SPEECH BY MR S ISWARAN, MINISTER, PRIME MINISTER’S OFFICE AND SECOND MINISTER FOR HOME AFFAIRS AND TRADE & INDUSTRY AT THE YOUNG PRESIDENTS’ ORGANISATION GLOBAL LEADERSHIP SUMMIT 2012, ON WEDNESDAY, 29 FEB 2012, 0930 HOURS, AT MARINA BAY SANDS SINGAPORE
Mr Rob Frances, International Chairman, YPO,
WPO and YPO Members,
Distinguished Guests,
Ladies and Gentlemen,
Introduction
Good morning. I am pleased to join you for the YPO Global Leadership Summit 2012, and would like to thank the organisers for the invitation. I would also like to extend a warm welcome to all our guests from overseas.
Asia Growth Story
I understand that this is the first time this Global Leadership Summit is being held in Asia, since the founding of YPO in 1950. Your timing is apposite, given Asia’s increasing economic heft, especially in counterpoint to developments in other regions.
Asia’s economic resurgence has its origins in the post-World War II period. Leveraging its post-war alliance with the US and the resulting preferential access to Western markets, Japan consolidated its pre-war industrial capabilities, and rapidly scaled the value chain. The four “Asian Tigers” - South Korea, Taiwan, Hong Kong and Singapore - followed Japan’s trail by attracting FDIs, hosting labour-intensive activities “off-shored” from the G3, and selling their products to the West. In their wake, other developing Asian countries – such as Thailand, Malaysia, Indonesia, China and Vietnam – also adopted an export-driven growth model, and grew rapidly as a result. Today’s rise of China, India and other economies in the region are an extension of that model.
Against this backdrop, some have wondered whether Asia’s rise is sustainable. After all, the Asian growth story has so far been substantially premised on Asia’s attractiveness as a low-cost manufacturing centre for global markets and, in particular, developed economies. However, this value proposition may not be durable. As Asian wages increase, energy prices rise, and Western currencies weaken in relative terms, it may make less business sense to produce goods in Asia merely to ship them for sale in European and American markets.
Indeed, of late, there have been cases of multi-national corporations re-locating activities back to the west, due to rising costs. Dutch electronics giant Phillips is a case in point. Last month, it announced that it was bringing home the production of electric shavers, citing rising manpower costs in China as a key reason behind the decision.
Such examples do not, however, herald an attenuation of the Asian growth story. Rather, it marks, in my opinion, the transition to the next phase where the value proposition is underpinned not by low input costs but by a new dynamic – the emergence of Asia as an important market, a key source of final demand, in its own right.
This new dynamic is already evident in some sectors, particularly in China. In 2009, China became the largest cell-phone market in the world, with some 700 million subscribers. In 2008, Nokia – the largest cell-phone maker – registered net sales of 8.2 billion US dollars in China, more than 3 times its US revenues. As for automobiles, between 2001 and 2010, China’s share of global car sales grew from barely 1 per cent to more than 10.
Such trends are likely to continue, as incomes and wealth in Asia rise. According to an OECD study, the global middle-class[1] is estimated to grow from 1.8 to 4.9 billion people between 2009 and 2020 – with Asia accounting for 85 per cent of this increase. By 2030, the Asian middle-class is projected to account for more than half of global middle-class consumption.
Consequently, there will be a rising Asian demand for a broad range of goods and services – from cars to communications, food to fashion, education to healthcare, travel and leisure – seeking consumer solutions tailored to Asian tastes and needs. In short, as opposed to being only “made in Asia”, goods will be increasingly “made for Asia”.
This has important implications for businesses which seek to capitalise on emerging Asian opportunities. As Asian markets grow in size and sophistication, companies will need to seriously consider locating the full spectrum of their business value chain within the region, in order to serve the region. Proximity to market means going beyond manufacturing, to incorporate functions such as R & D, design, supply-chain management, branding and marketing, within Asia.
The ability to understand and appreciate Asian sensibilities, anticipate emerging trends among Asian consumers, and respond with customised products and services – will differentiate successful companies. And, it is this integrated approach that will yield long term competitive advantages for businesses within the Asian context.
Inclusive Growth
Having outlined the growing Asian economic opportunity, it would be remiss of me not to highlight, at this gathering of the Young Presidents Organisation, the challenges that are emerging in tandem with the rapid growth and rising affluence of Asian societies. These are evident particularly in concerns over social trends – concerns that are germane to you as leaders of growing businesses with a focus on Asia.
Breakthroughs in information technology, improvements in transport connectivity, and the lowering of trade barriers have created a hyper-connected global market that all countries can tap. This has benefited many developed and developing economies by creating opportunities for many, especially those whose expertise and skills command high premiums. In contrast, globalisation has posed greater competitive challenges for the less skilled with the abundant supply of low-skilled workers in emerging economies. This has contributed to a widening income gap.
This is a global phenomenon. Take the US for example. According to a study published by the US Congressional Budget Office last year, between 1979 and 2007, the top percentile of US households saw their post-tax income grow by 2.75 times. The corresponding figures for the next 19 per cent, the middle 60 per cent and the bottom 20 per cent of US households are lower – at 0.65, 0.4 and 0.18 times respectively.
In a detailed analysis published in 2010, the US Department of Commerce concluded that it was more difficult now than 20 years ago for Americans to achieve or retain middle-class status, because incomes had not kept pace with inflation.
The American dream– the belief that with hard work and opportunity you can build a better life for yourself and your family - has been at the heart of America’s success. In fact, it is this American dream that has inspired and drawn some of the best talent from across the globe to America’s shores. Keeping the dream alive and real is the challenge facing America and, indeed, countries all over the world.
Asia has its own analogue of this challenge. Globalisation and high growth rates mean opportunities and wealth creation, particularly for the able. But, it can also exacerbate income inequalities and reduce inter-generational social mobility. It is thus important that governments and businesses alike pay close attention not just to the rate of growth but also the nature of growth. Engendering growth that is inclusive is central to its sustainability.
This is the core theme of the Budget and Financial Policy of the Singapore Government that is being debated in Parliament this week. On the one hand, we seek to nurture an economy that is built on a productive workforce, competitive enterprises, and an efficient economy – as the basis for long term sustainable growth. On the other hand, we seek to ensure that all Singaporeans benefit from, and have a share in, this growth. There are three key considerations here.
The first, is to ensure that we remain a resilient and self-reliant society where individuals value hard work and thrift, and take pride in improving their family’s lot in life.
It is in this spirit that we seek to support the efforts of our workers by subsidising their training fees as they seek to upgrade their skills and improve their prospects of landing a better-paying job. To encourage low-wage workers to remain gainfully employed without imposing undue cost burdens on companies, we have decided to subsidise the wages of those who work. Equally, there are significant incentives and grants to help enterprises that undertake initiatives to enhance their productivity.
The second, is to ensure continued social mobility. We seek to achieve this objective primarily through education. We invest heavily in our students, our teachers and our schools. There are generous funds for bursaries and other financial aid schemes to ensure no deserving child is denied a place in our universities and other educational institutions for want of money.
Thirdly, we undertake re-distributive measures in a fiscally sustainable manner. These measures are targeted at those who may not fully reap the benefits of growth – especially the elderly and the lower income. Fiscal responsibility ensures that we do not mortgage growth to service high debt. Ultimately, there can be no inclusive growth if there is no growth to begin with.
I have shared this Singaporean perspective with you because our challenges are not unique. I believe that these challenges will form the backdrop of the business environment in Asia for some time to come. Neither are these challenges solely the concerns of governments. Businesses too will have to balance their commercial objectives with obligations to the communities within which they operate. Be it caring for the environment, reaching out to the needy, or creating opportunities for the workers and families in the area - the scale and authenticity of your efforts will leave an indelible mark on those communities and help sustain the growth long into the future.
Conclusion
So let me conclude by reiterating a few key points. Asia presents significant growth opportunities for businesses. But the value proposition is changing, and will change further, as the region evolves from being a low cost manufacturing base into an important destination market in its own right. To seize this opportunity, businesses should seriously consider locating the entire spectrum of activities in Asia to be close to market. It is equally important that businesses be aware of some the societal changes being wrought by globalization. Your individual decisions as leaders of your respective organisations will have a significant collective impact on Asia as we move into the next phase of growth. Governments and businesses must be partners in addressing these issues to ensure that the path of growth remains sustainable and inclusive.
On that note, I wish you a productive summit.
Thank you.