Hard times for hardware start-ups
Limited resources, absence of an 'ecosystem' to nurture innovation are some obstacles
THE inventions of home-grown firms Creative Technology and Fusion Garage could have been the apple of the consumer's eye in world markets.
Creative - once a promising flag-bearer for Singapore's IT industry with its Zen portable music player - has been in the red for more than three years running. And start-up Fusion Garage - which announced a Web tablet a month before Apple mentioned its first iPad in 2009 - recently folded after it ran out of money.
But IT firms in other Asian countries have stood up well to the might of, say, Apple. Taiwan has HTC and Acer, and South Korea, Samsung and LG.
Why is Singapore not in the big league of hardware firms?
Entrepreneurs and venture-capital (VC) firms The Straits Times spoke to put it down to a lack of scale. 'In the hardware business, you need a large scale to succeed,' said IT veteran and entrepreneur Eddie Chau.
The large scale required - for instance, to maintain an inventory and after-sales service - makes the sector capital-intensive. 'But most of the Singapore start-ups live on a shoe-string budget,' said Mr Chau, founder and chief executive of Singapore-based social media monitoring software firm Brandtology.
He noted that local start-ups tend to raise only about a fifth of what their counterparts in the United States get from VC firms.
Limited resources hurt marketing and design efforts, which could be a reason Singapore inventions tend to be 'behind the curve in desirability' compared with those from the US, said Mr Chau.
Deep pockets, which hardware conglomerates like Samsung and LG have, are crucial for fending off copycats.
'To survive in the hardware business, one needs the financial muscle to produce more upgrades to stay ahead of the copycats,' said Dr Frank Levinson, managing director of Singapore-based business incubator Small World Group. 'This is a luxury that small start-ups do not always have.'
A smaller war chest also means that long-term survival is uncertain, he added. When economic troubles strike, smaller start-ups tend to drop out of the race first.
Also absent in Singapore: a hardware ecosystem for churning out products quickly and cheaply. Over the past decade, the country has moved away from low-value activities like computer and chip development and manufacturing to focus on high-value work in, say, chip research.
'So designers and suppliers along the consumer electronics supply chain have vanished,' said Mr James Chan, principal at Singapore-based Neoteny Labs which manages an early-stage venture fund.
'These are the undergrowth in the rainforest that fertilise future hardware innovation.'
Coupled with stiff competition from industries like energy and shipping for engineering talent, the bar for local hardware start-ups to make it has been raised even higher, he added.
They also face challenges in finding the right partners or investors. Noting that defunct Fusion Garage's investors included people not involved intimately with technology, Mr Henn Tan, chief executive of Trek 2000 International, advised start-ups to find the right partner 'and not jump the gun'.
Trek, which invented the USB ThumbDrive a decade ago, was too eager to show the world its invention without first registering patents globally and forging the right partnerships.
This mistake has cost Trek millions in legal fees to hunt down what is now a veritable army of large and small firms that chalk up sales of 200 million of these storage devices every year.
For his next notable invention, the FluCard Pro, Mr Tan made sure he took time to finalise deals with a preferred partner.
The FluCard Pro - a thumb-size storage device that lets compatible digital cameras and video camcorders connect wirelessly to the Internet and each other - took two years to launch. Introduced last week at the Consumer Electronics Show in Las Vegas, it will be distributed by Toshiba.
For those still keen to fight the hardware war, another strategy is to go for markets deemed too small by the big boys. US-headquartered Razer, founded by a Singaporean, is one such niche player. The maker of mice, keyboards, headsets and joysticks for hardcore gamers recently launched a tablet for PC gaming.
Facing such formidable hurdles in the industry, many local entrepreneurs have opted for the software path. Trek has developed software that can capture what is written on whiteboards and share the content over Wi-Fi with laptops and smartphones. The software works with its FluCard Pro.
So, will Singapore ever produce its own Acer or Samsung?
On its part, the Government has stepped in to help local inventors and entrepreneurs. In 2010, Prime Minister Lee Hsien Loong announced that $16.1 billion would be spent to help firms with research and development by the end of 2015. This is 20 per cent more than the amount invested from 2005 to 2010.
Efforts to foster entrepreneurship in the universities and strengthen cooperation between research bodies and the industry have produced some results.
To date, more than 40 high-tech firms have benefited from efforts by the National Research Foundation to sponsor seed funding and incubation programmes. One beneficiary is Brandtology, which has software that can analyse online and social media trends in more than 12 languages. In 2009, it received $2 million from VC firm Walden International under a funding scheme run by the foundation. Last year, it sold a majority stake to Australia-based media intelligence company Media Monitor.
Because of this support, some have not given up hope that Singapore will one day have its own hardware powerhouses. But it will take longer to get there now that the local hardware ecosystem is gone.
Failure, in particular, should not be frowned upon as there are lessons to be learnt, said Mr Johnson Chen, managing partner at Singapore-based VC firm Clearbridge Accelerator.
'Singapore does need an attitude shift towards viewing failures as something positive,' he said.
Neoteny Labs' Mr Chan concurred.
'Fusion Garage is a blip,' he said, but pointing to Xmi, which makes the X-Mini portable speaker, and Razer, he added: 'We do have some early successes.'