SMEs, Regional Headquarters and Workforce Averting Side Effects of US-China Trade Standoff

2 Mr Christopher de Souza asked the Minister for Trade and Industry how Singapore-based SMEs, Regional HQs, MNCs, and the workforce can protect themselves from the side effects of a US-China trade standoff and how can capitalising on innovation help these organisations overcome such side effects.

The Minister for Trade and Industry (Mr Chan Chun Sing): Mr Speaker, Sir, let me answer the question in two parts. First, I will explain why the choice of words "US-China" and "trade conflict" is not exactly very precise. For the second part, I will answer what we need to do as a country and as companies.

Let me touch on the first part. Today, the challenges that we are facing on the external environment are not exactly limited to only the tensions between US and China. The uncertainties around the world have gone beyond US and China. They include the uncertainties with Brexit, Japan and Korea, Hong Kong and others. It has also affected the functioning of the World Trade Organization (WTO) system, of which the challenges to the continued functioning of the appellate body is a serious concern for all of us. So, it is not just about US and China.

The second part is that it is also not just about the trade war. The competition between US and China today has gone beyond trade to encompass technology and other issues. So, it is a more multifaceted challenge that we are dealing with.

With that as the backdrop, the question is, how do we as a country and as companies adapt and adjust our strategies amidst all these uncertainties?

Let me touch on a three-pronged strategy that I think we need to adopt: diversification, innovation and investment, and training. Let me elaborate on diversification.

To manage the uncertainties ahead of us, which may take quite a while to settle down, we should continuously diversify our markets, our supply chains and our product mix.

For the diversification of the markets, we must always remember that there are still many parts of the world that are experiencing strong and positive growth. And this is the reason why MTI, with the economic agencies, will continue to diversify our portfolio of free trade agreements, both in terms of the number of free trade agreements and the quality of the free trade agreements, in order for our companies to access the markets around the world, especially those with strong and positive growth.

The second part of diversification has to do with supply chains. In this world of flux, supply chains might be disrupted because of economic and political reasons. This is why the economic agencies are working closely with all our companies to make sure that our sources of materials, labour and other factors of production will continuously stay robust and resilient amidst these shifting geopolitical tensions.

Last but not least, we must continue to diversify our product mix as an economy. We must make sure that no one particular sector dominates the economy to the extent that it causes us to be much more fragile than we need be.

This is how we have approached the situation over the last many years. And if we look at the numbers today, while some sectors like the electronics, precision engineering and wholesale trade and retail are down, there are also sectors like the information & communications sector, biomedical sector and professional services sector that are still up. So, that diversification of our economy and product mix actually helps us to stabilise the overall economic performance.

The second strategy that we need to adopt amidst all this flux is to make sure that we continue to innovate and invest. First, we must make sure that we continuously do better to translate our research outcomes into enterprises. We must complete the research, innovation and enterprise cycle – not a chain, but a cycle. We must build real capabilities beyond building capacities. We must compete on the basis of real capabilities, rather than just capacities. For countries that are much bigger than us, with much stronger and a more diverse resource base, they might compete on the basis of capacity. But for us, we compete on the basis of capability.

It is often said that many countries are competing on the low-mix, high-volume products. That is a lot to do with capacity. For us, if we are to be serious in competing with what we call the high-mix, low-volume products, then, research and innovation, intellectual property protection, and quality standards are all very important, and those play to our strengths.

The second thing that we need to invest much more in is the adoption and proliferation of our digital platforms, especially amongst the SMEs within our economy. These are not very difficult solution sets. They are available in the market and we are committed to working with our Trade Associations and Chambers (TACs) to make sure that we accelerate the pace of adoption. When we achieve critical mass, it will also bring about a virtuous cycle for us to reduce the price of adoption and allow businesses to do business with one another more easily.

Last but not least, with or without the current challenges amidst the global uncertainties, we must continuously look at our production system and processes. There is always room for us to innovate in such things, beyond the innovation of products. It is about the innovation in production systems and processes that can make us more productive.

The third prong of the strategy has to do with training. There are three sub-parts to the training strategy which I think we need to focus on. We have often talked about the training of the workers and that is well-known and we will continue to invest heavily in the training of our workers, especially in the acquisition of skills for the Industry 4.0 journey, digital platforms and so forth. This is an area where SSG, WSG, NTUC and the trade associations and chambers must work closely to bring the level of the skills of our workers up to speed with what is required by the markets.

Having said that, it is necessary but insufficient just to focus only on workers' training. We also need to focus more heavily on the training of the leadership teams in the respective companies. This is an area that I have discussed with the many TACs and we can do much more.

From my own experience in NTUC, before we even talk about the training of the workers, it is most important for us to open up the vision of the management team. For example, in the recent roll-out of the Scale-up Singapore initiative, we did not focus just on the workers' training. We focused on the training of the management team by getting the entire management team to come in, do their envisioning exercise, do their change management exercises together as a team, before we even talked about workers' training.

Last but not least, when it comes to training, we will have to do much more to better organise ourselves and our respective agencies, from the TACs to the overseas missions from EDB, and ESG and other economic agencies, so that we can combine the market knowledge that we have to help our enterprises to diversify their markets beyond Singapore.

So, Mr Speaker, Sir, in short, I think the current situation warrants us to take a close look at how we develop our companies and economies, and we must go beyond looking at just the US-China issues or looking at it as just a trade issue. There are various things that we must do regardless of whether it is US-China or whether it is a trade issue. Continue to diversify our markets, continue to diversify our supply chains and product mix. Continue to invest in innovation, and build real capabilities and not just capacities, and focus on the training, not just of the workers but of the management team. And focus on sharing market knowledge with all our available agencies.

Mr Christopher de Souza (Holland-Bukit Timah): I thank the Minister for his comprehensive reply. I have two supplementary questions. The first is, will we see more regional trade pacts to overcome any side effects of the US-China trade standoff and Brexit, which the Minister alluded to in his response? Secondly, how about regional innovation pacts as a way to adapt to the evolving situation? And innovation being capability-focused, rather than capacity-focused, which was what the Minister alluded to in his reply.

Mr Chan Chun Sing: Mr Speaker, Sir, let me touch on the regional trade pacts. Today, for Singapore, more than 90% of all our trade are already covered by the existing free trade agreements (FTAs). We will continue to expand our network of FTAs, both in terms of numbers and also in terms of the quality. But more important than that, beyond reducing the tariffs associated with the trade negotiations, we must increasingly focus on the lowering of what we call "non-tariff barriers". Because sometimes, the gains from lowering tariff barriers could be eroded by the imposition of new non-tariff barriers. This is a challenge, not just only for the region, but also worldwide. These include the standards for healthcare products, the standards for food, the standards of mutual recognition and so on. This is what we mean by non-tariff barriers.

Corollary to that, on Brexit, we are working with the UK administration to see how we can, post-Brexit, have a short-form agreement that will essentially continue the current arrangements that we have with the UK as part of the EU. So, that is under negotiation at this point in time.

On the Member's second question, yes, there are two parts to the regional innovation. Today, in ASEAN, we have a very lively start-up community. Today, I am very happy when I meet the young start-up entrepreneurs. They no longer see their role as serving only one particular market. In fact, most of the time, they see themselves as what they call an "ASEAN company". Grab is one such example. They started their operations with a vision to serve the entire region.

There is a very lively start-up scene in ASEAN, particularly in Singapore, Indonesia and Vietnam. Our opportunity is how we can work together to bring these different strengths together, to leverage on each other's strengths, so that we can have a 600 million market, as a hinterland, rather than depending on ourselves individually.

Having said that, beyond the start-up scene, it is also very important for us to enable the multinational corporations (MNCs) to innovate and develop their products across different markets to serve the region. These MNCs can be from within the region or from beyond the region. Regardless, our challenge is to make sure that we have the enabling environment, the business rules that allow them to innovate across borders and to make use of the talent from different parts of the region to come together to develop those new products and services to serve the market.

Mr Leon Perera (Non-Constituency Member): Sir, I have two supplementary questions for the Minister. The Minister spoke about innovation capability among Singapore-based enterprises. Is the Minister satisfied with the current trend or direction of innovation capability among Singapore enterprises? Secondly, has MTI done any study that could point to any structural or any other impediments to developing and furthering innovation capability among Singapore-based enterprises?

Mr Chan Chun Sing: Mr Speaker, Sir, on the first question, whether we are satisfied with the progress of innovation. No Ministry, no agency, no country will ever say that they are happy with what they have. We always seek to do better. So, the more important question is, how can we do better? The biggest challenge for any research, innovation and enterprise cycle is this: how do we translate research into innovation and enterprise? Essentially, as Senior Minister Teo Chee Hean would say – how do you translate money into research outcome and translate research outcome back into money?

What are the challenges? It is always very difficult to find in one person a scientist, an innovator and an entrepreneur. The challenge and the lesson we have learnt from other countries is to make sure that, while these may not all reside within one person, we must have an environment where both the entrepreneurs and the scientists are able to constantly mix with one another to generate those ideas for both businesses and for scientific research. It is this combination that is most important in any scientific community.

When I was studying in MIT, they have been able to achieve this eco-system very well. Within every class that you go to in business school, there are the scientists, the researchers, there are also the people who have a very keen sense of business to know what is possible. It is this mix that many places around the world are trying to emulate because that is how we can percolate the ideas and bring research outcomes into market opportunities. So, this is one area that everyone wants to do better in.

The second area that we will always strive to do better is to make sure that the funding eco-system provides that continuum of funding options for new enterprises from the start-up stage, all the way through until they perhaps one day get listed on the market. That chain is also something that across the entire globe, everyone is working very hard to make sure that new enterprises have those options to bring their business ideas to fruition.