Singapore Inc - Singapore's booming economy - includes related article - Native Know-How

Chief Executive, The, Jan-Feb, 1993 by Peter Lacey

Though governed by an iron-fisted autocracy, Singapore is prospering and solidifying its position in Asia as a manufacturing and financial hub.

"The Singapore government tries to satisfy everybody: corporations, labor, consumers," says D.M. (Denny) Houston, chairman and managing director of Esso Singapore, an Exxon affiliate. "From a business perspective, it's a wonderful example of what the world could be." The perspective from Houston's office is equally impressive. Facing south on a high floor of a Singapore office tower, it encompasses coastal landfill areas checkered with hotels, shopping malls, and a huge new convention center. Beyond, in the Straits of Singapore, looms the giant Esso refinery on Ayer Chawan island.

The vista offers a tangible representation of prosperous times for Singapore, an island nation of 3 million people shoehorned into an area slightly smaller than New York City. The republic's gross domestic product grew at an average rate of 8.9 percent between 1986 and 1990, though more recently growth has slowed. Its per-capita income in 1991 amounted to $13,200, behind only Japan, Hong Kong, and Australia in the booming Pacific Rim.

One reason for the growth: Singapore is business friendly. It has few trade barriers, and funding for new firms is available from capital-rich local banks and arms of financial giants from the U.S. and Europe. Predictably, the joint is jumping: In 1991 there were 3,000 multinational corporations with offices on the island. About 600 are American--including a majority of the Fortune 500--and most have done well. In the five years ended December 1990, they posted an average annual 37 percent return on investment, according to the U.S. Department of Commerce.

Among the largest MNCs in Singapore--besides Exxon--are Du Pont, General Electric, Citibank, IBM, and Hewlett-Packard. Hot sectors include aircraft maintenance, telecommunications, computers, electronics, and chemicals. Even Hollywood has crashed the island scene. Local film, television, and video concerns are working with U.S. companies to become a Southeast Asian connection for these industries.

On the down side are a shortage of skilled workers and steep wage rates. The latter have risen by double digits for three consecutive years, narrowing the competitive advantage of operating in Singapore. In addition, some of the vaunted tax breaks for labor intensive manufacturers have been withdrawn. Anxious to attract the technology Singapore needs to sustain growth, the government now offers incentives to high-tech firms. As a result, some have shifted gears: General Electric recently began making aviation equipment instead of radios.

Singapore possesses the world's busiest container port in terms of tonnage, receiving more than 45,000 vessels a year. Since its days as an outpost for the British empire, the republic has engaged in "entrepot" trade--taking a margin out of commerce passing through its port, and storing and re-exporting imported commodities. Not surprisingly, shipbuilding and repair are big businesses on the island. Among the largest local companies are Keppel Corp. and Sembawang Shipyard.

Denny Houston's Esso does a brisk business fueling the vessels that pass through the port. The Ayer Chawan refinery, which has a capacity of 230,000 barrels a day, processes crude oil for Esso and also services other producers. On the main island, Esso's Jurong Marketing Terminal refines lubricants, and in the company's downtown office, its traders take advantage of Singapore's status as a major oil trading center. Esso Singapore has about 900 employees and capital investments approaching $1 billion.

Nearby, Wilmington, DE-based Du Pont has also set up shop. "Du Pont is spending a million dollars a day in Singapore and will continue to do so over the next three or four years," says H. Daniel James, managing director of Du Pont Singapore and group managing director of Du Pont ASEAN (Association of Southeast Asian Nations). Locally, the chemical giant employs 700 people in operations that include manufacturing plants for its Lycra, Nylon, and Delrin products, and a corporate data center for its Asia-Pacific businesses.

From Singapore, James runs Du Pont's manufacturing and marketing in Indonesia, Malaysia, Thailand, the Philippines, and Brunei--the nations that along with Singapore comprise ASEAN, a quasi-official trade bloc. Although only $2 billion of Du Pont's worldwide revenues came from its Asia-Pacific companies in 1991--about 5 percent of the total--James thinks the figure is bound to grow, particularly in the ASEAN countries.

"The ASEAN region is the fastest-growing economy in the world," he says. "We expect a higher rate of growth there than any other place in Du Pont."

ASEAN, a megamarket of 325 million consumers, could expand by more than a third if Vietnam, Laos, and Cambodia join. Its growth is outpacing that of the EC or the U.S.

At the fourth ASEAN summit meeting in Singapore last January, members agreed to create an Asian Free Trade Area (AFTA) within 15 years. The bloc's six nations do about $30 billion in trade with each other, but that is expected to surge--likely at a rate faster than that of ASEAN's trade with outsiders. Thus, many foreign companies see Singapore as a springboard and base for regional operations. Some outsiders team with local partners: In 1991, IBM and Singapore's Hong Leong agreed to produce PC clones for sale in Asia.