NEW CHARTER OF GOVERNMENT-LINKED COMPANIES

[Mr Deputy Speaker (Mr Chew Heng Ching) in the Chair]

Debate resumed.

Mr Andy Gan Lai Chiang (Marine Parade): Mr Deputy Speaker, Sir, thank you for allowing me to join in this debate. First of all, I would like to declare my interest as a Director of the Energy Market Company, a subsidiary of the Energy Market Authority.

The GLCs have provided much needed jobs and supported economic growth during the early years of Singapore's independence. With a growing private sector today, we must now address the role of both these two groups of companies. Much has been said about the pros and cons of GLCs during these two days of debate.

Mr Deputy Speaker, Sir, allow me to make some comments on a few of these points. The Entrepreneurship and Internationalisation Sub-Committee (EISC) has made some recommendations to the Government to help promote private enterprises. While this would be good for Singapore as businesses driven by the private sector will have a better chance of meeting their challenges in today's rapidly changing environment, there is still room for GLCs and SMEs to co-exist. I believe together, they will be able to adapt to the different sectors of the economy, thus responding better and faster to market changes as demands from consumers would increasingly be a constant factor and businesses would have to cope with such short-lived demands. The constant factor will not be a factor which will be long-lived. Some examples of short shelf-life are electronic products such as televisions, cameras and some household products.

Cultivating and strengthening the private sector are critical to the proposed restructuring efforts unleashed by the Government. The success of Singapore economy to-date has been based on a pro-investment and export-growth model. A high level of savings has allowed such a policy to reap results. It is based on the belief that saving is the factor to wealth creation and that savers are the impetus to wealth creation and the nation. While it is good to hold these values, we must however recognise that today, challenges are different. It is the risk-takers and not savers who spawn wealth.

I urge the Government to actively promote private sector initiatives in the production of goods and services that are competitively healthy and can be done effectively by private enterprises. It should minimise undue influence of GLCs and big foreign players in such markets where the growing local companies will not stand a chance of competing, for example, in the building construction industry. That way, local companies get to grow, be stable and be able to provide jobs to the people. The Government may even wish to even consider providing seed money and tax incentives to the private sector to encourage the birth of new businesses that may require a long gestation period before profits are seen, as in life sciences. I urge the Government to also look into strategies to sustain local businesses. I would suggest a review of the cost of doing business by the private sector and, if necessary, for all of us to change our mindset.

Many corporations face great difficulties in coping with hostile business conditions. One major factor is the rigidity of the local wage system. Wage cost forms a major challenge of the total cost of a corporation. If we are able to allow corporations more leeway in shedding costs, we will end up with a more efficient private sector that will be able to react to hostile market conditions.

Looking beyond, local companies can and must be encouraged to become multi-national corporations. As world globalisation takes off, small countries will be able to ride on this wave to overcome the disadvantage of its limited domestic market. Singapore is no different. Local companies, which by nature are more entrepreneurial in character, may not necessarily follow the traditional multi-national structure, with a corporate headquarters in Singapore controlling subsidiaries around the world. These companies have a network character that allows them to take advantage of the new opportunities presented by the inter-linkages of the global economy. Our corporate governance guidelines may not also necessarily be applicable. For example, with a minimum of internal bureaucratic machinery, Acer, which started out as an assembler of IBM equipment, quickly moved to selling its own computers. It has been able to move quickly to take advantage of opportunities. This company's understanding of local demands and developing markets overseas are good because of their network with locals in the foreign lands. This example also suggests that it may not be advantageous to partner a larger GLC when venturing overseas as the company culture to be adopted may not suit the GLCs. The cluster approach, as recommended by the EISC, whereby GLCs, MNCs and SMEs together venture overseas may not be a good idea where market conditions are volatile.

In addition to efforts to nurture and strengthen local companies, I feel that levelling the playing field between the GLCs and the private sector is as important. On the one hand, as we spend efforts to nurture new local businesses, we must not put obstacles in its path that will lead to its ultimate demise. I urge the Government to allow the private sectors space in the local market to grow and excel. Government policies on land and labour must be cost-effective and should apply to GLCs as well. For a start, Government agencies controlling such important factors contributing to the success or failure of business must be conscious of not pushing up costs through their pricing policies. Instead, they should seek only to service the public with a minimum of fees necessary to cover their services. It is equally important that GLCs should concentrate on the external wings of our economy and not be perceived by the people as the big fish out to gobble up the market share or to take over the smaller fishes on their home turf.

Mr Deputy Speaker, Sir, please allow me to highlight the success of GLCs extending its external wings to build global businesses. Keppel FELS, Energy and Infrastructure is a world leader in the building of harsh environment jack-up rigs. It designs, builds and repairs the complete range of mobile offshore drilling units, floating production systems and specialised vessels. In 1996, it has 60% of the world's jack-ups on order. Another example is SembCorp Logistics which has formed a strategic alliance with Kuehne and Nagel, one of the leading global freight forwarding and logistics providers with offices in 85 countries. The success of these two companies only serves to highlight the salient advantage of competing in the international arena. It raises the overall value-added to the industry concerned and acts as a catalyst to other related trades and services. The Government should, while seeking to remain in businesses that are strategic to the country, such as the supply of water, electricity, banking, aviation and other facilities and services that are low in competition, continue to improve the performance of the GLC sector.

Their business decisions, including acquisition or divesting businesses, should be based on increasing the shareholder value and return on assets. But where economies of scale of non-strategic businesses can be harvested and given to an external service provider, GLCs should readily do so to nurture the local sectors.

In conclusion, we need to enhance the value of our private sector businesses by keeping them trim, efficient and focused so that they can maintain their competitive edge. These measures are necessary antibodies for Singapore to build up and have an immunity against the ever changing global economic conditions. GLCs have a national role to play in building a robust economy for Singapore. And since Star Wars was mentioned, may I borrow a phrase from it - may the force be with you?

Mr S. Iswaran (West Coast): Sir, I rise in general support of the Motion. I think there are a few key elements of the Motion and the debate which have particular resonance for me. First, Government's involvement in business ought to be circumspect and carefully calibrated. This is the recommendation of the EISC, and it is really difficult to have any issue or quarrel with that. It is a sound principle to guide Government's decision-making going forward.

The second is supporting the growth of private enterprise and entrepreneurship in Singapore. Again, I think this would have little problems finding support in this House or elsewhere.

The third element is, of course, greater symbiosis between big and small companies, whether they are GLCs, MNCs and so on, on the one hand, and SMEs on the other. Ultimately, all these principles are important elements in guiding the way Singapore remakes its economy, restructures itself, in order to face the challenges ahead.

However, in the course of the debate, the issues that struck me the most was that I thought there were some broad guiding principles that we ought to use, not just in the way we present ideas but in the way we analyse them. Allow me to illustrate that.

The first is that we ought to be quite discerning in the way we categorise the various entities we have in our enterprise ecosystem. We have used the term "GLCs" as a kind of catch-all, and we have put in there labour cooperatives, the private companies under the care of Government, the listed companies under the care of Government, etc, etc. Many speakers before me have pointed out the special nature of labour cooperatives. In general, the DNA of all these companies is very different. If we compare a labour cooperative with a private or listed company, say, under Temasek Holdings - and here I must declare my interest because I am an employee of Temasek Holdings - we will find that the mission and objectives vary. Therefore, the strategies will differ. And even the stakeholder groups are different for each of these categories. So we must guard against adopting a very generic broad brush approach in talking about these companies, because each faces its own constraints and its own set of circumstances in pursuing its ultimate objectives.

The second point I would like to make is that we ought to guard against being too theological or doctrinaire in our approach to issues of business or management. Markets and analysts are always given to fads. If we just think back to a few years ago, dot-coms were in. All companies were being told either you "e" or you would be eaten. And now things are very different.

If we also look at it from the angle of business theory, there have been ebbs and flows. And in a sense, we can argue that unless there are these ebbs and flows, management gurus and business schools will be out of work. In the history of companies, for example, there has been a discussion about whether decision making should be centralised or decentralised, and the accordion has moved in and out quite a few times. And there are other examples like that in the area of business. So the key point here is that we ought to keep our eye on the ball and take a pragmatic approach in dealing with the issues.

Let us take the example of business models. Some of our Members talked with some disdain about the model of conglomerates. It is true that in the 70s and 80s when businesses in the US, for example, were expanding horizontally and vertically, they were straying quite a bit, and becoming large, unwieldy conglomerates. Then, in the 90s, there was a move back to core competence, and there was a stress on core competence. If I want to summarise the point, it would be this way. There are conglomerates though that remain extremely successful. General Electric is a good example, one of the most admired companies in the US, but it has 18 different business groups. There are also companies which have got a single focus, which also do very well. Coca Cola is a good example of that. And we also have good examples of companies, both conglomerates and single focus, which have failed. Global Crossing is a good example of a single focus business.

Sir, the point is that we cannot be influenced by just general trends and fads. I think the underlying value of a company is determined by many factors - its corporate culture and values, its strategy, the people and, ultimately, the execution of the business. There is no such thing as one size fits all. And in this House, when we are discussing these issues, let us bear that in mind.

Another question that has been debated quite a bit in this House is: should a company diversify into new businesses? Particularly, let us talk about the listed companies. In general, I think we would all agree that we want companies to stick to their knitting. You know the business, you know the customers, the various channels, and so your core competence lies in that area. And I think that is a very important guiding principle. But citing old and hackneyed examples like roast duck, I think is a decoy. Because we are highlighting an obvious outlier and dodging the core question, which is whether a company can diversify into new businesses successfully, leveraging on skills and assets it has built up in perhaps other business areas. And I think this is worth thinking about. I am not suggesting that the company should stray and pepper its resources in many different directions. But there are some good examples of companies that have, over time, evolved and developed some new areas, and we do not have to go too far away to find out. For example, look at CDL. CDL is a listed company in Singapore. Its primary core business is properties. But over time, it has developed an excellent hotel business under the Millennium & Copthorne label. By all accounts, it is attributed to the entrepreneurial flair of Mr Kwek Leng Beng. The question to ask is: do we want to encourage that or discourage that? Is that good or is that bad? So, again, in talking about diversifying businesses, we need to have some level of measurement and not put all the companies that do so in the same basket.

Sir, the point about size has been raised, and I want to make a few comments on that. In my view, there are really two inexorable forces that are compelling the issue of size - globalisation, which is reducing barriers for the flow of goods and services, and people, to a large extent, across countries. The second is technology. Both of these are enablers. They are enabling companies to access new markets, across geographical barriers and to get into new areas. But, at the same time, both of these pose immense new challenges, because what it means now is that companies have to invest quite a lot in technology in building up their infrastructure to deal with global challenges, and therefore they need the economies of scale in order to achieve reasonable returns on their outlay.

How big are our companies really? In Japan, an SME would have a turnover that is in billions of not Yens but US dollars. That is an SME in Japan. And comparing our GLCs or TLCs to local SMEs is a convenient way of invoking the David and Goliath imagery. But I am not sure it is actually a fair representation of the facts. Talking about 21% of the market capitalisation in SGX, yes, but let us look at the broader picture. If we take SingTel, its market capitalisation is US$16 billion. This is based on last week's numbers. And if we compare SingTel with Deutsche Telecom, $48.3 billion. That is more than three times the size. If we compare it with, say, Verizon, which is a relatively more recent player, $88.2 billion. That is 5-6 times. The scale factors are immense, but they are playing in the same field.

When we talk about SIA, we are very proud of the company because of its international success. But if we want to compare SIA, its turnover is about $5.1 billion. Compare that with, say, Lufthansa or British Airways. Lufthansa is about $11 billion and British Airways about $10 billion. So the order of magnitude is two times or more, and that is not even talking about things like fleet size and how they cover the routes and so on.

The issue of size is a factor and we could say that our Temasek-linked companies or GLCs, whilst they may look like very big fish in our small pond, once we look at the big ocean, actually, they are, at best, medium size. To grow, they have to do one of two things. They have to either grow organically or they have to make acquisitions, locally or internationally. If we look at the electronic manufacturing services sector in Singapore, for example, many of our companies have been acquired by international players, precisely because of the scale. Solectron acquired NatSteel Electronics about two years ago. Celestica acquired JIT about a year ago. All of these are driven by the same factors. They needed scale in order to be able to leverage on the mass orders they get and keep their overheads down to a bare minimum. All I ask is that when we think about these issues, we talk about level playing field, but let us give the GLCs or TLCs a level playing field as well. Let me give an example. The local banking sector has seen consolidation. UOB acquired OUB. That would be cited as a good example of private sector market forces consolidating in response to forces that are changing the industry. If the same transaction had occurred where DBS had acquired OUB, would that be seen as a positive example of consolidation or a bad example of crowding out?

Let me take another example. Mr Inderjit Singh pointed out SingTel failed in its attempt to acquire HK Tel, and he said that SingTel moved too slow. Who moved faster? PCCW, and where are they today? So, is that an example of the winner's curse? If they had done it, they would be damned. If they had not done it, which is the case, they are being damned. Let us give them a level playing field. Let us treat this fairly. Subsequently, SingTel goes on to buy Optus. Then the acquisitions are different. I think we ought to take a fair line on these matters, and not just take the line that is most convenient to our point of view.

Mr Deputy Speaker: Mr Iswaran, can I interrupt for a while?

Mr Iswaran: Yes.

Section Name MISCELLANEOUS;Title;Clause;Column 1030;Mr Chew Heng Ching(Mr Deputy Speaker);