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Five predictions of the business climate in Singapore in 2010
- By Dr. Mike Teng
Beginning of last year, I made five bold predictions on the business climate in Singapore in the midst of a very volatile global economy and they were namely
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1.
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Continued decline in many sectors
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Home businesses will increase as joblessness soars
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3.
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Bigger companies will fail faster than smaller ones
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Domestic sector becomes more critical as external demand declines
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5.
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Businesses going back to basics
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All five predictions have primarily materialized, some have been more impacts than others in 2009.
This year 2010, I would like to make five new predictions, also amidst a very uncertain global economic situation.
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Continued recovery barring any major external shocks
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There are signs of economic recovery. However, the full recovery, if it comes, will not be a V shaped but rather a U shaped one. We will not see the sudden surge of the real estate and stock market prices as we saw in the second half of 2009. As the euphoria of the global governmental fiscal and monetary stimuli subside and get petered out, the global private sector will have to spur up its demand growth. Unfortunately there is still no global engine of growth with the collapse of the US consumerism. The norm will be slow growth, high unemployment especially with the PMETs (Professional, Managers, Executives and Technicians) and the traditional Western markets remain lackluster. The global economy cannot recover if the two largest global economies - mainly the US and EU do not recover. Asia’s economic recovery is not going to be strong enough to save the world. . However, Singapore is fortunate to be located in Asia and will benefit from the fast growth economies in China and India in the short term, and I do not predict a double-dip recession provided there are no more major external shocks to the economic system. I foresee the overall interest rate to remain low at least for the first half as the central banks are still very cautious in hiking the interest rate and loose on the monetary policies. The governments are also mindful of not hampering the nascent global economic recovery. In the second half, things will be more uncertain as inflation will start creeping up because of the huge government deficits. Singapore dollar is expected to appreciate vis-à-vis the major currencies such the USD, British Pounds and the Yen as confidence in the Singapore economy gets a booster through the opening of the two Integrated Resorts, Youth Olympics and forthcoming general election.
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Home businesses will increase as unemployment remains high for PMETs
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There will be continued retrenchment of management and executive staff albeit at a slower pace. PMETs are going to bear the brunt of this as foreign companies continue to delayer the middle management. Laid off executives will find it difficult to find re-employment and these PMETs need to become entrepreneurs and free agents. Thus, I see the growth of home businesses as these laid-off executives operate from homes. Multi-layer marketing, internet marketing, tutoring, consultancy and mentoring services, real estate and insurance agents, brokers etc will mushroom as these businesses sit very well with operators operating from homes. The growth of home businesses will exceed the traditional businesses that we used to know of. As companies cut back on office rentals, the owners will move to operate from homes. The workers will enjoy better fate as they will be in demand with the opening of the two Integrated Resorts which will need many low level service orientated personnel such as waiters, service staff, cleaners, labourers etc.
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Need to depend more on ourselves rather than outside
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I see that we have no choice but to promote the domestic sector, our local talent and SMEs. The harsh realities of the slow global economic recovery will force us towards this direction. During the past few crises, Singapore economy was resuscitated because of the recovery of the global economy. We did little to turnaround the economy ourselves. This crisis is different. The global economy will take sometime to recover. Thus we need to re-focus on our domestic economy and building up our SMEs, notwithstanding how small they are. There is little choice, we have to help ourselves. Our SMEs need to address the fundamentals of their business model. Many of our SMEs are middlemen and traders. And this business model is becoming obsolete with the advancement of internet and information technology where sellers and buyers can find each other more easily thus marginalizing the role of middlemen. Singapore companies will work more closely together to compete in the global marketplace out of necessity to stay competitive. The Taiwanese, Japanese and Koreans steal the march on us in terms of teamwork. We need to build more global brands amongst our SMEs, even the Chinese are moving towards this direction of building their own brands instead of becoming sub-contractors and sub-manufacturers for foreign MNCs. I see the global protectionism rearing its ugly heads and forcing our businesses to also look inwards or domestically. Also, as our costs increase, we become less export competitive through manufacturing and instead grow services such as tourism and financial, which are more domestically driven.
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Moving from manufacturing to service-orientated economy
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Singapore is moving from a manufacturing to a service-orientated economy. I have personally spent more than 20 years in the manufacturing industry and have seen Singapore losing its competitive advantage in this sector across the board with the rapid rise of China. Unfortunately, we still have a penchant to promote manufacturing rather than services. Unlike the promotion of manufacturing industry where we need to attract foreign technology and multi-national companies, for servicing sector we need to focus on developing our own people as a brand. We will not have a strong branding in servicing industry especially in financial, medical, education, hospitality, consultancy, training, entertainment, professional services etc, if we continue to develop foreign talents who ultimately go back home to their country of origin. Thus, we need to first recognise our own local talents and brands and award them with service jobs, contracts and government tenders so that they have an opportunity to excel and flourish. If we ourselves do not value our own brands, it is going to be difficult to convince outsiders of our capabilities and therefore develop a thriving service industry going forward. Thus our mindset needs to change. I am confident that our government and companies will transform very quickly to this new reality. Even if we don’t change our mindsets fast enough, it is a certainty that in 2010, we will continue to lose our competitiveness in manufacturing.
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Corporate restructuring will continue to accelerate
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For the sake of survival, companies will have to continue to restructure and transform themselves similar to my prediction in 2009. They will not easily find saviours or white knights to bail them out of trouble as in the past crises. Even our government will have budget constraints as to who to rescue because many sectors will be in trouble and asking for help despite signs of recovery. Last year, companies went through what I call the stage one of corporate restructuring ie Financial Restructuring with funding aids from government, merger and acquisition and credit injection etc. This year, I predict the emphasis will be on stage two of the corporate restructuring - Operational Restructuring where companies will have to transform its business models, consolidate its off-balance sheet items, formulate new marketing strategies, strengthen leadership and human resource planning etc. The emphasis will be on corporate turnaround and transformation.
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