This is a paper I wrote in May 2013 on the SPRING program in Singapore to promote growth and development of more home-grown enterprises. Enjoy!
Since its independence from Malaysia in 1965, the rise of the Republic of Singapore as a major financial center and one of the world’s most advanced and developed countries is well known. Between 1960 and 2010, its GDP growth averaged 7.7% (Wong & Singh, 2011), with per capita GDI reaching $42,930 (current US$) in 2011, only trailing Australia and Japan in the Asia Pacific region and placing itself ahead of countries like the United Kingdom, Italy, Spain and Hong Kong (The World Bank, 2013). Additionally, between 1970 and 2010, Singapore saw its GNI per capita grow roughly 20 times over (current S$) (Wong & Singh, 2011). Furthermore, according to a 2012 study by the Boston Consulting Group, Singapore had the largest proportion of millionaire households (17.1%), far outpacing Qatar and Kuwait, and the second largest proportion of households with more than $100 million in private financial wealth (10 per every 100,000, only slightly missing the mark set by Switzerland at 11 per every 100,000 (Becerra, et al., 2012).
The country’s 2011 GDP growth rate was a strong 4.9% (down from 14.8% in 2010 as the global economy recovered from the 2008-2009 financial crisis), placing it on par with Hong Kong, but well ahead of its high-income neighbors South Korea (3.6%), Australia (1.9%), and Japan (-.7%) (The World Bank, 2013), as well as above the OECD average (1.8%) (OECD, 2013). Additionally, Singapore has an extremely low unemployment rate of 2.9% (as of 2011), 0.4 percentage points better than Norway (the lowest in Europe) and 0.5 percentage points better than its nearest Asian competitors, South Korea and Hong Kong (The World Bank, 2013).
From a development and wealth standpoint, few countries can compare with this small peninsula nation of just more than 5.1 million people (The World Bank, 2013). Economic and development indexes seem to agree.
The 2013 Index of Economic Freedom ranked the county as second overall, citing its rule of law (2nd place) and open markets (1st place) as key drivers of its positioning. Conducted by The Heritage Foundation in partnership with The Wall Street Journal, the index proposes to measure the level of economic success for 185 countries. It has been conducted for more than a decade, allowing for long-term trending, and is developed out of ten benchmarks: property rights, freedom from corruption, fiscal freedom, government spending, business freedom, labor freedom, monetary freedom, trade freedom, investment freedom, and financial freedom.
Ranking Singapore second (only trailing Hong Kong), the index identifies institutions as the country’s leading attributes, specifically sighting “Prudent macroeconomic policy within a stable political and legal environment,” with, “Well-secured property rights,” “a strong tradition of minimum tolerance for corruption,” one of the world’s most transparent regulatory environments, and an embracement of, “economic liberalization and international trade.” (Miller, Holmes, & Feulner, 2013). Furthermore, while its top corporate tax rate of 17% places it along the middle of countries researched, it is about equal to that of Hong Kong (16.5%). Finally, the index identifies the country’s open trade regime, which includes no tariffs on imports. However, the study also identifies drawbacks, including substantial “state ownership and involvement in key sectors,” and restrictions on “certain civil liberties, such as freedom of assembly and freedom of speech” (pp. 393-394). Raking Singapore with an overall index score of 88, its weakest points comparative to other countries were fiscal freedom, monetary freedom, and investment freedom.
According to the Global Competitiveness Report for 2012 and 2013, Singapore ranked second, outpacing Finland, Sweden, the Netherlands, Germany, the United States, Hong Kong, and Japan. Developed and distributed by the World Economic Forum and its partner networks, The report seeks to address relatively similar issues as the Economic Freedom Index: analyze what makes national economies competitive and benchmark them against each other.
The index is composed of institutions, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation. These pillars are categorized into three sub-indexes: factor-driven, efficiency-driven, and innovation driven. While extremely well ranked in each sub-category, its weakest was innovation and sophistication factors (11th). Specifically, its business sophistication was only ranked as 14th, while its innovation was ranked 11th. Taking a deeper dive into both underperforming pillars, Singapore is most hurt by its local supplier quantity (44th) and quality (30th), control of international distribution (42nd), extent of marketing (22nd), and willingness to delegate authority (21st) within the business sophistication pillar.
From an innovation standpoint, its overall capacity is ranked 20th, while the quality of scientific research institutions is ranked 12th, availability of scientists and engineers at 13th, and PCP patents applications per million people also at 13th.
Additional weak rankings included market size (37th – although, while its domestic market was ranked 48th, its foreign market size was ranked 12th), and the macroeconomic environment (particularly government debt – its debt to GDP ratio at 100.8% – and inflation (5.2%) ranking 135th and 79th.
Finally, the World Bank’s Ease of Doing Business Index cites Singapore as the top overall country, placing in the top five for seven out of ten categories (starting a business, dealing with construction permits, getting electricity, protecting investors, paying taxes, trading across borders, and resolving insolvency). Registering property was its weakest proficiency (36th), while it also ranked outside the top ten overall in getting credit and enforcing contracts. It is interesting to note the dichotomy between its strengths in protecting investors (2nd) and resolving insolvency (2nd) and its weaknesses in getting credit (12th) and enforcing contracts (12th).
When looking at the highest, rolled up levels of the indexes, Singapore’s development looks to be nothing short of a modern marvel.
Yet, when looked at from an entrepreneurial perspective, Singapore comes in a bit under its weight, taking the number 13 spot in the most recent Global Entrepreneurship and Development Index (GEDI). Particularly, Singapore struggles in two of the index’s major subcategories, placing 27th in Entrepreneurial Attributes and 13th in Entrepreneurial Ability, although ranking third in Entrepreneurial Aspirations.
In terms of institutional variables, Singapore scores strongly (0.81 overall on a 0-1 scale) with the weakest variables being tertiary education (0.64) and (gross domestic expenditure on research and development (GERD) (0.63). In The Global Competitiveness Report 2012-2013, Singapore only ranked 19th in tertiary education enrollment, 15th in secondary education enrollment, but ranked first in primary education enrollment. Its weaknesses lie centrally on the individual variables (an overall score of 0.43). The country rates below 0.20 in opportunity recognition (0.19), skill perception (0.16), know entrepreneurs (0.01), career status (0.36), and competitors (0.46).
It is at this point that a dichotomy begins to show and if one is to look at home-grown firms – particularly as a measure of long term viability of entrepreneurial activity – Singapore seems surprisingly lacking, particularly in the context of its global competitiveness, economic freedom, and ease of doing business. A quick examination of the Forbes Global 2000 list of the world’s largest publicly traded companies shows a country lagging behind some of its closest competitors. While Singapore has 20 firms on the list of 2000 (1%), its largest ranks outside the top 10% at 274, while 12 rank in the second half of the full list.
Meanwhile, Hong Kong, with a population only 36% larger than Singapore, finds 46 firms (130% more than Singapore) on the publication’s list, with eight before Singapore’s first, five in the top 10%, and 26 (56%) in the top half of the full list.
Even more troubling may be the lack of global brand recognition of nearly all of Singapore’s largest firms. And, while well known brands do not an economy make, it is interesting to note that of Singapore’s largest companies, likely, its best recognized brand (Singapore Airlines) is majority owned by Temasek Holdings, the country’s sovereign wealth fund (Singapore Airlines, 2013).
The concept of entrepreneurship is the recognition of a chance opportunity to utilize new combinations based on previous knowledge specific to an individual entrepreneur to achieve profit. Furthermore, entrepreneurship plays a significant role on economic development – with opportunity entrepreneurship (rather than necessity entrepreneurship) as most important to economies in the third stage of development (Acs Z. , 2006). It is, therefore, fairly apparent what Singapore’s potential tripping points are in terms of further economic development when crossing its low GEDI pillar ratings for Opportunity Perception, Start-up Skills, Networking, and Competition against the definition of entrepreneurship and its role in economic development.
Singapore’s economic history has been defined by a national system of innovation which has evolved over time. Historically, it has been focused on attracting large multinational enterprises (MNEs) to “transfer increasingly advanced technological operations to Singapore” (Wong & Singh, 2011). However, since 1985, it has placed more “emphasis on developing indigenous R&D and innovation capability” while also providing more of a structured system for high-tech startups (Wong & Singh, 2011).
According to Tan (2002), while pre-independent Singapore’s growth was driven by entrepreneurship, its post-independent development was primarily found through public sector industrial policy, including government-linked companies. However, after a 1985 recession, Singapore created an economic committee to examine new directions for economic development: entrepreneurship was identified as a key potential driver. By 1989, a Small and Medium-Sized Enterprise (SME) Master Plan was created, introducing, “measures and assistance schemes and an entrepreneurial infrastructure” (Tan, 2002). The plan has been updated approximately every decade.
The lack of SME support until the last few decades is a key difference between Singapore and its neighboring rivals Taiwan and Korea, which, per Wong and Singh, placed more of a focus on indigenous technological development, rather than knowledge transfer from large MNEs doing business within their countries’ borders (Wong & Singh, 2011).
It was in this spirit that the Singapore Ministry of Trade and Industry developed the Standards, Productivity, and Innovation (SPRING) Board, whose mission is to help “Singapore enterprises grow,” and build, “trust in Singapore products and services” (SPRING Singapore, 2013).
Its goal, as stated, is to create more global Singapore companies – via support to the current crop of home grown SMEs. According to its website, SPRING has three key strategic outcomes towards which it strives:
- “Vibrant SME sector”
- “Local champions in key sectors”
- “Trusted and enabling S&C infrastructure” (SPRING Singapore, 2013)
The board has put together several schemes in order to assist entrepreneurship, including some available for entrepreneurs:
- Biomedical Sciences Accelerator (BSA)
- Business Angel Scheme (BAS)
- SPRING Start-up Enterprise Development Scheme (SPRING SEEDS)
- Technology Enterprise Commercialisation Scheme (TECS)
- Work Pass for Foreign Entrepreneurs (EntrePass)
- Export Technical Assistance Centre (ETAC)
As well as those for partners for Singaporean SMEs:
- Angel Investors Tax Deduction Scheme (AITD)
- Incubator Development Programme (IDP)
- Young Entrepreneurs Scheme for Schools (YES! Schools)
Furthermore, for SMEs already operating, the board offers support in several ways, including:
- Toolkits for growing firms (customer service, financial management, human resources, marketing, productivity)
- A S$5,000 Innovation & Capability Voucher for firms to engage consultants and other service providers which help enhance productivity, human resources, financial management, and innovation
- A Productivity & Innovation Credit tax incentive plan to help firms acquire new technology, training, intellectual property licensing, R&D, etc.
- Capability Development Grants, to further support productivity improvements in already established firms
- Government-backed loans designed to support firms with capital to finance growth
The board has identified 13 key industries (and six of major priority) which it supports on a broader scale within the country, facilitating the creation of industry, trade, and business associations; developing a pool of trained part-time or seasonal workers for the food and beverage and retail industries; advice and support to improve customer service within select industries; and industry-specific solutions to enhance productivity.
The industry sectors include the following (those marked with an asterisk are priority sectors):
- Biomedical & Healthcare Services
- Environmental, Chemical & Engineering Services
- Food and Beverage Services*
- Food Manufacturing*
- Marine & Offshore Engineering
- Precision Engineering
- Textile & Apparel* (CITE website)
Finally, SPRING has created a quality and standards (Q&S) infrastructure that it aligns globally with other Q&S bodies in order to legitimize Singaporean businesses – the idea being that if Singapore’s Q&S initiatives are globally accepted, then the firms that qualify under them would be better trusted outside of Singapore (SPRING Singapore, 2013).
The question, however, remains: has SPRING helped Singaporean SMEs grow into world recognized firms, while driving innovation from within the country, rather than via knowledge transfer from outside MNEs operating within its borders?
In April 1996 Singapore launched the Productivity and Standards Board (PSB) with the intent of driving productivity growth and the development of new products. (Osman, 1996). The PSB later became SPRING in 2002, enhancing its focus on innovation (What’s in a name change? A new mission, 2002).
Several measures to address productivity, new product development, and innovation are GDP per person employed, patent applications and royalty fees, and research and development (R&D) expenditure as a percentage of GDP.
Additionally, general entrepreneurship can be measured by new business creation (Unless otherwise indicated, all economic data is provided by The World Bank (2013).)
Singapore has seen its GDP per persons employed by 148% since 1980. More specifically, its GDP per persons employed grew by 80% from 1980 through 1995, by only 6% from 1996 through 2001, and by 25% between 2002 and 2011. In comparison, Hong Kong saw its GDP per persons employed grow by 177% since 1980, 86% between 1980 and 1995, 4% between 1996 and 2001, and 41% between 2002 and 2011. Korea saw its GDP per persons employed grow by 294% since 1980, 133% between 1980 and 1995, 21% between 1996 and 2001, and 28% between 2002 and 2011.
The percentage of patent applications by residents in Singapore has grown by about 90% since 1995 from 5.67% to 10.78%. Singapore, however, still drastically lags the OECD average (64%), high income average (63%), United States (49%), and South Korea (77%).
However, while patents are up, the balance of payments between the use of others’ patents and the licensing of Singaporean patents has declined by approximately 72%. Compared to the OECD (92% growth), high income countries (112%), and the United States (72%), the difference is drastic. Even compared to South Korea, which has seen its balance of payments in this instance decline by about 12%, Singapore is extremely high.
Since 1998, Singapore’s expenditure in research and development (R&D) as a percentage of its GDP has grown by about 39%, from 1.75% in 1998 to 2.43% in 2009. While this growth is significantly larger than OECD members (12%), it still lags the OECD average (2.51%), high income average (2.53%), United States (2.90%), and South Korea’s expenditure (3.56%) and growth (52%).
Finally, in terms of new businesses, Singapore has seen an 88% increase in the number of new businesses registered per year since 2004 with 32,308 new businesses in 2011. This is well ahead of South Korea (31% since 2006, compared with Singapore’s 50%).
According to SPRING’s annual report, nearly 4,000 SMEs were upgraded and more than 112,403 assisted, creating 15,250 jobs and S$4.42 billion value added (about 1.4% of total GDP in 2011) – although all measures are down from 2010 (SPRING Singapore, 2011/2012).
What, however, this all means and SPRING’s impact on the economy remains up for interpretation.
In 2011, indigenous GDP accounted for 56% of total GDP (down from 57% in 2010 and 61% in 2001) (Department of Statistics Singapore, 2013).
What may be the best interpretation is that SPRING allows for the further enhancement of the institutions necessary for successful business creation. However, what it lacks is a strategy for supporting high-impact entrepreneurship.
According to Acs (2010):
HIE is fundamentally the study of the actions of individuals responding to market opportunities by bringing inventions to market that create wealth and growth. These entrepreneurs are distinct from mere creators of new firms, those that replicate thousands of other establishments.
What SPRING does well is support the creation of new firms. However, it is still clear based on the GEDI that there is a severe lacking of opportunity perception, start-up skills, networking, and competition. Unless these issues are addressed, Singaporean firms will continue to, as Leibenstein suggests (1968), fill gaps – but smaller gaps in a routinized environment, rather than the large gaps that are truly needed for economic development.
Acs, Z. (2006). How Is Entrepreneurship Good for Economic Growth. innovations(Winter), 97-107.
Acs, Z. J. (2010). High-Impact Entrepreneurship. In Z. J. Acs, & D. B. Audretsch (Eds.), Handbook of Entrepreneurship Research (2nd ed., Vol. V, pp. 165-182). New York: Springer Science+Business Media, LLC.
Acs, Z. J., Szerb, L., & Autio, E. (2013). Global Entrepreneurship and Development Index. Cheltenham, UK: Edward Elgar.
Becerra, J., Damisch, P., Holley, B., Kumar, M., Naumann, M., Tang, T., & Zakrezewski, A. (2012). Global Wealth 2012: The Battle to Regain Strength. The Boston Consulting Group.
Department of Statistics Singapore. (2013). Retrieved from Sing Stat Website: http://www.singstat.gov.sg/
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Osman, A. (1996, April 9). New centre to help SMEs grow. The Straits Times (Singapore), p. 1.
Singapore Airlines. (2013). Stock and Shareholder Information. Retrieved from Singapore Airlines corporate website: http://www.singaporeair.com/jsp/cms/en_UK/global_header/shareholdinginfo.jsp
SPRING Singapore. (2011/2012). Annual Report.
SPRING Singapore. (2013). Retrieved from SPRING Singapore Website: http://www.spring.gov.sg/
Tan, W.-L. (2002). Entrepreneurship Challenges Ahead for Singapore.
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What’s in a name change? A new mission. (2002, May 17). The Straits Times.
Wong, P.-K., & Singh, A. (2011). Public Innovation Financing Schemes in Singapore. Singapore: International Development and Research Centre.