Impact of foreign direct investment and external factors on Singapore's industrial sectors

¶ … Foreign Direct Investment and the Impact of External and Internal Factors on an Industry-sector in Singapore

The objective of this work is to prepare a business management research report on industry in Singapore. This report will follow the outline as follows: (1) Assess impact of external and internal factors on the Singapore Industry-Sector chosen for this study; and (2) Evaluate the Singapore Industry-Sector Response.

On December 2, 1996 an immediate release news wire from Singapore entitled: "Upgrading Capabilities in the Manufacturing Industry" stated that" The National Computer Board's efforts in the Manufacturing and Distribution Cluster are focused on the areas of: (1) upgrading the internal capabilities of companies in this sector; (2) enabling enterprise integration; (3) manpower upgrading and re-skilling, and (4) creating new ways to do business." (Upgrading Capabilities in the Manufacturing Industry, 1996) Several initiatives are identified in assisting manufacturing companies as they transition from "the current paper-intensive design environment to an automated and integrated mode of operation." (Ibid) These initiatives included adding capabilities of: (1) Quickmold; (2) Product Data Exchange Service (PDEX) and (3) Internet-Based Parts Design Library. In the work entitled: "Sensors for Industrial Automation" the author Lim Yew Gee reports that: "Manufacturing is one of the key pillars of Singapore's economic growth. Our manufacturing sector accounts for some 25 per cent of GDP. To maintain this figure in the future, our industrial and manufacturing sectors need to continue to adopt IT. The use of IT will ensure plants' operational costs are always kept low and productivity high to stay competitive. The adoption of sentient technology such as networked sensors for industrial monitoring and control is one way to meet these challenges." (2006) Singapore has reportedly been working toward these goals and viewing the growth that is being experienced in the manufacturing sector of Singapore's economy those goals are being realized.

PART ONE - I. Singapore's Manufacturing Sector (2006)

In the work entitled: "Sensors for Industrial Automation" the author Lim Yew Gee reports that: "Manufacturing is one of the key pillars of Singapore's economic growth. Our manufacturing sector accounts for some 25 per cent of GDP. To maintain this figure in the future, our industrial and manufacturing sectors need to continue to adopt IT. The use of IT will ensure plants' operational costs are always kept low and productivity high to stay competitive. The adoption of sentient technology such as networked sensors for industrial monitoring and control is one way to meet these challenges." (2006) The work entitled: "2005 Foreign Direct Investment Confidence Index" states that the foreign direct investment inflow for Asia reached approximately $155.5 billion which is stated to be."..an unprecedented $48.6 billion increase over the year before.": The top five stated hot economies are those of: (1) China; (2) Hong Kong; (3) Singapore; (4) South Korea and (5) India which "accounts for 80% of the flows to the region." (2006) The cross-border M&A deals in 2004 equaled $25 billion which was "Up from $22 billion in 2003..." Singapore is stated to have maintained their position at 18th place tied with Thailand. (Ibid) The following chart labeled Figure 1 illustrates the Percentage of Investors with a More Positive Outlook.

Percentage of Investors with a More Positive Outlook

Source: http://www.atkearney.com/main.taf?p=5,3,1,140,2

The work entitled: "Monthly Manufacturing Performance - November 2006" published by the Singapore Government Online states that the output in manufacturing in November rose 14.7% over last November and when excluding biomedical manufacturing the output for manufacturing for November 2006 was 7.0% higher than last November. Leading the growth for manufacturing were the biomedical manufacturing and transport engineering clusters. Biomedical manufacturing experienced year-on-year growth of 45.9% in November while the pharmaceuticals and medical technology products experienced a 46.1% and 44.6% (respectively) increase. The cumulative output for January through November grew 22.9% for the entire cluster compared to the same period of 2005. In the study conducted in this research the specifics of 'market access' are examined and it is noted that the climate for imports is one that is receptive to business on an international scale with the open economy and free trade policy allowing for import of raw materials that are duty free.

The manufacturing sector is comprised by the following segments and clusters with the accompanying statistics stated for November 2006:

Transport engineering cluster - expanded all segments in November, output rose 23.5% over November 2006;

Marine and Offshore Engineering Segment - grew 25.7% (substantial ship repair completed; shipyards continued building ships in their final stages of construction);

Oil Rig Fabrication - Propelled by demand;

Aerospace segment - 18,4$ expansion due to increased travel;

Land Transport segment - grew 50.9%;

Transport Engineering - Grew 32.7%

Precision modules & components segment - 3.8% growth due to higher output of precision springs, die castings, wires, cables, connectors, metal stampings and electroplating services. Experienced 10.7% growth over last year;

Precision engineering cluster - Grew by 9.8% over last year;

Machinery and systems segment - Grew 20.4%;

Chemicals cluster - year-on-year growth of 3.0%;

Petrochemicals - grew 3.6%;

Specialty chemicals - 6.4% growth;

Petroleum segment - 1.0% growth;

Electronics Cluster - 2.1% year-on-year growth;

Hard disk drive production - lower by 21.5% than last November with a cumulative decline of 27.8%. This is stated to be due to "relocation of production." (Ibid);

Infocomms & Consumer Electronics Segment - 15.6% less in production of telecommunication products, PCs and consumer electronics;

Semiconductors segment - 8% growth (output of DRAMS, NAND flash and microprocessors higher);

Computer peripherals segment - grew 5.1% in November; and Electronics cluster - 4.4% growth in first 11 months of 2006. (Monthly Manufacturing Performance - November 2006)

The reports concludes by stating that the general manufacturing industries experience 13.6% year-on-year growth in November with food and beverage manufacture growing 13.2%. The following chart labeled Figure 2 shows the "External Trade & Manufacturing" for Singapore November 2006. (Monthly Manufacturing Performance - November 2006)

External Trade & Manufacturing - Singapore - November 2006

EXTERNAL TRADE & MANUFACTURING Date of Latest Most Recent Period % change Previous Period % change Total Trade @ Current Prices S$m Nov '06-68,899.1-8.7-67,450.3 -0.4 Total Exports @ Current Prices S$m Nov '06-37,151.0-8.0-36,669.2-2.7 Total Imports @ Current Prices S$m Nov '06-31,748.1-9.6-30,781.0 -3.8 Industrial Production Index (2003=100) Nov '06-152.6-14.7 147.6-3.4

Source: (Monthly Manufacturing Performance - November 2006)

II. Innovation Needed in Singapore's Manufacturing Industry

The work entitled: "The Pattern of Innovation in Singapore's Manufacturing Sector" published in January 2003 reports a study of Singapore's manufacturing sector through use of the results of the first national innovation system (NIS) survey. The study reports that Singapore "has a long way to go in its development of an innovation-based economy" but that progression "has been made, with companies making visible efforts to engage in innovation activities." This is important because as stated by the report "innovation activity" has been found to be "positively related to sales volume, sales, growth, employment growth and internationalization." (Ibid)

III. Weaknesses Identified in Singapore's Manufacturing Sector

Weaknesses found in Singapore's system include: (1) "insufficient collaboration between firms and the public R&D sector"; (2) "deficiencies in the availability of scientific and technical manpower and innovation-supporting services"; and (3) adverse societal attitudes to failure." (Ibid) Noted as a major problem in Singapore is the fear of failure due to the stigma of failing. It is suggested that the Singapore society "needs to learn to accept failure as an inherent part of the innovation and entrepreneurial process." (Ibid) The following Figure labeled Figure 3 shows the "International Comparison: Innovating Enterprises in Manufacturing Sector" by the 'Percentage of Total Number for Enterprises by Country for 1990/92 and 1996.'

International Comparison: Innovating Enterprises in Manufacturing Sector (Percentage of Total Number of Enterprises)

Country 1990/92 1996

Ireland

Germany

Austria

Netherlands

United Kingdom

Denmark

Sweden

Norway

France

Luxembourg

Finland

Singapore (1999)

Spain

Belgium

Italy

Including ex-GDR from 1991

Figure for 1997

Source: The Pattern of Innovation in Singapore's Manufacturing Sector"

The following chart shows the 'principal statistics of manufacturing' in Singapore for the years 2001-2005.

Principal Statistics of Manufacturing - Singapore

Principal Statistics of Manufacturing

2005p 2001

2003 2004

Employment (Number) 344,141

Total Output ($Million) 138,323

Materials ($Million) 76,724

Remuneration ($Million) 12,665 12,965

Value Added ($Million) 31,923 36,360

Direct Exports ($Million) 84,209 88, 384

Source: Economic Development Board

IV. Innovation Is 'Key' In Singapore Manufacturing Segments

Each of the segments or clusters within the manufacturing industry in Singapore have responded to the needs as set out in the 1996 report. The following is a brief list of initiatives that have been undertaken to meet the demands for manufacturing in the globalized business environment:

Biomedical Sciences - In 201 the 'bioinformatics Institute was established for the purpose of training manpower and building capabilities in bioinformatics. In 2002 the Institute of Bioengineering and Nanotechnology was established for the conduction of innovation in research in interfacing bioengineering and nanotechnology while at the same time "exploiting the enormous commercial potential presented by these emerging technologies." (Ibid)

Chemicals - Institute of Chemical and Engineering Science established in 2002 with a mission of development of."..R&D manpower and technological capabilities to support the future and current needs of Singapore's chemical, biomedical and process engineering industries. Ongoing research is inclusive of."..mechanical and instrumentations laboratories and test centers." (Ibid)

Electronics and Infocomm Technology - founded the Centre for Mechanics of Micro-Systems in 1999 which works in collaboration with the Data Storage Institute as well as other partners in production of sensors, actuators, and miniature micro-systems.

Precision Engineering and Nanotechnology - established the Centre for Intelligent Products and Manufacturing Systems which has as its focus research and development of: (1) intelligent manufacturing; (2) automation technology, (3) robotics; (4) mechatronics; and (5) control engineering and computational intelligence. (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