1. Rethinking Singapore SME strategy for broadbased growth
SBF SME Convention
New Economic Paradigm – Are SMEs Heading in the Right
Direction Towards Transformation?
Parth S. Tewari
Competitive Industries Practice, World Bank Group
October, 28th 2013
0

2. Today’s discussion
– Why it is important to focus on SMEs – particularly towards maximizing the
number of firms with revenues greater than $100 million
– Some global trends on SME strategy (e.g. case studies from Chile and
Austria)
– What can Singapore do further in order to significantly enhance its SME
strategy around:
• International market strategy
• Technology strategy
• Better targeting at limited resources towards growth of high potential
SMEs
1

3. Singapore punches above its weight by dynamic policy
implementation and by leveraging its geographic advantage
Singapore’s share of World
Basis points
220
38
7.6
0.05
0
~0
Land
Energy
resources1
Basic
Materials2
Population
Human and natural endowments
1 Energy resources include petroleum, natural gas and coal
2 Basic materials scan included Iron ore, Copper ore, Bauxite
Source: World Bank; USGS; EIA; Team analysis
2
GDP
Trade

4. Singapore’s economy has evolved to stay competitive
Import substitution
1960 - 1964
Export
Orientation and
Labor-intensive
Manufacturing
Capital
intensive
manufacturing
1965 - 1985
1986 - 1997
$50,000
Innovative
competitiveness
1997 – 20XX
$46,241
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$395
CAGR of 10.2%
$0
1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: Civil Service College of Singapore (May 2012)
3

5. Singapore is significantly ahead of most countries in the world
in terms of business climate
Rank
1st
Ease of doing business (World Bank Group)
1st
Index of Economic Freedom (Wall Street Journal)
1st
Asia’s most “Tech ready” City (PwC)
1st
Potential net migration index (Gallup)
3rd
Global Competitiveness Index (World Economic Forum)
11th
Quality of Life index (Economist)
4

6. Singapore has an ambitious SME development goal
Number of local firms per year
that go on to cross $100 million
annual revenue
50
$100 million companies by founding
year; United States
250
200
10-15x
150
100
3-5
Singapore goal*
(next 10 years)
United States
experience (19802010) – scaled to
Singapore GDP
* ESC sub-committee on developing vibrant SME landscape and
globally competitive local enterprises
50
1980
1985
1990
1995
2000
2005
2010
125-250 companies per year that are
founded reach $100 million in
revenues in reasonable time
Source: Kauffman Foundation
5

7. Besides the key SME issues, the main challenges facing
Singapore firms today include the troika of rising labor
cost, pressure on sales and economic uncertainty
Top 3
challenges
2009
Top 1
2010
2011
2012
Slower sales High labour
cost
High labour
cost
High labour
cost
Top 2
Uncertain
economic
environment
Increasing
competition
in area of
sales
Uncertain
economic
environment
Uncertain
economic
environment
Top 3
Increasing
competition
Increasing
competition
in other
areas
Increasing
competition
in area of
sales
Slow growth
in sales
Source: SBF national business survey report 2012/13
6

8. Three ideas to further enhance Singapore’s already strong
SME strategy
Three ideas to further enhance Singapore’s SME strategy
1
Based on…
Market
1. Detailed study of
Singapore’s
current SME
strategy and
initiatives
2
Product
innovation
2. Latest global
trends and best
practices
3
Firms
Not just well known
large markets
Target and identify
most promising
international micromarkets
Not just
productivity
technology
adoption
Move up the
technology capability
curve
(innovator, creator)
through smart
industry
collaboration
Support competitive
SMEs in a more
systematic yet
inclusive way
No more clunky
and unsegmented
support to SMEs
All three ideas have been seeded in Singapore but
are still far from prime-time
7

9. 1
Target and identify most promising international micromarkets
Contribution to GDP and GDP growth by
type of city; Per cent
EM small/rural
55 $Tn
16%
29%
EM middleweight
EM megacities
2/3rd of a company’s growth comes
from “where it is playing”, only 4%
from “how to play” or market share.
Rest 30% from M&A
•
Usual suspects on “where to play”
does not work. Top cities by GDP
today are not the most promising
cities. 230 EM middleweights of 2025
do not make it today’s 600
(e.g., Ahmedabad, Fushan, Medan)
•
India has a negative macro-story
currently but that belies underlying
strength of select states
e.g., Gujarat, Bihar
•
56 $Tn
•
Within a city like Mumbai or
Beijing, there are large differences in
growth of Micromarkets within city
(e.g., proxy is new bank or customer
retail branches)
100%
11%
3%
37%
Developed
economies
70%
8%
26%
GDP
2007
GDP growth
2007-25
Source: McKinsey Global Institute; team analysis
8

10. 2
Move up the technology S-curve from adaptor to creator…
Technology capability level of firms
Singapore’s current focus
Creators: creating the future
•
Innovators: developing the
next generation of
innovations
•
Adaptors: Adapting
available technologies to
own context
Users: Consuming
technology as-is
Major investment in science
and technology research (AStar)
Beginning to invest in industry
collaboration (CIP)
Significant portion of Singapore
investment and focus
• PIC
• Technology adoption
program
9

11. 2
… through focusing on smart industry collaboration
Chile BHP Billiton – world
class supplier program
Clusterland Upper Austria –
innovation through cooperation
•
Vision: Convert 250 of the 3000+ local
suppliers to BHP Copper mining cluster into
world class suppliers (>30% sales from
exports)
•
Goal: Promote innovation in Upper Austria
province in 6 clusters (e.g., auto, plastic etc)
and 3 cross-cutting themes (HR, design, energy
efficiency)
•
How: Project-based development
strategy
• Project problem floated by mining co
• Suppliers need to innovate to solve
• Suppliers supported by mining
co, univs, govt
• Suppliers supported in scaling up and
exporting successful solutions
•
How: Collaborative Projects
• Institution co-owned by govt and chamber of
commerce and federation of austrian
industry
• 76% self-financed through annual fees from
companies
• Main goal is to catalyse multi-company
innovation projects, which eventually are
submitted as proposal for bigger funding
•
Example: Prodinsa (local supplier)
improved shovel cable life by 40%;
Biohydro automated wetting phase in
Copper leaching process
•
Impact:
• 323 projects, 1375 partners
• E.g., microchip prototype for dental braces to
monitor temperature;
10

12. 3
Support competitive SMEs in a more systematic yet inclusive
way
Competitive SMEs matter disproportionately –
This calls for new policy themes and importantly
6% of firms surpass net new jobs by economy
Share of total
US firms
Net new jobs created (Mn)
USA, 2004-08
new process of policy development
From…
Policy Goals
•
All
firms
5.8
HIC
SME
6.0
100%
Increase #firms in
economy
•
Enable high potential
firms to grow
•
Management capacity
building;
internationalization
(micromarket );
innovation (“creator”)
Policy Themes
•
6%
Business
planning, productivity
tech adoption and
broad
internationalization
•
•
Policy Process
•
HIC
large
Other
firms
… To
4.8
-4.9
Source: US Small Business Administration
0.01
%
94%
Broad themes, each of
which ends up
supporting a few
promising companies
(note: selection and
resource prioritization
happens but it is adhoc)
•
•
•
•
Define ~500-1000
competitive SMEs
Understand special
needs, design
policy/initiatives
Track progress of this
set
Measure and feedback
effectiveness of govt
program based on fate
of these firms
11

13. Thank You
Parth S. Tewari
Head, Competitive Industries Practice
Finance and Private Sector Development Network
The World Bank Group, Singapore
ptewari@worldbank.org
12

14. Appendix
13

15. Singapore firms’ top overseas challenges are competition, unclear
rules and manpower issues; funding was much less of a concern
Source: SBF national business survey report 2012/13
14

16. Singapore firms’ major internationalization strategy is around local
partnership building and deeper penetration
Source: SBF national business survey report 2012/13
15

17. Trends in SME strategy
Key global trends (selected examples)
Which products? –
sector mix, value chain
•
•
•
•
Rising middle class in developing world
Rapid urbanization of developing world
Hausmann product space
Technology boom (3D-printer, smartphones)
Which Geography? –
country/city/subnational
•
Granularity of growth – strategy at country level is not
enough
400 mid-sized Emerging market cities to generate 40%
of global growth
Where to play
Goal: Maximize
companies > 100
mn revenue
(Secondary goal:
Improve average
firm productivity)
•
Optimal cost (through
productivity measures)
How to win?
Differentiation
(quality, innovation)
•
Structure limited resources to support Competitive
SMEs in an inclusive way
•
Net new jobs (6 mn) created by 6% of US SMEs
surpassed the total net new jobs (5.8 mn)
created by the whole economy (2004-08)
•
Execution
Chile case study: Target to make suppliers to anchor
investors as world class companies that export
internationally
•
Austria case study: Promote innovation through an
institution that actively works on collaboration
Talent and capacity
Cross-cutting
enablers
(factor
condition)
Capital
Knowledge and Tech
Business
environment, infrastru
cture and institutions
16

18. Singapore’s SME productivity strategy seems to be focused on tech
updgration
Singapore’s current strategy
Which products? –
sector mix, value chain
•
Internationalization in sectors with core strength –
logistics, planning and management, industrial parks
and zones
Which Geography? –
country/city/subnational
•
Diversified across many market; strong institutions (IE
Singapore). Is the strategy granular enough?
Govt initiatives: Market readiness assistance
(MRA), support for in-market business development
Where to play
Goal: Maximize
companies > 100
mn revenue
(Secondary goal:
Improve average
firm productivity)
Optimal cost (through
productivity measures)
How to win?
•
•
Differentiation (quality,
innovation)
•
Execution
•
Workforce and training support; wage credit scheme;
major initiatives in both vocational and formal education
•
Government backed loans
•
Talent and capacity
Cross-cutting
enablers
(factor
condition)
Singapore is a high income country with cost
competitiveness coming from productivity measures:
•
Productivity and Innovation Credit (PIC)
•
Technology adoption program
•
Collaborative industry products (CIP)
•
Land productivity grant (LPG)
•
Capability development grant (CDG)
Singapore’s current approach is more focused on
lower end of the technology chain
Strong institutions (A-star)
•
#1 in WB Doing Business; EnterpriseOne; SME centres
Capital
Knowledge and Tech
Business
environment, infrastru
cture and institutions
17

19. What does Singapore export?
18

20. Where does Singapore export to?
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21. Only 5 percent of firms in a cohort of SMEs become competitive
High level estimates
Growth profile of a representative SME
cohort
(After 7 years)
100
60
20
15
5
All firms started
in a cohort
Source: Team analysis
Exit
Self-employed
lifestyle
Moderate/capped
growth
High
growth/competitive
SME
20