Singapore struggling to find niche amid fierce competition
Singapore struggling to find niche amid fierce competition
Agence France-Presse, Singapore
After achieving First World status in just one generation, tiny Singapore finds itself squeezed between western rivals and emerging Asian players as it seeks to find a niche in a globalized economy.
Boasting one of Asia's most modern infrastructures, top notch education and health care systems and a highly regarded bureaucracy, the 38-year-old nation appears capable of easily withstanding increasing competition.
But pitted against emerging giants China and India and some Southeast Asian rivals, the city-state is now hobbled by high labor costs, a limited domestic market, an ageing population and heavy reliance on foreign labor.
A regional economist here compared Singapore to a corporate executive who has risen too fast and priced himself out of the market.
"On the one hand, he faces competition from his contemporaries and on the other, there are equally qualified younger executives rising up the corporate ladder willing to take the job at a lower salary," he said.
From the 1970s until the 1997 Asian financial crisis, business boomed as Singapore transformed itself into a hub for the world's top companies which took advantage of cheaper labor and an excellent business environment.
Village huts gave way to gleaming skyscrapers and modern factories replaced small stores. Singapore-made computer chips and disk drives were in demand worldwide, and the island's reputation as a manufacturing center grew.
But along with wealth came higher wages for engineers, accountants, designers and other professionals as well as production-line workers.
Land prices, home and office rentals and taxes rose.
In short, living standards and costs became more expensive, in some areas approaching levels in the developed world. Meanwhile, Singapore's neighbors began to boom as market reforms took root.
As countries like China and India started producing the same goods and services at lower costs, they began siphoning off foreign investments.
Companies migrated in droves, including some from Singapore.
For example, computer disk drive manufacturer Maxtor will reduce its work force here once its plant in China is completed in 2005. Its China plant will make entry-level disk drives, while high-end production stays in Singapore.
Seagate has cut its Singapore work force from 25,000 to 9,000 in the last five years as it shifted lower-end disk drive manufacturing also to China.
Competition in the top-end market has also sharpened as Asian economic tigers like Taiwan and South Korea continue to innovate, producing smaller and more powerful computer chips and other high-value products.
Prime Minister Goh Chok Tong said Singapore is now at a "crossroads" and must make a choice: remain burdened by labor costs, or implement such reforms as bringing down wages and social security benefits to stay in the race.
While globalization has benefited Singapore immensely, it can also work against any country.
He said that when lower-cost players emerge, and Singapore is not competitive, investments will flow to these places.
For every manufacturing worker in Singapore, a company can hire 13 in China and 18 in India. For every accountant here, a firm can employ two in Malaysia and six in Thailand, Goh said.
Deputy Prime Minister Tony Tan cited a survey showing that labor costs in Singapore were already higher than those in the United States and Australia.
If that is indeed the case, "we have a major economic problem," Tan said.
Labor chief Lim Boon Heng said annual wages for Singapore engineers, at US$80,854, are higher than in many developed countries like Australia, France, the Netherlands and Britain where salaries range from $55,500 to $77,429 a year.