enhancing singapore’s sme strategy for broad-based growth
TRANSCRIPT
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Rethinking Singapore SME strategy for broad-based growth
SBF SME Convention
New Economic Paradigm – Are SMEs Heading in the Right Direction Towards Transformation?
Parth S. TewariCompetitive Industries Practice, World Bank Group
October, 28th 2013
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– 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
Today’s discussion
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Singapore punches above its weight by dynamic policy implementation and by leveraging its geographic advantage
Singapore’s share of WorldBasis points
1 Energy resources include petroleum, natural gas and coal2 Basic materials scan included Iron ore, Copper ore, BauxiteSource: World Bank; USGS; EIA; Team analysis
38
0
PopulationBasic Materials2
7.6
0.05
TradeLand Energy resources1
~0
GDP
220
Human and natural endowments
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Import substitution
Export Orientation and Labor-intensive Manufacturing
Capital intensive
manufacturing
Innovative
competitiveness
Singapore’s economy has evolved to stay competitive
1965 - 1985 1986 - 1997 1997 – 20XX1960 - 1964
19601962
19641966
19681970
19721974
19761978
19801982
19841986
19881990
19921994
19961998
20002002
20042006
20082010
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$395
$46,241
CAGR of 10.2%
Source: Civil Service College of Singapore (May 2012)
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Singapore is significantly ahead of most countries in the world in terms of business climate
1st Ease of doing business (World Bank Group)
Rank
1st Index of Economic Freedom (Wall Street Journal)
3rd Global Competitiveness Index (World Economic Forum)
1st Asia’s most “Tech ready” City (PwC)
11th Quality of Life index (Economist)
1st Potential net migration index (Gallup)
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Singapore has an ambitious SME development goal
50
3-5
10-15x
United States experience (1980-2010) – scaled to Singapore GDP
Singapore goal*(next 10 years)
Number of local firms per year that go on to cross $100 million annual revenue
* ESC sub-committee on developing vibrant SME landscape and globally competitive local enterprises
50
100
150
200
250
1980 1985 1990 1995 2000 2005 2010
$100 million companies by founding year; United States
125-250 companies per year that are founded reach $100 million in revenues in reasonable time
Source: Kauffman Foundation
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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 2010 2011 2012
Top 1 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
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Three ideas to further enhance Singapore’s already strong SME strategy
Based on…
1. Detailed study of Singapore’s current SME strategy and initiatives
2. Latest global trends and best practices
Three ideas to further enhance Singapore’s SME strategy
Market
Product innovation
Firms
Not just well known large markets
Target and identify most promising international micro-markets
Not just productivity technology adoption
Move up the technology capability curve (innovator, creator) through smart industry collaboration
No more clunky and unsegmented support to SMEs
Support competitive SMEs in a more systematic yet inclusive way
1
2
3
All three ideas have been seeded in Singapore but are still far from prime-time
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Target and identify most promising international micro-markets
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Source: McKinsey Global Institute; team analysis
11%
37%
16%29%
26%
100%
Developedeconomies
70%
55 $Tn
GDP2007
EM megacities
EM small/rural
GDP growth2007-25
EM middleweight3%
56 $Tn
8%
Contribution to GDP and GDP growth by type of city; Per cent
• 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
• 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)
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Move up the technology S-curve from adaptor to creator…2
Creators: creating the future
Innovators: developing the next generation of innovations
Adaptors: Adapting available technologies to own context
Users: Consuming technology as-is
Significant portion of Singapore investment and focus• PIC• Technology adoption
program
• Major investment in science and technology research (A-Star)
• Beginning to invest in industry collaboration (CIP)
Technology capability level of firms
Singapore’s current focus
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… through focusing on smart industry collaboration 2
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)
• 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
• Example: Prodinsa (local supplier) improved shovel cable life by 40%; Biohydro automated wetting phase in Copper leaching process
• 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: 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
• Impact: • 323 projects, 1375 partners• E.g., microchip prototype for dental braces to
monitor temperature;
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Support competitive SMEs in a more systematic yet inclusive way
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Competitive SMEs matter disproportionately – 6% of firms surpass net new jobs by economy
-4.9
4.8
6.0
5.8
HIClarge
HICSME
Allfirms
Otherfirms
Net new jobs created (Mn)USA, 2004-08
100%
6%
0.01%
94%
Share of total US firms
This calls for new policy themes and importantly new process of policy development
From… … To
• Increase #firms in economy
• Enable high potential firms to grow
• Business planning, productivity tech adoption and broad internationalization
• Management capacity building;
• internationalization (micromarket );
• innovation (“creator”)
• Broad themes, each of which ends up supporting a few promising companies (note: selection and resource prioritization happens but it is ad-hoc)
• 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
Policy Process
Policy Goals
Policy Themes
Source: US Small Business Administration
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Thank You
Parth S. TewariHead, Competitive Industries Practice
Finance and Private Sector Development NetworkThe World Bank Group, Singapore
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Appendix
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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
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Singapore firms’ major internationalization strategy is around local partnership building and deeper penetration
Source: SBF national business survey report 2012/13
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Trends in SME strategy
Goal: Maximize companies > 100 mn revenue
(Secondary goal: Improve average firm productivity)
Where to play
Which products? – sector mix, value chain
How to win?
Which Geography? – country/city/subnational
Optimal cost (through productivity measures)
Differentiation (quality, innovation)
Execution
Cross-cutting enablers (factor condition)
Talent and capacity
Capital
Knowledge and Tech
Business environment, infrastructure and institutions
Key global trends (selected examples)
• Rising middle class in developing world• Rapid urbanization of developing world• Hausmann product space• Technology boom (3D-printer, smartphones)
• Granularity of growth – strategy at country level is not enough
• 400 mid-sized Emerging market cities to generate 40% of global growth
• 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)
• 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
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Singapore’s SME productivity strategy seems to be focused on tech updgration Singapore’s current strategy
• Internationalization in sectors with core strength – logistics, planning and management, industrial parks and zones
• 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
• 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
• Workforce and training support; wage credit scheme; major initiatives in both vocational and formal education
• #1 in WB Doing Business; EnterpriseOne; SME centres
• Government backed loans
• Strong institutions (A-star)
Goal: Maximize companies > 100 mn revenue
(Secondary goal: Improve average firm productivity)
Where to play
Which products? – sector mix, value chain
How to win?
Which Geography? – country/city/subnational
Optimal cost (through productivity measures)
Differentiation (quality, innovation)
Execution
Cross-cutting enablers (factor condition)
Talent and capacity
Capital
Knowledge and Tech
Business environment, infrastructure and institutions
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What does Singapore export?
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Where does Singapore export to?
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60
20
15
100
All firms started in a cohort
Exit Self-employed lifestyle
High growth/competitive
SME
5
Moderate/capped growth
Only 5 percent of firms in a cohort of SMEs become competitive
Growth profile of a representative SME cohort(After 7 years)
Source: Team analysis
High level estimates