Early on in his Budget speech on Monday, Finance Minister Heng Swee Keat identified three “major shifts” in the longer term for which Singapore should better prepare. The first of these, he suggested, was the shift in the global economic centre of gravity towards Asia.
Of course, the idea of Singapore engaging more with the region is nothing new. Singapore has been doing business with Asia since its inception as a trading port in 1819. Nor is this the first time regionalisation has been articulated as a conscious strategy.
Starting in the 1990s, Mr Lee Kuan Yew had championed the concept, calling for a “second wing” for the economy, recognising that Singapore would soon outgrow its domestic base and foreseeing the opportunities in the region – even though, at that time, China’s reforms were in their infancy and India had not yet opened up.
After the Asian crisis in 1997 which devastated several economies, enthusiasm for doing business in the region temporarily waned. By then, Singapore was also developing industries like semiconductors, pharmaceuticals and the life sciences, which were more global than regional in focus and relied heavily on investments by multinational corporations (MNCs). Integrated resorts, including casinos, which took off during the last decade were the latest additions to the list. However, in the 1990s, Singapore had also begun to engage more closely with China and India, starting with building industrial parks. Over the next decade, the reforms in China and India deepened. China graduated from labour-intensive activities and vaulted up the value chain, developing deep capabilities in areas including infrastructure development, artificial intelligence, green energy technologies and e-commerce – in some of which it is a world leader.
India emerged a powerhouse in information technology services during the 1990s, became an international R&D hub and is now ramping up its infrastructure.
By the 2000s, Asean economies had recovered from the crisis and had resumed growing rapidly again. They also accelerated their integration, culminating in the launch at the end of 2015 of the Asean Economic Community which envisions a single market and free flows of trade and investment across the 10-member grouping – although this is still a work in progress. Many companies in Asean have also started to adopt innovations such as advanced automation, big data and e-commerce. Asean, too, is slowly shifting away from labour-intensive manufacturing.
All these add up to an Asian economic landscape that is promising for Singapore companies. Besides what he described as the “significant opportunities” in Asia, Mr Heng’s rationale for deepening Singapore’s engagement with the region – at least as set forth in his Budget statement – is partly based on the rise of economic nationalism and a more inward-looking orientation on the part of some advanced economies, including the United States, the United Kingdom and even members of the European Union.
Mr Heng’s ideas would resonate with Linda Lim, a Singaporean professor at the University of Michigan’s Ross School of Business, who has long been a proponent of the idea that Singapore should focus more on the region. She believes this is where it has unique advantages and can truly differentiate itself from other cities. As she noted at the Institute of Policy Studies’ Singapore Perspectives conference in 2015: “We should return to our ancestral, commercial roots of multilingual, multicultural entrepreneurs and intermediaries, and provide services to our own dynamic regional markets.”
As a matter of business strategy too, it is arguable that betting on the region is a lower-risk, higher-return proposition than taking a few big bets on a handful of industries such as semiconductors, life sciences, financial services and casino gaming.
Betting on the region would amount to taking thousands of smaller bets – as well as a few big ones, such as on infrastructure projects – spread across different, mostly fast-growing economies.
This does not mean Singapore takes its eye off the global markets that it serves – those activities would continue – only that it focuses more on the region than before. As the region’s trade with the world grows, Singapore companies active in the region can also ride on that growth. Moreover, doing business in the region would be a strategy based more on the involvement of Singapore’s local companies than MNCs.
Following Mr Heng’s prescription to expand deeper into Asia will sorely test Singapore Inc.
But it would also mark a new phase in Singapore’s economic development and give Singapore a new identity, as a global city with a regional focus.
But Asia presents a challenging environment. It is mind-bogglingly diverse, with a smorgasbord of languages, cultures, religions, customs and ways of doing business. Its economic diversities can be extreme. Even within a single country, there can be some areas which are at the cutting edge of advanced technology and have highly sophisticated consumers and others which are centuries behind. Networking is of critical importance, which may help explain Mr Heng’s idea to establish an Asean Leadership Programme to help business leaders forge networks in the region and plan business expansions. The programme aims to improve managers’ understanding of business cultures, emerging opportunities and business strategies in Asean.
Catering to the needs of the region – whether through innovation or business development – would require Singapore companies to localise in a deep sense – that is, to establish a local presence, perhaps in multiple cities; hire local workers and managers; build local networks and navigate local regulation.
This could pose challenges for many companies accustomed to operating at home where laws are clear, regulations are consistent and transparent and the infrastructure works smoothly. It would call for a new mindset.