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Singapore Inc.

Though governed by an iron-fisted autocracy, Singapore is prospering and solidifying its position in Asia as a manufacturing and financial hub.

"The Singapore government tries to satisfy everybody: corporations, labor, consumers," says D.M. (Denny) Houston, chairman and managing director of Esso Singapore, an Exxon affiliate. "From a business perspective, it's a wonderful example of what the world could be." The perspective from Houston's office is equally impressive. Facing south on a high floor of a Singapore office tower, it encompasses coastal landfill areas checkered with hotels, shopping malls, and a huge new convention center. Beyond, in the Straits of Singapore, looms the giant Esso refinery on Ayer Chawan island.

The vista offers a tangible representation of prosperous times for Singapore, an island nation of 3 million people shoehorned into an area slightly smaller than New York City. The republic's gross domestic product grew at an average rate of 8.9 percent between 1986 and 1990, though more recently growth has slowed. Its per-capita income in 1991 amounted to $13,200, behind only Japan, Hong Kong, and Australia in the booming Pacific Rim.

One reason for the growth: Singapore is business friendly. It has few trade barriers, and funding for new firms is available from capital-rich local banks and arms of financial giants from the U.S. and Europe. Predictably, the joint is jumping: In 1991 there were 3,000 multinational corporations with offices on the island. About 600 are American--including a majority of the Fortune 500--and most have done well. In the five years ended December 1990, they posted an average annual 37 percent return on investment, according to the U.S. Department of Commerce.

Among the largest MNCs in Singapore--besides Exxon--are Du Pont, General Electric, Citibank, IBM, and Hewlett-Packard. Hot sectors include aircraft maintenance, telecommunications, computers, electronics, and chemicals. Even Hollywood has crashed the island scene. Local film, television, and video concerns are working with U.S. companies to become a Southeast Asian connection for these industries.

On the down side are a shortage of skilled workers and steep wage rates. The latter have risen by double digits for three consecutive years, narrowing the competitive advantage of operating in Singapore. In addition, some of the vaunted tax breaks for labor intensive manufacturers have been withdrawn. Anxious to attract the technology Singapore needs to sustain growth, the government now offers incentives to high-tech firms. As a result, some have shifted gears: General Electric recently began making aviation equipment instead of radios.

Singapore possesses the world's busiest container port in terms of tonnage, receiving more than 45,000 vessels a year. Since its days as an outpost for the British empire, the republic has engaged in "entrepot" trade--taking a margin out of commerce passing through its port, and storing and re-exporting imported commodities. Not surprisingly, shipbuilding and repair are big businesses on the island. Among the largest local companies are Keppel Corp. and Sembawang Shipyard.

Denny Houston's Esso does a brisk business fueling the vessels that pass through the port. The Ayer Chawan refinery, which has a capacity of 230,000 barrels a day, processes crude oil for Esso and also services other producers. On the main island, Esso's Jurong Marketing Terminal refines lubricants, and in the company's downtown office, its traders take advantage of Singapore's status as a major oil trading center. Esso Singapore has about 900 employees and capital investments approaching $1 billion.

Nearby, Wilmington, DE-based Du Pont has also set up shop. "Du Pont is spending a million dollars a day in Singapore and will continue to do so over the next three or four years," says H. Daniel James, managing director of Du Pont Singapore and group managing director of Du Pont ASEAN (Association of Southeast Asian Nations). Locally, the chemical giant employs 700 people in operations that include manufacturing plants for its Lycra, Nylon, and Delrin products, and a corporate data center for its Asia-Pacific businesses.

From Singapore, James runs Du Pont's manufacturing and marketing in Indonesia, Malaysia, Thailand, the Philippines, and Brunei--the nations that along with Singapore comprise ASEAN, a quasi-official trade bloc. Although only $2 billion of Du Pont's worldwide revenues came from its Asia-Pacific companies in 1991--about 5 percent of the total--James thinks the figure is bound to grow, particularly in the ASEAN countries.

"The ASEAN region is the fastest-growing economy in the world," he says. "We expect a higher rate of growth there than any other place in Du Pont."

ASEAN, a megamarket of 325 million consumers, could expand by more than a third if Vietnam, Laos, and Cambodia join. Its growth is outpacing that of the EC or the U.S.

At the fourth ASEAN summit meeting in Singapore last January, members agreed to create an Asian Free Trade Area (AFTA) within 15 years. The bloc's six nations do about $30 billion in trade with each other, but that is expected to surge--likely at a rate faster than that of ASEAN's trade with outsiders. Thus, many foreign companies see Singapore as a springboard and base for regional operations. Some outsiders team with local partners: In 1991, IBM and Singapore's Hong Leong agreed to produce PC clones for sale in Asia.

Another draw is Singapore's growing reputation as a financial hub. The nation's financial and business services grew faster than any other sectors in 1990. Together, they accounted for 32.4 percent of GDP, compared with manufacturing's 29.1 percent. Financial services alone increased 22 percent, while daily turnover at the stock exchange jumped 30 percent. Noted a report by the American embassy in Singapore: "This was good news for Singapore's intentions to replace Hong Kong as the Asia-Pacific region's principal trade and financial hub after Hong Kong returns to Chinese control in 1997."

A pipe dream? Not really. Led by such local powers as DBS Bank and Oversea-Chinese Banking, Singapore institutions have long enjoyed success in the futures-trading and foreign-exchange businesses. But these days, they are also capturing more business in the loan syndication arena.

For the first half of 1992, offshore borrowings in Asia totaled $16.4 billion--roughly the same year-on-year according to data service Euromoney Asiaware. However, while the share of borrowings arranged in Singapore jumped from 19 percent to 25 percent year-on-year, Hong Kong's share dipped from 56 percent to 48 percent.

"Singapore has evolved as one of the most important countries for Citibank in Asia," says Rana Talwar, head of global consumer banking, Citibank Asia. "Its outstanding infrastructure, together with its overall receptivity to using advanced technology, make it ideal for testing and launching new products."

By most accounts, there is no infrastructure more efficient in Asia. "Singapore is ranked number one in the world in almost every infrastructure category," says Stuart Dean, general manager of GE International in Singapore. "Here, everything works--the telephones, electricity, transport, airport, and so on. In many ways, it's the Grand Central Station of Southeast Asia." Dan James attributes the efficiency partly to a national "sense of purpose and direction."

Purpose and direction seem to be what Singapore is all about. Nominally a republic, it is not a democracy in the American sense of the word. Instead, some aver, it is a "guided democracy"--albeit one that has permitted the indefinite imprisonment of political dissidents without charge or trial under its Internal Security Act. But whatever outsiders may think, some Singaporeans--and more than a few foreign businessmen--apparently prefer it that way. It is the way of the Lees.

Since Singapore became a nation in 1965, the city-state has been led by Lee Kuan Yew, longtime prime minister, present senior minister, and in spirit, the father of the republic. Though Lee, 70, resigned the top job in 1990, no one doubts that ultimate power still lies in his hands. The present incumbent, Goh Chok Tong, is a faithful acolyte, and Goh's likely successor is Brigadier General (Reserve) Lee Hsien Loong, Lee Kuan Yew's son.

Under Lee's restrictive guidance, Singapore has transformed itself from a backward city into a glistening city-state. But democracy has taken a distinct third place behind order and prosperity. Capitalism is encouraged--criticism is not. On several occasions when the two converged, fireworks erupted.

In 1988, the Far Eastern Economic Review, a weekly magazine published by Dow Jones & Co., halted Singapore distribution when its circulation was cut by the government from 10,000 to 500. A year earlier, another Dow Jones publication, the Asian Wall Street Journal, had its circulation clipped from 5,000 to just 400 when it refused to print in full a government letter criticizing an article on a proposed stock exchange. In response, Dow Jones suspended publication of the Asian Journal but restored it in 1991.

No social problem seems too small for the government to tackle. Early last year, it banned the import, manufacture, and sale of chewing gum in an effort to keep the subways clean. Campaigns frequently urge citizens not to spit on the sidewalk.

When a Fortune magazine editor coined the phrase "Singapore Inc." some years ago, he was very near the mark. In such a "corporstate," business is essentially an arm of the government. Lee implied as much when he recently spoke to a writer from New Yorker magazine. Asked how he would determine whether starting trade with Laos would present any problems, Lee remarked: "I'll send my entrepreneurs to Laos and let them find out."

My entrepreneurs. Despite the nation's free-market aura, a good number of Singapore's large companies are majority owned or effectively controlled by the government. Singapore Airlines is 83 percent state held. Also majority owned are Keppel (68 percent) and Sembawang (74 percent). Singapore recently launched a cautious privatization of the nation's major statutory boards, including Singapore Telecom, but in the near term, state control will no doubt continue to be an important factor.

For Lee Kuan Yew's entrepreneurs, the good of the state is always linked to the good of its companies. For example, this is how Cheong Choong Kong, chief executive of highly profitable Singapore Airlines, sees the carrier's mission: "We will continue to expand links to long haul and regional markets, and to promote an open, competitive international airline sector. Our aim is to support Singapore's drive to grow as a global hub for air transportation, trade, investment, technology, and communications."

Singapore's efforts to attract foreign investment are focused mainly through its Economic Development Board, a well-financed, government-affiliated agency with 17 offices in Singapore and abroad, including six in the U.S.

According to the EDB, more than 950 American manufacturing and service companies operate in Singapore today. In 1991, U.S. manufacturers alone invested approximately $600 million in the republic. American companies accounted for almost half ($632.9 million) the foreign investment in 1990.

"Thirty years ago, Singapore's competitive advantage was in terms of abundant, low labor cost manufacturing," says Philip Yeo, the EDB's chairman. "We now offer product and engineering design, marketing and distribution, technical services support, and financial and treasury management skills. Many American companies have taken full advantage of these capabilities to expand their range and scope of activities in Singapore."

These days, the EDB is plugging the "Growth Triangle" program--a joint venture involving Singapore, Malaysia, and Indonesia that is roughly the equivalent of a multinational industrial park. Tiny Singapore doesn't have enough land to accommodate new manufacturing sites. Labor is short on the island, and wages are high. Thus, one option is to transfer manufacturing operations north to Malaysia and south to Indonesia. This offers the added benefit of promoting economic interdependence among the partners and cementing sensitive political relationships.

Malaysia's southernmost state of Johor is connected to Singapore by a causeway--Singapore's sole bridge to the mainland of Southeast Asia. Johor looks like Singapore 30 years ago and offers comparably lower wages. Indonesia's segments of the Growth Triangle, meanwhile, are all on islands near Singapore. Batam is the most developed of these insular enclaves. There, only 30 minutes by boat from downtown Singapore, a large new industrial park employs almost 5,000 workers. Among the multinational corporations with operations on Batam are AT&T, Smith Corona, Philips, and Seiko.

Despite the Westernized modernity of the place, Singapore is still very much Chinese--and sometimes the differences can take Americans by surprise. For natives and foreigners, business success depends on commitment and trust, says K.S. Gan, the Singaporean managing director of Methode Electronics Far East, a subsidiary of Chicago-based Methode Electronics.

"Let's assume you have good product," Gan says. "Even so, you must understand the culture, the commercial mentality of the East. Personal networks are essential to business success. We work with a handshake: Once you break your word, you're through."

While Hong Kong worries about 1997 and Tokyo endures financial scandals and a stock market recession, Singapore pursues its schemes (as business and political leaders call their plans) with confidence. The only thing that's not booming is its birth rate--increasingly, educated and affluent young Singaporean women, like their counterparts in the U.S., are marrying later in life and having fewer children.

But the government is working on that, too. Until recently, it had discouraged large families on the small island by publicizing a slogan: "Stop at two." The new slogan aimed at parents says: "Go for three." In Singapore, stop and go apply to more than traffic lights.

Tropical Trappings For Travelers

It was in this neighborhood, about 60 years ago, that Noel Coward had the inspiration for his song "Mad Dogs and Englishmen." He was watching Brits play cricket in the fierce noonday sun while natives sensibly lolled in the shade. Singapore today is a far cry from the kind of colonial fleshpot Coward and Somerset Maugham enjoyed, but enough of the old city remains to give a sense of their time.

The Singapore Cricket Club, still in the center of town, is as clipped and quiet as it was before World War II. From here in 1942, the victorious Japanese army marched British civilians off to prison camps. The horrors of the Japanese occupation are by no means forgotten, but a half century later, Japanese tourists swarm through the nation's hotels and shopping centers, and Japanese golfers have a majority of the memberships in the Sentosa Island Club. Business, after all, is business.

There are excellent modern hotels for business travelers in Singapore, notably the Oriental, Mandarin, and Pan Pacific on the new Marina Park landfill. But if you want the feel of historic Singapore, with modern luxuries, there are only two choices:

First and foremost is Raffles Hotel. It was here that Maugham would recline on a rattan chair and survey the lush horizon for fallen women and roving sailors. Under the whirling ceiling fans of the Long Bar, traders and administrators drank gin slings and talked of rubber. In the evenings, the hotel's corridors often echoed with the terrifying noise of British high jinks.

Now, after decades of seedy decline and a multimillion dollar renewal, Raffles is once again a truly grand hotel. The lofty-ceilinged rooms have been authentically refurnished, and the fans of the Long Bar turn over the heads of multinational CEOs and Asian entrepreneurs. If you want more of the past, there is a Raffles museum amid the many fine shops in the new wing of the hotel. Study the young faces of long-departed celebrities and partygoers. Imagine the hotel band playing "Isn't It Romantic?" under a tropical moon. Learn that in 1902, a tiger was shot in the hotel's Billiard Room.

The other top Colonial-era hotel is Goodwood Park. Though not as architecturally or historically interesting as Raffles, Goodwood is more in the center of things, across the street from the big American Club and around the corner from Orchard Road, Singapore's main upscale shopping venue. Goodwood is situated in what was once called the European Residential Area; the district is still a favorite of both European and American executives.
COPYRIGHT 1993 Chief Executive Publishing
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Copyright 1993, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Title Annotation:Native Know-How; includes related article; Singapore's booming economy
Author:Lacey, Peter
Publication:Chief Executive (U.S.)
Date:Jan 1, 1993
Previous Article:Shorting the short sellers.
Next Article:Stages of global development.

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