More manufacturers set up in Singapore during pandemic years

SINGAPORE’S manufacturing sector has seen more new entrants each year despite Covid-19, with the pandemic possibly burnishing the Republic’s attractiveness to investors, said industry watchers.

According to information compiled by data platform Handshakes, entries into manufacturing rose during the pandemic, outpacing exits. In 2021, there were 2,649 entrants, up from 2,468 in 2020 and 2,087 in pre-pandemic 2019. Exits fell from 1,980 in 2019 to 1,700 in 2020, before rising back to 1,970 in 2021.

“Investors naturally look out for places that can provide them greater business certainty when making capital and intellectual property-intensive advanced manufacturing investments, and this notion is reinforced in times of uncertainty,” said senior vice president and head of resource development and advanced manufacturing divisions at the Singapore Economic Development Board, Glory Wee.

Singapore’s handling of Covid-19 may have attracted more foreign domestic investment commitments, said OCBC head of treasury research and strategy Selena Ling.

The pandemic-prompted rise of work-from-home arrangements has also driven demand for consumer electronics, cloud computing, and telecommunications equipment, she added.

Associate professor of the marketing programme at Singapore University of Social Sciences (SUSS), Dr Lau Kong Cheen, agreed that WFH has boosted electronics and electrical devices manufacturing – thus raising demand upstream in sub-sectors such as semiconductor machinery and systems, measuring devices and mechanical engineering.

“High demand in these sub-sectors could be the reason for drawing more players into the entire manufacturing sector,” he added.

The pandemic has underscored the need for supply chain resilience, prompting manufacturers to diversify, said Goh Puay Guan, professor at department of analytics and operations at National University of Singapore (NUS) Business School.

“With Singapore’s stability, and trade and logistics connectivity, this has made it an attractive location for setting up alternative manufacturing sites to serve the region,” he added.

Structural factors such as multinational corporations (MNCs) adopting a ‘China Plus One’ strategy are also at play, said Ling: “MNCs diversify away from being too China-centric in order to guard against a worsening of US-China strategic rivalry and, in turn, a bifurcation of manufacturing technology – especially for advanced manufacturing, 5G, AI (artificial intelligence) and semiconductors.”

Paul Kent, partner, advisory at KPMG in Singapore, said: “There are already a few good examples of advanced manufacturing taking shape in Singapore, and it is expected that strong ecosystem support and developments in the industry locally, will correspondingly attract manufacturers looking to open smart factories high on digitalisation and automation here.”

*Amendment note: An earlier version of the article indicated Dr Lau’s designation as senior lecturer when it should have been associate professor. 

Chips fall where they may

In early 2020, the global semiconductor market was coming out of a cyclical slump – and Covid-19 has driven demand while curbing supply. Since the pandemic began, there has been a global chip shortage which is expected to last till 2024.

According to Handshakes data, semiconductor manufacturing in Singapore saw 46 entrants in 2021, up from 31 in 2020 and 37 in pre-pandemic 2019. Exits remained fairly stable, with 26 in 2021, 28 in 2020 and 24 in 2019.

But the current shortage is due to transient factors – whereas semiconductor manufacturing involves large capital outlays, reputation, and economies of scale, said Lee Kuan Yew School of Public Policy senior research adviser Toh Mun Heng.

This may make the viability of new entrants short-lived, unless they have disruptive technologies that allow them to produce cheaper than the incumbents, he added. “The semiconductor industry is in a continuous cycle of renewal and adjustment – new entrants now are also anxious about the sustainability of business.”

Besides responding to global demand, there might be more new entrants because Singapore’s strong supply chain infrastructure and network facilitates the efficient global distribution of chips, said Dr Lau.

With investments in global chip production having stepped up, “there are nascent hopes that the supply crunch may ease in H2 2022”, said OCBC’s Ling.

Global semiconductor capacity is expected to surge in 2023 and 2024, with chip prices falling accordingly, said DBS Group Research senior analyst Ling Lee Keng: “We expect muted semiconductor revenue growth ahead.”

Ling expects a compound annual growth rate (CAGR) of close to 10 per cent from 2020 to 2025 – pulled down by a slower CAGR of about 3 per cent from 2023 to 2025. But she added: “Despite the slower growth, revenue is still way above the pre-Covid level.”

NUS’s Goh said that while semiconductor growth may slow, it will continue to be driven by demand for more computing power, given applications in areas such as AI, digitalisation, autonomous vehicles, and 5G.

UOB senior economist Alvin Liew noted that manufacturing of equipment to support “metaverse” development may be the next big thing: “The future of the semiconductor chip industry remains bright, and is poised to grow post-pandemic.”

Healthy future for medtech

Singapore’s medtech industry saw a surge of entrants in the first pandemic year: 86 entrants in 2020, more than double the 40 in 2019. But this cooled in 2021, with 38 new medtech firms and 25 exits, compared to 16 exits in 2020 and 20 in 2019.

Medtech sees strict regulatory approvals and is very capital intensive, which could be a pain point for new entrants, said Willy Koh, CEO of medtech company Racer Technology and chairman of Singapore MedTech Consortium.

“Medtech manufacturing will continue to grow in Singapore, but it’s a very deep-pocketed and long-term business as you need the certifications, and it takes time and resources to get approvals,” Koh noted.

Although the past few years saw high demand for Covid-related equipment such as test kits and ventilators, demand for surgical equipment declined. Some exits could also have been of overseas-based controlling owners who were unable to run operations remotely during the pandemic, Koh added.

Amid the pandemic, there was less of a need for medical devices besides ventilators and laboratory test equipment, agreed Dr Lau. But as the pandemic turns endemic, this may change: “The backlog of elective treatments that have been postponed during the pandemic will need to be attended to at hospitals, which may lead to a demand for more advanced medical equipment to speed up the procedures.”

“Singapore is promoting this growth market within the biomedical cluster, so I believe the pipeline should still be healthy,” said OCBC’s Ling.

This story is part of a series by The Business Times (BT) and Handshakes, called the BT-Handshakes Data Series. It is a regular project collaboration to give insights on various business sectors of Singapore, using data from Acra.