Government response to FBG's recommendations:

FBG:
To create a more pro-enterprise business environment, large companies including Government-Link Companies should refrain from competing in areas which the SMEs could serve. The problem had been highlighted in the Group's previous recommendation paper in 2002.

It was suggested that a "competition law" be introduced, so that large companies will not compete with the SMEs in government projects worth less than a particular value, according to the specific industry, for example $5 million. However, they can work together with the SMEs to compete for projects overseas. 

MTI:
A generic competition law will be enacted by 2005.  MTI is in the process of finalising the draft legislation for public consultation.  The competition law is intended to prevent anti-competitive behaviour unfair competition and to level the playing field for both large and small players in Singapore.  Thus, it will not forbid large companies to compete with SMEs in government projects of certain value.  This is neither the intent nor the proper ambit of competition law.

Nevertheless, the government has taken active steps to help SMEs in government procurement.  For example, MOF is prepared to take a risk and register applicants that do not have the required experience/track record but have the required financial resources in terms of paid-up capital (this registration is a requirement set by government agencies for suppliers to participate in certain of their procurements).  These companies will be registered for 1.5 years.

For software development contracts below $5m, the track record of the individuals/team who will be undertaking the particular project is recognised, in lieu of company?s track record.  Work is also underway by MOF to review with relevant government agencies the terms and conditions of government tenders, as part of its periodic review.


FBG:
Though it may be more efficient for various agencies to look after their respective areas, there should be a one-stop shop to serve the SMEs better and more effectively. The Feedback Group recommends that the roles of IE Singapore and SPRING be consolidated for better effectiveness. Currently, various agencies provide their respective programmes for SMEs, resulting in uncoordinated assistance efforts for the SMEs. The consolidated agency should come under the purview of the Minister of State in charge of Entrepreneurship.

In addition, the Feedback Group proposes to expand the role of the Ministry of Trade and Industry (MTI) to the Ministry of Trade, Industry and Entrepreneurship (MTIE). A statutory board - the Enterprise Development Board - could be set up, under MTIE?s purview, to focus on promoting and aiding entrepreneurship through SME policy-formulation and overseeing its implementation. 

MTI:
In 2002, IE Singapore and SPRING were both reorganised from the former Trade Development Board (TDB) and the Productivity and Standards Board (PSB).  At that time, MTI considered merging the two statutory boards to form a single agency that would oversee enterprise development.  While there are advantages of merging the two statutory boards, there is also the danger of diluting the focus of the two agencies.  Therefore, upon further consideration and consultations with the business community, it was decided that the two agencies should be kept separate so that each would be better focussed on their respective charters.  As such, SPRING was designated the champion agency to support SME development, whereas IE Singapore would concentrate on helping Singapore-based companies to venture abroad when ready.

Being mindful of the need to provide seamless assistance to SMEs, IE Singapore and SPRING are pro-actively co-ordinating their programs and initiatives.  A meeting is held monthly between the two agencies to discuss areas for joint collaboration and to update each other on key initiatives.

To raise the level of assistance provided at its SME First Stop, SPRING has also undertaken efforts for more detailed need analysis and follow-up with SMEs, beyond referrals to relevant agencies for assistance.  This will ensure that SMEs seeking help does not get passed from pillar to post.

Although they are separate statutory boards, SPRING and IE Singapore work closely together to assist enterprises.  We will look into how co-ordination between them can be further improved to provide more integrated and seamless help to SMEs. 


FBG:
In addition, the Feedback Group proposes to expand the role of the Ministry of Trade and Industry (MTI) to the Ministry of Trade, Industry and Entrepreneurship (MTIE). A statutory board - the Enterprise Development Board - could be set up, under MTIE's purview, to focus on promoting and aiding entrepreneurship through SME policy-formulation and overseeing its implementation. 

MTI:
Currently, Raymond Lim (Minister of State for Foreign Affairs and Trade & Industry) is the Minister of State in charge of entrepreneurship.  Entrepreneurship is hence actively looked into by MTI, even under its present set-up. 

However, as entrepreneurship development is cross-cutting in nature, to succeed, it requires the efforts of not only many different government agencies, but also the private and people sectors.  For this reason, the Action Community for Entrepreneurship (ACE) is driven primarily by private and people sector activists, and supported by a multi-agency secretariat led by the Chief Executive of SPRING.


FBG: 
Legislate every company, including SMEs to join their relevant trade associations or chambers of commerce: During the public consultation on the draft paper, many SMEs showed their reservations that the trade associations and chambers of commerce would tend to represent the interests of the larger companies, rather than small businesses. Furthermore, they were concerned that the SMEs would be compelled to incur high membership fees. The Feedback Groups would review this recommendation. 

MTI:
The Singapore Business Federation (SBF) was formed on 1 April 2002 as an apex chamber to enhance the organisation of the business community in Singapore. 

However, in response to feedback from the business community, companies with paid-up capital of less than $0.5 million were exempt from the compulsory membership, so as to lighten the statutory burden for smaller companies.  Nonetheless, SMEs are encouraged to join the SBF and the relevant trade associations or chambers of commerce.


FBG: Provide the necessary financial assistance to trade organisations. 

MTI:
Currently, government agencies already provide financial assistance to trade organisations.  For example, IE administers the International Marketing Activities Programme (IMAP) through trade associations and chambers of commerce.  Under IMAP, IE co-shares the common costs of overseas mission trips led by trade associations and chambers, as well as the travel and accommodation costs of the mission secretariat staffed by associations and chambers.

Defraying the operating expenditure of trade organisations with government funds could reduce their motivation to continually develop value-added services for their members.  Like all other private sector groups, trade associations are subjected to the forces of demand and supply for their services which is driven by the market. 


FBG: 
Widen the work scope of trade associations so that they can provide more relevant services to their members in line with government policies, such as:
Allowing trade associations or chambers of commerce to set up funds to provide financing services for their members. Whenever there is a need, chambers of commence or industry associations should be able to appraise and evaluate loan applications of SMEs, including government financial assistance schemes. 

MTI:
The government does not impose restrictions to prevent associations from widening their work scope.  In fact, the government would be happy to support associations that are prepared to take the lead in promoting greater industry or enterprise development.  Some of the activities suggested in para 23c are already being undertaken to different extents by different associations.

On para 23c(i), viz. allowing chambers of commerce and industry associations to administer SME loan applications, there may be concerns about perceived conflict of interest and the favouring of members over non-members.  SPRING thus prefers to work through a wide range of participating financial institutions (PFIs) to administer government financing schemes, like the Local Enterprise Finance Scheme (LEFS).

In the administering of SME financing schemes such as the Local Enterprise Finance Scheme (LEFS) and Loan Insurance Scheme (LIS), the government leverages on independent market players, the Participating Financial Institutions (PFIs), to assess the credit worthiness of SME loan applicants.  To inculcate market discipline in lending, the PFIs co-shares the default risks of the loans with the government.  Moving forward, the government will continue to tap the expertise and services of our market players to address the varied financing needs of SMEs.


FBG:
In the past years, the Feedback Group has been mooting the idea of a financial institution that looks after the financial needs of small businesses. The SMEs financial institution could serve as a "one-stop shop" to offer services that are applicable in Singapore's business context, such as:

i. sector-wise database of SMEs information and problem-solving for subsequent reference,

ii. disbursement of long-term and emergency funds.

iii. the proposed institution not only lends money to the SMEs, but also provides expertise in the form of consultants to oversee the use of funds lent to the SMEs. These consultants should be experienced and industry-savvy enough to hand-hold the SMEs in achieving the objectives of the loan.

MTI:
There are already a number of banks and financial institutions that pay focused attention to SMEs, including some that have adopted new lending methodologies more suited to SMEs.  In addition, under the LEFS, there are already 16 PFIs.  The wide range of financial lenders with differing risk appetites and evaluation criteria provides SMEs with more financing access than would be possible with a single financial institution.

Moreover, in line with the yellow pages principle, the Government should not be entering into business areas where there are already private sector players.  The government has been looking to increase the avenues for SME financing, in a market-based manner.  For example, in end-July last year, it launched the Deal Flow Connection, a matching platform fronted by an online portal that connects entrepreneurs with sources of funds, such as financial institutions, venture capitalists and angel investors through financial intermediaries or matchmakers.

The Government also recognises SMEs' needs for small loans to ease cashflow problems.  The Micro Loan Programme under LEFS was thus implemented in 2001.  The approval rate for the Micro Loan Programme has exceeded 70% for the last two FYs.

It is unrealistic to expect a 100% success rate for loan applications.  Even if a "one stop shop" is being set up, some loan applications by small businesses will still be turned away if the business models are assessed to be weak.


FBG:
It is also proposed that businessmen be allowed to use their fully paid-up Housing and Development Board flats as collateral against bank loans.

HDB:
For many Singaporeans, their HDB flat is their only asset.  If they use their flat as collateral to raise credit facilities from the banks, they run the risk of losing their flat should they default on the loan.  This would create hardship for the flat owners and their families.

Even though the Government does not allow HDB flats to be used as collateral for raising business capital, flat owners can still use their flats as business premises and earn a living from their homes. This is of course provided that the use it does not breach the guiding principle of homeownership and tenet of owner-occupation.

At the moment, the following schemes are in place to help flat owners work from home:-

(a) Home Office Scheme
The objective of the Scheme is to allow homeowners the flexibility to work from home so as to reduce start-up costs of small businesses.  Under the Scheme, the address of an HDB flat may be registered as a place of business.  The Scheme is administered by URA and it subsumes the former Technopreneur Home Office Scheme administered by EDB.

(b) Small Business Guidelines
The purpose of the Scheme is to facilitate informal small cottage type businesses to be conducted within homes.  The Scheme is administered jointly by HDB and URA

Lessees can also sublet room(s) in their flat, or their entire flat if they meet the required minimum occupation period, to generate additional income to make ends meet.

MTI:
The Housing and Development Board (HDB) has clarified that HDB flats are meant as homes for the lessees and their families.  If they use their flats as collateral to raise credit facilities, they run the risk of losing their flats should they be unable to service their loan.  This would then create hardship for the lessees and their families who risk being left without a roof over their heads.  It is therefore in the interest of the lessees that HDB does not allow HDB flats to be mortgaged to a bank or financial institution for credit or loan facilities other than for the purpose of financing the purchase the flat.


FBG: 
The Feedback Groups members felt that more assistance should be given to help local businesses to establish their brands overseas. They also commented that many SMEs are not fully aware of the assistance schemes available or do not know how to apply for them. Of those who are aware, they gave the feedback that the SMEs were turned away from the schemes because they were deemed as "too small", which ironically was the essential reason for seeking government help. Those who had received help felt that too much was being spent on branding consultancy fees, to the extent that they had to bear the other Advertising and Publicity costs. 

MTI:
For access to information on government assistance scheme, SMEs could either call the SME First Stop (at tel :68981800) for assistance or assess the information via http://www.business.gov.sg. 

SME First Stop services have also been extended to Singapore Manufacturers' Federation (SMa), Singapore Chinese Chamber of Commerce & Industry (SCCCI), Singapore Malay Chamber of Commerce & Industry (SMCCI), Singapore Indian Chamber of Commerce & Industry (SICCI), The Association of Small and Medium Enterprises (ASME), and the Enterprise Promotion Centres Pte Ltd (EPC) to make it more accessible to their members to access the service directly.

We agree that branding is an important component to helping Singapore-based companies to venture abroad.  To this end, IE Singapore launched the Branding for Internationalisation initiative, which is targeted at Singapore-based firms that have the drive to internationalise.  Taken together, these initiatives will catalyse the use of branding, raise brand understanding and develop a pool of brand-savvy executives.  However, A&P costs are not supported, as these are deemed to be operating rather than developmental costs. More details can be found at IE Singapore's website.

FBG:
To lighten the burden of those SMEs which are venturing abroad, the Feedback Groups proposed amendments in the group taxation regulations, so that the subsidiary's and parent company's profit/losses could be pooled together for taxation purposes. 

MTI:
In an effort to encourage risk taking and enterprise, the Government introduced a loss transfer system of group relief with effect from Year of Assessment 2003.  However, foreign losses may not be transferred for purpose of group relief.

As the scope of our corporate tax system is territorial, foreign income is not taxed in Singapore unless remitted to Singapore.  If foreign losses are allowed to set off against local profits, when foreign profits are not taxed domestically, it would mean subsidizing foreign ventures from domestic tax revenue.

Separately, the Overseas Investment Incentive administered by IE Singapore was revised last year to allow an approved Singapore-based company to defer its income taxes for two years if its approved overseas investment incurs operating losses during the first three years of the approved investment.  The revamped incentive covers new investments made from 1 January 2004.


FBG: A fixed percentile of start- up cost could also be made tax deductible, thereby providing tax breaks to SMEs that seek to go global. 

MTI:
Currently, IE Singapore's Double Tax Deduction Scheme for Market Development allows for approved companies to deduct twice the eligible expenses incurred for approved projects against their taxable income.  These include participation in approved trade fairs and overseas trade missions/market development trips, setting up of overseas marketing offices, master licensing and franchising, printing of corporate brochures/catalogues for distribution in overseas markets, and engaging in other overseas market development activities.  More details are available on IE Singapore's website.

FBG: 
Rather than following the global crowd in venturing into giant markets like China and India, Singapore should aim to be an early innovator in sourcing for new potential markets. The Feedback Group recommends that IE Singapore should go the extra mile in identifying new potential markets, such as Vietnam and Africa, and begin building business networks, so that the local SMEs will have a competitive advantage over their foreign counterparts.  

MTI:
As the lead agency responsible for helping Singapore-based companies to internationalise, IE Singapore is constantly on the lookout for new potential markets.  For example, IE Singapore has an Overseas Centre in Ho Chi Minh City to monitor development and provide on-the-ground assistance, as well as a Business Support Office to provide start-up facilities and assistance to companies wishing to expand into the Vietnam market.  Also, IE organises trade missions to new potential markets such as Kazakhstan, Sri Lanka, Mexico, United Arab Emirates and Eastern China provinces to enable Singapore companies to reap early-mover advantages.

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The Feedback Unit has also published the full details of the paper and its survey on this website.

See government responses to other FBGs' recommendations.