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Singapore's regionalization
challenge
By Tony Sitathan
When the former prime minister of Singapore, Lee
Kuan Yew, in the mid-1980s made the clarion call for
Singaporean companies to go regional and invest in
overseas ventures, it was a wake-up call for companies
to spread their wings and take their chances with the
rest of the international investment community.
"Singapore then was no different from, say,
Brunei or Malaysia, but it realized its weakness and
reacted quickly, unlike the other countries, which were
more inward-looking and introspective," maintained Lance
Gordan, a principal management consultant with a Fortune
500 company.
To achieve its goals Singapore
formed a special economic task force to attract overseas
investment into Singapore as well as coordinate some of
its activities beyond its shores. The Economic
Development Board and the Trade Development Board, now
called Singapore Enterprise, have played a significant
role in changing the mindset of Singapore and
Singaporean businesses alike. "Without these two
proactive organizations, the Singapore landscape would
be very much different from what it is today. They
provided the seeds for spawning the Singapore economy as
it is known today," says William Tan, an ex-civil
servant currently working as a consultant for a large
foreign offshore petroleum company.
Singapore,
unlike other Asian governments, has recognized the value
of being the first to be involved in forming businesses
as well as taking a lead role in some of its business
ventures. "It did not shy away from being a catalytic
sponsor for many joint ventures and international
projects, although its success rate is somewhat
limited," says Tan.
Its call for going regional has met several
failures as well. When Singapore Telecoms planned to
regionalize during its earlier years, its foreign-equity
investments, for instance in Belgacom Telecoms, did
not work out as expected. Belgacom reported losses
in its domestic operations that later eroded the
profit margins of Singapore Telecoms. Singtel's keenness to
expand overseas also gave it a huge digestive problem
in fiscal 2001 when it reported an 18.7 percent
fall in full-year net earnings to US$905 million, a loss
of nearly $205.5 million from the $1.11 billion recorded
the previous year. Its dip in net profits is attributed
to higher depreciation, interest charges and goodwill
amortization. It also wrote off a sizable chunk of its
earnings in depreciation costs caused by its submarine
cable C2C subsidiary in India.
Singapore
Telecoms also failed in its bid for Maxis Communications
in Malaysia and Hong Kong Telecom in Hong Kong. In both
these cases, it did not meet the sufficient
requirements, as there were several inherent barriers to
entry. One was the nationalistic monopolies enjoyed by
the incumbent telcos. The telecoms industry is still a
highly regulated industry, despite the coming Asia Free
Trade Agreement (AFTA) that promises the liberalization
of the telecoms sector both in the downstream and
upstream markets. "When it comes to protecting national
interest over commercial instincts, it goes to show what
investments are still considered strategic investments
by Asian governments that tend to favor domestic players
than international ones. It's also a question of
national pride and prejudices," says William Taylor, a
strategic telecom consultant with Axiom Consulting based
in Hong Kong.
Nonetheless, Singapore Telecoms
did well with its other ventures in Indonesia, India,
Taiwan, the Philippines and even Thailand. But how many
companies based in Singapore can follow the example of
Singapore Telecoms? "Just a handful," says Taylor. "Many
of them lack the its capital base, the resources and the
exposure. Singtel has a market capitalization of more
than US$10.7 billion and has a solid base in Singapore
to start with. It's still in a No 1 position in
Singapore, unlike the smaller capped companies expanding
overseas."
Ventures by SembCorp Industries and
the Port of Singapore Authorities were largely
successful in breaking into managing port facilities
overseas and building maintenance and contracting for
large information-technology (IT) parks in Vietnam and
India.
Despite such successes, what are some of
the restrictions and also the incentives to regionalize?
According to S Dhanabalan, the chairman of Temasek
Holdings, the financial corporate entity of the
government that has a vested interest in several
government-linked companies and public listed companies,
worth more than US$41 billion in terms of market
capitalization, has made a strategic decision to
reorganize itself and focus its activities only on
strategic levels of investments.
Under its new
charter, Temasek should have control of or influence in
projects with strategic importance, such as water as a
resource, and projects related to Singapore as an
international communication and routing hub. It also
should participate in high-risk growth sectors such as
life-sciences investments and efforts. Finally, it
should nurture global or regional leaders from the
stable of Temasek companies or other non-Temasek
Singapore companies that can anchor or help to drive
knowledge-intensive, economic activity in Singapore, for
its multiplier effect.
"Singapore has no sizable
domestic market. Hence, all our businesses have from the
start been compelled to operate along commercial lines
and to compete in a global market," noted Dhanabalan
during a speech in the Foreign Correspondents Club late
last year. "Companies need to globalize or risk being
marginalized. Companies have to aim to be world-class in
order to remain competitive. Our companies are no
exception."
Since then many new developments
have cropped up in Temasek Holdings to encourage firms
to expand beyond Singapore. It has appointed a new
executive director, Ho Ching, formerly from Chartered
Technologies Group, the large government-linked
technology behemoth, to spearhead this changed culture
within Temasek Holdings. Also there have been several
announcements in the press about the divestments or
possible divestments of Temasek from unprofitable
ventures as well as issues on corporate governance that
have cropped up recently in the wake of the Enron
collapse and the WorldCom scandal.
"By going
regional the Singapore government has laid the
foundations for companies to look at Asia and beyond
Asia as its level playing field. However, there is risk
involved as well," remarks Steven Tan, the managing
director of Forum Idea, a global consultancy
specializing in emerging markets. "But Singapore's
report card so far looks promising, and small and
mid-sized companies need to think of ways to invests and
work together to carve a larger piece of the economic
pie, whether in China, India or Vietnam."
(©2002
Asia Times Online Co, Ltd. All rights reserved. Please
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