SMEs – the challenge of creating jobs amidst innovation
Can Singapore show the way?
Technology is fast changing manufacturing landscape for large enterprises in every country. These enterprises are consequently restructuring and often downsizing. Consequently it is essential to simplify the regulatory architecture to create meaningful jobs and innovation in the Small and Medium Enterrise (SME) sector in future.
As India progresses with growing its Micro, Small and Medium Enterprises (MSMEs), Singapore-based industry veteran Girija Pande shares his views on recent developments in SME sector globally – especially reviewing what Singapore is doing to remake this sector for future challenges.
Pande’s thoughts are important and urgent both for Indian MSMEs/SMEs and the regulatory agencies in India. India is one of the world’s fastest growing economy with millions of MSMEs/SMEs upgrading to be Tier II or Tier III players in the global manufacturing space.
Pande, Chairman Apex Avalon Consulting Pte Ltd of Singapore and Past President of Tata Consultancy Services Asia Pacific, writes:
I must confess I have like many others – including many governments of late – taken a strong liking to SMEs and their future.
With Digital tech revolution creating Manufacturing 4.0 with Robotics, Artificial Intelligence (AI), Internet of Things (IoT) and Cloud-based technologies, 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, these enterprises will certainly not be able to create large scale jobs as in the past, in fact many of them will be downsizing employment.
All Governments have understood this oncoming disruption – hence the sudden priority on growing MSME/SME sector in each country.
India needs to urgently grasp this disruptive moment and focus on how to accelerate employment in the SME sector by deregulating it as fast as possible.
Globally, SME sector – which includes both services and manufacturing including startups, listed/unlisted companies and the non-profit or social sector – will be the one to create bulk of jobs in the medium term in most economies – some even in the new gig economy.
My contention is that for SMEs to continue to innovate and create meaningful jobs for the bulk of our relatively lesser skilled brethren, we need to prioritise rightsizing the current SME regulatory architecture, amongst other measures required to keep them going.
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, mentor a start up, serve 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 insights into their unique problems which were not apparent to me when I was running large global companies around Asia, the largest being Tata Consultancy across the Asia Pacific markets.
Challenges that these SMEs face can broadly be grouped under four broad areas:
Availability of risk and working capital;
Ancillary links to large industries with long term supply/services contract to help scale and internationalise;
Availability of trained manpower; and
Burden of regulations which cost and more importantly waste precious time.
Many solutions are being proposed in countries about how to tackle shortage of capital and manpower for this sector but it is the regulatory cholesterol which in my opinion presents the greatest challenges to their growth.
Singapore is similarly grappling with this challenge despite its well known efficient economy.
The Singapore SMEs are also ones which will create bulk of future jobs. 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.
The recently formed Enterprise Singapore (ES) defines SME companies being those with turnover under S$100 million -constituting nearly 90% of enterprises in Singapore.
Of these nearly 160,000 small/micro enterprises with turnover between S$1 million to S$10 million – constitute 80% of the total.
This could be a useful guide to define what constitutes SMEs.
These micro enterprises employ nearly half a million Singaporeans while all SMEs (with turnover under S$100 million) employ nearly 2.2 million – over 70% of the total employees in Singapore.
Most of the focus has been on provision of finance and Government agencies in Singapore have done a reasonable job with grants and tax incentives.
Many trade associations – including my own, Singapore International Chamber of Commerce – are attempting to assist SME members with links to larger Multi-National Corporations'(MNCs) working on Industry Transformation Maps (ITM) created recently to improve enterprises productivity and to assist in digitising them.
These efforts are laudable but still not sufficient till we right size the regulatory architecture impacting SMEs.
This will require a delicate balancing act by many Government departments who need to be focussed on cost/benefits of each and every regulation and look to light touch where possible. Undoing regulations to promote ease of doing business is a major thrust of the current US government as well as the Indian government.
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 Goods and Services Tax (GST) on such enterprises. For start ups and micro enterprises such simple regulations are a boon beyond belief.
However, there are many more in the statute book which could be modified or eliminated pragmatically. Could we for example, in some instances, move towards reporting rather than approval based regulations in some instances?
SME’s 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 Singapore Exchange rather than a one pager? Many other instances abound, I am sure and we will find them as we look deeper.
Singaporean bureaucracy has a sterling reputation for innovative thinking. For example Monetary Authority of Singapore (MAS) 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 under Ministry of Trade and Industry or Enterprise Singapore, where myriads of regulations which impact them are reviewed in detail for their applicability to SME’s, some retired while others put in such a sandbox for trials.
It will certainly go down as Innovation Singapore style. It may also save many SMEs from possible extinction. Unquote.