Doing Business in Singapore

A Hot Tip about Business Environment in Singapore

Posted on: 22 Feb 2010

 

Market Overview

Singapore is one of the most highly developed and sophisticated industrial, commercial, financial and consumer economies in the world. Despite the current economic turmoil, Singapore offers a stable, yet dynamic, market for U.S. exporters and is a key regional trade center. The World Bank’s “Doing Business 2009” report ranked Singapore as the easiest country in which to do business. U.S. companies feel comfortable in Singapore. English is the language of business and government. The rule of law and Intellectual Property Rights are respected. Singapore was the 12th largest export market and 17th largest trading partner of the United States in 2008. Despite being halfway around the world, the United States was Singapore’s second largest import source, behind Malaysia. Other major suppliers for Singapore were China, Japan, South Korea, Indonesia, Taiwan, Saudi Arabia, Thailand, and Germany.

 

Because of Singapore’s heavy dependence on international trade, its economy is highly subject to the ebbs and flows of greater regional and world market forces. The Singapore economy is expected to contract by 2.0% to 5.0% in 2009 as a result of the global economic crisis. Preliminary estimates show that the Singapore economy grew 1.1% in 2008, a sharp drop from the 7.7% real GDP growth it achieved in 2007. Economists expect the Singapore economy to contract for the first three quarters of 2009 and expect the slump will be most severe in the first quarter. Manufacturing is estimated to have contracted by 4.1% in 2008 as key sectors such as electronics and pharmaceuticals were hit by the rapid drop in demand from major markets. Total trade grew 9.6% to US$644 billion in 2008, but is expected to drop by 17-19% in 2009. Falling oil prices are expected to rein in inflation which is now expected to be between -1% and 0% in 2009, compared to 6.5% in 2008. Unemployment is forecast to reach more than 5.0% this year.

 

As Singapore braces itself for its worst recession since independence in 1965, the Government of Singapore (GOS) announced a significant US$13.6 billion (S$20.5 billion) budget package to save jobs and cut business costs, as well as provide tax credits and rebates for lower-income households. The GOS, will also increase spending on development and major infrastructure projects. Corporate tax will be cut by one percentage point to 17%. Reflecting the seriousness of the economic situation, the GOS made history by drawing on its official reserves for the first time. The US$3.3 billion (S$4.9 billion) draw on the reserves will fund two special programs: a job credit program to subsidize part of the wage bill of employers and another to encourage banks to lend more freely to viable businesses. If conditions worsen, the GOS is expected to implement off-budget measures as in previous recessions to boost the economy.

 

Small in size and population, Singapore is an established regional hub for transportation, logistics, aircraft Maintenance, Repair and Overhead (MRO), petroleum refining, offshore oil rig production, pharmaceuticals, medical care, electronics, and chip manufacturing. Finance, education and biotechnology are newer concentrations. Over 1,500 U.S. firms have offices or facilities in Singapore, many with regional Asian operations. At US$82 billion, U.S. foreign direct investment in Singapore is greater only in Japan in the Asia-Pacific area. The Singapore government encourages American firms to export to Singapore and then to use Singapore as a distribution hub for Asia. Singapore was the first country in Asia to sign a Free Trade Agreement (FTA) with the United States which came into force January 1, 2004. It expanded U.S. market access in goods, services, investment, and government procurement. The U.S. - Singapore FTA also enhanced intellectual property protection and provided for cooperation in promoting labor rights and the environment.

 

Market Challenges

Singapore is such an open economy that the major challenge for American companies is strong competition from worldwide suppliers. In addition, although the Government of Singapore (GOS) is strongly committed to maintaining a free market, it also actively uses the public sector as both an investor and catalyst for development. Some observers have criticized the dominant role of Government-linked companies (GLCs) in the domestic economy, arguing that they have displaced or suppressed private sector entrepreneurship and investment. Some U.S. and local firms have also expressed concerns that government-owned and GLCs may receive preferential treatment in the government procurement process.

 

Singapore imposes no tariffs on industrial goods or textiles but for social and/or environmental reasons, it levies high excise taxes on distilled spirits and wine, tobacco products, motor vehicles, and gasoline. Singapore maintains a tiered motorcycle operator licensing system based on engine displacement, which, along with a road tax based on engine size, places U.S. exports of large motorcycles at a competitive disadvantage. The sale of chewing gum is restricted in Singapore.

 

In November 2007, Singapore issued implementing regulations for medical devices under the 2007 Health Products Act. The act covers a wide array of areas, including adverse events, product recalls, advertising and sales promotion, and "good distribution practices." By October 1, 2009, all manufacturers, importers, and wholesalers of medical devices must be licensed under the Health Products Act. As of October 1, 2010, unregistered medical devices will be prohibited from sale in Singapore.

 

Foreign companies also face restrictions in certain service sectors in Singapore. The local free-to-air broadcasting, cable and newspaper sectors are effectively closed to foreign firms. Foreign law firms and banks with offices in Singapore also face certain restrictions.

 

Credit card fraud is a continuing problem, especially with unsolicited orders for items requiring immediate shipment. The Commercial Service has received multiple complaints from U.S. merchants reporting fraudulent credit card transactions committed by companies/individuals purporting to be in Singapore. The initial investigation of the fraudulent transactions has revealed that the shipments are actually being sent to freight forwarders in Singapore and diverted to unknown consignees in neighboring countries.

 

Market Opportunities

Best prospects for U.S. companies in Singapore include: aircraft and parts, medical devices, telecommunication equipment, computer hardware and software, laboratory and scientific instruments, pollution control equipment, oil and gas equipment, electronics, university education services and franchises.

 

Because of the economic downturn, the Singapore government will speed up and increase spending on further developing the road system, expanding the subway network, upgrading public housing and implementing other infrastructure works. It plans to award construction contracts worth US$12-13 billion in 2009. In addition, US$867 million of deferred government infrastructure projects (from elevator upgrades in public housing to pathways that connect the country’s parks) will be brought forward to this year. The GOS announced it will spend more on education and healthcare. It will also invest US$667 million in sustainable development, energy efficiency, green transport, clean energy and green living spaces initiatives. In addition to the significant government development programs, U.S. companies will find excellent market opportunities in several major private investments projects in Singapore.

 

The Energy Market Authority is expected to issue a tender for the engineering, procurement and construction of a LNG terminal later this year. The estimated project cost is US$630 million and scheduled delivery date is 2012. Singapore is also constructing a US$530 million underground oil storage facility. The first phase is under way and involves the construction of access shafts (20 meter diameter vertical shafts that stretch 90 meters below ground level and start-up galleries) that will be completed in 3-5 years. The second phase is on the drawing board. When completed, the underground oil cavern will maximize the use of space in land-scarce Singapore, address the overwhelming demand for oil storage and strengthen Singapore’s position as a regional petrochemical hub.

 

The Singapore government has plans to spend close to US$5 billion over the next few years to foster research and high-end production in industries such as precision engineering and biomedical sciences.

 

In February 2008, the Singapore government awarded the first tender in a government-wide Standard Operating Environment (SOE), worth US$922 million, to the OneMeridian consortium led by EDS. The SOE comprises a standard desktop operating environment, a standard messaging and collaboration environment, and a standard network environment. OneMeridian will implement the SOE for a total of 74 government agencies in phases. The first SOE excludes the Ministry of Defense, which has developed its own system, and the Ministry of Education (Schools), which will build a separate system under a second tender/contract. This second phase of the SOE is expected to be called in April 2009 and is part of the Ministry of Education’s Third Masterplan for ICT in Education.

 

The healthcare sector is expected to spend over US$300 million developing a nation-wide National Electronic Health Record system where all information will be integrated from hospitals, clinics and non-profit organizations. The two major public healthcare groups are expected to invest aggressively in IT infrastructure and applications for their hospitals and clinics.

 

Singapore will build a Next Generation New Broadband Network in Singapore with an estimated cost of around US$1.4 billion. Given the size of the two tenders for the Next Gen NBN, there are excellent opportunities for U.S. vendors to participate in the two projects and/or in supplying to the successful bidders.

 

Singapore will build a new 550-bed public general hospital that is expected to cost US$389 million and be fully operational by 2010. Other plans include upgrading and expanding the facilities at the National Heart Centre, National University Hospital and Singapore General Hospital. There are also plans to build two additional public hospitals in the western and eastern parts of the country, which are scheduled for completion by 2015 and 2019 respectively. The private sector will see a new 350-bed hospital that caters mainly to foreign patients costing between US$207 and US$345 million to be built by 2011.

 

A French-led consortium will build the new US$1.2 billion Sports Hub slated for completion by 2012. It will include a 55,000-seat stadium, a 6,000-capacity indoor aquatic center, a 3,000-capacity multi-purpose indoor arena, a water sports center and 41,000 square meters of leisure, shopping and dining facilities.

 

Singapore Airlines (SIA) will continue with its efforts to renew and modernize its airplane fleet. The airline is spending US$360 million to outfit its 19 new A330s and other planes in its fleet. Sixty-two aircraft will eventually have a new look, which will include uniformly colored seats and standardized entertainment screens. Besides the A330s, SIA will receive four more A380s and another Boeing 777-300ER this year. In all, it expects 72 new aircraft to be delivered by 2016.

 

Two integrated resorts currently under construction in Singapore will have a combined cost of over US$9 billion. The Marina Bay Sands’ resort includes a casino, hotels, restaurants, retail outlets and trade exhibition and convention space. Resorts World at Sentosa is building an integrated resort that includes a casino, hotels, restaurants, retail outlets, an oceanarium and a Universal Studios theme park. The two resorts are expected to start operations at the end of 2009 and in the first quarter of 2010 respectively.

 

Market Entry Strategy

Using agents or distributors is a common and effective way to serve the Singapore market and from here other countries in Southeast Asia. However, when business warrants, many companies have found it useful and sometimes necessary to set up offices in Singapore. Singapore is home to over 1,500 American firms, many of which not only serve the local market but also the region.

 

Price, quality and after-sales service are important selling factors in Singapore. Prospective exporters to Singapore should be aware that competition is high and that buyers expect good after-sales service. Selling techniques vary according to the industry and product but are comparable to the techniques used in any other sophisticated market. It is also important for U.S. firms to visit their representatives, respond quickly to inquiries and maintain a good relationship with them.

 

U.S. firms should not discount the small size of Singapore. The island-nation consistently ranks near the top ten of the largest export markets for U.S. manufactured goods. Singapore is the 18th largest market for service exports. Many goods are transshipped or subsequently re-exported to other countries in the region. Very few distributors in Singapore deal only with the local market. Establishing a distributor in Singapore is an excellent way to start looking at the wider Asian market.

 

Read the full market research report


Posted: 22 February 2010

See more from Business Environment in Singapore

Expert Views    
Market Overview   By Hong Kong Trade Development Council (HKTDC)
Doing Business in Singapore   By U.S. Commercial Service Singapore
Doing Business in Singapore   By U.S. Commercial Service Singapore
Hot Tips    
Singapore's Exporter Guide 2009   By Foreign Agricultural Service
Manufacturing Technologies in Singapore   By U.S. Commercial Service Singapore