The Pros and Cons of doing Business in Singapore

pros and cons doing business in SingaporeIt’s Singapore’s 48th birthday today as I write this post, and I thought I’d write something relevant to the festivities happening around me. Singapore’s generally touted as an excellent base to start a business, with relatively low corporate taxes, superb infrastructure and a stable government. That said, foreign investment has always been our focus, but is it really better off for Singaporeans to start a business in our own country?

Let’s explore a few factors I have personally experienced, which by all means is no complete list, otherwise I’d have an entire book worth of manuscript.


Safe Economy and Government

Probably the biggest draw for doing business in Singapore is our investment environment. The national reserves are abundant enough to withstand 10 years of recession,  the government consistently stays stable with 1 party in power and has one of the lowest corruption rates in the world.

You generally feel pretty secure in Singapore and don’t have to worry about finding the ‘right officials for a meal’ like in China provinces. The law proceedings are fair and unbiased. Registration systems for setting up enterprises are also quite well thought out and straight forward enough for anyone to follow. Anyone can setup a Singapore company without even getting off your computer.

Overall, the government has made it easy and comfortable for any business to be set up here, and has much forward thinking to train the local labour pool for advanced services like in the finance and technology sector. Attraction of foreign investment has always been the name of the game for Singapore, and we have made it really comfortable for anyone interested to enter our market.

Enforceable Legal System

Supplementing the safe economy is Singapore’s incorruptible legal system, based on the English Common Law. Unlike many Asian regions, the law is ironclad and unbiased in Singapore. Contracts and agreements can be pursued with the proper channels and mitigations, thus making business arrangements much safer with less risk of flight.

Multiple channels of government funding

Singapore is a haven of government reimbursements and grants for small businesses.

SPRING, IE Singapore, IDA and even IPOS all have multiple grants and fundings available for any business in any stage of development. Each statutory board offers a grant of sorts for their relevant subject, like IPOS offering subsidies for any trademark requirements, and IE Singapore offering assistance for overseas expansion and research.

SPRING especially, has very good funding for local startups like the ACE startup grant which funds up to $50,000 with a $7 to $3 capital matching. A few years back when I got the grant, it was still called the Youth Entrepreneur Scheme grant, but they’ve since had a little structural reorganizing and had to call it something fancier.

But SPRING also has many productivity and innovation grants as well and you really need to look at their long list of qualifying items to see what you are eligible for. Mid-sized firms also get access to a lot of government assistance like SEEDS to help them grow and expand.

Low taxes

Corporate tax in Singapore is relatively low at 17% per annum as compared to the United States which can go up to even 35%. Not only that, but firms don’t pay tax unless your yearly turnover is more than $30,000. There is also starting in 2012, a corporate income tax rebate of 30% up to $30,000 each year.

Tax deductions are aplenty, like using the Productivity and Innovation Credit (PIC) grant as well as other complex deductions that I will not bore you with. Look up IRAS and knock yourself out reading all about fun taxes!


Restrictive Labour pool

As highlighted in my Singapore Business Review article ‘How Local Firms will be hit by Singapore’s New labour Laws, hiring in Singapore is a nightmare especially in the service and retail industry.

Singapore has been steering it’s local workforce towards higher value occupations like finance, biochemistry and industrial engineering through education and propaganda. However, this creates a gap in the hospitality, F&B, tourism and retail sector because less locals are willing to work these ‘lower-tier’ positions, not just for remuneration reasons but because of pride as well.

The only way to fill this void is to accept an influx of immigrants willing to work such positions. Simple supply and demand. This is where the irony appears: Singapore is clamping down on low skilled foreign talent with it’s high foreign worker levies and quotas, thereby increasing the cost of labour for small businesses by at least 15%. Supposedly the idea is to provide employment to the locals who don’t want to do such jobs in the first place. Bizarre.

Anyway, the bottom line is that finding good labour in Singapore is an uphill and costly task, partly due to the poor attitudes of locals as well as the protective spoiling nature of it’s government.

Ineffective government assistance

I know I mentioned early we have a myriad of government schemes to support businesses in Singapore and that is still a positive thing, however double-edged.

Firstly there are too many schemes that are spread all across the different statutory boards. You have to know what you are looking for first to apply, and to my knowledge there is no complete collection of local schemes. You might not qualify for IDA, but you can qualify for IPOS grant. How about that. Now, unless I’m a full time researcher on Singapore grant schemes, there is no way I will know every single grant available. If businessmen are not aware to utilize it, the scheme is useless.

Secondly, from my experience, assistance has been purely monetary and nothing else. After getting a sizeable grant, SPRING for example requires you to submit quarterly reports, supposedly to check up on how you are utilizing your funds. But I’m pretty sure whatever issues I have written have now been neatly filed in some basement cabinet never to be read again, because no officer has ever called to touch base or review me case again. My case officer has also changed at least 3 times since we signed on, just to note.

Expect money from the Singapore government, but don’t expect any other sort of technical help.

High physical overhead costs

In addition to high labour costs as highlighted above, land costs in Singapore is as ridiculous as Justin Bieber’s singing career. Due to our very limited country size and strategic port location, it’s expensive to buy as well as rent land space in Singapore. We are literally a resourceless small island that is only 710 square kilometres surrounded by sea water. Renting an office, building a semi-conductor factory or even renting a retail shop space is going to cost around twice as much compared to neighbouring Asian countries.

Being the sunny island we are, most resources and materials are all imported. We produce no raw materials ourselves other than Singaporean babies. This again, brings up the cost of goods sold thus contributing to overall costs.

To Invest or not to invest?

Although Singapore is a secure investment haven with stable economics and low risk, it comes with it the higher cost of investment. The combination of limited land, funnelled labour and imported resources brings up the cost of business in Singapore by a significant margin, and has to be contemplated by any business owner before vesting any capital. Opportunity for a supernormal return in Singapore is mitigated by the high start-up costs incurred. Low risk, low return.

As a retail market by itself, the population numbers in Singapore are definitely insufficient to sustain a fast-growing corporation. But to use Singapore as a nexus to reach out to the South-East Asian market is a much more plausible strategy to consider.

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