By INDERJIT SINGH

THE financial crisis started in America, and hit us quickly - and hard. The impact has been nothing short of a tsunami. While we believe that the worst of the crisis is over for us, and the waves are receding, some of these issues will linger. As we rebuild our economy from the tsunami, how our small and medium-sized enterprises (SMEs) manage these issue will determine how well they emerge from the crisis.

One major issue raised by SMEs would be competition - competition for customers, competition for funds, competition for talent. And we are talking about global competition. This is inevitable given the globalised world that we now operate in. How can SMEs find ways to stand out among the competition?

Instead of addressing competition as an issue in itself, I would talk about how SMEs need to enlarge their market, and how they can tap innovation and attract talent to help them secure these markets. Of course, there would also be the challenge of securing capital financing, which has dropped from the key issues SMEs faced until the credit crunch kicked in. While talking about these issues, I will also share some perspectives on how policymakers can play a role.

The first system that was hit by the financial tsunami was the credit system, particularly for SMEs, which typically have weaker balance sheets and less impressive track records than most MNCs to satisfy banks' stringent credit assessment following the crisis.

Since last November, the government had responded fast and put together a resilience package to help ease the impact of the crisis. Through the Special Risk-Sharing Initiative (SRI) that underwrites 80 per cent of the default risks associated with banks lending to SMEs for most loans (and even up to 90 per cent for working capital loans for micro-enterprises), Singapore ensured that credit continued to flow to companies for investment and for working capital.

In the first half of this year, the government approved over 7,000 loans amounting to some $4 billion. This is four times the total loan value approved for the whole of last year. ($1.03 billion worth of loans were approved in 2008. In June 2009, 1,496 loans were approved, with a total loan quantum of $795 million.) About 90 per cent of the loans went to SMEs and 70 per cent were for small businesses with less than $5 million in annual sales turnover.

Strengthening capabilities, especially their capacity to innovate and develop new products and services, is one key strategy that SMEs can adopt to differentiate themselves from their competitors. Through programmes offered by Spring Singapore and A*Star, our SMEs can tap government grants, as well as the expertise of public-sector researcher scientists and public-sector research infrastructure, to develop the technology innovation.

Realising the need to equip SMEs during the relatively lull period of the crisis to upgrade their capabilities, Spring introduced the BUILD programme to support 70 per cent of the cost of upgrading via professional assistance in technology innovation; design, branding and business management systems; business leaders development; process re-engineering; IP management; and product development. As at July 2009, some 330 companies have tapped over $22 million in grants to upgrade their capabilities.

Local fashion label Tian, which specialises in women's wear, is a good example of how a company in the retail industry has used RFID (Radio Frequency Identification) technology to keep track of inventory. All staff need to do is hold a scanner on top of a stack of clothes to find out the number of pieces in stock and their batch numbers. Besides time savings on controlling inventory, cost savings have also been experienced from real-time inventory visibility and improved security of merchandise in stores.

To propel the company to greater heights in the global market, SMEs need strong management talent that can execute innovative systems and processes in line with growth. In 2007, Spring launched the Business Leaders Initiative to help groom SME bosses, build management depth and develop a strong pipeline of future business leaders for SMEs in Singapore. Of the 188 participants, we have second-generation entrepreneurs and established entrepreneurs. Besides assimilating knowledge, the networks created will be beneficial for future collaboration.

Look abroad

Like many SMEs in Asia, Singapore SMEs have to look beyond the domestic market to fuel their growth. To help them enter overseas markets, the government organises trade missions for our SMEs to find partners and form alliances to bid for overseas projects.

Mach7 Technologies, a Singapore business, successfully clinched a contract and signed a teaming agreement with Malomatia, Qatar's leading IT services provider, to implement new pioneering IT technology products in Qatar. Mach7 Technologies developed a new generation of software that collects, stores, organises and transmits medical data in a health system. They were part of a healthcare mission that IE (International Enterprise) Singapore led to Qatar in March this year. A total of 15 companies took part in this mission.

Beyond what the government does, SMEs could also tap the local global network to develop their external wings. As a result of the number of MNCs here, many SMEs have developed as supporting companies for these MNCs, and have acquired relevant skills to support them. Heatec Jietong is a good example. The company produces heat exchangers, and has followed the global footprints of many of its clients so that they are the preferred supplier wherever their clients' ships dock. This strategy has enabled the company to expand into China and the Philippines. It is also exploring expanding into the Middle East markets in the near future.

Although small, SMEs need not be constrained by their size. In fact, being swift and nimble, they can be a formidable driving force for our economies. Many of our SMEs have shown resilience in the face of adversity and come out stronger. They were quick to respond to the crisis - re-examining their business models, strengthening their capabilities, and streamlining their systems and processes.

Having weathered the previous crises, our SMEs will continue to grow, I am confident. As we emerge from the economic downturn, they will be well-positioned for future growth, and will remain a significant growth engine for our economy.

The writer is Member of Parliament for Ang Mo Kio GRC and deputy chairman, Action Community for Entrepreneurship (ACE). This is an edited excerpt of his opening address on Wednesday at a joint seminar organised by the Institute of Southeast Asian Studies and the Asian Development Bank on 'Key Indicators 2009: Enterprises in Asia - Fostering Dynamism in SMEs'

This article was first published in The Business Times.