27 March 2017
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Helping S'pore SMEs stay agile in the digital economy

Business Times
21 Mar 2017
Chai Wai Fook & Teh Swee Thiam

The SMEs Go Digital Programme helps local enterprises move ahead with digital deployment initiatives

The rise of the digital economy is recognised as a promising growth area for Singapore, validated by various perspectives gleaned from work by the Committee on the Future Economy (CFE) and the measures targeted at deepening digital capabilities, as unveiled in Budget 2017.

At the same time, small- and medium-sized enterprises (SMEs) remain a fundamental growth segment for Singapore, notwithstanding the pressures on costs and profitability that have beleaguered many in the last few years, exacerbated by wider economic and geopolitical volatility that has dampened local economic growth.

According to the CFE, the digital economy in South-east Asia is expected to grow to US$200 billion by 2025, with e-commerce accounting for US$88 billion.

From 2016 to 2018, the digital economy is expected to generate some 53,000 new jobs in information and communication roles in Singapore.

Given Singapore's strengths - such as proximity and access to key markets in the region, reliable and connected infrastructure, trusted reputation, well-educated workforce and a strong and pro-business government - local enterprises should be well-positioned to capture the opportunities arising from the digital economy.

Yet, it remains questionable as to how well the majority of SMEs are able to participate and, by that extension, thrive in the digital future.

Clearly, many SMEs will need to make upfront investments, whether in upgrading of hardware, software or workforce transformation, as part of their digital initiatives execution.

These investments may be significant, and considering the limited and stretched resources SMEs are already challenged with, there is a real risk that many may fail to reposition their business to fully capitalise on the growth potential that the digital economy brings to their business.

Helping SMEs Go Digital

SMEs have often been a key beneficiary of past Budget measures.

Budget 2017, building on foundations set by previous Budgets, reaffirms the need to help SMEs build capabilities.

To strengthen our SMEs' digital capabilities, the government introduced the SMEs Go Digital Programme to help local enterprises move ahead with digital deployment initiatives.

Administered by the Info-communications Media Development Authority (IMDA), Spring and other sector lead agencies, SMEs can expect to receive multi-prong guidance under three components: advice on technologies to be used at each stage of growth, in-person help at SME Centres and a new SME Technology Hub, and funding support for the piloting of emerging info-communications and technology (ICT) solutions.

Among others, the programme will target retail, food services, wholesale trade and logistics, where digital technology can significantly improve productivity.

The SMEs Go Digital Programme, building on the foundation of IMDA's iSprint programme, is not new. Pre-qualified solutions that have been proven beneficial will be tailored and consistently used by the SMEs participating in the programme.

SMEs with limited resources and that are at the early stages of experimentation in their digital transformation journey can consider tapping on this programme to improve their customer experience or digitise internal work processes for quick wins.

This may include offering a new online customer service portal or enhancing their online marketing and distribution channels.

SMEs that are jump-starting their digital transformation by launching new digital products or services may need to invest in more sophisticated information technology infrastructure, such as a strong enterprise resource planning and customer relationship management system.

For this, SMEs can approach SME Centres for advice on off-the-shelf technology solutions that are pre-approved for funding support, or connect with ICT vendors and consultants under the programme.

The digitally-advanced firms can get specialist advice from the SME Technology Hub.

Help to transform

As SMEs roll out their digital initiatives, they need to support their employees in upskilling and reskilling to transit into new or expanded roles.

And what would have been even more helpful for SMEs, but were missing from the Budget announcement, are tax incentives to help defray peripheral costs incurred in their digital journey.

Considering that the Productivity and Innovation Credit scheme will lapse after the year of assessment (YA) 2018, training costs incurred by SMEs for their employees thereafter will no longer enjoy enhanced tax deductions.

This may result in a gap in the ecosystem - as SMEs choose between investing in digital capability development and employee upskilling.

In his Budget speech, Finance Minister Heng Swee Keat encouraged employers, unions, trade associations and chambers of commerce to develop more structured training programmes for workers.

Notwithstanding this, considering that many SMEs have limited resources, an extension of enhanced deduction claims on training costs they for their employees after YA2018 could be helpful.

Taking this a step further, perhaps double tax deductions could be granted for consultancy fees or charges, or special tax deductions on investments in technology infrastructure and development expenses for digital platforms (after offsets by any supporting grants) incurred by SMEs for initiatives aimed at scaling up their digital capabilities.

The scope of such double tax deductions can even be widened to cover the operating expenses in relation to these initiatives, such as search engine optimisation fees, which can be useful when SMEs extend the reach of their digital platforms as they expand overseas.

Cash incentives are usually more effective than tax savings for small businesses, so the enhanced deduction claims or enhanced capital allowances can come with the option to convert qualifying expenditure into a non-taxable cash benefit, which can potentially be capped annually.

A barrier to digital adoption in SMEs is a self-limiting mindset: Many SMEs feel that they are too small in scale or command too insignificant a customer base to warrant any investments in digital.

Large corporations may traditionally have the scale and financial might to win in the market, but with the disruptions and enablement that technologies bring, SMEs too can be serious competitors to upend market incumbents and seize the upsides of the digital future.

With SMEs making up 99 per cent of all local enterprises and employing 70 per cent of the workforce, they are one of Singapore's greatest sources of growth and innovation. Digital holds the key to unlocking much of their future potential and, by that extension, Singapore's economic potential.

The writers are Partners, Tax Services at Ernst & Young Solutions LLP. The views in this article are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.