MORE foreign start-ups are needed here to sharpen local entrepreneurs' edge for global competition.

Prime Minister Lee Hsien Loong on Thursday said Singapore needs to keep an open business environment to attract international talent to make up a 'critical mass for innovation and enterprise'.

'To establish Singapore as an entrepreneurial hub, people with the talent, passion and commitment to build their own businesses must be attracted to come here, start businesses here and grow big while remaining rooted here', he said at a conference organised by the Action Community for Entrepreneurship.

'Local entrepreneurs will also benefit because they will be exposed to global competition early, and so will be more prepared to take on the world'. Mr Lee said that Singapore's small domestic market means that local businesses inevitably need to expand abroad.

But to do this effectively, they will need to be innovative and competitive, which they will be if the home market they operate in is a competitive one.

Comparing Australia with New Zealand, he said the bigger country has more companies and entrepreneurs, resulting in keener and more bracing competition. This has made Australian firms leaner and stronger.