Government Policy for Outward Investment by Domestic Firms: The Case of Singapore's Regionalisation Strategy.Abstract Two separate streams of research are drawn upon here to facilitate understanding of the implications of the government's role in Singapore's regionalisation Regionalisation refers to the tendency to form regions or the process of doing so.
inquiry, research, enquiry - a search for knowledge; "their pottery deserves more research than it has received" exploring the Singapore government's strategy of regionalisation in the 1990s. Finally, we draw some general conclusions from our own survey of Singapore enterprises that examined the impact and effectiveness of the government's policies. The purpose is to evaluate Singapore's industrial policy in this instance. Government Intervention in Market Economies Classical Economic Theory The appropriate role of government in an economy has been a major theme of research for centuries, especially so in recent decades. The dominant forces setting global policies now abide by the liberal view of a minimalist min·i·mal·ist n. 1. One who advocates a moderate or conservative approach, action, or policy, as in a political or governmental organization. 2. A practitioner of minimalism. adj. 1. role for government, but this has not always been so. The prevailing view of the sixteenth century, mercantilism mercantilism (mûr`kəntĭlĭzəm), economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting , was famously fa·mous·ly adv. 1. In a way or to an extent that is well known: "his famously neurotic mannerisms [are] lampooned in the novels of Evelyn Waugh" expostulated by political economists such as William Petty
Sir William Petty (1623 - 1687) and David Hume (1711 - 1776). The central theme was that international trade was a zero-sum game Zero-Sum Game A situation in which one participant's gains result only from another participant's equivalent losses. The net change in total wealth among participants is zero the wealth is just shifted from one to another. in that one nation gained from trade at the expense of another. The main purpose of trade policy was to increase national wealth by achieving a trade surplus. Mercantilists advocated government intervention in economic activities to achieve a positive balance of trade and thus make the state more powerful in economic, military and political terms. The modern rendition ren·di·tion n. 1. The act of rendering. 2. An interpretation of a musical score or a dramatic piece. 3. A performance of a musical or dramatic work. 4. A translation, often interpretive. of this argument (neomercantilism) is still evident today in national strategic trade policies. The antithesis antithesis (ăntĭth`ĭsĭs), a figure of speech involving a seeming contradiction of ideas, words, clauses, or sentences within a balanced grammatical structure. Parallelism of expression serves to emphasize opposition of ideas. of mercantilism is the classic theory of free trade that demonstrates mutual gains from trade, based on the original exposition in Adam Smith's 1776 landmark work The Wealth of Nations. Classical economists refute re·fute tr.v. re·fut·ed, re·fut·ing, re·futes 1. To prove to be false or erroneous; overthrow by argument or proof: refute testimony. 2. the old mercantilist notions by arguing plaintively plain·tive adj. Expressing sorrow; mournful or melancholy. [Middle English plaintif, from Old French, aggrieved, lamenting, from plaint, complaint; see plaint. that governments should not intervene in international trade because free trade maximises economic efficiency. Smith believed in a self-regulating economic system, the idea of the "invisible hand Invisible Hand A term coined by economist Adam Smith in his 1776 book "An Inquiry into the Nature and Causes of the Wealth of Nations". In his book he states: "Every individual necessarily labours to render the annual revenue of the society as great as he can. " that channels self-interested behaviour such that the whole society benefits. Government intervention only increases prices to citizens by inhibiting the free play of market forces. The state's role should be limited to the provision of public goods and services In economics, economic output is divided into physical goods and intangible services. Consumption of goods and services is assumed to produce utility (unless the "good" is a "bad"). It is often used when referring to a Goods and Services Tax. such as defence, elementary education elementary education or primary education Traditionally, the first stage of formal education, beginning at age 5–7 and ending at age 11–13. and public works public works pl.n. Construction projects, such as highways or dams, financed by public funds and constructed by a government for the benefit or use of the general public. Noun 1. , which market forces fail to adequately provide. New Trade Theory By the 1970s, a number of economists were developing an alternative theory. They rejected the assumptions of perfect competition and diminishing returns to scale from specialisation underlying the classic theory of free trade. During the early 1980s, economists including Paul Krugman Paul Robin Krugman (born February 28, 1953) is an American economist. Krugman, a liberal, is currently a professor of economics and international affairs at Princeton University. of MIT MIT - Massachusetts Institute of Technology proposed the "new trade theory". This relied upon models using the concept of monopolistic competition monopolistic competition Market situation in which many independent buyers and sellers may exist but competition is limited by specific market conditions. The theory was developed almost simultaneously by Edward Hastings Chamberlin in his Theory of Monopolistic Competition to show how economies of scale could be a source of gains from specialisation and trade, alongside the conventional notion of comparative advantage (Lancaster, 1980; Krugman, 1979, 1981). The theory countered the fundamental assumption of perfect-market competition in free trade by demonstrating the existence of first-mover advantages First-mover advantage is the advantage gained by the initial occupant of a market segment. This advantage may stem from the fact that the first entrant can gain control of resources that followers may not be able to match. in gaining economies of scale, thus creating barriers to entry in order to get a lock on the world market. The new trade theorists argued that the presence of substantial scale economies in many industries effectively prevents new competitors emerging from free trade. In this sense, free tr ade does not really exist because markets are monopolised. Incomes go only to those countries that can garner a share of the action by overcoming the barriers to market entry, and government intervention to achieve this appears justified. Brander and Spencer (1985) created a stir by demonstrating that strategic commitments by a government can, in principle, deter potential or actual competitors and increase profits of the favoured company in an international context. Government policy was introduced as a strategic instrument external to the market that could potentially change the market outcome. Although there was strong academic critique against the strategic trade policy concept, no resolution of the conflict between classical free traders free trade n. Trade between nations without protective customs tariffs. free trader n. Noun 1. and new trade theorists has been possible due to a lack of conclusive empirical results. Despite persuasive academic and political critique against strategic trade policy, it has not been entirely discredited dis·cred·it tr.v. dis·cred·it·ed, dis·cred·it·ing, dis·cred·its 1. To damage in reputation; disgrace. 2. To cause to be doubted or distrusted. 3. To refuse to believe. n. as a viable option for governments. The importance of the critique has been to highlight that the Brander and Spencer (1985) study is an example, not a general result, of strategic trade policy. It pointed out that the new trade theory is different from the traditional free trade theory in that the latter "could be made a priori a priori In epistemology, knowledge that is independent of all particular experiences, as opposed to a posteriori (or empirical) knowledge, which derives from experience. without consideration of the specific details of industries" (Krugman, 1994). Strategic trade policies are only recommended on the basis of detailed quantitative knowledge of the relevant industries. A study by Ulph and Winters (1994) demonstrated that the case for strategic policies is substantially stronger if the policies are implemented "upstream", such as subsidising the supply of specialised inputs like skilled manpower. The aspect of the new trade theory of interest in this study is that it provides intellectual justification for government intervention in the form of strategic trade policy, or "industrial policy". By this line of reasoning Noun 1. line of reasoning - a course of reasoning aimed at demonstrating a truth or falsehood; the methodical process of logical reasoning; "I can't follow your line of reasoning" logical argument, argumentation, argument, line for instance, besides the factors of luck and innovation in giving Boeing first-mover advantages (hence competitive advantage) in the commercial aircraft industry, Boeing's research and development was largely supported and funded by the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. government. In fact, Boeing's 707 was a spin-off The situation that arises when a parent corporation organizes a subsidiary corporation, to which it transfers a portion of its assets in exchange for all of the subsidiary's capital stock, which is subsequently transferred to the parent corporation's shareholders. from a government-funded military programme. Hence, there is a clear precedent and rationale for government intervention. Thus, the most profound implication of this theory is that it generates an argument for government intervention and the development of industrial policy. The new trade theory thus suggests that judicious ju·di·cious adj. Having or exhibiting sound judgment; prudent. [From French judicieux, from Latin i and sophisticated support by a government may increase the chances of its domestic firms becoming first-movers or replacing the original first-movers in newly emerging industries. "These notions of strategic behaviour in imperfectly im·per·fect adj. 1. Not perfect. 2. Grammar Of or being the tense of a verb that shows, usually in the past, an action or a condition as incomplete, continuous, or coincident with another action. 3. competitive markets provided the foundation for the new theories of trade" (Matthews and Ravenhill, 1994). This view of a practical economic rationale for selective government intervention is opposed to the predominant policy priority of free trade as prescribed by international institutions such as the World Trade Organisation. It also provides the rationale for industrial policy in Asia. Industrial Policy Debate in East Asia East Asia A region of Asia coextensive with the Far East. East Asian adj. & n. The importance of industrial policy in the growth of the East Asian economies is a topic of great debate. The study, The East Asian Miracle by the World Bank (1993), is essentially a practical evaluation of the new trade theory in Asia. The landmark 1993 study specifically defined industrial policies as "... attempts to achieve more rapid productivity growth by altering industrial structure" (World Bank, 1993:354). Industrial policy is classified into two categories -- fundamental and selective interventions. (Refer to Table 1.) The six policies classified by the World Bank as "fundamental" affect economic growth primarily through market-based mechanisms of competitive discipline and as such would seem more acceptable to neoclassical ne·o·clas·si·cism also Ne·o·clas·si·cism n. A revival of classical aesthetics and forms, especially: a. A revival in literature in the late 17th and 18th centuries, characterized by a regard for the classical ideals of reason, form, economists. However, most countries in the study were found to have gone beyond the fundamentals, with the government intervening selectively to a varying degree to alter the market incentives. The World Bank study evaluated selective intervention policies in East Asia, concluding that promotion of specific industries generally did not work, as industrial growth tended to be market-conforming and productivity change was not significantly higher in promoted sectors. Directed credit worked in certain situations, but the risks are high as successful repression of interest rates and contest-based credit allocation depend on strong institutions such as competent and insulated in·su·late tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates 1. To cause to be in a detached or isolated position. See Synonyms at isolate. 2. bureaucracies and banks to select and monitor projects. The export-push strategy was considered the most broad-based and successful application of selective interventions. In Singapore, the government was found to have intervened through selective industrial promotion when it attempted to attract foreign investment in capital- and knowledge-intensive sectors during the period 1980-89. Output grew more rapidly in the more capital- and knowledge-intensive sectors, supporting the view that Singaporean authorities successfully intervened to encourage increasingly capital-intensive development. However, the study found that while the government attempted to influence industrial structures, selective intervention did not play an important role in the economy: "... despite government intentions, the manufacturing sector seemed to have evolved roughly in accord with neo-classical explanation, industrial growth was largely market conforming" (World Bank, 1993). It concluded that the promotion of specific industries had little apparent impact in Singapore. Many critics countered the World Bank's conclusions (Chang, 1995; Jomo, 1997; Low, 1998), but the World Bank view generally prevailed. Still, the Singapore government has not recanted and continues to this day with its strong interventionist style. This can be extended to the regionalisation policy promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. in 1993. This particular form of selective intervention by the Singapore government will be examined as the focus of this study. Regionalisation Strategy in Singapore Constrained con·strain tr.v. con·strained, con·strain·ing, con·strains 1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force. 2. by supply factors and appreciation of the Singapore currency, and with high potential demand from regional economies, the Singapore government adopted an elaborate national strategy in 1993: "Regionalisation 2000". By encouraging local companies to expand investment and business in the Asian region, dubbed dub 1 tr.v. dubbed, dub·bing, dubs 1. To tap lightly on the shoulder by way of conferring knighthood. 2. To honor with a new title or description. 3. the "second" or "external" economy, the regionalisation drive became a central national strategy to maintain economic growth. "Going regional is part of our long-term strategy to stay ahead. It is to make our national economy bigger, our companies stronger and some of them multinational" (Regionalisation Forum Proceedings, 1993). The regionalisation of Singapore business would follow the trend of many mature economies that witnessed the internationalisation (programming) internationalisation - (i18n, globalisation, enabling, software enabling) The process and philosophy of making software portable to other locales. For successful localisation, products must be technically and culturally neutral. of local enterprises seeking a global reach (USA in the post-war era, Europe and Japan joining the competition in the 1960s and 1970s). Although this type of international venture by Singapore firms is cited as early as in the beginning of the 1970s (Tan, 1974), outward direct foreign investment only became significant and met with sharp increase in the mid-1990s. In 1995, direct investment (measured by the amount of paid-up shares of overseas subsidiaries and associates held by Singapore companies This is a list of major companies based in Singapore. Company industry SGX Aetos Security Management Private Limited Security - Aspial Corporation Retail SGX: A30 Aurigin Technology Electronics and manufacturing - Bee Cheng Hiang Food and beverage - and the net amount due from overseas branches) registered a growth of 29 per cent. The Asian region was the focus of Singapore companies expanding their operations abroad, with more than 60 per cent of all new investment going into this region in 1995 (Department of Statistics, 1997). However, the 1996 data indicate that there was a trend beyond the immediate region with only 18 per cent of new investment located in the Association of Southeast Asian Nations Association of Southeast Asian Nations (ASEAN), organization established by the Bangkok Declaration (1967), linking the nations of Indonesia, Malaysia, Philippines, Singapore, and Thailand. (Asean) compared to 41 per cent in 1995 (Department of Statistics, 1998). The figures in Table 2 give an indication of the impact of the regionalisation policy on shaping the external economy. In 1998, there was a slowdown in regional investment as the regional business climate was adversely affected by the Asian economic crisis. The term 'regionalisation' can be defined in this instance as the outward direct foreign investment from Singapore-based firms to countries in the Asia-Pacific region. The initial policy to promote cross-border economic cooperation and shared growth among neighbouring countries was the Growth Triangle concept in December 1989. The regionalisation drive can be considered as an extension of this concept, which was predicated on a need to overcome supply-side constraints by harnessing economic space outside the country (Regionalisation Forum Proceedings, 1993). The field of research on regionalisation is relatively new and unique to the Singapore experience; as a result the depth of research is limited thus far. An early study of 52 listed companies listed company n → compañía cotizable listed company n → société cotée en Bourse listed company list n → on the Stock Exchange of Singapore Stock Exchange of Singapore (SES) The only stock exchange in Singapore. in the industrial and commercial sector found that 80 per cent of them had operations outside Singapore by the early 1980s (Aggarwal, 1985). Aggarwal surveyed the reasons Singapore companies invested overseas, which included limited size of the local market, getting access to cheaper sources of raw material and labour, better utilisation of comparative advantage, acquiring new technology and markets and diversifying risks. The policy initiative of 1993 was far the most deliberate and decisive strategy taken by the government on regionalisation. (See Singapore EDB EDB ethylene dibromide; a grain fumigant toxic to chickens. 1993a and 1993b; Singapore MOF (1) (Managed Object Format) An ASCII file that contains the formal definition of a CIM schema. See CIM. (2) (Meta Object F 1993a and 1993b). The goals of the policy were manifold manifold In mathematics, a topological space (see topology) with a family of local coordinate systems related to each other by certain classes of coordinate transformations. Manifolds occur in algebraic geometry, differential equations, and classical dynamics. . The regionalisation policy served the economic rationale of promoting and nurturing local entrepreneurship as well as tying in with global technological and business developments and trends in the Asia-Pacific region (Low, 1998). State intervention was designed to play a crucial role in the creation of an "external wing" or "second wing" for the national economy. This phenomenon has given rise to a growing interest in this area of research (Parsonage, 1994; Tan, 1995; Yeung, 1998), to examine the role of the state in overseas foreign direct investment (FDI FDI See: Foreign direct investment ). Brewer (1993) developed a conceptual basis for causal connections of government policies to EDI (Electronic Data Interchange) The electronic communication of business transactions, such as orders, confirmations and invoices, between organizations. Third parties provide EDI services that enable organizations with different equipment to connect. , which indicated that government policies affect FDI directly or indirectly as a result of their effects on market imperfection im·per·fec·tion n. 1. The quality or condition of being imperfect. 2. Something imperfect; a defect or flaw. See Synonyms at blemish. imperfection Noun 1. as an intervening variable An intervening variable is a hypothetical concept that attempts to explain relationships between variables, and especially the relationships between independent variables and dependent variables. . The regionalisation policy of 1993 can be considered as a form of promotion of specific industries and fits the description by the World Bank (1993) of "selective" government intervention. However, this "industrial policy" arguably ar·gu·a·ble adj. 1. Open to argument: an arguable question, still unresolved. 2. That can be argued plausibly; defensible in argument: three arguable points of law. represents a more sophisticated form of the classical protectionism protectionism Policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other handicaps placed on imports. to promote national business interests. "Singapore is marketed as a product signifying Signifyin' (slang) is an African-American rhetorical device featuring indirect communication or persuasion and the creating of new meanings for old words and signs. Signifying, in this sense, includes repetition and difference, implication and association, combining words and efficiency and sterling performance in the regionalisation drive... In short, it is a key government-made label to take Singapore into the global market" (Low, 1998: 218). It was an indirect form of the traditional industrial policy in that incentives by the government were provided but the decision is left to the private sector (Low, 1998). Yeung (1998) observed that the re-regulation of Singapore's domestic economy provides for a continual role of the state in enhancing the competitiveness of national firms to gain a foothold foot·hold n. 1. A place providing support for the foot in climbing or standing. 2. A firm or secure position that provides a base for further advancement. foothold Noun 1. in the global marketplace. Two apparent policy responses to the Asian economic problems have been to encourage or stage more mergers and acquisitions among Government-linked corporations (GLCs) to form formidable "national champions" and to replace regionalisation with globalisation. The state is qualitatively more involved in developing Singapore's external economy as it continues to strengthen the competitive advantages and organisational capabilities of national firms through various state assistance programmes and the restructuring of GLCs. In expanding the geographical focus of outward expansion of Singaporean firms from regionalisation to globalisation, more developmental efforts by the state are also required. Globalisation has been the policy direction since the regional economic crisis of 1997 - 98, but the major policy impetus can be attributed to the original "Regionalisation 2000" concept. Forms of Intervention by Singapore Government A conceptual framework For the concept in aesthetics and art criticism, see . A conceptual framework is used in research to outline possible courses of action or to present a preferred approach to a system analysis project. for analysis of the government role in the regionalisation process is shown in Figure 1. The Singapore government intervened selectively in the regionalisation process, and the different forms of intervention have been categorised Adj. 1. categorised - arranged into categories categorized classified - arranged into classes into four main variables: government policies, government as facilitator, government as partner, and government as stakeholder stakeholder n. a person having in his/her possession (holding) money or property in which he/she has no interest, right or title, awaiting the outcome of a dispute between two or more claimants to the money or property. . This will be elaborated in the following sections. Breaking government intervention into different roles adds to the understanding of the different functions it performs and leads to a clearer evaluation of the effectiveness of industrial policy. Government Policy Measures ("Schemes") The government policies included the various tax measures and fiscal incentives to assist Singapore companies investing overseas: Double Deduction of Overseas Investment Development Expenditure Overseas Enterprise Incentive INTECH INTECH Institute for New Technologies (Regionalisation) Scheme Business Development Scheme Market and Investment Development Assistance Scheme Franchise Development Assistance Scheme Joint Feasibility Study The analysis of a problem to determine if it can be solved effectively. The operational (will it work?), economical (costs and benefits) and technical (can it be built?) aspects are part of the study. Results of the study determine whether the solution should be implemented. Funds Local Industry Upgrading Programme Regionalisation Finance Scheme Government as Facilitator The ways in which the government acted as a facilitator are broadly categorised into three: government bodies and agencies, governmental assistance, and government-supported activities. The group of government bodies and agencies carry out the various government programmes of assistance. Presumably pre·sum·a·ble adj. That can be presumed or taken for granted; reasonable as a supposition: presumable causes of the disaster. , once a company is interested in expanding its operations overseas, for market or other strategic reasons, it will obtain information pertaining per·tain intr.v. per·tained, per·tain·ing, per·tains 1. To have reference; relate: evidence that pertains to the accident. 2. to the host country environment, perhaps including home country contributions, as well as other strategic information. This environmental analysis constitutes a process of identifying and understanding emerging opportunities and threats created by forces outside the organisation and its immediate markets and competitors (Aaker, 1995). The selection of host country will be the first step in the process. Companies can group countries according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. geographical proximity, degree of industrialisation Noun 1. industrialisation - the development of industry on an extensive scale industrial enterprise, industrialization manufacture, industry - the organized action of making of goods and services for sale; "American industry is making increased use of , size of population and other strategic groupings. Detailed information is required to screen the most attractive locations. The Singapore government has identified for itself a supporting role supporting role n → second rôle m supporting role n → ruolo non protagonista in this respect. Based on a survey commissioned by the Economic Development Board (EDB), ways that the public sector can facilitate the regionalisation process have been identified (Regionalisation Forum Proceedings, 1993). The findings showed that two most important ways are helping with market information and introducing business contacts abroad. Besides market information, a personal visit to obtain first-hand observation and understanding is often necessary. The Singapore government facilitates this through government bodies such as the Economic Development Board and Trade Development Board (TDB TDB Trade Development Board (Singapore) TDB Trade and Development Board (UNCTAD) TdB Tableau de Bord TDB Technology Development Board (India) TDB Toronto Dominion Bank ), which organise overseas trade missions and overseas export and trade exhibitions. These government bodies also provide general and commercial information, assistance in the identification of business opportunities, and facilitate access to government officials in the host country, among other things. Government as Partner As shown in the framework of analysis in Figure 1, after environmental scanning Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage. , the next step is to carry out the investment in business opportunities deemed feasible. In Singapore, governmental partnership in this effort can be seen in several ways. Firstly, GLCs and statutory boards sell their expertise to the private sector through consultant services. Secondly, they team up with one or more private firms to execute projects overseas through joint ventures and consortia. Thirdly, they lead in large infrastructural projects with private sector partners in areas where they have domestic leadership that carries forward to the venture overseas. Government as Stakeholder For GLCs, it has been suggested that government as a key stakeholder can have both a direct and indirect influence on the activities of the firm (Peng and Heath, 1996; Brouthers and Bamossy, 1997). This seems to be the case in Singapore as GLCs are an important component of the regionalisation policy and have played an active part in the national agenda (Low, 1998). There may be a situation of imperfect imperfect: see tense. spread of information, that is, asymmetric A difference between two opposing modes. It typically refers to a speed disparity. For example, in asymmetric operations, it takes longer to compress and encrypt data than to decompress and decrypt it. Contrast with symmetric. See asymmetric compression and public key cryptography. knowledge, of the governmental programmes, such that the GLCs actually have an edge over private firms in utilising government assistance. The "insider" position in the Singapore system may have given GLCs a superior planning capacity as they are able to plan in accordance with national strategy (Sikorski, 1999). Impact and Effectiveness of the Regionalisation Strategy: A Survey A questionnaire survey was completed in 1999 to measure the impact and effectiveness of industrial policy in Singapore specifically in the case of the regionalisation strategy. Here we draw some general conclusions from that statistical exercise. The Survey A self-administered questionnaire was developed to test the role of government in regional operations. Regional investments were defined in the survey as operations outside Singapore in which a local company owns at least 20 per cent of total paid-up capital Paid-Up Capital The total amount of shareholder capital that has been paid in full by shareholders. Notes: Paid-up capital is essentially the portion of authorized stock that the company has issued and received payment for. . Questionnaire items were drawn from a variety of sources (EDB 1993, 1995; Yeoh, 1988; Sikorski, 1990; Yeung, 1998), leading to a draft questionnaire. Subsequently, a small-scale pretest pre·test n. 1. a. A preliminary test administered to determine a student's baseline knowledge or preparedness for an educational experience or course of study. b. A test taken for practice. 2. was conducted to ensure face validity face validity (fāsˑ v  ·liˑ·di·tē),n and understanding of the questionnaire items before the questionnaire was finalised. The questionnaire consisted of a series of multiple-choice questions to avoid difficulty in interpreting responses collected and to facilitate statistical analysis of the data. To capture additional qualitative information, a few open-ended questions A closed-ended question is a form of question, which normally can be answered with a simple "yes/no" dichotomous question, a specific simple piece of information, or a selection from multiple choices (multiple-choice question), if one excludes such non-answer responses as dodging a allowed for the respondents' opinions. The questionnaire was structured into three sections. The first section gathered information regarding the respondents' regional operations. The second section of the questionnaire was aimed at accomplishing the purpose of the study -- to examine the usefulness of industrial policy in Singapore. The third section collected information for data categorisation purposes about the differentiating criteria variables: 1) whether state-owned, private or public-listed ownership, 2) nature of industry, and 3) size of the company. Data Collection and Analysis The questionnaire survey was mailed in late 1998. The responses from the survey by early 1999 provided 41 completed, usable questionnaires. Out of the 41 companies, 22 (53.7 per cent) were private companies, 12 (29.3 per cent) were government-linked companies The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. and seven (17.1 per cent) were public listed companies. For the company-industry profile, eight (19.5 per cent) were from manufacturing, six (14.6 per cent) were from real estate, five (12.2 per cent) from commerce, five (12.2 per cent) from transport and communications, three (7.3 per cent) from Information Technology, three (7.3 per cent) from construction and two (4.9 per cent) were from the financial sector. As for the size of the company, respondents were measured in terms of value of fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → , as shown in Figure 2.1. The distribution of the respondents' total annual revenue for three consecutive years, 1995 to 1997, is shown in Figure 2.2. Frequency analysis was also applied to the respondent's difficulties in utilising various governmental roles as shown in Figure 2.3. 15 (36.6 per cent) of the respondents indicated that the reason for not utilising the roles of government was difficulty in meeting criteria. The next common reason, with a frequency of 11 (26.8 per cent) responses, was a lack of awareness of the policy instrument. The results seem to provide evidence to confirm that low usage of tax measures and fiscal incentives is mainly due to strict criteria for eligibility. This supports the finding and reasoning from the paired sample t-test that government schemes have the lowest impact on overseas investment. Methodology and Survey Findings The main purpose of this paper is to study the usefulness of industrial policy in Singapore by examining the two measurement scales -- impact and effectiveness. In this paper, "impact" measures the degree of influence the existing governmental roles play on the direction and pace of overseas regional investment in a company, while "effectiveness" evaluates the given governmental roles in addressing the concerns of a company in the regionalisation process. The questionnaire was designed to ascertain the impact and effectiveness of the various policy instruments the government used to influence outward foreign direct investment. The measurement scale of the Yeoh (1988) survey was adapted here to reflect the constructs of impact and effectiveness. There were three dimensions for which the impact and effectiveness of government intervention were measured: 1) governmental schemes, 2) facilitating roles and 3) partnership roles. The respondents were asked to rate the impact of the items on a five-point scale (1 = No impact, 2 = Some impact, 3 = Moderate impact, 4 = Significant impact, 5 = Critical impact). A similar scale was used to rate the effectiveness of the variables (1 = Not effective, 2 = Some effectiveness, 3 = Moderate effectiveness, 4 = Significant effectiveness, 5 = Very effective). In order to better measure the variables, we ask in the questionnaire several items for each variable, and take the average of the items to measure the variable. For example, questionnaire items 1-10 in Table 3.5 were collected, with each item representing the impact of the respective Government Schemes; and the average of these 10 variables is then derived as the impact of the Government Scheme. Similarly, 3 other variables, Impact of Government Bodies and Agencies, Impact of Governmental Assistance, Impact of Government -- Supporting Activities are derived from the averages of the corresponding questionnaire items, (see Table 3.5 for reference); and the average of these three variables then form the impact of Government as Facilitator. One question that may arise from this approach is whether the questionnaire items are a good representation of the variables. To answer this question, we use Factor Analysis and Reliability Analysis for the items as a preliminary basis. Though some academics recommend as the rule of thumb to use a minimum of five observations for each factor (for example, see Gorsuch 1983), a small sample size of 41 is still the major limitation for applying the Factor Analysis and Reliability Analysis in our study. Nevertheless, Factor Analysis and Reliability Analysis are applied as a preliminary study only, with the aim to test if the variables formed by the average of the corresponding questionnaire items are meaningful for further study. The results from Factor Analysis and Reliability Analysis are not to be used directly for any inference. In our study, we find that the factor loadings for each factor are large, (minimum = 0.72), first eigenvalue eigenvalue In mathematical analysis, one of a set of discrete values of a parameter, k, in an equation of the form Lx = kx. Such characteristic equations are particularly useful in solving differential equations, integral equations, and systems of is large (minimum = 2.61) and the second eigenvalue is small (maximum = 0.75), communality is large (minimum = 0.51) and the alpha from Reliability Analysis is large (minimum = 0.8790). Hence, the results from Factor Analysis and Reliability Analysis do not reject the variables as contributing to the corresponding factors. We then apply the paired sample t-tests to compare the responses for the impact and effectiveness of government intervention. As the original data are ordinal (mathematics) ordinal - An isomorphism class of well-ordered sets. , we apply the Wilcoxon Signed Ranks Test as a complement to the paired sample t-tests. The results are shown in Tables 3.1-3.4 with * representing the p-value for the Wilcoxon Signed Ranks Test. From the tables, it is found that government schemes have the least impact. See Table 3.1: (Mean, [Median.sub.government scheme] = 1.9805, 1.8; Mean, [Median.sub.government as facilitator] = 2.3753, 2.46; p[less than] 0.05, [p.sup.*][less than] 0.05; Mean, [Median.sub.government scheme] = 1.9805, 1.8; Mean, [Median.sub.government as partner] = 2.2358, 2.2; p[less than] 0.05, [p.sup.*][less than] 0.05; Mean, [Median.sub.government as facilitator] = 2.3753, 2.46; Mean, [Median.sub.government as partner] = 2.2358,2.2; p[greater than] 0.05, [p.sup.*][less than] 0.05). This finding may be logical given the subtlety sub·tle·ty n. pl. sub·tle·ties 1. The quality or state of being subtle. 2. Something subtle, especially a nicety of thought or a fine distinction. of the policies, in the sense that incentives are available but must be sought out -- the decision to utilize them is left to the initiative of the investing firm (Low, 1998). Furthermore, although there is a broad array of tax measures and fiscal incentives offered to promote overseas investments, the criteria for eligibility are strict (EDB, 1995). In 1996, Singapore companies had 4,831 overseas affi liates in Asia (Department of Statistics, 1998). Yet in the EDB Annual Report (1998), it was reported that only 25 companies had been awarded the Overseas Enterprise Incentive and 75 Singaporeans had benefited from the (Regionalisation) scheme. Low usage of government schemes accounts for the finding of low impact. Nevertheless, respondents to the survey indicated more positively that both the Government schemes and Government as Facilitator were effective. See Table 3.2: (Mean, [Median.sub.Evaluation of Government Scheme] = 2.3415,2.0; Mean, [Median.sub.Evaluation of Government as Facilitator] = 2.3171, 2.67; Mean, [Median.sub. Evaluation of Government as Partner] = 2.0244, 2.0). The most effective scheme was Double Tax Deduction Tax deduction An expense that a taxpayer is allowed to deduct from taxable income. tax deduction See deduction. for Overseas Investment (see Table 3.5). Although government schemes have the lowest impact, the least effective role of government intervention was found to be the role of government as partner (see Table 3.2). One circumstance that might explain some reluctance to team up with the government is the fact that strategic flagship projects such as the China-Singapore Suzhou Township project had disappointing results. By June 1998, four years after its initial launch, it became clear that the loss-making developer CSSD CSSD Central School of Speech and Drama (University of London, UK) CSSD Certified Specialist in Sports Dietetics CSSD Central Sterile Supply Department CSSD Combat Service Support Detachment could not expect to make money in the short-term (The Straits Straits: see Dardanelles; Bosporus. Times, 18/4/1998; 19/6/1998). Although by the end of June 1998, cumulative contractual investment in the Suzhou Industrial Park The China-Singapore Suzhou Industrial Park (中国——新加坡苏州工业园区, SIP) is an industrial park built in Suzhou, China with significant Singaporean input. (SIP) reached US$4.3 billion (BT Online, 7/7/1998), it was still far below the US$20 billion target. It was also unclear how much of these investment commitments would be realised due to the Asian economic crisis at that time. "Though multinationals are investing in the SIP, they are not coming fast enough. Foreign investment is slowing in China, as in other parts of East Asia. The Singaporean shareholders in the project hoped by now to be earning a return on their investments, but they are not, and may not for several years" (The Economist, 3 Jan 1998). The role of government as facilitator not only was indicated as having a stronger impact, it was also effective. This is reasonable as the role of government as facilitator is well developed with a structured network of local and overseas support. This form of government intervention is also a more indirect and broad-based approach allowing it to be more accessible to companies thus, it might reasonably be expected to have a greater impact. Table 3.5 shows that the facilitating government body that had the greatest impact was the Trade Development Board, followed by the Economic Development Board. As for governmental facilitation Facilitation The process of providing a market for a security. Normally, this refers to bids and offers made for large blocks of securities, such as those traded by institutions. assistance, providing market information had the highest impact, followed by introduction of business contacts in foreign markets. The results corresponded to findings in the government's own regionalisation survey (Regionalisation Forum Proceedings, 1993), which also reflected that helping with market information and introducing business contacts abroad were the two most important ways of public-private sector collaboration. The facilitating governmental activity that had the highest impact was support from government's overseas offices and agencies, especially the overseas trade mission organised by the government. Concerning the impact of government as a partner, government taking the leadership role in overseas ventures had the greatest impact. One-way analysis of variance (ANOVA anova see analysis of variance. ANOVA Analysis of variance, see there -- see Table 3.4) compares the means of more than two groups. It is used in this study to compare responses across the types of company ownership. A t-test of statistical significance is not utilised because sample sizes are too small, since there are three subgroups of company ownership in this study: state-owned, public-listed and private. Table 3.4 shows that there is no differential impact of government intervention across the groups of company (p[greater than]0.05). This indicates that the various roles of government did not have a different degree of impact on GLCs and companies set up by statutory boards. Although the government is a stakeholder in those companies, the degree of government intervention via the regionalisation policy was not greater than that of private or public-listed companies. Thus, state-owned companies do not seem to be given preferential access to government schemes. They presumably have to meet the same stringent criteria for eligibility that private and public-listed companies face. The role of the government as facilitator is also accessible by all companies, thus state-owned companies do not seem to have asymmetric knowledge of the governmental assistance and activities. Overall, it can be seen that the regionalisation policy introduced by the government does have a moderate impact on Singapore companies' direction and pace of overseas investment. Government schemes have the lowest impact, while the role of government as facilitator appears to have made the greatest impression on companies. The findings that government intervention played some role in the growth of Singapore's external economy is evidence of the contribution of industrial policy. It also provides support for a perceived need to promote specific industrial activities, that is selective intervention, and to influence the structure of the Singapore economy. The survey shows that government intervention has positive impact and effectiveness, which informs the debate on industrial policy. The World Bank's view (1993) was that government interventions were less prominent and frequently less constructive in the success of the East Asian economies. The results of this study seem to provide evidence for the opposing view that government interventions in Singapore are prominent and constructive. Taking the regionalisation drive as a case of industrial policy, the results reinforce the view that selective government intervention in Singapore is significant and more importantly, that it is beneficial. Due to the difficulty in obtaining the data, the dataset in this study is rather small. Although the sample size of 41 is still sufficient for statistical purposes, the sample size is indeed the major limitation in our study, and hence the results should be considered more as an exploratory exercise. One may extend this work by the study on a much larger dataset, or by extending the study to other countries, in order to draw a more rigorous conclusion. 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Page, John M (1994), "The East Asian Miracle: An Introduction," World Development, 22(4), 615 - 25. Parsonage, James (1994), The State and Globalization globalization Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation : Singapore's Growth Triangle Strategy, Working Paper, Murdoch, W Australia, Asia Research Centre, Murdoch University. Peng, Mike Wand Peggy Sue Heath (1996), "The Growth of the Firm in Planned Economies planned economy n → economía planificada planned economy n → économie planifiée planned economy n → in Transition: Institutions, Organisations, and Strategic Choice," Academy of Management Review, 21(2): 492-528. Sikorski, Douglas (1990), "A Comparative Evaluation of the Government's Role in National Airlines," Singapore Asia-Pacific Journal of Management, 7(1), 97-120. _____, (1999), "Singapore Public Enterprise in the Marine Industry," Singapore, Asian Academy of Management Journal, 4(1), 35-54. Tan, Chwee Huat (1974), The State Enterprise System and Economic Development in Singapore, PhD thesis, University of Wisconsin. _____,(1995), Venturing Overseas: Singapore's External Wing, Singapore: McGraw-Hill. The Economist (1993), "A Survey of Multinationals: Everybody's Favourite Monsters," 27 March. _____,(1998), "The Trouble with Singapore's Clone clone, group of organisms, all of which are descended from a single individual through asexual reproduction, as in a pure cell culture of bacteria. Except for changes in the hereditary material that come about by mutation, all members of a clone are genetically ," 3 January. The Straits Times (1998), "It is all a Question of Expectations," 18 April. _____,(1998), "Singapore in SIP for a Long Haul Long distance. Long haul implies traversing a state or a country. Contrast with short haul. ," 19 June. Trade Development Board (1998), "TDP TDP (thymidine diphosphate): see thymine. Adopts Three-Prong Approach to Help Expand Singapore's External Wing," TDB Press Release, 4 December. Ulph, David and Alan L Winters (1994), "Strategic Manpower Policy and International Trade," in Paul Krugman and Alasdair Smith (ed), Empirical Studies of Strategic Trade Policy, Chicago, University of Chicago Press. World Bank (1993), The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press. Yeoh, Caroline (1988), "Industrial Restructuring in an Asian Newly Industrializing Country: Singapore's Response to a Changing World, PhD thesis, Oxford University. Yeung, Henry WC (1998), "The Political Economy of Transnational Corporations Any corporation that is registered and operates in more than one country at a time; also called a multinational corporation. A transnational, or multinational, corporation has its headquarters in one country and operates wholly or partially owned subsidiaries in one or more : A Study of the Regionalization of Singaporean Firms," Political Geography treats of the different countries into which earth is divided with regard to political and social and institutions and conditions. See also: geography , 17(4), 389-416.
Table 1: Classification of Industrial Policy
Fundamental Intervention Selective Intervention
Macroeconomic stability Mild financial repression
High investments in human capital Directed credit
Stable and secure financial systems Selective industrial promotion
Limited price distortions Export-push trade policies
Agricultural development policies
Openness to foreign technology
Source: The East Asian Miracle: An
Introduction (Page, 1994, pages 618 - 619)
Table 2A: Number of Companies
Established Abroad, 1994 - 98
1994 1995 1996 1997 1998
Total 4,709 5,731 5,892 7,409 7,498
Asia 3,795 4,660 4,831 5,879 6,054
Asean 2,287 2,759 2,812 3,354 3,388
Rest of Asia 1,508 1,901 2,019 2,525 2,666
Europe 239 280 257 325 330
North America 162 181 179 203 199
Oceania 295 346 333 365 361
Others 219 264 292 537 550
Source: Singapore's Direct Investment Abroad (Department of
Statistics, August 2000)
Table 2B: Annual Change for Number of
Companies Established Abroad, 1995 - 98
1995 1996 1997 1998
Total 21.7 2.8 25.7 1.2
Asia 22.8 3.7 21.7 3.0
Asean 20.6 1.9 19.3 1.0
Rest of Asia 26.1 6.2 25.1 5.6
Europe 17.2 -8.2 26.5 1.5
North America 11.7 -1.1 13.4 -2.0
Oceania 17.3 -3.8 9.6 -1.1
Others 20.5 10.6 83.7 2.4
Source: Singapore's Direct Investment
Abroad (Department of Statistics, August 2000)
Figure 2.1: Frequency Analysis of
Company Size
Value of Fixed Assets
Dollars No of Companies
[less than]S$100 m 18
S$100m and above 23
Note: Table made from bar graph
Company Employment
Employment Size No of Employees
[less than] 200 12
200 - 999 10
1000 or more 19
Note: Table made from bar graph
Figure 2.2: Frequency Analysis of Total
Annual Revenue 1995 to 1997
Total Annual Revenue
No of Companies
Dollars 1995 1996 1997
[less than] S$100m 15 12 10
S$100m- [less than] S$200m 5 8 10
S$2000 and above 21 21 21
Note: Table made from bar graph
Figure 2.3: Frequency Analysis of
Government Intervention Difficulties
Government Intervention Difficulties
Problems Frequency
Insufficient assistance 8
Difficulty in meeting criteria 15
Difficulty in obtaining information 4
Not aware 11
Note: Table made from bar graph
Table 3.1: Results of Paired Sample T-Tests for Impact of
Government Intervention
Paired Sample No of Pairs Mean S D p-value
(5-pt scale)
Government Scheme 41 1.9805 1.0405 0.000
Government as Facilitator 2.3753 1.0034
Government Scheme 41 1.9805 1.0405 0.034
Government as Partner 2.2358 0.9832
Government as Facilitator 41 2.3753 1.0034 0.130
Government as Partner 2.2358 0.9832
Table 3.2: Results of Paired Sample
T-Tests for Evaluation of Government
Intervention
Paired Sample No of Pairs Mean S D p-value
(5-pt scale)
Government Scheme 41 2.3415 1.1749 0.772
Government as Facilitator 2.3171 1.0246
Government Scheme 41 2.3415 1.1749 0.036
Government as Partner 2.0244 0.9871
Government as Facilitator 41 2.3171 1.0246 0.021
Government as Partner 2.0244 0.9871
Table 3.3: Results of Paired Sample
T-Tests for Impact and Evaluation of
Government Intervention
Paired Sample No of Pairs Mean
(5-pt scale)
Impact of Government Scheme 41 1.9805
Evaluation of Government Scheme 2.3415
Impact of Government as Facilitator 41 2.3753
Evaluation of Government as Facilitator 2.3171
Impact of Government as Partner 41 2.2358
Evaluation of Government as Partner 2.0244
Paired Sample S D p-value
Impact of Government Scheme 1.0405 0.010
Evaluation of Government Scheme 1.1749
Impact of Government as Facilitator 1.0034 0.384
Evaluation of Government as Facilitator 1.0246
Impact of Government as Partner 0.9832 0.087
Evaluation of Government as Partner 0.9871
Table 3.4: ANOVA Results for Impact of
Government Intervention
Factor F-statistic p-value
Government schemes 0.005 0.995
Government as facilitator 0.045 0.956
Government as partner 0.946 0.397
Table 3.5: Mean Analysis for Government
Interventions
Impact of Government Schemes Mean Std Deviation
(5-pt scale)
Double Deduction for Overseas Investment
Development Expenditure 2.5610 1.2855
Overseas Enterprise Incentive Scheme 2.2195 1.3695
Overseas Investment Incentive 2.0976 1.3192
Market and Investment Development
Assistance Scheme 2.0732 1.2726
Business Development Scheme 1.9512 1.1608
Regionalization Finance Scheme 1.9512 1.2639
Local Industry Upgrading Program (LIUP) 1.8293 1.2826
Joint Feasibility Study Funds 1.8049 0.9545
INTECH Regionalisation Scheme 1.7805 1.0843
Franchise Development Assistance Scheme 1.5366 1.0024
Impact of Government Bodies and Agencies
Trade Development Board 2.8537 1.3334
Economic Development Board 2.7317 1.3233
Ministry of Trade and Industry 2.2195 1.3512
Ministry of Foreign Affairs 1.9512 1.0476
Jurong Town Corporation 1.5854 0.8937
Impact of Governmental Assistance
Providing market information 2.5854 1.2242
Introducing business contacts in foreign
markets 2.5122 1.1858
Streamline regulations 2.3902 1.2625
Setting up network 2.3659 1.2401
Sharing of know-how/knowledge 2.3415 1.2168
Providing financial assistance in
overseas investment 2.2927 1.3275
Encouraging GLC and private-sector
company partnership 2.2683 1.2047
Developing new foreign markets 2.2195 1.1294
Setting up overseas Singapore school
facilities 2.0976 1.1359
Impact of Government - Supporting
Activities
Support from government's overseas
offices and agencies 2.7317 1.2455
Overseas trade mission 2.6341 1.2601
Overseas business-matching 2.4146 1.1614
Overseas export and trade exhibition 2.4146 1.2644
Impact of GLC and Statutory Board
Partnership
Leading overseas ventures 2.1463 1.1950
Forming joint ventures/ consortia 2.0732 1.0814
Selling expertise to the private sector 1.8293 0.8632
Effectiveness of Government Intervention
Government bodies and agencies 2.5122 1.2067
Government schemes 2.3415 1.1749
Government- support activities 2.2195 0.9877
Government assistance 2.2195 1.0127
Government partnership 2.0244 0.9871
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