DEEPENING CAPABILITIES: A CONTINUOUS PROCESS
The ISCA Pre-Budget Roundtable 2020 took place on January 8 at InterContinental Singapore. Focused on Singapore’s commitment to industry transformation in the face of strong global economic headwinds, this year’s theme was “Deepening Capabilities: A Continuous Process”. Held for the 11th consecutive year, the Roundtable is a key platform organised annually by ISCA to gather views and insights of business leaders from trade associations and chambers (TACs) and accounting firms on how Singapore’s Budget can be shaped to advance the nation’s future.
Liang Eng Hwa, Chairman, Government Parliamentary Committee for Finance, Trade & Industry, who co-chaired the Roundtable, recognised the swelling pressure in the global trade and tax environment. He acknowledged that companies in Singapore will need to “adjust nimbly to shifts in supply chains to increase business resilience” and “enhance non-tax factors to maintain attractiveness and compete for investments”.
Co-chairing the Roundtable, Lee Fook Chiew, Chief Executive Officer of ISCA, noted that Deputy Prime Minister and Minister for Finance Heng Swee Keat had highlighted in his Budget 2019 announcement the critical task of focusing on structural reforms and outlined key tasks such as building enterprise capabilities and deepening worker skills in supporting industry transformation. Mr Lee urged panellists to contribute their views on how the government can encourage the business community to power ahead on transformation in the face of a sluggish economy.
A) PRESSING AHEAD WITH BUSINESS TRANSFORMATION
Despite the less than positive outlook, panellists unanimously agreed on the need to press ahead with business transformation. There was an encouraging sign from a recent Singapore Business Federation survey that revealed that the message of business transformation has finally “sunk in” and that companies are now “more aware of the urgent need to transform”.
However, transformation efforts have been uneven, with outward-oriented sectors making better progress than domestic-oriented sectors.1 One panellist pointed out that having successfully raised the level of awareness only after efforts spanning a couple of years, the next phase to drive action and implementation is likely to be even more arduous, and will require a more consistent effort and greater outreach.
Panellists also highlighted the risk of a digital divide among companies due to different levels of maturity in technology adoption. For example, there are still some companies that are unaware of the Industry Transformation Maps (ITMs) and Industry Digital Plans (IDPs), while others do not understand them. On the other hand, some small and medium-sized enterprises (SMEs) have already embarked on digital platforms, and are using digital dashboards and cash management systems such as PayNow Corporate.
Further, panellists stressed the importance of establishing benchmarks and key performance indicators for measuring the success of ITMs and IDPs (such as quantification of increase in productivity), as well as having more sector-specific data to be shared to render more targeted support.
Also, while the government offers many schemes and grants to support companies in their digital transformation, some panellists felt that processes can be better streamlined. For example, the reimbursement process is still quite slow despite having improved compared to before. One suggestion was to speed up grant disbursement by reimbursing 80% of expenses to companies upon submission of claims, while withholding the remaining 20% until audit checks are completed.
Another idea raised was to tap into the strong liquidity currently present in the funds market for capability upgrading of SMEs. This could include sovereign funds, hedge funds and venture capital (VC). In addition, with the rising trend of traditional private equity players moving into the VC space, there could be an opportunity to collaborate with them to fund business transformation initiatives in SMEs.
B) DEEPENING ENTERPRISE CAPABILITIES
Panellists asserted that the complexities of business transformation entail changes across the whole organisation, from redesigning business models and processes, to talent management. As such, many SMEs find it difficult to make major business process changes as they lack knowledge and capabilities, and require help to implement on-ground changes effectively. It was pointed out that there were also not many grants available to support companies in business process reengineering.
One possible way to render such support is to provide SMEs with access to expertise at very low or no cost to them. Seconding consultants to SMEs and handholding them throughout the transformation process can help smoothen transitions and minimise disruptions. Consultants can be sourced from multinational companies (MNCs) based in Singapore, which possess a rich pool of talent who are at risk of displacement due to reshoring of jobs. This ensures that the capability built in MNCs can be transferred to SMEs in specific sectors via consultancy engagements. Separately, the government can help by funding consultancy expenses, as cost barrier is a common impediment to implementing transformation, especially with the current challenges in the economic landscape.
Deepening collaboration and partnerships to build an enabling industry ecosystem that is less reliant on the government was a theme that emerged from the panel discussion. One method is to drive collaboration and knowledge exchange between the academic community and companies. Institutes of Higher Learning, such as universities and polytechnics, possess the capabilities to help SMEs transform. It is mutually beneficial as students can be involved in the process such that they apply what they have learned in the classrooms and also gain practical experience, while SMEs can tap on new ideas and views.
Panellists also proposed more partnerships between SMEs and startups that can lead to more co-creation and innovation. While startups are better at innovation than SMEs, SMEs have a better understanding of the markets and can provide a good foundation for startups to build, develop and innovate.
Although the situation has been highly encouraging as more SMEs are increasingly expanding into new markets and more grants have also been awarded to fund these ventures, panellists shared areas for further improvement.
One idea is to establish dedicated communication channels with relevant agencies to facilitate timely feedback in the finetuning of grants so that more SMEs can make use of them. For example, the Overseas Marketing Presence programme grant is quite rigid in certain requirements and is not well catered to on-ground situations.
Additionally, to help SMEs internationalise, larger companies can be encouraged to bring along smaller companies when venturing overseas. The government can consider incentivising larger companies in Singapore, such as government-linked companies, to partner smaller local enterprises in overseas ventures. This will also be a safer route for SMEs to internationalise compared to them venturing out to unfamiliar territories on their own.
Free Trade Agreements (FTAs) can greatly boost internationalisation efforts by enhancing market access. However, FTAs are usually legalistic and may not be easily understood by SMEs. Panellists highlighted the need to translate FTAs into simpler layman terms so that SMEs can better understand and leverage potential benefits, as well as to make such information available on websites.
Also, more work needs to be done on harmonising the interpretation of FTAs across borders in ASEAN to ensure consistent treatment and application. One way is to leverage technologies such as blockchain in the adoption of FTAs and continue to enhance processes around goods qualifications and dispute management. For example, the European Parliament has proposed to use blockchain technology to enable traders to upload all their documents in one place, including those related to compliance, to benefit from preferential tariffs. The technology could also help authorities to automatically get information from these parties and improve verification and trade processes.
Lastly, the government can consider negotiating fairer terms for Singapore companies going overseas. While Singapore welcomes companies from ASEAN to do business here, the same may not be said of Singapore companies looking to go overseas as they still face many restrictions and regulatory hurdles when entering ASEAN markets such as Indonesia and Thailand.
D) DEEPENING WORKER CAPABILITIES
Talent and skills required for digital transformation are highly lacking in Singapore and this has driven up the costs of acquiring such capabilities. Panellists proposed several options.
Firstly, the government can look into how manpower can be redeployed to address concerns of job loss, and labour and talent shortage. One idea was to extend the Professional Conversion Programme to support workers in transiting to the gig economy. As companies move towards a manpower augmentation model and reduce headcount, many at-risk workers could seek opportunities in the gig economy, which has grown over the years. This will also help older workers who are laid off and who find it hard to be re-employed.
Issues were also raised on the growing aging population in Singapore and how efforts can be made to leverage older workers. For example, the government can offer special employment credits to companies as retirement ages are raised, and work on changing mindsets around ageism among employers.
As transformation disrupts tasks rather than jobs, another proposed solution is to encourage job sharing. One way to adapt would be to split job roles into tasks performed by different people. In this case, older workers can be tapped on in a bite-sized employment approach in which they are required to just fulfil a minimum number of hours of work in a week. This will better utilise the under-employed segments of the population to contribute to economic output, leading to increased productivity level. Further, the relevant government agencies may consider tweaking the SkillsFuture programme and related initiatives to provide incentives and cater specialised training to older and mature workers.
Secondly, panellists suggested investing in the training of workers. Digital transformation requires the cultivation of people who can “be digital”, that is, they have a greater understanding of the concepts of digital technology and have integrated its application into their daily lives. From a long-term perspective, it is crucial to start building a local supply of skilled talent which will require training students from an early age, even before the tertiary level, in order to ingrain the right mindset and produce a future workforce with appropriate skill sets.
In the near term, there are several measures that may be undertaken. One is to offset training costs by providing enterprise skills credits, similar to the SkillsFuture credits awarded to individuals. The credits could be utilised within a limited time period (example, a year or two) and attached with conditions (example, only catered for Singaporeans and Permanent Residents, only for junior to mid-level staff). There was a suggestion to earmark training credits for business leaders, especially in SMEs, to help them understand the importance of deepening capabilities and how to drive associated initiatives such as those geared towards increasing productivity.
Another possible course of action is to provide double tax deduction on training costs for companies and individuals. This is to encourage companies to further spend on staff training, which is where deepening of skill sets comes in. It also sets the tone for individuals to take more initiative to upgrade themselves rather than to wait for companies to act.
E) NEAR-TERM SUPPORT
The uncertain outlook for the global economy has unsurprisingly weakened on-ground business sentiments. Panellists shared that companies raised concerns over immediate issues such as rising business costs, lack of manpower and falling consumer spending. They agreed some form of near-term support from the government would be helpful. One recommendation was to put cash back into the system, such as via corporate tax rebates. However, one panellist highlighted that Singapore’s existing corporate tax rate is already low and giving corporate tax rebates will only benefit profitable companies. It would be more impactful to help companies that are not profitable and render support to specific industries and areas in a more targeted manner.
Overall, the panellists concurred that there is a compelling need to remain committed to existing efforts to drive transformation in the economy, despite the challenging economic environment. With increased collaboration and better communication between the government, TACs and companies, as well as a more enabling ecosystem, Singapore can continue to grow in resilience.
WHAT PANELLISTS SAID…
A) PRESSING AHEAD WITH TRANSFORMATION
HO MENG KIT “Findings from our latest survey show that the message of transformation has sunk in. People are aware of the urgent need for transformation in their companies and industries. Even in a well-connected country like Singapore, it takes two to three years to get the message through. The next phase will be even more difficult – to get businesses to do something about it.”
WONG WAI MENG “There is a risk of a digital divide in Singapore where companies are at vastly different levels of maturity in technology adoption. We have to drive awareness and upskill those who are not aware or not exhibiting basic ‘hygiene’ solutions.”
MAX LOH “When we look at digitalisation, do not just do digital. Be digital. Being digital is about taking on a fluid and agile mindset that is focused on innovation, using technology as an enabler. People must be at the heart of digital transformation. If we can get this right, we will substantively move the needle.”
LAM KONG HONG “It is true that many SMEs do not understand what ITMs/IDPs are and do not know how to start the transformation process. However, with the construction sector undergoing rapid changes, companies that don’t transform will find themselves left out in the value chain.”
CHRIS WOO “The key backbone behind transformation is to measure its success – we will need to determine benchmarks and KPIs against the ITMs and IDPs, such as increase in productivity.”
B) DEEPENING ENTERPRISE CAPABILITIES
R. DHINAKARAN “My suggestion is to classify businesses into clusters and identify specific steps for transformation for each. SMEs can benefit from access to expertise and handholding by placing a consultant onsite for a year and reimbursing costs incurred so that there is minimal or no cost burden. This can help drive transformation.”
ANG YUIT “Not enough is being done to transform business processes. Oftentimes, a drastic switch and overhaul is required to change the existing workflow and processes within a company. Currently, many SMEs struggle to grapple with that.”
HO MENG KIT “Build an enabling industry ecosystem and not just rely on the government. The financial services industry for example, has made strong progress in transformation. It has a strong ecosystem comprising a strong regulator, strong industry players, a strong TAC, and has developed training and capability-building programmes. Let’s try to deliberately build similarly strong ecosystems for key industries to facilitate transformation in the long term.”
WONG WAI MENG “Larger companies are pretty successful in their internationalisation. There is an opportunity to incentivise our big motherships to pull along smaller local companies and internationalise together. This is a safer route for SMEs as well.”
R. DHINAKARAN “While Singapore welcomes foreign businesses in the retail landscape with open arms, our companies have to deal with many restrictions and regulations when venturing overseas. For example, Indonesia does not allow Singapore SMEs to start retail business in Indonesia. Similarly, in Thailand, a total of only five retail stores can be operated by foreigners (Singapore SMEs).”
DR BICKY BHANGU “Currently, the Free Trade Agreements are still in a narrative that is too complex for our SMEs to comprehend. There can be efforts to translate them into layman terms that SMEs can easily understand. Only then can they start to leverage the potential benefits.”
D) DEEPENING WORKER CAPABILITIES
SELENA LING “One way to bring in the talent fast is by importing them, but at the end of the day, we also have to ensure there is a local supply pipeline coming through. If we are serious about deepening worker capabilities, this shouldn’t start at the Institute of Higher Learning level. You really have to start much earlier to ingrain the mindset and to ensure that graduates entering the workforce will be appropriately trained with the right skill sets.”
ANG YUIT “The Professional Conversion Programme (PCP) has been useful in assisting professionals, managers, executives and technicians (PMETs) to move into new sectors. As larger companies are moving towards staff augmentation and reducing headcount, many existing workers may be at a greater risk of being made redundant. Therefore, the PCP can be extended to include those in the gig economy who may find it difficult to be re-employed in a full-time capacity after undertaking flexible work for a period of time.”
PROF SUM YEE LOONG “While companies may train their staff and such training costs are tax-deductible, in line with the government’s emphasis on greater productivity, what is more useful is to encourage companies to spend more on training, which is where the deepening of the expertise comes in. To encourage companies to do that, we should consider a double (tax) deduction for staff training to spur these companies on.”
E) NEAR-TERM SUPPORT
DR BICKY BHANGU “Our SMF members think that the outlook for 2020 and beyond could be a little more optimistic, but with concerns. Their top three priorities are, firstly, sales and revenue within Singapore or the region, followed by relooking at products and services, and routes to markets. Only when the above strategies are in place will they then look at systems and use technologies and data to re-strategise about the future.”
LAM KONG HONG “The reality on the ground is that the construction sector is still facing very challenging times. Even as the jobs are available and there are a lot of projects, the tender bids are still highly competitive. From one of our surveys, 80% of companies think that profit margins will decrease. The immediate challenges of bread-and-butter issues are still very important. If we don’t address these challenges, it will be difficult for companies to see the way forward.”
SELENA LING “As a manufacturing hub and key player in the region, Singapore must really think about how to navigate this challenging environment. The tariffs are here to stay, as are the bilateral tensions between US and China. Where we put our investments, how we gear up our manufacturing sectors, whether it is to support US or China’s different 5G systems… a lot of thought has to go into that.”
HO MENG KIT “While we look to build deepened capabilities, I think it is important that we don’t lose sight of another important component to businesses, which is to provide near-term support. One way is for the government to give back cash into the system, such as by way of providing corporate tax rebates. Secondly, the government can help to manage the cash flow situation as some companies are facing a credit crunch.”
CHRIS WOO “In the financial sector, there is a lot of liquidity, especially in the fund space. We are seeing a lot of interest investing in this part of the world. Something to think about is how can TACs and Singapore enterprises tap on these opportunities, to find some way of collaborating with these funds. We are seeing traditional private equity players starting to move into the venture capital space. Venture capital could provide funding needed as we try to upgrade capabilities of some our small enterprises.”
Stella Lau is Manager, Insights and Publications, ISCA.
1 According to Ministry of Trade and Industry’s Economic Survey of Singapore, outward-oriented sectors refer to manufacturing, wholesale trade, transportation and storage, accommodation, information and communications, finance and insurance, and professional services. Domestic-oriented sectors refer to construction, retail trade, food and beverage services, other business services and other services industries.