Singapore as a Top Destination for Multinational Corporations

Introduction

Today, the Southeast Asian region has emerged as a collection of dynamic and developing states serving as a global hub for international business operations. The continually growing emphasis on globalization and trade liberalization between the Western and Eastern spheres is having a significant impact on nations such as Vietnam, Cambodia, Thailand, and Laos. Most notably, as Southeast Asia has revealed itself as an increasingly attractive operational venue for multinational corporations (MNCs), Singapore has emerged as an extremely popular destination for profitable investment in technology and production endeavors.

As a result, Singapore has become a highly competitive player in the international market, drawing companies from across both the developing and industrialized world with an environment praised as relatively free from corruption, unencumbered by bureaucratic red tape, and highly economically dynamic. As the research presented hereafter will demonstrate, Singapore is among the world's most attractive destinations for international trade, Foreign Direct Investment (FDI), and the incorporation of MNCs. In addition to being a world leader across an array of fields and industries, Singapore remains one of the foremost global capitals for international finance. Consequently, both its local population and the modern influx of foreign business persons enjoy a degree of per capita wealth that is unique in Asia and the world at large. The following sections investigate the features that have helped to make Singapore such a singular force on the world market, particularly as these features concern the business environment made available to the multinational corporation.

Legal and Political Environment

A defining feature of Singapore's legal operating environment is its highly regarded freedom associated with business enterprise. To an extent that has had a defining impact on the broader Southeast Asian marketplace, Singapore has pursued a model of late-20th-century capitalism that has produced extremely favorable results for its leading industries and firms. Recognizing the close correlation between the nation's domestic growth and its continuing evolution as a global force, Singapore's government has worked hard to attract MNCs by establishing an environment in which conducting business is free of unnecessary barriers. The result is a context unique in the world economy for its ability to promote deregulation of key business functions without sacrificing stability or ethical functionality.

According to the Monetary Authority of Singapore (MAS, 2011), "the Swiss-based international Institution for Management Development's 2010 Competitiveness Yearbook ranked Singapore as the most competitive country in the world. This is what a World Bank report had to say about doing business in Singapore: 'It takes an entrepreneur just over 6 working days to get a new business going in Singapore, with low start-up costs. Overall, taking into account other factors, including business licensing, taxes, credit legal rights and investor protection, Singapore has about the most business-friendly regulation in the world.'" (MAS, p. 1)

This is a defining feature of the legal environment into which a foreign business enters, and it suggests that there is no shortage of incentives to establish operations in Singapore. Such freedom of enterprise has been made possible by a degree of regulatory transparency and accountability that is often remarked upon as one of the most ethically sound in the global business community. According to Yin (2003), Singapore's central government has played an important role in balancing ethical and legal regulation while allowing businesses to pursue growth freely. Yin remarks that "the government plays a crucial role in eliminating corruption, building the necessary infrastructure and institutions to support economic development, and taking the lead in business ventures through government-linked companies. The multinational corporations also played a significant role in Singapore's economic development process." (Yin, p. 1)

Singapore's political orientation toward attracting foreign corporations speaks to this reciprocal relationship. The nation's leaders have continually demonstrated a willingness to push for more favorable operating conditions for multinational firms. As Yin points out, this is directly evident in the tax policies that have been implemented and extended to favor foreign enterprises. Yin notes that beginning in 2002, the budget office "reduced the corporate and top personal income tax rates from 24.5 percent and 26 percent respectively to 22 percent effective from 2003. In this year's budget statement 2003, the Minister did not change the rates but reiterated the government's stance to bring down the tax rates to 20 percent by 2005." (Yin, p. 1) This reflects Singapore's commitment to making it easier and more profitable for firms to set up operations, even as labor costs in other parts of Southeast Asia undercut the skilled Singaporean worker on price.

Driving Factors for MNCs

The features described above present a very attractive opportunity to multinational firms. During the early phases of Singapore's economic development in the 1960s and 1970s, Yin reports that a growing interest in MNC operations was fueled by lower labor costs in Singapore (Yin, p. 1). Today, its economic growth is such that this is no longer the primary appeal, particularly as lower-wage markets have opened up in close proximity since the end of the Cold War. This has transformed the driving factors for MNCs choosing to headquarter in Singapore, with the stability of the business environment and its relative freedom from corruption creating a highly lucrative place to conduct business.

As Yin reports, the balance achieved between wage fairness and business profitability has helped to create a uniquely stable labor scenario. Yin indicates that "the PAP government is essentially pro-business. It remains in power since independence. Among other things, the enactment of the Employment Act and Industrial Relations (Amendment) Act in 1968 promoted calmness in labor relations and the industrial environment. To many Singaporeans, going on strike appears alien and socially unacceptable. More importantly perhaps is that the government is clean and honest, thus eradicating uncertainties in doing business in Singapore." (Yin, p. 1) For the MNC, this is likely to mean significantly lowered vulnerability to disruptions based either on labor discontent or legal intervention by the state.

There is one area of tension between labor and employment that surfaces in the research. This largely concerns the ratio of hiring in MNCs, which some report tends to favor the employment of foreign rather than domestic labor. The result is concern among some observers that the continued influx of MNCs will have a detrimental effect on employment opportunities for Singaporean citizens. That said, this condition does promote yet another advantage for the MNC, which faces relatively little regulatory pressure regarding the nationality makeup of its personnel. According to Salary.sg (2010), "companies can also bring in foreign professionals, managers and executives on employment passes to meet their staffing needs. There is no quota for Employment Pass holders. However, the applicant must be paid a basic monthly salary of at least $2,500 and have acceptable qualifications." (Salary.sg, p. 1)

This means that a multinational firm with specialized personnel needs will not be restricted by quotas in Singapore — a potentially significant driving factor for MNCs seeking suitable operational contexts. Yin also identifies a set of factors related to Singapore's national development that draw foreign business ventures. Singapore is highly urbanized, highly industrialized, and among the most sophisticated nations in the world from an infrastructural standpoint. According to Yin, Singapore boasts highly integrated electronic grids, fiber-optic cable systems, and internal transportation services. Additionally, its airports and especially its coastal ports are among the busiest and most highly regarded in the world for their technological efficiency and soundness of design (Yin, p. 1). All of these features appeal to foreign business enterprises — not only by providing a suitable environment for conducting business but also by suggesting a future poised toward continued long-term growth.

In its ports, Yin notes, Singapore has created a destination for global trade that is projected to flourish well into the future, reinforcing the host of business opportunities presented to the MNC. Coupled with its strategically ideal location between the Western ports of the United States and the Eastern ports of Japan, Singapore's focus on developing such infrastructural capabilities suggests that its future as a global financial giant is at least partially assured.