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World-Class Communities -- Small Package, Big Payoff

Tiny Singapore has outsized advantages for manufacturers.

It used to be that travelers to the island nation of Singapore came to enjoy the hospitality of the elegant Raffles Hotel, a throwback to colonial days and the birthplace of the Singapore Sling. Today those travelers are likely to be international business executives, arriving in droves to establish new facilities in one of the world's hottest communities for new investment. Dotting the bottom of the Malay peninsula, making it look more like a giant exclamation point, Singapore is about one-fourth the size of Rhode Island and is home to 3.2 million people. Yet since its independence from Malaysia in 1965, Singapore has grown from a third-world country with a per-capita GNP of US$529 to a nation with a $24,831 per-person share of GNP and one of the highest living standards in the world. With a strategic Asian location, excellent infrastructure, educated workforce, good communications, Internet-savvy society, and a banking system that rivals Honk Kong's for Asian supremacy, Singapore is a premier business community. In fact, the Growth Competitive Index published by the International Institute for Management Development, Lausanne, Switzerland, ranks Singapore second only to the U.S. for positive business climate. To underscore its attractiveness to companies that make things, consider that Singapore captured 59 new manufacturing projects in 2000. The record US$5.4 billion in new investment by manufacturing companies, up 15% from 1999, came from a global catalog of names such as Pfizer Inc., GlaxoSmithKline PLC, 3M Co., Royal Dutch/Shell Group, Cisco Systems Inc., IBM Corp., Nikon Corp., Mannesman VDO AG, Royal Philips Electronics NV, BASF AG, and Teijin Chemicals Ltd. The biggest project of the bunch is United Microelectronics Corp.'s (UMC) $3.6 billion silicon-wafer foundry. The Taipei-based company's investment is the largest ever in the Singapore electronics industry. The UMC facility will employ 1,900 people when fully up and running. While in the past Singapore has attracted assembly operations dependent on low labor costs, the UMC investment is a perfect fit with Singapore's new focus on capital-intensive, high-value-added, knowledge-based manufacturing. The company located in Singapore for several reasons, including access to a talented workforce and the existence of a stable government. "When we make a big investment it takes years before we can see the return," says Chris Chi, senior vice president, UMC, "so it requires a very stable political environment. This type of business hates uncertainty," he emphasizes. "In addition, ours is a brain-power-intensive business," Chi continues. "In general, the workforce in Singapore is above par, but it is a relatively small pool of workers. So we also intend to import workers to complement the local workforce." The investment arm of Singapore's Economic Development Board (EDB) took a 15% stake in the UMC project as part of its incentive program. "They are very smart in identifying which industries to promote," says Chi. "If you are in one of the high-value industries they target, you get a very good [tax incentive], and the more value-added the products, the better the [incentive]. They are very flexible." This strategy of attracting value-added manufacturing seems to be paying big dividends in Singapore. While manufacturing employment has actually decreased slightly during the last few years, manufacturing output increased 15.2% in 2000 over 1999, and manufacturing contribution to GDP rose to 25% last year from 21.8% in 1999. Most telling is value-added per manufacturing employee, up a stunning 43% overall since 1998, and up 30% in electronics in just the last year to US$110,000 per manufacturing employee. To accommodate the needs of the new knowledge-based workforce, the EDB has deployed numerous training programs and support packages. That's in addition to Singapore's already-solid educational system, which has produced a 92% literacy rate and an English-language capability of 71% among the population. Singapore's National University and Nanyang Polytechnic Institute are both world famous. Over 10,000 information/communications specialists per year are expected to flow out of Singapore's institutes of higher learning over the next three years, as well as 3,000 people per year trained in silicon-wafer fabrication and liquid-crystal-display technology. "A large number of information-technology-educated people are coming up right now in the Singapore workforce," says Jouko Karvinen, executive vice president of automation-technology products for ABB Group, Zurich. In December ABB announced the opening of its industrial-information-technology and automation center in Singapore to provide service and support for the company's automation businesses. Included are a training center, a customer call center, and central logistics and e-business support for all of Asia. "In our new center we will need these types of people who are knowledge-based," says Karvinen. "What they have less of is experience in processes of our customers. Now we train them at our European facility to add to their already-strong basic education." In March US$29 million was allocated to an EDB program that supports overseas training of engineers and other personnel, adding more funding to a program that was launched in 1998 with a $29 million stipend. The program helps pay for the transportation, living expenses, and salaries of workers sent overseas for training under the auspices of the manufacturing companies locating in Singapore. One U.S. company that has benefited from grants under this program is Eastman Chemical Co., Kingsport, Tenn., which opened a $200 million complex in Singapore two years ago. The company was able to train the lead operators in an Eastman facility in Texas, something that contributed to a flawless start-up for the Singapore facility. The plant was up to full capacity in just a few days. In fact, it set a plant-start-up standard at Eastman Chemical worldwide, says Mike Humby, the regional business manager in Singapore. "Everything from day one was on spec and easy to sell," says Humby. "I think our attention to detail and the training of our employees was an essential element of the success." Education contributes in at least two ways to Singapore's global competitiveness. For one, "there is a desire to be the best," notes Humby. In addition, there is evidence that Singaporeans anticipate the education needs of the companies locating facilities in their country. For example, Nanyang Singapore's Polytechnic Institute was among the schools actively preparing themselves to meet the demand for chemical technicians as Eastman Chemical was moving in. Singapore's new vision of manufacturing includes the concept of industrial clusters. In practice, this means that companies in similar industries are located close to each other to be able to take advantage of economies of scale in logistics and support services. Nowhere is that more evident than on Jurong Island, an area just off the coast of Singapore that's actually seven small islands connected by land reclaimed from the South China Sea. Jurong now is home to 60 chemical and petrochemical facilities representing US$12 billion in investment. Shared facilities include waste-water treatment, shipping terminals, electricity supply, steam generation, an e-business platform for electronic exchange of documents, and feedstocks. "[Locating on Jurong Island] allowed us to make more efficient use of our investment dollars, focusing on our proprietary technology," says Humby.

Singapore's Productive Workers Although Singapore's manufacturing employment has decreased slightly in recent years, output has increased and productivity has risen steadily.

Year Value added per
manufacturing employee
1996 US$45,000
1997 $47,000
1998 $49,000
1999 $61,000
2000 $70,000
Source: Singapore Economic Development Board
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