Are SMEs the answer to boosting Singapore’s innovation output?

Singapore’s continuous efforts to position itself as an innovation-driven and knowledge-based economy has been a prime priority in recent years. Over the past two decades, the Singapore government has undertaken a structural approach towards investments in Research and Development (R&D), through Research, Innovation and Enterprise plans, which are established every five years to dynamically work on Singapore’s position on innovation amidst an ever-evolving economic landscape.

The efforts have borne fruit, with Singapore ranking highly in the 2020 Global Innovation Index. The nation ranked 8th among 131 economies overall and ranked first in the innovation input sub-index. However, the rankings fall lower, to 15th place, when it comes to innovation output. Thus demonstrating, that transferring innovation input to innovation output is a key area of work for the Singaporean economy.

With this context in mind, ACI research looks into the imbalance of innovation capacity between public and private sector firms in Singapore and investigates the role of innovation capability of Small and Medium Enterprises (SMEs). As Singapore’s innovation approach is largely government-led, there is an imbalance in innovation capacity between public and private sectors (Lim 2016). On average, a public institution in Singapore invests 7 times more on R&D than a private firm does. Hence, ACI’s research explores the role that Singapore’s SMEs, of which there are almost 280 thousand as of 2020, play in boosting the nation’s private sector innovation capability and whether further bolstering the SME ecosystem could be the solution to the country’s innovation imbalance.

With the utilization of ACI survey data, the research empirically tests the factors that potentially affect the levels of firm innovation capability in Singapore. The survey was conducted in 2017 and contains information of 272 SMEs in Singapore. The survey data discovers that only 26% of the surveyed SMEs introduced new products or services in 2015, and that innovation is concentrated in the food manufacturing and retail industries, while logistics, precision engineering, and transport engineering industries are lacking in innovation capabilities.

The study uses models to understand the firms’ probability to innovate, and explores several variables such as firm size, firm age, higher education rate of employees, R&D expenditure, capital intensity, and internationalization. The study exhibits that skilled labor, R&D expenditure, and internationalization are the variables that are most strongly linked to higher levels of innovation, increasing innovation probability by 22%, 17% and 10% respectively.

While this working paper focuses on SMEs in Singapore, the methodology can be utilized as a basis for similar studies in other countries and regions in ASEAN, opening the arena to further research opportunities. ACI is planning to conduct another round of the survey and may update the data and analysis in the paper.

By Sunena GUPTA

Reference: Lim, Chuan Poh. 2016. “From Research to Innovation to Enterprise- The Case of Singapore.” In Global Innovation Index 2016: Winning the Global Innovation, 133–40. Cornell University, INSEAD, WIPO.

Researchers: Xuyao ZHANG, Yan ZHU

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