The world has endured a rollercoaster ride in recent years, starting with the global pandemic, which led to disruptions, unemployment, and loss. Despite reopening for business, the global economy remains uncertain in the face of recession, the Ukraine war, a crypto market crash, high inflation, and a talent shortage. Businesses and organisations now find themselves in uncharted waters where the future remains indefinitely uncertain.
While Singapore may not be facing an immediate threat of recession, the potential impact of the prolonged downturn in economies like the US and the EU looms ominously. Despite current market trends and analysts’ arguments about a postponed US recession, there is just no guarantee that things will get better.
Inflation, wages and talent pinch in Singapore
As Singapore braces for another year of slowing economic growth, it also faces the challenge of rising inflation, which is partly driven by continuous wage increases. In 2022, the median pay for Singaporean workers, inclusive of the employer’s contribution to CPF, unexpectedly surged by eight per cent, up from the previous year’s median salary of SG$4,700 (US$3,531.44).
In addition, fresh graduates from local universities also witnessed average salary increases of SG$400 (US$300.55) to SG$4,200 (US$3,155.76) (without employer CPF contribution) in 2022 alone, marking the highest nominal wage growth in a decade.
With the current inflation rate hovering around five per cent, Singapore’s salary data could create a false impression of its economic well-being. In reality, the slowing economy is dampening employment vigour, leading to higher unemployment rates, while those employed are getting higher salaries.
With the risk of inflation continuing to loom, resident wage growth is expected to remain above pre-COVID-19 rates, potentially escalating business costs and reinforcing inflation concerns once more.
Also Read: Surviving the storm: Singapore SMEs look to global expansion as recession looms
Out of various industries, the finance and insurance sector stands out with the highest wage growth, particularly for local employees, who witnessed a more significant surge compared to foreigners. Interestingly, this surge in wages coincides with a shortage of finance leadership positions across businesses. Data published by the Institute of Chartered Accountants revealed a concerning 36 per cent decline in accountancy applicants year-on-year between June 2021 and June 2022.
Balancing financial health for long-term success
Amid a limited talent pool, companies often resort to aggressive hiring practices to secure skilled employees. However, it is also important to exercise wisdom and foresight to avoid adverse impacts on their financial health.
The pandemic served as a harsh reminder, as tech giants that hastily expanded their workforce during the crisis had to retrench employees a year later when demand for their services did not align with assumptions.
Such retractions not only incur additional compensation costs but also tarnish a company’s reputation. Therefore, maintaining long-term sustainability and stability must remain a top priority for businesses in their pursuit of growth and success.
To maintain a delicate balance between talent acquisition and financial stability, thorough financial planning and analysis are essential. This involves considering different scenarios, cost management strategies, and the impact of wage changes on profitability. This analysis should also be robust and flexible, allowing for quick adjustments as needed.
Once a solid plan is in place, businesses can confidently execute budgets while making minor adjustments along the way. Given the current economic landscape, agility is key, and hence robust financial planning will enable businesses to set and monitor their key metrics, swiftly adapting on a month-to-month basis.
Outsourcing: A future-proofing strategy
To alleviate the impact of rising wages in Singapore, businesses can adopt outsourcing as a proven and widely used strategy. Outsourcing offers several advantages, including reduced manpower costs and the flexibility to scale resources as needed.
Also Read: Smart outsourcing means hiring partners without losing your core brand identity
Through outsourcing, businesses can also avoid the expenses associated with traditional hiring processes, such as advertising, waiting, and interviewing candidates. This approach proves especially beneficial in industries like F&B, where manpower needs can be volatile and turnover rates are high, making conventional hiring workflows impractical.
Outsourcing also offers the opportunity to enhance overall capabilities when faced with challenges in finding or retaining talent in-house. By tapping on external expertise, companies can improve service delivery and gain valuable knowledge transfer, enabling them to stay ahead in a competitive landscape, fostering innovation and growth.
While outsourcing brings many benefits, it also comes with potential challenges. Businesses must be cautious not to prioritise cost savings at the expense of quality, which can result in dissatisfied clients, leading to tangible losses as customers may discontinue their engagement. In more severe cases, the company’s reputation may be negatively impacted, even if the outsourced work was the cause of poor service quality.
To mitigate such risks, it is essential for businesses to carefully select the right tasks for outsourcing and to engage suitable partners. By doing so, they can reduce costs without compromising the quality of work, ensuring customer satisfaction while safeguarding their hard-earned reputation.
As we face an increasingly challenging future economy, planning ahead may not always guarantee a smooth journey. Nevertheless, businesses can take solace in knowing that there are effective tools and strategies available to mitigate risks, lower costs, and maintain a sustainable talent pool.
By deploying these approaches, companies can bolster their resilience, adapt to dynamic market conditions, and position themselves for success in the face of uncertainty.
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