Southeast Asian margin squeeze snags Singapore Inc

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

global economy.

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

million).

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.

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 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

percent.

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

business model."

($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)

Source: http://news.yahoo.com/southeast-asian-margin-squeeze-snags-singapore-inc-210006135--sector.html

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