Productivity and Innovation in SMEs

Creating Competitive Advantage in Singapore and South East Asia

Azad Bali, Peter McKiernan, Christopher Vas, Peter Waring

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9780367606657
• eBook ISBN: 9780429950292
• Topic: Business
• Subtopic: Business Development
• Index: Business

This book analyses the determining factors behind productivity and innovation amongst Small and Medium Enterprises (SMEs) in Singapore, and within the context of South East Asia, in order to offer recommendations for increasing productivity and aiding economic growth.

SME firms are an influential driver of economic growth in advanced world economies like the USA, Germany, Japan and South Korea. Throughout the 2000s, Singapore experienced a decline in economic growth which was linked to decreasing productivity in its SMEs. The decline triggered a transformational policy by a Government intent on forging a 'high skill–high productivity' future. Given substantial evidence that low productivity growth occurred in sectors where immigrants dominated the workforce, the seeds of recovery focused on improving productivity and innovation amongst SMEs in those sectors. Hence, this book investigates the factors determining productivity amongst SMEs across the manufacturing sector. It utilises personal interviews with global experts and CEOs, combined with primary data collected from a major international Delphi survey, and interviews with 215 SME owners and managers in Singapore. This data helps us to better understand how these productivity-enhancing factors can be used to increase performance amongst SMEs. By investigating the nature and process of total factor productivity in Singapore's SMEs, this book tells the policy story behind the revolution. To provide a comparative analysis, Singapore's story is placed within a South East Asian context. The unfolding narrative contains important lessons for policy makers and industry globally, as they assess the strategic choices available to them for improving productivity and innovation.

This book will be of great interest to students and scholars of innovation and productivity, as well as economic development officers, government policy advisors, SME business managers and sustainable businesses.

1Introduction

1.1 Project background

The engine of small and medium sized enterprise (SME) productivity is an influential driver of economic growth in advanced world economies like the USA, Germany, Japan and South Korea. As Singapore witnessed throughout the 2000s, when the engine stalls, productivity falters and a country can fall well behind its major competitors (see Table 1.1, below). In this city-state, this decline triggered a transformational policy by a government intent on forging a ‘high skill–high productivity’ future. Government’s resolve in the relentless pursuit of improved productivity is evidenced by the 200 references to ‘productivity’ in its Budget statements from 2010 to 2014 compared with only 20 references in the decade up to 2010 (Au Yong, 2014).

Table 1.1 Global productivity growth rates – 2012, 2013 and 2018

Regional indicators	2012	2013	2018
			PROJECTED
North America
Labour productivity growth	0.9%	0.9%	1.5%
GDP growth	2.8%	1.9%	3.0%
Euro region
Labour productivity growth	–0.1%	0.4%	1.4%
GDP growth	–0.07%	–0.3%	2.4%
Labour productivity growth in…
Brazil	–0.4%	0.8%	–0.2%
China	7.3%	7.1%	4.3%
India	3.1%	2.4%	5.2%
Japan	1.2%	0.8%	0.9%
Russia	3.1%	1.6%	0.9%
Singapore	–2.5%	1.6%	2.8%
United Kingdom	–1.8%	0.5%	0.8%
United States	0.7%	0.9%	1.5%

Source: Adapted from the Conference Board’s Report on Global Productivity 2013 and 2018

Ironically, previously articulated reasons for Singapore’s economic success included a plentiful access to relatively inexpensive foreign labour, but persistent prediction of inferior productivity growth had forced the government to take immediate action. By 2017, foreigners made up around 38% of the total active labour force of 3.7 million (Department of Statistics, 2017) – with an even greater proportion employed by SMEs. Given substantial evidence that its low productivity growth occurred in sectors where foreigners dominated the workforce (e.g., Shanmugaratnam, 2013), the foundations of recovery focused on improving productivity and innovation by limiting access to foreign workers by imposing levies and restricting work permits – signals that were heard in all sectors as warning bells for the need to improve performance. Government rhetoric acted to reinforce the message:

Raising productivity is not just our most important economic priority but enables us to build a better society. Higher productivity is the only sustainable way to raise incomes for ordinary Singaporeans, and provide jobs that give people a sense of responsibility and empowerment.

(T. Shanmugaratnam, Deputy Prime Minister and Minister of Finance, 2013, B13)

As Singaporean SMEs employ around 70% of all labour, this seemed an obvious place to start the search for improvements in productivity and innovation, especially in the manufacturing sector:

We must help our SME sector revitalise itself. There are however wide divergences in efficiency amongst SMEs, even in the same industries.

(Shanmugaratnam, 2013, C18)

Traditionally, Singapore has been regarded as an exemplar economy by experts and governments, both locally and further afield. For instance, the World Economic Forum Global Competitiveness Report (GCR) 2017/18 ranked Singapore third behind Switzerland and the United States for competitiveness. Yet, a dilemma remains between Singapore’s reputation as a competitive economy and its poor record on most comparative measures of productivity and innovation. For instance, the GCR on business sophistication and technology readiness ranks Singapore at 18 and 14 respectively. While it is projected that Singapore’s labour productivity in 2018 will surpass 2%, its total labour productivity grew annually by 1.6% between 2008 and 2013, marginally higher than the 1.1% pa during the previous 5 years. Although there have been advances in labour productivity, in particular sectors of the economy, a structural shift in employment away from these productive sectors has resulted in declining total labour productivity (Goh, 2013). Such sectoral changes are not unique to Singapore, as they are prevalent in other economies undergoing structural changes (e.g., Finland, Japan and Germany). The sharp departure from the trend in 2009/10 comes off a low base, following the decline since 2005. Total labour productivity in manufacturing has mirrored that of the whole economy over the time frame covered – a strange finding, given that the former sector has shrunk from 33% in 2000 to 25% in 2006 and accounted for less than 20% of GDP in 2014 (Figure 1.1).

Figure 1.1Productivity in Singapore

Source: Adapted using data from Singapore Yearbook of Manpower Statistics (2011); ibid. (2013)

1.2 Objective and aims

To explore this problematique of productivity and innovation amongst Singapore’s SMEs, the government body ‘Singapore Institute for Productivity and Innovation (SIPI)’ commissioned a major research project during 2013–2015. This study was guided by one main objective:

To characterise industry performance in areas of innovation and productivity through the establishment of top 5 to 8 indicators in operational performance and building a good benchmarking database of 200 local SME manufacturing and engineering companies.

To achieve this objective, the study attempted to achieve three aims:

1)What are the key drivers of Total Factor Productivity and Innovation amongst SMEs in Singapore’s manufacturing sector? Drivers of TFP were identified and analysed in the country’s manufacturing sector. Productivity is often conceptualised as a measure of efficiency in production, a ratio of how much output is obtained from a given set of inputs, namely capital and labour. But, productivity also depends on the intensity of other factor inputs e.g., management practices, ICT investment, R&D intensity and innovation. Hence, analysts often focus on the productivity of all input factors – Total Factor Productivity – in analysing high-performance workplaces.

2)How can these drivers be used to understand the state of competitiveness of SMEs in Singapore and to improve their productivity? This was done using a three-stage methodological process of: a) factor identification informed through a review of the extant literature review, a Delphi study amongst global experts and personal interviews with CEOs; b) factor specification through content analysis of the triangulated output in a) above; and c) factor verification through primary data collection amongst a structured sample of 215 SMEs in Singapore’s manufacturing sectors.

3)How can we develop a mechanism for observing the evolution of SMEs productivity and innovation? This was done by creating a Webportal, through which firms can benchmark their productivity and innovation practices with rival and non-rival firms, both within their sub-sector and across the industry. By creating a ‘composite total factor productivity’ score for each firm, their current position in their sector and potential future position after strategic changes can be identified.

1.3 Philosophy

In addressing this pressing competitive topic for firms, sectors and nations, our approach involved:

Interdisciplinarity – with specialist academics covering macro and micro economics, political science, industrial relations, strategic management and human resource management;

Knowledge co-production – involving the intellectual engagement of academics with mangers and government bodies;

Comprehensive – including the identification and analysis of total factors of production rather than simply capital and labour;

Rigorous method – using both primary and secondary data and triangular data gathering from a Delphi study, stratified random sample interviews from global, regional and local actors and a critique of the extant literatures;

Dynamic tool b...

Table of contents

• Cover
• Half Title
• Series Information
• Title Page
• Copyright Page
• Contents
• Figures
• Tables
• Authors
• Acknowledgements
• 1 Introduction
• 2 Economic growth and productivity in Singapore and South East Asia
• 3 Research method
• 4 Research findings
• 5 Recommendations for policy and practice
• 6 Conclusion
• Index