Strategy Singapore

Strategy: How Countries Compete - Singapore

History • Trading centre and port since 7th century • 14th century: Chinese immigrants • 16th century: Portugese take control from Malay rulers • 1819: Sir Stamford Raffle – British control – Broadly naval port + rubber + tin – Post 1869 (Suez canal) major port for refueling & refitting – Around 100,000 employees

• World War II- surrendered to Japanese • Back to British crown after the war

• 1955: Limited self rule for Singapore – PAP under Lee Kuan Yeow

• 1963: British Withdrawal – Federation of Malaysia - Malaya, Sarawak, Sabah & Singapore – Issues of revenues, common markets, ethnic chinese – Malaysian & Indonesian secret service induced riots + strife

• 1965- Singapore breaks away from Malaysia

On independence • “improbable chance of survival”, “a heart without a body” • Problems:

– Racial strife – High unemployment – British contributed 25% of GDP – No hinterland to depend on

• First steps:

– Gain recognition internationally as an independent, stable state – Ministry of interior to build police & military – HDB (Housing Dev. Board) – create jobs and houses – 18 months – 30,000 new houses + thousands

• Problem: – Too small, no production of own – Only trading hub

• Next Step: Induce direct investment from US + Europe via: – Manufacturing in Singapore for re-export – Remove trade & investment barriers – Prepare Jurong Industrial Estate as a industrial hub to house Labor intensive industry (like a SEZ today)

• EDB (Economic Dev. Board) – One stop shop for foreign investors • Low tariffs, Cheap Labour, Special Sops

– Priority sectors • • • •

Petrochemicals Ship refitting & repair Electronics Metal Engineering

– Extremely fast execution • Ex. National Semiconductors – started production in 2 months from go-ahead (TI & HP followed)

• Needs: – – – –

Sound Infrastructure Labor Peace Non-inflationary regime Stable exchange rates

• All these take Govt. Control

Labor Policies • Remove “excesses of irresponsible trade unions” “luxuries that can’t be afforded” – Yusof Bin Ishak, President

• Ban all unions, arrest some union leaders • Formation of: – NTUC (National Trade Union Congress) • To represent worker interests

– NWC (National Wages Council)

Labor Policies • “Labor has a unique partnership with Business as well as Govt.” – Parliament seat for Secretary of NTUC, NWC

• Principles: – What is good for business is good for the workers – Having a job is the most important thing – Create necessary conditions for encouraging investment in Singapore

• Result: in 1978 – Singapore ran out of workforce – (next challenge – attract foreign work force)

Savings • CPF from 1955 – – – – –

Fully funded, tax exempt Mandatory Initially at 5% each (employee & employer) High of 25, 25 in 1985 Currently at 33 (20, 13) to stimulate further investment

• Principles:

– Keep inflation low – Make available funds for investment in infra. Etc – Keep interest rates low – induce further investment (businesses) – Cheaper borrowing (for college education, health, housing etc.)

Savings • Use these funds for (over 3 decades): – – – – –

Clean up waterways, maintain same World class infrasructure Worlds best Airport Worlds best Shipping Port Singapore Airilnes, Singapore Telecom, Port Authority etc. – Extra ordinary industrial estates – Modern high-ways – Cleanest, amongst most modern cities in the world

Singapore Inc.

Singapore Inc. • The Govt. controls 20% of GDP + 85% of rental housing • Is Govt. but is run like a business • Regular tracking of TFP – Total Factor Productivity (growth not attributable to labor or capital)

• 2001: Low TFP, Govt. launched SPRING

– Standards, Productivity & Innovation – Worked with more than 2000 businesses – Productivity circles, TQM, work redesign, ISO standard implementation, and promotion of wellness

• Results:

– Inc. in productivity as well as productivity – Sustainable inc. in wages – (instead of sharing the cake, try and work for a

Political System • Cabinet Ministers:

– Exceedingly well educated – Economics, Business

• Civil Services

– Well educated, motivated, talented, well compensated

• Elections every 5 years, Voting is compulsory • Prime ministers salary, USD 1.1 Mn (in 2001) – Most junior minister USD 550,000 – See everything in proportion to what is at stake • Ex. prevention of Asian crisis hitting Singapore

– Entry level ministers, secretaries

• 60% of median salary of 8 top earners in 6 fields

– Lateral Movements – understanding of country and overall strategy – No Corruption

• Corrupt Practices Investigation Board • Singapore Highest in international transparency studies

Fiscal & Monetary Policy • Has run a no deficit budget since 1970 – Deficit only in 2001, in deep recession – 1.7% of GDP

• Non capital expenses minimalized • Investment via CPF • Fully convertible currency – Exchange rate tied to basket of currencies

• Overall low inflation, and interest rate at par with international markets “No sense in force stopping capital flows – instead create an environment where capital does not flow away”

Competition for neighbors • Problem: – in 1980’s Malaysia, Thailand, Indonesia emerged as competition for attracting investors

• Solution: – Push wages up !! – Force investors to move to higher capital, higher technology ventures – generate more value added products

• Learnings: – Technocrats were capable of studying the problem, rolling out solution asap – Counter-intutive, but long term strategy on

Moving up further • Problem: Lack of land mass – Invest in bio-medical sciences – Overall move towards sectors that are not land intensive – Need skilled workforce

• Solutions: – Set up 10 world class institutions (INSEAD, MIT, Jhon Hopkins, Wharton already have campuses) – A*STAR (Agency for Science, Tech. & Research) with budget of USD 7 Bn.

Singapore Inc. - Closing Points… • Combination of intellect & execution – Great leadership – Effective development – Strong Government institutions

• A country can be run like a business – That probably is the best way to run it 

• Any lessons? Learning's? Thoughts?

THANK YOU