Small and medium enterprises (SMEs) in Singapore are concerned about labour this year, with 88.4% expecting it to be their biggest cost driver.

Nine in 10 SMEs (87.7%) are also expecting business costs to rise, a report by the Association of Small and Medium Enterprises (ASME) found. Other factors causing cost hikes were foreign workers levies (52.2%), rental (55.7%) and transportation (42.9%).

Chan Chong Beng, president of ASME, said 68.8% of SMEs are hoping this year's Budget will provide more monetary support for them to recruit local talent.

About half (48%) of respondents said their headcount will increase this year, while 11% said they expect no change and 41% expecting a decrease.

"On our part, other than our ongoing efforts of bridging SMEs to talented pools of PMEs and students, we are also exploring other opportunities of bridging businesses to the alternative workforce," Chan said.

The alternative workforce would consist of ex-offenders, undischarged bankrupts, back-to-work mothers and problem youths, with ASME introducing programmes to help them gain better employment opportunities.

The survey also found local SMEs are hoping to expand beyond the local market this year, with 45.3% of companies identifying it as its key strategy in 2013. Of those planning to cross borders this year, 65.8% said they would relocate regionally within Southeast Asia, with Malaysia being the most popular destination.

Chan said companies have to manage currently challenges if they plan on moving forward in 2013.

"The way forward would be to help SMEs speed up productivity improvements and assist SMEs to find alternative solutions to cope with the current unfavourable challenges and measures."