Singapore SMEs need MNC contracts to escape ‘the small size trap’

Large multinational corporations (MNCs) are an important driver of Singapore’s economic growth. Many are innovative firms engaged in cutting-edge work in high-growth sectors that employ a number of Singaporeans.

But one other benefit often flies under the radar: MNCs provide business opportunities for local small and medium-sized enterprises (SMEs) to grow and develop, aiding them to upskill their workforce and helping them escape what Harvard Business Review terms “the small size trap”.

A research article in Harvard Business Review by US academics found that while 15 to 20 per cent of all small companies become medium-sized businesses or larger enterprises, this percentage was cut in half by 2017.

Specific to the Singapore context, there are about 3,100 firms making up the top one per cent of enterprises with over $100 million in annual revenue.

These companies also contribute 73 per cent of total value-added and hire 28 per cent of our workforce, placing them in a good position to collaborate with our SMEs in different ways to help them to level up.

Unlike other enterprise development Budget measures where the Singapore Government provides support to companies to defray business, financing and transformation costs, the Partnerships for Capability Transformation (PACT) scheme, introduced in 2010, seeks to catalyse business-to-business partnerships between MNCs and local SMEs for mutual benefit.

The PACT scheme seeks to incentivise collaboration with MNCs. It provides some financial support for activities such as capital investments and training, and a programme manager under the anchor company to help de-risk the transaction for both sides and catalyse the formation of such partnerships.
 

In his Budget speech, Deputy Prime Minister and Finance Minister Lawrence Wong spoke about levelling up our SMEs to meet the requirement of multinational enterprises (MNEs) operating in Singapore.

He cited the example of Zincode Technologies, a local SME that secured the contract to develop an optical inspection system for Rolls-Royce’s fan blade manufacturing facility in Singapore and has since gone on to capture new opportunities from other companies in the aerospace sector.

Why can’t SMEs level up on their own to pitch and supply to MNCs based in Singapore? The reality is that leaving it to market forces alone may not be enough for the courtships between MNEs and local SMEs to flourish.

MNEs based in Singapore have global partnerships and come with a pool of trusted suppliers already in tow. Working with a new set of local SME suppliers may require some coaxing and demonstration of capability.

On the part of local SMEs, the capability gaps they need to close to meet the requirements of MNEs may be large and require significant capital investments.

SMEs will ask themselves if they can recoup those investments, for example, through collaborations with other potential MNEs.

This is where a scheme like PACT comes in.
 

Enabling SMEs to go digital

There are positive examples of successful MNE-SME collaborations that give SMEs an easy arrowhead into high-growth areas and hook their sails onto innovative MNCs.

In the digital space, Google and Enterprise Singapore jointly introduced the Digital Practitioner Programme in May 2023, to help SMEs develop digital capabilities.

Through a two-month training programme and a three- to six-month practicum with dedicated Google specialists, SMEs can enrol their employees in courses to develop skills in areas such as information technology support, project management, data analytics, user experience design, and digital marketing that help them set up online stores and grow new sales channels.  

As tech players roll out more AI-powered solutions targeting SMEs, a PACT programme that leverages the network, expertise and solutions of the big tech companies to diffuse these technologies through a series of workshops, on-site development, and training to develop operational use-cases will accelerate adoption of artificial intelligence among SMEs, which will in turn benefit the tech players providing these solutions.
 

Decarbonising supply chains

Sustainability is another area of great opportunity for MNE-SME collaboration, as Singapore presses towards net zero emissions by 2050. But decarbonisation of the economy is not only an urgent imperative, but also a business opportunity.

Schneider Electric introduced its SME Kickstarter Programme in 2022, which mentors and guides SMEs in developing their decarbonisation road maps.

Under the programme, Schneider Electric provides a one-stop shop for SMEs to grow a pipeline of skilled talent in areas like carbon emissions tracking and knowledge in decarbonisation and efficient energy usage.

SMEs can also adopt Schneider Electric’s digital solutions such as its cloud-based platform for energy management to support their sustainability journeys.

Practical experience working with MNCs can help level up talent in SMEs and aid them in seizing new opportunities in the growing global green economy.

A PACT programme that provides wage support for sustainability experts hired by a major purchaser to work through their supply chain to track, measure and manage their carbon footprint will complement this initiative.
 

Expanding overseas reach

MNCs can also provide tech transfers that help SMEs break into new markets and accelerate our national objective of helping SMEs internationalise.

In July 2023, Amazon launched the “Amazon Global Selling Singapore Cross-border Brand Launchpad” programme in collaboration with Enterprise Singapore and Singapore Business Federation (SBF) to equip SMEs with dedicated and tailored account management support and resources to help them access export opportunities in the US.

This has attracted considerable interest from local entrepreneurs and enterprises who are keen to test and access the lucrative United States market without the need for a physical presence.

PACT partnerships can be led by our large local enterprises (LLEs) as well, with incentives tweaked to prod LLEs to utilise SMEs in their overseas operations.

Today, many large Korean, Japanese and even Chinese companies are doing this with their suppliers and there is scope for Singapore companies to do more as we seek to hunt-in-a-pack to capture overseas opportunities.
 

Tapping TAC Networks

Matchmaking MNEs and local SMEs requires a deep understanding and familiarity of the needs of both parties.

Today, much of that heavy lifting is done through the joint efforts of economic agencies like the Economic Development Board and Enterprise Singapore, working closely with the MNEs and SMEs. 

There are opportunities for trade associations and chambers (TACs), which possess deep knowledge and connections with sectoral businesses, to be more greatly involved in brokering such partnerships.  

There has been some progress on this front and in some instances, TACs are already starting to take the lead.

SBF recently signed a memorandum of understanding (MOU) with Hyundai Motor Group Innovation Centre Singapore (HMGICS) to bring together four partner trade associations (Asian Clean Fuels Association, Association of Electronic Industries Singapore, Singapore Battery Consortium, and AutomationSG) to help more Singapore companies secure supplier contracts within the HMGICS Electric Vehicle ecosystem.

By being part of this supply chain, SMEs can gain valuable experience and credentials which boost their potential to secure larger-scale and higher-value contracts. 
 

Operationalising this MOU with PACT will help strengthen the partnership and accelerate the identification of supply and technology opportunities with HMGICS.

By facilitating opportunities for local SMEs to tap into world-class, cutting-edge projects like this, local SMEs gain experiences at the forefront of emerging technologies that will position them well to seize new opportunities in the green and digital economies.

With their strengths in fostering dialogue and bringing together varied businesses and stakeholders, TACs can spur greater MNE-SME collaborations simply by curating platforms that encourage such networking and discussions.

In May 2023, EuroCham, in collaboration with SBF and others, organised a forum titled “Local SMEs and their sustainable transition: How can European MNCs support it?”

Business seminars like these can help gather the business community to think more deeply about the importance of MNE and SME partnerships and brainstorm practical ways to find new areas of collaboration.
 

Strengthening the business collective

In Budget 2024, the Government has stepped up many tangible and well-intentioned programmes to help SMEs including the Enterprise Support Package and enhancements to the enterprise financing schemes, to build capabilities in human capital, deploy new technologies like AI, and to support the green transition. 

The Government’s plans to expand PACT to cover more partnership areas beyond supplier development, such as internationalisation, capability training and corporate venturing, are welcomed.

Efforts like these are needed to accelerate capability building and enterprise transformation in SMEs in digitalisation, decarbonisation, and internationalisation.

These efforts will also help level up human resources in SMEs, which hire 70 per cent of the Singapore workforce.

PACT is an important complement to these programmes that seek to crowd in private sector resources and expertise. It signals that beyond government support, it is also time for our enterprises, large and small, to step up to help themselves.
 

The writer is the Chief Executive Officer of the Singapore Business Federation.

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