollars)
(Reporting by Eveline Danubrata in Singapore and Tripti Kalro
in Bangalore; Additional reporting by Anshuman Daga; Editing by
Emily Kaiser and Edmund Klamann)