with Lawrence Leow, President, Association of Small and Medium Enterprises (ASME)
With SMEs representing 99% of the enterprises in the country, 63% of the workforce and 46% of the GDP, how would you assess the business environment for SMEs in Singapore and what are the opportunities and threats you see for SMEs in the country?
The government has invested significantly in nurturing the private sector. Public policy has helped the SMEs and there are various initiatives the government has put in place from lowering business costs to providing tax incentives. This is important because a key constraint for growing an SME lies in their financial limitations. This approach has been very successful so far.
By simply looking at the Gross Domestic Product (GDP) per Capita for example, we see an increase from roughly SGD 45,000 to SGD 53,000 from 2004 to 2009. Moving forward, the SME will play an even greater role in its contribution to the local economy. Moreover, SMEs are indigenous companies that are here to stay. They have their home base in Singapore and will bring value back to Singapore. Therefore, it is important to keep nurturing these companies.
Of course, Singapore is a very small market, which is a clear disadvantage for our enterprises. Nevertheless, Singapore deals with this challenge by pushing its companies out of its domestic market. Many plans are put in place by the government to do so. One of these plans is the integration of the Asian countries’ economies to form the ASEAN Economic Community (AEC), an initiative brought ahead from its initially suggested date of 2020. Singapore will clearly be able to benefit from this ASEAN integration. ASME as well as its members are now preparing for this change in order to compete better and tap into new opportunities.
With this integration, Singapore will benefit in many different areas. While there are quite some countries within ASEAN that still have a strong focus on lower-end industries, Singapore is moving towards the higher value part of the value chain. This entire spectrum will offer the SMEs more potential and will allow them to move between these different markets.
ASEAN integration will also benefit the cost of doing business, with talks about the facilitation of customs regulations and better integration of the regional trade. With proper planning and coordination, AEC 2015 will become a very interesting place for our Singapore SMEs.
Where lies the competitive edge of the Singapore SMEs? What can they bring to these ASEAN markets and the rest of the world?
Singapore companies are very strong in management and branding. While Singapore has many different Chambers and Institutions, ASME focuses primarily on two areas: entrepreneurship and branding. This is also the reason why the organization runs two awards: the Entrepreneur of the Year Award and the Singapore Branding Award. In this way, ASME promotes and recognizes these core skills. With good branding, companies can sell better and portray higher quality and service. Winning an Award is an endorsement for these companies. The same applies to the Entrepeneur of the Year Award. As Singapore does not have any resources, it needs to rely on its knowhow coming from its people.
As the head of ASME and a successful self-made entrepreneur yourself, what would be your advice be to entrepreneurs in Singapore to succeed in this market?
Singapore has a very pro-enterprise government, so the setting is all there and the playing field is leveled. The legal framework is very clear and corruption-free, while there is no racial or religious discrimination. It is a fair-for-all system that allows the good performers to advance in society.
If you ask me what advice I can give to an entrepreneur, I would say that person needs to first clearly decide what he or she wants to do. If you think you are suitable to be a business person, you should try to pursue this ambition and the government will be there to help. It is important to grasp the right opportunities at the right moment. Entrepreneurship is a very individual and personal thing, which is why people often wonder whether it can be taught or whether one simply needs to be a born entrepreneur.
Talking about the government, the Minister for Finance Tharman Shanmugaratnam, recently commented that the government will dedicate SGD 1,5 billion growth capital to help companies that have already achieved something and want to scale up. What do you hope to see resulting from this move?
The Minister talked about channeling funds from the government’s budget to raise productivity. There is still room for Singapore to grow its productivity, as this has now become a key element to focus on before looking at anything else. When everything is going well, you will of course try to focus on other elements, but after a big recession it has clearly become a key area of focus. The government therefore decided that Singapore cannot afford not to look at productivity in terms of growing the economy.
These SGD 1,5 billion will obviously come in useful following previous measures such as the job credit that was implemented during the global financial crisis. The job credit initiative basically consisted of the government financially supporting companies to lower the burden of the staff salaries. For every employee the government gave amounts up to roughly SGD 300 per head per month. This was a first-time initiative of the government and has significantly helped the local companies during a rough economic time.
The recent recession was the worst in 60 years which is why the government has seen the need to retain jobs and keep unemployment levels low. There were various other initiatives in other countries too, whereas I have even heard about shopping vouchers in Taiwan. In general, I have always had the impression that the Singapore government has had the ability to find the right diagnosis and cures for the relevant illness. This is why the country and its local businesses have been able to recover strongly in the aftermath of the financial crisis.
Regarding this cooperation between the private and public sector, the government’s condition was that it would only provide half of the growth capital for companies to scale up. How do you think companies or investors can be attracted to share this funding?
When we speak about co-investment and how to attract investors to Singapore, we can look back at the last ten years which has been a period of continuous inflow of investment into Singapore. By sharing these investment schemes with the private sector, the government does not have to be too preoccupied with defining and analyzing which opportunities are worth investing into. It is much more pertinent to have the private investors looking into the different opportunities. Once the private sector decides to invest, the government can additionally provide part of that investment. This approach tends to work well if we look at the number of promising enterprises a small country as Singapore is able to produce. Moreover, the legal and financial framework is in place to gain the trust of the investors of the private sector.
If attracting investors is not a core challenge to finance growth, what are the alternatives for SMEs to obtain financing?
During the financial crisis, the Singapore government introduced various schemes when the banks became temporarily averse to providing financing. The government therefore asked the banks to assess investment proposals and once done and approved, it would provide the necessary funding. However, once there would be a default, the government would take up to 80 and sometimes even 90% of the debt. The banks therefore came in and facilitated this process because they have the infrastructure in place to evaluate these proposals.
As the upturn came, the government either reduced or removed these schemes while the banks started to actively lend their own money again. When ASME did a survey two years ago, financing was identified as the biggest problem. However, in more recent surveys new topics came up such as market access. While financing is still a problem for some SMEs, it does not seem to be the big stumbling block from the past anymore. I therefore feel that, at this moment in time, there is no lack of financing.
At ASME, what are the areas where your members need your support the most?
At the moment, ASME is working hand in hand with the government. For the government, human resources are sometimes limited which is why these different Associations, Institutions and Chambers exist. The government uses these groups to help the respective industries, because they are closer to them and can more easily identify and bring forward certain concerns and problems. ASME now aims to find out how it can better work together with the government to help the Singapore companies, in line with initiatives such as the aforementioned AEC 2015. While it has not yet been confirmed, we are planning to have an association present overseas in the ASEAN region. If this will happen, it will likely happen sometime next year.
This also reflects your members’ demand to grow out of a small domestic market…
Exactly, the local SMEs cannot just stay here if they want to grow in the future.
To what extent would you agree that ASME is a matchmaker between the investors, partners and the companies here in Singapore?
ASME is run by volunteers with a committee that is being elected by its members. We therefore have a responsibility to the whole business community. Because we are businessmen, we think just like our fellow members.
ASME needs to constantly engage its members and non-members to understand what their needs are and also inform what the government is planning and which direction it is moving into. ASME serves as a bridge between the policy-makers and the SMEs and will continue to play this role actively.
What ASME really wants to do now, is to look at the two broad themes mentioned earlier: promote entrepreneurship and focus on branding to facilitate market access. When we say that we see the potential for further presence in ASEAN, we clearly see the potential for Singapore SMEs to do more business overseas.
If we look at the oil and gas and related industries in particular, we obviously have the big players such as Keppel and Sembcorp that have lost their SME status. To what extent are the SMEs in this niche dependent on these big players and what role can ASME play to help these SMEs grow stronger?
There is in fact a significant number of SMEs in this niche that play a supporting role. These are mostly members of other associations such as SBF and ASPRI for example. ASME does not have the scope to cover all these companies and is more generic in its type of companies it targets. While the term states SME, we in fact welcome all types of companies. Regardless of the industry a company belongs to, ASME will do its best in being of assistance.
If we look at the future with an increasingly globalized economy, how is ASME going to evolve and how do you see role of the association evolve in the coming years?
We want to make ASME more pro-active in the sense that we want to initiate a lot more programs for our companies. Of course, the role that the association will play is to help and work with the government to shape the SME landscape in Singapore. If we are pro-active and remain very active in the way we look at the SME sector, we can then really give the right feedback to the government for them to create the right policy. The other way is of course that the government tells us what to do and follow along. However, rather than being a follower, increased pro-activeness will allow us to move much faster. We want to be ahead of the cycle!
Thank you very much. Do you have a final message for the readers of Oil and Gas Financial Journal?
Singapore is a very conducive place. People from all over the world that come here will feel the vibrancy and the atmosphere of the nation’s economy. Whoever invests in Singapore, invests in a part of Asia. Although Singapore is a small country, it is very well connected and clearly plays a very important role in this part of the world. Coming to Singapore means coming to the real hub of Asia. It is multiracial and very cosmopolitan, and a good place for investors to invest!