with Phillip Overmyer, Chief Executive, Singapore International Chamber of Commerce (SICC)
Singapore has many government-linked companies that play an important role in the country’s economy. Would you say that these companies have been an instrument for the growth of the country or merely a reflection of the country’s economy?
There is a focus on certain key industry segments in this economy. The main reason for this is to make sure that these particular industries and capabilities exist in the country. In this way, the economy can grow by focusing on certain key areas. At the moment there is more privatization going on as the government relaxes its interest in these government-linked companies. The port authority for example continues to be wholly-owned by the government, although attempts have been made to divest some of its parts. The overall strategy has been a very well developed instrument and a great success.
You say there are many different niches Singapore wants to focus on, where do you see the most potential?
You have to keep adjusting these areas especially in a small country like Singapore. The Singaporean government has been generally able to focus on the right sectors while it also managed to be very quick in responding to any mistakes being made. Such shift in focus was never an attempt to push certain companies out of business but rather ensured a more efficient allocation of assets. When Singapore became independent from Malaysia, it was facing a very high unemployment level and had only few industries. The factories that existed were making products for internal use in Singapore and Malaysia only. Consequently, the government wanted to change this and opened up the market. Facing a lot of unskilled labor and vast areas of swamp land, the government built manufacturing areas with high employment requirements and relatively low skills. Some of the starting industries in Singapore were toys and garment manufacturing. The government then gave 100% ownership of these companies to the private sector and studied the market to see what toys and garment factories needed to improve and built facilities accordingly. In a next step, after upgrading the local infrastructure, foreign investment was sought to sell such factories. Four to five years later, there was less unemployment but wages were also very low. Singapore therefore looked for industries that would generate higher wages and to do so it tried to focus on electronic assembly for products such as television sets. This offered a way to move up and upgrade the economy. A company that is in the semiconductor industry in Singapore today makes its top-end products in the country while the lower-end products are being produced in other Asian countries such as Malaysia, Thailand and China. Up until a year ago, the bulk of these products eventually ended up in the home market again or was used for export to Europe and the USA. Other sectors that have grown significantly are the pharmaceutical industry and financial services. The initial factories had to either completely change their manufacturing process, pay much higher wages or leave. As a result, the initial lower-end industries saw themselves being priced out of the market and disappeared. All these events created a particular economic structure that keeps evolving upwards. Unlike Hong Kong where manufacturing completely stopped, Singapore is now relaxing its focus on manufacturing industries, limiting their contribution to 25% of the GDP. In addition, the nature of these industries is becoming higher and higher with increasing automation and less unemployment. One of the biggest projects that just rolled out is the Rolls Royce operational set-up in Singapore demanding very high precision work for which only a few skilled employees are needed. Besides this, there is a shift towards service-related areas. These areas basically fit into two broad categories, one of them being financial services. Twenty years ago, Singapore was known for having the second or third largest foreign exchange market in the world. It still is, but now Singapore has also become a major competitor of Hong Kong and other centers in terms of financial services. All of the financial firms here in Singapore are trying to attract global investors to put their money into Asia via Singapore. Another change that Singapore is pushing in the services area is to start building Singapore up as an R&D centre covering a wide range of industries including the oil and gas industry. The oil and gas industry is actually one of the few industries that has been strong and ongoing for a long time here. Its big challenge now is the competition here in the region and the high cost of doing business in Singapore.
What direction do you see the oil and gas or oil and gas-related industries going?
The big challenge is to understand what is happening in Asia, especially in China and South-Korea, and to find out whether their activities can really be competitive. The question is whether the independence of the Singapore business can outweigh the focused interest of national business in for example China. Singapore has a heavy lead in the breadth of industries offering the basic refining companies, access to raw materials in the region, massive refining structures as well as downstream activities and a geographically well located port. The challenge is to continue to shift the right part of the industry into Singapore to help the sector grow faster.
The Singaporean government is also pushing and investing a lot of money within each industry including investment into several associations and chambers. Do you think the efforts are sufficient to support business associations and the business community?
At the moment, the government is fundamentally working to support small local companies and is trying to identify those companies with high potential. Singapore is wondering how to get other industries to pop up, how to get people in creative industries, how to get people to think of new companies and new operations. Chambers can help find those companies. It is not hard to attract the top five petrochemical companies but it is nearly impossible for a government to figure out which SMEs have the most potential. That is why it funds chambers and associations to help out in this search process. SICC is a little bit different. It is the oldest chamber of commerce certainly in Singapore and pretty much in Asia. In the way it was formed in 1837, it targeted big companies for membership. What SICC does that interests the government and companies is feeding them with potential solutions that allow them to become more profitable in Singapore. One of the current areas for example relates to last year’s governmental study that tried to identify the new industrial and social objectives in Singapore directed by the Mister for Finance. If you look at the Western market, you find flat growth if any. Here in Asia, there is huge growth. The MNCs are already in Asia and if they are not in Singapore now, they will not be in the future. There are also very strong and capable SMEs that would like to open up in Asia and mainly address the Chinese market. Hence, they try to go to China and often fail in the market due to the different business approach. What Singapore now tries to do is to go to Europe and the USA and tell these SMEs to come to Singapore. If SMEs come to Singapore, they get the help from people in Singapore that know these local growth markets. In addition, if China for example is a success and the SME wants to address other markets in the region such as India or Vietnam, it can do so easily from Singapore. When the SME directly goes to China, it will be much more challenging to expand into other countries in Asia afterwards. With a small regional headquarters, companies and their executives and families can come to Singapore and serve the Asian markets. The problem is that when you drop below the top 10 companies in the industry and drop down to the next position, you end up with thousands of companies. To know who is who, how to sieve your way through, how to find the right companies and how to get credibility, Chambers of Commerce can provide a viable solution. In a second instance, a non-governmental organization such as SICC can tell SMEs what it is really like to do business here and in this way provide a different point of view than the one portrayed by the government.
Networking in Asia is very important to do business and is also one of the strengths of the SICC. Do you think that the need for Chambers of Commerce is bigger in Asia and Singapore than it is in the rest of the world?
Chambers of Commerce are very good institutions but there are also countries where they are not that successful. There are basically two models to the Chambers of Commerce: the private and the quasi government-owned chambers. Up until around ten years ago, Singapore only had a private Chamber of Commerce until one of the ministers decided to introduce a government-controlled chamber which became the Singapore Business Federation. From a corporate perspective they are private, but once a company exceeds a certain limit of corporate capital, it is required by law to join the SBF leaving this Chamber with 15 to 16,000 members. Another entity is the Singapore Chinese Chamber of Commerce and Industry covering around 4000 companies, most of which are family businesses owned by ethnic Chinese. The fact that SICC still exists with only 800 members generating around 60 to 70% of the corporate turnover in Singapore implies that the industry tries to balance out where to get value. That is how the chamber system works here and I believe it is similar in other countries too. About every two years, there is a conference that attracts Chamber of Commerce representatives from all over the world. None of these chambers look alike but they all seem to be very helpful and successful although the majority tends to work with the smaller companies. Bigger companies find less need for these services.
Since 39% of your members are Singaporean, do you think that your members are going to be more international or are Singaporean companies going to strengthen their role?
From the focus of the company, one should ask where the company is really from. While 60% are foreign companies, many of the Singapore registered companies are 100% owned by foreign entities and individuals. The mix of companies is becoming more important today than it was in the past. The Singaporean companies join because they want to connect with the international companies and learn from them. Singapore is also unique in this since there is no real local market. It is thus of value to them to understand what these MNCs have learned from the markets in Asia. In addition, they try to learn from the home markets of the MNCs. The other part that should be taken into account is the people running the companies. Twenty years ago, these people were foreigners. Board members are chosen according to a ratio that represents the nationalities of the members in the Chamber. In the past, half of the people on the board used to be foreigners. Today, this amounts to approximately 15% while many of the foreigners actually hold a permanent residency here. In conclusion, you cannot just look at the company name and registered headquarters. You need to take into account who runs it and how they actually operate in the region.
What would be your personal ambitions in the coming five years and how do you see the role of SICC evolve?
The big thing for SICC to do is to attract these SMEs with high potential. They have a rare opportunity now to recognize the flatness of their home market and instead participate in the current growth markets of the world. The current growth market without a doubt is Asia. Latin America is coming along, but Asia is way ahead. The markets are here and you need to understand how to address them. Singapore has a very unique sales perspective in that way and SICC can benefit a lot from working with the government on this to help SME companies decide whether they can come to Singapore. These SMEs have different needs and interests than most of the MNCs.
What kind of final message would you like to portray to the readers of Oil and Gas Financial Journal?
The oil and gas sector of the economy is at the core of Singapore’s long term success. It has always been and with this government it will continue to be. The independence that Singapore has in this industry provides great economic advantage for companies that want to be in this sector. The companies that you need are all here rendering Singapore a very comfortable place that connects you to the entire industry.