Economic Strategies to Survive Disruption

Published on 6th November 2018

I would like to share with you some of the things that concern us in the Singapore economy and to take stock of where we are now, having launched all 23 Industry Transformation Maps (ITMs) for some time now and to share how we go forward from here.

The US-China trade tensions do not look like they will go away in the short run. We should do two things: First, we must prepare for the long haul. Because if the global trading system is fragmenting and turning protectionist or isolationist, then the global value chain and production chain will shift. When they shift, there are both challenges and opportunities. We can expect that some sectors will be affected negatively because as the global production chain moves, some will move out of Singapore. On the other hand, we can also expect some new opportunities, because as people are trying to diversify their portfolio, then there will be new jobs in the areas of headquarters, production and services that might be created here. It is still early days to say whether Singapore will benefit in the short-term. What we should be more concerned with are the long-term issues – how do we structure our economy to make sure that we are insulated against any downside risks but at the same time, able to seize the opportunities available.

Let me now share our thinking behind our domestic economic situation. My basic message is this: In the past, we have used broad-based policy measures to help many of our companies. Going forward, we will need to layer on specific sectoral measures to build real capabilities.

In the past, our economic growth was in a “5 plus and minus 1 per cent” situation – a rising tide lifts all boats because of the available factors of production. Because of the opportunities available, everybody will benefit. Generally, everybody was in the “5 plus and minus 1 per cent” category. That has implications on our economic strategies and on our social management. On our economic strategies, if all sectors are generally moving in tandem in the “5 plus and minus 1 per cent” category, it is relatively simple to manage the economy. On the social side, the dispersion being narrower, it is also easier to do wage redistribution to help everyone move along.

Going forward, as our economy matures, the situation will be quite different. Because of the speed of disruption and pace of technological change, we are likely to see a different kind of growth. Instead of “5 plus and minus 1 per cent”, we are likely to see “3 per cent, plus and minus 5 per cent” growth. So while the average growth may be slightly lower, what is even more important is the dispersion between the “3 minus 5 per cent” and the “3 plus 5 per cent” categories. What that means is that not all sectors will be impacted equally by disruption. It also means that beyond the broad-based measures, we will need very specific economic strategies at the sectoral level to help different sectors get out of the “3 minus 5 per cent” range, while at the same time, seize opportunities at the “3 plus 5 per cent” range.

If this hypothesis is true because of the disruption of technology, because of the need for us to recycle our factors of production, such as land, labour and capital, how do we respond to this situation? We need three sub-categories of strategies. For sectors in the “3 minus 5 per cent” range, we need to help them recycle their land, labour and capital. This means that we need to help them to move out of those sectors and redeploy their factors of production into more productive industries. This is easier said than done and there are two main challenges. At the business level, the businesses must be prepared to say that this is not going to go very far if I continue on this particular track and I need to fundamentally change. We also need to ensure the recycling of labour – the retraining of our people – to make sure that they are equipped with new skills to move up the value chain to sectors that are in the “3 plus 5 per cent” range. This is the first set of challenges that we need to overcome.

The second set of challenges is faced by those in the “3 per cent” growth range, those that are growing at an average level. These are companies that are neither doing too well nor too badly. We need them to transform. There is an exhibition going on outside of this auditorium to show many of the toolkits available to help our businesses transformation. What does real transformation mean? What we see at the exhibition is not transformation per se. What we see at the exhibition is only the first two stages of transformation. In any transformation journey, there are four stages that all our companies need to go through. First, it is the diffusion of ideas, to spread the good ideas around to everyone. To make businesses and leaders aware of the opportunities out there. The second stage in any transformation journey is application. I encourage many of you in the hall to look at the business solutions offered at the exhibition hall. Application is relatively straightforward. It means that I have my current processes and I ask myself, what technology can I apply to my current processes? For example, software products that help you to manage pay roll, leave and medical records. Look at your current processes; look at the technology available; see what can be applied. But this is only stage two. The third stage is the re-engineering of the business processes. That means you are no longer applying technology to the current way of doing things but rethinking your entire business processes, as well as the products and services you offer, or even to reimagine the new markets, beyond Singapore, that your products and services can reach.

We finally arrive at the last stage, which is to transform. To transform by thinking about new products and services, new channels, new ways of production, new ways of management. But make no mistake, few will jump from stage zero to stage four. Usually, companies go through the various stages of Diffusion, Application, Re-engineering, and Transformation (DART). To get to stage four, generally most companies move through stage one, two and three.

We have yet another set of challenges for those growing at the top range of “3 per cent plus 5 per cent”. These are the most productive sectors, but unless we help them expand their market share, we will end up paradoxically with a problem of low productivity. Why is that so? Some companies might have high productivity, but if the market does not expand as fast, it means that they need less people to get the same output. This means that there will be excess labour that will be displaced to sectors that have average or below average growth. Over time, unless we expand market share and the size of the markets, as companies that are in the high growth range become more productive at the firm-level, our labour productivity may decline at the national-level. This problem is not unique to Singapore. In fact, many developed countries have the same problem. Unless the markets expand proportionately for the top-tier companies, the excess labour will go to the less productive sectors within the economy. Therein lies the three challenges for the Singapore economy going forward.

If we get it right, there is nothing to stop our average rate of growth at 3 per cent. But if we do not get it right, then there is a high chance that we might be stuck at 3 per cent because of the challenges facing those at the “3 per cent plus 5 per cent” range and the “3 per cent minus 5 per cent” range. So in order to solve these challenges, we need to ensure that those at the lower range get help to recycle their factors of production, while those at the average range transform their businesses beyond just applying technology to their current processes, and those at the very top continue to grow the markets for their products and services.

We are also gathered here today to take stock of how our ITM initiatives are doing, one or two years after their launch. This is where I want to talk about the role of the Labour Movement and the Trade Associations. If you take a look at our ITM initiatives, which are the ones that have done relatively well over the last one to two years and more importantly, why? I have four examples I can think of.

The banking and finance industry has done relatively well in their transformation journey. The supply chain and logistics industry has also done relatively well. They have applied quite a lot of new technologies, they have also re-engineered many of their processes using new technology. The transport sector has also done well with the setting up of the Singapore Bus Academy (SGBA) in the retraining of the workers. Last but not least, the SMEs Go Digital programme has done relatively well. Today, under the TechSkills Accelerator initiative, a total of 39,000 training places have also been taken or committed by companies.

Most importantly, we need to ask ourselves, why did these sectors and initiatives succeed compared to others? What were the distinguishing features of these examples? I come to a few conclusions and I hope to encourage the audience to think about them. In all these sectors and initiatives, there was a strong Trade Association and Chamber (TAC). A strong TAC that took the lead to bring the players together. In banking and finance, it is quite straightforward. They have a strong TAC-equivalent and they have a strong Monetary Authority of Singapore. So they could aggregate their demand for training and they could come together to enhance competition and promote innovation. Look at the logistics sector. They, similarly, have a group of players coming together to define the problems and seek out solutions together, including working together with the technology providers from A*STAR and others. The Singapore Bus Academy (SGBA) is the result of the public bus operators coming together and finding synergy in training. So we need a strong TAC that is very focused on solutions for its own sector.

Then there is a second factor of strong labour-management relations. You can have all the plans that you want but you must be able to execute the plan and for that, you need an intermediary like the Labour Movement to rally the people for training. Once again, looking at the banking and finance industry, with the DBS Staff Union (DBSSU), and now the new IBF Careers Connect, they are there for a very clear purpose. Not to lobby the government or the banks to stay where they are but to prepare the workers to move forward together with the transformation in the industry, to overcome the disruption faced by the industry.

Then you look at the third factor that applies to the SMEs Go Digital programme. The programme is quite different – it cuts across many sector and it is not a sector-specific strategy. Why is it able to achieve good traction? It is because the programme has clear problem definitions. What are the products and services that will serve SMEs across different sectors? Later on, when you visit the exhibition, you will see a suite of solutions. They are not sector-specific but they are function-specific. It speaks to the SMEs about the kind of technology they can apply across various functions, such as human resource, invoicing, and accounting, which are common services.

So if I may summarise, those initiatives that have made the most progress usually share three characteristics: One, a strong and focused TAC that can help their members define the problems clearly so that collectively they can find solutions, whether in the local market or by expanding to overseas markets; two, a strong labour-management relationship that can translate business plans into actions and training for workers and the middle-management in order to effect change; three, initiatives that did well were those that had ground-up inputs on the specific needs and problems that they would want to overcome. Simple things such as having a digital invoicing, payroll and finance systems – you might think they are small - all add up to benefit the system as a whole and not just the individual companies. When everyone uses the same system, there will be synergies and we are able to aggregate the information and further improve the system for the next generation of businesses.

Bringing this to a close, we have our challenges laid out for us both externally and internally. There are only so many things we can do externally. But internally, we need to get our act together to ensure that collectively, as team Singapore, we work together to overcome the different challenges faced by those in the various growth ranges. Each of them has different challenges and we will overlay broad-based economic policies with sector-based economic strategies to help companies overcome their respective challenges. In order for us to do that, we need those three things to work well: a strong TAC, strong labour-management relationship, and ground-up inputs with clear problem definitions.

On that note, thank you all for being here and being part of this community that works together to transform the Singapore economy. The next step of Singapore’s economic transformation is not about broad-based policies but about broad-based policies coupled with specific strategies in respective sectors. If each company can become a “little champion” in their own sectors, then collectively, we can become an economy of champions.

By Mr Chan Chun Sing,

Singapore Minister for Trade and Industry.

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