Feb 13, 2015

    Building a stronger Singapore Inc

    THE rapid growth of Singapore over the past 50 years has led the nation to punch far above its weight and earn a global reputation for economic success and strong governance. This Singapore "brand" has come to represent trustworthiness, economic success and reliability for business people around the world - "Asia for Beginners", as some have put it.

    Yet, even as the national brand thrives, brands of Singapore companies have not fared as well. Only two Singapore brands - Singapore Airlines and DBS Bank - were named among the world's top 500 global brands last year. In contrast, China had 32 such brands and Japan had 40.

    Along with offering a superb opportunity to celebrate the nation's success, the year of Singapore's 50th birthday can be a time for programmes to recognise successful local companies. At 50, we want to inspire the next generation of Singapore businesses that will underpin and propel the growth of the nation going forward.


    In the past, many Singapore companies were able to grow quickly into large businesses without strong brands because of the economic policy of attracting foreign multinationals to Singapore, which then created new markets for subcomponents and other services that gave Singapore businesses the opportunity to grow.

    But this "brandless success" is not sustainable, given the structural shifts in the global economy. With the rise of China and India and lower trade barriers, multinationals can now source their supplies and services from anywhere in the world.

    To build absolute advantage and be entrenched in the global value chain, Singapore businesses need proprietary identities and products to differentiate themselves in the marketplace, which will have to come from branding or technology.

    Markets attest to the merit of brand building. Brand and intellectual-property owners capture a far wider margin of the final value of products than their manufacturing partners.

    Brands are also the most valuable thing that companies as diverse as Apple and Coca-Cola own, often worth much more than property and machinery. They account for more than 30 per cent of the stock market value of companies in the S&P 500 Index. Ikea is today synonymous with clever design affordable to the masses, just as Volkswagen is a superior wagon for the common folk.


    If building a brand is important, how does one go about it?

    Branding is more than just marketing. Branding experts tell us that while advertising is an important part of building a brand, it is only a small part. The key still lies in understanding and defining how one delivers value to customers. How this value is defined depends on the space a business operates in.

    In the consumer space, perhaps unsurprisingly, customers expect good brands to embody a combination of quality, reliability, safety, design and customer experience.

    But even in the business-to-business (B2B) space, branding counts for a lot. A recent global survey found that business customers, too, evaluated the brand strengths of their primary and secondary suppliers. How much a supplier cared about honest, open dialogue with its customers and society, whether it acted responsibly across its supply chain, and whether it had a high level of specialist expertise, all mattered significantly to B2B companies.

    In the world of tax that KPMG operates in, the degree to which a company paid its fair share of tax has increasingly come under scrutiny by governments, the public and, to a great extent, the media. Just like corporate responsibility and environmental issues, a brand can be enhanced or damaged if there is perception that a company's tax affairs are overly aggressive or "unfair". Managing a brand, then, is as much about (tax) transparency as it is about market positioning.

    For a start, aspiring multinationals looking to build a good brand will have to let go of a traditional aversion to investment in intangible assets and be willing to think over the longer horizon that brand building requires. It calls for a significant increase in investments in marketing, design, and research and development (R&D).

    Companies planning to go global with a strong brand will also need to foster innovation, because truly great brands lead by selling what they have developed themselves rather than just copying what other businesses do.

    To build their brands, then, Singapore companies will need to invest in R&D as well as in their products and services so that they can deliver the value and innovation that customers demand.

    Singapore companies can also benefit by leveraging two country-specific advantages.

    One is to build upon the Singapore brand itself. Recent research suggests, perhaps surprisingly, that consumers increasingly choose brands based on their country of origin, ranking it second after safety and ahead of price or style. Singapore companies can ride on the growing trust in the Singapore brand by explicitly stating where they are based.

    Another is to fully leverage opportunities in nearby markets. Taking products they develop domestically to nearby emerging markets gives Singapore companies opportunities to test-launch and build strong brands with less competition from major multinationals' brands. Once they have established themselves regionally, they can then take their brands upmarket on a global scale.


    At its root, brand building is an enterprise-driven effort. But if Singapore companies are to make a collective move into this new realm and if we are serious about nurturing a new generation of Singapore businesses, government support through measures such as tax incentives can go a long way. SG50 would be a most opportune time for this.

    Just like the Pioneer Generation Package to recognise Singapore's first generation, a Singapore Pioneer Business Package that specifically focuses on recognising successful brands from Singapore can bring tremendous benefits.

    Specific initiatives to help Singapore companies to develop strong global brands will give them an edge in the growing global competition for customers and skilled labour. This, in turn, benefits the Singapore economy and enables these companies to become ambassadors overseas, strengthening the Singapore brand further.


    A key step is to recognise and support local brands more extensively, possibly by granting a tax allowance for the value of internally generated brands. In the current system, tax benefits are realised based on expenditure incurred: companies that buy external brands can claim, for tax purposes, a writing-down allowance based on the value of the purchase over a period of five years.

    No such tax benefits exist for brands that are developed internally - a pity in our view, given the degree of ideas, effort and resources, most of which are intangible, needed to develop a strong brand.

    We would propose allowing companies to claim writing-down allowances based on the value of their brands or trademarks, as determined by an independent valuer. This mirrors somewhat the process for the Intellectual Property Financing Scheme, under which the Government partially underwrites loans undertaken by companies using their intellectual property as collateral.

    This will go a long way in incentivising more home-grown "Made in Singapore" brands rather than simply buying brands from abroad. Doing so will also resolve the tax disparity between brand purchasers and brand developers, and reduce the motivation for brand owners to sell their brands and lose the Singapore identity in the process. Such a tax scheme will allow businesses to unlock the value of their brands through tax savings.

    With innovation and branding growing ever more important, the proposed Singapore Pioneer Business Package will allow support for more businesses to become the next global brands. Just as business owners find faith to build brand equity, so, too, should our 50th Budget offer tangible evidence of national belief in their ability to anchor Singapore brands more firmly on the world stage.


    The writer is a partner and head of tax at KPMG in Singapore.