It dawned on me recently that while students are familiar with the concepts of government interventions, many did not know much details beyond the theory.
Key reasons behind their lack of familiarity with government schemes aimed at helping businesses in Singapore include:
- Students being students at this point. Not business owners.
- No examination question specifically students’ knowledge in the actual availability of such schemes specifically, other than in Case Studies, leading to students’ neglect.
It should be mentioned that schools do attempt to inculcate such knowledge in students. Elaborations of such schemes can often be found at the back of the schools’ notes as “Appendix”.
As an inevitable side-effect to this, students simply skip over these bits and ignore them altogether. I was a student once, I should know better!
As an Economics tutor now, I have however come to appreciate that studying the government interventions in the business environment is critical in understanding the challenges, solutions and trade-offs when applying Economics, even in exams.
Still unconvinced?
I had a lesson with my students and one particular practice question stood out:
Discuss key factors that a firm may consider when deciding to expand its business to overseas.
They did well in explaining that classic cost and revenue considerations, such as Economies of Scale, and demand patterns in the overseas market are key considerations. But curiously not one of them mentioned that government incentives can play very important roles too.
In fact, where the government promises to defray the cost of expanding your business overseas, most rational people would see this as a favourable factor. Aside from considerations about “strings attached” (we will discuss more on that later), help is usually appreciated.
In more extreme cases where the the pros and cons are stacked equally, the government support can even make or break the decision.
A good friend of mine, who works as a Business Advisor, shared a story of how a company approached him for advice on government subsidies for an equipment.
When informed that the government was able to reimburse 50% of the cost of the equipment, the business owner declared that the reimbursement level had to be 70% or he would not purchase it at all!
The point of this anecdote has less to do with the attitudes of companies in Singapore, than the fact that government support are very often a major factor in the firms’ business decisions.
It goes without saying that rules and regulations play a significant role as well. For example, certain goods might be barred or heavily restricted from commerce, such as in the case of weaponry (for obvious reasons).
All in all, students should be aware that government interventions play a big role in business decisions. We will therefore list and discuss a few important examples here.
A quick disclaimer before we begin: If you are looking for a detailed summary of all available government support in Singapore, you are in the wrong place. This article was designed to give students a quick overview of the government support landscape available to businesses and is therefore highly simplified.
Who’s Who for government support.
Arguably the best known government statutory board to businesses in Singapore, SPRING Singapore was set up “to help Singapore enterprises grow and build trust in Singapore products and services”.
SPRING has many schemes to offer for businesses, but we will share only the most recognisable ones today:
- ICV (Innovation and Capability Voucher) is a voucher valued at S$5,000, to encourage SMEs to develop their business capabilities.
- CDG (Capability Development Grant) aims to support SMEs to scale up business capabilities and ensure business sustainability. At the time of writing, typically SPRING will reimburse up to 50% of the associated cost.
International Enterprise Singapore (IES) is the government agency promoting international trade and partnering Singapore companies in going global.
The best known scheme to companies is the Global Company Partnership Grant (GCP) . This grant finances up to 70% of third-party costs associated with overseas expansion of your business.
The aim of the grant is to:
- Build the company’s business capabilities.
- Access the target overseas market.
- Develop the necessary manpower to expand overseas.
Again, IES, like SPRING has more to offer than the GCP scheme I had just mentioned. But it does give you a sense that government support is a major consideration in the expansion of a business, at least in Singapore.
Students should note that SPRING and IES will be merged in 2018 to form a new statutory board, Enterprise Singapore. It can be construed that the government views an overseas expansion as a default component of the companies’ road-maps and is therefore keen on streamlining both entities to avoid unnecessary separation.
Economic Development Board (EDB) is perhaps best known as being one of the oldest statutory boards around. It was created in 1961 primarily to bring businesses and FDI into then fledgling Singapore. EDB’s mission is to “create for Singapore, sustainable economic growth with vibrant business and good job opportunities.”
To that end, some of EDB’s best known support schemes include:
- Research Incentive Scheme for Companies
- Training Grant for Company
- Productivity Grant
- Global Investor Programme
In addition to what we have discussed, there are many other schemes as well, including well-known ones from IRAS (Inland Revenue Authority of Singapore) such as:
As you can see, there are many government support schemes and the landscape can be extremely bewildering for businesses. But you can choose to…
Get in touch with SME Centres.
If you are just starting out in your business, you would be assumed to have very little knowledge about available help from the government. The Singapore government therefore sanctioned 12 non-government agencies to act as one-stop consultation centres to give advice.
The stated services rendered by the SME Centres include:
- Free one-to-one business diagnosis and advisory services in areas like productivity, finance, human resources and overseas expansion
- Capability workshops
- Group-based upgrading projects for businesses in the same trade and vicinity
Evidently the Singapore government takes its role as the facilitator for businesses seriously. Which sounds rosy, except that there are various issues that threaten to spoil the party.
Government support can be abused.
There have been very high-profile reports recently about companies, individuals, and even criminal syndicates (!) swindling the government into paying out bogus operations.
One particularly absurd case had Singaporeans riveted when it came to light that SkillsFuture Singapore had been scammed of a whopping S$40M.
For our intent, we define “abusing the scheme” to mean purposely manipulating your business operations for no business reason, except for the sole intent of receiving support from the government.
As you might guess, there are very strong incentives to cheat, or at least bend over backwards for the perceived rewards in such schemes. Companies have been known to game the system, by modifying their business operations for no reason other than to qualify for such schemes.
In fraud cases, where the line had clearly been crossed through bogus claims, it is possible to utilise fraud analytics technology, or old-school profiling and investigations to reduce such incidences. However, in the latter case, the lines are blurred and it isn’t quite as simple to reject legitimate claims originating from less-than-saintly intents.
There is good reason however, to be particularly wary of such cases, because…
Some infant companies ultimately refuse to wean.
With the plethora of government support, especially for SMEs (Small Medium Enterprises), there are companies that have been reluctant to grow beyond the defining limit of an SME and risk losing such support.
In fact, this is ironically the exact opposite of the intentions behind the various schemes mentioned, which is to help companies grow confidently!
To further complicate matters, subsidies, as a rule, are often difficult to remove once implemented. While schemes such as the Productivity and Innovation Credit Scheme do get removed or have an end-date announced, in some cases, the schemes get re-branded instead for a new lease of life.
Weaning companies off government support can be painful as livelihoods are often affected by such changes. The Singapore government is all too aware of this and is understandably cautious in such matters, though it certainly doesn’t help matters here as it encourages companies to continue relying on handouts.
Societal resources can get misallocated.
A major side-effect to the above issue is the companies’ fixation on government support, which actively interferes with market price signals.
You could argue of course, that the government support’s main purpose was to allocate resources to industries or activities that would benefit society over the long run, but would not have been done without intervention. Oft-cited examples would include the East Asian Tigers, which was discussed in our previous article.
However, as with the benefit of hindsight, we now know that a significant number of government “bets” on perceived future growth engines in these countries didn’t materialise and have led to an over-supply and subsequent slump instead.
In the same vein, there will be companies that over-invest in due to the lower initial costs afforded by government support, which eventually leads to unsustainable operating costs and over-capacity in the long-run.
Matters are made worse by companies that take (lawful) advantage of government support schemes to advertise their products, which can be subsidised by the government.
A classic example is shown below, on the home-page of a local IT company:
While such unfortunate misallocation of resources are not publicised (for obvious reasons), similar concerns with the Bus Service Enhancement Programme had been raised by the public.
This particular government support programme had entailed the outright purchase of 550 public buses for an eye-watering S$1.1B for incumbent bus operators, SBST and SMRT. Needless to say, there were questions about the wisdom of using public resources to subsidise the capital expenses of private companies, who should “rightly” shoulder the cost.
We would argue further that having so much government support also causes “leakages” in the economy’s useful output, in the form of “government support consultancies”. A quick google search on “Singapore government grants help” proves our point.
Because of the bewildering nature of the government support landscape, and the associated bureaucratic hurdles, there has been a rise in such consultancies, which are arguably unproductive in terms of long-term economic output. This is an unintended effect of government support but almost inevitable given that arbitraging thrives on perceived difficulties in gathering information.
Ultimately…
We reckon government support for businesses is here to stay in Singapore. Perhaps the form and scope of the support would change, but for now, we observe that the government continues to believe in the need to “guide” the growth of the economy.
For that reason, we feel that it is important for students to understand government support as a major factor behind business decisions and it is our hope that this article helps shade light on this topic.
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