The Big Read in short: Amid Covid-19 gloom, Asean can hold the key to S’pore’s recovery
Each week, TODAY’s long-running Big Read series delves into the trends and issues that matter. This week, we look at how Singapore can navigate a post-Covid world that would see irrevocable changes affecting global trade and business. This is a shortened version of the full feature.
Each week, TODAY’s long-running Big Read series delves into the trends and issues that matter. This week, we look at how Singapore can navigate a post-Covid world that would see irrevocable changes affecting global trade and business. This is a shortened version of the full feature, which can be found here.
- Covid-19 has brought permanent changes to the global economy, affecting supply chains and work arrangements
- US-China tensions and rising protectionism could threaten Singapore’s trading hub status
- Economists and business leaders say Asean can capitalise on foreign multinationals divesting from China
- Whether Singapore will benefit from current economic trends still remains uncertain
- But the pandemic undeniably presents opportunities for accelerating Asean integration and growing new local industries, they said
SINGAPORE — While negotiations for a more integrated Association of Southeast Asian Nations (Asean) have been taking place in fits and starts over the years, experts and business leaders say the pandemic has presented governments and companies in the region with a great opportunity to intensify the push for further integration.
This is because Covid-19 has brought about permanent changes to the global economy as borders are shut, traditional supply chains disrupted and long-established working patterns upended.
World leaders and corporate honchos are now calling for companies to diversify their markets, supply chains and products, in the face of the endless difficulties wrought by the coronavirus outbreak, which has infected over 14 million people globally and killed nearly 785,000 thus far.
In a global environment where countries are increasingly expected to take sides amid heightened rivalry between the United States and China, the Asean region offers a suitable location for companies looking to diversify given the grouping’s more neutral political position, said DBS Bank senior economist Irvin Seah.
And the region still holds much promise, with a recent report from property consultancy Cushman and Wakefield noting that Asean manufacturing markets have a high ability to bounce back from the current economic slump due to the region’s demographics and economic capabilities.
Global commerce has long been the lifeblood for Singapore. But the US-China trade war and the coronavirus pandemic have dealt heavy blows to international trade, which had already been stagnating in the past decade.
With shipments delayed because of Covid-19, the world realised how densely concentrated supply chains are in China, said Mr Alex Capri, visiting senior fellow at the National University of Singapore Business School.
Covid-19 could also be the impetus for multinational corporations (MNCs) to implement the “China plus one” strategy which business leaders have advocated for years as a way of diversifying the risk that comes with placing all their investments in China, Mr Capri said.
Prominent businessman Ho Kwon Ping, who founded international resorts company Banyan Tree Holding, believes Asean is well-positioned to be that “plus one”.
“Where (MNCs) might have huge multibillion-dollar facilities all in China — with a head office in Shanghai — they may (now) want to put (the) head office in Singapore and factories in Thailand and Malaysia,” he said.
The need for diversification is also on the cards for some trading companies TODAY spoke to.
Mr Jeremy Fong, chief executive director of medical equipment manufacturer Fong’s Engineering, said that his clients mainly come from the US, which is experiencing one of the worst coronavirus outbreaks in the world.
Apart from changing the production schedule to allow for more lead time and increasing the inventory, he is now in negotiations with Japanese companies in a bid to diversify his customer base.
“They (the Japanese) have moved out their operations from China and are looking to set up in Southeast Asia. We see it as an opportunity,” said Mr Fong.
S’PORE’S MNC STRATEGY: THREATS AND OPPORTUNITIES
While Singapore can benefit from the global corporations’ need to diversify, it will also have to grapple with another possibility: MNCs may not see the need to physically locate themselves in the Asean region anymore with remote working becoming more prevalent, and amid rising protectionism.
With governments providing incentives for their own corporations to move back amid growing protectionist sentiments, Mr Inderjit Singh, the founder of consumer electronics firm Solstar International, believes that MNCs will pull out of Singapore “in a very big way”.
Associate Professor Walter Theseira from the Singapore University of Social Sciences said that cities such as Singapore have been well-positioned to take advantage of globalisation but these benefits are now cut because of the border closures.
“It’s a very small step to go from a regional HQ (headquarters) in Singapore to just having work done back in the main HQ,” he added.
However, observers pointed out the movement of companies and jobs out of Singapore is not a new development but very much part of the globalisation process.
The difference this time is that jobs taken up by professionals, managers, executives and technicians (PMETs) are being impacted.
Some observers said it is still too early to tell whether global corporations would change their behaviour and make the exit from Singapore.
While there may be a fraction of companies which choose to permanently work from their home countries, Maybank Kim Eng economist Chua Hak Bin said a countering force to that would be the need for diversification.
Mr Seah, however, thinks the Republic’s importance — as a stable and reliable destination for critical business functions and processes — has actually been elevated because of the pandemic.
“Especially now travel becomes more difficult, you want to be close to where production bases are… At least overcome time zone difference (by locating) in a similar time zone,” he said.
RISE OF REMOTE WORKING: DO S’POREANS STILL HAVE AN EDGE OVER ASEAN COUNTERPARTS?
Covid-19 has pushed remote working, which has been around for some time, to the fore of a radically changed economic landscape. Despite its many positives, cost savings for businesses being one, such a work arrangement can be a double-edged sword.
On the one hand, it provides opportunities for Singaporeans to work for companies which do not have operations here, without having to physically move to the firms’ locations.
On the other hand, with companies now able to cast the net much further beyond the confines of national borders in their search for talent, employers will have a much wider pool to choose from.
Assoc Prof Theseira suggested that remote working could lead to a divergence among PMET jobs where companies are looking for either “cheap and good” workers or “high-value and bespoke” professionals.
Given that Singapore can never compete with “cheap and good” talent, the question is then whether there are enough Singaporeans who could offer “bespoke” quality, said Assoc Prof Theseira.
“We should be quite careful about our assumptions about the region. We cannot just assume that everybody is uneducated or 30 years behind us. That’s completely not true,” he said.
There is thus a need for Singaporeans to find a comparative advantage, which could be skills such as proficiency in the English language or familiarity with Western markets, he noted.
Mr Seah, however, cautioned against over-estimating the prevalence of remote working as there are obvious limitations to the arrangement.
Cultural differences, language barriers, different employment regulations between Asean countries as well as different management styles of companies could hinder the extent companies can rely on remote work.
WHAT S’PORE, ASEAN NEED TO DO
The push for greater integration of Asean is not new for Singapore, a city-state without a hinterland.
Covid-19, however, has renewed interest in the grouping as an economic community among Asean-watchers. They say that its 10 members should capitalise on the “new normal” to win foreign investments and accelerate the long-term goal of creating a single Asean market, akin to the European Union’s.
In addition to the existing free trade agreements among Asean countries, Mr Ho believes there are other areas where more can be done to smoothen business operations in the region.
The association could, for example, implement passport-free travel for business passengers, he said.
While Asean is poised to offer Singapore new opportunities as it seeks to adapt its economy to a post-pandemic world, experts and business leaders stressed that the Republic must continue to remain an open trading hub even as other countries are turning inwards.
Mr Ho believes the key for Singapore to remain relevant is to be more agile in identifying nascent opportunities, not in entire sectors, but in certain niches of each industry.
Solstar International’s Mr Singh sees that niche in Singapore becoming the prototyping factory of the world, bringing research from lab to factory.
“Singapore research institutes and universities do excellent research and have great technologies, and what we lack is commercialising these,” said the former Member of Parliament.
“I have seen a few good technologies that could have started initial prototyping and initial production in Singapore, had they found the money to do so,” he added. “Instead, they went straight to other countries.”
In order to build up Singapore’s capabilities in advanced manufacturing and prototyping new technologies, Mr Singh suggested that the Government support local enterprises and tap sovereign wealth funds to buy over distressed global companies and bring them to Singapore.
PMETs who have been displaced can also take up key positions or be trained and redeployed to work in these manufacturing and technology firms.
Mr Douglas Foo, president of the Singapore Manufacturing Federation, said that Singaporeans need to have an open mind about the potential of Asean and ditch the negative stereotypes long held about their neighbours.
He pointed out that having grown up in the multicultural city-state, Singaporeans should have no problems embracing diversity, and they should see other Asean countries, their people and cultures as something worth discovering.
“Take it as a new journey of discovery of our neighbourhood,” he said.
Still, it remains to be seen whether Covid-19 will give Singapore’s neighbours the impetus to move faster towards even greater economic integration.
Dr Chua said that signs are emerging that governments in Asean are turning more nationalistic due to the host of domestic issues they need to address because of Covid-19.
“Every country is in a job crisis. They have to take care of their own people first. In some cases, they may erect higher protective barriers to protect their own people,” he said.