Getting manufacturing's golden goose to stay put

Business Times - September 27, 2001

The Singapore economy will suffer greatly if the government ignores crucial measures to keep the Republic attractive to MNCs

By Ong Yong Hwee


MANY employees in Singapore currently feel uncertain, rather than confident, about their jobs and their future. Those in the manufacturing sector seem most concerned.

The present hollowing out of multinational corporations (MNC), particularly in the electronics manufacturing sector in Singapore, is disturbing. And it is extremely stressful for Singaporeans who feel they are drawn into a Russian roulette game with their careers - you know you could be next in line to be chopped, but don't know when.

Harvard guru Michael Porter, during his recent visit, said that Singapore should focus more on services and less on manufacturing, and move away from a foreign direct investment (FDI) driven strategy to an innovation-driven strategy. Anxious Singaporeans working in the manufacturing sector, already at a loss, became even more distraught, as they interpreted the advice as confirmation that manufacturing has no future in Singapore.

Is this indeed the case? Is China going to become one giant manufacturing plant and leave a big manufacturing hollow in Asian countries?

In the much longer term, China may indeed be the manufacturing centre of the world with its huge market potential, which will work as a magnet for MNCs. But this does not mean that developed countries like Singapore should stop attracting foreign investments in manufacturing.

Attracting MNCs' manufacturing FDI is, in fact, a 'no risk, golden goose' strategy for Singapore. They invest their capital, time and technology, whilst the direct risk to Singapore should the investment fail is a reduction in jobs which can, with some foresight and planning, be replaced by new MNC investments. Singaporeans do not lose everything in the process of transition; they merely change their jobs for a different one. Although there are investments on Singapore's part in infrastructure and manpower training, these investments have to be sunk in anyway before any golden goose will come to roost.

The manufacturing sector is an important anchor for Singapore's economy. This sector, particularly electronics manufacturing, has played an important role over the last few years and allowed Singapore to ride out the 1997 downturn with less pain than otherwise. The electronics sector during this time was the bright spot, and factories were kept busy with Internet dotcom and Y2K orders, providing considerable spin-offs to the rest of the economy through its linkages with design, IT, logistics and finance.

Contrary to the perception that manufacturing is labour-intensive, with low returns to the workers, great strides are being made in further automating assembly work through the use of IT and complex robotics. Productivity per worker (and hence, earnings) can increase many fold, and is more quantifiable than productivity strides in the service sector. And it is precisely because of the ability of this sector to use unlimited machines and robots to generate a higher level of economic activity that this sector should continually be nurtured.

A recent case in point is that of Seagate's 'Factory of the Future' in Ang Mo Kio, showcasing one of the world's most sophisticated assembly lines and an intelligent tracking system. These high-tech machines allow a very flexible production system of producing a wide range of disk drives, depending on demand requirements. At the same time, workers have not been displaced, but are upgraded to process the data from the machines, hence increasing overall productivity.

To quote Seagate president William Watkins: 'Singapore is the central location for our disk-drive manufacturing. China is meant to be the satellite, a second plant.'

Hopefully, Singapore can develop to be the central Asian base from which design, innovation and new manufacturing processes will evolve. Manufacturing can have an important future role to play, and continue to be a 'golden goose' for Singapore provided we provide a comfortable and competitive nest for the goose to lay the golden eggs.

Singapore already offers the political stability, transparency, rule of law, infrastructure and efficiency which attract top businesses to locate here. But the one snag foreign and local companies face is the issue of cost.

What appears to be missing in the equation is the Republic's hands-off approach in allowing internal market forces to determine pricing levels. In land-, resource- and labour-scarce Singapore, a slight shortage of any one factor of production tends to lead to a quick escalation of costs. The tight and inelastic supply of these factors in a small country leads to a bottleneck of unmet demand and, ultimately, irrational spiralling costs.

We have to recognise that the cost of doing business in and from Singapore is now high. The government must respond quickly and react with an appropriate strategy. The present mantra in electronics manufacturing is swift restructuring through significant cost-cutting measures. As a pro-business environment, the Republic has to respond accordingly. Otherwise, Singapore will continue to see an erosion of MNCs as they move out to more cost-competitive locations.

The latest casualty in Singapore is 3Com, the computer networking giant which is relocating part of its manufacturing operations to Ireland - and the speed of the departure after they had just moved into their own building is telling. Earlier, Aiwa closed down its fairly large R&D facility in Singapore. This is a significant signal indicating that the cost structure here may not be favourable to an innovation-driven strategy as well.

It would not pay to adopt a wait-and-see attitude or shrug off yet another relocation; fast counter-measures are needed. After all, there is a critical mass required for any one sector to flourish, and the electronics manufacturing sector is no exception. Looking ahead, it is going to be more difficult to promote new foreign direct investment. Hence, it is up to the Republic to ensure that it is even more attractive for the existing ones to remain.

A concerted effort to consider all aspects of the cost structure in Singapore and how to best create flexible and elastic solutions needs to be part of the new masterplan. Only then will Singapore be able to maintain a strong manufacturing base and continue to enjoy the fruits of this 'no risk, golden goose' strategy.

(The writer is a mechanical engineer by training and a business consultant by profession, with CEO Search & Services)

Intrapreneurs: The other engine that can drive Singapore's economy

Business Times - Weekend Edition, June 4-5 1994

Tap experienced local managers to run companies so that homespun MNCs may merge

By Ong Yong Hwee

The Property Steroid

Business Times - February 28, 1996

For long-term prosperity, a nation needs to manage its real estate sector to prevent excessive speculation

By Ong Yong Hwee

Run S'pore as big city or small country?

Business Times - 01 Jun 2005

History provides the answer - being replete with instances of countries going into decline when they became city-focused

By ONG YONG HWEE

THE die has been cast. Singapore will have two mega integrated resorts (IRs) with casinos to be 'financed' ultimately by the global gambling community. However, the bigger question for Singaporeans - in the debate over casinos and IRs - is whether this nation should view itself as a small country or a big city.

Recently, the dean emeritus of MIT's Sloan School of Management, Lester Thurow, painted his big-picture concept for Singapore. He advised that Singapore should think about itself, not as a country, but as a city like San Francisco, Boston or New York. Prof Thurow's vision is very inviting.

However, I would like to argue that in order for Singapore to move into the big league of global cities, the Republic first needs to be focused on the fact that great cities generally thrive from being part of a great country.

The cities of San Francisco, Boston and New York all have large suburbs and the rest of the United States as direct and borderless hinterlands to support them. These cities are thriving because the prosperous country of America provides an intricate infrastructural network of economic activity and ready markets of consumers.

It would be hard to imagine, say, cosmopolitan San Francisco as a flourishing stand-alone city without the Greater Bay Area. This thriving metropolis bay area of over 6 million supports both global and small businesses, provides less expensive rental and housing, and helps to ease the usual cost and space constraints of a congested city. The Bay Area/Silicon Valley in turn relies on the prosperous state of California for good infrastructural support.

A great city (effect) is a result of a well-managed country (cause). The country (at different economic layers) as a whole has to do well in order for the city hub to thrive. But when the city becomes great, and the country forgotten, we will start to see the decline of the entire country.

If we were to look at some previously great cities, we can attribute instances of decline of the country to when they became city-focused. For example, when China was run primarily at the 'Forbidden City-level' centered in Beijing, China was city-focused, and thereafter went into a long state of decline.

Hence, for Singapore to achieve a global-city status, it needs to be viewed and run as a top-rate country. The 'city' will then naturally take on a world-city image and status. The larger issues of the country must first be addressed before the 'city' can flourish.

Singapore Inc branding

How will welcoming the two casinos affect the Republic of Singapore's image? A city-level strategy will find Singapore viewed as the Las Vegas of the East, not unlike Macau and Monaco. A country strategy, on the other hand, will have just pockets of Singapore - that is, Sentosa and Marina South - considered the Las Vegases of Singapore.

Singapore must think carefully how it plans to develop its marketing image to the outside world, for global tourism and the foreign investment market.

If Singapore is marketed as a 'Casino City' for the tourism dollar, this would definitely be at odds with Singapore's carefully-earned wholesome reputation as an attractive location for overseas investments. The mentality of 'quick bucks' - rather than steady returns on investments resulting from solid hard work, skills and reputation - may take hold.

If this happens, the Republic's dream of going into serious industries like biomedical and other higher value-added activities could become a marketing nightmare. Hence, a well-planned country-level strategy must ensure that Singapore's name does not become synonymous with the word 'casino'.

The correct branding of Singapore's image is key to the country's continuing success.

Singapore's post-war situation makes for interesting analysis. Post-war Singapore had high unemployment and a largely uneducated and unskilled workforce. A city-level strategy then could have meant glamorising colourful Bugis Street with its transvestites, and moving to an easy sleazy image of fun and entertainment. Our medical sector could have earned the dubious distinction of being No 1 in medical surgery for sex-change operations.

Instead, the Republic adopted a country-level strategy of developing a strong manufacturing sector, thanks to a Dutch economist, Dr Albert Winsemius, who led a UN Industrial Survey Mission to Singapore in the late 1960s.

This strategy would lead to Singapore's remarkable economic transformation from post-war poverty and unrest to a nation which created steady employment and skills and brought prosperity for decades to come. A huge industrial estate was born from converting swampland in Jurong into well-laid-out land for buildings and factories.

Land availability, pricing, and location were all centrally controlled and well managed through Jurong Town Corporation's (JTC) industrial land and leasing policies.

The other factors of production - labour (through the National Trades Union Congress) and capital (through the Monetary Authority of Singapore) - were also well managed and gave investors confidence to make million-dollar investments in plant and machinery here. American and European conglomerates like Hewlett-Packard, Texas Instruments, Seagate, Infineon (then Siemens Components) and Philips spawned an entire new economic sector for Singapore. Manufacturing has been an important economic contributor, contributing some 25 per cent of the country's GDP.

Cost control

Today, a different type of global economy exists. Singapore has to adapt to a completely new set of economic challenges. Industries and ways of doing business are morphing at an ever faster rate. The mushrooming of dotcom companies can bubble over overnight.

Global corporations which for decades were household names are acquired or fade into oblivion. China, not Asia as a whole, is the new centre of production for the world.

As Singapore is physically a small country, the cost of doing business is high - like that of a 'big city' without its own supporting hinterland.

In 2003, then prime minister Goh Chok Tong remarked that, 'For every one manufacturing worker hired here, a company can employ three in Malaysia, eight in Thailand, 13 in China, or 18 in India'. However, for each Singapore worker here to work 18 times harder than his counterpart in India is going to be a near-impossible task. Working 18 times smarter is possible, however, but may require a paradigm shift.

For example, the delayering of organisations here will continue. Multi-functional, multi-skilled and multi-tasking executives will be the way forward.

A $5,000 per month engineer here will have to think and work more like a $5,000 departmental manager in India. This type of attitude towards work and productivity must be translated into society at all levels across the country.

Again, at a country level, the skills in which young Singaporeans are trained must be put to good use. Technicians and engineers, for example, must be able to see a clear long-term role for them in the manufacturing and technical services sectors. The relocation of MNC plants from here to China - based on costs, for example - will put a major dampener on career aspirations in manufacturing.

The attrition of good technically-trained workers who do not see a rosy future in technical work will create an increasingly smaller pool of workers with the skills, knowledge and experience which Singapore has invested heavily in.

Singapore, at a country level, needs to continually and creatively price itself correctly to ensure that the existing base of key and supporting industries can continue their operations here. Manufacturing companies provide the cascading spin-offs to the financial, legal, logistics and transportation industries which are other key sectors of the economy. A concerted, innovative, image and cost-control strategy at the country level will allow Singapore to retain top-notch foreign and local investments in the economy.

'Growing its own timber'

In the US, mergers and acquisitions (M&A) of businesses are commonplace. In these M&A deals, the ownership of these companies generally still rests within corporate America.

As such, corporate ownership, control and profits are retained within the country even if some of the activities of these US-owned companies can be contracted abroad.

In Singapore, however, when companies are sold, ownership often ends in foreign hands. To maximise shareholder value, these businesses are sold to the highest bidders, often overseas investors, as few private-sector companies here have the resources and/or interest to mount these buyouts.

Hence, Singapore as a country should re-evaluate its 'detimbering' approach. The Republic has, over the last few years, lost control of quite a few of these companies. Some examples of ownership sell-offs of established home-grown companies to foreign parties include CPG (formerly government-owned PWD Consultants, with a well-regarded brand name) to Australian Downer, and property management company Premas (formerly owned by government-controlled CapitaLand) to Australian United Group.

Singapore Inc, via the government-linked companies (GLCs), should ensure that the Republic continues to 'grow its own timber' (borrowing former top civil servant Ngiam Tong Dow's words), including maintaining ownership of non-strategic, but nevertheless profitable, businesses.

A well-positioned Singapore (as a country) with key economic and social issues well handled and addressed will then naturally give rise to a great Singapore city which could conceivably be mentioned in the same breath as global cities like San Francisco and New York.

The writer is a mechanical engineer by training, and a business consultant by profession,with CEO Search & Services

Copyright © 2005 Singapore Press Holdings Ltd. All rights reserved.

More business builders needed, not deal-makers

Business Times - October 11, 2002

A secure long-term futurefor Singapore Inc can only be assured with GLCs leading the charge abroad and grooming promising intrapreneurs

By Ong Yong Hwee


THE Great Singapore Asset Sale is here again. This time, Singapore's 96-year-old bookstore chain icon, MPH, has been sold by deal-maker Simon Cheong to a Malaysian firm owned by Syed Mokhtar of Tanjung Pelepas fame.

Before this, there have been many other solid Singapore entities, built up painstakingly over the years, which ultimately ended in the hands of foreign firms.

These companies include NatSteel Electronics sold to Solectron, Omni Electronics to Celestica, and JIT to Flextronics. NatSteel is now up for grabs, foreign parties not excluded. 98 Holdings, a high-powered investment company which has just put in a bid for NatSteel, has among its shareholders a subsidiary of Standard Chartered Bank and a foreign fund management group.

These deals may at times appear sexy when there are buyers who are willing to fork out a handsome sum for the business; after all, it is part and parcel of modern-day business dynamics. However, the Republic cannot rely on this type of deal-making to build a robust economy and create a secure future for Singapore Inc as a whole.

Instead, we need long-term business builders, rooted to Singapore, who have the vision and the courage to own and build business systems that are amongst the world's best - especially so since the Singapore domestic market is uniquely small.

The cost and market attractions of North Asia, particularly China, are pulling away numerous multinational companies (MNCs) operating here, particularly those in the electronics manufacturing industry. If, one day, Solectron, Celestica or Flextronics were to completely pack up and leave, that probably would be the last of the value-added activities that the Republic could receive from these companies.

Since private sector companies in Singapore could be classified as 'stayers' or 'quitters' in the sense of staying Singapore-owned and rooted here, it therefore falls on the government-linked companies (GLCs) to carry the baton and ensure a long-term economic commitment to Singapore. The GLCs are collectively Singapore's key economic stalwart - as business builders for Singapore. Who else is better able to take the lead in creating employment for the 6 per cent well-trained but unemployed, many of whom have been laid off by MNCs now eyeing the greener pastures of North Asia? And which other entities have the financial muscle, talent and resources and are amongst the most prepared to venture abroad in a big way? And who else can we count on to have permanent roots in Singapore?

For all the debate about the way forward for GLCs (divestments, avoiding competition with local entrepreneurs, etc), it is the GLCs who are Singapore's assured stayers and provide the best bet for Singapore's long-term economic future. The GLCs should move forward affirmatively and take the lead to find niches in the global value chain, beyond the sheltered shores of Singapore. They should do so confidently and at the same time bring along Singapore private enterprises, so that the strong partnership from a large grouping has a better chance of succeeding in the huge wide world.

GLCs must adopt a 'thick-skinned' approach and not shy away from pursuing attractive business opportunities, strategic or otherwise, as the competition is really from without, not from within, Singapore. Ignore the Economic Review Committee's 'Yellow Pages' ruling especially when you are doing business overseas. This rule suggested that government-related companies should stay out of any business which is, or could be, provided by the private sector.

Valuable time and resources should not be wasted selling off viable but non-strategic businesses. Instead, GLC management should direct their efforts to harness the resources of Singapore Inc (including local enterprises) in a Japanese sogo shosha (general trading houses) manner, to explore opportunities beyond our shores.

Given the condition of the world's economy, it is far easier and faster to promote risk-averse Singaporeans to work in GLCs as intrapreneurs. Give them the power to map out the destiny of the company based on what makes business sense, but not the absolute power to uproot the linkages from Singapore. And when the intrapreneur decides to be an entrepreneur, encourage them - but not by selling them the businesses that the GLCs have taken risks on and successfully built.

There may be some truth that managers in government-type organisations don't make good businessmen. This may be partly due to the philosophy and nature of the GLCs, which may have 'asset preservation', 'national brand name' and 'strategic considerations' to juggle along with business interests. As GLCs and Singapore companies explore new territories overseas whether separately or hand-in-hand, the various parties will have to continue to find their own brand of entrepreneurship, risk-taking and reward benefits.

Time should be spent to find and nurture professionals within GLCs to be potential intrapreneurs. The real test of business acumen is when GLCs taste success in the overseas market and not within the small controllable local market. The reward system for intrapreneurs should be based on long-term business development ability and can be tied to incentives beyond their GLC careers. This is to ensure that whatever business decisions are made are for the long-term benefit of the company and not for the short-term share price gain where the intrapreneur can cash out. This way, we can avoid the problems of short-term incentives that have affected world-class companies like Enron, WorldCom and Tyco.

In fact, bring in the Singapore populace into the long-term business-building equation. For example, it would be more meaningful if a basket of GLC shares were given to Singaporeans instead of the current Singapore Share Scheme. Like renowned long-term investor Warren Buffett, who owns Coca-Cola shares and drinks his Coke wherever he goes, Singaporeans can have the same sense of attachment with GLCs share ownership.

With intrapreneurs in GLCs, entrepreneurs in Singapore enterprises and the Singapore populace linked as long-term business builders of Singapore, Singapore's long-term economic future is better assured, and with it, the Republic can be assured of far more economic stayers than quitters.

(The writer is a mechanical engineer by training and a business consultant by profession with CEO Search & Services)

Three-realms philosophy can help Asia

The Business Times, July 29. 1998

by ONG Yong Hwee

S-E ASIA's INSTANT NOODLE ECONOMIES

Business Times - 28 Oct 1997

By Ong Yong Hwee

UP TO NOW, South-east Asian countries' economic growth has been the result of good political and social order, as well as positive pro-business development efforts. Multinational companies responded and capitalised on the region's favourable factors of production. The consequence was the buoyant Asian economic climate.

The Asians and many others adopted what I term an "instant noodle" economic development approach. The Maggi instant noodle slogan: "Fast to cook, Good to eat" (and obviously cheap) summed up its key characteristics.

And, broadly speaking, this simple approach has been one of the key determinants in Asia's prosperity in the last quarter of the 20th century. However, as with instant noodles, we cannot price ourselves much higher. Otherwise, the cost-conscious buyer will go for an alternative cheaper brand. And the not-so-cost conscious one, who is generally more fussy, will be rather selective and perhaps go for other more tasty and upmarket options.

As the more developed Asian economies appeared to be too expensive for the instant noodle economic development approach to be sustained, the regional currency turmoil set in and does come as a reprieve.

Hopefully, all Asian countries will take this opportunity to strengthen internally, during this seemingly uncertain period.

But first, the South-east asian economies have to go back to basics and keep tabs on the cost of their factors of production, which have spiralled over the years.

Whilst the instant noodle approach is a sound one and can, in fact, quick-start any economy, Asian economies need, in parallel, to develop their own indigenous capabilities.

To this end, I believe two other significant ingredients need to be in place, that is, origination/innovation and ownership of ideas. This next lap requires further development in terms of creating a more nurturing environment where creative juices can flow. A "can do" and proprietary mindset has to be inculcated into the young.

In Singapore, for example, the recent move to a more creative or application-oriented educational system is a right move towards this direction. Singapore is now pumping in a lot of R&D funds to the MNCs which are utilising local talent in their research endeavour. Hopefully, some of these individuals can later spin out new ideas and become the new generation of successful entrepreneurs.

The larger local companies can also be encouraged, with appropriate government support, to allocate financial resources into nurturing and developing individuals with innovative ideas.

In this way, more Sim Wong Hoos can grow their Creative Technology and, eventually an "Asian Microsoft" or an "Asian Motorola" can emerge.

What South-east Asian companies really need, beyond finance, is to develop a new mindset of what talent they must have and change their traditional hiring philosophy. With so many Asians excelling in top foreign universities, countries in the region have to find the right incentives and create a suitable environment and culture to entice these graduates back to work. With talent back in Asia, new inventions and innovations become the property of such Asian companies. Ownership of ideas, information and technology will be the keys to managing one's destiny.

Regional companies need to move beyond owning supporting services like PCBA subcontracting, diecasting and molding. These companies have to bring in new talent and find new products and develop new technologies to move beyond their existing status quo. Only then can this region be strengthened to soar beyond the instant noodle tag.

The writer is a mechanical engineer by training and a business consultant by profession