Is Singapore Economy In Danger for Long Term Decline (Part 1)? – The Flaws of “Seduction Model”

More than fifty years ago, Singapore has no money, no talents, no technical expertise, but only low-cost labour who are willing to work extremely hard and humble ourselves to learn fast from foreigners who unselfishly imparted their knowledge to us. Back then, Singapore is a blank piece of paper. LKY and his team did an absolutely amazing job in attracting foreign investments, utilising his charisma to build friendships with foreign nations, who help this “little red dot” to become where we are today. As a nation, we are politically stable with friendly foreign policies. Banks grown rapidly and our manufacturing expertise improves by leaps and bound. Together with our good port location and the unique West-East culture, trading flourishes.

The above economic model of making Singapore attractive to foreign investments is what I termed as the “Seduction Model”. Today, we are still deploying and advocating this model. In parallel to this model, we have also established Temasek Holdings to invest in companies globally. At the same time, many state-driven enterprises gradually become portfolio of Temasek and were public listed and had evolved over the years.

THE “SEDUCTION” MODEL

Recently, Alvin of Dr Wealth exchange some message with me describing his views on the seduction model. The message:

“The Government, with its monopoly on talent, has figured things out ahead of us. We are not in a favourable position to create a world beating MNC. The odds of that happening are very low. The next best thing we can do is to attract foreign MNCs so that we can tax them. We have to be prudent with our expenses and invest our large foreign reserves to bolster our financial future. We need to operate as one Singapore Inc.

Singapore’s superpower is closely linked to our financial and economic status. We have no resources; we only have money. We cannot lose this power. The only way to preserve this and to ensure our survival is for our government to plan, execute and function as one Singapore Inc.

Hence, Singapore just needs to attract Google, Facebook, Amazon, Apple and the likes to set up shop here. But we need to provide the infrastructure (Smart Nation), talent pool (re-skill workforce if we need to) and political stability, else they won’t come. With their presence, our Small Medium Enterprises (SMEs) can become vendors to these MNCs, earning good profits for our towkays and provide employment to Singaporeans.”

https://www.drwealth.com/why-investors-are-angry-with-singapore-blue-chips/  

Rolf’s thoughts:

As usual, I will speak my mind from my heart rather to be politically correct. That said, it is just my two cents thoughts. I hope readers are not perturbed by my pretty direct comments, whether or not you agrees with me. *Smiles*. Nonetheless, I welcome disagreement and constructive and fair reasoning!

The seduction model is still of paramount importance today. However, this sole successful model for us, has many flaws as we progress economically.  Let me explain as follows.

THE FLAWS OF “SEDUCTION MODEL” 

The seduction model worked extremely well when we first started to build a nation. Nonetheless, as Singapore emerged from a third world country to a first world country, we are experiencing the diminishing marginal returns of the model. This is the direct result from increasing cost, ageing population, changing of mindset etc.

Instead we should, in parallel, build on the “Penetration Model” if we still want to remain where we are, over the long term. I will explain this model in Part 2.

Always dependent on others

While it is extremely important to continue to attract foreign investments, the over reliant on this model, means the “forever” dependent on others, and the lack of emphasis to develop our companies and brands. Singapore has limited home-gowned companies that can induce regional or global presence, where we can tax from or gain export revenue. In circumstances like this, if foreign MNCs start to pull out their investments, or relocate their HQs elsewhere, we will suffer serious economic consequences. Yes, we have strong reserves, but we cannot expect them to last forever!  

MNCs relocating Asia Pacific HQs

Personally, I have experienced and see the increase of global MNCs relocating their Asia Pacific HQ from Singapore to Shanghai or Hong Kong or even Kuala Lumpur in the last decade or so. The relocation to Shanghai or Hong Kong is a no brainer due to the proximity to the growing and huge market of China. The dynamism of China greatly over-shadows us. It may seem apparent because of the sheer size of China, however it is not true. The main driving factor is the hunger, the competitiveness, and the eagerness of Chinese to learn and to improve! Brazil and India are also big countries, but look at their progress!  

High cost in Singapore

Then, there is relocation to Kuala Lumpur due to the escalated cost of living in Singapore. For countless times in my work, I have heard foreigners said “Singapore is just too expensive”. Yes, Singapore may have increased efficiency compared to Malaysia, but in times of crisis or when business is not doing well, cost control is first priority. In any case, our high costs in almost everything is also depriving the success of entrepreneurs here. In my opinion, there are so many more successful SME entrepreneurs in Malaysia than Singapore, as the low cost environment gave the entrepreneurs a better chance of success or at least an easier option to bounce back up!

Crisis

In times of crisis, foreign countries may want to protect the businesses of their own countries and may shrink investment outside their home countries. Then foreign direct investments will be reduced potentially leading to the shutting down of operations here. This is happening now, as many MNCs are cutting headcount in Singapore rather than their own countries for the sake of protecting the jobs of their own people!

SEA Market is still developing

Despite many MNCs relocating their main focus to China, Singapore will continue to be the ideal location as HQ for South East Asian Market (SEA). That being said, the market within SEA is still way too small and still have a long way to go, except potentially Vietnam. ASEAN companies are also too price conscious at the expense quality, and are also comparatively poorer paymasters, making business in the SEA region very difficult and not profitable. Again, this is stated from my personal experience and concur by many that I have known.

Impossible to re-skill workers within a short time

Due to our over reliance on foreign investment, we will always have to adapt very quickly to the demands of foreign investments. Otherwise, they will head elsewhere. Hence, we will always have to re-skill our workforce very quickly or even abruptly to cater to the world of change. However, it is not as easy to re-skill effectively within a short space of time, for employees who had spent decades of their career in an Industry, and now wanting them to abruptly change their skill-set. Our aging workforce makes matter worse. 

Kowtowing others and step on our own kind

The seduction model essentially means we have to be very accommodating to foreign nations or foreigners. We have little control over our own fate. Singaporeans are known as one of the most accommodating towards foreigners. However, overdoing it, may also explain why we tend to “belittle and squeeze” on our fellow countrymen and kowtowing to foreigners! I think the correct approach is to be truthful and reasonable and it is not necessary to be overly accommodating, in order to build a strong and sustainable relationships with others/foreigners. I have sufficient foreign friends to justify this point. 

This negative trait is something I never seen in other countries, where they always protect their own people, their own companies and their own countries! There is a lack of camaraderie spirit in Singapore. Selfishness and short term self-gain is more prevalent than the bigger love for the country. The concern upon the long term future of our younger generation is clearly missing by the majority. 

For e.g. When I was a supplier with local SME, local big Singaporean clients will tend to “threaten and squeeze to the max on local SME suppliers with unreasonable terms!”. But when I am in western MNC, especially when I am with my “Ang Moh” colleagues negotiating, the treatment and the tone of the same local customer will somehow become more subtle and negotiation becomes more reasonable.

A friend working as a consultant just told me that a typical project, where Stat-board company squeezing Temasek-owned company dry and no margin left in the project with unreasonable request.

Who say local SME vendors have good profits?

Alvin mentioned, that with MNCs in Singapore, then our SMEs can become vendors earning good profits and provides employment for Singaporeans.

This is not necessarily true from my personal experiences. The lower the supply chain which is where the local SMEs are, the lower the profit. In business, when you are at the mercy of others, with so many competitors, your margin is normally thin or frequent times even making imminent losses when you underestimate the cost! Furthermore, we also know that most of the good local businesses are assume by Temasek owned companies or foreign MNCs here.

The poor man’s mindset of forever being a vendor!

Singapore companies should not be “forever” only wanting to be a vendor. This mindset is very locally bound, safe, and government sheltered mindset with limited international competitive experiences/exposures, which explains why Singaporeans are unable to progress out of Singapore or SEA or thrive in a developed-country-foreigners’ dominated environment. 

Why can’t we also be the customer in other countries?

I know that there are many smaller sized countries who manage to product big foreign MNCs achieve this! These companies are higher in the supply chain here, and Singaporean Vendors have to be at the mercy of them. For e.g. Neste Oil and Gas of Finland is building a mega plant in Singapore. Orsted of Denmark is investing heavily in Taiwan. There are more examples. 

WHERE ARE OUR GLOBAL COMPANIES/BRANDS?  

Let’s assume our local SMEs are making profits. Then where is our local bred companies/brands with international footprint?

We love selling away our good companies

We used to have “Tiger Beer” as an internationally known product. Tiger beer was later sold to Heineken, for some reason I do not know. Heineken was originated from a relatively small country, Netherlands. Likewise, Carlsberg from Denmark, a country with same population as Singapore. I have this feeling that Singaporean entrepreneurs love to cash out once their companies have grown to a certain level. On the contrary, in US, Europe, China or even Malaysia, they have the belief to keep on growing or at least pass it on to their next generation.

Stop using Military leaders as Political leaders or CEOs

Then we had NOL, but it later become a laughing stock with growing losses! Yet, former Chief Defence Force Ng Yat Chung who ran NOL, continue to be granted as CEO of SPH after his failed expedition in NOL. I have nothing against people with military background. One of my very good friends are from the Airforce in the first part of his career and goes on to be very successful in the private sector. For military leaders who spent most of their career in SAF until they become colonels or generals, let us ask ourselves if they are truly suitable to be business or political leaders? How many success stories are there in history? Yet, we continue to think that military leaders are the best option for our country! 

Mediocre Global Brands

Perhaps we consider brands such as Razer, TWG, OSIM, Rauol, Crystal Jade, Charles and Keith global brands? My foreign friends do not know these names. Instead, they heard of Nokia, Ericsson, Shell, Unilever, Nestle, Roche etc

The One-time success story only!

Creative Technology’s sound blasters once upon a time, manage to achieve global status. Soon after the “one-time success”, it died out and went on a decline. Hopefully we do not see similarity in our Olympiad Gold Medallist Joseph Schooling, although it is becoming very much the same. 

Fortune 500 Singapore companies

How about our home-grown companies with global footprint or being international recognised or in Fortune 500? After a search, I found no home-grown companies except for Wilmar.

Only good in our own country!

DBS, OUB, OCBC…. Yes, three very stable and well-rated banks, but how about their global footprints? Singtel, Comfort Delgro, ST Engineering, Keppel, Sembcorp etc expanded overseas, but how successful are they? Singtel acquired businesses in India and Australia, but are these businesses in foreign land successful? Please go and check out Singtel performance in India for answers. Comfort Delgro, ST Engineering and many other Government/Temasek-supported companies are in my opinion just mediocre when it comes to overseas performance. Even our stronghold REITS mainly only performed well within Singapore or Australia, outside which, performance are average in general.

CONCLUSION

To conclude at this juncture, Singapore is fabulous when it comes to making Singapore good locally. But once we venture outside Singapore with foreign competitions, we always become mediocre.

Do not get me wrong. I am not being the condemner for the country I live and love. In reality, it is because I love this country, that is why I am voicing out. Hoping that we can improve and is able to the truth and  to change our “Mindset”.  

In my lifetime, I very much think that I will not be affected much even if we are heading for an economic decline. My children’s generation will!

In Part 2, I will detail why being a small country with limited resources is not necessary a disadvantage. And there are many examples of smaller countries utilizing the “Penetration Model” with companies and brands thriving in the International arena.

Further to that, I will explain why Singapore is unable to produce local talents that can compete in the international arena. Again, it has nothing to do with our small population, but rather our “flawed and narrow mindset” as a result of lack of International competitive exposure, including most of our leaders. Yet, we are not humble enough and always think that we good!

The reality is… we were good!

This also explains why many talented Singaporeans who can excel in a competitive foreign environment within develop countries, have chosen to leave the country.

To be continued….