Economic Restructuring and the Role of SMEs in Singapore

Faizal bin YahyaFaizal bin Yahya has a Ph.D in economics from the University of Sydney in Australia. He has taught in the South Asian Studies Programme at the National University of Singapore. He is currently a Research Fellow  at the Institute of Policy Studies, Lee Kuan Yew School of Public Policy at the National University of Singapore. His current research is on state-led development, government-linked companies, small and medium enterprises and transnational human capital.


Chang Zhi YangChang Zhi Yang has a B.Sc in economic from the University College London. He is a Research Assistant at the Institute of Policy Studies, Lee Kuan Yew School of Public Policy at the National University of Singapore. His research interests include public economics.






INTRODUCTION
 
In May 2009, Prime Minister Lee Hsian Loong set up the Economic Strategic Committee (ESC) to develop strategies for Singapore to maximise its opportunities in a new world environment, by building the country’s capabilities and making the best use of its scarce resources, with the aim of achieving sustained and inclusive growth1. The ESC subsequently published its recommendation report on 30 January 2010, which was accepted by the government and first incorporated in the 2010 Budget. At first glance, it seems that the 2008 global financial crisis (GFC) marked the start of Singapore’s economic restructuring. On the contrary, the attempt to restructure the economy can in fact be traced back to 2000 after the Asian Financial crisis, albeit with less urgency. In addition, the restructuring momentum was interrupted several times by multiple economic crises (SARs, GFC). In 2003, the Economic Review Committee (ERC) which was established in 2001, recommended to the government that Singapore be transformed into a creative and entrepreneurial nation with a globalised diversified economy supported by the twin sectors of manufacturing and services (ERC Main Report, 2003). This is somewhat similar to the recommendations put forth by the ESC in terms of focusing on tapping on the global economy and developing a nation of innovative (akin to creative) entrepreneurs.
 
However, the strategies suggested by the two committees differ. The ERC recommended a short-term strategy of lower costs to stay competitive while targeting structural reforms to achieve the longer-term economic targets. The ESC, on the other hand, highlighted the pressing need to raise productivity to keep Singapore competitive and address the challenges of raising business cost. This difference in approach to attain similar economic transformation could be explained by two things. First, the government has already implemented much of the so-called low hanging fruit mainly in the form of lowering direct taxes and providing tax incentives by 2010. Second, raising societal concerns on the stress that huge in-migration creates and the adequacy of CPF funds to meet the needs of the citizen, places an upper boundary on how much the government can lower labour cost by expanding the foreign labour pool or lowering CPF contributions. Moreover, the original intention of lowering business costs was to smooth the economic restructuring process suggested by the ERC; it was not meant to be a long- term development strategy. An unintended consequence of this policy action was a divergence in economic development within the country. While the state managed to build a twin-engine economy by developing the service industry, in particular the financial sector, the strategy of lowering business costs while it helped to keep existing businesses competitive in the short run – inadvertently allowed them to postpone the necessary investments to remain competitive in the long run. 

The above reasons explain the divergence in policy recommendations by the ERC and ESC. While the overarching objectives remain somewhat the same – develop a diversified economy that serves the global market and a nation of innovative entrepreneurs - the need to address societal concerns and the exhaustion of low lying economic fruit necessitate the implementation of a national strategy of raising productivity to spur sustainable economic growth and deal with rising business costs.
 
It is not surprising that the success of this exercise of raising productivity hinges heavily on the performance of SMEs. The term small and medium enterprises (SMEs) is used to describe an array of companies across various sectors. The definition normally consists of turnover and number of employees parameters. However different countries ascribe different values to these parameters depending on what they view as suitable in the context of their countries. In Singapore, since 1 April 2011, the Ministry of Trade and Industry’s (MTI) definition of an SME is an enterprise with annual sales turnover under S$100 million, or one that employs less than 200 workers. This definition superseded the definition of an SME as an enterprise with no more than S$15 million in fixed asset investment and no more than 200 employees. According to MTI, the revised definition reflects more accurately the changing profile of SMEs and enables small businesses to qualify for governmental programme support, regardless of their fixed assets. From an operational standpoint, the statutory board SPRING Singapore, which oversees the development of Singapore enterprises, further categorises SMEs by the following:
  • Micro SMEs: Annual turnover of less than S$1 million
  • Small SMEs: Annual turnover of more than S$1 million but less than S$10 million
  • Medium SMEs: Annual turnover of more than S$10 million but less than S$100 million 
It is well established that SMEs fulfil a very important national role in all countries. SMEs hire more than 50% of the private sector workforce in the OECD area and account for more than 99% of the total enterprises in the EU (OECD, 2009). The figures are similar in Singapore. SMEs in Singapore make up 99% of the overall enterprises, contribute around 49% of total enterprise value-add, and hire 67% of the workforce. However, SMEs often struggle with high business costs, financing difficulty and low profit margin due to intense competition. In addition, SMEs as a group tend to be less productive than large companies. Using data of sixteen Latin America and Carribean (LAC) countries, Pablo Ibarrarán et al (2009) showed that large enterprises tend to be more productive than SMEs. In the US, labour productivity was about 60% the level of large companies in 2007 (Tamar, 2012). In Singapore this figure for 2013 is estimated to be significantly lower at 47.6%. If Singapore SMEs are able to match their US counterparts and close the productivity gap to 40% from the current 52.4%, they would add roughly $42.42 billion worth of value added to the economy. This is 12.8% of the total nominal value-add of enterprises in 2013. From this, it is evident that the current economic restructuring is very much a restructuring exercise of the SMEs: to increase overall productivity by transforming their businesses so that higher business costs can be accommodated.
 
The aim of this paper is to examine the expected role of SMEs in Singapore’s restructured economy and evaluate whether existing policies and processes are facilitating this transition effectively. It goes on to present a brief literature review on the role of SMEs to the nation and the resources required for SME development. A third section explores in greater detail the current economic restructuring in Singapore and how it involves SMEs. Finally, we evaluate the efficiency of current SME development policies and programmes. The paper ends with policy recommendations and conclusions.
 
THE ROLE OF SMES AND RESOURCES REQUIRED FOR SME DEVELOPMENT

 
The importance of SMEs to the nation is well established. They are the main employer of the workforce, they contribute significantly to economic output, and as shown during the 2008 financial crisis, they are less likely to lay off employees than bigger companies during an economic downturn (EC, 2013). The job diversity that SMEs create and the dynamism SMEs add to the economy are important too (Stark and Brown, 1997). However these are the traditional socio-economic roles that SMEs fulfil. More recently, there is an increasing emphasis placed on SMEs as the main driver of economic growth through the process of innovation. This may seem contradictory especially since SMEs tend to be less productive than bigger companies due to size-associated disadvantages like diseconomies of scale in finance, purchasing, human resourcing, marketing and compliance costs (Curran et al, 2000). However, all big companies begin small. Hence, even though collectively SMEs are less productive than their bigger counterparts, they represent the innovative entrepreneurs that would eventually grow and compete against the big incumbents. In this sense, SMEs are starters of new ideas and processes that introduce more efficient ways of using resources (Marian, 2011). Van Praag et al (2007) identified the economic benefits of SMEs as: job generation, innovation, productivity and the potential to increase the utility of individuals.
 
SMEs are more important in knowledge-based economies. According to Porter et al. (2002) a country’s economic development can be distinguished in three specific stages: 1) factor-driven stage; 2) efficiency-driven stage; 3) innovation-driven stage. In the first two stages, efficiencies are necessary along with sufficient conditions. Hence these economies are commonly dominated by a few large companies, sometimes multi-national companies (MNCs) to exploit economies of scale, acquire technology know-how and develop efficient production processes. However, to move beyond the efficiency-driven stage into the innovation-driven stage, it is necessary to promote innovation so that the country can get to the technological frontier and thus become a knowledge- based economy. The innovation- driven stage is underscored by a rise in entrepreneurial activity. Consequently, it is important to develop an environment conducive for entrepreneurship and supportive of SME development to secure the transition of the economy into the innovation- driven stage. Celeste and Vera (2013) demonstrated that there is a long-term trend toward a greater share of SMEs in the number of enterprises and employment in Portugal, supporting the case that has been made in Europe and the rest of the world, that as economies become knowledge-based they rely more on SMEs. Work done by Acs and Amoros (2008) further elucidated on this association. Using the traditional U-shaped model, they tested how countries at different economic phases are affected by entrepreneurial behaviour. Their results show that in the efficiency-driven stage, entrepreneurship is negatively correlated with the development of the economy. However, as the country segued into a knowledge- based economy (driven by innovation), this relationship becomes positive.
 
An environment conducive for entrepreneurship demands a certain level of involvement from the state. SME policy has to become a core part of industrial policy as written by Wren, Colin (2001). It is not possible to have SME policy separated from industrial policy and at the same time expect to foster the level of entrepreneurship that will be the core driver of economic growth. This is because SMEs and entrepreneurs are perennially impeded by the following obstacles: availability of suitable labour; availability of raw material; lack of input information; capacity problems; bargaining power on costs. These problems are very concrete, and affect the operations and chances of success of SMEs. Land, labour and capital are inputs that can be purchased, however the ability to invent and innovate is an intangible asset that requires patient nurturing (Lichtenstein and Lyons, 2001). Moreover, SMEs for all their diversity form the group that holds the greatest possibility for cultivating this invaluable asset.
 
However, while it is important to provide ample support for growth enterprises, the state should not neglect other SMEs. Murphy (2006) suggested having a strong, tailored set of measures in place to support a small number of growth enterprises whilst also having standardised support to other SMEs. The rationale of such an approach is the understanding that, while the knowledge-based economy is supported by a flow of innovation generated by a group of entrepreneurs, the healthy functioning of a nation requires the participation of many different kinds of entrepreneurs and SMEs. Some of them may not have high growth potential; however they are still important players of the multi-faceted and diverse business ecosystem. Hence the key to economic success is not to place the entire focus on only one specific kind of SMEs, but to develop a balance set of SME policies that promote and support diversity contributing to the development of innovative enterprises. In this context, sufficient resources should be allocated to the majority of SMEs that fulfils the conventional socio- economic role of employment stability, contribution to output, and facilitating the achievement of individual utility.
 
The policies that affect the development of SMEs can be divided into six broad categories (OECD, 2009). Each category represents a particular focus and reinforces the others to deliver an overall support mechanism that is imperative for the development of SMEs that are complementary to sustainable macroeconomic growth. These areas are: entrepreneurial culture and attitudes; modernising and diversifying SMEs; financing entrepreneurship; university and entrepreneurship; rural entrepreneurship; entrepreneurship policy delivery.
 
The first major challenge that many transition economies grapple with is the lack of an existing heritage of active entrepreneurial spirit because entrepreneurship is not the core tenet of an efficiency-driven economy. Policies pertaining to nurturing entrepreneurial culture and attitudes as well as education and training at tertiary institutions attempt to address this issue. There is a need to inculcate entreprenurial attitudes and skills to enable the flourishing of entrepreneurship. To achieve this, it is essential to start by updating the education and workforce training system such that it not only imparts hard skills but also the appropriate soft skills needed to foster the kind of innovative and entrepreneurial mindset. The ultimate aim is to induce a shift in the working culture of the population from one that excels in process execution to one that specialises in solution delivery. However, it will take a tripartite effort, the government, employer and employee to make this shift possible.
 
Modernising and diversifying SMEs is in line with the various economic development stages stated previously.
 
Howard Stevenson famously coined the definition of entrepreneurship as the pursuit of opportunity beyond the resources you currently control. His definition underscores the importance of entrepreneurship financing or more broadly SME financing as a critical component of a holistic SME ecosystem. SMEs widely suffer from a lack of financing options because of imperfect capital markets (e.g. information asymmetry), which leads to capital rationing. Stiglitz and Weiss (1981) showed that the assumptions of standard neoclassical market models often fail and cause credit rationing even when there is a credit market equilibrium. This could be due to various factors like asymmetry of information between the creditor and company, moral hazard and adverse selection. To account for these risks, banks charge an interest premium and demand collateral. This cost of capital and additional requirements are higher for SMEs than big companies because banks perceive them to be inherently more risky due to their small size and less structured business operations. There is therefore a need for the state to intervene and bridge this financing gap because the suppliers of credit do not take into account the important social benefits that SMEs contribute to the country. Many countries acknowledge this problem and have policies to address the inadequacy in SME financing. Some of the policies include direct lending to small companies, co-sharing of loan risk with lenders, incentive schemes to attract angel or venture capital, and more targeted funding programmes (e.g. funding support to high tech start-ups).
 
Even though having the right policy is critical for supporting SME development, it is necessary to have a proper framework to deliver the policies as well. Otherwise the efficacy of the policies would be reduced. The policy framework for the implementation of SME policy was recommended at the 2nd OECD Conference of Ministers for Small and Medium Sized Enterprises. In COTE, the letters stand for Clarity and Coherence, Objectives, Targets and Evaluation and they are applied as follows:
  • Clarity and Coherence of SME policies require a clear rationale for policyintervention and statement of purpose. The various parts of government interacting with SMEs to facilitate their development should ensure that their efforts are consistent and co-ordinated.
  • Objectives of SME policies should be clearly specified. Examples would include the creation of new firms, the growth of existing firms or promoting enterprise among target groups in the population.
  • Targets should be specified in measurable ways to facilitate evaluation of the extent to which objectives should have been achieved.
  • Evaluation of policy, which must be based on clear policy targets, should be the most important test of its effectiveness. 
Applying the COTE Framework would improve the chances of meeting the policy targets. 
 
ECONOMIC RESTRUCTURING IN SINGAPORE
 
SPRING Singapore estimates that there are around 124,500 SMEs in Singapore. 114,000 (91.2%) of these SMEs have an annual revenue that is smaller than $1 million. Many of these companies are family- run and could be considered as reasonable alternatives to employment. While collectively these SMEs provide only low economic contribution and value- add per worker, this group also encompasses high growth potential companies (e.g. innovative start- ups). 25,000 of the SMEs have annual revenue between $1 million and $10 million. This group of SMEs contributes significantly to the economy and many have the potential to improve productivity. The remaining group of SMEs have revenue above $10 million but lower than $100 million. Alternatively, they may have annual revenue above $100 million but hire fewer than 250 workers. These SMEs are in fact quite large companies. Some countries may not even consider them as SMEs. Many of them have expanded their operations overseas, and overseas receipts make up a significant portion of overall revenue.
 
The current economic restructuring in Singapore was born out of several reasons. First, the long-term potential growth rate for Singapore seem to be slowing down amidst a more uncertain and volatile global economic outlook. Added to that, is the rapid economic development of emerging competitors such as China and India and more regional economies like Malaysia and Thailand, which in turn continues to erode the competitive advantage that Singapore has in areas like advanced manufacturing. Even the oil and gas sector faces increasing competition as countries around the globe construct more efficient refinery facilities to feed their growing economies, thus squeezing refinery profit margins. Given this backdrop of global development, there is an urgent need to update the structure of the economy to ensure sustainable future growth.
 
Second, Singapore’s changing population demography is affecting how the economy relies on current growth mechanisms. Based on Singapore’s population white paper released in 2013, Singapore’s population is projected to reach 6.5 million to 6.9 million by 2030. This will comprise a resident population of 4.2 million to 4.4 million, of which 3.6 million to 3.8 million are citizens and the rest are permanent residents. The remainder are non- residents. From 2020 onwards, the number of working-age citizens will decline, as more Singaporeans leave the workforce than join it. When the paper was released to the public, it drew significant criticism for projecting such a huge increase in population including that of the non-resident population. Many feel that there are already signs of overcrowding in the country and question whether the national infrastructure will be able to support the projected population. These socio-cultural concerns limit how much Singapore’s economic growth can rely on an ever-increasing number of foreign workers.
 
This backdrop illustrates that there is a need to utilise existing resources more effectively in order to ensure sustainable future growth. Unfortunately this is not an easy problem to solve. Singapore achieved its current standing of economic advancement and high GDP per capita - S$66,928 in 2013, which ranks high even amongst developed countries – because for the past few decades it invested heavily in capital deepening and human capital accumulation. The level of education attainment, which is a indicator of human capital accumulation, is very high in Singapore. National literacy rate is 96.5% and 68.8% of the population of non-students aged 25 years and above have secondary school or higher qualification.
 
Reflective of the high level and quality of national capital development – both human and physical – is Singapore’s high ranking in various competitiveness indexes by esteemed international organisations like the World Economic Forum (WEF) and the International Institute for Management Development.
 
However, the model that produced Singapore’s renowned economic success cannot be replicated for the future. The marginal returns from inputs deepening are declining. At the same time, competition from other developing countries, which are transitioning their economies to higher value-added production, further compress returns. Hence the next phase of economic growth in Singapore will rely on innovation to yield higher productivity, which is in line with a knowledge-based economy.
 
Many of the big companies present in Singapore are either Government-Linked Companies (GLCs) or Multi-National Corporations (MNCs). These companies are leaders in their domains of trade, which constantly refresh their business models to keep a competitive advantage and enjoy high productivity. However, the same cannot be said for SMEs in Singapore. It is universally accepted that SMEs as a whole are less productive than their larger peers. However, Singapore SMEs are not only less productive than the bigger companies, they are also less productive than their international SME peers. A study conducted by INSEAD and Altair Pte Ltd (Claudia and Pierre, 2010) found that the high-tech sector in Singapore is dominated by large companies, capturing 72% of the total revenue generated by the sector. Singapore SMEs tend to have more significant presence in the traditionally less innovative sectors like wholesale, retail trade and real estates. These sectors also have lower labour productivity than the high-tech sector. The study pointed out a gap in Singapore, compared to other developed countries like Germany and South Korea, SMEs in Singapore are less involved in the high-tech sector.
 
The success of Singapore’s current economic restructuring hinges greatly on the ability of Singapore SMEs to reinvent themselves. The state recognises this and has been introducing governmental support programmes for SME development. In 2014 alone, S$2.6 billion was allocated to help SMEs through the restructuring process2. A massive amount of resources were poured into these programmes, involving a number of ministries, state agencies and trade associations to implement and manage them. At the moment there are more than 200 SME support programmes in Singapore each with a set of specific objectives. The ministries involved in SMEs management and development include the Ministries of Trade and Industry, Finance and Manpower as well  as the Prime Minister’s office. The statutory boards or semi- government agencies involved with SMEs’ development include International Enterprises Singapore (IE Singapore), Economic and Development Board (EDB), SPRING Singapore, and the Workforce Development Agency (WDA). From the corporate sector, there are various agencies dealing with SMEs but the key agencies include the Singapore Business Federation (SBF), Association of Small and Medium Enterprises (ASME), Singapore National Employers’ Federation (SNEF), and the various ethnic and sectoral trade federations.
 
Some of the support programmes in Singapore available for SMEs are: Productivity and Innovation Credit (PIC); Enterprise Development Fund; SME Talent Programme; ICT for Productivity and Growth (IPG) Programme; Micro-Loan Programme; and Co- Investment Programme (CIP). It is important to note that the stated programmes are not limited to just SMEs, and that the current SME support goes beyond them. The state focus on SMEs development has increased over the years since 2010. When the restructuring first began, the programmes created were broad-based and few targeted SMEs specifically. However, the last two years saw more new programmes targeting SMEs while existing programmes like the PIC were updated with elements meant specially for SMEs.
 
EFFICIENCY OF SME DEVELOPMENT POLICIES AND PROGRAMMES
 
More than three years have passed since the Singapore Government first announced the national plan to restructure the economy. Many policies and programmes have been created over this period of time utilising a sizable amount of resources. We investigate the impact of these programmes by looking at some broad macro-economic indicators. Figure 1 shows Singapore’s GDP growth rate over the past few decades.

Y-O-Y GDP Growth (Current Price)

As expected, given the small and open nature of Singapore’s economy the growth rate is quite volatile. In addition, the economy contracted during periods of economic crisis (e.g. 1986 Recession, 1997 Asian Financial Crisis, 2001 Dotcom Bubble Burst, 2007 Global Financial Crisis). It also seems that since the stellar rebound in the first quarter of 2010, economic growth has since been on a lower trajectory when compared to earlier non-crisis periods.
 
Even after adjusting for population growth (Figure 2), GDP growth still seems to have shifted to a lower trajectory.

Y-O-Y GDP/Capita Growth Rate

We further examine the growth rate for export of goods and services (Figure 3 and Figure 4) as total trade, being three times the size of GDP, is a vital part of the Singapore economy. Similar to GDP growth, growth of exports for goods and services declined since peaking in 2010. In particular, the decline in growth of exports for goods is more acute than the decline in growth of exports for service.

Export of Goods Growth Rate

Export of Service Growth Rate 
The decline in GDP growth rate and export growth rate may be a product of the economic restructuring; short-term growth is affected as companies undergo business transformation. Hence, a lower economic growth rate at the interim may not be unexpected. Assuming that the current economic restructuring is on the right path and has worked into the economy, it could then be reflected in labour productivity growth. One commonly used indicator to measure labour productivity is value-added per worker or per hour worked. The labour productivity growth for Singapore since 2007 is presented in Figure 5.

Labour Productivity Growth

Productivity growth in 2010 surged from 2009 as the economy recovered from the financial crisis of 2007. However in the subsequent years it declined to a flat rate, far below the 3% long-term annual growth rate recommended by the ESC. Like exports, productivity growth of goods industries is lower than productivity growth of service industries too.
 
The lacklustre macro-economic figures could just mean that the economic restructuring is still a work-in-progress. However, it is important to get a sense of how SMEs have benefited from the programmes. Since the PIC scheme is one of the centrepiece programmes in the restructuring exercise, we try to glean some insight from it. According to Inland Revenue Authority of Singapore (IRAS)’s 2012/2013 annual report, 44,000 companies made PIC claims in 2012. Out of this, about 96% are SMEs. This figure may seem high but it is lower than the 99% share of total enterprises that SMEs account for in Singapore. In addition, according to the IRAS’s annual report, just 3% of PIC claims in 2012 were related to innovation. A survey conducted by KPMG among 80 senior executives also found that more than half (58%) used the PIC scheme to defray operating expenses instead of using it to raise productivity3.

Figure 6 shows the change in employment share from 2008 to 2013 and 2013 productivity levels for the service sector.



Across the whole service sector, employment share has increased reflecting the increasing servitisation of Singapore’s economy. However, most of the labour rechanneling is not going into the more productive service industries like Finance and Insurance. For example, business service which had a compounded annual productivity growth rate of -0.27% from 2011-2013 (Table 1) experienced the greatest increase in employment share.

Productivity Growth

The macro-economic indicators seem to show that Singapore’s effort to restructure the economy is making little progress despite the huge amount of resources committed. SMEs in Singapore continue to be in the less innovative service industries and the above data suggests that those industries have not made much progress in terms of increasing productivity too.
 
A more in-depth analysis would be required to evaluate the impact of the support programmes on SMEs and their efficacy. Unfortunately, there is currently not much public data available on SMEs in Singapore to conduct that kind of microanalysis. Nonetheless, feedback from the ground seems to show that SMEs are quite affected by rising business costs and a lack of suitable labour, indicating that many of them are still struggling to adjust to the new economic climate.
 
The lack of progress amongst SMEs may also be attributed to the fact that SMEs tend to face difficulties in financing their business needs. They are subjected to higher levels of capital rationing due to the existence of informational asymmetries and risks associated with small businesses. In addition, SMEs are finding it more difficult to access credit, feel that bank loans are getting more expensive and are unable to renew or obtain new financing (SBF National Business Survey 2012/13). This lack of access hinders restructuring efforts because companies require adequate and sustainable financing to carry out long-term investments needed to transform their businesses.
 
The Minister for Trade and Industry, Lim Hng Kiang commented that the pace of economic restructuring has been slower than expected. Businesses, and in particular SMEs, are feeling the adverse effects of restructuring. In this context, the fate of SMEs in this process of economic restructuring is a major concern and several Members of Parliament (MPs) have raised the plight of SMEs and the effectiveness of governmental schemes to help them raise their productivity4 in parliamentary debates. There is also the problem that perhaps SMEs are not interested in growing their businesses and they might not want the government’s assistance (Perren and Jennings, 2005). Whatever the case, one can safely conclude that Singapore is still not out of the woods of economic restructuring.
 
POLICY RECOMMENDATIONS

 
There is currently a very comprehensive suite of support programmes for SME development. The state’s policies and policy objectives on economic restructuring and SME development are also clear. However, the lack of tangible progress more than three years into the restructuring exercise suggests that something might be missing from the overall mechanism. We propose that the necessary elements that would complement policy objectives and improve the efficacy of policy programmes are:
  1. Stronger SME data collection and research analysis
  2. A structured framework for SME policy development and delivery
The truth is a lot more work can be done to complement the huge amount of money poured into the myriad programmes guiding SMEs to move up the value chain, streamline their operations and expand their businesses overseas. These programmes also include those related to entrepreneurship. But unlike in the EU, US, Japan and even neighbouring country Malaysia, research on SMEs in Singapore is still relatively nascent.
 
In Malaysia, the Small and Medium Industries Development Corporation (SMIDEC) publishes detailed annual reports tracking the performance and growth of SMEs and identifies key support areas to boost the development of SMEs. Japan’s Small and Medium Enterprise Agency (SMEA) and its research arm the Japan Small Business Research Institute (JSBRI) release thorough annual White Paper reports that analyse the latest SME issues and track their performance and effect on the overall economy. These white papers are highly regarded internationally, and often consulted by international researchers around the world for the latest research ideas and policy recommendations on SMEs. In Europe, the European Commission (EC) relies on its statistics department to conduct data collection and analysis on SMEs. It also collaborates with external consultancy companies to publish annual SME performance reports for the region.
 
However the availability of SME related statistics in Singapore is very limited. Even top line figures like the number of SME enterprises, their employment and value-added contribution are not available in detail. It is somewhat counter-productive that so much money has been poured into SME development programmes but so little resources and attention are given to building up a comprehensive database of SME statistics. First, this information is crucial for maintaining accountability. Considering that nearly S$6 billion was set aside for SME related programmes in 2013, and a further $2.6 billion is allocated this year, there is need for accountability on how this money has been spent. Second, if SMEs are going to be a main driver of future economic growth then there is a need to understand better how this diverse landscape of companies function, interact with the broader economy, and keep track of their performance. Hopefully as the national interest to understand SMEs performance grows, more resources will be allocated to build up better and timelier SME statistics for research analysis.
 
Our second recommendation is for Singapore to have a more structured framework for SME policy development and policy delivery. This could be fulfilled by a supranational agency responsible for all SME related matters.
 
In Singapore, SPRINGA, an agency under the Ministry of Trade and Industry, helps Singapore enterprises grow and builds international trust in Singapore products and services. There is also the Singapore Business Federation (SBF) that acts as the apex business chamber that champions the interests of the Singapore business community in trade, investment and industrial relations. Nonetheless both organisations are not specifically created to oversee SME matters, unlike similar organisations in other countries. For example in the US, the Small Business Association (SBA) is a very influential organ that protects the interest and spearheads developments of SMEs. In Malaysia, the SMIDEC is tasked to formulate overall policies and strategies for SMEs and to coordinate programmes across all related ministries and agencies.
 
This lack of a dedicated state organisation overseeing matters related to SMEs in Singapore may have resulted in the lack of a coordinated approach on SME matters. Since Singapore is moving into a new economic chapter, one where local businesses and entrepreneurship are expected to play a significant role, it is probably imperative to allocate more resources into conceiving and setting up a supranational institution with the authority and resources similar to the Economic Development Board (EDB) to oversee the development of the local business landscape.
  
CONCLUSION
 
The current set of policies and support programmes for SME development in Singapore are comprehensive in scope and sizable in funding quantum. However, attention to the framework for policy development, delivery and evaluation has not kept pace.
 
Given that SME’s fulfil a plethora of roles from social security such as job creation and retention to being one of the main economic drivers in the new knowledge-based economy, it is important to put in place the right set of framework for policy development, delivery and evaluation.
 
We advocate a supranational agency or ministry to lead the development of SMEs. But this will take a considerable amount of time to put together as it requires the collaboration of many agencies. In short, it is a mammoth task that requires long-term commitment.

However, what can be done in the interim is to kick-start more research on SMEs, so that when such an agency is eventually formed, there is already a strong SME research department with a substantial body of resources to contribute positively to policy decision making.
 
In the long term it is necessary to have a dedicated SME authority if Singapore is to successfully transform its economy into one that is supported and constantly rejuvenated by a pool of highly innovative local businesses. The amount of resources earmarked to SME related programmes are commendable, but just as important are the institutions with the right resources and strategic capabilities to lead the planning, execution and evaluation of strategies for the development of SMEs, hence creating quality economic growth that contributes to the overall socio-economic vibrancy.
1 Ministry of Trade and Industry Singapore (MTI). http://www.mti.gov.sg/AboutMTI/Pages/Economic-Strategies-Committee.aspx

2 Pace of economic restructuring needs to pick up. Today, 7 March 2014

3 Productivity gains not the only plus for firms on PIC scheme, Today, 5 March 2014

4 Pace of economic restructuring needs to pick up. Today, 7 March 2014

References
 
Acs, Z. J. and Amoro, J. E.  (2008). Entrepreneurship and Competitiveness Dynamics in Latin America. Small Business Economics, 31(3), 305-322.

Curran, J. and Blackburn, R. (2000). Panacea or White Elephant? A Critical Examination of the Proposed New Small Business Service and Response to the DTI Consultancy Paper. Regional Studies, 34(2), 181-206.

European Commission. (2013). A Recovery on the Horizon? Annual Report on European SMEs 2012/2013. Publication Office. Retrieved from http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/performance-review/files/supporting-documents/2013/annual-report-smes-2013_en.pdf

Economic Review Committee. (2003). Report of the Economic Review Committee: New Challenges, Fresh Goals – Towards a Dynamic Global City. Singapore: Ministry of Trade and Industry Republic of Singapore. Retrieved from http://www.mti.gov.sg/ResearchRoom/Documents/app.mti.gov.sg/data/pages/507/doc/ERC_Full_Report.pdf

Economic Strategies Committee. (2010). Report of the Economic Strategies Committee: High skilled People, Innovative Economy, Distinctive Global City. Singapore: Ministry of Finance Singapore. Retrieved from http://app.mof.gov.sg/data/cmsresource/ESC%20Report/ESC%20Full%20Report.pdf

Fotache, M., Fotache, G., Ocneanu, L. and Bucşă, R. C. (2011). SMEs in the Current Economic Environment. Economy Transdisciplinarity Cognition, 15(2),
95-106

Inland Revenue Authority of Singapore. (2013). IRAS Annual Report 2012/2013. Singapore: Author. Retrieved from http://www.iras.gov.sg/irasHome/uploadedFiles/About_IRAS/Annual_report/About%20Us2012.pdf

Khachaturian, T. (2012). USITC Executive Briefing on Trade: The Labor Productivity of U.S. Small and Medium-Sized Enterprise Multinational Companies.
Washington, DC: United States International Trade Commission, Office of Industries. Retrieved from http://www.usitc.gov/publications/332/executive_briefings/US_SME_Multinational_Companies.pdf

Lichtenstein, G. A.,Thomas, S. and Lyons, T. S. (2001). The Entrepreneurial Development System: Transforming Business Talent and Community Economies. Economic Development Quarterly, 15(1), 3-20.

Murphy, D. (2006). Supporting Entrepreneurship: Innovation, Exporting, Infrastructure and Financing. In Organisation for Economic Co-operation and Development Discussion Paper, Entrepreneurship in the Districts Mittweida in Saxony, and Altenburger Land in Thuringia (21-54). Paris: OECD. Retrieved from http://www.oecd.org/site/cfecpr/38795778.pdf

National Population and Talent Division. (2013). Population White Paper: A Sustainable Population for a Dynamic Singapore. Singapore: Author. Retrieved from http://www.nptd.gov.sg/content/NPTD/news/_jcr_content/par_content/download_98/file.res/population-white-paper.pdf

Organisation for Economic Co-operation and Development. (2009). The Impact of the Global Crisis on SME and Entrepreneurship Financing and Policy Responses. Paris: Working Party on SMEs and Entrepreneurship. Retrieved from http://www.oecd.org/industry/smes/43183090.pdf

Perren, L. and Jennings, P. L. (2005). Government Discourses on Entrepreneurship: Issues of Legitimization, Subjugation, and Power. Entrepreneurship Theory and Practice. 29(2), 173-184.

Porter, M., Sachs, J. and McArthur, J. (2001). Executive Summary: Competitiveness and Stages of Economic Development. In World Economic Forum, The Global Competitiveness Report 2001–2002 (16–25). New York, Oxford: Oxford University Press. Retrieved from http://www.nectec.or.th/pld/indicators/documents/WEF-%20Global%20Competitiveness%20Report%202001.pdf

Singapore Business Federation. (2013). SBF National Business Survey 2012/2013 Report. Singapore: Singapore Business Federation.

Stark, N., & Brown, H. (1997). Harvesting Hometown Jobs: The New Small Guide to Local Economic Development (2nd ed.). Washington, DC: National Association of Towns and Townships.

Stiglitz, J. E. & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. American Economic Review, 71(3), 393–410.

Varum, C. A. and Rocha, V. C. (2013). Employment and SMEs during Crises. Small Business Economics, 40(1), 9–25.

van Praag, C.M. and Versloot, P. H. (2007) What is the Value of Entrepreneurship? A Review of Recent Research. Small Business Economics, 29(4), 351-382.

Wren, C. (2001). The Industrial Policy of Competitiveness: A Review of Recent Developments in the UK. Regional Studies, 35(9), 847-860.

Zeisberger, C. and Rouleau, P. (2010). High-Tech SME Gap in Singapore. Singapore: Altair Pte. Ltd. and INSEAD. Retrieved from http://www.insead.edu/facultyresearch/centres/global_private_equity_initiative/students/documents/HighTechSMEinSgp_Oct2010.pdf