Business Failure Rates amongst Singapore SMEs

Ms Tan Su Shan asked the Minister for Trade and Industry (a) whether there is a rising trend of business failures in Singapore, particularly in the SME segment; (b) if so, what are the reasons for such a trend; and (c) whether the Ministry has determined a tolerable range of failure rates in relation to other developed countries and Singapore's recent history.

Mr Lim Hng Kiang: The Ministry of Trade and Industry has not observed a rising trend of "business failures". For business entities registered under the Companies Act, the Insolvency & Public Trustee's Office's (IPTO) statistics show that the number of companies in compulsory liquidation was 135 in 2009, 142 in 2010 and 113 in 2011.

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On a different benchmark, ACRA data shows that new firm formation has been rising over the years. In 2006, there were 45,714 firms formed. The same number reached 55,801 in 2011. Even taking into account of existing firms that ceased operations, there was still a nett increase of new firms formed per year. In 2011, nett new firm formation stood at 13,784, 39% more than in 2006. These numbers, we believe, broadly reflect the active entrepreneurship scene in Singapore, and that our environment remains conducive for new firm formation.

On the question of international comparison, we do not have very good data on overseas "business failure rates" for meaningful comparison. What we know, for instance, is that in the United States, for 10 new businesses formed, about eight to nine businesses would cease operations in the same year. Our comparable numbers are between seven and eight. I think we are slightly better off.

We do not pre-determine a tolerable range of business "failure rates". We believe however, that in a vibrant economy, a certain degree of renewal is healthy and necessary. New firms will be created to take advantage of emerging opportunities while uncompetitive ones wind up and make way for new entries. In this way, our economic resources will be more efficiently utilised.