Restructuring Singapore series: Renewed focus on services 0 comments

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As mentioned in my last post, the services sector is clearly where Singapore is restructuring towards, although manufacturing continues to be seen as a pillar due to its incumbent importance as a revenue driver and jobs provider.

One only has to look at the US (or any of the Western economies) to perceive the reasons for such an evolutional strategy. What drives the US nowadays since the 1980s when Japan (and followed by the rest of Asia who followed its export-oriented strategy) acquired the manufacturing edge? It is software (or more generally, IT ---> cue Microsoft, Oracle, and all the hardware industries that have benefited immensely from alliances with successful software eg the 1990s Wintelpaq alliance), entertainment (Hollywood, what else?), finance. All these are services, with high intellectual and creative content, which captures the competitive advantage of the developed nations.

Frankly, it doesn't take great intellect to formulate such a strategy, since one can just read the history books and look towards the Western economies, as mentioned above. I guess that is how the newly formed National Research Council has decided on digital and interactive media as one of the two growth sectors to pour billions in over the next few years (the other being water technologies, a potentially lucrative sector as highlighted in my earlier article). What is digital media, but just a cross between software and entertainment?

Just a short discussion on what I think it takes to succeed in software and entertainment (and from there, decide whether the big-budget foray into digital media is likely to succeed). The important factors for software industry growth would be high intellectual content, strong complementary hardware industry, and strong domestic base. The first is self-explanatory; the second is because bundling of software and hardware as an integrated package is what works, in addition to the fact that major research and standardisation efforts need software/hardware collaboration; the third is because software acceptance typically needs to be worked from within before it can be successfully exported. Singapore would struggle in all three areas, especially the third where the domestic economy is too small to provide a support base (unless the government decides on a major local software adoption by the civil service sector). As for the entertainment industry, the important factors: creative talent and cultural content/strength are quite lacking. Singapore doesn't have the critical mass of creative talent. Our environment has often been accused of not being supportive of creativity, a reputation that often precedes itself in repelling creative talent. We do not really have a unique culture that is attractive to other countries, in the way that Japan and Korea have managed to project their soft power and export their entertainment programs overseas in recent years.

In fact, the services that Singapore will do well in are those that it already excels and on which its strengths lie. The financial sector --- which emphasises efficiency, integrity and regional connectivity. Regional hub management (headquartering services like marketing and sales, legal, corporate finance, research and design services, management) --- which emphasises high education and professional training. The logistics sector --- which again emphasises efficiency and regional linkages. In fact, two service sectors which have also been covered extensively in the papers in recent years suit this profile --- service sectors serving for the young (education) and for the old (healthcare). The success of the education industry depends on academic recognition globally, which Singapore enjoys by virtue of the routine strong performances in the sciences by her students. We already have hordes of mainland Chinese students coming to Singapore to study, whether in public or private schools. The attraction of Singapore as a place to find work for these students after they finish their studies is also a less-recognised factor that I think is just as strong a pull factor for Singapore as an education destination. As for the medical and healthcare industry, those familiar with the private hospitals would know that a large proportion of their patients are from neighbouring countries, particularly Indonesia and Malaysia. This is by virtue of Singapore's reputation for quality outpatient and inpatient (surgery) care. The growth of the pharmaceutical and biomedical cluster in recent years could well be leveraged on to build further capabilities in medical research and grow the healthcare sector. The jobs it can offer should not be underestimated: in addition to doctors and nurses, there're also researchers, administrators, pharmacists, chemists and laboratory technicians, even workers for non-profit organisations (ie. charities).

Why else is the government trying to encourage a "service culture" these days? Customer orientation and a commitment to value creation for the client are more important in the abovesaid service sector, compared to say, the manufacturing sector where the worker might as well be a faceless digit producing the goods for the faceless cusomer thousands of miles away. One of the drawbacks of the service sector is that the delivery of the service has to be done in close proximity to the customer, and hence there is high leakage of income if the service is performed overseas (compared to manufacturing which can be done locally while customer is overseas). Hence it is important to keep the service delivery local and get the customer to come instead; that is why the education and healthcare industry are such great service sectors in my eyes.