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Speech By Mr Tharman Shanmugaratnam, Deputy Prime Minister & Minister for Finance, At The Gala Dinner Of The World Entrepreneurship Forum

31 Oct 2013

Founding Members of the World Entrepreneurship Forum
Distinguished Guests
Ladies and Gentlemen

Good evening


1. It is a real pleasure for me to join you this evening at the 6th World Entrepreneurship Forum (WEF), which is here in Singapore for the second time.

2. First of all, my congratulations in advance to the five winners of the Entrepreneur of the World Award. I hope your achievements and commitments to society will tell many others how entrepreneurship is a path not only to create wealth but for social betterment.

Singapore’s New Phase of Development

3. In Singapore, entrepreneurship is more important than ever, as we embark on a new phase in our nation’s development. We are not doing badly –  our unemployment rates are one of the lowest in the world, and we have achieved good growth of real incomes for the average Singaporean household at a time when most developed countries are seeing incomes stagnate.

4. We are no longer a developing economy, but we are not yet a truly advanced economy. Our skills, depth of expertise and productivity levels, and hence the wages of the average worker, are not in the same league as the global leaders, in every sector of our economy. We want to get there.

5. At the same time, the declining growth of our workforce and tight supply of land mean we need new strategies to raise incomes. We must aim at quality growth – growth that is driven by higher skills and productivity, rather than a continuous expansion of the workforce and use of land. This new phase of growth poses challenges for businesses, but it also means opportunity for the enterprising and innovative. 

6. It means going for quality in every sphere - our products and services, the technologies we use, our marketing and distribution strategies, quality manpower and management, and above all a culture innovation that has to permeate our society. Innovation that enables continuous, incremental improvements, as well as breakthroughs or disruptive innovations from time to time – innovations that create new market segments and customer demands that never existed before, and  that cannibalise established business models. Entrepreneurship, in both large firms and small, is critical to this culture of innovation. 

We are neither Silicon Valley nor Tokyo

7. When people think of Singapore and its corporate landscape, they think first of our global MNCs and larger enterprises, state-owned and private. We are not thought of as a Silicon Valley with its upstarts, or even in the same vein as Taiwan, which has been driven by constant innovation by smaller players.

8. We often ask ourselves, why can’t we be more like them? Interestingly, there are also many countries who ask why they can’t be more like Singapore, with its low unemployment, steadily growing incomes every decade for the majority of households, liveable neighbourhoods, and a regulatory environment that enables businesses to set up and operate easily.

9. These are questions worth asking. But the first thing we must remind ourselves is that the business and economic landscape in each city and country is shaped by its history – the very different circumstances it faced, the challenges and opportunities that presented themselves in different points in time, and the decisions that were made in response – decisions that are never made in an ideal world but in the world of practical realities.

10. Singapore’s business landscape reflects its unusual history as a still young nation. When we became a nation in the mid-60s, we faced a grim reality – no common market with Malaysia, confrontation with Indonesia, a sharp decline in trade with our neighbours, we had double-digit unemployment and widespread poverty. Firms could not exploit economies of scale in the domestic market. We had to look beyond our immediate region, attract MNCs from the developed world, and produce for a global market. We also had to put state capital into essential industries where the pay-off was not immediate and uncertain, and which private entrepreneurs were not keen to get into. We did have hard-working private entrepreneurs, especially in banking and trading and some manufacturing activities.  But every serious observer knows that, with the unique economic and political realities that Singapore has faced as a city-state, it is inconceivable that we could have wiped out unemployment and radically uplifted standards of living for our population without an economic strategy that relied on bringing in global players and serving global markets. That’s our history, and we are lucky it worked.

11.  The US has a distinct ecosystem. Its capital markets have depth in a broad range of business financing options – business angels, venture capital, public equity markets, and federal and state funding programmes, along with strong mentoring programmes.

12. Why did capital markets develop so rapidly in the US, compared to say Europe? The 1933 Glass-Steagall Act[1] passed in the wake of the Great Depression, that limited commercial banks’ securities activities, opened up significant market space to a whole range of other capital market intermediaries to grow and thrive. Competition among them and advances in IT and communications technologies drove financial product innovation. Relaxation of the US “prudent man” rule in the late 1970s also facilitated the rapid growth of mutual funds, private equity and venture capital through the 1990s. Universities, enterprises and capital markets leveraged off each other, to bring scientific advances through to commercial application.

13. In Continental Europe, universal banks became powerful, dominating both the financing and governance of companies. Their loyalty was secured by offering them seats on corporate boards. With financial relationships thus stable, even fixed, capital markets did not develop as rapidly. 

14. The US experience does provide useful lessons. Well-regulated financial markets and financial innovation can play a significant role in fostering entrepreneurship and innovation in the real economy.

15. Germany’s Mittelstand, small and medium-sized, mostly family-owned businesses, are another useful model with their own history. Many are world leaders in their fields. They are largely privately owned and financed, usually by retained profits rather than debt. I’ve visited many of them. The family foundations that own the businesses take a long-term view of investments – a form of long-term capitalism that is quite distinct from the US model.  They have driven the German model of continuous innovation. 

16. What conditions allowed Mittelstand to flourish? A key reason was Germany’s post-war economic settlement. In 1945, the Germans started reconstruction with an aversion to big business, which was tarred by association with the Nazi regime. The division of the country also ended up indirectly benefiting smaller regional firms. Siemens and Daimler, big firms ousted from Berlin, rejuvenated Bavaria and Baden-Württemberg, now considered hotbeds of the Mittelstand, by encouraging the growth of smaller firms which developed to supply these industrial conglomerates.

17. Germany’s Mittelstand-based strategy of industrial growth has also been very different from France’s dirigiste model, where the state has played a more signifi cant role in directing investment and taking ownership. Post-war, dirigisme flourished, and was seen as a middle way between American laissez faire and Soviet central planning. Thus, where German post-war reconstruction saw the growth of small regional firms, France went in the opposite direction, encouraging mergers and the formation of “national champions” as a reaction to the weak, fragmented state of French industry prior to World War II. However, the stagnation of the French economy in recent years has revealed the challenges faced by this state capitalist model, such as the crowding out of smaller enterprises, and lower efficiency.

18. In Asia, Japan’s keiretsu and South Korea’s chaebol have been important models in their own right. Corporate giants such as Toyota have long been upheld for quality products and innovative production and supply chain processes. Both had their origins however in import substitution and protected industries, which helped favoured firms to expand and build up indigenous technological capabilities during the two countries’ post-war recoveries.

19. This model of enterprise-building and growth is much harder to replicate in today’s world of global markets and free trade commitments. The Asian financial crisis also exposed several inefficiencies and weaknesses of the keiretsu-chaebol models.

Building on our strengths

20. We cannot imitate other countries, with very different histories. But we should build on what we have achieved, and adapt our economic strategies to changing circumstances. We must also keep learning from the experiences of others, positive and negative, and borrow and adapt useful features where we can. There is no single model that we should follow but there are features we can adopt, such as in supply chain efficiencies in the leading Japanese firms, the innovation culture of the Mittelstand, or the risk-taking  early-stage funding market in the US.  

21. The Entrepreneurship Review Committee, which is being spearheaded by my colleague, Teo Ser Luck, Minister of State for Trade and Industry and Chairman of the Action Community for Entrepreneurship (ACE) is engaging in dialogue with a broad range of entrepreneurs. It will present its recommendations next year.

22. We have over time formed a system of loose collaboration between MNCs and smaller local enterprises.

• In the 1960s to1970s, technology transfer from foreign companies to their local subsidiaries enabled ‘learning by using’ among the employees of these firms.

• In the mid-1970s, on top of ‘learning by transacting’ with their MNC customers, local supporting industries began importing and exploiting technologies on their own. Since the mid-1980s, the presence of MNCs also began to spawn start-ups, with an increasing number of MNC employees leaving to start their own manufacturing SMEs, often to supply to their former employers. 

• More recently, as more MNCs locate their R&D operations in Singapore, we began seeing scientists and engineers leaving to start their own high tech firms. Companies that started off supplying MNCs also developed the capabilities to service global markets. 

23. However, our SMEs sometimes see the larger players as too dominant, crowding them out instead of providing opportunities for them. How then can we leverage the strengths and mitigate the downsides of our model so that our SMEs are stronger for it?

24. We can adopt two approaches. First, we should build on the current strengths of our collaborative model and maximise its potential. Second, we have to do more to nurture domestic talent and our next generation of entrepreneurial leaders.

Building on our collaborative model

25. First, building on our collaborative model. There is still much scope to enhance collaborations between the bigger and smaller players. We are doing this through the Partnerships for Capability Transformation scheme (or PACT).

26. Through PACT, our agencies work with large organisations, including MNCs, to identify and implement collaborative projects between them and local SMEs. This is an example of how multinationals can do more in partnering the smaller firms in their supply chain, helping them to level up through co-innovation and the transfer of knowledge and know-how. It is a win-win as the MNCs benefit from better products and services. We started PACT in 2010 for the manufacturing sector, and are expanding the scheme this year to include more manufacturing as well as service industries. 

27. Another refinement is to expand SME access to financing by leveraging their close working relationships with MNCs. We are familiar with the challenges SMEs face in obtaining access to financing. Financial institutions often cite a lack of track record, or the lack of collateral or paid-up capital. However, we are seeing a move towards multi-party supply chain finance (SCF) programmes, where banks are more willing to lend to SMEs that belong to a larger supply chain involving an MNC. Such programmes strengthen the credit-worthiness of SMEs, as banks consider them less risky when they have financially-stable MNCs on their client books. Thus, unlike traditional SME lending which is based on the SME’s credit, an SCF programme considers the fact that the SME enjoys regular revenues from a client with a strong credit standing. This allows for better rates and possibly additional loan facilities compared to what the SME would obtain on a standalone basis.

28. For example, Archipelago Rubber Trading, a local SME, faced two key growth constraints when it started in 2010; first, obtaining trade finance due to its short operating record and second, slow payment from its buyers. Fortunately, Archipelago was able to participate in its MNC buyer’s SCF programme. Economies of scale from multiple suppliers being on the same programme, and the MNC’s favourable credit standing allowed the SCF provider bank to offer better invoice discounting rates to the suppliers than what they could have secured individually. The SCF provider bank was also willing to pay Archipelago once the MNC confirmed receipt of Archipelago’s goods. This improved Archipelago’s cash flow and indirectly helped Archipelago grow its business.

29. Our agencies are exploring how to raise awareness of SCF and encourage MNCs in Singapore to adopt more multi-party SCF programmes given the win-win for MNCs and SMEs. 

30. Third, I think there is scope for increased partnerships between SMEs and large companies, local and foreign, in overseas ventures. MNCs often require highly specialised and customised services to improve their products and services in other countries, and our SMEs are well-positioned to fill these needs. For example, Savant Degrees, a local start-up specialising in digital solutions, was selected by P&G to develop and pilot a digital tool to improve the productivity of its Olay Beauty Counsellors across the Asia-Pacific, starting with Philippines as a pilot. Savant Degrees will develop a web application to be used in-store, to distribute promotional and operational materials and connect the Beauty Counsellors to their customer relationship management database.

Nurturing our next generation of entrepreneurial leaders

31. Next, our second approach – how should we nurture our next generation of entrepreneurial leaders?

32. Our evolution in the post-independence years w as shaped not just by circumstance, but also by the profile and aspirations of our labour force. Many then did not progress beyond primary education, and those that did aspired to stable professional jobs, preferring regular pay checks in the face of economic uncertainty. Often, it was those who did not do well in school or the job market that took the plunge to start their own businesses. 

33. But values and aspirations have changed[2] with time. This is partly a result of our efforts to support start-ups, promote VC and angel financing, and enhance business incubation and mentoring networks in our polytechnics and universities. These initiatives have helped to shape greater enthusiasm towards entrepreneurship, by making it a viable and exciting choice.

34. It is also a result of gradual cultural changes. Starting your own company or social enterprise and doing something off the beaten track is becoming more of an “in” thing. It also helps that we now have a range of successful local firms that have earned their stripes in international markets, such as Osim and BreadTalk. Our youths can also easily relate to role models such as Tan Min-Liang and Ryan Lee, who brought us Razer gaming laptops and X-mini speakers. 

35. These are positive changes, and we can do more to encourage them. In particular, it helps by starting young, and we can do more to expose our students from an earlier age to experiences and forms of learning that encourage creativity and an openness to different ways of seeing and doing things.

36. One way is to provide children with the environment that exposes them to a range of activities so that they discover, define, and develop interests and strengths outside the classroom. The Programme for School-Based Excellence and Niche Programmes were introduced in 2005 to do just that; by offering a diverse range of programmes so that students have greater opportunities to pursue interests and develop strengths outside the academic curriculum. We have expanded this effort, and now have 190 schools with areas of excellence, and 87 niche programmes spanning domains such as sports, the arts, uniformed groups, and including ICT and entrepreneurship.

37. We are also increasing the emphasis on applied and experiential learning earlier in the educational process. We already have very established approaches in our post-secondary landscape, especially in our polytechnics and ITE and will be introducing them more extensively in our school system. MOE recently announced that all secondary schools would develop an Applied Learning Programme for their students, which would expand opportunities for more of our secondary school students to offer non-traditional applied subjects such as design and robotics and engage real-world issues through activities with industry and community groups. MOE also announced a Learning for Life Programme that will help each student to learn more about himself and how he relates to others, through volunteer work, for example. These programmes will help our students to build up critical thinking and problem-solving skills. At the same time, I hope that many will nurture the interest and passion to improve the lives of people around them and make a difference.


38. I am optimistic about Singapore’s enterprise landscape. We have developed a solid system and we have good growth opportunities regionally and globally.

39. We can adapt and learn from others to forge an ecosystem that best responds to the challenges we face while making the best use of the resources we have. I believe the business leaders and entrepreneurs gathered here today have observed and understood many of these trends.

[1] This meant that commercial banks could not be brokers or dealers in the stock exchanges, could not invest as principals in companies, nor could they develop insurance products.

[2] The Global Entrepreneurship Monitor, a study by Babson College and the London Business School, shows that the entrepreneurial intentions of Singaporeans have risen from just 11.8% in 2006 to 21.4% in 2012.