DECLINE IN PRODUCTIVITY

DECLINE IN PRODUCTIVITY:

(Reasons and solutions): 16.

Mdm Ho Geok Choo asked the Minister for Trade and Industry (a) how can productivity-driven growth be facilitated across the various economic sectors; (b) how should various industries and sectors enhance their human resource management and practices to be productive; and (c) whether he can provide reasons for the drop in productivity in Singapore.

The Minister of State for Trade and Industry (Mr Lee Yi Shyan) (for the Minister for Trade and Industry): Sir, in the run-up to the current financial crisis, our productivity growth averaged 3.2% p.a., for the period of 2002 to 2007. This compares favourably against the 1.9% growth achieved by the OECD economies over the same period.

Nonetheless, we need to continue to strengthen our productivity fundamentals to ensure sustainable economic growth and safeguard Singapore’s competitiveness. A joint MOM-MTI Productivity Taskforce was formed in February 2009 to examine the drivers of productivity with the services sector as a key area of focus. The Taskforce highlighted four strategies to raise productivity in the services sector. They are i) undertake research and benchmarking to establish the relevant productivity matrix and develop new tools to enhance productivity; ii) raise service excellence to achieve service that is both effective and

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efficient; iii) invest in greater innovation to improve products and processes; and iv) to enhance human resource management. The Economic Strategies Committee is also studying how enterprise productivity can be improved and will make its recommendations to Government in due course.

Currently, companies can tap on a wide range of Government programmes to help raise their productivity. For example, SPRING has the Technology Innovation Programme to help companies secure technology consultancy services as well as to fund plans to accelerate technology adoption in business operations. There is also the Local Enterprise Technical Assistance Scheme, which helps companies to bring in experts to improve business management and operations.

Good human resource management is also key in improving productivity. Companies can leverage on Human Resource Workforce Skills Qualifications (HR WSQ) and Leadership and People Management Workforce Skills Qualifications (LPM WSQ) frameworks developed by WDA to help them improve their human resource practices. At the national level, MOM has also formed strategic partnerships with leading institutions to share best-in-class programmes with local HR practitioners, for example the HRST and Hot Spots Programme.

Beyond companies, we will work with industry associations to raise awareness of productivity issues, facilitate the sharing of best practices and the deployment of productivity tools and techniques relevant to the context of their industries.

Mdm Ho Geok Choo: Three supplementary questions. One is, which sector in particular, has seen the greatest drop in productivity and what are the reasons.

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Second question is with respect to the foreign labour force. In what way are we inducting the foreign labour into our productivity-drive programme? The third question has to do with the availability of schemes. In particular, to the SMEs to enhance soft skills that are quite hard to grapple with, especially like HR management skills. Are there any special incentive schemes or awards that are targeted at the SMEs?

Mr Lee Yi Shyan: Sir, I believe the Member is alluding to the drop in productivity in the recent two years. Let me give some numbers to help explain the situation.

First of all, productivity numbers fluctuate from year to year. This is true in our records; this is also true in other countries. However, in periods of recession and slowdown, productivity numbers tend to drop even further to negative territories. This happened in the 1997 financial crisis as well as after the dotcom bubble burst in 2001. In the current period, therefore, is not surprising that productivity has dropped. In 2007, there was a record employment growth of 234,900 jobs, and this was far higher than the average of 116,000 jobs created the previous year. This is almost twice the number. So even then, in 2007 when output was growing at 7.8%, it was not able to keep pace with the manpower growth, resulting in negative productivity growth of -0.8%. By 2008, the output growth had moderated to 1.1% and this is really a reflection of the weakness of the global economy. However the total employment growth continued by 221,000 or 8.1%. So therefore, if you divide the two, we saw a sharp decrease in productivity growth of -7.8%.

The Member may ask why are the firms recruiting ahead of demand. I think in a free economy like ours, all the firms are recruiting in anticipation of higher output, higher demand and greater volume

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of business. When these turned out to be not true, the important thing we have to ensure is that in our labour market, there is flexibility for them to downsize and trim the workforce. Indeed, our labour market is one of the most flexible in the world.

The Member asked which sector saw the drop in productivity. Generally speaking, the greater the export orientation of the sector, the higher would be its productivity and it would also record the biggest drop in its productivity level from the peak. This is really because they depend on the market; if the market grows 30%, productivity will rise correspondingly and if the growth drops, it will suffer a bigger cut. However, it is also the export sector that has got higher productivity per worker compared to other sectors. The lower productivity sectors are those that are more domesticated. They are typically found in the retail, construction, hotel and F&B industries. These are the sectors that hire a lot more workers but they are not able to raise productivity very much compared to the export sector. So this is why the Task Force by MTI and MOM have identified this sector to study for productivity improvement. For the hotel, F&B and retail sector, their output is about $10.8 billion last year but they hired 300,000 workers. Obviously if we can make productivity improvement in this pool, it will lead to a far better productivity level for these sectors.

Our foreign workers control – I think the various measures are in place and they are governed by different measures from sector to sector and they are designed in such a way that the foreign workers are hired based on the number of Singaporean workers hired. I think there is an elaborate set of measures. Previously, MOM has explained how this worked. However, going forward, I think we can look at how we can improve the quality of foreign and Singapore workers so that all of them are capable of higher output.

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The Member also mentioned some of the softer skills required for productivity improvement. Indeed, productivity improvement is both the employer's as well as the worker's responsibility. If the business owner or the employer is in the wrong type of business, if they are not able to create new products and services of higher value, if they are not able to diversify away from markets that are too competitive, then there is very limited growth in terms of raising output and value. Likewise, if the workers are not able to acquire new skills, to handle new machinery or processes, or handle technologies introduced in the processes, then our productivity movement will also be retarded. So therefore we need to work on both technology intervention and also on better human resource management within the organisations to help deploy, retain and retrain our workers.

Mdm Halimah Yacob (Jurong): Supplementary questions that I would like to ask the Senior Minister of State. On the second pillar to raise service excellence – are there any plans to make sure that service workers, migrant workers, must at least have a working knowledge of English? That is my first question. Second question is, are we looking at the experiences of other countries in the area of improving service productivity and what are the lessons that we can learn from them? My third question is the service sector has predominantly a large number of small and medium-sized enterprises. How do we help these small and medium-sized enterprises to move up in their service productivity because they traditionally hire a very small number of workers and very small amount of investment in service process improvements and so on? Thank you.

Mr Lee Yi Shyan: Mr Speaker, Sir, let me respond to the three questions. The first, whether to include English as a requirement. Well, from the productivity point of view, if the English language or

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any other language is an additional skill set to help the workers do better at their jobs, certainly, it can be included. Second, when it comes to benchmarking, I think this is an important area that we are doing at the national level. We are also working with industrial associations to understand, for instance, how would the F&B industries in Japan or in Hong Kong achieve their higher productivity in Singapore. Or how would the US and the European counterparts in retail sectors can achieve higher sales per worker or sales per floor area than our Singaporean retailers. I think when we study this, we will find that sometimes the industry structure is different and it may mean intervention at the company level. Sometimes it may mean also intervention at the industry level.

As for small companies, we cannot say that all small companies are inefficient or unproductive because the big companies started small. I think if they have the right technology, if they have the right business model, with the right orientation towards export to the world, from Day One, they can be growing very quickly. We have seen many examples of software development and games development business, they either go into the phone or internet gaming that has got worldwide market on the first day they launch the company. So, such companies tend to be able to grow and ride the growth of other key markets quickly. The important point is to introduce greater innovation in these companies so that they can become big one day.