The pattern of innovation in the knowledge-intensive business services sector of Singapore.

Abstract

This paper examines the pattern of innovation in Singapore's knowledge-intensive business services (KIBS) sector, based on a survey of 180 firms in key KIBS sub-sectors in Singapore. While a significant proportion of KIBS firms are found to have engaged in innovating activities, only one-quarter of KIBS firms can be classified as being innovative in terms of having at least 25 per cent of their revenues derived from new/improved services introduced in the last three years. While the proportion of innovating companies varies across sub-sectors of KIBS, innovating companies are found to have achieved faster employment and sales growth, and have greater levels of internationalisation. In general, KIBS firms are also more innovative than manufacturing firms, with a higher proportion being innovating and innovative firms, and a higher average innovation intensity. However, Singapore still has some way to go in its development of an innovation-based KIBS sector, especially in comparison to the more advanced European countries. The survey results highlight the need for relevant manpower development in the KIBS sector and the importance of adequately integrating KIBS firms into the Singapore innovation system, given their role as facilitators, carriers and sources of innovation.

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This paper examines the pattern of innovation in the knowledge-intensive business services (KIBS) sector in Singapore, based on a survey of 180 firms in key KIBS sub-sectors in Singapore. It complements an earlier study by the authors on the innovation behaviour of manufacturing firms in Singapore as reported in Wong et al (2003).

KIBS Sector

KIBS are "private companies or organisations relying heavily on professional knowledge, that is, knowledge or expertise related to a specific (technical) discipline or (technical) functional domain, and supplying intermediate products and services that are knowledge based" (den Hertog, 2000, from Miles et al, 1995). Although this knowledge covers a wide range of activities, they have in common a high level of knowledge-intensity and interactivity in service provision, as well as a consulting or problem-solving function. Common examples of KIBS include accounting and book-keeping, management consultancy, R&D services, computer and IT-related services, legal services and marketing and advertising (den Hertog, 2000):

KIBS play multiple roles in the national innovation system. As innovators, they produce their own innovations (Muller and Zenker, 2001). Their greater contribution, however, arises in technology diffusion, as facilitators, carriers and sources of innovation for their clients. As innovation facilitators, KIBS firms support innovation in their clients, but do not develop the innovation by themselves, nor do they transfer it from another firm, for example, helping the client to develop a new service distribution channel. As innovation carriers, the service provider transfers an innovation that it has not itself developed, such as helping firms to implement new software. Finally, as innovation sources, KIBS firms develop their own innovations for clients (Wong and He, 2002; den Hertog, 2000).

All these processes require close collaboration between the service provider and the client, because much of the knowledge the KIBS firm needs to perform its service resides in its client, both in the form of codified and tacit knowledge, including information about the client's industry, customers, business strategies, competitors, etc (Bettencourt et al, 2002; den Hertog, 2000). Knowledge from clients stimulates the service provider's own innovations, resulting in a two-way, rather than uni-directional, transfer of knowledge and innovation. In this way then, KIBS providers become co-producers of innovation, alongside their clients.

Singapore KIBS Sector

The KIBS sector's contribution to the Singapore economy is substantial: knowledge-based services (1) accounted for 35 per cent of GDP in 1997, a considerable increase from its 27 per cent share in 1983 (Toh, 2000). KIBS accounted for 14 per cent of value added and 17 per cent of employment in the service sector in 1999, up from 9 per cent and 13 per cent respectively in 1990 (see Tables 1 and 2). The growth of IT and related services has been particularly noteworthy.

While the growth gives some indication of the importance of the Singapore KIBS sector to national value added and employment, the sector's role within the NIS in innovation creation and diffusion remains largely unexplored. We hope to begin to fill this gap by mapping the development and deployment of innovation in the Singapore KIBS sector and its interactions with other sectors (Wong, 2002). This is the first step to identifying areas that require attention and the type of action needed to remove hindrances blocking the smooth flow of innovation and information throughout the economy.

Singapore KIBS Innovation Survey

The Singapore KIBS national innovation survey was a postal survey, with questionnaires sent to CEOs of 4,310 companies. In order to facilitate international comparability, our questionnaire largely conforms to the guidelines set out in the Oslo Manual (OECD, 1997).

For the purposes of this study, we focused on the following KIBS sectors:

* IT and related services

* Market research, business and management consultancy

* Architectural, engineering, land surveying, other technical, and

* R&D, advertising, publishing, exhibitions and conferences.

The final valid response rates range from 4.7 per cent for the IT cluster to 3 per cent for R&D/advertising, etc. Our final sample consisted of 180 companies in the KIBS sector, most of whom were small, local companies. More than 80 per cent of the respondents had less than 25 employees, and almost three quarters had sales of less than $2 million in the latest fiscal year.

With regard to industries, over one-third of the responses were from architectural/engineering companies. IT services companies contributed 29.4 per cent, market research/business consultancy 23.9 per cent and R&D/advertising, etc, companies 11.7 per cent.

To reduce sample bias, the data has been weighted throughout the analysis to represent the population in terms of industry structure. Unless otherwise stated, all totals given in this paper have been grossed up to represent the total population, that is, the four service clusters under study.

Bask Findings

Innovating Companies in the KIBS Sector

Our survey defined innovating companies as those who had introduced new/substantially improved services into the market, adopted a new/substantially improved method of service provision, or engaged in innovation projects (regardless of whether they were completed), within the previous three years (2).

By this definition, more than half of the companies (57 per cent) within the Singapore KIBS sector are innovators (Table 3). Although this gives some measure of the volume of innovation activity taking place in Singapore KIBS firms, it provides no indication of the commercial success of these activities. Hence, a second distinction, between innovative and non-innovative companies, was made. A company is classified as innovative if 25 per cent or more of its sales were accounted for by new or improved services introduced over the last three years. Only a quarter of KIBS firms can be classified as innovative companies, or 44 per cent among KIBS firms that are innovating.

Innovation activity varies widely among the KIBS industries. The IT cluster and the R&D/advertising etc cluster have the highest proportion of innovators (about 70 per cent). At the other end of the spectrum, only 40 per cent of companies in the architecture/engineering cluster are innovators ([chi square]= 11.735, p = 0.008).

Similarly, the proportion of successful innovators varies among the industries. Again, the IT cluster had the greatest success, with 61 per cent of its innovators also being classified as innovative companies, followed by the R&D/advertising etc cluster with 53 per cent. The architecture/engineering cluster had the lowest proportion of successful innovators (28 per cent).

Performance of Innovators in the KIBS Sector

One question of interest is how innovation impacts firm performance. Although more rigorous analysis than that presented here is required to draw more positive conclusions about causal factors, we can at least investigate the associations between innovation and sales growth, employment growth and internationalisation. We also consider the success of KIBS innovations in terms of the proportion of turnover coming from new/improved services.

Table 4 shows that innovating companies experienced higher average sales and employment growth from 1996-99 than did non-innovating companies. Innovative firms also grew significantly faster than did non-innovative companies.

Internationalisation is particularly important for Singapore companies, given the limited size of the domestic market. Companies engaging in innovation are more export-oriented, having an average export-intensity (3) of 33 per cent compared to 15 per cent for non-innovating companies.

Successful innovation does not end with the creation of a new product or process; it must also be deployed, for example, through commercialisation.

One common measure of the success of an innovating company is the proportion of turnover that comes from innovations. In total, about one-third of the innovating companies obtained at least half of their sales from new/improved services (Figure 1).

[FIGURE 1 OMITTED]

Among the KIBS industries, the IT cluster stands out, with 42 per cent of its innovating companies deriving at least half of their sales from new/ improved services, while again, the architectural/engineering cluster has the least success, with a corresponding figure of 13 per cent.

Innovation Activities

One of the advantages of the NIS model is that it recognises non-R&D forms of innovation and technological development. This is particularly applicable for Singapore, where much innovation arises from the application of technologies that were created and are already in use elsewhere.

Our results show that KIBS firms engage in a wide variety of innovation activities, and highlight the importance of non-R&D innovation activities. The most common innovation activity in the KIBS sector is preparations to introduce new/improved services or service delivery methods (conducted by 76 per cent of innovating companies), followed by acquisition of software and other external technology (62 per cent) (Figure 2). These results mirror those of other studies which have found that services are major users of embodied technology (Sirilli and Evangelista, 1998).

[FIGURE 2 OMITTED]

Sources of Information for Innovation

KIBS firms use a variety of sources of information for their innovation activities. Computer-based networks such as the Internet are a major source of innovation information, being cited as a very important source by about one-third of innovating companies. It was followed by internal sources and professional conferences, meetings and journals (both cited as very important by about a quarter of innovators) (Table 5).

Computer-based networks and fairs and exhibitions are also significantly more important sources of information for innovative companies, suggesting that successful innovators are more effective at extracting and assimilating information from these sources.

R&D institutes and universities still have some way to go in making themselves a relevant innovation information source for industry. They, along with patent disclosures, were least frequently rated as important sources of information.

Objectives for Undertaking Innovation Projects

Although KIBS firms have a range of motivations for undertaking innovation, their objectives are largely market-driven, with the top four objectives revolving around improving the firms' service offering and market share. The reasons most commonly cited as very important most important innovation objectives were improving their image/competence and service quality (Table 6).

By contrast, the processes involved in providing services is a lower priority for Singapore KIBS companies. Improving the internal business process flexibility was perceived as an important objective by less than 20 per cent of KIBS firms. Singapore KIBS providers are more concerned with improving their service product than with their business processes per se, despite the very close interlinking between the process of providing services and the service itself (Tether et al, 2001).

External Collaboration in Innovation

Recent theoretical models suggest that innovation is a highly interactive process. Linkages or interactions between and within sectors in a national innovation system are key determinants of its performance, for only when these linkages are adequately developed will innovations be effectively developed and deployed throughout the system. Given KIBS providers' roles as innovation facilitators, carriers and sources, strengthening the links between them and other organisations is all the more important, as it allows the N/S to maximise the spill-over benefits obtained from KIBS innovation (Wong, 2002; den Hertog, 2000).

The pervasiveness of collaboration in innovation appears to be widely supported by our data. Eighty-eight per cent of innovating companies reported some kind of external collaboration, and 81 per cent cited intense collaboration with at least one external party. Innovative firms had significantly higher collaboration intensities than non-innovative firms, emphasising the relationship between collaboration and successful innovation.

Service clients are the single most important collaboration partners for KIBS innovators, highlighting the close relationships that tend to develop between service providers and their clients (Tether et al, 2001). The next most relevant collaboration partners are suppliers, parent/associate companies, and technical service providers (Figure 3).

[FIGURE 3 OMITTED]

Interactions between universities/public research institute and centres, PRICs and the KIBS sector are not well developed, as reflected in our data. The lack of collaboration between KIBS providers and universities/PRICs is a cause of concern, as public R&D and tertiary education institutions are a main source of basic research and qualified manpower. Although basic research is usually too expensive for the private sector to engage in, adequate linkages would ensure they have access to the research conducted in universities/PRICs, so they can apply it in developing their own innovations. Although not reported here, our data also reveals an association between collaboration with R&D institutes/universities and successful innovation. Collaboration with R&D institutes/universities is significantly more intensive for innovative firms as compared to non-innovative companies.

Support of Innovation in Manufacturing Clients

As discussed, one of the characteristics of knowledge-intensive business services is their support of innovation in other firms (Tether et al, 2001). In order to assess the extent to which this function is performed by Singapore KIBS firms, we asked respondents whether they provide innovation support for their manufacturing clients. Four types of innovation support were taken into consideration: product innovation; process innovation; organisational innovation; and market development.

About one-third (35 per cent) of KIBS firms supported innovation in their manufacturing clients over the last three years (4), and 21 per cent reported that they did so frequently. Out of the four types of innovation, process innovation was the most frequently supported.

Although it is not necessary for companies to be innovators themselves in order to support innovation in their clients, innovating companies extend innovation support to their manufacturing clients more frequently than those who are not innovators (Table 7). This lends support to the perception that interactions between KIBS providers and their clients facilitate innovations in both parties rather than merely in the client.

Innovation support for manufacturing clients is commonly given at the very earliest stage of innovation, such as in idea generation and feasibility assessment, market analysis, development and design as well as for training of employees for process innovation. The least common phase of innovation supported is dealing with property rights (for example, licensing and protection), and organisational re-design.

Knowledge of clients' industries and personal contact with clients are perceived as the most important factors in successful service provision to clients (Figure 4). About half the innovation-supporting companies rated these factors are 'very important'. Moreover, although Figure 4 shows that respondents rate proximity to the client least important, closer inspection of the data shows that this is dependent on the phase of innovation in which support is given. When asked whether proximity is important for any phase of innovation support, over 70 per cent of the respondents replied in the affirmative. Proximity was reported as particularly important for market analysis, training, idea generation and feasibility assessment, and problem diagnosis. This shows that face-to-face communication and tacit knowledge exchange remain central to knowledge-intensive business services. Especially in the early stages of innovation support, when service providers are familiarising themselves with their clients, and the clients' problems and industries, tacit knowledge exchange is very important, and long-distance communication cannot substitute for direct personal contact (see also Muller and Zenker, 2001, and Heraud, 2000).

[FIGURE 4 OMITTED]

Comparison of Results with CIS II

In order to benchmark innovation in the Singapore KIBS sector against those of other countries, the results from this survey were compared with those from the Second Community Innovation Survey (CIS II). The CIS II includes all countries in the EEA (European Economic Area), with data for both the manufacturing and service sectors collected for 1996 (5).

As with the Singapore KIBS survey, the CIS II is based on the Oslo Manual, allowing for a greater degree of compatibility between the two surveys. The main differences between the two are discussed.

Differences between Singapore Survey and CIS II

Definition of Innovations and Innovators

While the CIS II confined its definition of innovation to technologically new or significantly improved products or processes, the Singapore survey did not have this restriction, allowing respondents to report any new or substantially improved service or method of service provision as an innovation. The CIS II also provided more details regarding what did and did not constitute an innovation. Both these factors could have resulted in the European respondents having a narrower definition of innovation than those in Singapore (6).

Industries

For the service sector, the CIS surveys included the whole range of service industries, classified according to the European Communities Statistical Classification of Economic Activities (NACE Revision 1).

The Singapore survey, on the other hand, only covered the knowledge-intensive business sector. These industries would be expected to be more innovation-active. Consequently, Singapore's innovation figures sometimes appear to be higher in comparison to the European figures than they would otherwise be. Where possible, the figures for the European KIBS sector have been extracted to improve the comparability of the data.

Size Class

The European survey only included companies with at least 10 employees, whereas the Singapore survey did not have this restriction. This is an important difference as more than half (58 per cent) of Singapore KIBS companies have less than 10 employees. Since the proportion of innovators tends to increase with firm sise, other things being equal, the Singapore innovation figures may appear lower relative to the European figures than they otherwise would.

Comparison of Survey Results

Innovators

The results show that in terms of the proportion of innovators in KIBS, Singapore is at least three years behind Europe, having about the same average proportion of innovators in 1999 as the European countries did in 1996 (average of 59 per cent) (Table 8).

Both Singapore and most of the European countries, tend to have a higher proportion of innovators in IT services as compared to architecture/engineering. However, a difference arises in their relative strengths. Singapore has a relative advantage in IT services compared to Europe in 1996, the latter having two-thirds of its firms as innovators in this sector. Conversely, Europe has a relative strength in architecture/engineering, with 48 per cent of firms in this cluster being innovators, compared to 40 per cent in Singapore.

Sources of Information for Innovation

Singapore KIBS and European service firms differ quite widely in regard to their sources of innovation information. Relatively few European firms (about one-tenth) cited computer-based information networks as very important (Table 5). Rather, they are more independent in this respect, with their major sources of information being the enterprise itself and other organisations within its group (cited as very important by 52 per cent and 39 per cent of innovating companies respectively, compared to 25 per cent and 20 per cent for Singapore companies).

Another difference between the European services and Singapore KIBS firms is that more of the former regard their clients (both in manufacturing and services) as a very important source of information for innovation (38 per cent in 1996, compared to 20 per cent of Singapore KIBS companies in 1999), suggesting that that European firms are better at exploiting user-producer linkages than Singapore companies. As discussed earlier, in co-providing services KIBS providers gain experience and knowledge they can use in their own innovation and in future assignments. This is especially true of industries such as IT support services, management consultancy and technical engineering (den Hertog, 2000). The relatively low proportion of Singapore companies citing clients as a source of innovation information then, suggests that they are not taking full advantage of the knowledge bases which are available to them through their clients.

Objectives for Innovation

The most important reason for undertaking innovation in both Singapore and Europe revolve around improving their companies' service quality (7) (Table 6). About 68 per cent of innovating firms in Europe in 1996 and 59 per cent of innovating firms in Singapore in 1999 rated this objective as very important.

Comparison of Results with Singapore Manufacturing Survey

In order to benchmark KIBS innovation in a local context, we have also compared the results of the KIBS survey with those from our manufacturing NIS survey (8). Since the two surveys were conducted with the aim of comparison in mind, the questions are similar and the results largely comparable.

Innovating Companies and Innovation Activities

Our results show that Singapore KIBS firms are generally more innovative than those in the manufacturing sector. A comparison of the results of the two surveys shows that KIBS sector has a significantly higher proportion of innovating companies than the manufacturing sector, in which 32 per cent of firms are innovators (9) ([chi square] = 33.338, p = 0.000). This is consistent with results in other countries. Data from the CIS II revealed that "enterprises in computer services, telecommunications, technical services and financial intermediation were, on average, more likely to have engaged in innovative activities than the average manufacturing enterprise" (Tether et al, 2001).

However, the survey also showed that about 15 per cent of Singapore manufacturing companies are innovative. Thus, although there is a larger proportion of innovators in the KIBS sector than in the manufacturing sector, the ratio of innovative to innovating firms is the same in both sectors. Moreover, although the KIBS sector appears to be more successful in the commercialisation of its innovations in that about one-third of KIBS innovators obtained at least 50 per cent of their turnover from product innovations, compared to 20 per cent in manufacturing, this difference was not found to be statistically significant.

The KIBS sector devotes more resources to innovation activities than does the manufacturing sector. The proportion of manufacturing innovators with higher levels of innovation and R&D intensity is much lower than in the KIBS sector--only 10 per cent had innovation intensities of [greater than or equal to] 20 per cent and 8 per cent had R&D intensities of [greater than or equal to] 10 per cent. The comparable figure for KIBS innovators was 31 per cent for innovation intensity and 44 per cent for R&D intensity ([chi square] = 22.157, p = 0.000 for innovation intensity and [chi square] = 27.249, p = 0.000 for R&D intensity).

Objectives for Innovation

Innovation in both the KIBS and manufacturing sectors is largely market-driven, with the most important objectives for innovation projects being opening up new markets or increasing market share, improving product quality and reducing production cost (Table 9). Similarly, environmental concerns such as reducing energy consumption and environmental effects are the least important considerations.

The relative magnitude of production cost in the manufacturing sector is reflected in the greater importance it attaches to reducing production cost (10) and material consumption. Conversely, the greater importance of human resources to the service sector was reflected in the greater perceived importance of improving work conditions for employees as an objective of innovation.

External Collaboration in Innovation

Although there is a greater proportion of innovators in the KIBS sector, the manufacturing sector engages in more collaboration in innovation. All the innovators in our manufacturing survey reported engaging in some form of external collaboration in their innovation activities, compared to 88 per cent of KIBS innovators ([chi square] = 14.442, p = 0.000). However, the two sectors have about the same intensity of collaboration. Among all collaborating firms, 89 per cent of the manufacturers and 92 per cent of KIBS providers reported intensive cooperation on innovation.

One difference between manufacturing and KIBS innovators is that the latter collaborate more intensively with competitors, perhaps because their smaller size leads to less focus on market power and therefore less rivalry between competitors. Conversely, because the majority of KIBS firms are small companies rather than subsidiaries of multinationals, they collaborate with parent/associate companies less frequently than their manufacturing counterparts (Wong and He, 2002).

Conclusion

In this paper, we have examined the pattern of innovation in Singapore's KIBS sector, using the results of the country's first services innovation survey. The survey results show that in general, KIBS firms are more innovative than manufacturing firms, having a higher proportion of innovating and innovative firms, and a higher average innovation intensity. However, Singapore still has some way to go in its development of an innovation-based KIBS sector, especially in comparison to the more advanced European countries.

While a significant proportion (57 per cent) of KIBS firms are found to have engaged in innovating activities, only one-quarter of KIBS firms can be classified as being innovative in terms of having at least 25 per cent of their revenues derived from new/improved services introduced in the last three years. While the proportion of innovating companies varies across sub-sectors of KIBS, innovating companies are found to have achieved faster employment and sales growth, and have greater levels of internationalisation.

One feature of the KIBS sector that has arisen several times in our discussion is the importance of human resources; the findings indicate the need for greater emphasis on manpower development in order for Singapore to further increase its innovation intensity in the KIBS sector to catch up with the advanced European countries. While the government has in the past emphasised training and manpower development in general, and manufacturing manpower development in particular, a greater focus on relevant specialised KIBS manpower development will be needed in the future. Relevant training would need to cover not only the innovative use of new technologies, but also encompass areas such as communication and collaborative skills, since personal contact and knowledge-intensive collaboration are an intrinsic part of innovation support provided to clients (Tether et al, 2001).

One weakness found in Singapore's KIBS sector is the relative lack of collaboration between industry and the universities/PRICs. This bottleneck in Singapore's NIS has been identified in both the manufacturing and KIBS surveys, and is thus a cause for some concern, as the public R&D sector is a significant producer of knowledge which can then be used as inputs for firms in their own innovation activities (Fritsch and Schwirten, 1999). Companies need access to the latest research from universities/PRICs--especially basic research--in developing their own innovations, if they are to stay on the technological frontier. Our study bears this out, as successful innovators collaborate more intensively with R&D institutes and universities than do non-innovative companies. This is one area that needs to be given greater policy attention to allow the smooth flow of knowledge throughout Singapore's innovation system.

Finally, more thought needs to be given to the role of KIBS in the overall innovation system of Singapore NIS. Since KIBS are facilitators, carders and sources of innovation that provide innovation support to other companies, their lack of development may become bottlenecks to the innovative growth of other key economic sectors. KIBS can also be seen as complementary to the public R&D sector, by serving as a bridge or conduit to link public R&D institutions with SMEs that lack internal resources to collaborate with public R&D institutions directly (den Hertog, 2000).

Table 1: Share of KIBS Employment in Services Sector of
Singapore (per cent)

                       1990   1991   1992   1993   1994 (b)

KIBS                   12.9   13.6   13.5   14.0     15.1
Share of IT and
  related services
  in KIBS              14.2   14.5   15.1   16.1     16.3
Share of business
  and management
  consulting in KIBS   54.7   54.9   55.6   52.9     53.9
Share of engineering
  and technical
  services in KIBS     31.1   30.6   29.2   31.0     29.9

Total (a)              100    100    100    100      100

                       1995   1996   1997   1998   1999

KIBS                   16.2   15.2   15.8   15.9   17.3
Share of IT and
  related services
  in KIBS              16.4   18.5   18.9   20.0   23.8
Share of business
  and management
  consulting in KIBS   54.9   53.6   51.4   49.4   50.6
Share of engineering
  and technical
  services in KIBS     28.8   27.9   29.7   30.6   25.7

Total (a)              100    100    100    100    100

Source: Wong and He (2002).

(a) Figures may not add up to 100 due to rounding.

(b) Year 1994 data not available, based on interpolation.

Table 2: Share of KIBS Value added in Services Sector of
Singapore (per cent)

                           1990   1991   1992   1993   1994 (b)

KIBS                        9.4    9.6    9.9   10.0     10.8
Share of IT and related
  services in KIBS         13.5   16.0   17.8   17.7     18.4
Share of business and
  management consulting
  in KIBS                  57.4   56.6   54.4   54.2     53.7
Share of engineering and
  technical services in
  KIBS                     29.2   27.4   27.8   28.2     28.0

Total (a)                  100    100    100    100      100

                           1995   1996   1997   1998   1999

KIBS                       11.6   11.0   12.3   12.9   13.8
Share of IT and related
  services in KIBS         19.0   20.6   20.9   21.6   23.4
Share of business and
  management consulting
  in KIBS                  53.2   52.0   52.6   52.3   53.3
Share of engineering and
  technical services in
  KIBS                     27.7   27.4   26.5   26.1   23.3

Total (a)                  100    100    100    100    100

Source: Wong and He (2002).

(a) Figures may not add up to 100 due to rounding.

(b) Year 1994 data not available, based on interpolation.

Table 3: Proportion of Innovators in Singapore KIBS Sector

                                   Innovating   Innovative
                                   Companies    Companies    (b)/(a)
                                      (a)          (b)

IT and related services               73.0         44.4       60.9
Market research, business &
  management consultancy              58.0         23.2       40.0
Architectural, engineering, land
  surveying, other technical          40.0         11.1       27.8
R&D, advertising, publishing,
  exhibitions & conferences           70.0         36.8       52.6
Total                                 56.9         25.3       44.4
                                      (++)         (++)

(++) Pearson Chi-square: Difference is significant at 1 per
cent level.

Table 4: Average Annual Sales and Employment Growth and
Export Share (per cent)

                                             Employment    Export
Sample subset                Sales growth      growth      Share *

Total                        15.5            13.2         25.3
IT and related services      24.6            24.0         22.5
Market research,
  business & management
  consultancy                17.4 (++)       12.7 (+)     29.9 (++)
Architectural, engineering
  land surveying, other
  technical services          5.7             5.7         14.5
R&D, advertising,
  publishing, exhibitions
  & conferences              20.7            21.4         42.5
Locally owned                14.4 (-)        13.1 (-)     15.8 (++)
Foreign owned                18.6            13.0         52.2
Innovating                   18.8 ([double   20.4 (++)    33.1 (++)
Non-innovating               11.4 dagger])    4.1         15.0
Innovative                   25.1 ([double   27.6 (++)    32.7 (-)
Non-innovative               12.0 dagger])    8.5         22.9

* Share of sales outside Singapore

([double dagger]) ANOVA: Difference is significant at 10 per
cent level.

(+) ANOVA: Difference is significant at 5 per cent level.

(++) ANOVA: Difference is significant at 1 per cent level.

(-) ANOVA: Difference is not significant at 5 per cent level.

Table 5: International Comparison: Sources of Information Regarded as
Very Important for Innovation (Percentage of Innovating Enterprises)

                                               Europe   Singapore

Computer-based networks (1)                    11            34
Internal sources (2)                           52            25
Professional conferences, meetings, journals   15            24
Parent/associate companies (3)                 39            20
Fairs, exhibitions                             17            19

Service clients                                38 (4)        18
Manufacturing clients                                         9

Competitors                                    19            15

Business services                              11 (5)        13
Technical services                                           12

Suppliers (6)                                  18            10
R&D institutes / universities                   5 (7)         5
                                                3 (8)
Patent disclosures                              1             3

(1) 'Computer-based information networks' in CIS II

(2) 'Sources within the enterprises' in CIS II

(3) 'Other enterprises within the enterprise group' in CIS II

(4) 'Clients or customers' in CIS II

(5) 'Consultancy enterprises' in CIS II

(6) 'Suppliers of equipment; material; components or software' in CIS II

(7) 'Universities or other higher education institutes' in CIS II

(8) 'Government or private non-profit research institutes' in CIS II

Note: For Singapore survey, figures are for those companies which rated
the factor as '4' on a scale of 0 (not important) to 4 (very important)

Source for European data: Foyn F (1999). "Community Innovation Survey
1997/1998". Statistics in  Focus: Research and Development, 2/1999,
Eurostat

Table 6: International Comparison: Objectives Considered Very Important
for Innovation (Percentage of innovating enterprises)

                                            Europe   Singapore

Improving image/competence                    na         60
Improving service quality (1)                 68         59
Open up new markets/increase market share     48         54
Extending service range (2)                   49         43
Improve work conditions for employees         na         29
Replace services being phased out (3)         18         21
Fulfilling regulations & standards            17         21
Reduce labour cost                            38         19
Improve internal business process
  flexibility (4)                             40         17
Reduce environmental effects (5)              18         12
Reduce energy consumption                     16         11
Reduce materials consumption                  18          8

(1) 'Improving product/service quality' in CIS II

(2) 'Extend product/service range' in CIS II

(3) 'Replace products/services being phased out' in CIS II

(4) 'Improve production/internal business process flexibility' in CIS II

(5) 'Reduce environmental damage' in CIS II

Note: For Singapore survey, figures are for those companies which rated
the factor as '4' on a scale of 0 (not important) to 4 (very important)

Note: Singapore classification for architecture and engineering includes
technical testing.

Source for European data: Foyn, F (1999). "Community Innovation Survey
1997/1998". Statistics in Focus: Research and Development, 2/1999,
Eurostat

Table 7: Frequency of Innovation Support Extended to Manufacturing
Clients (Mean)

                                    Production    Process
                                    innovation   innovation

Total                                  0.70         0.83

IT and related services                0.83         1.25
Market research, business
  & management consultancy             0.60         0.63

Architectural, engineering
  land surveying, other technical      0.54         0.79
R&D, advertising, publishing,
  exhibitions & conferences            1.19         0.86
                                        (-)          (-)

Local company                          0.65         0.85
Foreign-owned company                  0.82         0.78
                                        (-)          (-)

Non-innovating companies               0.33         0.40
Innovating companies                   0.97         1.15
                                       (++)         (++)

Non-innovative companies               0.55         0.64
Innovative companies                   1.09         1.35
                                        (+)         (++)

                                    Organisational     Market
                                      innovation     development

Total                                    0.69           0.67

IT and related services                  0.81           0.60
Market research, business
  & management consultancy               0.86           0.79

Architectural, engineering
  land surveying, other technical        0.48           0.44
R&D, advertising, publishing,
  exhibitions & conferences              0.48           1.00
                                          (-)            (-)

Local company                            0.70           0.65
Foreign-owned company                    0.68           0.75
                                          (-)            (-)

Non-innovating companies                 0.40           0.33
Innovating companies                     0.91           0.93
                                         (++)           (++)

Non-innovative companies                 0.53           0.59
Innovative companies                     1.15           0.85
                                         (++)            (-)

(++) ANOVA: Difference is significant at 10 per cent level.

(+) ANOVA: Difference is significant at 5 per cent level.

(-) ANOVA: Difference is not significant at 5 per cent level.

Note: Scale is from 0 (not at all) to 4 (frequently).

Table 8: International Comparison: Innovating
Enterprises in Services Sector (Percentage of
Total No of Enterprises)

       Country          1996

Luxembourg               83
Ireland                  75
Germany *                63
Netherlands              58
Singapore KIBS (1999)    57
United Kingdom           56
Sweden                   50
France                   46
Finland                  44
Belgium                  42
Norway **                42
Austria                  41
Total CIS                59

* Including ex-GDR

** Figure for 1997

Please note that the European figures are for NACE 72 (computer
and related services) and 742 (architectural and engineering activities
and related technical consultancy) only. As such, they are not
wholly comparable with the Singapore results.

Source for European data: Eurostat (1999). Memo: Community Innovation
Survey. Memo No. 6/99, 21 May 1999.

Table 9: Objectives for Undertaking Innovation:
Comparison between KIBS and Manufacturing

                                                KIBS    Manufacturing

Replace products (services (1)) being
  phased out                                    3.12   3.29
Improved product (service (1)) quality          4.38   4.17
Extend product (service (1)) range              4.09   3.78 ([dagger])
Open up new markets or increase market share    4.28   4.24
Fulfill regulations & standards                 3.20   3.18
Improve production (internal business
  process (1)) flexibility                      3.60   3.16 **
Reduce production (labour (1)) cost             3.43   4.04 **
Reduce material consumption/improve yield (2)   2.65   3.60 **
Reduce energy consumption                       2.55   2.67
Reduce environment effects                      2.59   2.82
Improve work conditions for employees           3.46   3.04 *

(1) For KIBS firms

(2) Reduce materials consumption only for KIBS firms

([dagger]) ANOVA: Difference is significant at 10 per cent level.

* ANOVA: Difference is significant at 5 per cent level.

** ANOVA: Difference is significant at 1 per cent level.

Figure 1: New/Improved Services as Percentage of Total Annual Sales

                                Less than
                                   10%      10-24%   25-49%

IT and related services           25.0       12.5     20.8
Market research, business &
  management consultancy          16.1       32.3     16.1
Architectural, engineering,
  land surveying, other
  technical                       18.8       43.8     25.0
R&D, advertising, publishing,     33.3        8.3     25.0
  exhibitions & conferences       21.7       25.3     20.5
Total

                                         75% and
                                50-74%    above

IT and related services          25.0     16.7
Market research, business &
  management consultancy         19.4     16.1
Architectural, engineering,
  land surveying, other
  technical                         0     12.5
R&D, advertising, publishing,
  exhibitions & conferences         0     33.3
Total                            14.5     18.1

Figure 2: Activities Engaged by Companies
(Percentage of Innovating Firms)

                                                         Acquisition
                                       Acquisition of   of machinery
                                R&D     R&D services    and equipment

IT and related services         53.8        11.1            29.6
Market research, business &
  management consultancy        36.6        12.5            20.0
Architectural, engineering,
  land surveying, other
  technical                     36.4         4.5            42.9
R&D, advertising, publishing,
  exhibitions & conferences     53.3        20.0            46.7
Total                           43.3        11.5            31.1

                                                Prepns to
                                Acquisition    intro new/     Training
                                of software,    improved      directly
                                  external     services or   related to
                                 technology      methods     innovation

IT and related services             74.1          81.5          74.1
Market research, business &
  management consultancy            52.5           80           47.5
Architectural, engineering,
  land surveying, other
  technical                         63.6          71.4          52.4
R&D, advertising, publishing,
  exhibitions & conferences          60            60           66.7
Total                               61.5          75.7          58.3

                                  Market     Adoption of
                                introdn of    E-commerce
                                innovation   applications

IT and related services            66.7          70.4
Market research, business &
  management consultancy            40           36.6
Architectural, engineering,
  land surveying, other
  technical                        31.8          31.8
R&D, advertising, publishing,
  exhibitions & conferences        73.3          53.3
Total                               50           46.7

Figure 3: External Collaboration on Innovation:
Mean Relative Scores * by Partner

Service clients               131.73
Service suppliers             118.27
Technical service provide     117.66
Parent/associate company      110.96
Manufacturing suppliers       105.37
Manufacturing clients          99.79
Business service provider      88.06
Competitors                    63.44
R&D institutes/universities    62.64

* mean score across all partners = 100

Note: Table made from bar graph.

Figure 4: Important Factors for Successful Provision of
Services to Manufacturing Clients (Mean)

Knowledge of clients' industry   3.2
Frequent personal contact        3.2
Complementary skills             2.9
Location close to client         2.2
Similar qualifications           2.1

Factors rated on a scale of 0 (not important) to 4 (very important)

Note: Table made from bar graph.

End Notes

(1) For Toh's (2000) study, knowledge-based services included information and communication services, finance, insurance and business services, which varies slightly from the sectors used in our survey.

(2) The last category (engaging in innovation projects, even if they are incomplete or terminated) is not included in the Oslo Manual. However, of all the companies in this category, only one had not also introduced product or process innovation to the market. As such, this inclusion does not substantially affect the international comparability of our survey.

(3) As measured by the proportion of sales made to other countries.

(4) These firms will subsequently be referred to as innovation-supporting firms.

(5) 1997 for Norway. Data for Germany includes the ex-GDR.

(6) See note 2 for another way in which our survey deviates from the CIS II definition of an innovator.

(7) 60 per cent of Singaporean innovating companies also reported improving their image of competence as a very important factor, but this objective was not included in the CIS II.

(8) See Wong et al 2003 for a fuller discussion of the results of this survey.

(9) The manufacturing survey defined as innovators those companies who had introduced any product or process innovation in the previous three years.

(10) Reducing labour cost for KIBS.

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Wong Poh Kam 

Annette Singh

NUS Entrepreneurship Centre

National University of Singapore