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Putting S'pore brands on world stage 

First published in The Business Times on 30 January 2013
As the Singapore Government prepares its annual budget, it would do well to consider new measures to support local enterprises’ brand-building efforts.

A tax structure that supports a ‘made-in-Singapore’ motto will not only fortify Singapore’s domestic economy by making it more resilient to external shocks, it will also help to seal Singapore’s position as a key player in global and intra-Asian trade.

Brand building serves many purposes: it is a tool that local companies use to expand their market share and to create value. Brand development can facilitate innovation and enhance productivity.

Strong brands also contribute to the growth and resilience of the local economy. As the Singapore Government considers all of the above top priorities; there is a need to prioritise support for the development of local brands.

Consider, for example, the far-reaching effects of the success of some of Korea’s best-known brands, such as Samsung and LG. The technological prowess that they have demonstrated over the past decade helped to make the term ‘made-in-Korea’ synonymous with advanced technology. Other Korean brands have benefited simply by association.

Strong brand recognition can also enhance productivity and facilitate innovation by making it easier to enter markets and attract and retain talent. This has helped companies such as Google, and even governments, such as the United States.

As a country, Singapore benefits from a strong reputation as an efficient, world-class financial centre. However, there are few local companies and their brands besides examples such as Singapore Airlines and OCBC Bank which are known worldwide.

Many local brands lack the brand recognition that would facilitate their growth efforts abroad. This was made evident in a recent Reader’s Digest survey, which found that just 27 percent of Singaporeans are likely to purchase a locally-branded product.

This is unfortunate, since local companies -- small-to-medium enterprises (SMEs), in particular – are a cornerstone of Singapore’s economy.

SMEs comprise more than 90 percent of Singapore businesses and contribute more than half of the country’s GDP. Stronger brand recognition could help local companies to grow both at home and abroad.

Opportunities in the current environment

The current global economic uncertainty notwithstanding, trade and economic growth in Asia remain robust. According to the International Monetary Fund, while both global trade and Asia’s trade with economies outside the region have doubled since 2000, intra-Asian trade has tripled.

By 2020, Asia is expected to contribute roughly one-third of the world’s total economy, double its current levels. Given its centrality to Asian trade corridors, Singapore is well placed to benefit from these trends, but only if it does more to develop local brands.

While brand building is essentially an enterprise-driven effort, Government measures to support local companies, such as branding-related tax incentives or support for networking and capacity-building events, can play an important supporting role. The Singapore government has already taken a number of initiatives to support and subsidise enterprises involved in various brand-building activities.

One example is Brandpact, administered by SPRING Singapore and International Enterprise Singapore. Another is the Intellectual Property Management Programme administered by SPRING Singapore and the Intellectual Property Office of Singapore (IPOS).

In addition, the Productivity and Innovation Credit (PIC) scheme also provides a 400 percent tax deduction to help companies offset the costs of registering their brands and trademarks in markets they target for expansion.

However, due partly to the current system where tax benefits are realised based on expenditure incurred, Singapore’s existing tax system inadvertently focuses on crediting enterprises for the purchase or franchise of brands, rather than the development of a proprietary brand.

For example, if a company purchases a brand from another company, the purchasing company can claim, for tax purposes, a writing-down allowance based on the value of the purchase over a period of five years.

On the other hand, the company that developed that brand would not be able to enjoy any tax benefit of such an allowance.

This tax structure therefore favours the purchasers of brands, rather than its developer. It also offers little to encourage local brands to keep their Singapore roots rather than being moved offshore.

Tax incentives can help

The existing tax regime should be tweaked to encourage more Singapore companies to develop proprietary brands.

One option could be to allow companies to claim writing down allowances on the value of their brands or trademarks, as determined by an independent intellectual property evaluator.

This incentive would provide a tax deduction based on the value of the internally generated intellectual property, and could also be subsumed under the PIC Scheme. Such a measure would depart from usual Government schemes that base subsidies or tax benefits largely on what a company spends. Instead, it would recognise that brand building involves a culmination of ideas, efforts and resources over a long period of time – processes not measured by expenditures alone.

It would also recognise that brand building involves time and significant risk. For example, not only does a new brand take time to test in the market, it also may require a company to abandon product lines out of sync with the branding objectives.

Another possibility is the introduction of tax breaks targeted at local enterprises who exploit their brands through licensing, franchising or the provision of Singapore-developed goods and services overseas.

Current incentives, such as the Development and Expansion Incentive, provide concessionary tax rates on income derived from certain activities in the manufacturing and services sectors. However, these incentives apply mainly to large and multinational corporations that can afford the investments necessary to become eligible for these tax rates. Instead, the Government might consider a tax structure with a set of incentive criteria and expectations targeted specifically at up-and-coming local companies and their brands.

The aim of this tax incentive would be to encourage companies to promote their products and service offerings offshore. This measure should not be restricted to made-in-Singapore products, since many local companies operate manufacturing facilities in China, Malaysia, and other Asian countries.

If we see the implementation of such measures in the upcoming government Budget, local companies will enjoy the opportunity of achieving the same kind of brand success that Singapore as a state enjoys by being an efficient, stable and an attractive hub for business.

This article is contributed by Owi Kek Hean and Tay Hong Beng. The writers are respectively deputy managing partner & head of enterprise and head of tax at KPMG in Singapore. The views expressed are their own.