WITH the digital tech revolution creating Manufacturing 4.0 with robotics, artificial intelligence (AI), Internet-of-Things (IoT) and cloud, it is clear that in the medium-term, large industries in manufacturing or services will need to 'reinvent' themselves to survive.
In this decade-long restructuring, they will certainly not be able to create large scale jobs as in the past. All governments have understood this oncoming disruption - hence the sudden priority on the growing SME sector in each country.
Globally, the SME sector - both in services and manufacturing including startups, listed and unlisted companies, and the non-profit or social sector - will be the one to create bulk of jobs and, in the medium term, some even in the gig economy.
Singapore will be no exception to this trend. They are also the ones who will create and sustain innovation. Being a high-cost open economy with manpower constraints, Singapore's SME sector unfortunately faces greater challenges to survive in this volatile and uncertain world.
My contention is that for SMEs to continue to innovate and create meaningful jobs for the bulk of our relatively lesser skilled workers, we need to prioritise right-sizing the current SME regulatory architecture, amongst other measures required to keep them going.
The recently formed Enterprise Singapore (ES) defines SME companies being those with turnover under S$100 million. SMEs constitute 99 per cent of enterprises in Singapore, employ two-thirds of the workforce, and contribute half of Singapore's gross domestic product (GDP). Consequently, from the point of view of employment, any regulatory change which can improve their survival chances is welcome, certainly for the vast number of 'mom and pop' businesses.
I have observed these SMEs closely from many angles. I have created one, mentored a start up, and served on boards of a fintech fund and a listed SME company. I also work with small social organisations which deliver very useful services to the community.
These have given me unique insights into their problems which were not apparent to me when I was running large global companies around Asia. Challenges that these enterprises face can broadly be grouped under four broad areas.
- the availability of risk capital,
- ancillary links to large industries with long term supply/ services contract to help internationalise,
- availability of trained manpower, and
- burden of regulations which take more time and cost more.
Most of our focus has been on provision of finance and government agencies have done a reasonable job with grants and tax incentives. Many trade associations are attempting to assist SME members with links to larger MNCs and working on Industry Transformation Maps (ITMs) created recently.
These efforts are laudable but still not sufficient till we right size our regulatory architecture impacting SMEs. This will require a delicate balancing act by many Government departments who need to focus on cost and benefits of each and every regulation and look to be as light-touch where possible. Undoing regulations to promote ease of doing business is a major thrust of the current US government as well.
One shining example in Singapore was the waiver of compulsory audit of annual accounts of SME's with turnover under S$1 million announced few years ago. Similarly, not levying GST on such enterprises. For start-ups and micro enterprises such simple regulations are a boon beyond belief. However, there are more regulations which could be modified or eliminated pragmatically.
Could we, for example, move towards reporting rather than approval based regulations in some instances? SMEs will not need to wait for approvals but work to build or grow their enterprises and report compliance when done.
Time is of essence for SMEs and anything that can be done quickly and painlessly can make a difference between success or shutdown. Do we need listed SMEs to fill up pages on sustainability as required by SGX rather than a one pager? Many other instances abound and I am sure we will find them as we look deeper.
The Monetary Authority of Singapore (MAS) under Ravi Menon has taken an excellent lead to create a unique regulatory sandbox to allow startup fintechs to innovate and prosper.This is likely to make Singapore a fintech hub in Asia.
Is there a need to create such a regulatory sandbox for SMEs, where regulations which impact them are reviewed in detail for their applicability? It will certainly go down as innovation - Singapore style. It may also save many SMEs from possible extinction.
- The writer is chairman of Apex Avalon Consulting. He was the past president of Tata Consultancy Services Asia Pacific.