1. Introduction

In his reply to NMP Teo Siong Seng, Minister of State for Trade and Industry Teo Ser Luck said: “SMEs are an important part of Singapore’s economy as they make up 99 percent of our companies, employ 70 percent of our workforce and contribute 50 percent of our GDP.”

Small and Medium Enterprise known as SME is a commonly used term. As stated by Law, (2014, no pagination):

Although the term is widely used, there is no standard definition of an SME based on net worth, turnover, profits, or number of employees.

For Singapore, a change of definition to SMEs was done recently (W.E.F, 1 April 2011). New parameters for SMEs are not to have an annual sales exceeding S$100 million OR over 200 workers. This ensures SMEs will have a greater ease of accessibility to government incentives (Spring Singapore, 2011).

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This paper aims to cover economic contributions, constraints faced by SMEs as well as steps taken to strengthen SMEs to ensure its sustainable contributions to Singapore economy.

2. Economical Contributions of SMEs

2.1 Employment

SMEs in Singapore contributes to 70% of our workforce, hiring 7 out of 10 Singaporeans (Teo, 2014). As astonishing as the number may seem, it is actually not surprising to see SMEs in the job creation process. Jobs tend to range from manufacturing to retail to even hotel lines. Evidence has also shown that young firms tend to generate more jobs than their share of employment (OECD, No date). The key mechanism in SMEs in developing countries is to generate “decent” jobs. SMEs will absorb people whom are unemployed or is currently working in low productivity sectors (Palma and Gabriel, 2005).

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2.2 Growth

SMEs sector also plays an important part in generating growth within industries. Many of the SMEs are survivalist in nature while some have dynamic potential. Some companies began in the microenterprise scale and grew. In this case, it is where microenterprise wind up into SMEs as the survival of the fittest. However this process would be harder to come by if government policies do not support such activities. The health of SMEs will also determine the supply of large firms in the future. It is a growing process where SMEs may end up as large firms. Futhermore, large firms with a SME background would more likely collaborate with other SMEs contributing to additional benefit to the economic efficiency. (Palma and Gabriel, 2005).

2.3 Wealth

SMEs are innovators and contributors to a country’s economic growth (through higher total factor productivity – TFP).A economy with a higher proportion of SMEs is more likely to be able to adjust smoothly to shocks or business cycles (TechINASIA, 2007). Since up to 99% of Singapore companies are made up of SMEs, Singapore would be more likely to survive a financial crisis if one is to happen.