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Ian Stewart

SINGAPORE Prime Minister Goh Chok Tong recently delivered a warning on the problems his government faces in preventing manufacturers from moving to countries with lower overheads and a larger supply of labour, citing European electronics giant Siemens as an example of a company shifting its base.

   He said a chill went down his spine when he was told Siemens would be investing S$1 billion (about HK$5.26 billion) in China and nothing at all in Singapore, and that the company planned to establish its regional headquarters in Beijing.

   But he was quickly contradicted by Heinrich von Pierer, president and chief executive officer of Siemens, who said the company would continue to invest in Singapore, with about $300 million committed over the next few years.

   He denied that Siemens had plans to establish a regional headquarters in China.

   Mr Goh may have chosen an inappropriate example, but his message was still relevant.

   Last month, French multinational Thomson Consumer Electronics announced that it was closing down its colour television manufacturing plant in Singapore, prompting one of the biggest retrenchments seen in the island republic in recent years.

   The company said it was expanding its manufacturing operations in Indonesia and Thailand, with Bangkok becoming its chief location for television manufacturing.

   Rising costs were cited as the main reason for the company's decision to close its Singapore factory.

   Other companies, both Singapore-based and multinational, have been moving all or part of their manufacturing operations to neighbouring countries, such as Malaysia and Indonesia.

   Speaking to the Singapore Press Club, Koh Boon Hwee, executive chairman of the Wuthelam Group, said the strengthening of the Singapore dollar was putting pressure on the island's manufacturing. The currency has gained about 10 per cent against the US dollar over the past 10 months.

   Mr Koh said that while the multinationals 'may not disengage', they would 'not engage further'.

   In a recent survey of 53 cities by property consultants Jones Lang Wootton, Singapore was ranked the second most expensive location. Only Tokyo ranked higher in the report.

   In a recent government poll of business expectations, a quarter of the manufacturing firms surveyed nominated a shortage of labour, foreign price competition, the strong Singapore dollar and factories' capacity as factors affecting export orders.

   Cost pressures have been mounting steadily for Singapore manufacturers because of increasing economic growth and a tightening labour market over the past few years.

   Seck Hong Chee, vice-president of the Singapore Manufacturers' Association and head of the Federal Industrial Corp, said that the 'phasing in and phasing out' of different levels of manufacturing was a natural and continuing process for any country that was promoting economic growth.

   'It has been going on for several years in Singapore,' he said. 'The middle-level lower-value-added products have been moving out to Malaysia, Indonesia and China. The higher-value-added products have been moving in.'    This process has been gathering pace, and Mr Seck believes it will accelerate further because of Singapore's stronger economic growth and rising costs.

   He said the only option to moving out was increasing productivity.

   'There is no other way than to increase productivity and quality,' he said. 'If we can't do that, then either we move out or perish. The world is not sympathetic.'    The government has taken heart from new investments in the disk-drive industry this year, which has reinforced Singapore's position as the world's largest manufacturer of disk drives.

   Seagate, Matsushita-Kotobuki Electronics and IBM have all announced major investments.

   The Economic Development Board said these new investments strongly confirmed Singapore's 'cost-competitive ability to provide the critical time to volume required to compete effectively in today's fast-paced markets'.

   The Lion City is also hoping to attract more state-of-the-art technology, following the establishment last year of two highly sophisticated wafer fabrication plants.

   Analysts say the challenge for Singapore is to provide skilled personnel in sufficient quantities from its small population of 2.75 million, to continue to attract high-technology manufacturers and to keep costs competitive.

   Unit business costs and unit labour costs rose steadily from 1988 to 1992, but showed a slight drop last year.

   In its survey on the economy for the third quarter of the year - a vigorous 10.2 per cent growth was posted - the Ministry of Trade and Industry reported an increase of 0.6 per cent in unit business cost, against the same period last year, signalling a return to an upward trend which one official said would have an impact on competitiveness.

   Continued productivity gains were necessary to offset the cost rises, she said.

   The third-quarter economic survey said labour productivity had grown by 5.5 per cent, up from four per cent recorded in the second quarter. The manufacturing sector recorded higher productivity growth of 11 per cent.

   Yang Sy Jian, analyst at Kay Hian James Capel, says the unit labour cost component of the unit business cost does not reflect the squeeze in margins that many manufacturers are experiencing.

   He said that as costs continued to rise, that squeeze would become more pronounced and the trend towards shifting overseas would accelerate.



Claws must be sharpened to keep Lion City in the running