Pest Analysis of Singapore:-

Singapore is widely acknowledged as having one of the best business environments in the

world

One of the world's most competitive (Institute for Management Development World

Competitiveness Yearbook)

Most profitable (Business Environment Risk Intelligence Report)

Most transparent (Transparency International Survey)

World-class intellectual property protection and enforcement (World Economic Forum

Global Competitiveness Report).

The presence of many leading global companies and local enterprises here is a testimony

to Singapore's excellence in manufacturing and services.

There are more than 7,000 Multi-National Corporations in Singapore nowadays.

Singapore is an attractive and competitive manufacturing location, possessing world class

capabilities in the design, development and manufacture of cutting edge products for the

world.

As MNCs are always looking for the most cost efficient for its investment, Singapore’s

high labour rate loses out to other developing countries e.g. Vietnam and China.

As some manufacturers have left Singapore to other countries with cheaper labour, we

can see the transformation from the manufacturing activities into trading and services.

In addition, by leveraging on its strength as the regional hub for services such as logistics

and education, Singapore is poised to become Asia's leading services hub, providing an

array of world-class services.

The following sections will analyze the factors (Politic, Economy, Social and Technology)

that influence the business environment in Singapore and also its limitation.

1. POLITICAL/LEGAL ENVIRONMENT

Singapore is an enterprise friendly country. The government has set up several organizations in

helping the business in a very systematic way.

Regulation Structure

Ministry of Trade and Industry (MTI)

The Ministry of Trade and Industry (MTI) has its vision to make Singapore a leading

global city of talent, enterprise and innovation.

Its mission is to promote economic growth and create jobs, so as to achieve higher

standards of living for all.

It was tasked with anticipating problems ahead, identifying opportunities for growth,

rationalising existing policies and giving broad directions for the economy. The main

tasks are categorized as below:-

- Growing economy,

- expanding trade,

- developing industries,

- fostering pro-enterprise environment

Statutory boards are semi-independent agencies that specialize in carrying out specific plans and

policies of the Ministry. One of such agencies under the MTI is SPRING Singapore.

SPRING Singapore (Standards, Productivity and Innovation Board) is the enterprise

development agency for growing innovative companies and fostering a competitive SME

sector.

SPRING works with partners to help enterprises in financing, capabilities and

management development, technology and innovation, and access to markets.

As the national standards and accreditation body, SPRING also develops and promotes

internationally- recognised standards and quality assurance to enhance competitiveness

and facilitate trade.

It has many programmes to encourage entrepreneurship and assisting the Small and

Medium Enterprise (SME). These are two available financial 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 where a numbers

of training courses are conducted to improve leadership and business 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.

iii)EnterpriseOne (OneNetwork forEnterprises) is a multi-agency initiative managed by

SPRING Singapore. EnterpriseOne aims to help local enterprises find the answers they need to

start, sustain and grow their businesses. Its resources pose:-

• Rich And Deep Content

Over 20 sections covering a comprehensive range of topics such as venturing abroad, hiring

people, Government tenders, loans, taxes and regulations. It pulled together information from

different Government agencies so the business owners don't 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 statutory body established

to enforce the Competition Act (Chapter 50B) and ensure a fair competition environment. Any

unfair business practice can be prevented and this can ensure a healthy competition and business

growth.

Another MTI agency is Public Service for the 21st Century orPS21. It is about the Singapore

Public Service's commitment to Anticipate, Welcome and Execute change, influencing

developments in order to provide Singapore with the best conditions for success. One of its main

objectives is to cut red tape to achieve service excellence and efficiency. Red tape reduction

definitely will encourage entrepreneurship, foreign investment and positive growth of the

business sector.

Ministry of Finance (MOF)

The main regulatory statutes under MOF are the Companies Act, Business Registration Act,

Currency Act and Accountants Act. The emphasis of the regulatory policy is on development,

rather than control. MOF aims to collaborate with industry experts to make Singapore a world-

class financial and business hub. The main strategy in helping the business in the Singapore is

building a Conducive Business Environment by Facilitate growth of businesses 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 MOF's

policies and goals

• To function as a centralized focal point within MOF for information on all FTA issues

The Accounting and Corporate Regulatory Authority (ACRA) is one of the statutory boards

under the MOF with mission to provide a responsive and forward looking regulatory

environment for companies, businesses and public accountants, conducive to enterprise and

growth in Singapore. The focus of the statutory board will be on issues concerning businesses,

such as developing the corporate law framework, accounting and corporate governance.

Government E-Business Portal

In an effort to promote transparency, the Singapore government has setup GeBIZ (Government

E-Business Portal) who is the Singapore government's one-stop e-procurement portal. All the

public sector's invitations for quotations and tenders are posted on GeBIZ. Suppliers can search

for government procurement opportunities, download tender documents, and submit their bids

online.

Enforcement

Singapore is a country where the enforcement units are very efficient and with very low

corruption rate.

The Singapore Police Force enjoys a relatively positive public image, and is credited for

helping to arrest Singapore's civic unrests and lawlessness in its early years, and

maintaining the low crime rate today.

Another example is the taxis services where the drivers collect fares by using the meter

and do not cheat the passengers.

Taxis in Singapore are regulated by the Land Transport Authority. This gives the

passengers especially tourist peace of mind in using taxi service. Any bad taxi service

may hamper the tourism industries.

Corruption Practices Investigation Bureau (CPIB)

Singapore is reputed to be one of the few countries in the world where corruption is under

control. This is due mainly to the strong political will to curb corruption, firm actions taken

against the corrupt regardless of their status and background, and the general public who do not

accept corruption as a way of life.

The Corrupt Practices Investigation Bureau (CPIB) is an independent body which

investigates and aims to prevent corruption in the public and private sectors in Singapore. The

bureau is responsible for safeguarding the integrity of the public service and encouraging

corruption-free transactions in the private sector.

Deregulation & liberalization

Singapore has deregulated several markets, e.g. the electricity and telecommunication.

The government no more monopolized these markets, but it is open for competition

among the industry players.

Even since 1989, the government of Singapore started eliminating restrictions on the sale

of telecom consumer goods to make businesses more competitive.

Singapore is reliant on foreign direct investments and exports so competition from

countries with lower costs such as China and India is exerting pressure on the

government to reduce the costs of doing business here.

Deregulation is believed to be able to bring about lower electricity costs due to the

various efficiency gains possible.

Since corporatisation the power industry has become more efficient and more reliable.

Customer service has improved. Investments in new power plants and transmission

network infrastructure have increased significantly.

The industry is also making healthy profits through efficiency and productivity gains, and

lower cost of purchase of power equipment and cables.

One of the deregulation result is YTL Power of Malaysia has acquired 100% interest

in Power Seraya Limited recently. Also the China Hua Neng Power has acquired

100% stake in the Tuas Power Ltd. We can see the deregulation has attracted foreign

direct investment into the countries and thus accelerate its economic growth.

Being Asia’s first liberalised electricity market, the Singapore government has

liberalized the electricity wholesale and retail market. This means contestable consumers

will have greater choice about how they purchase their electricity.

Non-contestable consumers continue to buy electricity from SP Services Ltd at regulated

tariffs. Eventually, all consumers in Singapore will become contestable. This certainly

has reduced the electricity bills for the industrial/business user and consumer.

The government must be very careful and governing the deregulated market and not to

repeat the failure encountered by the US deregulated energy market, where expenditures

become higher and consumers suffered from the higher energy cost and was a failure in

the USA energy policy.

Another example is the liberalization of the civil aviation industry where the flyers can

fly at lower cost. Following the establishment of the low cost carrier e.g. Tiger Airways,

the major airlines also reduce the air fares significantly and this help in driving down

business expenses and accelerated growth especially in the tourism related industries e.g.

hotel, F&B services and local retail business.

Licensing

Singapore government has been very careful in allowing foreign hypermarket to operate in

Singapore. So far only the Malaysian’s Giant (4 outlets) and French’s Carrefour (2 outlets) are

allowed to operate on the island. Strict control has been taken to protect the retailer especially.

Non Government Organisation (NGO)

NGO play an important role as pressure group in the government policy and implementation. As

part of an effort to bolster tourism as more manufacturing jobs shift to countries with lower

labour costs and in view of the possibility that Singapore would lose out in its status as a tourist

hub as well as the economic benefits from tax revenues, Singapore government has revisited the

idea of building casino in Singapore in 2004.

This had generated substantial and intense public debate and objection from the NGOs as this

was not just a socio-economic policy dilemma, but has potential to touch the sensitive nerves of

social identity, public morality and values and has bad implication on Singapore as a clean,

sterile, corruption- free and crime-free city. Further the NGOs protested that this development

will be at the expense of the environment as the developer has to reclaim the sea for 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 under construction. The completion of this casino

together with the entertainment resort and other infrastructure will certainly attract more foreign

tourists and boosting the domestic economy once the plan is completed.

2. ECONOMIC ENVIRONMENT

The Singapore economy is an example of a vibrant free-market economy that is

developing at a rapid pace1.

The per-capita income of the country is the highest in ASEAN.

The business sectort has been supported and strengthened by a corruption-free

environment, an educated and motivated workforce, and well-established legal and

financial business framework.

In recent years, the Singapore government has invested heavily in diversifying the economy.

This has led to growth in the tourism industry, the pharmaceutical industry with a particular

focus on biotechnology, financial services, business consultation services, education,

multimedia, retail and leisure, and the medical technology industry.

Productivity

Significantly from 2008-Q3 onwards, economic growth was rapidly slowing down

because of the financial crisis, while commodity prices hit unprecedented heights,

creating sharp inflationary pressures in Singapore and 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 from the previous

year. In the fourth quarter of 2008, the economy contracted by 4.2 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 from year

2007. However, the retrenchment rate has almost doubled from year 2007’s 7,700 to year

2008’s 13,400 workers.

This is certainly the consequence of the global economic crisis, where almost no a single

country can be escaped.

Gross national income per capita was S$51,739 which is the highest per capita

income in ASEAN and making its citizen income on par with the developed nations. In

fact, the city state is the only developed country in ASEAN.

The services producing industries made up 68.8% of the overall economy and

manufacturing weighted at 19.4%. Financial services and business services has

become more and more important and made up 13.1 and 14.0% respectively of the

overall economy.

Petroleum refined products top the export list with 23.7%. This can be attributed to

the petrochemical complexes in Jurong Island.

This initiative has boosted the heavy petrochemical industries in the country and has

attracted foreign direct investment like the Exxon-Mobile Refinery.

The limitation will be the pollution to the environment which will increase the social cost

like health care services.

Exchange Rates

Currency exchange rate is about US$1.00 to S$1.50 range lately.

Due to its high exchange rate to the Ringgit Malaysia (S$1.00 = RM2.40 approximately),

many Singapore residents like to cross the Tebrau Straits to Malaysia for weekend

spending.

Additionally, the comparative cheaper petrol price in Malaysia has attracted Singaporean

to fill up their vehicle fuel tank in Malaysia. These have directly affected the Singapore

domestic businesses and the petrol retailers. Therefore the government has set the rule for

the car owner to have at least the fuel tank ¾ filled when travelling outbound to Malaysia.

On the other hand, the high exchange rate to Ringgit Malaysia and Indonesian Rupiah has

attracted many white and blue collars labours from these two neighbouring countries. Especially

the high numbers of skilled workers from Malaysia has contributed to Singapore’s GDP growth

but on the other hand remarking loss in foreign exchange. On the other hand, construction and

heavy industries in Singapore are over dependant on foreign workers which in one hand has

become a threat to the social identity and safety.

Monetary and Fiscal Policies

The success of Singapore's fiscal policy over the years lies in the government's prudent

expenditure patterns and conducive taxation policies that have complemented monetary

policy in promoting sustained and non- inflationary economic growth.

Singapore's tax policies, although providing the main source of funding for the

government, seek to enhance its economic competitiveness and attract foreign

investments to Singapore.

In its Budget 2009, the Singapore government has announced The Resilience

Package totalling S$20.5 billion to help Singaporeans preserving their jobs and

helping viable company stay afloat.

The government spent S$5.8 billion to stimulate bank lending. It also would spend

S$2.6 billion to enhance business cash flow and competitiveness. Further, it also

allocated S$4.4 billion to develop Singapore as a global city and best home for

Singaporean.

Under the severe global economy crisis, Singapore government has justified withdrawal

from its past reserves to fund the Jobs Credit Scheme and Special Risk-Sharing Initiative

to ensure that the Resilience Package will stimulate the business sector.

This combination of fair tax policies and prudent expenditure programmes, augmented by

high economic growth has enabled Singapore to enjoy consistent budget surpluses over

the years. Singapore is one of the very few countries who enjoy surplus in its economy

nowadays.

In 2008, as part of the government’s move to share the nation’s surpluses with its

citizens, the government has allocated S$1.06 billion as growth dividend for this

purpose which benefited about 2.4 million Singaporean, especially those of the lower

income. This allocation has help the lower income group to cope with the higher living

cost and in turn has stimulus the buying power in the market. However, the effectiveness

for the market stimulation is only for the short term.

The Official Foreign Reserves at Feb 2009 is US$163,549.4 million and Singapore

government does not bear any foreign debt.

International Trade

International Enterprise (IE) Singapore is the lead agency under the Ministry of Trade

and Industry spearheading the development of Singapore's external economic wing.

Its mission is to promote the overseas growth of Singapore- based enterprises and

international trade. At the same time, IE works to position Singapore as a base for foreign

businesses to expand into the region in partnership with Singapore-based companies.

In championing international trade, IE Singapore contributes to the Singapore economy

through active promotion of export of goods and services, and offshore trade. Singapore’s

Global Trader Programme (GTP) which provides incentives to attract international

trading companies to set up their base in Singapore.

The IE’s Enterprise Group manages and develops a range of broad-based services for

Singapore-based companies wanting to export internationalized goods.

In 2007, Singapore was ranked the 14th largest trading nation in the world,

amounting to total of $846.6 billion of external trade, with Malaysia remained as the

biggest trade partner, followed by EU.

The Port of Singapore is the world busiest port in term of total shipping tonnage. It

is also the world busiest container port and transhipment port. The Port of Singapore is

not only a mere economic boon but an economic necessity as it is lack of natural

resources and land.

The Maritime and Port Authority of Singapore was established with the mission to

develop Singapore as a premier global hub port and international maritime centre.

The establishment of Malaysia’s Port of Tanjung Pelepas has threaten the Singapore

Port status as the rival has attracted pretigious maritime companies like Maesk and

Evergreen to switch over to Tanjung Pelepas. Surely, the Singapore Port operator will

be facing more fierce competition ahead.

The Singapore Tourism Board aims to triple tourism receipts to $30 billion and double

visitor arrivals to 17 million visitors by 2015. It is working closely with international

investors to develop new world-class attractions (e.g. the casino), and attract strategic

business and leisure events to Singapore.

3. SOCIAL CULTURAL ENVIRONMENT

Singapore is an eastern country who still follows the traditional family values, but the younger

generation has started to adopt to western culture and values.

Society Values and Principles

As nowadays, many Singaporean have the mindset of “Kia-su” which means afraid of

lose out to others.

Many Singaporean works very hard to retain or fulfil their materialism desire.

In some extent this has positively increased the nation productivities and the business

sectors can expect a higher purchasing power from the consumers. On the other hand,

some family and social values have to be sidelined.

Demographic Profile

The current population is about 4.8mil.

Singapore ethnic mix is Chinese (75.2%), Malays (13.6%) and Indians 8.8%.

Most of the Singaporean dislikes blue collar works like construction and other works in

hard environment. These are considered “hard and dirty” works and therefore not

welcome especially by the younger generation.

This created the window for importing foreign workers to fill up blue collar vacancies.

With the cheaper labour from neighbouring countries, the business sector has enjoyed

cost saving and therefore more can be reinvested for further expansion.

Education

Singapore has codified compulsory education for children of primary school age, and

made it a criminal offence if parents fail to enrol their children in school and ensure their

regular attendance.

English is the primary language used in Singapore’s education systems. Good

command of English has given Singapore an edge advantage for attracting foreign

investment and international trade.

Further the Chinese language proficiency among the Chinese ethnic has attracted the

investor from China, Taiwan and Hong Kong and on the other hand enable investing

ventures into these countries easily.

The latest statistic shows that the literacy rate stands at 96% whilst secondary or higher

qualification holders are 89%. This is the driving force for the government to promote

knowledge economy which is less labour incentive but more talent and intellectual are on

demand.

Besides, owing to the “kia-su” mindset, the parents here are very concern about the performance

of the kids in school. This has led to blossoming of tuition centres and other arts/musical learning

classes.

4. TECHNOLOGICAL ENVIRONMENT

Technology is the power behind to change our life style and improve out quality of life.

The Internet

Comprehensive infrastructure setup has been a fundamental attractiveness for foreign

investment and local business establishment, not to mention about the IT infrastructure.

Currently, the household broadband internet penetration rate has achieved more than

70%. The successive of e-commerce and eB2C model are highly relies on the

broadband internet.

At of latest, 10Mbps of broadband internet service is available. The comprehensive

IT infrastructure also has encourage MNC to setup their regional operation in Singapore.

The successful of the financial and IT services business are highly rely on the state of the

art IT infrastructure.

On the other hand, the Singapore government is moving towards an electronic

government era. Many useful resources and information are available in the relevant

ministries/department or government agencies website. For instance, the Customs Office

of Singapore has provided e-service, these are few examples:-

i) Application for: Manufacturer's 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 effects

This approach enables to cut red tapes and enhanced the efficiency.

Water

Due to its lack of water resources and the government would like to reduce its

dependence on the Malaysian supplied water, the Singaporean has ventured into water

recycling and desalination.

NEWater is the brand name given to reclaimed water produced by Singapore's

public utilities. More specifically, it is treated wastewater (sewage) that has been

purified using dual-membrane (via microfiltration and reverse osmosis) and ultraviolet

technologies, in addition to conventional water treatment processes.

Many experts suggested that Singapore could become the world's water hub for water recycling

and desalination technology and could export this technology to the world including China. With

the new technology in water reclamation, waste water would become the most important

sustainable water resource in the future. Singaporean’s expertise in the water recycling will

definitely gives its edge advantage if it exports this expertise and technology in the future.

CONCLUSION

As a conclusion from the factors analysed above, we can conclude that Singapore business

success in the domestic and international platforms are much benefited from its government’s

policies and enterprise friendly approach. Together with its common tertiary education and the

hardworking and discipline of its citizen, the success of domestic business will ensure its

competitiveness in the international era.

Foreign Direct Investment (FDI) in the Singaporean Economy

The United States embassy uses the following rule of thumb in estimating the

sources of production in Singapore:

60% of goods and services are produced by the public sector, 25% by foreign

MNCs, and only 15% by the Singaporean private sector.

That is, foreign MNCs, which are especially prominent in the manufacturing sector,

account for around a quarter of Singapore’s national output.

In fact, it would be accurate to say that MNCs play a bigger role in Singapore than in

almost any other economy in the world.

The massive amount of foreign direct investment (FDI) brought in by the MNCs has

served as an engine of growth ever since the country’s independence in 1965.

Although both developed and developing economies compete fiercely for FDI these days,

Singapore adopted a liberal open-door policy toward foreign investors long before it was

fashionable to do so.

The combination of a strongly pro-FDI government and generally favorable

environment meant that Singapore has been and continues to be a highly attractive

location for foreign capital.

Singapore’s Tax Structure and Corporate Tax System

The size of the government in Singapore, measured by the ratio of government

expenditures to GDP, is significantly lower than other countries of similar income levels

and has been decreasing over time.

This ratio has ranged between 14% and 20% during 1996-2005, averaging around

17%.

The ratio of tax revenues to GDP, another measure of the size of the government, also

shows a similar downward trend over time.

The relatively small and decreasing size of the public sector is a result of deliberate

government policy over recent decades. Such trends are also consistent with the country’s

well-known extreme fiscal conservatism.

Since 1985, the government has usually run a budget surplus, which exceeded 10% of

GDP for seven consecutive years during 1989-1995.

However, the slowdown of economic growth since the Asian crisis of 1997-1998 has

constrained the growth of government revenues, which led to weaker fiscal positions.

The government’s ingrained spending restraint allows for a fairly low-tax fiscal regime.

Let us now take a closer look at the structure of the Singaporean

government’s revenues and expenditures to better understand the country’s

fiscal realities.

Customs taxes are relatively small due to Singapore’s highly liberal trade regime and

excise taxes are imposed primarily on alcohol and tobacco. Asset taxes refer to the

property tax and estate duty, while other taxes refer to stamp duty, betting taxes and

foreign worker levy.

Singapore generally imposes tax on a territorial basis – i.e. companies are subject to

tax on income derived in Singapore and on foreign income received in Singapore

regardless of whether the company is resident or non-resident. A company is resident in

Singapore if the control and management of the company is exercised in Singapore.

In general, the control and management of the company is taken to be the place where

the Board of Directors' meetings are held. Tax is only payable after an assessment has

been issued. Every company has to provide an estimate of its taxable income within three

months of the end of its accounting period.

An estimated assessment will then be raised and the tax assessed must be paid within one

month, unless arrangement is made to pay the tax in installments. Tax returns are due by

31 July each year for income earned in the accounting period ended in the preceding year

although further extensions of time may be granted on a case-by-case basis. A company

is taxed at a flat rate on its chargeable income.

A notable aspect of Singapore’s corporate taxation system is that capital gains are

not taxable. A major recent development was the replacement of the imputation system,

under which tax assessed on a resident company in respect of its normal chargeable

income are passed on as tax credit to its shareholders upon distribution of dividend, with

the one-tier corporate tax system, which came into effect on 1st January 2003.

Under the one-tier system, which applies to both resident and non-resident companies,

tax paid by a company on its normal chargeable income is final and all dividends paid are

exempt from tax in the hands of its shareholders. Also, the Singaporean corporate tax

system allows unutilized tax losses and capital allowances to be carried forward

indefinitely to offset future taxable income.

Generally, plant and equipment except motor vehicles qualify for accelerated

depreciation at 33 1/3% per year on a straight-line basis. Alternatively, a company may

choose to claim an initial allowance of 20% and annual allowances ranging from 6

years to 16 years on a straight-line basis.

A company in Singapore may face double taxation when the overseas income is remitted

into Singapore. However, a resident company is entitled to the benefits conferred under

the Avoidance of Double Taxation Agreements (DTA) that Singapore has concluded.

Singapore has entered into 51 comprehensive and 7 limited DTAs worldwide. A DTA

between Singapore and another country serves to relieve double taxation of income

earned in one country by a resident of the other country.

Singapore seeks to minimize double taxation by actively pursuing DTAs. 4 Singapore’s

Foreign Direct Investment (FDI) Policies Singapore’s remarkable success in attracting

FDI inflows owes a great deal to the deliberate and far-sighted strategic decision of the

government to rely on FDI as an engine of economic growth long before doing so

became globally fashionable.

In view of this fact, it is hardly surprising that the Singaporean government has

actively pursued and is still actively pursuing a package of policies to attract foreign

investors, in particular large and well-established MNCs.

While corporate taxes are only one element of FDI, they are certainly an important

element and countries that attract significant FDI inflows tend to have internationally

competitive corporate tax regimes. Singapore is no exception in this regard and it enjoys

a widespread perception among MNCs as a low-tax country.

Singapore does not have an explicit industrial policy. However, the combination of

various incentives and restrictions can amount to more or less an industrial

policy.Although the fundamental objective of the incentives was to attract foreigcapital,

they did not specifically discriminate in favor of foreign investment anagainst domestic

investment.

Foreign companies benefited more in practice due to thunder developed state of the

domestic manufacturing sector in the country’s early years. The Pioneer Industries

Ordinance was passed in 1959, providing tax relief for five years; this was subsequently

extended to 10 years for some high-tech industries.The Industrial Expansion Ordinance

was also passed in 1959, providing tax relief to firms that increased production of

approved goods.

To accelerate orientation toward exports, the Income Tax Amendment Act was

introduced in 1965, allowing tax cuts for market development expenditures and double-

tax deduction for expenses incurred in export promotion. The Economic Expansion

Incentives Act, passed in 1967, reduced corporate taxes on approved manufactures and

exports, lowered tax on royalties, licenses, technical assistance fees, as well as

contributions to research and development (R&D) costs to be paid to overseas

enterprises. Subsidized financing of exports became available in 1974 and the Export

Credit Insurance Corporation, with 50 per cent government participation, was

established in 1975.

The main government vehicle for promoting FDI was the EDB, set up under the

Ministry of Finance in 1961.5 EDB enjoys a substantial degree of autonomy and

operational independence, and provides loans and equity financing, technical and

marketing assistance as well as industrial training schemes, including training of

unskilled workers.

Furthermore, a wide range of new incentives have been added over the years to promote

FDI inflows. Broadly speaking, the prevailing system of tax incentives is currently as

follows:

A pioneer industry is eligible for a five-year income tax holiday and the Minister

of Finance may offer a concessionary tax rate of 10% for another five years.

A group of industries are granted investment allowances of up to 50 per cent for

expenditures incurred on plant, machinery, know-how, patent rights and factory

buildings for approved projects, as well as normal capital allowances. These

industries were manufacturing, technical services, construction, production of

drinking water, engineering, consulting and research services, computer-based

information operations, industrial design development and certain other services.

Let us now look at the Singaporean government’s regulations, or lack thereof, in four

different areas relevant for foreign investors.

The four areas are the foreign exchange regime, equity ownership, performance

requirements and human resources.

First, the foreign exchange regime is highly liberal and freely allows

repatriation of capital and remittance of profits, dividends,

interests, royalty payments and technical licensing fees, as well as the free importation

of goods and services for consumption, investment and production purposes.

Second, foreign participation is permitted in most sectors of the economy

except for some

restrictions in the financial services, professional services and media sectors, and 100

per cent foreign equity ownership is readily permitted.

Third, there are no performance requirements for foreign investors such as

domestic value-added content and local sourcing of inputs, no restrictions on

borrowing from the domestic capital market, and no regulations and

restrictions governing the transfer of technology.

Fourth, there are only minimal restrictions on the recruitment of foreign

personnel; employment passes are required but the government issues these

quite liberally.

However, the government does encourage foreign companies to hire local managerial

and technical personnel. We have seen that the Singaporean government’s investment incentives

comparably favorably with those of most countries and their impact is reinforced by the relative

absence of regulations and performance requirements.

Let us now examine the actual effectiveness of the investment incentives in promoting

FDI inflows. Before we do so, we should point out that in Singapore incentives are

granted on a case-by-case basis and can be tailored to particular firms, allowing for

greater flexibility in promoting FDI.

Foreign companies in strategic sectors such as electronics and biotechnology have been

able to negotiate firm-specific fiscal incentive packages with fiscal authorities.

Furthermore, in some cases such as wafer chip fabrication plants, the EDB has provided

manpower training at public expense and take a significant equity stake in new ventures.

According to Blomqvist (2005), despite the pervasiveness of the investment incentives,

their actual effectiveness is subject to debate. It is possible that Singapore’s economic

structure would have evolved in a similar way even in the absence of the selective

measures. That is, the targeted industries which the government promoted through

investment incentives may have been the industries in which Singapore had a natural

comparative advantage to begin with.

In the Singaporean context, government’s effective provision of public goods such as

strong physical and institutional infrastructure and R&D support might have been more

important.

In terms of formal econometric analysis, one avenue for investigating the impact of taxes

and other investment-relevant factors on FDI is to use data from a cross-section of

countries.

According to Chirinko and Meyer (1997), conservative estimates suggest that a

percentage-point in the effective tax rate on capital would cause capital investment to fall

by at least half a percentage point and, for some industries, by as much as 1.7 percentage

points.

A recent analysis by de Mooij and Ederveen (2003) based on many empirical studies

shows that cross-border capital flows are highly sensitive to tax rates – an increase of one

percentage point in the corporate income tax rate causes the FDI stock to fall by more

than 3 percent.

In another study, using a panel of bilateral FDI flows for 11 OECD countries over

1984-2000, Benassy-Quere, Fontagne, and Lahreche-Revil (2003) find that tax

differentials also play a significant role in understanding foreign location decisions.

Gropp and Kostial (2001) point out that within the OECD countries with relatively high

corporate tax rates have experienced both high net outflows of FDI and a decline in

corporate tax revenue.

Econometric analysis of a cross-section of countries tells us whether on average

countries with lower tax rates attract more FDI inflows.

This necessarily calls for a time-series analysis of Singaporean data.

One problem with such a time-series study is that many foreign firms

enjoy firmspecific fiscal incentive packages rather than the published set

of incentives.

Moreover, Singapore’s overall business environment, which is only

partially dependent on tax rates and fiscal incentives, is highly conducive

to FDI inflows.

In any case, unfortunately, there are very few Singapore-specific

econometric studies of the impact of corporate tax rates on FDI.

Koe (2004) uses the methodology of Slemrod (1990) and annual time-

series data for 1980-2000 to econometrically investigate the effect of the

corporate income tax rate as well as some other variables including

exchange rate and labor cost on FDI inflows into Singapore.

Her main finding is that FDI inflows are negatively related to the

corporate tax rate at the 95% level of significance.

A one percentage point reduction in corporate tax rate increases the ratio

of FDI to GDP by 1.26%.

In an earlier study on the inflows of FDI from six industrialized

countries into Singapore and three other East Asian economies, Chen

(1995) uses a seemingly unrelated regression model for pooled data from

1972-1989.

His results suggest that changes in Singapore’s taxation environment do

not affect FDI inflows.

SEZ Policy of Singapore:-

SINGAPORE TO DEVELOP SEZ IN INDIA

Singapore is actively considering developing a Special Economic Zone (SEZ) in India

to bring in a large range of industries.

This is indicated in the joint statement on the mid-term review of the India-Singapore

Comprehensive Economic Cooperation Agreement (CECA), which was jointly

conducted by Shri Kamal Nath, Minister of Commerce and Industry, on behalf of the

Government of India and Singapore’s Minister for Trade&Industry Lin Hng Kiang on

31 March, 2006.

The Ministers agreed that the mid-term review provided both sides with an opportunity to

consider both the implementation of the agreement to date and how it cold be further

enhanced in order to provide an attractive and facilitative framework for businesses.

Both Ministers endorsed the suggestion that teams from both countries should engage in

discussions to follow up and improve on the CECA by 1 August, 2006.

The Ministers welcomed the interest of Indian and Singapore banks to expand in each

other’s markets as banks play a critical role in facilitating trade and investments.

 Both countries also discussed a proposal from India on facilitating the entry of generic

medicinal products.

Both India and Singapore were encouraged by the good progress made on the MRA on

architectural services.

India agreed with Singapore on the need to encourage the mutual recognition agreements

pertaining to professionals MRAs for accountants, doctors, dentists and nurses to be

concluded by 1 August, 2006.

Singapore and India discussed the value of fine-tuning the provisions of the Avoidance

of double Taxation Agreement (DTAA) with a view to further encouraging

investments.

Singapore Trade, Exports and Imports

o Singapore has a thriving economy despite its lack of resources and small domestic market.

o The reason for the nation’s economic prosperity is its strategic location which facilitates

international trade.

o The Port of Singapore, the biggest and busiest in the world, is the backbone of Singapore

trade.

o Singapore port is surrounded by key world economy players, including India to the west,

Australia to the south-east, and Japan and China to the north.

o The port boasts of rapid foreign shipment processing and fast customs clearance process.

Additionally, the port’s policies and state-of-the-art infrastructure facilitate the creation of a free

market economy, providing easier access to global trade partners for exports and imports.  

Singapore Trade, Exports and Imports: Overview

The Singapore economy is heavily dependent on exports, which contributed $268.9

billion to the nation’s net earnings in 2009.

Key export commodities include:

Consumer electronics

Information technology products

Petroleum products

Pharmaceuticals

Chemicals

Singapore's principal imports are crude oil, electronic components, industrial machinery,

motor vehicles, food and beverages, and iron and steel.

During 2009, according to CIA reports, Singapore imports fell short of exports by

$23.9 billion.

From the Singapore export-import scenario it is evident that the nation practices an

extended concept of ‘entrepot’ trade; wherein it purchases raw goods and refines

them for re-export.

Major trade partners of Singapore and their share in its total trade, according to CIA reports

for 2009, include:

Import Export

Hong Kong 11.6% US 14.7%

Malaysia 11.5% Malaysia 11.6%

US 11.2% China 10.5%

Indonesia 9.7% Japan 7.6%

Singapore Trade Agreements

Singapore pursues several free trade agreements. As of 2009, the nation had 16 bilateral and

multi-lateral trade agreements with 24 trading partners, including:

Association of Southeast Asian Nations Free Trade Area (AFTA)

ASEAN-India (AIFTA)

ASEAN-China (ACFTA)

ASEAN-Japan (AJCEP)

Australia (SAFTA)

Cooperation Council for the Arab States of the Gulf (GSFTA)

United States (USSFTA)

 Singapore continues to negotiate trade agreements with other nations, including Canada,

Kuwait and Panama, to further facilitate Singapore trade. Singapore government has also

setup a transparent regulatory system to encourage foreign investment and trade.

Service Exports

Duty free import facility for service sector having a minimum foreign exchange

earning of Rs.10 lakhs.

The duty free entitlement shall be 10% of the average foreign exchange earned in

the preceding three licensing years.

However, for hotels, the same shall be 5% of the average foreign exchange earned in

the preceding three licensing years.

This entitlement can be used for import of office equipments, professional equipments,

spares and consumables. However, imports of agriculture and dairy products shall not be

allowed for imports against the entitlement. The entitlement and the goods imported

against such entitlement shall be non-transferable.

Status Holders

Duty-free import entitlement for status holders having incremental growth of more

than 25% in FOB value of exports (in free foreign exchange).

This facility shall however be available to status holders having a minimum export

turnover of Rs.25 crore (in free foreign exchange).

The duty free entitlement shall be 10% of the incremental growth in exports and

can be used for import of capital goods, office equipment and inputs for their own

factory or the factory of the associate/supporting manufacturer/job worker.

The entitlement/ goods shall not be transferable. This facility shall be available on

the exports made from 1.4.2003.

Annual Advance Licence facility for status holders to be introduced to enable them

to plan for their imports of raw material and components on an annual basis and

take advantage of bulk purchases.

The Input-Output norms for status holders to be fixed on priority basis within a

period of 60 days.

Status holders in STPI shall be permitted free movement of professional equipments

like laptop/computer.

Hardware/Software

To give a boost to electronic hardware industry, supplies of all 217 ITA-1 items from EHTP

units to DTA shall qualify for fulfillment of export obligation.

To promote growth of exports in embedded software, hardware shall be admissible for duty free

import for testing and development purposes. Hardware upto a value of US$ 10,000 shall be

allowed to be disposed off subject to STPI certification.

100% depreciation to be available over a period of 3 years to computer and computer

peripherals for units in EOU/EHTP/STP/SEZ .

Gem & Jewellery Sector

Diamond & Jewellery Dollar Account for exporters dealing in purchase/sale of diamonds

and diamond studded jewellery.

Nominated agencies to accept payment in dollars for cost of import of precious metals

from EEFC account of exporter.

Gem & Jewellery units in SEZ and EOUs can receive precious metal i.e

Gold/silver/platinum prior to exports or post exports equivalent to value of jewellery

exported. This means that they can bring export proceeds in kind against the present

provision of bringing in cash only.

Export Clusters

Upgradation of infrastructure in existing clusters/industrial locations under the Department of

Industrial Policy & Promotion (DIPP) scheme to increase overall competitiveness of the export

clusters.

Supplemental efforts to be made under the ASIDE scheme and similar schemes of other

Ministries to bridge technology and productivity gaps in identified clusters.

10 such clusters with high growth potential to be reinvigorated based on a participatory

approach.

Rehabilitation of Sick Units For revival of sick units, extension of export obligation period to be allowed to such units based

on BIFR rehabilitation schemes. This facility shall also be available to units outside the purview

of BIFR but operating under the State rehabilitation programme.

Removal of Quantitative Restrictions Import of 69 items covering animal products, vegetables and spices, antibiotics and films

removed from restricted list.

Export of 5 items namely paddy except basmati, cotton linters, rare earth, silk cocoons, family

planning devices except condoms removed from restricted list.

Special Economic Zones Scheme Sales from Domestic Tariff Area (DTA) to SEZs to be treated as export. This would now entitle

domestic suppliers to Drawback/ DEPB benefits, CST exemption and Service Tax exemption.

Agriculture/Horticulture processing SEZ units will now be allowed to provide inputs and

equipments to contract farmers in DTA to promote production of goods as per the requirement of

importing countries. This is expected to integrate the production and processing and help in

promoting SEZs specialising in agro exports.

Foreign bound passengers will now be allowed to take goods from SEZs to promote trade,

tourism and exports.

Domestic sales by SEZ units will now be exempt from SAD.

Restriction of one year period for remittance of export proceeds removed for SEZ units.

Netting of export permitted for SEZ unit provided it is between same exporter and importer over

a period of 12 months.

SEZ units permitted to take jobwork abroad and exports goods from there only.

SEZ units can capitalise import payables.

Wastage for subcontracting/exchange by gem and jewellery units in transactions between SEZ

and DTA will now be allowed.

Export/import of all products through post parcel/courier by SEZ units will now be allowed.

The value of capital goods imported by SEZ units will now be amortised uniformly over 10

years.

SEZ units will now be allowed to sell all products including gems and jewellery through

exhibitions and duty free shops or shops set up abroad

Goods required for operation and maintenance of SEZ units will now be allowed duty free.

EOU SchemeAgriculture/Horticulture processing EOUs will now be allowed to provide inputs and equipments

to contract farmers in DTA to promote production of goods as per the requirement of importing

countries. This is expected to integrate the production and processing and help in promoting agro

exports.

EOUs are now required to be only net positive foreign exchange earner and there will now be no

export performance requirement.

Foreign bound passengers will now be allowed to take goods from EOUs to promote trade,

tourism and exports.

The value of capital goods imported by EOUs will now be amortized uniformly over 10 years.

Period of utilisation of raw materials prescribed for EOUs increased from 1 year to 3 years.

Gems and jewellery EOUs are now being permitted sub-contracting in DTA.

Wastage for subcontracting/exchange by gem and jewellery units in transactions between EOUs

and DTA will now be allowed as per norms.

Export/import of all products through post parcel/courier by EOUs will now be allowed.

EOUs will now be allowed to sell all products including gems and jewellery through exhibitions

and duty free shops or shops set up abroad

Gems and jewellery EOUs will now be entitled to advance domestic sales.

EPCG schemeThe scheme shall now allow import of capital goods for pre-production and post-production

facilities also.

The Export Obligation under the scheme shall now be linked to the duty saved and shall be 8

times the duty saved.

To facilitate upgradation of existing plant and machinery, import of spares shall also be allowed

under the scheme.

To promote higher value addition in exports, the existing condition of imposing an additional

Export Obligation of 50% for products in the higher product chain to be done away with.

Greater flexibility for fulfillment of export obligation under the scheme by allowing export of

any other product manufactured by the exporter. This shall take care of the dynamics of

international market.

Capital goods upto 10 years old shall also be allowed under the scheme.

To facilitate diversification into the software sector, existing manufacturer exporters will be

allowed to fulfill export obligation arising out of import of capital goods under the scheme for

setting up of software units through export of manufactured goods of the same company.

Royalty payments received from abroad and testing charges received in free foreign exchange to

be counted for discharge of export obligation under EPCG scheme.

DEPB Scheme

Facility for provisional DEPB rate introduced to encourage diversification and promote export of

new products.

DEPB rates rationalised in line with general reduction in Customs duty.

Advance Licence Standard Input Output Norms for 403 new products notified.

Anti-dumping and safeguard duty exemption to advance licence for deemed exports for supplies

to EOU/SEZ/EHTP/STP.

DFRC Scheme Duty Free Replenishment Certificate scheme extended to deemed exports to provide a boost to

domestic manufacturer.

Value addition under DFRC scheme reduced from 33% to 25%.

Reduction of Transaction Cost High priority being accorded to the EDI implementation programme covering all major

community partners in order to minimise transaction cost, time and discretion. We are now

gearing ourselves to provide on line approvals to exporters where exports have been effected

from 23 EDI ports.

Online issuance of Importer-Exporter Code(IEC) number by linking the DGFT EDI

network with the Income Tax PAN database is under progress.

Applications filed electronically shall have a 50% lower processing fee as compared to manual

applications.

Singaporean Management Style

As befits a hierarchical structure, managers tend to be older which in itself lends them an air of

authority.

As in the rest of Asia, age still implies wisdom and people will be more comfortable dealing with

an older manager than a young 'wizz-kid'.

Managers delegate decisions to their teams and expect the decisions to be overtly respected.

This does not mean, however, that the rational behind the decision is never debated - it is merely

that any dissension is likely to be aired in a more private manner than in the full plenum of an

open meeting. (This, again, may not hold true when dealing into a Singapore-based MNC.)

As in all basically Confucian business cultures, the manager expects to be respected and obeyed

and in return for loyalty and dedication to the cause will show a much more holistic interest in the

well being of his team.

This includes an almost paternal regard for many aspects of a subordinate's life. The manager's

relationship with the team does not necessarily finish at the end of the working day.

Outside family ties, promotion will be based on merit and performance criteria rather than

connections. The performance criteria may, however, differ from those in the West and top of the

list may be the ability to create a harmonious team in which people feel at ease.

Being a Manager in Singapore

Successful cross cultural management is more likely if you bear in mind that business in

Singapore is formal and strict rules of protocol are generally observed.

The group (company or department) is viewed as more important than the individual.

People observe a strict chain of command, which comes with expectations on both sides.

In order to keep others from losing face, much communication will be non-verbal and

you must closely watch the facial expressions and body language of people you work

with.

Relationships take time to develop. You must be patient as this indicates that your

organization is here for the long-term and is not looking only for short-term gains.

The Role of a Manager

Cross cultural management needs to bear in mind that each person has a very distinct role

within the organization, and maintaining that role helps to keep order.

In Singapore, as in other hierarchical societies, managers may take a somewhat

paternalistic attitude to their employees. They may demonstrate a concern for employees

that goes beyond the workplace and strictly professional concerns.

This may include involvement in their family, housing, health, and other practical life

issues.

Approach to Change

Singapore’s intercultural adaptability and readiness for change is developing all the time.

Singapore is seen to have a medium tolerance for change and risk.

It is important for innovations to have a track record or history noting the benefits if they

are to be accepted and implemented.

The fear of exposure, and the potential of embarrassment that may accompany failure,

brings about aversion to risk. Because of this attitude, intercultural sensitivity is going to

be required, especially when conducting group meetings and discussing contributions

made my participating individuals.

Approach to Time and Priorities

Singapore is generally quite careful about time guidelines in business situations where schedules

and deadlines are regarded seriously. Effective cross cultural management skill will depend on

the individual’s ability to meet deadlines.

Decision Making

Singapore is a hierarchical culture, so the boss is considered to be superior to their subordinates.

Subordinates do not ask their boss questions, as it would indicate that the boss had not done a

good job of explaining what was necessary. Subordinates will canvass other workers and come

to a group consensus of what should be done and how it should be accomplished.

The respect a Singaporean shows their boss might seem strange to many western cultures.

Bosses are treated with the same respect one shows their parents.

Since asking questions is not part of the culture, managers spend a great deal of time writing

instructions that guarantee everyone will understand what’s required of them.

Boss or Team Player

If you are working in Singapore, it is important to remember that face and reputation play

an important role.

The risk becomes amplified in a team or collaborative setting and if you would like to

encourage participation it is important first to clearly establish a non-threatening work

environment and communicate fully that their participation is desired.

Cross cultural sensitivity is essential and you must avoid exposing or potentially

embarrassing anyone in public.

Communication and Negotiation Styles

Always send a list of people who will be attending the negotiations and their title well in

advance.

Personal relationships are crucial to conducting business.

Singaporeans must like you and feel comfortable with you to do business.

Always wait to be told where to sit.

There is a strict hierarchy that must be followed.

Business negotiations happen at a slow pace and patience may be a necessary cross

cultural attribute.

Singaporeans are non-confrontational. They will not overtly say "no"; likewise,

their "yes" does not always signify agreement.

Singaporeans give a respectful pause of up to 15 seconds before answering a question. If

you are signing a contract with ethnic Chinese, the signing date may be determined by an

astrologer or a geomancer (feng shui practitioner).

Swedish Management In Singapore

The concept of Scandinavian management as a specialized field of interest, began in the

early 1980s with a variety of methods, including quantitative questionnaires, surveys,

case studies and narratives within the organization.

This dissertation uses discourse analysis as a tool for studying Swedish management

characteristics outside of Scandinavia, mainly in Singapore.

The Singapore Chinese management style is also presented and investigated as a

comparative style of management to the Swedish management style in Singapore.

Does there exist a Swedish management style outside of Sweden? And if yes, is it

different from the Swedish management style or model in Sweden?

Interviews were conducted in 2004, with 33 Scandinavian and Asian top-level managers

in Swedish managed organizations based in Singapore, in order to get insight into their

working lives in a cross-cultural environment.

This rendered a total of about 54 hours interview time with a database of more than

260, 000 words.

The study found that a distinct Swedish management style existed in Swedish managed

organizations in Singapore as many of the Swedes who worked in Singapore saw

themselves as a ‘culture bearer’, so that they brought over values and work processes

from Sweden, to Singapore.

As the Swedish management style differs from the Singapore Chinese management style,

cooperative adjustments and efforts at working together were also made such as finding a

best practice method for doing things in the office.

This study is inherently cross-disciplinary in nature, contributing not only to linguistics,

but to the fields of leadership / management studies, human resource management and

specifically Swedish management studies.