Singapore has long professed its intention to build up a strong, vibrant small and midsize business (SMB) ecosystem, and one of its main approaches has been to implement public policies to stimulate growth and encourage people to start their own businesses.
In fact, the city-state was one of only two Asian cities to be named in the list of the top 20 startup hubs globally by a study released last week by Startup Genome and Telefonica Digital. The findings ranked Singapore 17th and said the country had the potential to become the central startup ecosystem of Asia, bringing together the markets of China, India, Indonesia and Malaysia.
Singapore performed well in the funding and talent indexes of the study, and its unique geographical position at the heart of Asia provides a fertile environment for entrepreneurs to start, grow and scale their businesses not only in Asia, but globally, the report added.
To find out how effective policy-making has helped in transforming Singapore into a business-friendly destination, ZDNet Asia spoke to both the Inland Revenue of Singapore (IRAS) and Spring Singapore to find out how effective their policies have been, and if there are measures in place to prevent people from playing the system for personal gains.
Growing awareness of PIC
Claire Chua, director for corporate communications at IRAS, explained the Productivity and Innovation Credit (PIC) scheme was a broad-based tax deduction policy to encourage investments in productivity and innovation across all business sectors.
The PIC scheme has only been in operation for a year, but the adoption rate has been "promising", Chua noted. For the Year of Assessment 2011, some 34,700 companies, or 30 percent of active businesses in Singapore, have filed tax returns which included PIC claims.
Among active small companies with an annual turnover of S$10 million or less, 27 percent have claimed under the PIC scheme. Automation of equipment and staff training were the most popular investment claims, she added.
The director pointed out the effectiveness of the scheme was not based purely on the adoption rate though.
"Many of the businesses have become much more aware of the opportunities to enhance their productivity because of our outreach and engagement programs, which offer a platform to share knowledge and best practices in productivity. Increasingly, we see more businesses spending on productivity improvements," she noted.
Local logistics company YCH was one to have lauded the government's role in providing such resources to help companies encourage continued learning among staff. Margaret Toh, executive director of YCH, said incentives such as PIC would enable it to innovate and shift industry paradigms, such as supporting customized training programs to various employees to ensure relevance and value.
Asked how IRAS ensured the PIC scheme was not "gamed" by companies for personal gains, Chua noted its audit checks on PIC claims were still ongoing so it "may be premature" to share any details on possible abuse of the scheme.
She pointed out arrangements artificially inflating PIC claims, such as through the purchase or lease of automation equipment bundled with a high trade-in cash back value for old assets of little market value, are considered policy abuse.
"Businesses that over-claim PIC benefits through such arrangements may be liable to a penalty of up to 400 percent of the amount of tax undercharged or the cash payout, and also be liable to a fine of up to S$50,000 or imprisonment of up to 5 years," the director stated.
Investing in hope
The measurement of success becomes more complex when it comes to setting up grants to help startups get a healthy head start.
Sim Choon Siong, director for entrepreneurship development at Spring Singapore and chair of the ACE Start-ups sub-committee, said as much when he noted the agency was taking a "very high risk" by investing in companies at a very early stage--something private investors or equity firms have been loath to do.
Origins of ACE Start-up
Early this year, the Action Community for Entrepreneurship (ACE) agency replaced the YES! Start-ups scheme, which ran over a three-year period and helped seed 150 companies.
The new ACE grant initiative is an expanded scheme to open up the grant to aspiring business owners of all ages, beyond the previously catered demographic of only those aged 26 years old and below.
"As ACE Start-ups is a grant scheme, we do not expect financial returns from the companies we support unlike private investors or equity firms. In fact, we expect quite a number of startups funded will fail as we are taking a very high risk by investing in them at this very early stage when few others would," he stated.
Sim is hoping the ACE Start-ups initiative will be as successful as its predecessor YES! Start-ups, which helped seed 150 companies over a three-year period. Some 20 of these companies went on to raise S$10 million in third-party funding, which exceeded the S$7.5 million the scheme allocated to all participating companies, he noted.
Currently, there have been 400 applications received under the ACE Start-ups scheme and this is more than double the average of 180 applications per year under the previous iteration of the program. Sim said this was an encouraging trend and indicated more people, including mid-career professionals, were taking steps to start their own business.
Stringent selection criteria
In order to determine which startups to fund, the director revealed that entrepreneurs, venture capitalists, business angels and incubators were invited to join two evaluation panels established by ACE. The panel for tech startups is co-chaired by Antony Ng of D'Crypt and Darius Cheung, who founded tenCube, a mobile security company that was eventually bought over by McAfee in 2010, he noted.
The panelists help decide which startups are not "me-too" businesses but have the differentiation to gain an edge over competitors. They also figure out which entrepreneurs have thought through the revenue models to keep their business sustainable, have a large enough vision and ambition to run more than just a small local business, and have a management team with requisite skills to make their goals happen, the director explained.
After picking the startups, the program will also match these companies to industry mentors who are entrepreneurs in their own right.
"These mentors are committed to walk with the startups on their journey in their first year, to share their business insights gained from experience, as well as their expertise and networks, so they may build the foundation for success," Sim said.
To date, the ACE Start-up scheme has supported close to 30 startups with funding and mentorship, he added.