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Dynamic Competitive Advantage: The Case of Singapore The experience of Singapore is that a national vision or plan can be extremely valuable in upgrading economic activity. Singapore has gone through five distinct economic stages since independence in 1959. At that time the country was characterised by industrial unrest, racial conflict, shortages of educational facilities and housing, deterioration of the urban environment, high unemployment and stagnation in entrepot-trade. STAGE 1. The first stage, from independence in 1959 to 1965, was based on industrialisation through the attraction of manufacturing industry to Singapore. The initial emphasis was on importsubstitution in the expectation of the proposed Malaysian common market. The objectives of the programme were to promote growth, to stabilise the labour situation and to provide an alternative to entrepot trade. STAGE 2 Separation from Malaysia brought this programme to an end. Singapore was faced with a loss of its economic hinterland, a very small domestic market and the loss of 25% of GNP and 20% of employment as the British military presence was withdrawn. Gave new impetus to the second stage with the shift to a labour-intensive export-oriented industrialisation strategy. It was at this stage that an "interventionist" approach emerged as the government sought to create an investment climate attractive to foreign firms. The process of transforming indigenous commercial entrepreneurs into successful export firms was thought to be too slow and uncertain. Strong political, social and economic measures were introduced to create a favourable investment climate and attract foreign MNEs. Institutions were reorganised, tax incentives revised and expanded, development of industrial estates accelerated, labour legislation introduced to improve industrial relations, the educational system restructured to emphasise technical education, and industrial training programmes expanded. The timing of this move to industrialisation was fortunate. It coincided with rapid growth in world trade and investment and the development of MNE dominated export platforms. STAGE 3 When full employment was achieved in the early 1970s the third stage, the transition from a low-skill, low value-added, labour-intensive economy to a high-value-added one, was initiated. Rapid growth made apparent strains in the economic structure (acute labour shortages, declining productivity growth) and environment (rising protectionism). 1979 saw the launch of the so-called "second industrial revolution" as the economy was upgraded into sophisticated manufacturing and services. To achieve this radical restructuring the government introduced a range of measures. Restructuring was led by a 3-year wage-correction policy designed to phase out low skill, labour-intensive activities. New fiscal incentives were introduced to encourage industries to shift into technologically more sophisticated activities. R&D efforts were actively promoted. Manpower development was accelerated through the expansion of existing educational institutions and the setting up of new training centres. However, the Singaporean economy moved into recession in 1985 with a negative growth rate (-1.8%). This was soon corrected with the identification of new growth opportunities and the introduction of remedial measures. Growth resumed with GDP growth rates of 9.4% in 1987, 11.2% in 1988 and 9.2% in 1989, being achieved. By the end of the 1980s the Singapore economy had achieved a high level of development: highly sophisticated infrastructure (transport, communications) increasingly skilled labour force. Student enrolments at tertiary institutions doubled between 1980 and 1990. Singapore's engineering graduate output of 38 per 100,000 population is more than that of West Germany (13), UK (19), France (23) and US (32). Singapore's R&D expenditure exceeded S$640 in 1990 (1% of GDP) and is expected to increase to 2% of GDP by 1995. A S$2 billion R&D fund has been established to support the further development of Singapore's scientific and technological capability. STAGE 4 The next stage of Singapore's development builds upon emerging opportunities within the Asia region. Intention is to establish the city-state as a key value-adding switching node in the global strategies of international business i.e. it intends to position itself as a "business architect" to provide an effective interface for businesses to expand into the region. The formation of the SIJORI Growth Triangle is designed to harness the resources and capabilities of Singapore, Malaysia's Johor and Indonesia's Riau islands and to pool their complementary strengths. Coupled with the twinning of business linkages with Hong Kong, expansion into China and Vietnam and outward investment by Singaporean firms. Singapore's Strategic Economic Plan SEP Singapore's key assets are political and economic stability, harmonious industrial relations, a flexible, pro-business environment, sophisticated infrastructure and a highly skilled labour force. Despite this the government has identified a number of areas where it wishes to further upgrade. Eight economic thrusts have been formulated: 1 to 4 are designed to strengthen economic fundamentals; 5 and 6 seek to develop industry clusters and business niches; 7 and 8 attempt to enhance Singapore's economic resilience amidst uncertainties in the international environment. Singapore's Strategic Thrusts for the 1990s Strategy Programme Coordinating Agencies Enhance human resources Implement international manpower programme EDB Promote national teamwork Establish MTI Economic Panel MTI Develop International Orientation Overseas work experience for Singaporeans. Promote Growth Triangle and regional alliances. Develop information infrastructure. EDB NCB Creative innovative climate Review government rules. NPB Develop industry & service clusters Implement cluster-based development plans. Hold cluster workshops. Improve employer-employee ties. Improve labour supply and demand. Cluster agencies. MOL Redevelop domestic industry Set up multi-agency taskforce. EDB/NPB Maintain international competitiveness Form competitiveness monitoring groups. Reduce vulnerability Form scenario analysis group. Encourage positive gov attitude towards local firms. Review institutional support for local EDB MTI MTI MTI EDB firms. Identify and monitor medium and longterm economic performance indicators. Encourage MNEs to set up home base in Singapore. EDB MTI Cluster agencies NCB: National Computer Board EDB: Economic Development Board NPB: National Productivity Board MOL: Ministry of Labour MTI: Ministry of Trade and Industry Strategic Thrust 1: Enhancing Human Resources Enhancement is multi-pronged, viz, accelerating the upgrading of the educational profile and the retraining of the existing workforce; expansion of education and training programmes in the tertiary institutions, tailored to the needs of business and industry; increasing the supply of professional people, through selective immigration if necessary. Strategic Thrust 2: Promoting National Teamwork Measures to promote cooperation between government, business and labour. An Economic Panel been created for consultation and discussion on major economic issues. Sectoral conferences to identify needs and differences between sectors and to seek cooperation between sectors. Strategic Thrust 3: Becoming Internationally Oriented Encouragement of specialist technology corridors and business parks (aviation park, maritime park, medical park). Developing networks-of-excellence in niche areas (finance and banking, petrochemicals, health care, telecommunications and IT). Strategy based on hubbing to assemble resources and expertise in Singapore. Strategic Thrust 4: Creating an Environment Conducive to Innovation Several measures taken including: modification of training and education systems to encourage individuals to exercise initiative; review of government rules and regulations that hinder the adoption of innovative ideas; recognition of creativity, and innovative ideas through public commendations. Strategic Thrust 5: Developing Manufacturing and Service Clusters The size of Singapore means that it can support only a few world-class industries, primarily in niche markets. Track record of government in picking 'winners' has not been good. Current strategy is based on the identification and development of industry clusters within which competitive niches can evolve; largely through market forces. This is a form of "market-facilitation". Industry clusters that have been selected for priority development include commodity trading, shipping, precision engineering, electronics, information technology, petroleum and petrochemicals, construction, heavy engineering, finance, insurance, general supporting industries, tourism. Clusters developed in consultation with industry and relevant government agencies. Cluster development plans will focus on creating core capabilities (eg. natural advantages, created competitive advantages and industry structure/ attributes). Strategic Thrust 6: Spearheading Economic Redevelopment The key industry clusters, together with the larger domestic services represent about 42% of employment but contribute almost 72% to GDP. Smaller domestic service enterprises (excluding government agencies) account for only 9% of GDP but 39% of employment. Several strategies have been proposed to accelerate the development of these laggards (strategic alliances among local companies to exploit scale economies and gain synergies; dissemination of information on market trends, benchmark data; study missions). Strategic Thrust 7: Maintaining International Competitiveness Improved indicators of short-term competitiveness and other indicators of medium and longterm competitiveness have been put in place. Strategic Thrust 8: Reducing Vulnerability Recognises the vulnerability of Singapore's small economy and its dependence on MNEs. Two diversification measures to be implemented are to encourage MNEs to treat Singapore as a home base, rather than just a profitable business location and; to accelerate the development of Singapore's own world-class enterprises. Several strategies to strengthen MNEs in Singapore focus on "home base" characteristics. These strategies include: promoting more sophisticated technical functions (engineering design, product development, business development, R&D etc.). promoting marketing functions for regional markets. encouraging MNEs to identify with the "made in Singapore" label. encouraging localisation of top management. A development plan for Small and Medium Enterprises (SMEs) is already in place.