Strategy: How Countries

Compete
- Singapore
 History
• Trading centre and port since 7th century
• 14th century: Chinese immigrants
• 16th century: Portugese take control from
Malay rulers
• 1819: Sir Stamford Raffle
– British control
– Broadly naval port + rubber + tin
– Post 1869 (Suez canal) major port for refueling
& refitting
– Around 100,000 employees
• World War II- surrendered to Japanese
• Back to British crown after the war
• 1955: Limited self rule for Singapore
– PAP under Lee Kuan Yeow
• 1963: British Withdrawal
– Federation of Malaysia - Malaya,
Sarawak, Sabah & Singapore
– Issues of revenues, common markets,
ethnic chinese
– Malaysian & Indonesian secret service
induced riots + strife
• 1965- Singapore breaks away from
Malaysia
 On independence
• “improbable chance of survival”, “a heart
without a body”
• Problems:
– Racial strife
– High unemployment – British contributed 25%
of GDP
– No hinterland to depend on
• First steps:
– Gain recognition internationally as an
independent, stable state
– Ministry of interior to build police & military
– HDB (Housing Dev. Board) – create jobs and
houses
– 18 months – 30,000 new houses + thousands
• Problem:
– Too small, no production of own
– Only trading hub
• Next Step: Induce direct investment
from US + Europe via:
– Manufacturing in Singapore for re-export
– Remove trade & investment barriers
– Prepare Jurong Industrial Estate as a
industrial hub to house Labor intensive
industry (like a SEZ today)
• EDB (Economic Dev. Board)
– One stop shop for foreign investors
• Low tariffs, Cheap Labour, Special Sops
– Priority sectors
• Petrochemicals
• Ship refitting & repair
• Electronics
• Metal Engineering
– Extremely fast execution
• Ex. National Semiconductors – started production in 2
months from go-ahead (TI & HP followed)
• Needs:
– Sound Infrastructure
– Labor Peace
– Non-inflationary regime
– Stable exchange rates
• All these take Govt. Control
 Labor Policies
• Remove “excesses of irresponsible
trade unions” “luxuries that can’t be
afforded”
– Yusof Bin Ishak, President
• Ban all unions, arrest some union
leaders
• Formation of:
– NTUC (National Trade Union Congress)
• To represent worker interests
– NWC (National Wages Council)
 Labor Policies
• “Labor has a unique partnership with
Business as well as Govt.”
– Parliament seat for Secretary of NTUC, NWC
• Principles:
– What is good for business is good for the
workers
– Having a job is the most important thing
– Create necessary conditions for encouraging
investment in Singapore
• Result: in 1978 – Singapore ran out of
workforce
– (next challenge – attract foreign work force)
 Savings
• CPF from 1955
– Fully funded, tax exempt
– Mandatory
– Initially at 5% each (employee & employer)
– High of 25, 25 in 1985
– Currently at 33 (20, 13) to stimulate further
investment
• Principles:
– Keep inflation low
– Make available funds for investment in infra. Etc
– Keep interest rates low – induce further
investment (businesses)
– Cheaper borrowing (for college education, health,
housing etc.)
 Savings
• Use these funds for (over 3 decades):
– Clean up waterways, maintain same
– World class infrasructure
– Worlds best Airport
– Worlds best Shipping Port
– Singapore Airilnes, Singapore Telecom, Port
Authority etc.
– Extra ordinary industrial estates
– Modern high-ways
– Cleanest, amongst most modern cities in the
world
Singapore Inc.
 Singapore Inc.
• The Govt. controls 20% of GDP + 85% of
rental housing
• Is Govt. but is run like a business
• Regular tracking of TFP
– Total Factor Productivity (growth not
attributable to labor or capital)
• 2001: Low TFP, Govt. launched SPRING
– Standards, Productivity & Innovation
– Worked with more than 2000 businesses
– Productivity circles, TQM, work redesign, ISO
standard implementation, and promotion of
wellness
• Results:
– Inc. in productivity as well as productivity
– Sustainable inc. in wages
– (instead of sharing the cake, try and work for a
 Political System
• Cabinet Ministers:
– Exceedingly well educated
– Economics, Business
• Civil Services
– Well educated, motivated, talented, well compensated
• Elections every 5 years, Voting is compulsory
• Prime ministers salary, USD 1.1 Mn (in 2001)
– Most junior minister USD 550,000
– See everything in proportion to what is at stake
• Ex. prevention of Asian crisis hitting Singapore
– Entry level ministers, secretaries
• 60% of median salary of 8 top earners in 6 fields
– Lateral Movements – understanding of country and
overall strategy
– No Corruption
• Corrupt Practices Investigation Board
• Singapore Highest in international transparency studies
 Fiscal & Monetary Policy
• Has run a no deficit budget since 1970
– Deficit only in 2001, in deep recession – 1.7%
of GDP
• Non capital expenses minimalized
• Investment via CPF
• Fully convertible currency
– Exchange rate tied to basket of currencies
• Overall low inflation, and interest rate at
par with international markets
“No sense in force stopping capital flows –
instead create an environment where
capital does not flow away”
 Competition for neighbors
• Problem:
– in 1980’s Malaysia, Thailand, Indonesia
emerged as competition for attracting
investors
• Solution:
– Push wages up !!
– Force investors to move to higher capital,
higher technology ventures – generate more
value added products
• Learnings:
– Technocrats were capable of studying the
problem, rolling out solution asap
– Counter-intutive, but long term strategy on
 Moving up further
• Problem: Lack of land mass
– Invest in bio-medical sciences
– Overall move towards sectors that are not land
intensive
– Need skilled workforce
• Solutions:
– Set up 10 world class institutions (INSEAD, MIT,
Jhon Hopkins, Wharton already have
campuses)
– A*STAR (Agency for Science, Tech. & Research)
with budget of USD 7 Bn.
 Singapore Inc. - Closing
Points…
• Combination of intellect & execution
– Great leadership
– Effective development
– Strong Government institutions
• A country can be run like a business
– That probably is the best way to run it 

• Any lessons? Learning's? Thoughts?

THANK YOU