MNCs or SMEs?

Perspective from Singapore

Local Business Development Forum 2010

18 November 2010 Brunei

Professor Tan Kim Song

Singapore Management University
 ASEAN: Business Environment Rankings

Indicators Singapore Brunei Malaysia Thailand Indonesia

Global Competitiveness Index 3 28 26 38 44

2010-2011

WB Ease of Doing Business 1 112 21 19 121

2011

Source: Global Competitiveness Report 2010; WB Ease of Doing Business 2011

 Foreign Companies vs. Local Companies
Trends in the share of Value-Added by Ownership and Size

$bil $bil
250.0 250.0

200.0 200.0
51%
51%
150.0 52% 150.0 53%
49% 53%
48%
43% 44% 45% 47% 55%
56% 54% 56% 54%
100.0 100.0

50.0 50.0 49%

57% 47% 47%
56% 55% 53% 52% 51% 48% 49% 46% 45%
44% 46% 44%
0.0 0.0
2000 2001 2002 2003 2004 2005 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007

Local Foreign SME Non-SME

Source: MTI, Singapore

4
 Foreign MNCs Dominate the Economy
Manufacturing
100 Local Local SMEs
% VA Attributable to Local Enterprises

Non-SMEs
Local dominated
Dominated
Non-SMEs Local SMEs
Dominated dominated
80

General Mfg

Transport Engg
60

Precision Engg
40

Chemicals
20

Foreign Electronics
Foreign
Non-SMEs Foreign SMEs
Non-SMEs Foreign SMEs
Dominated
Dominated Dominated
Dominated Biomed
0

0 20 40 60 80 100

% VA Attributable to SMEs
5
Source: MTI, Singapore
Local Companies More Active in Services Sector
Services
100
Local
Non-SMEs Other Services Local SMEs
%VA Attributable to Local Enterprises

Dominated dominated
80

Hotel & Restaurants

Tpt & Storage
Real Estate/Biz Svcs
60

Info & Comms

40

Wholesale & Retail

Financial Svcs
20

Foreign
Non-SMEs Foreign SMEs
Dominated Dominated
0

0 20 40 60 80 100
% VA Attributable to SMEs
6
Source: MTI, Singapore
Why the Dominance of MNCs in Singapore?

 MNCs are key contributor to Singapore’s economic

success

 Singapore able to attract MNCs through “efficiency”

 Main economic/business policies geared towards

satisfying needs of MNCs. SMEs neglected

 Presence of large GLCs adds to challenges of SMEs

Recent Recognition of MNC-SME Imbalance

 Twin effects of imbalance

 Unhealthy distribution of GDP
 Weak Domestic Production Capability

 Vulnerability of economy
 Compares badly with Germany, Taiwan, Korea, etc

 Poor track records in innovation/productivity growth

 Shift of growth strategy from “efficiency-driven” to
“innovation-driven”
 SMEs important to innovation
New Efforts to Help SMEs

 What explains Singapore top rank in WB index?

 Economies of scale identified as key SME challenge

 Regionalization/Internationalization seen as solution

 Existing institutions to support SMEs

 Spring Singapore; IE Singapore; EDB
 Recent measures: Job Credit Scheme; LIUP Scheme

 ESC Recommendations
ESC Recommendations

 Cross-border financing facilities to help SMEs

internationalize
 Small domestic market a handicap. Not able to access
regional/international markets for scale economies
 To develop specialist financing institutions like Export Credit
Agencies and EXIM banks
 To provide risk insurance for trade finance and overseas
investments
 To provide guarantees and co-financing with commercial
banks on project finance

 Catalyst growth capital: Government as co-investor

for PE financing of Singapore-based SMEs
 Private sector investors to assess investment worthiness
ESC Recommendations

 Empower trade organizations/chambers of commerce

to drive SME growth and internationalization
 Currently mainly involved in manpower development,
networking, consultancy/information services
 Government to strengthen their institutional capabilities to
undertake bigger role in SME growth and internationalization
 Drive productivity, capability and talent development
programs
 Consolidation and aggregation of resources for overseas
expansion e.g. marketing, promotion, brand development etc.
ESC Recommendations

 Government to help develop SME’s capabilities to

support MNCs and large local consumers
 Help familiarize SMEs with qualifying process of MNCs
 Share government’s future needs with SMEs

 Enhance access to human capital

 Formalize long term arrangement for SMEs access to network
of advisors for strategic, functional and domain-specific help
 Broaden scope for tertiary students’ internship with SMEs
Thank You!