Singaporean SMEs Part 1: The government’s guiding hand
By Benjamin Cher December 7, 2015
- Most SMEs remain cautious, preferring tried-and-tested solutions
- Need to focus on solving problems rather hunting for grants
SMALL and medium enterprises (SMEs) make up to 96% of all enterprises in the Asean (Association of South-East Asian Nations) region.
In Singapore, its 180,000 SMEs make up about 99% of all enterprises in the city-state, contributing to about half of its gross domestic product (GDP) and hiring about 70% of its workforce, according to Spring Singapore, the government agency tasked with boosting and developing the SME sector.
Despite being the bedrock of the Singapore economy, not much has been said about the need for SMEs to transform their businesses from brick-and-mortar operations to digital ones, or at the least, digital-enabled ones.
The SMEs themselves, however, have recognised the increasing need for adopting digital technology.
According to a survey by DP Information Group, 21% of SMEs in Singapore are implementing business strategies that raise productivity, or are enhancing and streamlining their processes, through IT investments.
Also, 68% of SMEs have strengthened their in-house IT capabilities in 2015, up from 64% in 2014. The same report cites productivity drives and government incentive schemes as catalysts for this mindset change.
Up to 47% of SMEs are also looking to improve their productivity through automation, while 19% of are looking to introduce more ICT. About 20% are looking to gain better insights and benefits from the reduced material costs that come with ICT adoption.
The Singapore Government is keen to see SMEs adopt technology. The Infocomm Development Authority of Singapore (IDA) has even set up a ‘Productivity Growth Through ICT’ department in its Development group, specifically to help SMEs.
This department’s main focus is on transformation and innovation that would be relevant to SMEs, according to its senior director Andrew Khaw.
Using technology for productivity is a no-brainer, he argues. The IDA started out with helping one SME at a time, before deciding on a more efficient way of getting SMEs on board, he tells Digital News Asia (DNA).
“At the start of our work, we focused on the holistic transformation of each SME. Recognising that we needed to increase the effect of our work, we decided to add two prongs: To pre-qualify packaged enterprise solutions for ready deployment; and to focus on sector-wide solutions.
“There are between 180 and 200 packaged enterprise solutions listed with Enhanced iSprint,” he adds, referring to the IDA’s programme to support SMEs’ use of technology with packaged solutions.
For solution providers to get on the list of IDA-approved SME solutions, they have to not just be able to deploy the solutions, but must be also able to provide adequate customer support, according to Khaw.
IDA looked into ‘sector-by-sector’ solutions, according to Khaw (pic).
“We also increased the scale and impact of IDA’s assistance by introducing a sectoral approach, to attack problem statements that affect SME business sectors.
“What we are doing is bringing SMEs tech solutions that are relevant,” he says.
“The packaged solutions give SMEs the confidence to use them, and the sector solutions are customised to the workflow of the business so that SMEs in that particular sector can readily on-board them,” he adds.
This approach helps IDA identify the problems SMEs are facing, and thus able to work out solutions best suited for their needs, according to Khaw.
This shift from transforming a single SME at a time to a sector approach came around in 2008.
“Over the years, we have been pretty successful on both fronts – in terms of numbers, about 8,000 SMEs have been reached,” he says.
The helping hand
The Government has allocated a budget for these initiatives. In February 2014, Deputy Prime Minister Tharman Shanmugaratnam announced a S$500-million (US$358-million) ICT for Productivity and Growth programme for the next three years (2014-2016).
This programme has three initiatives: Scaling up proven ICT solutions; piloting emerging solutions; and enabling high-speed connectivity for businesses.
“Of the S$500 million announced in Budget 2014, which has now been incorporated as part of Enhanced iSprint, S$200 million has been set aside for building owners with SME tenants which want to build new in-building infrastructure for fibre-optic connectivity,” says Khaw.
Another S$50 million has been set aside for high-speed fibre-optic business subscriptions and projects such as [email protected].
“The other S$250 million is for the other two initiatives,” he says.
“The first is to help the mainstream SMEs in certain sectors make use of the solutions that were launched in the past five years as sector pilot projects; and the second is to increase the impact of tech in SME sectors, to bring about greater business transformation,” he says.
“From solutions for property management to suppliers of the major retailers, our focus is to increase the scale of reach to the SMEs.
“Now that the market has been stirred to recognise the advantages of technology, we are looking to help introduce more smart technology and transformative solutions for various sectors,” he adds.
These initiatives are aimed at reassuring SMEs when they do decide to adopt ICT solutions. It is not about high-risk innovation, Khaw argues.
“There is that mentality that tech equals to high-risk, which can scare off SMEs,” he says.
“What we are doing is bringing SMEs tech solutions that are relevant,” he adds.
The sector-by-sector and problem-solving approach has been effective so far, according to Khaw, with IDA being lauded by Tharman as an example to follow for other government agencies.
“Our approach now is to keep pushing the envelope in terms of a sectoral approach,” Khaw declares.
The average SME
When the subject of SMEs pops up, qualities such as ‘risk-averse’ and ‘resource-constrained’ come to mind.
Khaw concedes that point, but argues that the pay-per-use business model has been a boon for SMEs.
“We are encouraged to see SMEs are coming around, with the promise of ‘no-maintenance’ from the SME side, while paying-per-use is addressing this issue of resource constraints,” he says.
The ‘business as usual’ mindset is another challenge, but Khaw argues that SMEs cannot hold on to this view with today’s fast-changing economic conditions.
“Restructuring and manpower lean growth are significant business forces in Singapore, so no longer can SMEs proceed with ‘business as usual.’
“The majority of SMEs are still waiting – I have to identify the progressives within the group which are willing to pilot solutions and take the lead, and show the rest it can be done,” he adds.
Another key challenge is to take the expectation of grants out of the equation.
“Today, Singapore SMEs have many grant sources to work with, from various government agencies,” he says. “But sometimes, focusing on acquiring grants can take the focus away from the business problem statement.”
“Once we get the problem statement, we can determine if smart tech is relevant and prioritise what solution will bring about sustained change to the sector – and also, what IDA intervention would be meaningful to bring these solutions to the [various] SME sectors,” he adds.
Moving smart tech from innovation to relevance is therefore key to getting SMEs on board with digital transformation.
Government as facilitator
“This is more than just IDA putting a vendor solution into the hands of the SME – there may be issues that require government intervention,” Khaw says.
“Examples of intervention include: Changes to regulations; provision of common infrastructure; facilitating new business models for the consumption of tech; and connectivity,” he adds.
The IDA is also looking into factors that may be hindering SMEs from adopting technology. It recognises that some, such as manpower, rental and utility costs, may not be within their control, but the key issue is still productivity.
“SMEs can no longer plan based only on manpower, space and utilities as business factors,” says Khaw.
“As Singapore invests to become a smart nation, enterprises must now consider smart tech as a key business factor.
“Smart tech is almost infinite as a resource, and SME owners need to see the benefits from this,” he adds.
While 8,000 SMEs have been through the IDA programme, this is only a fraction of the 180,000 SMEs in Singapore.
But Khaw points out that most of these pilot solutions are offered to the SMEs without them having to come to the IDA for a grant.
“We recognise that the majority of SMEs are very tight on resources and focused on getting their business done.
“We find that the model of ‘pilot and then scale up’ is very helpful – we work with SME business leaders to scope out and deploy sector solutions on a smaller group pilot basis.
“These then showcase to the rest of the community how smart technology enables a transformative impact on business productivity and growth prospects, and they can then participate at the ‘scale up’ phase.
“We typically work with sector lead agencies, trade associations and the ICT community as partners,” he adds.
The IDA is not too worried about tracking the actual numbers because vendors themselves were encouraging SMEs to apply for grants to use these digital solutions.
“ICT vendors are incentivised by a commission to sell tech to SMEs; SMEs use tech to increase productivity – the equation at the most basic level is solved,” Khaw argues.
While getting rid of grants from the conversation rank high on the list of challenges, there is also the need to get vendors to cater to SMEs and their lower spending ability.
“Some vendors find that the cost of acquisition or cost of service of SMEs is incompatible with their cost structure,” Khaw says.
“Certain segments, such as Infrastructure-as-a-Service (IaaS), require bigger players to come in, and it is an on-going challenge of growing vendors’ appetite to serve SMEs,” he concedes.
The IDA has about 46 pilot projects that were formalised, according to Khaw, but not all of them took off. 28 projects have been completed, with another nine still in the process of completion.
“Nine of them didn’t take off – some of them found that the times have changed, or that the requirements have shifted from the original purpose,” he says.
The IDA has another 50 projects in the pipeline for the next six months, according to Khaw.
The IDA’s role as the Government’s ‘chief information officer’ has been key in helping SMEs in this journey.
“As a government procurer and operator of ICT systems ourselves, the IDA has a strong sense of such considerations as the high-level architecture of a sector solution, equipment and man-day rates, what is outsourced or supplied by a vendor,” Khaw says.
“So we provide a reality check for vendors providing solutions for SMEs, and provide peace of mind for SMEs using solutions prequalified by the IDA,” he argues.
Moving the needle
SMEs have been very ‘consistent’ in their risk appetite and attitudes, with the only difference being how you segment them, according to Khaw.
“10 years ago, if you took a survey about SMEs’ appetite towards tech, and if you ask the question 10 years down the road, the responses would be the same,” he quips.
“If you segment SMEs into three parts, the mainstream SMEs are more risk-averse, the progressive guys want to lead the industry, and the ones which are lagging behind will be restructured out – hence the pilot projects with progressives is important in getting mainstream SMEs to pick up the solutions,” he adds.
And when talking about digital transformation with SMEs, it is critical that they should not be looking at technology, but at their core competencies, to compete.
“One of our calls to the SME community when developing sector-level solutions is to approach tech as an enabler, not a competitive differentiator.
“An F&B (food and beverage) company must focus on the dining experience and the quality and presentation of food and beverage, not the technology,” Khaw says.
With Singapore’s Smart Nation initiative, government-led projects can show the way as demonstration projects of the benefits of digital transformation.
“SMEs then will be able to see the effectiveness of these solutions and what is required for them to adapt them for their context,” Khaw says.
The next generation of SME owners are also more tech-savvy, which helps in getting SMEs into adopting technology, according to Khaw.
“With the Smart Nation initiative and next-generation owners being more tech-savvy, we are hopeful about SMEs undergoing digital transformation.
“You will see a different Singapore,” he adds.
Singaporean SMEs and digital transformation:
Part 2: On the ground
Part 3: The view up there
Indonesian SMEs Part I: Driving the economy
Four key takeaways from What’s Next 2015
SMEs and tech adoption: High expectations, marginal impact
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