BY encouraging Singaporean firms to create global value through partnerships forged at home and abroad, Budget 2018 lays the foundation for the next phase of national growth.
In his budget speech on Feb 19, Finance Minister Heng Swee Keat stressed the need to strengthen and create an even more vibrant economy driven by innovation, deepening of capabilities, and partnerships. This was reinforced when Minister for Trade and Industry (Industry) S Iswaran announced that the government will allot S$100 million over the next three years for SME partnerships through the integrated Pact programme.
For Singapore's fast-growing medium enterprises (FGMEs), the implications are clear.
For starters, they need to develop strategies that foster and deepen innovation and capability as a means to become blockbuster firms that can compete on the world stage. Of course, as crucial as implementing such initiatives are, they take time, and a growth accelerator is needed. That accelerator is partnerships.
Joining forces to compete globally
There are broadly two forms of strong collaborative partnerships. These are mainly grounded on the inevitable notion that size matters in global competition.
The first is a consortium that's forged by companies with synergistic and/or complementing strengths to build a well-rounded offering. This form of collective capability-building harnesses expertise from different companies, and are often used when the objective is to pursue larger global opportunities. The second forges partnerships to address markets.
Here, one partners not just with Singaporean companies, but also with strong overseas players with strong access channels to target markets. This enables quick access to new markets and fosters valuable knowledge-sharing between partners.
Though the economic model for collaboration is sound, the number of partnerships among SMEs pales when compared to those forged by larger companies.
In my professional interactions with entrepreneur-led and family-owned businesses, I've observed that the main reason for this low number is culture. Indeed, in PwC's Family Business Survey conducted in 2016 among 60 family businesses in Singapore, 68 per cent cited competition in their sector as a challenge in the short-to medium-term. This statistic helps explain why competing businesses may be averse to, or distrust, coming together for fear of exposing their respective weaknesses with their partners.
Unfortunately, such views - though understandable, especially among competitors - ultimately leads to a community of individual SMEs who, rather than collaborate to seize larger opportunities, end up bidding for smaller projects alone.
Structuring for success
That said, managing the culture challenge among "towkays" is not insurmountable. There are two points.
The first involves the role of government: the S$100 million integrated Pact programme, which starts on April 1, promotes partnerships among SMEs, regardless of size. This is a step in the right direction. What's more, the programme supports partnership costs incurred in capability development, such as the study of how knowledge is shared, and how operational aspects of alliances can be forged more effectively and efficiently.
This brings me to my next point, which is crucial in culture terms.
To stay the course, every partnership requires sensitive and personal effort from individual parties. The relationship cannot work, otherwise. However, it is equally important to look beyond trust by confronting difficult analytical, legal, and management realities. An example of an important question would be: "What would be the three big reasons why this partnership would fail?" The answers are invaluable in forming a well-drafted and productive contract.
- The writer is Partner (Strategy), Entrepreneurial and Private Business, PwC Singapore