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Thriving in the world amidst slowbalisation

Singapore companies must be proactive in positioning themselves to achieve success overseas for profitable growth.

Singapore has effectively positioned itself as an attractive location for logistics hub activities.

IT WOULD not have escaped anyone's attention that the world seems to have become less welcoming to products and services from other countries. Instead, many governments are spending time and effort raising barriers to such goods and services, hoping that this will encourage additional economic activity and creation of employment opportunities in their own country.

As the US-China trade negotiations have yet to reach a meaningful conclusion, it's no surprise that Asean CEOs cited trade conflicts as their top concern in PwC's annual CEO survey.

This is nothing new in itself. Border protection through tariff or non-tariff measures has been around for centuries. But protective measures have not been growing much faster, if at all, in recent times, based on statistics published regularly by the World Trade Organization (WTO).

Despite the chatter around Brexit, the vast majority of the UK on either the "leave" or "remain" side is in favour of keeping the customs union with the EU, or a Free Trade Agreement (FTA) that stays as close to it as possible. However, it has become painfully clear that geopolitical issues often hit first and hardest on cross-border trade.

At the same time, new initiatives to relax restrictions on international trade in goods and services continue. In recent months, there's the Comprehensive and Progressive agreement for Trans-Pacific Partnership, which took effect on Dec 30, 2018, and the EU-Japan Economic Partnership Agreement, on Feb 1. The EU-Singapore Free Trade Agreement is expected to take effect sometime in the second quarter of 2019.

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The trade facilitation measures envisaged in both the Asean Economic Community's 2025 blueprint and the WTO's Trade Facilitation Agreement are designed to make international trade more transparent, predictable and efficient. However, their implementation appears to be painfully slow.

Time for local companies to spread their wings

Regardless of whether you believe that the world is getting increasingly protective, or is only perceived to be so, accessing overseas markets for products and services is no walk in the park.

This is of key importance to Singapore-based companies. The Singapore market itself is a small and crowded place, even for small and medium-sized enterprises. Although Singapore's network of FTAs offers many new opportunities abroad, it also opens the Singapore market to foreign competition, especially in the field of services.

In order for Singapore companies to thrive and grow, they will have to look abroad, be it for production capabilities or consumer markets.

The Singapore Budget 2019 reiterated the importance of scaling up and encouraged trade associations to play a more active role in helping companies internationalise. It re-emphasised the value of electronic interchange of trade data, facilitated by the Networked Trade Platform.

Enterprise Singapore's (ESG) recently established Plug and Play Network provides a great starting point for aspiring exporters of goods and services to learn what to expect in an overseas market, how to navigate the relevant rules and regulations, how to find partners to work with overseas, and locations to set up business.

It is notable that the Plug and Play Network puts its emphasis on "nearer" markets: other Asean member states, China, India and the UAE. These markets continue to grow fast and offer many opportunities for businesses.

More help for Singapore companies to internationalise

Despite all of the above, many Singapore companies, specifically those producing consumer goods, are either not looking to spread their wings abroad, or are more attracted by the US and EU markets, which are becoming more expensive and harder to do business with.

Hence, more work remains to be done to help them extend their reach into global markets to grow.

Obviously, Singapore is and will remain an expensive place to locate physical production of goods. It has therefore rightfully, and effectively, positioned itself as an attractive location for logistics hub activities: transiting, trans-shipping or bulk-breaking products from large and competitive manufacturing locations to regional markets.

However, Singapore's continued success in this space cannot be taken for granted. Other locations in South-east and North-east Asia are also vying for a piece of this profitable economic activity.

Continued and improved measures to maintain Singapore's advantages are therefore critical. Some examples include:

  • Enhancements to the existing global trader programme to attract and retain key operations of international players in Singapore. Such enhancements should take account of the increasingly virtual nature of doing business in the era of Industry 4.0 today. Current requirements of physical presence could hence be modified, with greater weight put instead on technology-enabled activities and their economic output and value. Real and technology-enabled substance must sit like a hand in a glove.
  • Targeted support for final-stage processing that would allow resulting products to qualify for Singapore's extensive network of Free-Trade Agreements (FTAs). Many companies struggle to meet FTA rules of origin. They may nevertheless be tempted to move some level of processing to Singapore if the economic conditions are right to meet FTA's minimum processing requirements through investment in certain technology and highly-trained personnel. This may be more appropriate in some industries, where significant value is added at a late stage in production.
  • Singapore to be turned into a Free Trade Zone. This might allow for a future true single market for goods in Asean, with a common external tariff, without the need for Singapore to introduce custom duties. Perhaps Singapore can take a leaf from similar structures in other parts of the world. Naturally, care would need to be taken not to distort the economics of the Singapore market, particularly in relation to Goods and Services Tax.

Growth in international trade in goods and services may be slowing, at least in perception if not in reality. For Singapore companies that depend on success in overseas markets for profitable growth, it is important not to sit back and wait, but to take proactive control in positioning themselves to achieve such success.

  • The writer is managing partner, PwC Worldtrade Management Services

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