Singapore joins Asia in cost, labour concerns

[SINGAPORE] Rising costs, shortage of skilled workers, and flagging customer demand are top concerns among Singapore businesses, which are investing in their talent pool and information technology to overcome these hurdles, a survey on Monday showed.

The UOB Asian Enterprise Survey 2014 - on the impact of trade flows on Asian businesses' regional expansion - noted that while Singapore firms are looking beyond the shores for growth, they are also tackling major challenges on the home front.

Some of the demographic challenges include a low birth rate and an ageing population. This translates to a smaller base of working-age citizens which has led many corporations to depend on overseas labour.

To overcome the labour and skills shortfall, businesses are innovating with productivity-related investments which the survey said will capture about 50 per cent of their total investments.

Towards this end, Singapore policymakers are playing a key role to develop niche industries such as high-end manufacturing, as opposed to low-cost manufacturing, and building talent in data sciences and analytics - a burgeoning segment as businesses look to analyse and use large amounts of data to boost growth.

Asian businesses are firmly attached to Asia, with almost 60 per cent of the respondents saying they have no plans to expand outside the region.

But the survey discovered that most are faced with challenges similar to Singapore - rising cost of doing business and labour shortage - as they seek to widen their footprint in Asia.

For that reason, manufacturing firms are looking to set up facilities in relatively less expensive markets such as Vietnam and Myanmar.

Besides looking at markets that offer lower-cost manufacturing, enterprises expanding in Asia tend to prefer markets that are home to a large middle-class consumer base.

According to Brookings Institution, by 2030, Asia is expected to account for two-thirds of the world's middle-class consumers or about 3.2 billion people, a majority of whom will live in China.

It is no surprise then that the survey found that China, home to more than 1.3 billion people, is the top expansion destination (32 per cent) for Asian enterprises with Malaysia (27 per cent), Singapore (24 per cent), Vietnam (24 per cent) and Indonesia (19 per cent) also featuring among the top investment choices.

In particular, travel businesses are looking to grow within Asia, as consumers here demand services for tours, F&B, as well as hotels. Water and utility companies are also ramping up growth in this region, responding to Asia's infrastructure needs.

Others are also looking at the government for direction. Notably, Chinese policymakers are exploring means to lift demand in the inner-lying regions of the country. Correspondingly, more than 40 per cent of the polled Chinese enterprises are looking to invest and expand their operations in South-western and Central China. This is a marked shift from the traditional growth hotspots of the Pearl River Delta and Yangtze River Delta.

China is also keen to invest in Singapore, with Singapore as the top expansion choice among those polled.

The survey was participated by 1,024 business leaders across six markets - China, Hong Kong, Indonesia, Malaysia, Singapore and Thailand.