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OCBC SME Index: How Small Businesses Can Use Data To Forecast Their Industry Direction

BMI is a useful indicator of a person’s health, while the PSI tells us about our air quality. In that same vein, the OCBC SME Index is a measure of the business health and performance of Singapore’s SMEs.


This article was written in collaboration with OCBC Business Banking. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.

Good and timely data can help entrepreneurs make better business decisions. While large businesses can invest in data capabilities on their own, smaller businesses may lack the funds and resources to do so. Instead, they tend to rely on general trade and industry data information from the government.

To begin with, there may not be a lot of details within these government releases for SMEs to garner deeper industry insights from just government data, putting SMEs at a disadvantage.

That’s why OCBC SME Index can be a valuable resource for small businesses to understand and forecast their industry direction.

What is OCBC SME Index?

OCBC SME Index is a data-driven index that measures the business health and performance of small-medium enterprises (SMEs). The index is derived using the SME transactional data of over 100,000 OCBC Bank SME customers in Singapore with an annual sales turnover of up to S$30 million. The OCBC SME index comprises six indicators including collections, payments, cash flow, credit and debit transactions and balances of OCBC SME customers. This is then robustly tested with data from 2013 to the present.

For the first quarter of 2021, the OCBC SME index score is 51.2. This is a positive sign as the score exceeds 50. A score of 50 indicates no change in the inputs on average from a year ago, a score above 50 indicates improvement in the business health and performance of SMEs while a score below 50 indicates a deterioration.

This is the first quantitative data-driven, high-frequency index that focuses solely on SMEs and the results will be published by OCBC Bank monthly. This makes the OCBC SME Index particularly useful for small businesses.

Small Businesses Can Use The OCBC SME Index As A Benchmark

Aside from general business observations and industry talk, one way that small business owners can have a sensing of business sentiments is through government survey data. The Ministry of Trade and Industry (MTI) and Department of Statistics Singapore (SingStat) publish quarterly survey results on the Business Expectations of the Manufacturing Sector and Services Sector.

These surveys are useful references on the general business sentiments of the various sectors. However, they are limited by the fact that they are based on surveys where respondents are asked about sentiments on the business situation in the future. These surveys are also qualitative in nature.

This is where OCBC SME Index can come in to act as a benchmark and affirm the business sentiments. As the index is based on transactional data, it can provide a quantitative perspective of the business situation on top of the qualitative survey data. Moreover, the data used is also current rather than forward-looking.

For example, according to the Business Expectations of the Services Sector (Second Quarter 2021),  the overall business outlook for the services sector for April to September 2021 was increased in positivity (net weighted balance of 11%) with an improvement from the previous quarter. This tallies with the OCBC SME Index’s finding that the first quarter of 2021 showed the first expansionary sign (exceeding 50 points).

Source: OCBC SME Index 

The OCBC SME Index is also more specifically catered to those who need it the most – small business owners. By capturing information from only small businesses, SME owners will have a better understanding of the industry that they are operating in and how they compare to their peers. In broader government statistics, data also comes from larger businesses, which may not give small businesses the full picture.

Small Businesses Can Have A Clearer Sense Of Their Industry

While having official trade and industry data from MTI and Singstat is useful, the way the government agencies categorise industries can be non-intuitive to business owners.

For example, the closest to the healthcare industry under the official Business Expectations surveys is Biomedical Engineering for the Manufacturing Sector and health services is subsumed under Recreation, Community and Personal Services for the Services sector. This makes it more challenging to identify any industry trends for small businesses in the healthcare sector using just government statistics as the categories may include other non-related industries as well.

Instead of using government industry categorisation, OCBC SME Index classifies its data along value chains, which makes it easier to spot industry trends. This also makes it more intuitive to business owners who can immediately identify where their businesses are within the value chain.

For example, while the overall Healthcare Industry did better than the overall economy, healthcare service providers such as clinics were actually severely affected by the pandemic compared to healthcare distributors. If you are running a clinic and haven’t experienced an improvement in performance in 1Q 2021, you will know that it is not in line with others in your industry. This can encourage you to ramp up marketing efforts or to introduce more competitive prices.

For distributors in the healthcare industry, benchmarking your performance against the overall healthcare industry may not give you the full picture either. You may have thought that you were outperforming your peers in 2Q 2020 when you were actually on par.

Source: OCBC SME Index 

Seeing green shoots in the OCBC SME Index will provide validation for SMEs in those particular sectors to invest in expansion plans if that’s something they’re considering.

Small Businesses Can Read Changes In The Industry Pulse Faster With OCBC SME Index

A more frequently updated data resource can allow small businesses to take a faster pulse on industry changes. While the Business Expectations surveys are useful in giving a qualitative sense of how the industry is moving, they are only published quarterly. This can be too slow to capture rapid changes in the economy.

For example, the sudden announcement of Phase 2 (Heightened Alert) will affect many businesses for most of 2Q2021. This would change the business sentiment rapidly, making the Business Expectations of the Services Sector (Second Quarter 2021) – released on 30 April 2021 – obsolete.

As the OCBC SME Index is updated monthly, changes in business health and performance will be captured in the next monthly report and will be a more accurate representation of industry performance.

The SME focus of the OCBC SME index also makes the index more useful for small business owners in capturing the actual industry performance of small businesses compared to the overall government trade data, such as the Monthly Retail Sales Index and Food & Beverage Services Index. While the government trade data can be useful in providing an overall sense of the industry, it may not capture the extent of the impact that the tightened measures have on small businesses.

The organisation of data along the value chain also enables SMEs to monitor downstream or upstream segments which can act as a crystal ball for your future business performance. For instance, if you are an SME producing building materials or an engineering firm serving small construction projects, the business health of small contractors could foreshadow your near-term business performance. With the OCBC SME Index, you can keep monitoring this information with the Construction SMEI.  This information allows you to quickly identify upcoming upswings or downswings in performance and capacity requirements.

The data can also help validate certain business decisions. For example, the Phase 2 (Heightened Alert) closure of dining-in options is likely to severely affect F&B service providers. Whereas the good performance of F&B wholesalers and retailers during the worst of the pandemic in 2020, as indicated by the OCBC SME Index, suggest that these segments will continue to be resilient. This could help validate the decisions of F&B service providers considering a pivot to another part of the value chain as a wholesaler or retailer.

Read Also: What Is Invoice Financing And How Can It Help SMEs In Singapore With Their Cash Flow?

Being able to forecast the industry direction can be a great boon to small businesses to help them assess how they compare to their peers in the industry. As the first data-driven high-frequency SME-focused index, the OCBC SME index is a resource that small businesses should take note of and use in their own business reviews.

Need Financing Support During This Period?

From now till 31 July 2021, SMEs can enjoy extra financing support of up to $3 million through the Temporary Bridging Loan Programme and enjoy 50% off your facility fee when you apply online with OCBC. Terms and conditions apply.

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