COMMITTEE ON SINGAPORE'S COMPETITIVENESS (Motion)

[Mr Speaker in the Chair]

Debate resumed.

Mr Ong Kian Min (Pasir Ris): Mr Speaker, Sir, I rise to speak in support of the measures recommended by the Committee on Singapore's Competitiveness and the cost reduction package announced by DPM yesterday.

The Committee has succeeded in presenting Singapore's current competitive position and in setting out the various strategies that should be adopted to improve our overall position. I believe that even in the midst of the monumental changes that have swept us and this region during the last year and a half, it is timely that we review our strategies for long-term survival and growth. To focus on the current problems without regard for the long-term solutions would be shortsighted, like looking merely at the leaves and not seeing the entire forest. In trying to overcome the current economic difficulties, we must not be distracted from pursuing long-term priorities which are required to remain relevant and to further enhance our position in the world.

The short-term measures have essentially focused on cost reduction to help businesses survive the current economic crisis. I support the urgent need to make immediate adjustments to costs here in order to adapt to the changed economic environment. The cost reduction package announced yesterday touched on a multitude of ways in which business costs in Singapore could be directly and indirectly reduced so that commercial transactions could take place more efficiently and without undue wastage.

However, the cost reduction measures, crucial as they are, during this period do not provide the be-all and end-all solution to the problems faced by our businesses and to increase their competitiveness. The cost-cutting measures are only temporary holding measures to give as many enterprises as possible a fighting chance to survive in the interim. Workers are prepared to accept and adopt these measures despite the pain that will result, but bosses must realise that their businesses cannot depend on cost-cutting alone to survive this crisis and expect to emerge stronger thereafter.

In the long term, it is clear, even without the economic crisis, that the only way to achieve a globally competitive position is for businesses to undergo structural reforms which are not merely based on price but on quality and added value.

One of the main causes for the fall in revenue for most companies is, of course, the reduced demand for their goods and services in the domestic and regional markets. The thing which employers cannot afford to do now is to simply sit tight, paralysed with ignorance and uncertainty into wishing and waiting for the good times to return, hoping in the meantime for more cost-cutting measures to be initiated by the Government. As the Chinese saying goes, a raft in the rapids that does not move forward moves backwards. Even with reduced costs, if nothing is done to counter the drop in revenue, profit margins would diminish and eventually disappear if revenue falls below expenses, and that business will eventually die, although at a slower pace.

Businesses must therefore find ways to tap new markets and increase revenue. They must be nimble and responsive to the needs of the market and to the consumers.

As a simple example, in telecommunications, the Internet is changing the way we communicate and the way we source for and retrieve information in a very fundamental way. During a recent visit to the United States, I was pleasantly surprised to find public telephones which had a separate built-in data port so that executives on the move could plug in their laptop computers. And with a mere drop of a quarter, ie, 25 cents, they could dial into their head office's computer or an Internet Service Provider, retrieve their e-mails, communicate with head office and friends, and even surf the World Wide Web. During the last few days, I examined every public phone I came across, whether at Changi Airport or Raffles Place, but had not been able to find one which allowed me to plug in my portable computer to send an e-mail.

Sir, I support the recommendations by the Committee that manufacturing and services should be promoted as the twin engines of growth. Today, I would like to focus on the manufacturing sector. Before I proceed further, I would like to disclose my interest in the subject as a director of a public listed electronics contract manufacturer and a director and equity contributor of a start-up technology company. I would like to bring up three points. The first is for a review of the GST structure to facilitate part of the manufacturing processes to be carried out in neighbouring countries. Second, local contract manufacturers must be encouraged to provide more than merely a manufacturing service. And, third, meeting the needs of existing MNCs that have already invested here in Singapore. I hope the relevant Ministries and Government agencies will consider these.

First, as a manufacturing centre, our land limitation and highly skilled workforce have made us too expensive to manufacture and assemble the entire product in Singapore. I do not believe we should even try to do so. While we may have the skilled workforce to do some parts of the assembly work that require higher technology, the low-tech components must be farmed out to be done elsewhere, like Johor and Batam, so that we can finally put them altogether here in Singapore for export. This was the original idea behind the growth triangle. However, one obstacle to this being carried out in practice is the imposition of the goods and services tax (GST).

To maintain Singapore's position as a manufacturing hub, I believe we should refine the present GST structure in regard to import of semi-finished products. Under the present GST structure, unless a particular supply of goods into Singapore is meant for re-export or falls under one of the approved schemes, like the bonded warehouse scheme, GST will be payable by the importer on the supply. This does not accommodate the practice of manufacturers who carry out certain stages of their production process outside Singapore. When the works-in-progress are sent back to Singapore after completion of the relevant process, these manufacturers will be required to pay GST on the semi-finished products which are considered taxable import supplies. Although the GST paid by the manufacturer at that point can be re-claimed as input tax when the finished goods are subsequently sold or exported, it does mean that the GST paid on the supply of semi-finished products will be tied up for a period of time. Although GST is only 3%, this can represent a relatively sizable amount, considering that a typical contract manufacturer makes only about 2% to 5% in net margins.

I feel that this is an expedient time to look into possible changes to our GST structure so as to help our local manufacturers to take advantage of the lower costs of production in other countries within the growth triangle framework.

The second point I would like to raise is that in order to provide value and to increase revenue, our local electronics contract manufacturers must do more than merely provide a manufacturing service. We must rise up the added value chain by offering technological innovation and more complete product solutions for customers. There is a global trend towards third party out-sourcing. This provides the opportunity for contract manufacturers who have R&D capabilities to offer innovative product solutions by suggesting improvements to the existing products in terms of their specifications or by reducing cost through new and more efficient production methods. The Taiwanese are particularly good at this. However, for Singapore, it is easier said than done. But the tripartite relationship between the big businesses, entrepreneurs and Government can be a powerful synergistic force to bring about a change in the manufacturing industry here. The entrepreneurs who have new product ideas, the established businesses with their financial resources and the Government which can provide the necessary infrastructure and assistance should work together in a more concerted and focused way to allow these ideas to materialise into useful and successful products.

My third point is that Singapore will continue to depend heavily on attracting foreign investments here to provide jobs for our people and to maintain growth. Besides the workers who are directly employed under the payroll of the MNCs, there are many other workers who are employed by the multitude of companies and businesses that depend on the MNCs as their suppliers and sub-contractors. However, in this area, we face stiff competition for investments and jobs from other places. For instance, in the consumer electronics industry, countries and regions like Mexico and Eastern Europe, which are geographically closer to the huge booming consumer markets of USA and Europe, are being considered by MNCs as very attractive alternatives for them to set up their operations. Singapore has done well in attracting new investments by MNCs in the past and should continue to imaginatively develop and exploit all possible niches which will make us a world class business and financial centre.

Sir, while we are working hard at attracting new foreign direct investments, we should not take for granted those MNCs which have already sunk in their investments here. We must consistently and constantly review the difficulties these MNCs face in their operations in Singapore and ask ourselves whether we are doing enough to meet their needs and to retain them. Should these MNCs decide to end their operations here and move elsewhere, they would probably be lost to Singapore forever, as having had a bad and painful experience, it will be very difficult and will take many years before their top management can justify starting up in Singapore again, even if we are able to remedy the problems at that time.

Sir, in conclusion, I would like to say that in debating the measures that need to be taken, we must not forget that, as a developing economy, Singapore has succeeded beyond all initial expectations through the hard work of the people and the Government. The present crisis then may be seen as a test of our true strength and potential. Our actions and the measures we take are constantly scrutinised by foreign analysts, economists and international investors and the media. And the consensus among these watchers is that we have a very sound system that so far has withstood the test of the crisis. There is every reason for us to feel confident that the Government, from its track record - first in putting the system and infrastructure together, and then, in continuing to maintain its soundness and integrity, will be able to lead Singapore out of this crisis. With this confidence, every Singaporean should feel able to give his fullest support to the CSC's recommendations and the cost reduction package which are to be adopted by the Government.

Sir, I support the motion standing in the name of the Minister for Trade and Industry.