(Ibid) These are only a few of the initiatives by Singapore in responding to the needs identified if the country is to keep pace with the demands in the manufacturing industry market and the products that are technologically in line with today's applications. Internal factors that positively affect the manufacturing industry in Singapore include the high level of openness in international trade which in Singapore equals 300% of GDP with the manufacturing sector foreign direct investment (FDI) accounting for 70% of the total FDI. The government in Singapore abolished all restrictions on foreign investment in April 2000 relating to the telecommunications sector with full competition being introduced at the same time. Stated is: "Singapore aims to maintain the share of manufacturing at around 25% of GDP (22% in 1998) and has actively promoted the development of high value-added manufacturing activities. This policy has been largely successful, with electronics dominating both manufacturing output and merchandise exports. As Singapore's trading advantage appears to be shifting towards higher value-added electronics and services, long-term development programs have been established to encourage investment in these activities.

External factors impacting the manufacturing industry in Singapore is stated to be inclusive of competition from low-cost producers in the region. Singapore's labor costs rising "putting pressure on the external competitiveness of lower value-added exports. As a response Singapore's government has established programs that are geared toward attracting investment into activities with higher value-added.

The government of Singapore has focused on economic development through implementation of policy to encourage certain activities in trade inclusive of:

1) Direct government involvement in key sectors through government-linked companies, which are currently managed by a holding company (Temasek).

2) The Government created statutory boards to implement its policies; their present role consists primarily of regulating and promoting economic activities that are thought to have high growth potential, as well as providing technical and marketing assistance.

3) In order to encourage investment in the desired activities, a number of tax incentives have been provided.

4)In response to the rising costs of labor the trading advantage of Singapore's:."..appear[s] to be moving towards higher value-added manufacturing and services sectors; the government has responded to this by establishing long-term development programs, including tax incentives, to encourage investment in higher value-added activities.

PART TWO: Singapore - Impact of Foreign Direct Investment (FDI)

Research reveals that the stock of foreign equity investment for Singapore at the end of 2004 was approximately $261 billion as compared to $237 billion in 2003. This is a 10.0% growth for 2004. The following table labeled Figure 5 illustrates the Components of Foreign Equity Investment (Stock at Year-End) for 2003 and 2004

Components of Foreign Equity Investment (Stock at Year-End) 2003 and 2004

2003 2004 Change (%)

Total 237,392

Direct Equity Investment 227,447

Portfolio Equity Investment

Source: Economic Development Board (nd)

Direct equity investment totaled approximately $251 billion or 96.1% of the $261 billion in foreign equity investment. Foreign Direct Investment (FDI) stock in Singapore was stated to have risen by 8.1% to the sum of $272 billion at the end of 2004 following a 7.0% increase in 2003. The following labeled Figure 6 illustrates the 'components of FDI for 2003 and 2004.

Components of FDI (Stock at Year-End)

Change (%)

251,652 272,128 8.1

Direct Equity Investment 224,447

Net Lending from Foreign

Parent Companies 24,206

Source: Foreign Equity Investment in Singapore (2004) Summary Findings)

The FDI growth was stronger in 2004 because it was "underpinned by double-digit expansion in foreign direct equity investment. In contrast, net lending from foreign parent companies declined by 12.6% compared to a year ago." The Manufacturing sector is stated as follows for 2003 and 2004 with the 2004 percentage share. The following labeled Figure 7 lists the manufacturing industry Share percentage for 2003 and 2004 and as well lists a few of the segments percentage share for the same years.

Percentage Share 2003 and 2004

2003 2004

Share in 2004 (%)

Manufacturing 91,717 96,835 100.0

Pharmaceutical products 29,322 31,897 32.9

Electronic Products 29,657 29,719 30.7

Petroleum Products 13,640 13,688 14.1

Chemical Products

Source: Foreign Equity Investment in Singapore (2004) Summary Findings

The following chart labeled Figure 8 shows Singapore's 'Source of Foreign Direct Investment (FDI) by Region:

Singapore - FDI by Region

Source: Foreign Equity Investment in Singapore (2004) Summary Findings

The major investor countries from Europe are stated for the year 2004 to be: (1) United Kingdom at 117,041; (2) Netherlands at 27,978; (3) Switzerland at 16, 401; (4) Germany at 6,299; (5)...

(Ibid) Major investor countries from Asia are stated to be: (1) Malaysia 4,680; (2) Indonesia 1,588; (3) Japan 36,721; (4) Taiwan 5,798; (5) Hong Kong SAR 4,496; and (6) Middle East 3,586.
Major investor countries from North America are: (1) United States 2004-41,204; and (2) Canada - 2004 2,864. (Ibid)

The return on FDI by 'country' by 'percentage' for Year-End 2004 is stated as follows:

Asia 11.2%

Malaysia 7.8%

Japan 12.8%

Taiwan 7.9%

Hong Kong SAR 23.2%

Europe 23.2%

United Kingdom 13.4%

Netherlands 18.3%

Switzerland 32.9%

United States 17.7%

Source: Foreign Equity Investment in Singapore (2004) Summary Findings)

The return on foreign direct investment (FDI) by industry and by percentage in the manufacturing sector is stated as follows:

Manufacturing 23.4%

Pharmaceuticals 18.4%

Electronic Products 28.2%

Petroleum Products 20.5%

Source: Foreign Equity Investment in Singapore (2004) Summary Findings)

Manufacturing totaled 19.6% in 2003 which shows a growth in foreign direct investment in manufacturing in Singapore. Pharmaceutical products was slightly declined in growth while Electronic Products rose by 7.0% from 2003 to 2004 and Petroleum products rose 5.0% from 2003 to 2004. (Ibid)

Summary

This research summarizes by stating the Singapore is making great effort to respond and does seem to realize the truth in the statement that "innovation activity" has been found to be "positively related to sales volume, sales, growth, employment growth and internationalization." The government in Singapore has made many necessary changes and transitions toward positioning the country for economic growth evidenced by free competition in the telecommunications industry and open trade initiatives. If Singapore continues to innovate in the manufacturing industry the country certainly will be able to keep pace with the rapidly shifting environment in spite of rising costs of labor in the country.

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Impact of Foreign Direct Investment and the Impact of External and Internal Factors on