Using Singapore as a stepping stone to Asean

POTENTIAL customers are usually reassured when they learn that textile manufacturer Ramatex’s headquarters are based in Singapore.

The city-state’s long-standing reputation for having a stable and neutral government and economy helps to put minds at ease, especially in the wake of recent geopolitical tensions.

“When it comes to risk assessment, (our customers) will want to know more about competitors whose headquarters are located anywhere else. They are not worried at all because we are in Singapore,” said a Ramatex spokesperson.

This “Singapore brand”, along with the Republic’s competitive tax regime, ease of financing, and proximity to its regional neighbours, is the reason why Ramatex has remained here throughout its 46 years in operation, even as some of the garment producer’s customers have asked if it could shift closer to the markets in Europe and North America. 

“But it’s simply too far for us to set up operations there, for manufacturing especially,” said the spokesperson. Currently, Ramatex has presence in various Asean (Association of South-east Asian Nations) countries including Malaysia, Cambodia, Thailand and Vietnam. 

A good place to do business

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Companies like Ramatex are not alone in banking on Singapore as its base. Many others are counting on Singapore’s pro-business environment to grow their companies and tap opportunities in the fast-expanding South-east Asian market.

Among other things, Singapore boasts a wide network of trade agreements, an attractive tax system, sound intellectual property laws and efficient infrastructure, making it an attractive location for companies to establish their base. 

Additionally, the city-state also has friendly diplomatic business ties with China and the United States, making it “the most desirable destination for companies to set up their regional headquarters, treasury and trading hubs or innovation centres,” said Gregory Seow, Maybank’s head of global banking in Singapore.

“We have clients looking to set up in Singapore or expand within South-east Asia by taking advantage of Singapore’s global connectivity and infrastructure, the country’s political stability, pro-business policies and skilled talent pool,” added Seow, who also heads the bank’s financial institutions group.

Weitze Ooi, managing director of Dole Specialty Ingredients (DSI), said Singapore’s position as a leading tech innovation hub made it the “perfect jumping board” for the company to develop its business model in the circular economy, with the ambition of scaling it overseas. 

DSI - an offshoot venture of fruit producer Dole Sunshine Company with Singapore’s Economic Development Board (EDB) - sources and transforms fruit side streams and unutilised fruit parts and transforms them into high-value natural products such as enzymes, extracts, seed oils and fibres.

“With Dole’s global headquarters located here, DSI can leverage functions like finance, supply chain, and marketing that have already been set up,” said Ooi.

Being in Singapore has also enabled DSI to tap the country’s highly-skilled talent, such as scientists from locally-based research institutions like the Agency for Science and Technology and Research. This is another draw that brings companies to the city-state, said observers.

Gateway to the region

Aside from tapping Singapore’s infrastructure and resources, companies also see Singapore as a strategic location to access opportunities across South-east Asia. 

A total of US$185 billion in foreign direct investment flowed into the region last year, a 35 per cent increase compared to 2020, according to Tan Bin Eng, partner of business incentives advisory at Ernst and Young Solutions. 

South-east Asia is also expected to become the world’s fourth-largest economy by 2030, after the US, China, and the European Union.

The region is therefore “well-positioned for a renaissance of business expansion”, said Maybank’s Seow, especally against the backdrop of a slowdown in gross domestic product (GDP) for China, which will cause “a ripple effect across Asean countries”.

“The past 4 decades have seen China’s rapid expansion during a fast pace of globalisation. While China remains the linchpin in global trade, we believe Asean will benefit as China’s largest trading partner,” he added.

“The Asean region, such as Vietnam, Malaysia and Indonesia, will also benefit as global supply chains shift to this region for the sake of diversification,” said Seow.

Nithin Chandra, managing partner for Southeast Asia at Kearney, noted that both multinational and domestic companies planning to expand overseas are looking to Singapore as the “new growth engine for Southeast Asia beyond the traditional consumption markets of India and China”.

According to the Singapore Business Federation’s (SBF) SME Internationalisation Index 2021, Singapore companies are bullish in expanding to South-east Asia. 

Close to 70 per cent of those polled had indicated South-east Asia as their main focus for expansion in the next 3 years, with Thailand, Malaysia, Vietnam, the Philippines and Indonesia as the top 5 countries. 

“Through our GlobalConnect@SBF programme, we saw a 75 per cent increase between 2020 and 2021 in the number of business facilitation requests from local companies for Southeast Asia,” SBF told The Business Times.

As for where the opportunities are, Seo Young Lee, head of South-east Asia at Oliver Wyman, said growth across industries has been varied.

Of note is retail financial services, where the rise of the middle class, coupled with rapid innovations in fintech, has accelerated the pace of financial inclusion across the region. Meanwhile, in the manufacturing sector, he noted that there have been interesting developments in the region in high growth areas such as electric vehicles and batteries. 

Singapore has long held a strong position as a wealth management hub for the Asia-Pacific region, but “this has been getting an additional boost as recently a lot of wealth from China and Hong Kong has been flowing into Singapore through various vehicles, including the setting up of family offices,” said Lee.

Booming digital economy

One key area where opportunities have been identified is the digital economy. According to a 2021 report by Google, Temasek and Bain and Company, South-east Asia is entering its “digital decade” – the region has more than 440 million internet users, of which 80 per cent have bought at least one digital service.

The report also found that since the pandemic started, the region has added 60 million new digital consumers, of which 20 million joined in the first half of last year. 

According to data provided to BT by the EDB, the region’s digital economy is poised to grow from about US$170 billion in gross merchandise value to US$360 billion by 2025, surpassing previous estimates of US$300 billion.

“This makes Southeast Asia a strong growth market with opportunities in the coming years for companies that provide services and goods through digital platforms, as well as the ancillary services that support them,” said Dino Tan, EDB’s senior vice-president for South-east Asia. 

Sanjay Chinchwade, chief marketing officer of value-added tax (VAT) platform utu, said it chose to set up its base in Singapore to “connect with Asian shoppers who want to get more from their refunds and benefit from mobile-based refund systems”.

“Singapore is also a very well-connected nation that will be our gateway into Asean and the rest of the world,” said Chinchwade, adding that the city-state has the “right overlap” of infrastructure to connect shops and shoppers globally through digital payment and reward platforms. 

“Here, we have been able to develop and deliver digital products for VAT refunding, but more importantly, we are one of the first to make a move in cross-border rewards where we upsize VAT refunds made by any other refund operator through airline miles, (and upsize cash refunds in over 25 countries).”

Staying relevant

As the competition heats up among countries in this region, observers said that Singapore must maintain its business-friendly environment to continue to attract both local and multinational companies to establish themselves here. 

Said Ernst and Young Solutions’ Tan: “(Singapore) needs to continue to be an integral part of South-east Asia and to keep offering a business friendly environment, deep talent pools and a competitive operating cost structure. 

“In the changing global tax environment where certain fiscal tools such as tax incentives may no longer be as impactful as before, it is even more of an imperative that Singapore ensures its attractiveness to foreign investors remains, and that its operating costs stay competitive globally.”

Oliver Wyman’s Lee said the Republic must also position itself as a “home to global champions” – by fostering South-east Asia-based talent while attracting global companies to base themselves in Singapore.

Maintaining these key attributes will be what keeps Singapore relevant. 

“While we see other nascent economies such as the Philippines, Thailand, Malaysia and Vietnam growing at a steady pace, the ease of doing business, coupled with strong fundamentals on governing the law of the land, will remain the city state’s biggest strengths,” said Kearney’s Chandra.