Multinationals are clamouring to set up in Singapore, giving the city-state the world’s ‘highest density of regional head offices relative to GDP, with more than half of all large foreign subsidiaries in emerging Asia outside China being located there,’ according to a recent report by McKinsey.
APAC Trends ranks Singapore as the top hub location in the Asia Pacific region out of a list of 24 competing locations. What accounts for Singapore’s attraction? We put it down to the following factors:
Business environment: Singapore is the easiest location in the world in which to operate, according to The World Bank’s ‘Ease of Doing Business’ rankings from 2014. Singapore’s high score comes from a number of factors, which mainly stem from its well-developed legal system, clearly defined property rights regime and market-based economy.
Infrastructure: For a country dependent on foreign trade, Singapore has invested heavily in top-quality infrastructure, such as ports, rail links and air connections, giving it world-class facilities and outstanding connectivity to global trade lanes. As such, the World Bank ranks Singapore as Asia’s top logistics hub with the best infrastructure. Looking globally, Singapore is second only to the United Kingdom and Germany in infrastructure quality terms.
Workforce: With world-class universities and a highly international, multi-lingual outlook, Singapore has the basis of an excellent workforce, a key attractor for multinationals. Despite these advantages, recent government policies to limit the extent of foreign workers have led to tight labor markets and upward pressure on wages.
Market Access: Though Singapore does not have a consumer base comparable to other regional nations such as Indonesia and Thailand, it remains an excellent entry point for those markets by virtue of its proximity and efficient infrastructure links. Also, it lies at the heart of the ASEAN region which is expected to grow at a faster rate than other parts of the Asia Pacific region in the next five to ten years.
These factors are, to an extent, well known but an added attraction of Singapore for corporates is the presence of a clear strategy for the future. Specifically, the Singaporean government is pursuing the following strategies:
Developing as a transport hub with increased port capacity and enhanced transport links to the rest of Asia. The government will shift port facilities to the Tuas district in the north of the island. By making this move and expanding capacity, Singapore will be able to handle the new generation of cargo ships expected to ply sea cargo trade routes in the coming years. New train links will connect with the new rail infrastructure being pushed by China throughout South East Asia and increased capacity at the Changi airport will boost air cargo handling capacity, making Singapore better connected than ever.
Focus on energy: Singapore is situated at the center of Asia’s key energy supply routes, a position that looks likely to become even more vital as energy consumption in the region is expected to grow rapidly in future years. With an emphasis on building liquified natural gas facilities, together with other refining facilities, Singapore’s government is planning and building for the future, which is giving corporates the confidence to set up in the city state. Also, balanced on Singapore’s workforce issues/strengths as a key attractor.
Singapore as a centre of excellence for research and development: as part of an effort to promote higher-value added industries, Singapore is pushing itself as a research and development hub in a bid to attract more high-tech investment which has seen incentive policies and attempts to pass deregulation in the medical, food science, Part of the deal with the European Union, to liberalise investment in pharmaceuticals
Aside from Singapore’s obvious assets, it is these strategic directions and clear statements of future ambitions that are appealing to corporates looking to set up in Asia-Pacific and compare more favourably to other competing hub locations.
Shanghai and Hong Kong, in contrast, suffer from a lack of clear strategic guidance and the opacity of the Chinese government’s attempts to clarify Hong Kong’s future and the precise rules of the game for its plethora of free trade zones. Furthermore, Singapore looks like a more favorable environment for corporates because of long-lingering concerns over intellectual property in mainland China.