Wednesday 6 April 2016

A productive approach to transforming industries

To boost productivity in construction, a HDB subsidiary can buy and lease labour-saving equipment to smaller companies. GLCs can partner SMEs as preferred partners to go overseas. The $4.5 billion Industry Transformation Programme announced in this year's Budget has to offer targeted measures to boost specific sectors.
By Ho Kwon Ping, Published The Straits Times, 5 Apr 2016

Studying industrial productivity is like observing babies - they all look the same from afar but, close up, each is different. While broad measures like birth weights and size vary little, it's the small differences which matter the most - for your own baby as for your business.

By the same token, statistical indices, whether for productivity or for demography, tell only a crude and very general story: the broad themes but not the critical sub-plots. Generalities disguise the unique differentiations underlying each industrial sector's productivity challenges.

Like the proverbial shotgun where a sharpshooter's rifle is needed, government attempts to increase economic productivity must move beyond broad initiatives such as the Productivity and Innovation Credit scheme which any enterprise can take advantage of, to highly targeted measures appropriate to the different needs of each industry sector.

Singapore's economy today is far more complex than when I joined our family business 30 years ago - much less Singapore at its founding. Blunt instruments of monetary and fiscal measures can affect the environment within which companies function, but meaningful and complete economic transformation must be primarily sector-focused, in recognition of the complex differences between each sector.

This is precisely what the $4.5 billion Industry Transformation Programme, announced in this year's Budget, seeks to do. If it succeeds with each of the 20 sectors - and probably more sub-sectors - for which individual road maps will be created, Singapore will truly be transformed for the next 50 years.


The current productivity conundrum in Singapore has been long in the making. It is the unfortunate product of a dual economy which has existed since our founding.

On the one hand, the large, MNC-led export-oriented economy had to be, from the outset, globally competitive to simply survive. Therefore, productivity-upgrading efforts, such as during the mid-1980s, were focused on this sector.

In contrast, the domestically oriented economy could afford to be globally non-competitive - ergo the continuing dependence on cheap foreign workers with low labour productivity.

I have written on this subject in the past, arguing that the smaller domestic economy, such as construction, retail and hospitality, and other services which are location-bound by their nature, for many decades suffered (or enjoyed, depending on one's perspective) from a benign and even possibly semi-intentional neglect. A low-cost domestic environment certainly made Singapore more attractive as an export platform.


This dichotomy between a high-cost, high-productivity export economy and a low-cost, low-skilled and low-productivity domestic economy continued to grow over time. I remember this first-hand: I sold off a family-owned construction company in the mid-1980s in expectation of labour-restricting, productivity-increasing measures being introduced in the construction industry, which would be painful but ultimately beneficial ( I didn't want to wait ).

But the crunch never came. Today, productivity in the Singapore construction industry remains closer to Third World standards than to the First World economy we have become. The same is true for other labour-intensive, domestic-focused service industries; their productivity at best approaches Second World standards.

The problem is that productivity growth is not only very slow, but also very difficult to achieve, but for quasi-political reasons - Singaporeans' antipathy towards too many foreign workers in their midst - this transition is being pushed at an extremely painful pace for small and medium-sized enterprises (SMEs). It needs to be done, but for the domestic-oriented SMEs, special attention must be given to their needs.

For example, upgrading the construction industry will require a lot of coordinated work beyond just turning off the tap of cheap, unskilled foreign workers and giving accelerated tax allowances for buying labour-reducing machinery, or credits for skills upgrading.

Because of the continuing shortage of skilled Singaporeans willing to work in this industry, a policy of encouraging the influx of one highly skilled foreign worker - at supervisory level, for example - to replace two (or three) unskilled foreigners - may be more appropriate here than simply cutting off the supply suddenly.

Another industry-specific measure which would really help the construction industry upgrade is the creation of a government- owned company which would own myriad labour-saving equipment and employ a pool of foreign, highly skilled specialists and supervisors; the company would rent out equipment and hire out its skilled supervisory staff at subsidised rates to companies when they win a construction contract. This makes upgrading less painful for companies which simply cannot afford to compete for contracts while burdened with increasingly expensive overheads.

For the entire sector to increase productivity, building materials technology, particularly via pre-fabrication of entire modules such as bathrooms and kitchens, will play a critical role. But no private company will invest in such facilities with a small domestic market such as Singapore's. This is where a Housing Board subsidiary could invest in such facilities and supply to both the private and public housing developers and contractors - in any size, shape or quality of finishes but entirely pre-fabricated.

In its early years, the Government invested in a trading company Intraco and steel plant NatSteel as strategically important businesses. Singapore today needs similar companies to service the entire property development and construction industry.


Household services are a totally different matter. To encourage women to work, households were allowed to quite easily hire foreign domestic helpers. In order to maintain our relatively high female labour force participation rate, the Government has not tightened the screws on the influx of foreign maids as it has for foreign construction workers.

In the future, however, even this still-liberal policy has to inevitably change, so a future-ready approach would be to encourage the emergence of millennial entrepreneurs in online-enabled household services, ranging from grocery shopping to high-productivity house-cleaning or meal-supplying services.

These are SMEs of the future, to be undertaken by tomorrow's entrepreneur-wannabes, such as our new graduates. Construction companies are SMEs of the past, to be brought from Third to First World standards. Both are so different that measures to help them need to be individually crafted.

Even within the same sector are sub-sectors whose needs are different. The food and beverage business is a case in point. Helping traditional hawkers who sell food in hawker centres to be more productive requires different measures from, for example, cajoling hotels to share their banquet and catering staff with one another, or nurturing a scalable fast-food enterprise to become international. And the list goes on.

The term PPP usually refers to public-private-partnerships in large-scale infrastructural investments. But PPP can also be the core concept behind the Industry Transformation Programme, where sectoral road maps will be created and executed through a partnership including industry associations and government agencies.


While productivity enhancement and access to foreign labour are two important issues, other imperatives in the transformational journey will be internationalisation and technological upgrading.

Another P-to-P is not Public-Private but Private-to-Private, that is, inter-company collaboration. Should Singapore companies cooperate more actively - as they seem to be elsewhere in Asia - in order to be more competitive, particularly in overseas markets?

The obvious answer is yes, but genuine industry collaboration is easier said than done. In countries which are vaunted for this, often the reality is one of oligopolistic practices quietly sanctioned by political cronies. The zaibatsus of Japan and chaebols of Korea, for example, with near-mythical business prowess, have now been largely discredited as cartels which collaborated to prevent outsiders from gatecrashing their cosy arrangements.

Hong Kong property tycoons collaborate often in property deals, but also in a near-cartel situation of risk-spreading - and property joint ventures by their nature are easy to collaborate on because of their quick mutual exits.

The landscape of Singapore- owned enterprises largely comprises the ultra-large TLCs (Temasek-linked companies) and GLCs (government-linked companies) on the one hand, and the truly private-sector SMEs on the other hand.

The TLCs/GLCs have successfully penetrated overseas markets in ventures as varied as retail mall investments, offshore fabrication services, or industrial park development - to mention just a few.

It is quite feasible to craft a P-P collaboration, Singapore-style. Without violating principles of transparency and meritocracy, or World Trade Organisation rules of equal access, these TLCs/GLCs can create a system where they have a periodically refreshed list of Singapore SMEs selected through an open and transparent process as their "preferred partners" in overseas projects, whether it be in logistics or consultancies, retail shops or other kinds of service or product providers.

This "preference" would be expressed, for example, as additional evaluation points or percentage in pricing (depending on the case) in any tender process called by the GLC/TLC and which would probably also include companies from that overseas country.

A one-size-fits-all approach to industry transformation can have unintentionally contradictory results. In supply-chain and logistical services, for example, the application of more sophisticated computer technologies can dramatically increase efficiencies and productivity.

In the banking world, however, advances in financial technologies - now called "fintech" - are likely to render entire echelons of highly skilled and paid analysts and brokers redundant. Each industry has its own challenges and solutions, and it will be the task of each player in the partnership to devise workable solutions.

Pathways to success in SG100, whether in education, careers or business, will be variegated, intersecting and, above all, with road maps drawn up by the drivers as well as the road-planners.

Welcome to the new Singapore.

Ho Kwon Ping is the executive chairman of Banyan Tree Holdings, a Singapore-based leisure business group.

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