21331604 pest-singapore

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21331604 pest-singapore

  1. 1. INTERNATIONAL BUSINESS SCHOOL UNIVERSITI TEKNOLOGI MALAYSIA CITY CAMPUS, KUALA LUMPURSem. I, 2008/2009 MRB1012 ECONOMIC ANALYSISAssignment – PEST Singapore Business EnvironmentPrepared By:Liew Yin Hoon MR081149For:Dato’ Dr Mohd Taib Hashim04th-April-2009
  2. 2. PEST – Singapore Business Environment4. Using PEST analysis, analyze factors that influence businessenvironment of a particular country that you are familiar with anddiscuss its limitations, if any.1.0 INTRODUCTIONSingapore is widely acknowledged as having one of the best businessenvironments in the world – one of the worlds most competitive (Institute forManagement Development World Competitiveness Yearbook), most profitable(Business Environment Risk Intelligence Report), most transparent(Transparency International Survey), with world-class intellectual propertyprotection and enforcement (World Economic Forum Global CompetitivenessReport). The presence of many leading global companies and localenterprises here is a testimony to Singapores excellence in manufacturingand services. There are more than 7,000 Multi-National Corporations inSingapore nowadays.Singapore is an attractive and competitive manufacturing location, possessingworld class capabilities in the design, development and manufacture of cuttingedge products for the world. As MNCs are always looking for the most costefficient for its investment, Singapore’s high labour rate loses out to otherdeveloping countries e.g. Vietnam and China. As some manufacturers haveleft Singapore to other countries with cheaper labour, we can see thetransformation from the manufacturing activities into trading and services. Inaddition, by leveraging on its strength as the regional hub for services suchas logistics and education, Singapore is poised to become Asias leadingservices hub, providing an array of world-class services.The following sections will analyse the factors (Politic, Economy, Social andTechnology) that influence the business environment in Singapore and also itslimitation.2.0 POLITICAL/LEGALSingapore is an enterprise friendly country. The government has set upseveral organizations in helping the business in a very systematic way.2.1 Regulation Structure2.1(a) Ministry of Trade and Industry (MTI)The Ministry of Trade and Industry (MTI) has its vision to make Singaporea leading global city of talent, enterprise and innovation. Its mission is topromote economic growth and create jobs, so as to achieve higher standardsof living for all. It was tasked with anticipating problems ahead, identifyingopportunities for growth, rationalising existing policies and giving broaddirections for the economy. The main tasks are categorized as below:- Page 2 of 13
  3. 3. PEST – Singapore Business Environment- Growing economy,- expanding trade,- developing industries,- fostering pro-enterprise environmentStatutory boards are semi-independent agencies that specialise in carryingout specific plans and policies of the Ministry. One of such agencies under theMTI is SPRING Singapore.SPRING Singapore (Standards, Productivity and Innovation Board) is theenterprise development agency for growing innovative companies andfostering a competitive SME sector. SPRING works with partners to helpenterprises in financing, capabilities and management development,technology and innovation, and access to markets. As the national standardsand accreditation body, SPRING also develops and promotes internationally-recognised standards and quality assurance to enhance competitiveness andfacilitate trade. It has many programmes to encourage entrepreneurship andassisting the Small and Medium Enterprise (SME). These are two availablefinancial incentive schemes:- i) Business Angels Scheme (BAS) where they will provide innovative Singapore-based young companies a matching dollar for every dollar invested by pre-approved angel groups, up to $1.5 million. ii) Young Entrepreneurs Scheme for Startups (YES! Startups) where they will provide youths with grants of up to $50,000 to start their innovative business.SPRING also provides business leadership and capability development wherea numbers of training courses are conducted to improve leadership andbusiness management skills. Several available programs are:- i) Advanced Management Programme (AMP) where it will help to build management capabilities of SME leaders through postgraduate and executive development courses that focus on the business management needs of SMEs. ii) Management Development Scholarship (MDS): Designed to nurture the leadership of tomorrow for growth-oriented enterprises where it provides MBA scholarship to help the SME to develop their talent for the future.EnterpriseOne (One Network for Enterprises) is a multi-agency initiativemanaged by SPRING Singapore. EnterpriseOne aims to help localenterprises find the answers they need to start, sustain and grow theirbusinesses. Its resources pose:-• Rich And Deep Content Over 20 sections covering a comprehensive range of topics such as Page 3 of 13
  4. 4. PEST – Singapore Business Environment venturing abroad, hiring people, Government tenders, loans, taxes and regulations. It pulled together information from different Government agencies so the business owners dont have to trudge from agency to agency to look for answers.• Industry Guides Topics are grouped by industries and organised in sections so that the business owners can easily find information relevant to your sector.The Competition Commission of Singapore (under MTI) who is a statutorybody established to enforce the Competition Act (Chapter 50B) and ensure afair competition environment. Any unfair business practice can be preventedand this can ensure a healthy competition and business growth.Another MTI agency is Public Service for the 21st Century or PS21. It isabout the Singapore Public Services commitment to Anticipate, Welcome andExecute change, influencing developments in order to provide Singapore withthe best conditions for success. One of its main objectives is to cut red tape toachieve service excellence and efficiency. Red tape reduction definitely willencourage entrepreneurship, foreign investment and positive growth of thebusiness sector.2.1(b) Ministry of Finance (MOF)The main regulatory statutes under MOF are the Companies Act, BusinessRegistration Act, Currency Act and Accountants Act. The emphasis of theregulatory policy is on development, rather than control. MOF aims tocollaborate with industry experts to make Singapore a world-class financialand business hub. The main strategy in helping the business in the Singaporeis building a Conducive Business Environment by Facilitate growth ofbusinesses and nurture an entrepreneurial environment”Under the MOF, the Free Trade Agreement (FTA) Directorate’s role is: • to drive the development of a holistic and cross-directorate/agency approach to the FTA issues • to shape and balance the outcome of the issues in the FTA negotiations to align with MOFs policies and goals • to function as a centralised focal point within MOF for information on all FTA issuesThe Accounting and Corporate Regulatory Authority (ACRA) is one of thestatutory boards under the MOF with mission to provide a responsive andforward looking regulatory environment for companies, businesses and publicaccountants, conducive to enterprise and growth in Singapore. The focus ofthe statutory board will be on issues concerning businesses, such asdeveloping the corporate law framework, accounting and corporategovernance.2.1(c) Government E-Business Portal Page 4 of 13
  5. 5. PEST – Singapore Business EnvironmentIn an effort to promote transparency, the Singapore government has setupGeBIZ (Government E-Business Portal) who is the Singapore governmentsone-stop e-procurement portal. All the public sectors invitations for quotationsand tenders are posted on GeBIZ. Suppliers can search for governmentprocurement opportunities, download tender documents, and submit their bidsonline.2.2 EnforcementSingapore is a country where the enforcement units are very efficient and withvery low corruption rate. The Singapore Police Force enjoys a relativelypositive public image, and is credited for helping to arrest Singapores civicunrests and lawlessness in its early years, and maintaining the low crime ratetoday. Another example is the taxis services where the drivers collect fares byusing the meter and do not cheat the passengers. Taxis in Singapore areregulated by the Land Transport Authority. This gives the passengersespecially tourist peace of mind in using taxi service. Any bad taxi service mayhamper the tourism industries.2.2(a) Corruption Practices Investigation Bureau (CPIB)Singapore is reputed to be one of the few countries in the world wherecorruption is under control. This is due mainly to the strong political will to curbcorruption, firm actions taken against the corrupt regardless of their status andbackground, and the general public who do not accept corruption as a way oflife.The Corrupt Practices Investigation Bureau (CPIB) is an independent bodywhich investigates and aims to prevent corruption in the public and privatesectors in Singapore. The bureau is responsible for safeguarding the integrityof the public service and encouraging corruption-free transactions in theprivate sector.2.3 Deregulation & liberalizationSingapore has deregulated several markets, e.g. the electricity andtelecommunication. The government no more monopolized these markets, butit is open for competition among the industry players. Even since 1989, thegovernment of Singapore started eliminating restrictions on the sale oftelecom consumer goods to make businesses more competitive. From this wecan see the competitive telecommunication markets nowadays, which benefitto the end consumer and the business as well.Singapore is reliant on foreign direct investments and exports so competitionfrom countries with lower costs such as China and India is exerting pressureon the government to reduce the costs of doing business here. Electricity costis one of these. Deregulation is believed to be able to bring about lowerelectricity costs due to the various efficiency gains possible. Sincecorporatisation the power industry has become more efficient and morereliable. Customer service has improved. Investments in new power plants Page 5 of 13
  6. 6. PEST – Singapore Business Environmentand transmission network infrastructure have increased significantly. Theindustry is also making healthy profits through efficiency and productivitygains, and lower cost of purchase of power equipment and cables. One of thederegulation result is YTL Power of Malaysia has acquired 100% interest inPower Seraya Limited recently. Also the China Hua Neng Power has acquired100% stake in the Tuas Power Ltd. We can see the deregulation has attractedforeign direct investment into the countries and thus accelerate its economicgrowth.Being Asia’s first liberalised electricity market, the Singapore government hasliberalized the electricity wholesale and retail market. This means contestableconsumers will have greater choice about how they purchase their electricity.Non-contestable consumers continue to buy electricity from SP Services Ltdat regulated tariffs. Eventually, all consumers in Singapore will becomecontestable. This certainly has reduced the electricity bills for theindustrial/business user and consumer.The government must be very careful and governing the deregulated marketand not to repeat the failure encountered by the US deregulated energymarket, where expenditures become higher and consumers suffered from thehigher energy cost and was a failure in the USA energy policy.Another example is the liberalization of the civil aviation industry where theflyers can fly at lower cost. Following the establishment of the low cost carriere.g. Tiger Airways, the major airlines also reduce the air fares significantly andthis help in driving down business expenses and accelerated growthespecially in the tourism related industries e.g. hotel, F&B services and localretail business.2.4 LicensingSingapore government has been very careful in allowing foreign hypermarketto operate in Singapore. So far only the Malaysian’s Giant (4 outlets) andFrench’s Carrefour (2 outlets) are allowed to operate on the island. Strictcontrol has been taken to protect the retailer especially.2.5 Non Government Organisation (NGO)NGO play an important role as pressure group in the government policy andimplementation. As part of an effort to bolster tourism as more manufacturingjobs shift to countries with lower labour costs and in view of the possibility thatSingapore would lose out in its status as a tourist hub as well as the economicbenefits from tax revenues, Singapore government has revisited the idea ofbuilding casino in Singapore in 2004.This had generated substantial and intense public debate and objection fromthe NGOs as this was not just a socio-economic policy dilemma, but haspotential to touch the sensitive nerves of social identity, public morality andvalues and has bad implication on Singapore as a clean, sterile, corruption-free and crime-free city. Further the NGOs protested that this development will Page 6 of 13
  7. 7. PEST – Singapore Business Environmentbe at the expense of the environment as the developer has to reclaim the seafor extra land where ecology system will be spoilt.However, after much debate about the tangible and intangible facts and costs,the government finally approved the casino plan and it is now underconstruction. The completion of this casino together with the entertainmentresort and other infrastructure will certainly attract more foreign tourists andboosting the domestic economy once the plan is completed.3.0 ECONOMYThe Singapore economy is an example of a vibrant free-market economy thatis developing at a rapid pace1. The per-capita income of the country is thehighest in ASEAN. The business sectort has been supported andstrengthened by a corruption-free environment, an educated and motivatedworkforce, and well-established legal and financial business framework.In recent years, the Singapore government has invested heavily in diversifyingthe economy. This has led to growth in the tourism industry, thepharmaceutical industry with a particular focus on biotechnology, financialservices, business consultation services, education, multimedia, retail andleisure, and the medical technology industry.3.1 ProductivitySignificantly from 2008-Q3 onwards, economic growth was rapidly slowingdown because of the financial crisis, while commodity prices hitunprecedented heights, creating sharp inflationary pressures in Singaporeand other economies.The data for this section are for the year 2008. Singapore achieved GDP(current market value) of S$257,419 million, which is a 2.3% increment fromthe previous year. In the fourth quarter of 2008, the economy contracted by4.2 per cent, after posting flat growth in the third quarter.Unemployment rate as of end 2008 is 2.3%, which is a 0.2% increment fromyear 2007. However, the retrenchment rate has almost doubled from year2007’s 7,700 to year 2008’s 13,400 workers. This is certainly theconsequence of the global economic crisis, where almost no a single countrycan be escaped. Gross national income per capita was S$51,739 which is thehighest per capita income in ASEAN and making its citizen income on par withthe developed nations. In fact, the city state is the only developed country inASEAN.The services producing industries made up 68.8% of the overall economy andmanufacturing weighted at 19.4%. Financial services and business services1 This is true before the global economic crisis as currently Singapore is facing recession. Page 7 of 13
  8. 8. PEST – Singapore Business Environmenthas become more and more important and made up 13.1 and 14.0%respectively of the overall economy. We can observe a transition from themanufacturing based into services oriented and this demands moreprofessional and intellectuals. The government spends a lot of effort to attractforeign professional and talented individual to work and migrate to Singaporeto support the local business. Of course they do not left out to attract foreigndirect investment. However the draw back will be the outflow foreignexchange.Petroleum refined products top the export list with 23.7%. This can beattributed to the petrochemical complexes in Jurong Island. This initiative hasboosted the heavy petrochemical industries in the country and has attractedforeign direct investment like the Exxon-Mobile Refinery. The limitation will bethe pollution to the environment which will increase the social cost like healthcare services.3.2 Exchange RatesCurrency exchange rate is about US$1.00 to S$1.50 range lately. Due to itshigh exchange rate to the Ringgit Malaysia (S$1.00 = RM2.40 approximately),many Singapore residents like to cross the Tebrau Straits to Malaysia forweekend spending. Additionally, the comparative cheaper petrol price inMalaysia has attracted Singaporean to fill up their vehicle fuel tank in Malaysia.These have directly affected the Singapore domestic businesses and thepetrol retailers. Therefore the government has set the rule for the car owner tohave at least the fuel tank ¾ filled when travelling outbound to Malaysia.On the other hand, the high exchange rate to Ringgit Malaysia and IndonesianRupiah has attracted many white and blue collars labours from these twoneighbouring countries. Especially the high numbers of skilled workers fromMalaysia has contributed to Singapore’s GDP growth but on the other handremarking loss in foreign exchange. On the other hand, construction andheavy industries in Singapore are over dependant on foreign workers which inone hand has become a threat to the social identity and safety.3.3 Monetary and Fiscal PoliciesThe success of Singapores fiscal policy over the years lies in thegovernments prudent expenditure patterns and conducive taxation policiesthat have complemented monetary policy in promoting sustained and non-inflationary economic growth. Singapores tax policies, although providing themain source of funding for the government, seek to enhance its economiccompetitiveness and attract foreign investments to Singapore.In its Budget 2009, the Singapore government has announced The ResiliencePackage totalling S$20.5 billion to help Singaporeans preserving their jobsand helping viable company stay afloat. The government spent S$5.8 billion tostimulate bank lending. It also would spend S$2.6 billion to enhance businesscash flow and competitiveness. Further, it also allocated S$4.4 billion todevelop Singapore as a global city and best home for Singaporean. Page 8 of 13
  9. 9. PEST – Singapore Business EnvironmentUnder the severe global economy crisis, Singapore government has justifiedwithdrawal from its past reserves to fund the Jobs Credit Scheme and SpecialRisk-Sharing Initiative to ensure that the Resilience Package will stimulate thebusiness sector.This combination of fair tax policies and prudent expenditure programmes,augmented by high economic growth has enabled Singapore to enjoyconsistent budget surpluses over the years. Singapore is one of the very fewcountries who enjoy surplus in its economy nowadays.In 2008, as part of the government’s move to share the nation’s surpluses withits citizens, the government has allocated S$1.06 billion as growth dividend forthis purpose which benefited about 2.4 million Singaporean, especially thoseof the lower income. This allocation has help the lower income group to copewith the higher living cost and in turn has stimulus the buying power in themarket. However, the effectiveness for the market stimulation is only for theshort term.The Official Foreign Reserves at Feb 2009 is US$163,549.4 million andSingapore government does not bear any foreign debt. This again prove thatSingapore economic and financial performance is well managed and the localbusiness can enjoy strong support and enterprise friendly policies from thegovernment.3.4 International TradeInternational Enterprise (IE) Singapore is the lead agency under the Ministryof Trade and Industry spearheading the development of Singapores externaleconomic wing. Its mission is to promote the overseas growth of Singapore-based enterprises and international trade. At the same time, IE works toposition Singapore as a base for foreign businesses to expand into the regionin partnership with Singapore-based companies.In championing international trade, IE Singapore contributes to the Singaporeeconomy through active promotion of export of goods and services, andoffshore trade. Singapore’s Global Trader Programme (GTP) which providesincentives to attract international trading companies to set up their base inSingapore.The IE’s Enterprise Group manages and develops a range of broad-basedservices for Singapore-based companies wanting to export internationalizedgoods. In 2007, Singapore was ranked the 14th largest trading nation in theworld, amounting to total of $846.6 billion of external trade, with Malaysiaremained as the biggest trade partner, followed by EU.The Port of Singapore is the world busiest port in term of total shippingtonnage. It is also the world busiest container port and transhipment port. ThePort of Singapore is not only a mere economic boon but an economicnecessity as it is lack of natural resources and land. The Maritime and Port Page 9 of 13
  10. 10. PEST – Singapore Business EnvironmentAuthority of Singapore was established with the mission to develop Singaporeas a premier global hub port and international maritime centre. Theestablishment of Malaysia’s Port of Tanjung Pelepas has threaten theSingapore Port status as the rival has attracted pretigious maritime companieslike Maesk and Evergreen to switch over to Tanjung Pelepas. Surely, theSingapore Port operator will be facing more fierce competition ahead.The Singapore Tourism Board aims to triple tourism receipts to $30 billion anddouble visitor arrivals to 17 million visitors by 2015. It is working closely withinternational investors to develop new world-class attractions (e.g. the casino),and attract strategic business and leisure events to Singapore.4.0 SOCIAL CULTURALSingapore is an eastern country who still follows the traditional family values,but the younger generation has started to adopt to western culture and values.4.1 Society Values and PrinciplesAs nowadays, many Singaporean have the mindset of “Kia-su” which meansafraid of lose out to others. Many Singaporean works very hard to retain orfulfil their materialism desire. In some extent this has positively increased thenation productivities and the business sectors can expect a higher purchasingpower from the consumers. On the other hand, some family and social valueshave to be sidelined.4.2 Demographic ProfileThe current population is about 4.8mil. Singapore ethnic mix is Chinese(75.2%), Malays (13.6%) and Indians 8.8%. Most of the Singaporean dislikesblue collar works like construction and other works in hard environment.These are considered “hard and dirty” works and therefore not welcomeespecially by the younger generation. This created the window for importingforeign workers to fill up blue collar vacancies. With the cheaper labour fromneighbouring countries, the business sector has enjoyed cost saving andtherefore more can be reinvested for further expansion.4.3 EducationSingapore has codified compulsory education for children of primary schoolage, and made it a criminal offence if parents fail to enrol their children inschool and ensure their regular attendance.English is the primary language used in Singapore’s education systems. Goodcommand of English has given Singapore an edge advantage for attractingforeign investment and international trade. Further the Chinese languageproficiency among the Chinese ethnic has attracted the investor from China,Taiwan and Hong Kong and on the other hand enable investing ventures intothese countries easily. Page 10 of 13
  11. 11. PEST – Singapore Business EnvironmentThe latest statistic shows that the literacy rate stands at 96% whilst secondaryor higher qualification holders are 89%. This is the driving force for thegovernment to promote knowledge economy which is less labour incentive butmore talent and intellectual are on demand.Besides, owing to the “kia-su” mindset, the parents here are very concernabout the performance of the kids in school. This has led to blossoming oftuition centres and other arts/musical learning classes.5.0 TECHNOLOGYTechnology is the power behind to change our life style and improve outquality of life.5.1 The InternetComprehensive infrastructure setup has been a fundamental attractivenessfor foreign investment and local business establishment, not to mention aboutthe IT infrastructure. Currently, the household broadband internet penetrationrate has achieved more than 70%. The successive of e-commerce and eB2Cmodel are highly relies on the broadband internet. At of latest, 10Mbps ofbroadband internet service is available. The comprehensive IT infrastructurealso has encourage MNC to setup their regional operation in Singapore. Thesuccessful of the financial and IT services business are highly rely on thestate of the art IT infrastructure.On the other hand, the Singapore government is moving towards an electronicgovernment era. Many useful resources and information are available in therelevant ministries/department or government agencies website. For instance,the Customs Office of Singapore has provided e-service, these are fewexamples:- i) Application for: Manufacturers Registration & New Product Line(s) ii) Application for Registration of Companies / Firms and Signatories for Customs and/or GST Transactions iii) Application for GST relief on household articles and personal effectsThis approach enables to cut red tapes and enhanced the efficiency.5.2 WaterDue to its lack of water resources and the government would like to reduce itsdependence on the Malaysian supplied water, the Singaporean has venturedinto water recycling and desalination. NEWater is the brand name given toreclaimed water produced by Singapores public utilities. More specifically, it istreated wastewater (sewage) that has been purified using dual-membrane (via Page 11 of 13
  12. 12. PEST – Singapore Business Environmentmicrofiltration and reverse osmosis) and ultraviolet technologies, in addition toconventional water treatment processes.Many experts suggested that Singapore could become the worlds water hubfor water recycling and desalination technology and could export thistechnology to the world including China. With the new technology in waterreclamation, waste water would become the most important sustainable waterresource in the future. Singaporean’s expertise in the water recycling willdefinitely gives its edge advantage if it exports this expertise and technologyin the future.6.0 CONCLUSIONAs a conclusion from the factors analysed above, we can conclude thatSingapore business success in the domestic and international platforms aremuch benefited from its government’s policies and enterprise friendlyapproach. Together with its common tertiary education and the hardworkingand discipline of its citizen, the success of domestic business will ensure itscompetitiveness in the international era. Page 12 of 13
  13. 13. PEST – Singapore Business EnvironmentReferences :1) Singapore Ministry of Trade and Industry - http://app.mti.gov.sg/2) Spring Singapore website- http://www.spring.gov.sg/3) Ministry of Finance Singapore - http://app.mof.gov.sg/4) Statistic Singapore website: http://www.singstat.gov.sg/5) Economic Survey of Singapore 2008. Page 13 of 13

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