Home Technology & Digitalisation Why Singapore’s ecosystem for technology startups is among the best

Why Singapore’s ecosystem for technology startups is among the best

The city-state offers a good case example for other Southeast Asian countries vying to become tech and innovation hubs
Academic Director and Associate Professor at National University of Singapore
Senior Economist at the Asian Development Bank

Singapore has a vibrant ecosystem that nurtures and develops technology-based startups. Its ecosystem was ranked 18th in the world in 2022 and fifth in Asia, behind Beijing, Shanghai, Seoul, and Tokyo, by Startup Genome and Global Entrepreneurship Network. According to the Global Index of Digital Entrepreneurship Systems developed by the Asian Development Bank (ADB), the city-state has the world’s best digital environment and support system for entrepreneurs, followed by the United States and Sweden in a list of 113 economies.

Startups are an important part of the global economy—creating jobs, technologies, and business models, and attracting investments. In order to thrive, they need a supportive ecosystem made up of financing sources, digital infrastructure, government programs and policies, tech and entrepreneurial talent, and incubators and accelerators. There should be market demand in the ecosystem for their products and services as well as scalability. A culture of risk-taking and entrepreneurship is another key ingredient.

Singapore developed a reputation as a breeding ground for startups over the last decade. Aside from favourable taxation, infrastructure, and ease of doing business, critical elements of its ecosystem include government grants for startups and the volume of venture capital.

A study by the ADB analyzes the key characteristics of Singapore’s startup ecosystem. It provides recommendations for other countries in Southeast Asia based on study insights as well as reviews of systems in Indonesia, Malaysia, and Thailand. The report focuses on four technology areas with strong developmental impacts: agritech, greentech (also known as cleantech), edtech, and healthtech.

This article is adapted from Singapore’s Ecosystem for Technology Startups and Lessons for Its Neighbors. The report is part of the Ecosystems for Technology Startups in Asia and the Pacific series.

Success factors

There are several factors that contribute to the dynamism of Singapore’s tech startup ecosystem. Though a small country with a population of 5.6 million, per capita income is high, and the demand for and affordability of tech solutions is strong, including in both the private and public sectors. For example, there is high demand for urban agritech innovations since land for food production is limited and the country imports as much as 90% of its food supply. The economy is open and globalised, with companies providing goods and services to large markets in the region and beyond.

Startup financing. The government fostered the development of locally based venture capital funds but also attracted foreign funds to establish offices in the country. It used a co-investment model in which it increased the amount of venture capital investment by putting money into existing private venture capital funds. In this way, the government leveraged the risk analysis of fund managers, which have greater expertise in assessing the growth potential for budding startups. This approach was discontinued after the level of venture capital became sufficient.

Sound regulatory and legal environment. Singapore has been able to attract foreign startups, foreign venture capital, and the research activities of foreign companies because of its sound regulatory and legal environment. Rules and legal procedures provide clarity on business establishment and ownership, corporate governance, shareholder rights, and bankruptcy. There is evidence that venture capital firms in Singapore encourage startups from neighboring countries to register in the city-state to gain the assurances provided by these procedures.

Startups create products, services, and business models for which existing regulation may be inappropriate. The Singaporean government has sought to keep pace by adapting regulation and, in some sectors, using a regulatory sandbox approach to experiment with new rules for evolving business models. The government’s sandbox framework, called the Licensing Experimentation and Adaptation Programme, was applied to telemedicine in 2018 and led to the emergence of several telemedicine startups.

Low tax rates. The tax on corporate profit is lower than neighboring countries at 17%. Capital gains are not taxed, which is attractive to venture capital funds and other investors in startups.

Fostering local and foreign talent. Singapore has a high-quality education system at the primary, secondary, and tertiary levels. Its polytechnics and universities are world class, turning out skilled graduates in science, technology, business, and other fields. However, it cannot provide all the skilled talent needed. The government provides a visa system (i.e., S Pass for mid-level skilled staff) to allow businesses to hire from abroad.

The country has an array of technology-related research centers, which are mostly based at universities and polytechnics. The centers conduct cutting-edge research that can evolve into commercial products and services. There are several key institutes in the greentech field with direct involvement of industry. For example, the Energy Research Institute runs an incubator for startups. The government provides substantial research funding support through its various centers, which can add startups connected to these centers and through programs that are independent of the centers.

Many large foreign companies, such as those in the pharmaceutical and biomedical fields, have established research and development facilities in the country. Startups benefit from spillover effects and collaboration with these companies and from the pool of highly skilled persons they attract and develop.

Mentoring and network opportunities. Incubator and accelerator programs are available to accommodate startups in all fields. Some programs are sector-specific and thus can provide more precise support, technological guidance, and mentoring. They also offer network opportunities with other startups in the same field. Well-known programs exist for edtech and greentech. Examples are the edtech accelerator Eduspaze and the Singapore Power Energy Advanced Research and Development (SPEAR) program.

As a major regional trade and economic hub, Singapore hosts a wide range of tech-related forums, conferences, and events in the fields of technology, business, and innovation. These activities not only strengthen a culture of innovation but also provide ideas and networking opportunities for startups.

Innovating public service. Singapore’s clean government and openness to innovation are also important demand-side elements of its startup ecosystem. There is however room for improvement in simplifying public procurement requirements.

Recommendations for other countries

Unlike Singapore, its neighbors have large populations, with Malaysia at 32 million, Thailand at 70 million, and Indonesia, the fourth-largest country in the world, at 270 million. The market potential for startups is large, but income levels and connectivity, notably in rural areas, remain constrained and therefore limit demand. Many farmers cannot afford agritech solutions, and poor households lack good internet connectivity for remote services, such as edtech or healthtech. Low digital literacy among some farmers and households also reduces the spread of remote and digital solutions.

Based on its analysis, the ADB study offers the following recommendations for improving startup ecosystems in these countries.

1. Support more venture capital.
Aside from funding, venture capital investors can provide advice and direction to startups to improve ideas, commercialise innovation, and gain market share. Singapore’s co-investment scheme—in which the government put money into existing private VC funds—was crucial in the early stages of developing the startup community. Malaysia has recently moved to a co-investment approach, and other countries in the region, where the volume of venture capital is still low, may consider a similar strategy.

2. Provide favourable tax treatment for investors.
Successful venture capital investment generates capital gains. If the gains are taxed at a high rate, investors may be deterred. Other countries might consider removing or lowering the capital gains tax. Some countries have lowered corporate tax rates recently (e.g., Indonesia).

3. Evolve regulation to keep pace with innovation.
Startups are disruptive, offering new models of how business and the economy work. Regulations need to evolve in tandem. The government can anticipate innovation and work out the implications for regulation, such as through a “regulatory sandbox” approach.

4. Strengthen demand from and access to public sector clients.
The public sector is a key client for startups’ products and services, notably for edtech and healthtech. Governments that are eager to adopt innovations (e.g., in schools, hospitals, and ministries, to protect the environment) create a demand for the technologies and models that startups offer. As such, the government should be open to providing opportunities to work with startups, experiment with their innovations, and codesign solutions. Procedures for approval and procurement of innovations (e.g., by a ministry, school board, medical body, environmental regulator) should be efficient and nonbureaucratic. Open and transparent bidding and tendering processes should be in place.

5. Strengthen the digital infrastructure and improve internet access.
Many startups deliver their services through the internet and depend on wide access to affordable high-speed connectivity to reach customers. Adequate cloud and platform capacity is also important for those with a potentially broad customer base, such as for edtech and healthtech services. Domestic cloud infrastructure and capacity is important especially when sensitive information, such as medical records, should be stored in-country.

6. Develop and attract tech and entrepreneurship talent.
Securing good talent—especially tech talent but also business and entrepreneurial talent—is critical for the growth of tech startups. Countries can support startups through immediate and long-term improvements in education. These would include a closer link between academic studies and the world of technology and entrepreneurship. It can also involve improved partnerships between education and industry through the development of co-op arrangements and internships.

More immediate talent requirements can be met by attracting skilled persons from abroad through streamlined visa procedures and reasonable visa fees.

7. Continue government support for startups in times of crisis.
Challenges in managing competing priorities for fiscal resources intensify during a crisis, such as the COVID-19 pandemic. In some countries, programs that support startups were disrupted. It is best if support for startups can continue through a crisis. Tech startups can even help to address problems in a crisis, such as delivering health care during quarantine and offering remote learning when schools are closed.

This articles was first published on Development Asia and can be read here.

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Nitin Pangarkar
Academic Director and Associate Professor at National University of Singapore

Dr. Pangarkar is the academic director of the MBA and the NUS-HEC Paris MBA Programs at the NUS Business School, National University of Singapore. He is also associate professor at the university’s Department of Strategy and Policy. He has authored more than 50 papers in peer-reviewed journals, 15 book chapters, and numerous cases. He has received several awards recognizing his research contributions, teaching and service.

Paul Vandenberg
Senior Economist at the Asian Development Bank

Paul is fascinated by the process of economic development and how some countries are rich and others remain poor. His specific research interests include industrialisation, human capital development, enterprise finance, and the labour market. He taught in the United Kingdom and India before joining ADB in 2010. For two years he was seconded to ADB Institute in Tokyo and later took temporary leave to teach in Thailand.

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