SPEECH BY MR , MINISTER OF STATE FOR TRADE AND INDUSTRY DURING THE COMMITTEE OF SUPPLY DEBATE (MINISTRY OF TRADE AND INDUSTRY) ON TUESDAY, 8 MARCH 2005

ENTERPRISE DEVELOPMENT 1. I would like to thank members for their comments. Minister has earlier talked about the broad strategies behind enterprise development. I will now share more details.

2. Ms Penny Low asked for an update on the SME 21 plan launched in the year 2000. The vision of SME 21 was to create vibrant and resilient SMEs that will enhance ’s competitiveness and economic growth. Three goals were set for the year 2010. First, we wanted to treble the number of SMEs with sales turnover exceeding $10 million from the figure of 2,000 to 6,000 by the year 2010. According to the plan, we should have 4,000 such SMEs exceeding the $10 million mark by the year 2005. I am pleased to report that we achieved that milestone in early 2004, with more than 4,200 SMEs generating turnover in excess of $10 million.

3. Second, we wanted to quadruple the number of local SMEs with e- commerce transactions from 8,000 of them to 32,000 of them by the year 2010. This target was surpassed by end March 2002 with 33,000 SMEs having done so.

4. Third, we wanted to double the productivity of the retail sector from $28,000 to $56,000 by the year 2010. In 2002, the value-added per worker in the retail sector was $30,600. Preliminary figures for 2003 have indicated only slight improvement, due to SARS and other reasons. We will continue to address the key challenges of the retail scene and monitor the progress.

5. Dr Tan Boon Wan asked about government assistance to HDB retail shops. Both the Prime Minister as well as the Minister for National Development had addressed the situation in this sector of HDB retailers, particularly those in the older estates, and the challenges that they face. With the change in consumer demography and emergence of suburban malls, such retailers cannot continue to operate their business as they have done in the past and they need to look for new ways to improve.

6. For example, Tampines Street 11 is one HDB neighbourhood where the Hawkers and Merchants’ Association have decided to collectively do something to address their common problems. With the help of SPRING and grassroots organisations there, they will be forming a management company that will oversee the overall marketing strategies for their neighbourhood. They aim to improve the trade mix, boost traffic flow into the neighbourhood and upgrade the latest retail skills of their members. These include training on financial management and selection of products that appeal to customers.

7. These activities are 50 per cent co-funded by SPRING under the Domestic Sector Productivity Fund Scheme. I welcome fellow Members to encourage and help the Merchants' Associations in your respective

1 constituencies to participate in this program, and you may apply to SPRING for assistance.

8. Most of the initiatives under the SME21 Plan, such as the Singapore Quality Class (or SQC) programme and the Technology Incubator Programme (or TIP), have been implemented. Other programmes have since evolved. In particular, we have stepped up efforts to promote entrepreneurship through the Action Community for Entrepreneurship (ACE). We have also intensified efforts to help our companies internationalise through the formation of IE Singapore.

Entrepreneurship – Access to Financing 9. Let me now move on to another aspect of entrepreneurship, namely access to financing. And here, I would like to mention the role of ACE. ACE is a private-public sector partnership to champion entrepreneurship in Singapore. We have members like Mr Inderjit Singh and Dr Loo Choon Yong amongst others in this movement.

10. One key area that ACE has been focussing on is to improve the access of start-ups and SMEs to financing. This is an issue that Dr Tan Boon Wan and others have raised. Over the past few years, the Government has worked with ACE and the private sector to enhance existing schemes and to launch new ones to make funding more accessible. I agree with Mr Inderjit Singh that it is timely to review and simplify the schemes to make it easier for local enterprises. We will support ACE in the exercise to redesign and simplify the schemes.

11. Basically, the various schemes fall into two broad categories; namely, equity financing and debt financing.

(i) Equity Financing 12. In the area of equity financing, the Government has two schemes to co- invest with third party investors. The Start-Up Enterprise Development Scheme, or SEEDS, was introduced for innovative technology start-ups in the year 2001, and was extended to non-technology companies last year. The Growth Financing Programme was started in October 2003 as a follow-up investment scheme after SEEDS. It provides equity financing for the development of products, processes and applications.

13. Dr Tan Sze Wee asked about the performance of SEEDS. Since its inception, SEEDS has supported 124 technology start-ups. To date, 13 of these start-ups indicated that they have posted profits, and 12 start-ups managed to secure a second round of private sector funding.

14. SEEDS was extended to non-technology companies last year. It has already helped two innovative start-ups. One of them is this company called Fuzzy Billies, which is an F&B outlet specialising in bread-based products that come in different shapes, flavours and colours. The other is Play! Entertainment, which rents out movie DVDs through automated dispensers

2 that are equipped with biometric fingerprint authentication for member registration and identification.

15. Dr Tan raised the concern that SEEDS is inadequate for most bio- technology companies. So far, seven bio-technology companies have obtained more than $1.8m worth of SEEDS equity funding. Admittedly, this amounts to a small portion of funds that bio-tech companies may need. SEEDS is a broad-based scheme to support innovative start-ups in general, and is not meant for the development of specific industry clusters. For bio- tech companies, they may also tap on other grant and financing schemes, and I will talk a little bit more about that later in my speech.

16. Mr Inderjit Singh suggested reviving the Business Angel Fund or equivalent, in order to encourage and enlarge angel investments. The BAF, that particular programme, was discontinued at the end of 2001, shortly after the SEEDS programme was implemented. The reason for that was the feedback from the third party business angel investors and entrepreneurs at that point, that they found SEEDS to be more attractive. But notwithstanding that, in the overall area of trying to improve access to financing and the role of angel investors, if not under the precise conditions of the old BAF, we would still encourage discussions.

17. Besides co-investing directly into companies, we also seek to encourage investments in start-ups and SMEs through tax incentives and facilitation.

18. The Enterprise Investment Incentive Scheme (or EII) allows investors to offset their investment loss against their taxable income. The scheme, which was formerly known as the Technopreneur Investment Incentive (TII), was renamed and extended to non-technology areas in 2004. In total, 75 companies have been granted either EII or TII status.

19. ACE is also facilitating the setting-up of an Over-The-Counter (or OTC) private-equity exchange. The OTC market will create a platform where shares of unlisted SMEs can be traded, thus allowing SMEs more access to equity financing. Some private sector companies have come up with proposals and we understand that they are in the final stages of consultations with MAS.

(ii) Debt Financing 20. Moving on to the second category of assistance, which is debt financing. Much has been done on this front. For example, the Local Enterprise Financing Scheme (or LEFS) and the Micro Loan Scheme have provided more than $3 billion worth of loans to 10,000 SMEs since the year 2000.

21. We have also in recent times introduced the Loan Insurance Scheme, the Variable Interest Loan Scheme (or V-Loan) and the Loan Securitization Scheme. These are other avenues of loan financing for SMEs. At the backend, they are structured differently, with a common purpose to increase the amount of loan financing in the market. ACE has been very proactive in

3 offering proposals to address gaps in the financing landscape – and we will continue to work very closely with ACE to look into these and other suggestions.

22. Mr Lawrence Leow suggested that LEFS adopts a flexible risk-sharing ratio between the government and the financial institutions, with corresponding sharing of loan budget and interest earnings. As Mr Leow mentioned, the 80/20 risk-sharing ratio was part of a temporary enhancement to LEFS made during the economic downturn from 2001 to 2004, to encourage the financial institutions to continue lending to SMEs. As the economy rebounded, the ratio was reverted to 50/50 from 1st January 2005, to ensure financial prudence on the part of the financial institutions in approving LEFS loans. Mr Leow has suggested a variable risk-sharing loan scheme for LEFS. My Ministry will look into this together with the overall review on access to financing.

Non-profit Organisations 23. Mr Inderjit Singh asked about government support for private sector volunteer groups that help to promote entrepreneurship. Currently, we fund and provide secretariat support for ACE. ACE involves private-public sector partnership, and is an effective umbrella body through which to engage other entrepreneurship interest groups. One of the areas that ACE will be looking into is how it can better engage and work more closely with other non-profit organisations to promote entrepreneurship. ACE supports the SCCCI’s Entrepreneurship Education Programme and helps to invite entrepreneurs to be speakers. ACE is also a partner of the Spirit of Enterprise on the upcoming “StartUp” reality TV series. It will showcase the entrepreneurship journey of 8 start-ups. This series will be aired at the end of March. After the “Singapore Idol”, this will be our version of the “Singapore Apprentice”.

Access to the Global Market 24. Apart from addressing financing issues of enterprises, another important thrust is to help Singapore-based companies access the global market. Since the formation of IE Singapore in 2002, we have made more concerted efforts to help such companies grow and internationalise successfully.

25. Dr John Chen asked about the type of Government support for Singapore companies venturing overseas. IE Singapore supports companies through a “3C” framework - Connections, Competencies and Capital. Last year, IE Singapore helped some 30,000 companies through its various services and activities. I will highlight some of the key initiatives under each of the 3 Cs.

26. ”Connections” involves connecting our businesses with overseas markets. In 2004, IE Singapore increased its outgoing business missions and trade fairs by over 50% to 248. Destinations included new markets like Brazil, Uruguay, Iran and the Eastern China provinces to enable Singapore companies to reap early-mover advantages. I am glad to say that SMEs with

4 less than $50 million worth of turnover made up about 70% of the participating companies.

27. IE Singapore also organised 13 “reverse missions” which benefited some 430 companies and brought about $4 billion worth of potential sales. A reverse mission is an innovative strategy which brings key players like LG and Siemens to Singapore-based companies. Given its success in 2004, IE Singapore will step up its reverse mission efforts this year.

28. Through its iPartners programme, IE Singapore also assists Singapore- based companies with complementary businesses to form strategic alliances to venture overseas. In 2004, IE Singapore approved three iPartner alliances comprising 19 companies. An additional 9 alliances involving 47 companies are in the pipeline. They are expected to generate close to $660 million in sales when fully realised. Mr suggested that the more successful GLCs hand-hold SMEs through joint ventures when going abroad. This has taken place. For example, CET, a subsidiary of ST Electronics Limited, is spearheading a consortium of smaller companies, namely RUSC Systems Engineering, iFocus, and Applied Systems (Singapore) to market and implement jointly developed train communication systems in China. The question is how do we further expand on such efforts.

29. The second “C” is Competencies. This involves helping our companies develop capabilities in branding, design and international manpower development.

30. Dr John Chen touched on the lack of branding expertise amongst local companies. Through the programme called “Branding for Internationalisation”, IE Singapore assists internationalising companies to understand their branding needs, identify opportunities, and bridge the gap between brand awareness and investment. Support is given by co-funding consultancy costs for brand strategy development and by organising training workshops to build internal capabilities.

31. Sin Hwa Dee FoodStuffs Industries is an example of a company that has forged ahead in its branding efforts with assistance from IE Singapore. Founded in the 1970s, the company has since come a long way. It embraces branding as a key strategy to differentiate its products from its competitors and to create appeal in both local and overseas markets. Sin Hwa Dee has done well and has won several awards, including the Most Distinctive Brand Award in the Singapore Most Promising Brand Awards 2002 and Singapore’s Superbrand. Today, the company continues to dedicate between 6 to 8 percent of its sales revenue to branding.

32. Sin Hwa Dee has shown that a strong branding image is vital in both domestic and overseas markets. Therefore, on Ms Penny Low’s point that there should be a “Buy Singapore” campaign, we believe that a more sustainable approach would instead be for our companies to strengthen the appeal of their products and services, and we’ll work together with them on those.

5

33. The third “C” is capital. Dr John Chen asked about the Government’s support for Singapore companies in trade expositions, specifically for the cost of rental of exhibition space. The International Marketing Activities Programme, or IMAP, administered by IE Singapore, contributes towards the participation fees, cost of space rental and stand construction. In 2004, IMAP supported 32 trade associations and chambers in over 95 activities, benefiting some 1,400 companies, resulting in $260 million in overseas sales.

34. Besides IE Singapore, STB has also been organising trade participation at key overseas travel shows, like the ASEAN Tourism Forum Travel Exchange. They have also been leading industry partners on trade missions and road-shows, especially for new markets and segments like the Singapore Medicine road-show ongoing in the Middle East.

35. For SMEs setting up offices overseas, Mr Lawrence Leow would be pleased to know that IE Singapore provides fixed-interest loans through its Regionalisation Finance Scheme. Such loans are available for SMEs to acquire fixed assets on the condition that these projects generate economic spin-offs for Singapore. IE is also developing a programme to encourage the use of trade credit insurance, a point that Dr John Chen touched on. The aim is to enhance our companies' risk management capabilities and their access to financing.

Free Trade Agreements (FTAs) 36. Let me now move onto Free Trade Agreements. Mr Inderjit Singh asked how successful our Free Trade Agreements (or FTAs) have been in helping local enterprises penetrate the global market. To date, we have concluded bilateral FTAs with the United States, the European Free Trade Area (which consists of Switzerland, Liechtenstein, Norway, and Iceland), New Zealand, Japan, Australia, and Jordan. Many more are in the pipeline.

37. These FTAs have enabled our local enterprises to be more competitive in tapping the global market. Specifically, FTAs led to an increase of 11.8% in Singapore’s domestic exports to Japan and a 40.6% increase of exports to Australia in 2004. Over 200 local companies have benefited from lower tariffs resulting from these two FTAs alone. For example, GN Packaging Industries, which exports 40% of its plastic packaging materials, now enjoys 5 to 10% tariff savings in the Japanese and Australian markets.

38. We will continue to monitor the effectiveness of our FTAs. Moving ahead, we will proactively engage the private sector and the chambers to solicit inputs for upcoming FTAs and reviews of existing agreements. This is in order to realise the value of these FTAs. We will also be stepping up efforts to increase the awareness of FTAs and how to take advantage of them through various channels.

RESEARCH AND DEVELOPMENT 39. I now turn to the Research and Development (R&D) programmes under MTI. Public funding for research is strongly driven by economic

6 considerations, with the end goal of enhancing Singapore’s long-term economic competitiveness. To be effective, we must concentrate on developing our R&D capabilities, maximizing the opportunities to commercialise IP (Intellectual Property), and building up the pipeline of high quality researchers who can adopt and adapt new technologies to generate further growth.

40. Dr Tan Sze Wee asked about our R&D expenditure for FY03 and FY04. In FY03, A*STAR spent $395 million on R&D at its 12 public research institutes, and contributed $98 million to extramural research collaboration with external parties, such as our universities and hospitals. It spent a further $271 million on manpower development and broad-level programmes. In FY04, A*STAR spent $480 million on R&D at its RIs (Research Institutes), $70 million on extramural collaborations and $149 million on broad-level capability development.

41. In response to Dr John Chen, we actively seek to commercialise technologies and intellectual property created by our public research institutions. This ensures that the new knowledge created will be used to spawn new economic activities and generate growth. A*STAR has a commercialisation arm, called Exploit Technologies, and Exploit Technologies actively markets A*STAR’s technologies and capabilities to the industry through trade shows and conferences, roundtables and company visits. Technology offers are also posted on Exploit Technologies’ web-site. Over 80 cutting-edge A*STAR IP and technologies have been made available to companies. These have helped companies develop new products, move up the technology value chain and fuel business growth. Some SMEs have also leveraged on the licensed technologies to enter new markets and establish business opportunities with MNCs.

42. Exploit Technologies adopts a flexible and pro-SME approach in licensing its IP for companies. It is prepared to waive or defer upfront licensing fees; and in turn, the enterprises have to commit to investing in developing the IP, and to use the IP to generate economic activity in Singapore. Exploit Technologies also facilitates the creation of spin-off companies with A*STAR technologies, and actively engages the local venture capital community to assist potential spin-offs in fund-raising. It has a small fund that provides financial support to its spin-offs in the early or seed stage.

43. While a framework to encourage technology transfer and start-ups is necessary, equally critical is the development of a deep reservoir of well- trained R&D manpower to receive and create economic value out of such intellectual capital. Hence, a very important part of A*STAR’s mission is to build up a strong pipeline of top R&D talent for industry. Associate Professor Ong Soh Khim asked whether it is a worthwhile investment to send our young people to top universities overseas to get their training and exposure. I think the answer is yes. Singapore has reached where it is today because we have a deep and enduring commitment to investing in our people. We provide public scholarships so that our best and brightest have the best education possible, and in turn, when they return, they contribute back to society. It is

7 the same for A*STAR scholars. They will come back after their PhD and they will make up the pool of high calibre research talent that will underpin our economic transformation. The tangible and intangible benefits of investing in our young will benefit Singapore many times over and ultimately, will determine our continued growth and prosperity. Like what Mr Lim Hng Kiang has also elaborated earlier, we are now competing in a different league, and in a knowledge based economy, we have to invest in this. It is not a question of whether it is something that is worth doing; it is something that we cannot afford not to do.

44. In addition to sending scholars to top overseas universities, A*STAR also has a Graduate Scholarship Program with NUS and NTU to provide local PhD training for Singaporean undergraduates, which could be followed by a 1 to 2 year overseas post-doc fellowship. On the issue of nationality, over 80 per cent of A*STAR scholars are Singaporeans. Foreign-born scholars are given Approve-in-Principle (AIP) PR status and are required to take up Singapore citizenship before the completion of their PhD program. In this way, we again tie back the benefits to Singapore.

45. The Biomedical Sciences (BMS) sector is a good example of how we have focused resources to build R&D capabilities and human capital to develop a new industry. Dr Tan Sze Wee asked about our BMS R&D expenditures and the sources of funding available to private biomedical companies. The government provides support to both public and private R&D in the BMS sector via A*STAR and EDB. In FY03 and FY04, A*STAR spent $226 million and S$287 million on biomedical research respectively. This is complemented by EDB’s co-funding of private sector R&D, through its Research Incentive Scheme for Companies (or RISC) and Innovation Development Scheme (or IDS). These two schemes provide funding support of up to 30% of project costs, and can be tapped by research-intensive BMS companies and startups, in addition to any SEEDS funding they may have qualified for. The Biomedical Services Group (BMS Group) in EDB also strives to promote Singapore ventures and the commercialisation of indigenous research. Last year, EDB’s investment arm, Bio*One Capital, committed a total of S$95 million in investments in 16 projects. Ninety per cent of the investments were made in Singapore-based companies to help build and grow the companies, and in overseas projects with linkages and activities in Singapore.

46. The BMS Group started the Proof of Concept Scheme in 2003 to provide pre-seed funding to support the development of early ideas that are patentable, and which could lead to new start-ups or licensing deals. Bio*One also has an Innovate ‘N’ Create scheme which provides seed funding to nurture home grown biomedical start-ups. For example, there is new company called ProTherapeutics, and that was seeded under this scheme, jointly with Exploit, to commercialise the delivery of protein-based treatment drugs. The BMS Group also supported the formation of BioSingapore, which is a trade association representing the interests of local BMS enterprises. BioSingapore will play an important role in helping local BMS companies engage the financial community.

8

47. Thank you.

*********************

9