SME Pulse: The way ahead

The Intelligent SME - business outlook 2012Factors like lack of finance and talents have been the bane of the SME industry for ages. However, certain initiatives are now being launched in the UAE in an attempt to solve these issues. A TIS report.

The SME industry has always been at a disadvantage, when it comes to basic elements that contribute to growth and success of enterprises. Time and again, there have been various discussions regarding the plight of these small businesses that contribute so significantly to the gross domestic product of the UAE economy and yet continue to remain on the fringes. Experts keep harping on two primary areas that need immediate addressing for SMEs to become competitive: talent and funding.

Challenges of funding
There are numerous instances of SMEs being forced to close owing to lack of capital. Take for example the case of Mohamed Nassar, the founder and managing partner of WMS Metal Industries. Nasser founded WMS in 2007. He took the company from a start-up to a company listed in Dubai SME 100 and winner of The Big Project’s 2011 Green Building Project of the Year. But Nassar’s journey had not been easy. It was a bumpy ride to success. His first business closed in about six months.

Nassar says that he did receive trade credit from a local bank, but this support was not been a consistent one. “When you’re dealing with local banks in tough times, as they were in 2008, the consistency of support can be very poor. We had facilities that were valid for 90 days. Then, on the 59th day, I get a call from my banker saying that they had changed their terms. The facility was now valid for only 60 days. I had recourse to anything at that time, and yet I had to close my position with the bank within 24 hours. It had been quite a struggle those days,” he recalls.

Nassar’s second business WMS Metal Industries has seen better days. After three years of operation he is expanding, but he owes this success purely to innovative solutions.

Nigel Sillitoe, CEO of Insight Discovery, explains why the small businesses go through messy situations, especially at times like today when there is hardly any confidence in the market. He says: “More fundamentally, entrepreneurs in the UAE are usually expatriates, with strong links to other countries. In the event that their businesses falter, they often leave for good. In fact, given the absence of a modern bankruptcy law, they may face imprisonment if they stay. Potential financiers know this, and often see commercial ideas of merit as being far too risky.”

The Intelligent SME - Business planningA recent panel discussion on SMEs, organised by Insight Discovery offered in Dubai, drew attention to some of major problems faced by this segment of the industry. According to Edward Rodericks, co-chairman, Envestors MENA, an angel investment and corporate finance company, among numerous challenges that SMEs face, those that are in the business of offering services find borrowing extremely difficult, as  they hardly own any  hard assets that can be offered as security. Their second challenge is the cost of funding. Sometimes the rates are punitive, he adds.

“I find it extraordinary that businesses which are trying to grow and develop are able to borrow at that level, let alone to be able to pay it back at some stage in the future,” he says.

Add to that the cost of getting a licence, operating fees, an office space, rents, and many other expenses, SMEs are left with no budget to strategise and develop their business.

Innovating to survive
The need for hiring the right talent in a company is equally important as capital. Many SME owners are of the opinion that talent is key to a company’s success, along with cash flow.

“Every potential candidate is a winner during interviews. Ten days later, they reveal their true capabilities, and the employer is at a loss,” notes one entrepreneur. Finding and sustaining right talent is as time-consuming as any other project, and due diligence needs to be given to this task as well, he adds.

However, despite the difficulties of the present times many SMEs are applying innovative and cost-effective solutions to access capital to cover their burgeoning expenses. Many have diversified their portfolios of services and thereby, increasing revenue lines.

The Intelligent SME - Business - the way aheadHussain Al Tahri, managing partner and director of Al Wegdaniyah Transport, says: “Our company used to cater to retail walk-in clients prior to 2008; but since then we only deal with corporate clients, long-term rentals and leasing. We are focusing only on corporate clients since most companies, these days, don’t have enough liquidity to buy vehicles by themselves and the banks are very tight on lending, so the only choice is to lease out these vehicles, giving them peace of mind to outsource this function to us. This is an effective solution that works in our favour.”

Companies like Atics are going with market trends and developing innovative products. Atics, which primarily provides preventive and predictive electrical maintenance solutions for various sectors by using thermal imaging or thermography, is about to diversify its products on a need-based philosophy. “The world is in need of an energy shift, and renewable energy is the focus of the times. With this in mind, Atics will be entering into commercial trading of solar hybrid generators and energy efficient lighting,” discloses Rashid Al Mutawaa, MD of Atics.

SMEs owners and decision makers are networking regularly, seizing opportunities wherever possible to expand their client database. Indeed, proactive and result-oriented in nature, they are constantly trying to remain ahead of competition, reducing unnecessary costs.

A number of SMEs have also begun to  outsource simple tasks to freelancers and consultants to reduce costs further. This way they have professionals to deal with their projects, while incurring nominal expenses as opposed to recruiting new staff. In most SMEs, multitasking is a habit, where few manage a lot of responsibilities. The owner himself wears many hats and takes care of many specific tasks, be it administrative, financial and so on by himself.

Another way of getting talent and finance is to get a shareholder who is also an industry expert. This is a long-term solution where both parties – the business owner and shareholder – receive mutual benefit.

Financial institutions such as Gulf Finance, and HSBC and National Bank of Abu Dhabi are now closely following the SME industry, supported by their own research arms. Nick Levitt, head of commercial banking, HSBC Bank Middle East, predicts that in the next five to ten years, provision of funding to SMEs will be one of the areas that will experience the largest growth for financial services in the country.

Government support
Many industry experts agree that government support is the key to the success of the SMEs in the country. The governments of economies like Hong Kong and Singapore ensure that half of bank debts are invested into the SME sector. Although there is nothing comparable in the UAE, there are certain positive indications in this regard.

The Dubai Chamber of Commerce and Industry recently signed a memorandum of understanding with NBAD to facilitate entrepreneurship by providing up to US$100 million to SMEs. This is a major development for the UAE, as bank lending to SMEs in the country has been restricted to a mere 3.85 per cent, which is the lowest in the world.

All indications are that the governments in the UAE are beginning to offer the much needed support to entrepreneurs. Rankings such as the recently held Dubai SME 100, organised by Dubai SME, an agency under the Dubai Department of Economic Development, are aimed at motivating SME companies, inspiring them to maintain robust financials, strive for further growth and also offering them beneficial support through financial institutions and advisory.

Mohamed Ahmed Bin Ghalaita, managing director of Suntron, an electronics and home appliance company that was adjudged 31 in the Dubai SME 100 rankings is now looking forward to the next big event. “The Dubai SME 100 ranking has motivated us immensely; we are now looking forward to SME Invest where we will be exhibiting,” he says.

Events such as these, along with trade exhibitions and conferences, will provide value to the SME sector, encouraging knowledge transfer and networking. It is hoped that this steady stream of support will continue till SMEs are self sufficient.


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