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The next step in reinventing S’pore

It must have a tool to attract foreign SMEs that are incipient MNCs before they are lured by Hong Kong or Shanghai

 

ATTRACTING regional offices here is not the only way for Singapore to achieve its ambition of being a regional hub by leveraging on the rapid rise of Asia. It’s timely to also consider the concept of the Outsourced Regional Office, or ORO, as a new economic initiative.

Prior to setting up a factory in Asia, most multinational corporations (MNCs) would usually set up a regional office, that is a fully owned subsidiary, as a precursor.

 

While Singapore has an OHQ Scheme to attract regional offices, it comes with such conditions that many small and medium-sized enterprises (SMEs) in the West do not qualify for the scheme. It is proposed that the International Trade Institute of Singapore (ITIS) under the International Enterprise (IE) Singapore’s banner lead this new initiative whereby we will go out to catch the incipient MNCs or now sizeable SMEs in the developed economies before they mature to the stage where they will find their way to Hong Kong or Shanghai.

For years, we have been making the clarion call to make Singapore the ‘gateway to Asia’ for companies in the Americas, UK, Middle East, Europe and Australia & New Zealand. Let us create a scheme that Western SMEs can ride on.

It was reported in The Straits Times on Oct 3, 2007 that there are 3.4 million SMEs in Germany alone. And the number of German companies in Singapore? A paltry 700. Most of them are large ones like Siemens and Daimler.

There are approximately 4.3 million businesses in the UK and over 99 per cent of them are SMEs. Again, there are just 700 UK companies in Singapore.

It is imperative that we have a tool to draw the SMEs that are incipient MNCs to Singapore before they are lured by Hong Kong or Shanghai, two very attractive commercial centres in Asia given the phenomenal growth in China. It is definitely not enough today to flog our good location, a deep water port, excellent infocomm technology infrastructure or even our banking critical mass. Even Korea and Taiwan are able to tout the same advantages to intending SMEs.

 

Let us beat the competition by offering these developed countries a cost-effective initiative – the ORO. This can help add another dimension to our claim to be truly the best ‘gateway to Asia’. The concept is to offer the SMEs in the West, many of which are searching for ways to join the economic party in Asia, especially China, a cost-effective option to come into the region. Many of them do not know where to turn for help to come into Asia apart from their own countries’ embassies in Asia. The Germans and the Nordic countries have set up their own business centres here with the same purpose in mind.

Such foreign government-led initiatives have their limitations. Such companies need hand-holding for an initial period of at least three to five years based on my experience as an export consultant to small as well as large Western companies in Asia.

This is something that governments, whether Singapore or foreign, cannot provide. Therein lies the idea of using a network of private-sector consultants to provide the same.

For an operational budget, we will have export consultants to play the role of their regional offices in Asia way before they can do it on their own. We will therefore act as incubators for them in Asia, helping these Western companies set up the agent and/or distributor network, the most commonly used method for market entry. Firms will be encouraged to set up to cater to the different fields, for example oil and gas, industrial products, information and communication technologies, pharmaceuticals, and hospitality.

Certified consultants

The ITIS, jointly with Benroth and the NUS Business School, can set up a certification process (or quality control mechanism) offering a short course to confirm these consultants’ credentials in international marketing. Only certified consultants will be put on the list of recommended consultants which will be marketed by the network of IE Singapore offices worldwide.

This is to protect the Singapore brand for reliability and integrity. The individuals who fit the bill must have held international marketing positions with some global companies managing the network of agents and distributors in Asia Pacific. Those who have been acting as distributors and agents, for instance, will not fit the bill.

In the long term, once they are accustomed to the environment in Singapore, they would continue to stay here upon their maturity into MNCs. If they go into China, chances are they will either seek a Singapore company as a partner or they will bring in Singaporeans as advisors or directors on their boards. Capital will be raised here if they need funding.

There are also other spin-offs to our economy by these same companies using Singapore logistics providers to back up the movement of goods. Singapore law firms will be called upon to provide legal inputs in seeking redresses or simply writing distributor agreements. Accounting firms will be called upon to provide accounting services, and the list goes on.

Singapore has a pool of international marketing talents comprising executives currently or once employed by the MNCs as regional marketing/sales directors. With our bi-cultural orientation, we have a headstart over both Hong Kong and Shanghai. For not only are we able to bring them into both northern (Mandarin-speaking) and southern (Cantonese-speaking) China, we have Malay and speakers of various Indian languages who can link them to the South-east Asian markets as well as fast-developing India. Many of these international marketing talents were retrenched during the recession in 2000-2003.

The ORO initiative will be able to absorb those with international marketing experience, with them forming small niche export consultant firms described above.

IE Singapore with its network of 38 offices overseas will play a lead role in the entire firmament by marketing the ORO scheme aggressively overseas to SMEs abroad.

It is very logical to leverage on Singapore’s national branding which only the overseas offices of IE Singapore can purvey beyond what an individual ORO consultant firm can. There will be an immediate level of comfort and trust once the potential entrant sees that there is a very dependable Singapore government behind the scheme. It is almost nigh impossible for any firm to have the kind of geographical spread that IE Singapore already has.

In one stroke, this move will strengthen IE Singapore’s strategic role with our own SMEs and thus better enable it to justify its existence amongst our public agencies. IE Singapore must serve our larger national purpose; this will in fact develop into a classic example of public-private collaboration that will bring the country synergistic spin-offs.

It is where the public sector provides the infrastructure (foreign offices) and environment (international confidence in Singapore’s branding) with the private sector providing the engine.

It is this factor that has led to InvestHK’s aggressive push to attract regional offices to Hong Kong. When a plant is established say in China across the border, the MNC would still retain the managerial, strategic marketing and decision-making processes in Hong Kong.

InvestHK reported that as of June 30, 2007, it has already attracted 147 companies to invest or expand in Hong Kong, achieving more than half of its annual target of 250. During the first quarter of 2007, foreign direct investment (FDI) inflows into Hong Kong reached HK$120.2 billion (S$22.3 billion). Total FDI inflow during all of 2006 was HK$333.2 billion.

FDI gains

Apart from creating employment, FDI creates multiplier effects that no government can ignore. Many supporting services like logistics, legal, banking, information and communication technology, accounting and advisory consultancy are needed whenever a foreign company operates in a host country like Singapore.

There is much scope to riding on the tail of the dragon. Bloomberg reported the following on July 12, 2007: ‘Foreign direct investment in China, the world’s fastest-growing major economy, climbed 12.2 per cent in the first half from a year earlier. Spending rose to US$31.9 billion, the Ministry of Commerce, said today on its website. The pace has quickened from a 9.9 per cent increase in the first five months. For June alone, foreign direct investment jumped 21.9 per cent to US$6.6 billion.’

While the pace of inward FDI continues to rise in China, the day is approaching when indigenous Chinese companies seek foreign markets as well. This is evidenced by the record number of companies seeking initial public offerings in both Singapore and Hong Kong. The purchase of Maytag in America by Haeir and IBM by Lenovo heralds this new phase that is still in its incipient stage. The Chinese are finding their way out of merely being the sweat shop for Western brands.

There is therefore another business flow that we can leverage on using the same OROs in the long term and beyond the influx of Western companies coming into the Asia-Pacific market. This is the opportunity to assist the PRC companies to export their branded DEM (designed, engineered and manufactured) goods worldwide, using Singapore as a reverse gateway.

In conclusion, the ORO initiative will give us an additional leg up in the regional competition for capital and technologies. We will be able to exploit the tremendous growth in China, leveraging on our human resource capital, our branding and bicultural roots. It will also bring in the much-needed additional value-added through the multiplier effects.

Most importantly, it will also help alleviate the structural unemployment that will continue to affect those professionals above 45 in this new age of globalisation and keen economic competition. And let us not count on the current boom in our economy to last too long. Economic cycles are predicted to be shorter these days owing to the many factors at play in the Internet age. We must and should continue to reinvent ourselves. The ORO is one such initiative at reinvention.

The writer is the managing director of Benroth International Pte Ltd

 

Source: Business Times 16 Nov 07

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