Key Challenges for SMEs in 2011

Following the onslaught of the global economic crisis in 2009-10, we have now begun to experience some form of short-term recovery. It still remains unclear how SMEs can chart a sustainable path for the next economic cycle shock - which appears to be getting shorter in the last 20 years.

Here, we list you the top 3 challenges that SMEs are likely to face - and how correspondingly, they have to address more proactively in 2011:

1. price and margin pressure:  the economic recovery, in the short-term, is likely to drive competition up - and encourage the entry of new players due to improved sentiments. Such players would try to push prices down in order to get a slice of market share from incumbents. The existing players, would have to adjust their pricing mix across its product portfolios. Now the problem is, we estimated that at least 60% of SMEs does not have a diversified product mix - which means that any form of adjustments, is limited to a few products. The issue of product dependency and concentration thus becomes apparent. Overall margins for the incumbents - in industries such as retail, trading and services are most likely to be affected.

2. scalability of business model: any product offerings, pricing strategies, business positioning and clientele mix managed by a particular SME needs to be scalable. We estimated that around 77% of Asian SMEs have difficulty to scale up their business model into new markets and acquire new clientele base. This is a critical hurdle to overcome should they want to improve thier underlying profitability.

3. diversification and focus: in order to capture new opportunities, around half of Asian SMEs typically would want to diversify their business quickly. However, the lack of understanding of the supply and value chain positioning, including underestimating the level of resources vs overestimating returns that could be recouped, cause distraction and often, shift the focus away from their core competencies. This would either impede growth and if any growth is experienced, it would be ad hoc and moving in all directions. Any form of diversification strategy needs to be in line with the firm's a) resources b) core competencies c) short-long term goals d) systematic; failing which, revenue would always be volatile, and a high staff turnover is expected; or worse, management changes.