SMALL and medium-sized enterprises (SMEs) in the retail sector in Singapore are likely to spend up to US$240 million (S$364 million) on IT related investments this year, which is about 10 per cent more than what they did in 2006, according to the latest report by Access Markets International (AMI) Partners.

Nishant Dave, AMI's Singapore-based research director for the Asia- Pacific region, said this growth could be considered relatively strong for Singapore firms in the retail sector.

'The rate of IT investment growth in Singapore is slower when compared to other rapidly-growing countries in the region,' Mr Dave explained in an interview with BizIT. He, however, added that this was because retail SMEs in Singapore are much ahead of the curve in terms of technology maturity compared to their counterparts in Asean, India and China.

AMI - a US-based market intelligence firm that focuses on the infocomm needs of SMEs - defines SMEs as commercial enterprises with under 1,000 employees. It further categorises them into small businesses (up to 99 employees) and medium businesses (from 100 to 999 employees). 'PC penetration among retail SMEs in Singapore was more than 70 per cent in 2006 compared to the Asean average of less than 25 per cent. Broadband penetration among retail sector SMEs in the Republic was also more than 20 percentage points higher compared to the levels in Asean, India and China,' Mr Dave noted.

Some examples of retail SMEs in Singapore would include well-known names such as Challenger, Hour Glass, Video Ezy, MPH Bookstores and Indo-Chine restaurants.

Across the Asia-Pacific region excluding Japan (APEJ), SMEs in the retail sector will invest as much as US$11.6 billion on IT-related investments this year. Computing - which includes PC and server hardware - and IT services will be the top drivers of retail SME spending this year.

Key countries in the region which will drive retail SME IT spending this year include Australia, China, India, South Korea and Taiwan.

'While retail SME IT spending in emerging markets such as India, Indonesia, the Philippines and Vietnam is set to grow more than 15 per cent year-on-year in 2007, spending in mature markets such as Australia and Singapore will grow less than 10 per cent in 2007,' Mr Dave said.

Nearly 150,000 new retail SMEs in APEJ are planning to invest in basic PC infrastructure this year as a means to better manage their business decisions by using simple productivity tools, Mr Dave said. 'Moreover, many of the current and new retail SMEs are also looking at connecting to the Internet through broadband and engaging with their ecosystem - especially future customers - and expanding their reach to their suppliers,' the AMI analyst added.

According to Mr Dave, the IT revolution in the retail SME segment is taking place at two levels in the region. On the one hand, small businesses (with up to 99 employees) in the retail segment are aggressively investing in basic computing infrastructure. On the other hand, medium businesses (between 100 and 999 employees) are looking closely at the services delivery platforms in addition to IT infrastructure to enhance their competitive edge.

'Both types of companies will face the disruptive threat to their business models from larger retailers which will compel them to re-invent themselves using IT as a competitive differentiator,' Mr Dave said. AMI's Singapore based vice-president for the Asia-Pacific, Raju Chellam, noted that the retail mid-market landscape in the region, though fragmented, has one common issue to deal with - how to redesign business practices in order to face the ever-changing consumer demand while controlling costs to remain competitive.

'IT managers in these companies are looking at this primary business challenge and seeking out IT infrastructure and services which can help address these issues,' Mr Chellam said.

He added: 'Among the top-five retail mid-market countries in the region, IT spending in China and India is expected to grow double-digit year-on-year in 2007. Storage and security will be the fastest growing IT spending categories among retail mid-market companies, growing more than 20 per cent year-on-year.'

AMI's Mr Dave added that some of the key concerns that emerged from the retail mid-market companies were issues relating to managing customer loyalty, maintaining product prices and management of personnel.

'As a result, IT managers in these companies are looking to take the next steps in terms of deploying CRM (customer relationship management) solutions, upgrading POS (point of sale) systems, setting up inventory and SCM (supply chain management) solutions and deploying employee monitoring and service quality measurement systems.'

Although CRM and ERP/SCM spending in the retail mid-market segment is expected to grow less than 10 per cent in 2007, CRM as SaaS (software as a service) is expected to increase two to three times the growth of the traditional application delivery platforms, Mr Dave said.

'Retail mid-market companies have taken to the mantra of adopting service delivery models primarily due to the lack of in-house maintenance capabilities and requirements for maintaining lower fixed costs which are associated with service-oriented application models,' he added.

This article first appeared in BT on April 16, 2007