Business Standard

Explained: Why Indian Startups are establishing a base in Singapore

Singapore is number one in the world on the Heritage Foundation's index of economic freedom, number one in the World Economic Forum global competitiveness report last published in 2019

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ANI Asia

Earlier this month, Flipkart-backed Indian payments service company PhonePe announced that it had completed the move of its headquarters from Singapore to India. Indian e-commerce giant Flipkart is a subsidiary of American supermarket behemoth Walmart which bought a 77 per cent stake in the company in 2018.

This is a rather unusual move as many Indian startups are doing the reverse and prefer to be headquartered in Singapore due to specific reasons. Market speculation is that the action is due to PhonePe's preparation for a stock exchange listing in India.

PhonePe's parent, Flipkart continued to have its head office on the Southeast Asian island nation.

 

Flipkart incorporated its holding company in Singapore in the early part of last sought foreign investments to that it could grow faster. This was because it had problems with the Indian bureaucracy which had then imposed various rules on certain industry sectors which made funding in its home country difficult. It, therefore, conceived a corporate structure to site the main company in Singapore so that it could receive funding more easily and made the Indian companies subsidiaries of the Singapore entity.

Singapore is well-known for being an easy place to do business.

Singapore is number one in the world on the Heritage Foundation's index of economic freedom, number one in the World Economic Forum global competitiveness report last published in 2019 and number two in the World Bank ease of doing business ranking (2020).

It is also ranked number two worldwide by the Property Rights Alliance in its international property rights index 2022.

Furthermore, it has low taxes - both corporate tax and goods and services tax rates are lower than India's - and there are no capital gains tax or tax on dividends for shareholders. Singapore has an extensive network of tax treaties, which help Singapore-based companies that conduct international business avoid double taxation.

Many savvy Indian entrepreneurs have either immigrated to Singapore or established strong economic ties with the country, making it a key financial and investment hub for many Indian businesses. This is also helped by Singapore's business-friendly environment, infrastructure, connectivity, and the presence of a sizeable Indian community.

Based on a report by India Briefing, over 8,000 Indian companies have registered in Singapore since 2000. Many of them register their businesses online in Singapore without even coming to the country. Most follow the Flipkart company structure to enjoy the key benefits of incorporating a company in Singapore and yet be able to access the Indian market and its wide talent pool.

In recent years, Singapore has emerged as the "Silicon Valley of Asia". It has a flourishing startup ecosystem where many venture capital firms are based. Other factors which have worked to create this are the ready availability of government funding, favourable tax schemes for startups, and abundant people with the requisite skills that tech firms need. If a startup cannot find the talent it needs, it is not difficult to obtain government support to import them. There are also many similar firms which encourage collaboration and knowledge sharing.

Singapore is ranked first in Asia and seventh globally in Startup Blink's Global Startup Ecosystem Index 2022. Singapore's startup ecosystem has a value of USD 25 billion, far exceeding the global average of USD5 billion, and early-stage funding per startup totalling USD202,000. The startup Output Growth Index of Singapore scores 8 out of 10, which indicates significant growth in startup creation.

Based on figures from Enterprise Singapore, Singapore logged 517 funding deals in the first nine months of this year, amounting to USD 8 billion in total. Last year, 11 Singapore-based startups achieved unicorn status (USD 1 billion in valuation), bringing the total number to 22. There is also strong trust in Singapore's investment framework.

Another appeal Singapore has is its strategic location at the heart of ASEAN which not only has a youthful middle-class population of 660 million but as an economy, it is the fifth largest in the world after the US, EU, China and Japan.

Indeed, Southeast Asia with its interesting dynamic of a young and digitally savvy population has tremendous potential for startups and is a lucrative market for them to tap. Many startups that have established themselves in Singapore are looking to serve this market which is in Singapore's backyard.

Ms Grace Sai, the co-founder of the sustainability-focused startup, Unravel Carbon, said to Singapore online newspaper TODAY, "The market size of Southeast Asia or Asia alone is big enough to create category-winning companies. So, for some companies, it's never their strategy to be global."

However, regional countries are beginning to catch-on on to Singapore's success and looking to emulate it. A World Bank report last year noted that Singapore's neighbouring countries have created their own startup ecosystems, thereby increasing regional competition. If investors start going directly into the countries where the startups are, this may start eroding some of Singapore's advantages as a startup hub.

Likewise, India appears to be taking steps to curb the startup exodus from the country.

Two weeks ago, Finance Minister Nirmala Sitharaman said that the government is ready to engage with startups to address issues facing the ecosystem.

"So, I would think continuous engagement with the startups is what is going to help them to, one, remain and, second, do better within India. But, if there are temptations for which they would want to go outside, we need to understand how much we can entertain and serve on those courses. Not all of them are possible but equally, we can try," said Sitharaman.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Oct 31 2022 | 8:24 AM IST

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