Manufacturing needs an innovation boost

Local companies need to collaborate more, find new markets to target and change their corporate culture.
By Michael Teng Yeow Heng, Published The Straits Times, 6 Feb 2015

AMID the current economic restructuring, manufacturers in Singapore are grappling to meet the targeted national productivity increase of 2-3 per cent per annum.

Where is the silver lining?

One answer lies in transforming the manufacturing sector through innovation-driven productivity.

Manufacturing companies can remain competitive by finding innovative ways to transform their business models, value propositions, target markets, marketing and even their cultures to increase productivity.

'Business as usual' to business model innovation

SINGAPORE manufacturers cannot continue to operate with a "business as usual" mindset. The Singapore Manufacturing Federation, where I work, has programmes to work with local manufacturers, and many companies do benefit from them.

However, based on my own research, my view is that the key to retaining their competitive edge over their regional rivals is Business Model Innovation (BMI).

BMI is coming up with new ways to conduct a business, change or upgrade an existing business to meet customers' demands and generate value.

BMI aims to increase the business performance by capturing, creating, developing and delivering value for customers and the market.

For existing businesses, BMI involves strategies to differentiate themselves from their competitors and ward off start-ups. For new businesses, BMI plans to capture new markets and gain market share.

A key element of BMI is technology innovation. The proliferation of Internet usage, speed of the fibre broadband, ease of access to information, and the popularity of social media - all these change consumer behaviour and influence how businesses are conducted today.

Singapore offers many examples of successful business model innovations. Examples include Newater (conversion of reclaimed water into drinking water), Keppel Corporation (from an ordinary engineering and shipyard operation to one of the world's largest offshore and marine groups) and Jurong Industrial Park (a swampland converted into a major industrial park), to name just a few.

Further afield, the global smartphone industry also demonstrates the importance of BMI. Nokia, which began as a forestry player, overtook its competitor, Motorola, to become the leading digital smart phone provider in 1999. Lagging behind in product innovation, Motorola was overtaken by Nokia, which in turn was overshadowed by Apple.

Mr Steve Jobs used a different business model focusing on consumers' lifestyle. The launch of the iPhone in 2007 was an astounding success.

Similarly, Samsung overtook Apple in 2014 using a different business model of competing on wider-screen designs and riding on the Android platform.

Currently, the market shares of Apple and Samsung are being eroded by fierce competition from Chinese manufacturers, such as Xiaomi and Coolpad, whose business model is to use the same technology but make the phones cheaper and better.

The global smartphone industry sends a clear signal to Singapore's manufacturing industry: In order to remain competitive, manufacturing companies in Singapore have to innovate and transform their business models.

From lone rangers to collaborators

MANUFACTURERS in Singapore need to create more value propositions for the market by collaboration instead of doing it alone.

Teamwork and collaboration are critical success factors during this era of globalisation. New manufacturing technologies are transforming the industry, such as robotics, automation, and additive manufacturing.

Singapore's manufacturers need to collaborate with others to exploit these technologies.

They have some advantages to start with.

Singapore is an international brand, trusted across the globe. Singaporeans have a distinctive strength in understanding Eastern and Western cultures and mindsets.

Who can Singapore manufacturers work with? They cannot compete with low-cost production markets. But they can partner with Chinese companies to expand to the rest of the world, such as Africa and Latin America. Chinese companies' resources can be combined with Singapore manufacturers' international experience and knowledge.

Local manufacturing companies can work with overseas manufacturers, particularly the medium-sized enterprises and those that need a brand name to produce or assemble products in Singapore. Goods with the "made in Singapore" branding have a strong global perception for quality. Singapore companies also need to work with each other and collaborate more to penetrate overseas markets.

Larger firms should support smaller local enterprises by assigning more jobs and contracts to them. Large local firms should position themselves as reliable value chain suppliers to multinational manufacturers (MNCs) in this region so that they can expand together with the MNCs into global markets.

Transforming target markets

TARGET markets are moving from middle-class consumers in the US and Europe to the middle classes in emerging economies, especially in China and India.

Their demands are not homogeneous. In developing countries, the middle class may be more price-conscious and place more emphasis on the functionality and durability of products. The well-heeled middle classes in developed nations are enthralled by aesthetics and additional features.

The strategy Singapore manufacturers can adopt is to "de-feature" so as to lower production costs. For example, rural villages in India need their fridge to keep their food fresh but may not need a deodoriser or an ice-water dispenser.

A Singapore fridge manufacturer could build a low-cost fridge with basic functions, and price it cheaply to sell to emerging markets. They do not need to compete against established fridge manufacturers, which focus more on R&D and rich features that appeal to developed nations' users.

Traditional marketing to K-culture marketing

CULTURE is defined as the "way of life", influencing the way groups do things. The most notable global cultural transformation in recent years is the South Korean influence. The Korean wave or "hallyu" has taken the world by storm, exerting its influence on modern popular culture across the globe.

K-pop is hugely popular in Asia. The phenomenally successful music video of Gangnam Style by South Korean pop star Park Jae Sang, or Psy, broke a YouTube record by becoming the first video to reach a staggering one billion views.

K-drama has also been enjoying tremendous successes. Internet platforms like YouTube with video-sharing capabilities have enabled streaming of content to a worldwide audience. Korean drama Winter Sonata has drawn billions in revenue for its writers and the Korean economy.

Another interesting facet of South Korean culture is the prevalence of plastic surgery, which makes the country a magnet for both locals and foreigners seeking plastic surgery.

The success of K-culture is no accident. It is the result of years of strategic planning and investment by the South Korean government, which nurtures a culture that relies heavily on innovation and exporting ideas, products and entertainment to the rest of the world.

A company's culture is often deeply entrenched and transformation usually takes years. But, if done properly, culture is a powerful engine to fuel the company to sustainable growth.

Many world-class companies such as Google, Apple, Coke and General Electric have strong corporate cultures that enable them to attain leadership positions in their respective industries.

Hence, Singapore's manufacturing companies should review and transform their corporate cultures to focus on innovation with a global outlook. They should embrace a culture that supports innovation in products and services, reinventing of the business model, and talent change as part of their journey towards transformation.

The writer is the assistant secretary-general of the Singapore Manufacturing Federation (SMF) and heads the Singapore Innovation and Productivity Institute (SiPi). His latest book is Business Model Innovation: Introduction To Implementation.