How Singapore’s government grants helped companies weather the storm.

I wrote in June on Singapore’s public-private partnerships, and profiled several companies I visited on a tour earlier in the year. Singapore was one of the first countries to see improving financials this year, so I decided to revisit the profiled companies and ask their views of current business conditions, where they saw opportunities for growth, and which government programs they had found effective. As with the rest of the world, results vary by both services provided and industries served. (Ed.: For background on the companies, see “What We Can Learn from Singapore” at http://www.circuitsassembly.com/cms/component/content/article/6-current-articles/8412-what-we-can-learn-from-singapore-.)

Beyonics Technology Ltd. Beyonics (beyonics.com) said the Singapore government reacted quickly to provide a stimulus package for the industry, which provided companies funding at each quarter’s end if it continued to maintain employment. In addition, many high-subsidy training programs were introduced during this period, enabling companies to send employees for training during the downturn.

“We have signed up for a program with Singapore’s Economic Development Board (EDB) whereby we could hire fresh graduates funded by the EDB,” said chief executive Goh Chan Peng. “This is a great help to assist new graduates and provide our company with manpower resources without adding manpower cost. It also enhances our ability to move forward with new ventures.”

In terms of overall focus, Goh said that during the current economic crisis, Beyonics had increased its selectivity in terms of market segments and potential customers. Similarly, the focus on core capabilities and technology fell in the same strategy. “As the dust has settled, primarily in the banking industry, it has created a more ‘friendly atmosphere’ in which to work for all the business communities and business environment. Orders booked and demand has shown a steady increase by an estimated 10 to 15%, starting in April. It could be mainly due to filling the supply chain. During the crisis period, most OEMs cut inventory holdings. We will adopt a wait-and-see attitude until after December.”

CEI Contract Manufacturing Ltd. While some companies reduced headcount or reduced wage and salary, CEI (cei.com.sg) did not. Managing director Tan Ka Huat’s philosophy is that it is better for a company to cut profits to maintain existing employment levels and salaries. CEI gave a mid-year bonus, which was smaller than last year. The company also continued to give raises, but at a lower percentage than last year. As a result, morale is high and turnover almost zero. CEI has been able to hire engineers, and received some government help to offset cost. For instance, the EDB is funding employment advertising plus two years of salaries for engineers recruited under the advertising campaign. CEI has added biomedical engineers to support its focus on medical tech, life sciences, pharmaceuticals and health care equipment.

Also, the government agency promoting the overseas growth of Singapore-based companies, International Enterprise (IE) Singapore, has provided tax deductions of 15 to 18% for sales and marketing expense. Both IE Singapore and the EDB have also provided business referrals. Other agencies have assisted with networking, technology partnerships and M&A suggestions.

Tan says CEI’s demand was flat in the second and third quarters, and the company expects overall 2009 sales will probably be down about 15%. Still, the timing of its downturn was different because of its industry sector business mix. Says Tan, “Consumers saw the first wave of the recession and the industrial sector saw the impact later. We expect, barring any bad surprises in the economy, to see some improvement in Q4 based on our book-to-bill ratio of the last several months.” He added that the Singapore government’s various incentives have had positive impact on CEI’s operating costs related to existing employment of Singapore citizens, training (in-house and external including overseas), sales/marketing activity and new hires.
First Engineering Ltd. First Engineering (first-engr.com.sg) described sales as “within budget but not as high as last year.” Andrew Tan, First Engineering’s director of business development, indicated that the Singapore government’s Job Credit Scheme, which provides cash grants to help companies with manpower costs, had been particularly helpful. In addition, First Engineering participated in two programs with IE Singapore that permitted the company to claim a subsidy of up to 70% and also double tax reduction for marketing expenses.

Forefront Medical Technology (PTE) Ltd. Forefront (forefront.sg) has actually grown in revenue and client acquisition. “Our business strategy and location selections have allowed Forefront to continue to serve clients with increased volumes and achieve the needed cost down,” said Mark Samlal, group chief executive officer of Forefront's parent company, Vicplas International Ltd.

AMS Biomedical (Pte) Ltd/Manufacturing Integration Technology Ltd. MIT, AMS’s (ams-biomedical.com) parent company, recently announced a new business unit focused on the solar industry. “We believe this complements well with our Singapore government’s push to develop the Clean Energy Sector with an emphasis on the solar industry,” said Tony Kwong, MIT chairman and CEO. He added that the solar industry offers tremendous opportunities for MIT, as it can leverage the many commonalities and cross-disciplinary capabilities that reside in its experience with semiconductor process technology. The company plans to expand its Singapore facility once production demand grows, and will have added scalability at its Shanghai facility. To build its research and human capital capabilities, MIT is working closely with Rofin Baasel, EDB, IE Singapore and other Singapore agencies and research institutes to bring it to the forefront of solar power technology.

Onn Wah Precision Engineering Pte. Ltd. Onn Wah (onnwah.com) has used several Singapore government programs to reduce its costs. One was a Capability Development Scheme offered through SPRING Singapore that helped fund three different projects related to technology innovation and business development. Onn Wah also utilized IE Singapore’s schemes to help it visit the Paris Airshow and medtech companies in the UK. The third tapped the Job Credit Scheme. An interesting footnote has been that the visit to the Paris Air Show generated requests for quotations from four new companies, demonstrating that funding support for international marketing activities had a fairly fast return on investment, even in a soft economy.
Onn Wah observes that semiconductors were down early in the year, while aerospace has been booming. “We had good sales in March – April, but aerospace is beginning to drop. The semiconductor industry is now picking up,” said François Beaufrère, Onn Wah’s general manager. He indicated there were a number of trends driving cycles in different markets. One positive trend driven by the recession was that companies operating in countries using the euro are looking for suppliers in countries in the dollar zone.

Rayco Technologies (Pte) Ltd. Rayco (raycotechnologies.com) tapped IE Singapore resources to expand marketing efforts at reduced cost. It has participated in several trade missions and is attending trade shows in the US, China, Thailand and Germany. Under Singapore’s International Marketing Activities Program (IMAP), the company pays a participation fee, but gets 50% reimbursement for costs. In addition, the company was able to deduct eligible expenses for overseas trade fairs twice against their taxable income under IE Singapore’s Double Tax Deduction scheme for market development.

“Repeat orders are increasing, but this is not significant compared to the drop in business. While sales growth goals were missed, the division still grew 15% year-over-year. From a market segment perspective, we are focusing on life sciences and electronics. The bulk of growth was driven by long-term stable programs, as well as the launch of a new medical device,” said Susan Ng, Rayco’s general manager, corporate.

Assistance for Foreign MNCs

Singapore’s assistance efforts aren’t limited to Singapore-based companies. IE Singapore (iesingapore.com) assists foreign MNCs wishing to find new suppliers through a supply base search and matchmaking service that makes sourcing hard-to-find commodities much less of a challenge. MNCs can submit specifications for supplier capabilities to an IE Singapore representative, and they will develop a list of compatible suppliers. With offices in over 30 cities worldwide, including London, Frankfurt, New York and Los Angeles, IE Singapore officers will also set up meetings with the short list of suppliers chosen by the MNC’s sourcing team, so that the team can visit or audit the selected companies during a single visit. In some cases, that visit may include side trips to satellite facilities in other lower cost labor markets such as Indonesia, Malaysia, Vietnam or China. Programs such as this help lower costs of supplier identification and qualification on both the supplier and customer side of the equation.

Overall Numbers

In September, the Geneva-based World Economic Forum ranked Singapore the third most competitive economy in the world, up two places from the prior year. (The US slipped from first to second place, behind Switzerland.) According to the report, Singapore’s uptick was based on increased confidence in the country’s public institutions, efficient markets for goods and labor, high-quality financial markets, as well as its world-class infrastructure.

Not surprisingly, manufacturing output measurements reflect growing positive momentum, although the impact of the global economic downturn is still evident in some sectors. According to Singapore’s EDB, manufacturing output increased by 23% in July on a seasonally adjusted month-on-month basis. Excluding biomedical manufacturing, output increased 7.7%. On a year-over-year basis, manufacturing output rose 12.4% in July, boosted by a 125.4% increase in the biomedical cluster, which includes both pharmaceuticals and medical technology. Excluding biomedical manufacturing, output declined 7.4%. On a three-month moving average basis, total manufacturing output in July increased 1.7% compared to last year. Year-to-date through July, cumulative output contracted 10.3% compared to the same period in 2008.

If we look at performance by cluster, the medical technology segment also grew 14.2% in July. Cumulative output of the biomedical manufacturing cluster from January to July increased by 16.5% compared to 2008.

The electronics cluster saw a moderation of year-on-year decline in July, with output falling 5.6%. Computer peripherals output grew 44.5% in July while output for the remaining electronics segments continued to contract. For the first seven months of 2009, the electronics cluster contracted 26.3% compared to the same period in 2008. Transport engineering, aerospace, marine & offshore engineering, and land transport were all off as well.
However, manufacturing sector business conditions are expected to improve in the second half. The latest EDB Business Sentiment survey shows a weighted 16% of manufacturers predicting an improvement and a weighted 18% expecting deterioration, better than the survey’s findings from a quarter ago. Overall, a net weighted balance of 2% of manufacturers expect a less favorable business situation for the July to December period compared to the second quarter of 2009.

Within the manufacturing sector, the electronics cluster is the most optimistic, with a net weighted balance of 24% of firms expecting second-half business conditions to improve. This optimism is broad-based, as most of the segments foresee higher orders and exports in the next few months.
Two years ago, some of the results discussed in this article would have been considered far below par. But in a global economy where many companies consider a 15% decrease in overall sales compared with the prior year to be average performance and flat sales growth a stretch goal, these results are, in fact, above par.

The lessons to be learned from these examples are that focused investment, long-term market entry strategies and strong, relevant government support will not only help companies weather the storm, but can also position them well to take advantage of economic recovery as it occurs.

Susan Mucha is president of Powell-Mucha Consulting Inc. (powell-muchaconsulting.com); smucha@powell-muchaconsulting.com.