Strengthening Local Businesses in Singapore

Small and medium enterprises (SMEs) are the backbone of any local economy. In an era of rapidly-changing virtual global marketplace, SMEs are an alternative to international  competition. Or even as some economists even suggests, a country cannot expect to be globally competitive if it does not have strong local SMEs.

SMEs are not only designations of business size but actually suggests locality. SMEs are locally-rooted and nationally-invested businesses. Directly and indirectly, they contribute to economic growth through gross domestic and national products, production of goods and services, additional taxes and employment creation.

And the significance of SMEs is not just a theoretical developmental paradigm but is actually a practical one as nations have lately shown willingness and political drive to help sustain and expand their SMEs. Despite the age-old debate on economic liberalism and the role of government in maintaining a healthy market economy, countries like Singapore, Japan, Thailand and Malaysia seemed to have embraced the fact that government must intervene in SME nurturance through creative, low-risk ways means.

How then do governments strengthen SMEs?

Again, SMEs are not just designation in terms of size, SME almost automatically means the entity referred to is a start-up businesses. As a starting entrepreneurial venture,  SMEs are often continually unstable in its first few years of operation and therefore in constant need of financing or additional capital in its early years. As their size suggest, they do not have the necessary resources to compete against trans, multi-nationals and other major corporations and have limited growth capacity to perform in highly prohibitive global market.  

As such, government support for SMEs usually start with capital infusion. The most traditional form of government support for SMEs in countries like Singapore come in the form of loans which serve as soft capitals or additional investment financial aids. These aids are often devoted to high capital requirement of business operations such as infrastructure development, machinery and equipment fabrication or acquisition. However, loans are becoming notoriously ineffective means of helping SMEs since they create a culture of dependence and do not keep SMEs competitive.  The same is true for non-financial government support like tax incentives, preferential procurement privileges, and other economic benefits which are not cost-effective in the long-run since they do not provide support for growth but are actually temporary aid mechanisms that are helpful only in the first few operational years of any SME.

Today, loans are being replaced by grants which are more merit-based support. As such, these types of government funding force SMEs to perform well before they get government assistance. These grants also still serve the purpose of providing additional financing and resources to SMEs but they are incentive mechanism rather than dole-out welfares. Simply put, grants, compared to loans, motivates SMEs to perform well if they want or need additional government aid.  

In Singapore, the most common form of grant support for SMEs is research and development (R&D) grants of which there is a range of types. Some government SME funding are for research activities on product-service development and quality improvement.  These government grants can be accessed by firms that have established performance record but are now looking to improve what they have through researches in quality evaluation, standards assessment, material testing and even experiments while minimizing additional operational costs. Meanwhile, global market readiness, franchising and other studies and evaluation are also research activities that look into growth potentials, areas and directions including geographical and overseas expansion of SMEs and there are also numerous government grants for these R&D activities.