Giving brand creators a boost

PHOTO: Giving brand creators a boost

Productivity seems to have become the buzzword of the year in Singapore business circles.

With a focus on efficiency, success stories have highlighted the use of business automation, training, process review and re-engineering to improve productivity.

However, even with the most efficient processes - but with inadequate sales any business can still ultimately fail.

Businesses, therefore, need to focus on value creation beyond just becoming more efficient.

They may do this through creating competitive advantage by providing better products and services, identifying niche areas or new markets to expand into.

One such important area in the value creation process leading to sustainable competitive advantage is how businesses build their brand.

A company may have the best products or services in the market, but if it does not brand its offerings well, consumers may not even know of their existence.

In some cases, a company may not even have the best products - but it may generate more revenue by targeting particular groups of customers through its branding efforts.

For example, customers may buy a particular product because the company is well-known for its after-sales service.

Branding is an area in which many local enterprises have not done enough to address. 

Apart from value creation, branding efforts can also enhance a company's attractiveness to prospective employees.

Talented individuals wish to work for well-known and reputable businesses and, in turn, a well-known company in its industry will be able to better attract and retain talent.

Taken at a macroeconomic level, strong Singapore brands are part of the same story where a growing domestic economy creates more jobs as local businesses expand.

Taken on a regional or international basis, with Singapore's small domestic market, a good branding strategy can also help a business penetrate overseas markets more effectively.

Embarking on a branding strategy Despite these benefits, many Singapore enterprises are still not doing enough to enhance their brand equity. This is despite the existence of government assistance.

One reason may be that the benefits of branding are hard to quantify and can take years to materialise.

When companies embark on a branding strategy, Brandpact, a scheme administered by Spring Singapore and IE Singapore, provides funding on up to 70 per cent of the branding project.

This includes costs paid to consultants and internal staff involved with the exercise.

Downstream, when companies have identified markets they wish to expand into, the Productivity and Innovation Credit (PIC) scheme provides a 400 per cent tax deduction to help companies offset the costs of registering their brands and trademarks.

The scheme extends to registration costs incurred to register trademarks overseas.

In addition, the Intellectual Property Management Programme administered by Spring Singapore and the Intellectual Property Office of Singapore (IPOS) provides Singapore-based enterprises with consultancy advice and funding support to protect and make full use of their intellectual property.

Have incentives to exploit Singapore brands To build local enterprises with trusted and reliable brands on a sustainable basis, it is important that the government plays a more active role in supporting the growth of local brands and promoting made-in-Singapore products and services.

Beyond assistance at the development stage, perhaps what is now needed is for government-led incentives to encourage companies to exploit their brands further.

In countries such as the Netherlands, Ireland and the UK, "patent- box" schemes exist for companies which have developed their own intellectual property such as trademarks and brands.

These companies can enjoy lower effective tax rates on their income derived from the commercialisation of their intellectual property.

These may include sales from associated products, fees from relevant services and licensing and franchising income.

However, if the "patent-box" schemes are deemed too complex to administer and not suitable for Singapore, we can perhaps look at a more direct scheme to encourage brand development for general businesses.

Currently, Singapore tax rules provide a tax deduction for purchasing brands, whereas there are none for local enterprises that develop their brands.

In other words, 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 a "writing down allowance". 

To illustrate, if a Singapore based company spends S$1 million to develop its brand, their total tax benefit would be S$170,000 at a corporate tax rate of 17 per cent over the life of the brand.

If this brand is subsequently valued at S$5 million, the company would not be entitled to any tax benefit on this upward-revised valuation.

However, if the brand is sold for this amount, the purchaser could claim a total writing-down allowance of S$850,000 (S$5 million at 17 per cent) at the same corporate tax rate.

This benefit enjoyed by the purchaser of the brand - whether local or foreign - has not yet considered any further tax savings which may accrue through the PIC.

It is, therefore, timely to relook our rules and schemes to approach the productivity conundrum in Singapore.

If a company purchasing an established brand is able to enjoy a tax benefit, it would seem logical that the same benefit should be accorded to the company which built the brand.

This would go a long way in encouraging local companies to pursue originality and value creation.

To encourage more Singapore companies to develop their own uniquely Singapore brand, the existing tax regime should be tweaked to acknowledge the value of locally grown brands.

For example by allowing companies to claim writing down allowances on the value of their brands.

Such a scheme would depart from usual government schemes where subsidies or tax benefits are based largely on what a company spends. 

This would recognise that building a successful brand is a culmination of ideas, efforts and resources of one company over a long period of time for which capturing expenditure information alone cannot express.

However, it is also important to have sufficient safeguards to discourage undeserving claims and so claims could be based on independent third-party valuations of a brand.

A renewed focus on branding by the government would provide a very significant encouragement to companies to develop new and existing brands.

It will also provide recognition to Singapore companies who have invested time and effort in building their brand.

At the same time, it could preserve well-known Singapore brands, and encourage the growth of more internationally recognised Singapore brands.

It may even be an incentive for foreign entrepreneurs to grow their businesses from Singapore.

Looking ahead Incentives drive behaviour.

In order to encourage Singapore enterprises to embrace value creation, more creative approaches are needed in structuring incentive schemes.

We should reward value creation in addition to encouraging spending to improve productivity and innovation.

While there are existing schemes to support branding activity, more can be done to put businesses onto the path of more sustained brand management to improve long term values and revenue building capacity.