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1 Mar 2005
FTA, pro-business government, first-rate logistics continue to attract U.S. manufacturers to this island-nation.
For years, Singapore has stood out as a leading candidate for U.S. companies who were looking to expand overseas. The island-nation is known for its stable political and social environment, a pro-business government, and a well-educated work force. The country's highly developed physical and IT infrastructure, combined with its transportation and logistics capabilities, made it an obvious choice for establishing a regional presence. And, while China has grabbed all the headlines for its low-cost manufacturing boom, it's been Singapore's adherence to the fundamentals that continue to drive U.S. companies to this tiny country.
Admittedly, "if someone just looks at manufacturing costs alone, Singapore is not going to rank as high as China," says Larry Francis, managing director for Linear Technology Pte. Ltd. "But, Singapore comes out on top when you consider the overall return." Linear Technology, headquartered in Milpitas, California, manufactures high-end analog integrated circuits. The company first came to Singapore in 1989, where it rented facility space before building its first factory there in 1994. A second facility is due for completion in July. Prior to building the newest facility, Linear Technology again conducted a site search throughout Asia. "We looked at China, Malaysia, and Thailand," says Francis. One of the primary attractions of building in Singapore was that Linear could be up and running immediately after opening the doors. "The local talent makes that possible, therefore it made sense to remain in Singapore."
Linear Technology has over 600 staff in Singapore alone, which makes the availability of local talent a top consideration. The company is also able to pull from Malaysia, as securing work permits it relatively easy.
Francis also credits the Singapore government, especially during the past few years when most businesses saw a downturn. "They cut (social security) contributions on the corporate side to stimulate more jobs. They gave rebates on taxes, such as property taxes, and they've helped cut business costs so companies could remain competitive."
The pro-business environment is evidenced elsewhere. Industrial landlord JTC Corporation announced in late December that it would cut industrial land rents and prices by as much as one-third staring January 1 to ensure Singapore remains competitive in attracting global investors.
"With the increasingly competitive environment for global investments, JTC recognizes that its industrial land rents and prices have to be even more internationally attractive," JTC said in a statement. "This latest round of rate cuts is very significant and sends a clear signal to investors that Singapore is working to lower business costs. This will ensure that Singapore continues to remain an attractive manufacturing location for global investments," it said.
Furthermore, the cuts in industrial rents followed an announcement the day before by Transport Minister Yeo Cheow Tong that Singapore's port charges would be reduced by as much as 50 percent. Yeo said the latest cuts in port charges would benefit some 4,000 ships that come to Singapore ports each year, with annual savings of $2.5 million Singapore dollars.
Francis also commends the government for its efficiency. "Most transactions are paperless," he says. In fact, Singapore's highly developed IT and communications infrastructure is an important feature. "Everyone in Singapore has cell phones (over 80 per-cent of the population owns a cell phone). The government is pushing 3G, broadband, and they have a very good communications infrastructure. Singapore is ahead of most other Asian countries in this respect." |
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Transportation and logistics excellence
One of Singapore's most attractive strengths, according to Rick Hodgman, Broadcom's managing director for Asian Operations, is its extremely efficient transportation and logistics infrastructure. "We use Singapore as our shipping hub. The airport, customs, and logistics aspect is very important to us because the material we manufacture throughout Asia comes through Singapore. Broadcom needs a very good logistics base and Singapore has the best of any countries in Asia."
Broadcom's products are shipped exclusively by air, notes Hodgman. "Customs at Singapore's Changi airport clears shipments in about 4 hours. However, if you go into Taiwan or China, sometimes it can take days to get your shipment cleared."
Irvine, California-based Broadcom has design centers and sales offices all over the world, including Taiwan, China, and India. Its Asian headquarters were established in Singapore in 1999. The company, a manufacturer of semiconductors that enable broadband communications and networking solutions, also has a number of suppliers and customers located in Singapore.
In addition to transportation and logistics, Hodgman says that language considerations are also important. "Singapore has a very proficient English- and Mandarin speaking population. For a U.S. company, that's ideal because we can communicate in English, yet we have the Mandarin speakers who can communicate to our Asian customers. Over the years, this has become very important, particularly because you need to have very good communication back to your corporate headquarters."
Hodgman explains that Broadcom's Singapore headquarters are significant. "We're like a mini-corporation here. We have R&D, sales, operations, finance, HR, facilities, planning, worldwide shipping and worldwide customer service. We also have Asia IT services as well." Broadcom doesn't manufacture, though. "We outsource and we use a lot of suppliers. As it turns out, we impact a lot of revenue here in Asia for suppliers, even though we don't maintain a large headcount."
In addition to the pro-business government, Hodgman praises the Singapore Economic Development Board (www.sedb.com) for helping his company. "Singapore EDB was very helpful in getting us set up in Singapore. They are a very effective organization. They take care of everything for you, even interfacing with U.S. federal agencies on your behalf. It's a one-stop shop."
When asked what areas Singapore could improve upon to make itself more attractive to U.S. businesses, both Hodgman and Francis had to think for a moment. Hodgman said: "Singapore is a small island, so sometimes there is limited headcount depending upon what type of talent you're looking for. If you're looking for operational and financial staff, that's pretty straightforward. But, if you?re looking for some of the specific R&D areas, it could be limited and you might have to pull from outside. For example, Taiwan has a lot more people so they have a lot more R&D talent there. China, although they don't have a lot of experience, has a lot of talent."
Francis mentions the education system. "The education system is very good and they turn out very well-read individuals. But, they need to push more critical and creative thinking. The other trend I've noticed is that Singapore has put a lot of focus on the services sector and less on manufacturing," because they thought it was beginning to dwindle. "But, I think they still need to concentrate on manufacturing, too."
New FTA will continue to drive trade
The U.S.-Singapore free trade agreement (FTA), which has been in effect for just over a year, will serve as a major driver of trade between the U.S. and Singapore. While tariffs on many manufactured and agricultural goods were already low, significant access for the services sector is now available.
For example, U.S. express carriers such as UPS and FedEx say the new FTA is the first trade agreement ever to include specific provisions guaranteeing fair and non-discriminatory treatment for U.S. express carriers. The FTA will also streamline customs procedures further, which will shorten transit times for U.S. express companies.
Other segments of the services sector that will benefit from the FTA include financial, legal, and consulting services. At the same time, protections for intellectual property rights have also been strengthened.
Ultimately, the proof is in the pudding, and Singapore consistently ranks high on surveys used to determine competitiveness and 'e-commerce readiness,' among other attributes used to assess a country's economy.
This article is adapted from World Trade Magazine, March 2005.
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