Debate on Budget 2016: Unlocking the Entrepreneurial Potential Of Local Firms And Singaporeans – Speech by Leon Perera

(Delivered in Parliament on 4 April 2016)

Madam Speaker, before I begin please allow me to declare my interest as the owner of a mid-size Singapore-based enterprise. Madam, we need local enterprises as the third pillar of our economy, standing alongside MNCs and government-linked enterprises or GLCs.  Right now the share of SMEs in value-added is less than what their share of business numbers and employment would imply.  We lack the equivalent of Germany’s “Mittlestand” – world-leading SMEs who are mid-sized and world leaders in niche product categories or technologies, like Faber-Castell, a manufacturer of pencils.

The issue should not be framed in terms of just providing state support to help companies survive but in terms of providing enablers to help companies to develop their own competitiveness. The state has a vital role to play in countering some of the down-sides of our economic environment, like high costs. But it should also act as a catalyst to help SMEs identify, develop and maintain their own critical competitive success factors.  This is especially so in regards to developing productivity, where Singapore is still struggling in certain sectors, especially in services, construction and other domestically oriented sectors.

To this end, our main focus should not be only on short-term props like ensuring more public sector construction projects, even if those are necessary to smooth out short-term fluctuations, but on making SMEs more competitive and more productive.  In this regard I have several suggestions.

Productivity benchmarking

Companies all operate at different levels of productivity even in the same industry. I used to bring my children for breakfast before taking them to swimming class when they were much younger. Near the swimming class, there were two café outlets. One frequently had 5, 6 or 7 staff present, many of whom were standing around with nothing to much of the time. Yet many dishes were not available or took a long time to prepare. Orders were sometimes forgotten or mistaken. The other café outlet had 2 to 3 staff and yet all food and drink were prepared fairly quickly. No prizes for which one we went to most of the time.

However companies do not all know how well they are performing vis-à-vis their industry peers. This is particularly true of SMEs. They do not have that visibility about the rest of their industry and often do not have the resources to understand what productivity levels are like in other developed countries and how those are achieved. What is visible is only public information, which tends to be about larger, public listed companies and industries dominated by these larger companies.

No doubt the National Productivity Council and SPRING do work with SMEs to raise productivity, disseminate best practices and so on. But nothing beats a simple quantitative ranking to focus minds.

I suggest a productivity benchmarking system. This would be similar to how our household utilities bill shows a chart of our electricity and water consumption compared to similar sized households and the national average. Economic promotion agencies of the government can agree on a company-level standard for poor, average, good and excellent productivity. Government agencies could then automate the extraction of data from financial statements filed with ACRA, even for private exempt companies. This data analysis could be used to derive the average figure and the figure for each company. ACRA, SPRING or another government agency could then write to each company each year to inform them about their level of productivity, where it is ranked versus the industry average and where it stands relative to the benchmarks which have been derived from global analysis. Improvement in a company’s productivity rank could be used as one criterion or one forward-looking condition, not the only one, to grant access to government schemes.

R&D Match-making

My second suggestion is to create an R&D matching facility to allow SMEs to work with Autonomous Universities or AUs and national research centres (RCs) and research institutes (RIs) under the A*STAR umbrella to call for tenders for standalone R&D projects.

The Minister for Trade and Industry revealed, in response to my Parliamentary Question, that from 2004 to 2014, the total number of licensing agreements signed with private companies by Exploit Technologies Pte Ltd (ETPL), which helps commercialize intellectual property (IP) from the R&D sector, was 920 or just over 80 a year. Of these, about 80% were with SMEs and start-ups.

But we can do even better in intermediating between the R&D sector and local SMEs to allow synergistic projects. The example of Taiwan’s ITRI, Germany’s Fraunhoffer network or even how some Japanese MNCs collaborate very closely with Japanese universities to outsource part of their R&D, is interesting in this regard.

I suggest we create a facility whereby local SMEs are able to proactively put out a tender of sorts for a potential R&D project and assess “bids” from interested researchers at our RIs, RCs and AUs. If a project is agreed between the parties, A*STAR and other relevant agencies could provide co-funding in exchange for job creation commitments or some form of modest profit sharing. This would appeal to SMEs who seek R&D support for ideas they may have but lack in-house R&D resources and who may not want to go down the path of the GET-Up programme which allows researchers to be seconded to companies, since their need is more project-specific.

Sector-specific Measures

Madam Speaker, the services and construction sector are sectors which are still grappling with productivity issues. These two sectors will see foreign worker levy rises. But with PIC support tapering down towards 2018, are the measures in Budget 2016, such as the automation support package[1] and industry transformation initiatives enough? We need both carrot and stick for these sectors. It may also have been the case with some firms that PIC was not used to make game-changing investments in technology in the past. For these two sectors, to help them transition to a higher productivity future, we should pay careful attention to ensure that funding support is generously available to make transformational, game-changing investments in technology and work process, either using the automation scheme provisions or some other incentives.

High Costs

Next, SMEs still face problems to do with high cost, problems attracting talent and access to finance.

Some of these issues were highlighted in the SBF’s January 2016 report on a vibrant Singapore private sector. The Government needs to help balance the playing field.

For example, Unit Labour Cost for the Overall Economy increased at an average rate of 2.15% from 2010 to 2014. This is higher than labour productivity growth of 0.3% (measured in terms of real value-added per worker) and 1.3% (measured in terms of real value-added per hour worked) over the same period.[2]

In this regard, I would like to discuss two Budget measures – the Jurong Innovation District.  I will take up the issue of access to finance in COS.

On the Jurong Innovation District, one of the key challenges SMEs face is rental costs. Will the JID provide a rental cost environment that will be conducive to SMEs and start-ups also taking advantage of the space? Or will rentals be high, eating into their start-up funding? More broadly, the issue of high rentals has to be addressed as it is a bigger and more fundamental impediment to start-ups and SMEs evolving innovation capacities as opposed to getting access to innovation districts with purported network effects. My colleagues will have more to say on this issue of rentals during the COS.

Whole of government approach

Next, the Workers’ Party suggests that we create a mechanism to ensure a high-level, whole of government approach to SME development that goes beyond MTI. If we see SME development as a critical national priority, as I believe we should, we should create a National Secretariat for local enterprise development, one that brings together multiple government departments and Ministries and which can create and execute goals for different government agencies to nurture local enterprises in their spheres of responsibility. In the same vein, the SBF has suggested creating a Minister for SMEs.

More help for those who want it and can deliver results

Next, on nurturing SMEs, the pool of SMEs is also not equal in terms of their goals and aspirations. Some aspire to become world-class whereas others aspire to maintain themselves as SMEs indefinitely.

Our approach to incentives should reflect this inequality very strongly. As was practised by Japan and Korea in their early days of post-war development, I think there is far more room for our SME government support – access to finance, tax incentives, cash grant schemes and so on – to be far more calibrated based on the aspirations of SME. We can give more aggressive support and agree on stretch goals with those local enterprises who want it and who can deliver results. But the support should be conditional on hitting goals in terms of revenue, investment, job creation and so on, as determined by audits or checks. And the support should be unequivocally withdrawn if results are not achieved within a certain time frame. The genuinely entrepreneurial and ambitious SMEs would welcome this.

Unlocking everyone’s talent

Lastly and briefly, making SMEs more competitive is also about unlocking talent in Singaporean entrepreneurs and workers. There is a pragmatic case for egalitarianism as unlocking hidden talent, particularly for our local enterprise sector which needs it most.

The CareerBuilder Singapore’s Employer of Choice 2015 Survey showed that sectors like the Government/Public Service (6.6%), Airline/Travel (5.3%) and Banking & Financial Services (4.5%) are the top industry sectors that Millennials want to work in. In other words, many of our young Singaporeans are drawn to work in the public sector, MNCs and banks. This draws talent away from start-ups and local enterprises, particularly SMEs.

To tilt the playing field to nurture our local enterprises, we should do a few things.

Firstly we should do more to foster entrepreneurial attitudes in school, not only at the tertiary level but at the secondary level as well. We should also teach our children about the contributions of entrepreneurs and local firms.

The SME Talent Programme (STP) helps local SMEs attract talent from local educational institutes by co-funding internships, study sponsorships and fresh-hire training. In 2015, the Minister for MTI replied to Mr Chen Show Mao that 155 STP job matches and over 700 STP internships were conducted, benefitting 192 enterprises. More publicity should be created around existing SME talent schemes among both SMEs and students to drive the take-up higher – in terms of media awareness programs as well as school events. SMEs should also be encouraged and aided to develop employee branding to be more successful in hiring.

Lastly we should do more to measure and raise social mobility, to provide more educational support to persons with disabilities to develop their talents and to work with ex-prison inmates to support their entrepreneurial dreams. I shall have more to say on these topics in COS and future debates.

The reason I raise this subject in a discussion on local enterprises is that future entrepreneurs and innovators can come from such backgrounds. In a situation of talent-scarcity, we must do more to unlock these sources of talent, not just because it is the right thing to do morally but also economically. The late Andy Grove of Intel, for example, was severely hearing-impaired as a young man but went on to transform Intel and the global semiconductor industry.

Thank you.


[1]  ($400m over 3 years, $450m national robotics program over next 3 years)

[2] SBF Jan 2016 report; Source: “Yearbook of Statistics, Singapore, 2015”, Department of Statistics, Singapore; & “Trends in Actual Hours Worked & Implications for Labour Productivity”, MTI, August 2015