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Enhancing Singapore’s SME strategy for broad-based growth


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Enhancing Singapore’s SME strategy for broad-based growth

  1. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 13. Thank You Parth S. Tewari Head, Competitive Industries Practice Finance and Private Sector Development Network The World Bank Group, Singapore 12
  14. 14. Appendix 13
  15. 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. 16. Singapore firms’ major internationalization strategy is around local partnership building and deeper penetration Source: SBF national business survey report 2012/13 15
  17. 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. 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. 19. What does Singapore export? 18
  20. 20. Where does Singapore export to? 19
  21. 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