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IT-LED DEVELOPMENT IN SINGAPORE: FROM WINCHESTER ISLAND TO INTELLIGENT
ISLAND[1] Kenneth L. Kraemer and Jason Dedrick Center for Research on Information Technology and Organizations and Graduate School of Management University
of California, Irvine INTRODUCTION One of Singapore's most impressive economic achievements has been the creation of a large computer industry virtually from scratch in less than fifteen years. When the government first targeted information technology (IT) as a strategic industry in 1981, Singapore had almost no computer production[2] and was far removed from the key technology and market centers of the world's computer industry. By 1995, total hardware production topped US$19 billion and most of the leading multinationals in the PC industry had set up shop in Singapore, doing manufacturing, design, marketing and logistics. Companies such as Compaq, IBM, Seagate, Hewlett-Packard, Apple and Western Digital now use Singapore as the hub of a production network that spans Southeast Asia and is linked to the global distribution systems of these companies. The MNCs were followed to Singapore by many of their American and Japanese suppliers, who were joined by local companies to create an extensive industry cluster supporting the computer industry. Singapore leads the world in production of hard disk drives, earning it the name "Winchester Island" after a popular name for such drives. It is also a large producer of PCs, printers, and other peripherals, and is investing heavily in semiconductor production. Unlike the other East Asian countries, Singapore has put as much emphasis on computer use and on production-close-to-use[3] as on computer hardware production. Singapore invests a higher percentage of its GDP on computers than the other NIEs and nearly as much as Japan. This investment in computer use along with the creation of a superb telecommunications network created a high quality, low-cost information infrastructure that is a strong attraction to companies investing in Singapore. It has also provided the basis for a new strategy of promoting Singapore as a regional hub for information services, entertainment, multimedia and finance with the aim of developing a domestic information services industry and earning the name “Intelligent Island.” None of this has come about by chance or pure market forces. The growth of the industry has been guided by carefully coordinated policies to promote computer production and use. Unlike Japan, Korea and Taiwan, Singapore relied mainly on foreign multinationals, rather than domestic companies, to make the necessary investments and develop the industry. Singapore's Economic Development Board persuaded major computer makers to locate in Singapore and coordinated the effort to improve the country's technical capabilities and infrastructure. Given the potential risks of government-led industrial targeting, it is interesting and enlightening to look more closely at how Singapore's government was able to turn the island into a model for IT-lead economic development, first as a hub in the global production network, and in the future as a center for knowledge creation in software, information services and entertainment. INFORMATION TECHNOLOGY AS A DEVELOPMENT
TOOL Technology has long been viewed as a source of faster economic growth, and there are historical examples of major periods in which new technology such as railroads and electricity contributed to faster economic growth. Beginning in the 1970s, IT has also come to be viewed as having the potential for stimulating faster economic growth. Some researchers have made a specific case for the value of investment in IT as a stimulus for economic development and have suggested that IT investment may have led or anticipated economic growth in the East Asian NIEs of Hong Kong, Korea, Singapore and Taiwan (Rahim and Pennings, 1987, OECD, 1988; APO, 1990; Mody and Dahlman, 1992). Others have argued that the economic stagnation of other developing countries such as India and Brazil is due in part to development policies which restricted the importation of advanced technologies from abroad (Dahlman and Frischtak, 1990; Lall, 1985). IT is a generic set of technologies, including computers systems, software and networks, which are pervasive in their impacts on industrial and economic development. Unlike a new technology for steel or chemical production, IT can be applied in virtually every economic sector from automobiles to finance to electronics. Its application can make production more efficient, enhance existing products and create new products and services. IT can reduce the cost to business by obtaining and processing information on markets, suppliers and competition, thus improving organizational efficiency and responsiveness. In addition, the IT industry itself can be a source of economic growth and jobs. For these reasons, investment in IT is believed to enhance national productivity and competitiveness, spurring economic growth. Economic Returns
from IT Investment In economic terms, the notion of IT-led development is based on the potential of IT use to improve productivity in two ways: through labor and/or capital. IT improves labor productivity directly by substituting for labor or by improving the productivity of workers. The gains in labor productivity can be seen most easily when computers are installed to perform routine information processing functions or to replace workers carrying out those functions. Worker productivity is increased by enhancing worker’s information processing as in automated supermarket checkout systems, or by substituting equipment for labor as in automated factories. Less visible are the gains in productivity achieved by providing workers with timely information through communication and collaboration systems and tools for planning and carrying out their work. IT improves capital productivity by complementing other investments in capital goods such as plants and equipment. IT can substitute for physical plant as with ATMs for branch banks, shopping kiosks for stores, and electronic commerce on the Internet. Plant and equipment can also be made more productive through the use of computerized control systems which allow automation of processes and greater flexibility in production. The entire production system can be made more productive through the use of computers for planning and coordination of activities within the firm and externally with suppliers and customers. In the service sector, assets such as airplanes can be used more productively through computerized reservation systems to maximize capacity on flights. Improved capital productivity will also increase labor productivity, as workers with more productive tools should be more productive themselves. As shown in Figure 1, investment in IT use is expected to increase economic growth through productivity growth, which should push wages upward, increasing workers' income and personal consumption. While IT use might have a negative effect as a result of the elimination of jobs in the redesign of business processes, other jobs might be enhanced and have higher wage levels. Another way in which investment in IT is expected to increase economic growth is by creating new industries related to IT hardware production and production-close-to-use. IT production-close-to-use includes software programming, systems integration, maintenance services, information services (e.g. CompuServe, America Online), and production of entertainment and other information content. The potential growth of these industries depends on the level of diffusion of computers, software and networks in a country. The success and growth of hardware production also depends on sophisticated users who increase the demands on producers and spur them to innovate with new products and services. Figure 1. Economic Returns from IT Investment The history of Singapore’s computer production and use provides an illustration of these forces at work, and indicates the important role of government industrial policy aimed at encouraging direct foreign investment on the one hand to build up a computer industry and promoting extensive computer use on the other hand to build a highly efficient business and industry hub serving the East Asia region. SINGAPORE’S COMPUTER INDUSTRY
Singapore's electronics industry employed 120,000 people and accounted for about 10% of GDP in 1995. Of that amount, a little over half is accounted for by computers, disk drives and peripherals. Yet the electronics industry in Singapore is less than thirty years old, and the computer industry half of that. The extraordinary growth rate of these industries has been driven by foreign investment and the creation of strong national capabilities to support high-tech manufacturing. How computer production came to be in Singapore can best be understood by tracing the history of MNC investment there over the years. MNC-Led Development of Computer Production The first electronics production in Singapore began in the late 1960s when U.S. semiconductor companies such as National Semiconductor, Fairchild and Texas Instruments began assembling simple chips. At this time, Singapore was one of the few developing countries offering cheap labor, incentives for foreign investors and a stable business environment. While most countries in the region restricted trade and foreign investment in an effort to nurture domestic manufacturers, Singapore was encouraging foreign investment and building the necessary infrastructure to support an export-oriented manufacturing base. From the beginning, the electronics industry was producing for world markets, and Singapore began to gain experience in producing to world class standards. In the 1970s, a number of consumer electronics makers came to Singapore to take advantage of its experience and low costs to make television sets, radios, and audio equipment. These companies included major MNCs such as General Electric, Matsushita, Philips and Thomson. The growth of consumer electronics production created demand for parts and components, and local suppliers began producing metal and plastic parts, packaging materials and electrical parts for the MNCs. During this time, the Singapore government began to train workers in precision engineering and electrical technology in cooperation with MNCs. The Singapore Economic Development Board (EDB) set up joint training institutes with Philips, Tata and Brown Boveri.[4] Singapore began targeting computer production in the early 1980s at the same time U.S. computer companies began to look abroad for cheaper places to manufacture. The first place where these forces meshed was in the disk drive industry. The first company to come to Singapore was Tandon, which began producing floppy disk drives in the late 1970s. Tandon was joined in 1979 by Magnetic Memories International (MMI), which produced hard disk drives for a year, then closed down. Tandon and MMI helped create supporting industries for the hard drive industry, including precision metalworking and mechanical components. The real takeoff point for Singapore's disk drive industry came when an upstart called Seagate Technology decided to come to Singapore. Seagate's rise to become the world's largest disk drive maker was paralleled by Singapore's growth into a world center for disk drive production. Seagate Technology and Singapore's Disk Drive Industry The key event in the creation of Winchester Island was Seagate's choice of Singapore as its main manufacturing location in 1982. Seagate needed to expand production after just a year of operation to keep up with rapid demand growth. David T. "Tom" Mitchell, one of Seagate's co-founders, had run plants in Singapore, Hong Kong, Seoul and Jakarta while he was with Fairchild Semiconductor in the 1970s. During a two-week period while Seagate's U.S. plant was shut down, he visited Hong Kong and Singapore to select a production site. While Hong Kong offered the usual laissez faire attitude toward new investment, Singapore's Economic Development Board put on a full court press to bring Seagate to Singapore.[5] The EDB helped Mitchell with every step of setting up a facility. They took him to meet with other companies who were doing mechanical assembly in Singapore, gave him an assistant to help type up a business plan, and hooked him up with a search firm to locate and interview managers. The government also gave Seagate a ten-year tax holiday and made factory space available in the Jurong industrial estate. In less that two weeks, Mitchell left his new management team to start operations and returned to California. In the case of Seagate, the initiative taken by the Singapore government clearly made a big difference in the location decision.[6] Seagate's investment set into motion a virtuous cycle, as suppliers of components and subassemblies set up production in Singapore, improving the local supply infrastructure and attracting further investment by other disk drive makers. Seagate was followed to Singapore by Miniscribe, Maxtor, Micropolis, Rodime, Conner, Control Data and Western Digital between 1983 and 1989. In the mid 1990s, IBM's Storage Systems Division started production in a new plant in Singapore, and about ten more disk drive components manufacturers moved to Singapore.[7] Since 1982, Seagate has continued to invest in Singapore, and now has six facilities there (including facilities that came with Seagate's purchase of Conner), which assemble 5.25 inch, 3.5 inch and 2.5 inch disk drives and produce PCBs and disk media. In 1997, Seagate opened a new 1,000,000 square foot facility in Singapore called Seagate City, with plans to consolidate much of its Singapore production in that plant.[8] Interestingly, Japan's disk drive manufacturers chose to keep their production at home, in spite of EDB efforts to attract them. Callon quotes an EDB official as saying, "We tried very hard of course. But the Japanese believed that the complexity of the drives were such that Singapore wasn't good enough. They thought they should do it in Japan, what with the clean rooms and the precision requirements. They finally went offshore very late in the game, in 1988-89. They went to Thailand, where Seagate had already gone in 1987."[9] This is a telling case of the Japanese companies' slowness to take advantage of the capabilities of the Asian production network that the U.S. companies had helped create and were tapping so effectively. As the MNCs increased their production, Singapore gained experience and valuable knowledge of the complex processes involved in disk drive manufacturing. Meanwhile, the government trained thousands of engineers and computer professionals and initiated joint research projects with various MNCs. These capabilities enabled the MNCs to conduct higher value added activities in Singapore. U.S. disk drive makers design and develop prototypes of new generation drives in the U.S., then ramp up full scale production of new product generations in Singapore. Singapore serves as an "engineering transfer station,"[10] responsible for the process engineering to start up and optimize the production process for new product lines, and transfer older generations to other locations in the region. This process requires strong engineering and manufacturing capabilities, as timing is essential to hitting the "sweet spot" in the market with ever larger capacity drives. Once the production process is stabilized, it is often moved to a factory in Thailand or Malaysia (and increasingly, China) and a new generation is ramped up in Singapore. Apple Computer and Singapore's PC Industry A similar process of MNC investment, local supplier development and technological upgrading can be seen in PCs, as illustrated by the experience of Apple Computer in Singapore. Apple first came to Singapore in 1981, and produced printed circuit boards (PCBs) for its Apple II product line for the next four years, outsourcing assembly to a number of Singaporean companies. In 1985, Apple began doing final assembly of Apple II's. Over the next few years, the company expanded its operations in Singapore and began designing some components there. In 1990, it began final assembly for two new Macintosh systems as well as designing and manufacturing monitors for those models. Apple Singapore was able to move from design to production roll-out in about half the time of Apple's other facilities. By 1992, Apple Singapore had taken responsibility for final assembly for all Asia-Pacific markets and was designing and producing boards, monitors and peripherals for the global market.[11] In 1993, Apple set up its first hardware design center outside the United States in Singapore. The Apple Design Center designs products for the global market, as well as products and solutions specifically for Asian markets. Singapore is now part of Apple's "follow the sun" design process, in which engineers in California, Ireland and Singapore work together on designs, taking advantage of the differences in time zones to work continuously and speed the design process. Singapore's telecommunications infrastructure is critical to that process, as huge engineering files must be sent and received for the process to work. By 1995, Apple was sourcing about US$2 billion from the Asian region (about 20% of Apple's revenues that year). About US$450 million was from Singapore, with much of that coming from other MNCs such as Texas Instruments (DRAMs) and the various disk drive makers. Only plastic moldings, packaging and PCB assembly are done by Singaporean companies. Motherboards are made both at the Apple Singapore factory and by subcontractors in Taiwan. Notebook and desktop PCs as well as monitors are made in the Singapore plant. Apple's strategy has been to make higher end models in its own plants and outsource lower end models to OEMs in Taiwan and elsewhere.[12] Similar stories could be told in different segments of the computer industry for Compaq, Hewlett-Packard, AT&T, IBM, and DEC. Likewise in semiconductors for Motorola, Texas Instruments, SGS-Thomson, Siemens and National Semiconductor. The underlying theme of this history of industry investment is the steady upgrading of local activities by MNCs, with associated growth in the capabilities of local suppliers. As will be seen later, these MNC investment streams were stimulated by government tax incentives, focus on the MNCs as “business clients” and ready provision of needed human resources and infrastructure. The Sound Card Business: An
Exception to MNC-Led Growth A major exception to MNC dominance in Singapore's computer industry has been the success of Creative Technologies and Aztech in sound cards. Creative's Sound Blaster brand is so well-known in the U.S. market that its name is almost synonymous with sound cards. The two local companies controlled 75% of the market in 1994, with Creative Technologies leading the world at 60%. Both companies have been expanding their product lines to include a broader range of multimedia hardware and software. Creative's rise to the top is especially striking, a true homespun Singaporean success story in a country where foreign MNCs generally rule the computer industry.[13] Creative was started in 1981 by two childhood friends, Sim Wong Hoo and Ng Kai Wa, whose common interest was music and who led a harmonica troupe while attending Singapore's Ngee Ann Polytechnic. The two were joined in 1986 by their university classmate Chay Kwong Soon. Creative started out producing add-on cards for Apple II computers and doing other odd jobs such as training and servicing. Eventually, Creative developed a clone of the Apple II that did not infringe on Apple's patents and copyrights, and which could even "talk" in Chinese. As the Apple II line was overwhelmed by the IBM-PC in the mid-1980s, Creative launched a new product called the Cubic CT, a multimedia computer with enhanced color graphics, built-in audio board, and a built-in Chinese operating system and fonts. Unfortunately, the PC market was not ready for multimedia, mainly due to a lack of software applications. Creative tried to get local teachers to develop educational software for the Cubic, but got no response. The Cubic turned out to be a commercial failure and almost destroyed Creative, which had spent $500,000 developing it. In Sim's words, "I had hoped that a multilingual society like Singapore would need a multilingual computer. I was wrong. Also I realized by looking only at Singapore, we were just like a frog looking at the sky from the bottom of a well." After this failure, Creative decided to switch its focus from language to music, and created a PC add-on card called the Creative Music System. Sim then took a big gamble by going to the U.S. and setting up Creative Labs, Inc. His breakthrough came when he convinced some software makers to support Creative's sound card, renamed Game Blaster, for their PC-based video games and educational products. In 1989, Creative developed a new, advanced sound card called Sound Blaster, which was introduced at the Comdex Show in Las Vegas. Sound Blaster hit the market just as Intel's 386 card and Microsoft Windows 3.0 were arriving and the home PC market began to take off. Creative rode the multimedia wave and saw its sales soar from US$5.4 million in 1989 to US$658 million in 1994. Sound Blaster was never an outstanding technical achievement, although the company has continued to upgrade its technology by licensing and purchasing companies such as E-mu Systems, a leading U.S. maker of music synthesizers. Instead, the product succeeded because of effective marketing, strong technical support for users, and because it hit the market at the right time. In addition, Creative has collaborated with Microsoft, Intel and IBM to secure its position as the de facto industry standard for sound cards. Creative succeeded in large part because of its ability to tap the U.S. market and because it was able to establish an important standard in the PC industry. Defending that standard has not been easy, however. Other companies have entered the sound card market to compete with Creative, but a bigger challenge is Intel's continuing drive to establish control over nearly all PC hardware standards. As microprocessors become more powerful, multimedia capabilities can be built into the chip, reducing the need for add-on cards. Microsoft has also added more multimedia capabilities into its operating systems, squeezing Creative from another direction. The sound card business is an anomaly in Singapore's computer industry, a case in which local companies found a niche opportunity and made an impact in the global PC market. Otherwise the country's emphasis on MNC-led growth has kept domestic companies from growing into international competitors. The MNCs are able to attract the most talented people to work for them, and only recently have some of those people begun to start their own companies. There is also no equivalent to Taiwan's ITRI developing domestic technologies and then spinning off companies to commercialize those technologies.[14] Even those companies who have grown relatively large, such as Creative, Aztech and PC maker IPC, have struggled to stay profitable in the hyper-competitive hardware business. Creative actually plunged into the red in 1996 as its core sound card business came under attack and it failed to develop successful new products. Creative tried to compete in the CD-ROM manufacturing business, but lost money in the already crowded market. Meanwhile, Singapore's top PC maker IPC was also running into hard times in the global market. IPC had focused initially on the European and Asian markets and then entered the U.S. market by purchasing a small PC maker, Austin Computer. However, after suffering setbacks in 1995, IPC retreated from the retail PC market in the U.S., as well as Australia, to focus on the corporate market and OEM business.[15] The government has started to promote domestic companies in recent years, but the results of this effort will not be known for a while. In the meantime, Singapore must pin most of its hopes in the computer industry on continuing to attract and retain MNC investment. In summary, the key feature of Singapore’s economic development strategy has been to focus on information technology by encouraging MNC investment, expansion and continual upgrading of production capabilities. While other Asian countries such as Japan, Korea, and Taiwan focused on production by domestic companies, Singapore developed a three-pronged approach to the information industries that involved: (1) production by MNCs, (2) joint MNC –local production close to use in software and information services, and (3) promotion of use within the government and finance sectors and the formation of operational networks for trade and commerce that link key sectors of Singapore’s economy. Singapore is now moving both upstream into semiconductor production and downstream into IT-based content, services and entertainment. SINGAPORE’S INDUSTRIAL POLICY Singapore's government practices a unique form of industrial policy, combining a conservative economist's dream of open trade and investment regimes with the same economist's nightmare of heavy government intervention in the market to guide the economy. After Singapore's separation from Malaysia in 1965, the government of Prime Minister Lee Kwan Yew was faced with high unemployment, poverty and loss of open access to the Malaysian market. Singapore's economy had been based on its role as a key trading port and military base for the British Commonwealth. These roles had not led to what the government saw as a socially desirable form of economic development, and the situation seemed sure to worsen when the British military pulled out in 1971. Singapore's leaders felt that only industrialization would lead to sustainable development. With a local market of only 2.8 million people, Singapore's economic planners were spared the temptation to engage in import-substitution, as most developing countries were doing at the time, and decided to promote Singapore as an export platform. The government felt that Singapore lacked a strong base of entrepreneurs capable of achieving rapid industrialization, so it turned to multinational corporations for the necessary investment and technology to support export-oriented manufacturing. The MNCs were lured to Singapore by the promise of low wages, peaceful labor relations, a good infrastructure, a stable political environment,[16] and financial incentives that heavily favored export production. While countries today clamor for foreign investment, in those days, such a friendly attitude towards MNCs was rare, and Singapore was able to attract a great deal of investment and quickly become an MNC export platform. In spite of its open courting of foreign investment, however, the Singapore government was not willing to leave its economy in the hands of the private sector. As Dr. Goh Keng Swee, architect of Lee's economic strategy stated, "free wheeling capitalism will only perpetuate social insecurity, mass unemployment, glaring contrasts between rich and poor, and continued exploitation by a minority of Western and local capitalists."[17] The government balanced the power of the MNCs by retaining control of key economic sectors such as land development, banking, air travel and petroleum refining in state-owned enterprises, or "statutory boards" as they are called. Unlike most countries' state enterprises, however, Singapore's statutory boards were run on a truly commercial basis. They are expected to turn a profit and allowed to go bankrupt if they lose too much money. The statutory boards not only gave government the ability to retain control over an economy dominated by foreign capital, but they were used to develop Singapore's infrastructure to perhaps the best in the world and to partner with MNCs in projects that would improve Singapore's technology or upgrade its workers skills. The government also mobilized large amounts of domestic capital to complement foreign investment through a forced savings program called the Central Provident Fund, and invested in education to upgrade its workers' skills. This ability to accumulate financial and human capital was the key to Singapore's continuing economic success. The key elements of Singapore's computer industry policies included creating an attractive location for foreign investment, developing a world-class information infrastructure, developing human resources and technological capabilities, promoting domestic computer use, and linking computer use to the creation of a domestic software and services industry. The government's ability to execute its strategies successfully has required an ability to coordinate policies effectively among the various agencies involved in implementation and to avoid the bureaucratic competition that has plagued some of the other countries in the region. Creating and Upgrading an MNC Export Platform In 1979, the government identified the computer industry as one of the "brain services" that would serve as a pillar of growth in the 1980s. The Economic Development Board began to seek out investment by MNCs in the industry. Its first big success was in attracting Seagate to manufacture disk drives, which launched Singapore into world leadership in disk drive production. The EDB was not satisfied with just attracting one investment, however. It followed up by targeting other disk drive companies, offering the attraction of a growing pool of workers with experience in the industry and the presence of suppliers that had come to Singapore to support Seagate. The EDB followed a similar process in PC production, attracting Apple in 1981, and later Compaq and others. More recently it has been successful in recruiting Hewlett-Packard, IBM, DEC and others to produce PCs and peripherals.[18] Singapore's open trade policies have given it an important advantage as a location for the distribution and production activities of multinational corporations. Many companies use Singapore for warehousing, repackaging and distribution of products made elsewhere, since they can move goods through Singapore without paying import duties. Manufacturers also can import necessary components and intermediate goods duty free. Singapore provides an attractive environment for foreign investment, with no limitations on capital movement or repatriation of profits. When the EDB began promoting Singapore as a production base to multinational computer and electronics companies in the early 1980s, it offered tax breaks and other incentives and worked closely with foreign companies to help them set up operations. Relations with the EDB are said to have been an important factor in Apple's decision to set up production in Singapore. In some cases, the EDB has taken an equity position in joint ventures with MNCs. For instance, EDB took a 26% share in a semiconductor foundry called TECH Semiconductor in partnership with Hewlett-Packard, Texas Instruments and Canon. The efforts of the EDB have given Singapore an edge over other countries in attracting foreign investment, although other countries such as Thailand and Malaysia are now following its example in offering packages to attract investors. On top of attracting new investment, the government has worked hard to encourage MNCs already in Singapore to upgrade their operations there. The EDB offers incentives to entice MNCs to transfer more advanced technologies to Singapore, and also to send Singaporean workers to company headquarters for training to implement the transfer of new product lines to Singapore. There is also a government-supported program called the Local Industry Upgrading Program (LIUP) to help domestic companies improve their technical capabilities. The program pays for an engineer from an MNC to work full-time providing technical and managerial assistance to local firms that supply the engineer's company with parts or services.[19] Developing Human Resources and Information Infrastructure Singapore undertook a number of initiatives to develop the communications infrastructure and human resources necessary to support the computer industry. Singapore Telecom invested heavily to provide high quality voice and data communications services and plans are in place for a completely digital network with fiber optics replacing all copper cable by 2005. The National Computer Board (NCB) developed a number of computer networks for both the public and private sector. The Teleview videotext system was installed in libraries, homes and public buildings in the 1980s, but now is being replaced by Internet access. The government has trained thousands of computer professionals to support its computerization programs as well as to supply needed skills to the computer industry. The NCB supported a program to train 1000 computer professionals per year during the 1980s, and helped the National University of Singapore and Nanyang Technical University develop computer science and management information systems programs.[20] It also supported the training of production engineers and set up engineering research centers on flexible manufacturing and factory automation. At the lower grade levels, the government has put computers in classrooms of primary and secondary schools, and is promoting the use of computer aided instruction in the schools. Technology Development MNCs operating in Singapore have steadily upgraded the level of technological sophistication of their manufacturing processes and product lines, and have expanded the range of activities carried out in Singapore. The government has provided incentives to companies to conduct R&D and to locate regional headquarters in Singapore. It also has established partnerships with several MNCs and foreign countries to conduct R&D and training in computer technology. These include the Institute of Systems Science (ISS), a training center originally set up by the government in partnership with IBM to train business and government executives and managers about computer use. ISS continued to train managers, professionals and technical staff until the late 1980s, when its mission was changed to R&D focused on Chinese language operating systems, middleware and applications including multimedia. As part of its new mission, the ISS joined with Apple to form the Apple-ISS Research Center which has developed Chinese-language voice recognition software. The National Computer Board established an Information Technology Institute (ITI) to conduct research on software engineering, computer and communications, and knowledge systems. NCB also joined the Japanese government in establishing the Japan-Singapore Institute of Software Technology and the Japan-Singapore Artificial Intelligence Centre. The Singapore government did not have a formal science and technology policy structure until 1991, when it established the National Science and Technology Board (NSTB) and formulated a National Technology Plan. Most of the government's efforts are aimed at encouraging MNCs to conduct R&D themselves, or in partnership with government research institutions. Public R&D spending is just 37% of total R&D spending in Singapore. Despite government efforts to increase R&D by the private sector, Singapore's electronics industry has failed to invest heavily in R&D. The electronics sector invested just 0.9% of its revenues in R&D, compared to 2.41% for Taiwan's electronics industry.[21] This is one of the ramifications of relying on MNCs, who do most of their R&D in their home countries. The government's efforts to increase R&D in Singapore are now focusing more on domestic companies, especially those who are large enough to support investment in R&D. Promoting Computer Use Unlike other governments in the region, the Singapore government has taken a two-pronged approach to computer industry policy, promoting both production and use. Computer use throughout the economy has been supported as a way to improve productivity and bolster Singapore's position as a manufacturing, commercial and financial center. Government has taken the lead by computerizing its own agencies and those of state-owned enterprises such as Singapore Airlines and the Port Authority of Singapore, and by developing a number of inter organizational networks and on-line services. It has also promoted computer use by the private sector and mobilized public opinion in favor of computer use. NCB carried out its computerization program in two phases. The first phase was the Civil Service Computerization Programme (CSCP), carried out between 1981 and 1986. Through the CSCP, the government took the lead in computerization, improving its own operations, stimulating demand for local products and acting as role model for the private sector in adopting new technologies. Training in computer skills was also emphasized, through secondary and university level computer science programs, private training programs, and several joint programs with foreign institutes and corporations. The second stage of Singapore's strategy was the National Information Technology Plan, adopted in 1986. The NITP continued to focus on training and infrastructure, but it expanded the thrust toward national computerization into the private sector and encouraged local technology development. To promote computer use, financial incentives were offered for investment in hardware and software, including accelerated depreciation and elimination of sales taxes. A national campaign was undertaken to increase public awareness of the value of computer use, through events such as IT Month and IT Career Week. As mentioned above, the government established a number of national networks such as Tradenet, MediNet and LawNet. The TradeNet project involved the key trade organizations, including Customs, the Port of Singapore, banks, shipping firms, and trading companies. Rather than wait for the private sector to computerize on its own, the government has virtually forced it to do so by requiring that all trade documents be submitted electronically. Singapore could do so because most of its 2,000 trading companies are relatively large, English-speaking firms which already had computer experience. In contrast, Hong Kong's efforts to promote EDI were hampered by the fact that most of its 35,000 trading companies are small, Chinese-speaking family operations with no computer experience. Linking Use to Production of Software and Services Singapore's domestic market is not large enough to support much of a software and services industry by itself. However, Singapore has sophisticated users in a number of fields, such as finance, tourism and trading services, and business is conducted in English. Therefore, software and services developed for the local market should have good export potential. The government has tried to encourage export of products originally developed for local use, an example of which is the Tradenet EDI system. The government originally developed Tradenet for the purpose of improving the efficiency of Singapore's port facilities by speeding up the turnaround time for goods passing through the Port of Singapore. Ships entering the harbor could send the necessary documentation ahead electronically for processing by Singapore Customs. Upon arrival, the documents would already be processed and the ship could unload and load cargo immediately. There was even specialized software developed to coordinate the unloading and loading process to save time. The original Tradenet EDI software was purchased from IBM. However, once the system was in place, the Singaporean government established a state-owned enterprise, called Singapore Network Services (SNS), to operate the system. SNS then modified the EDI software and developed it into a commercial product which it now sells to customers in Singapore and abroad. SNS has developed EDI systems in the U.S. and Canada and has joint ventures in Malaysia, Philippines, China, Canada and India. It has expanded beyond the trade sector to develop other government networks in Singapore, such as MediNet and LawNet. Using its experience operating government networks, SNS has sold its services to private clients such as Apple, Sony and Seagate in Singapore.[22] Tradenet is a case of government promoting computer use to improve national productivity, and then developing a commercial service based on that use. Singapore's government is the only one of the five Asian countries discussed in this book that has explicitly linked domestic use to the development of commercial software and services in its IT policies. Although the policy cannot be judged as a ringing success, it is producing positive results. Moreover, Singapore is viewed as successful by policy makers in Japan, Korea and Taiwan, who are now developing strategies for multimedia and NII which consider the linkages between computer use and the production of information services, content and software. Policy Coordination An important element of Singapore's successful computer industry strategy was coordination of efforts among key government actors, especially the NCB and EDB. The NCB is a statutory board established in 1981 to implement the national computerization plan. NCB's board members included representatives of the Ministries of Finance and Education, the EDB, the Singapore Computer Society, the Singapore Federation of Computer Industry and the National University of Singapore. Representing the key actors in production, use, education and finance, and with the support of the political leadership, the NCB was able to act as an effective coordinator of IT policy. NCB's efforts to promote IT use and improve the information infrastructure complemented EDB's role in attracting foreign investment. A potential conflict over policy turf arose with the development of the IT2000 plan aimed at upgrading Singapore's national information infrastructure (NII). IT2000 fell into a gray area between the jurisdiction of NCB and the Telecommunications Authority of Singapore (TAS). Rather than allow a destructive turf war to develop over NII, as happened in Japan and Korea, the Singapore government dealt with the issue at the highest levels. The solution was to leave TAS in charge of regulation of telecommunications and Internet providers and to reorganize NCB to separate its services and promotional activities. The part of NCB responsible for developing government information systems was spun off into a state-owned corporation called National Computer Systems, which began competing with the private sector in the systems integration business in 1996. Meanwhile, the section of NCB responsible for NII was divided into eight industry application clusters, each of which works with relevant government agencies and private companies to promote NII applications within those industries.[23] More broadly, a new high-level steering committee called the National IT Committee (NITC) was created to provide policy coordination across ministries and oversee the government's IT strategies. The NITC is headed by the senior minister of state for defense (a powerful person in the Singapore government structure), with the deputy prime minister as advisor, and includes permanent secretaries of the key ministries (Information and the Arts, Communications, Trade and Industry, Finance, and Labor), and the chief executives of four statutory boards (NCB, EDB, Tourism Promotion Board, and the National Science and Technology Board), along with the chairman of Singapore Telecom and the vice-chancellors of two universities. The ability of the Singapore government to avoid being paralyzed by bureaucratic conflict and develop a coordinated approach to IT policy has been critical to its success in responding to the rapidly changing environment of the computer industry. Singapore has avoided such conflict because IT policy has received the attention of government officials all the way up to the level of Prime Minister, and those officials have worked out and enforced solutions when conflict threatened. The Next Phase Singapore's drive to become a regional center for computer hardware production has been an extraordinary achievement, but past success is no guarantee of future victories. Singapore has positioned itself well in the global production system, but it faces challenges just like any other country. For one thing, the concentration of domestic production on a few segments of the industry creates risk. The disk drive industry has been investing for years in places like Malaysia and Thailand, and is now moving into China, the Philippines and Vietnam to tap new sources of low-cost skilled labor. As these countries gain experience, they are coming closer to Singapore's capabilities in disk drive manufacturing while maintaining lower costs for labor, facilities, land and compliance with environmental regulations. The short product cycles of the disk drive industry are already making obsolete Singapore's role as "engineering transfer station." Rather than ramping up production in Singapore and then shifting assembly to Malaysia or Thailand, companies are going straight from design and prototyping in the U.S. to production in one Asian location, which might be Singapore or one of its neighbors. So far, Singapore has held on to a 45% share of the world's final disk drive assembly, but in time, MNCs might bypass Singapore and move more operations to other countries. In addition to the risk of being bypassed, Singapore also faces the possibility that hard disk drives themselves might become obsolete. Disk drives are not the only storage media available for computers, and in time other storage technologies such as optical drives or DVD might match or surpass the price/performance of disk drives. Even industry leader Seagate has been investing heavily in software companies, at least in part to diversify away from depending entirely on disk drives for its revenue. Another challenge for Singapore is to improve the competitiveness of its own entrepreneurs to reduce its dependence on MNCs, who still keep most high value activities in their home countries. The low level of R&D in Singapore's electronics industry is evidence that MNCs are still not doing much product development there. Local companies are more likely to conduct higher value activities in Singapore and make Singapore more of a center of innovation in the future. Probably the biggest challenge, however, is the simple fact that Singapore is a tiny country with limited land and labor, both of which are in very tight supply. Already, the country depends on immigrants for up to 20% of its work force.[24] This includes large numbers of factory workers hired from Malaysia and other nearby countries in spite of a government levy of US$235 to US$321 a month per foreign worker. It also includes large numbers of engineers, mostly from China and India. At Aztech Systems, over 40% of the engineering and R&D staff is foreign, a number that is not unusual in Singapore's electronics industry. SGS-Thomson employs workers in Singapore of 18 different nationalities. Even at the government funded Institute of Microelectronics, two-thirds of the staff is foreigners, with one-third from China and India.[25] The need for more engineers will only get more acute as new semiconductor plants are opened. An average wafer fab employs about 500 engineers[26] with specialized skills in wafer fabrication technology, which Singapore's universities are not producing. So SGS-Thomson, Chartered Semiconductor and Tech Semiconductor are setting up a joint training program for this discipline.[27] Meeting the Challenges The challenge for Singapore is to continue to move up to higher value activities and shift lower value activities offshore, which means training more engineers and other professionals needed by those higher value activities. The government is fully aware of these challenges and is taking a number of steps to confront them. These include diversification of the local economy, supporting local entrepreneurs, and investing regionally in new production locations. A fourth initiative is the ongoing IT2000 plan to further improve Singapore's national information infrastructure and develop new IT applications. Diversification:
Creating new industry clusters
The government has developed a diversification strategy influenced by the work of Michael Porter, who consulted with the Singapore government in developing a plan to create new industry clusters. The government is planning to create clusters in electronics, new media, broadcasting, telecommunications and entertainment. True to its history, the EDB is pursuing investment from world leaders in each of these industries. Singapore has targeted specialized niches where it can leverage its existing capabilities and infrastructure to gain a competitive advantage in new industries. As part of its Electronics 2000 plans, the government is focusing on diversification and on creating capabilities that are now lacking in Singapore, particularly R&D and production technologies for critical components. The EDB has been active for several years in trying to move Singapore's electronics industry upstream from assembly of computer hardware to semiconductor fabrication. The initial moves were the creation of Chartered Semiconductor and TECH Semiconductor. The government is now reclaiming land for ten new chipmaking facilities and will make the required water and power available. It has started a one-year course for engineers to learn skills necessary for semiconductor production so the needed personnel will be available when the plants come on line. It will also take an equity position in projects when it is necessary to attract outside investment. In addition to moving upstream from computers into silicon, the government is also trying to move Singapore downstream into information services, entertainment and new media. It has already succeeded in attracting Disney and HBO to do post production of movies in Singapore, including language dubbing for Asian markets and editing to meet the cultural sensitivity of countries in the region.[28] Supporting Local
Companies The historical attitude of the Singapore government toward its local entrepreneurs has been one of benign neglect.[29] Busy courting the MNCs, the government has done little to support local companies, and the few Singaporean companies that have succeeded in the computer business have done so with little help from the government.[30] While the government continues to put a great deal of energy into its relations with MNCs, it has recently begun to pay more attention to supporting local SMEs. An important part of the industry cluster strategy involves creating linkages between local companies and MNCs and upgrading the capabilities of the local companies. The Local Industry Upgrading Program is a first step in getting MNCs to help local companies improve their capabilities. Also, as part of the Cluster Development Fund, the government is supporting promising local enterprises in order to accelerate their development. Local leaders such as Creative and IPC are now participating in various R&D projects in partnership with the government in an effort to increase R&D in Singapore. Another way to stimulate the private sector is to privatize state enterprises, a process that is underway in Singapore. Probably the most important recent case is the decision to spin off NCB's computer services functions into National Computer Services (NCS). NCS is being transferred to private ownership in 1997 and will have to compete with other private companies for government computing services. It will also be free to compete for private sector business. The privatization of NCS has created a large new private domestic company in the computer services industry, but it will allow other private companies to have a shot at the government projects previously handled by NCB. Regionalization Perhaps the most important element of Singapore's new information industry strategy is the expansion of Singapore's role as a regional hub. This means moving beyond being mainly a regional center for electronics manufacturing to become a hub for telecommunications, broadcasting and entertainment. The idea of regionalization goes back to Singapore's Growth Triangle strategy for moving labor-intensive production to nearby Batam, Indonesia and Johor, Malaysia, while doing higher value production in Singapore. The government is now expanding the concept to a much grander scale that involves virtually all of Southeast Asia, China and India. Rather than just serving as an intermediary for MNC investment and manufacturing in the region, the Singapore government is now making heavy investments in other countries with the idea of "cloning" the Singapore experience in China and elsewhere. Outward investment from Singapore has run into the tens of billions of dollars, as Table 6 shows. Table 6. Singapore's cumulative investment in Asia* Country Amount
invested China 17.3 Malaysia 7.3 Hong Kong 4.6 Indonesia 3.5 Thailand 1.7 Vietnam 1.5 * Approved
investment, US$ billions Source: Far Eastern Economic Review, (April 25, 1996): 59 Singaporean real estate development companies, encouraged and supported by the government, are building six industrial parks in Asia. The largest is in Suzhou China, where the EDB and private companies are building a huge (70 sq. km) industrial park. Others are in Wuxi, China, Batam and Bitan, Indonesia, Bangalore, India and Ho Chi Minh City, Vietnam. While Singaporean manufacturers are invited to locate production in these parks, the main targets are multinationals who already have stakes in Singapore and need lower cost production sites. In the words of EDB chairman Philip Yeo, "from the Singaporean government point of view, we've now become the partner of the multinational, not just in Singapore but also in the region." [31] Another recent investment is a partnership with the Japanese trading company Mitsui and the Japan Associated Finance Company (JAFCO) to establish a venture capital fund to invest in midsize export-oriented and computer-related firms in India. Mitsui and JAFCO, a venture capital firm affiliated with Nomura Securities, each invested $3 million in the India Direct Fund while the Singapore government contributed $25 million. The idea behind these investments is to make Singapore a managerial center for the entire region, and to replicate Singapore's business environment so investors can take advantage of cheap labor and gain access to local markets while being insulated from the problems of the local environment. Part of this involves "managing the corruption," i.e., dealing with the local red tape and paying the necessary bribes so that companies in the industrial parks can keep their hands clean and concentrate on manufacturing. Recreating Singapore has not been easy, and Singapore has had to dispatch Senior Minister Lee Kwan Yew and other top officials to China to keep the projects there on course. It has also had to pressure local companies and managers to move offshore to help implement its strategies. As Lee himself said, "Singapore is such as cozy place that managers and workers are happy to stay put."[32] IT 2000
The next stage of Singapore's IT strategy is IT2000, a comprehensive national information infrastructure (NII) project. The government is again taking the lead, providing services, upgrading the telecommunications network, and attempting to stimulate demand for new services. The IT 2000 plan was originally drawn up in 1991 as a strategy for creating a digital communications network that would link every business, school, government agency and home in Singapore. IT 2000 preceded the information superhighways proposals later put forth by Vice President Al Gore in the U.S., and the various NII proposals in other countries. In fact, Singapore was a leader in promoting the NII concept, and is often mentioned as a model for other countries' NII plans. However, it wasn't long before the Singaporeans began to understand that the initial vision of a government-built NII was misdirected, and in 1995, the IT 2000 plan was revised to reflect rapid changes taking place in the global information industry, primarily the explosion of the Internet. The original IT2000 focused on creating the infrastructure to support new applications along the line of TradeNet. However, the Internet came along and created a vehicle for developing valuable applications immediately instead of talking about the year 2000. In the words of NCB CEO Stephen Yeo, the idea now is not "building the NII, but evolving it."[33] The Internet has caught on rapidly with the general public, and the government licensed three service providers to support Internet use. Also, while the original IT2000 plan emphasized building a digital, fiber-optic network connecting every home, business and government agency in Singapore, the revised plan envisions a more flexible network including fiber, cable and wireless technologies. Many outsiders have questioned how Singapore's desire to take advantage of technologies such as the Internet can be reconciled with its historical concern for maintaining control over information flowing into the country. So far, the issue of censorship of the Internet has been muted. The Ministry of Information and Arts filters some information and service providers are expected to block certain pornographic sites, but the government knows that people can get around those barriers. Its position is that the Internet is a "big city" with good parts and seedy areas and that the red light district should be kept on the fringes of that city. IT,
INDUSTRIAL POLICY AND ECONOMIC PERFORMANCE Given Singapore’s unique strategy, a key question is: What have been the results? A related question is: What is the on-going promise of Singapore’s strategy? The results can be seen by looking at outcomes in two key areas: (1) the computer industry and its performance, and (2) computer use and the performance of industry sectors and the overall economy. Computer Industry Performance Computer Hardware The computer industry in Singapore is concentrated on disk drives, PCs, and peripherals. Historically, disk drive production has been the leading segment of Singapore's computer industry, but in 1993, exports of computers and sub-assemblies equaled those of disk drives, at about US$6 billion each. A fast-growing segment of the industry was printers, which nearly doubled in exports in 1993, reaching US$1 billion[34] . Each of these industries is dominated by foreign MNCs. In 1992, there were only two indigenous Singaporean companies among the top 20 electronics manufacturers in Singapore, and four in the top 40.[35] The disk drive industry consists entirely of MNCs, including Seagate, Conner (now part of Seagate), Maxtor, and Western Digital (Table 1). While Singapore increasingly faces competition from Thailand, Malaysia and China as a production site for hard drives, its superior infrastructure (human resources, physical infrastructure and supplier base) has enabled it to move into higher value activities such as process engineering and manufacturing coordination. Most production of PC systems is done by MNCs as well, although there are several Singaporean companies in the industry. The largest PC makers are Apple and Compaq. In 1995, Apple employed 1800 workers producing PCs, monitors and various components in a US$250 million plant. Compaq operates two plants in Singapore, with responsibility for design and manufacture of notebook PCs for worldwide sales and desktop PCs for Asia. Hewlett-Packard's Singapore operations are involved in manufacturing and process design for printers, desktop PCs and servers.[36] Among the multinationals in Singapore, Hewlett-Packard is becoming known as a source for local spin-offs as several people have left HP to start new companies. Table 1. Major multinational
computer companies in Singapore, 1994 Company #
of employees Seagate/Conner (disk drives) 17,000 Maxtor (disk drives) 4,800 Western Digital (disk drives)* 4,200 Compaq (PCs, PCBs) 4,000 Apple (PCs, monitors, PCBs, software) 1,800 IBM (PCs, disk drives) n.a. DEC (PCs, disk drives, printers) n.a. Berkeley Roundtable on the International Economy, University of California; compiled by Greg Linden. The large network of supporting companies, including subcontractors, suppliers and OEMs is a mix of domestic companies and foreign subsidiaries. While most local companies are relatively small and limited to supplying MNCs, a few have entered international markets themselves. The largest domestic computer makers in 1995 were Creative Technology, IPC, and Aztech Systems (Table 2). Table 2. Largest domestic
computer hardware companies in Singapore, 1996 Company Electronics Revenue
(US$mil.) Creative Technology 1,309 IPC 569 Aztech Systems 302 Wearnes International 141 Source: Electronics Business Asia, (June
1997): 42-45. Supporting Singapore's MNC-based computer industry are many small and medium-sized foreign and domestic companies who produce various components such as resistors, capacitors, PCBs, plastic cases and metal parts. There are also dozens of contract manufacturers providing a full range of PCB assembly services. While most of these are very small, six reported revenues of over US$100 million in 1994, and another eight had between US$10 million and US$100 million in revenues.[37] Although Singapore cannot match the depth of Taiwan's local industry cluster, it sits at the center of a much larger regional supply base. Singapore's central location in the ASEAN region[38] and excellent transportation facilities make it an ideal place to coordinate regional supply activities. For example, Seagate ships components and subassemblies by air freight every day from Penang, Malaysia to support its just-in-time assembly plants in Singapore. Such an operation would be highly risky in a place with less reliable or more expensive airport and ground transport facilities. The growth of Singapore's computer industry has been sensational, with output soaring from US$1.2 billion in 1985 to over US$19 billion in 1995 (Figure 1).[39] The computer industry accounts directly for over 40% of Singapore's electronics output, and indirectly for considerably more, as most of the electronics components produced there go into computer hardware. Figure 2. Computer hardware production in Singapore, 1985-1995
Source: Elsevier, Yearbook of World Electronics Data (Oxford, UK: Elsevier Advanced
Technology, 1996). In 1994, total employment was 27,000 in the labor-intensive disk drive industry, compared to just 8500 in the PC industry and 9000 in office automation, as Table 3 shows. However, value added is nearly the same in all three categories. The situation in disk drives is somewhat risky in that labor is becoming very expensive and workers are difficult to retain, leading disk drive makers to look elsewhere in the region for new production sites. It is generally agreed that Singapore will retain an important position in the industry, but that most new production facilities will be located elsewhere. It is also argued by at least one MNC manager that Singapore's edge in initial production ramp-up is disappearing, as Malaysia gains more experience in disk drive production.[40] Table 3. Scale of Singapore's computer hardware industry, 1994 Output(US$mil) Value added(US$mil) Employment
Computer systems 5,900 1,350 8,500 Data storage (disk drives, CD-ROM etc.) 7,300 1,750 27,000 Office Automation (printers, fax machines, cartridges) 3,350 1,450 9,000 Semiconductors 5,450 1,200 16,000 Source: Economic Development Board, Electronics 2000 Industry Report (Singapore: EDB, 1995). Computer Software
and Services Singapore is known primarily for hardware production, but it has also found niche opportunities in software. A big advantage is the fact that 75% of the population is Chinese, yet the language of business and government is English. This gives Singapore a unique opportunity to function in the English-dominated industry while developing software for the large Chinese language market. For instance, in 1995 Apple introduced the Apple Chinese Dictation Kit that was developed in Singapore. The product was based on research done at the Apple-ISS Center, a joint venture with the Singapore government. Like the hardware industry, the software industry is led by MNCs, including IBM, Apple, Lotus, Novell, Oracle and Microsoft. Multinational consulting and systems integration firms have also established offices in Singapore to serve the regional market. The MNCs have upgraded their activities beyond marketing and product localization in recent years. However, domestic companies have also found opportunities in the software industry. The largest private domestic software company is Computer Systems Advisors (CSA), which specializes in systems integration and custom programming. Creative Technology also produces software. It has developed a DOS-compatible Chinese language operating system and a word processing program that it hopes to market in China. Another large company, Singapore Network Services, is a state-owned enterprise that has developed a number of government networks and has begun to commercialize its software and networking services. More local companies have been moving into the software industry, and a number have grown to over 100 employees in size. As Singapore faces increasing competition from its neighbors for low value hardware assembly, the government is targeting the software industry as a new growth opportunity. The success of the local industry is encouraging, but a shortage of programmers and other professionals is making it difficult to support continued growth. Other countries such as India, China and the Philippines have large pools of programmers to draw on, and their governments are also moving to promote software. Singapore probably will become regional management center for software production, as it has done in hardware. In spite of a small domestic market, Singapore's software and services industries have also grown quickly to reach about US$600 million dollars in 1993, with exports of about US$150 million. Heavy public and private investment in computerization has created opportunities for the local industry, especially in vertical business applications such as banking and shipping[41]. Still, considering the fact that software was targeted by the government as far back as 1981, Singapore's performance in software is somewhat disappointing. Like the other East Asian countries, Singapore has developed a lopsided computer industry, heavily weighted toward hardware. The industry has also been dominated by foreign multinationals, although there are a few exceptions, including Creative Technology, Aztech, and IPC. Table 4. Computer software production in U.S. and
Asia Pacific (UPDATE W/ TESSLER DATA) Software
production as
% of GDP* U.S. .86 Japan .15 Singapore Hong Kong .04 Korea .13 Taiwan .12 * IDC data provided to authors Computer Use and Performance Computer use has grown rapidly throughout the economy, and Singapore is now a sophisticated user in many sectors, from manufacturing to shipping to finance. Singapore's total computer investment in 1995 was equal to 2.25% of its GDP which is higher than Japan or the other East Asian NIEs (Table 5).[42] Singapore’s average growth rate in computer investment between 1985-95 was 12.2%, which is exceeded only by Hong Kong and Korea. Singapore also has more installed computers per capita, more Internet hosts per capita and more Internet users per capita than any country in Asia (Tables 5 and 6). Table 5. Computer use in the U.S.
and Asia Pacific Country Investment Growth rate in Number of computers in computing*
as % comp. investment per 1,000 people of GDP, 1995a 1985-1995 (1995)b U.S. 3.23 9.6 365 Japan 1.89 9.5 145 Singapore 2.25 12.2 189 Hong Kong 1.31 17.1 171 Korea 1.97 17.8 78 Taiwan 0.80 8.3 98 *
Hardware, software and services a IDC, data provided to authors b Juliussen and Juliussen, Computer Industry Almanac, 1996. Table 6. Internet Use in the U.S. and Asia Pacific
* 1994 for US and India. Sources: Hosts: Network Wizards, Internet Domain
Survey (http://www.nw.com). Users: For US and India, International
Telecommunications Union and World
Telecommunication Development Report; for all other users, Far Eastern Economic Review, June 13,
1996, p. 71. But what have been the effects of Singapore’s investments in computer use on productivity in different industry sectors? In the public sector, the government appears to have been successful in computerizing and streamling its operations through its Civil Service Computerization Programme (CSCP). For example, an audit by the Ministry of Finance in 19xx showed a return of $1.61 in productivity gains per dollar invested in the CSCP (K.C. Lee, 19xx). In the private sector, the results also have been impressive. Performance statistics collected annually from firms operating in Singapore show continuous improvement in firm productivity. Although the statistics do not indicate the relative contribution of IT, they do indicate that IT is part of the reason for the improvement along with change in business processes and continuous process improvement. A comparative study of firm level productivity in Hong Kong, Malaysia and Singapore by Kar Yan Tam (1995: 15) found that firms in Singapore were “more IT productive in the sense that small investments in computers were found to generate positive returns larger than those yielded by non-computer capital.” Tam also noted: “Given that computer capital accounts for 1.5% to 4% of output in Singapore, the calculated returns on investment on an annual basis range from 81% to 186%.” While these estimates are substantially higher than those reported for the U.S., they are consistent with estimates derived by Wong for the country as a whole (see below). At the interorganizational level, studies of Singapore’s TradeNet indicate a complex but rich array of benefits, including not only greater productivity in the public sector but in the private sector as well (Figure 3). Tradenet’s success stimuated Singapore to make additional investments in networks for the legal, medical, construction sectors[43] and in electronic commerce. The aim is to continually facilitate productivity improvement in government and the private sector in order to retain Singapore’s position as a high technology and business hub. Figure 3. Trade processing
before and after TradeNet*
*Source: Boon Siong Neo, John L. King and Lynda
Applegate, “Singapore Tradenet B: The
Tale Continues.” Cambridge: Harvard Business School, 1995. See also John L. King and Benn Konsynski,
“Singapore TradeNet: A
Tale of One City.” Cambridge: Harvard Business School, 1995. At the country
level, productivity in the overall economy increased at an average annual
rate of 5.1% between 1984 and 1994; it increased at an average annual rate of
6.35% in manufacturing, and 4.85% in commerce and financial and business
services (Department of Statistics, 1994: 60).. The high levels of computer use in Singapore have increased its attractiveness to foreign investors and also served to support the government's plans to make Singapore into a regional hub for information-intensive industries. Annual foreign equity investment in manufacturing increased from $8.6 billion in 1982 to $20 billion in 1992; investment in financial and business services increased even more from $5.2 billion to $26 billion in the same period (Department of Statistics, 1994: 89).. With respect to its efforts to become a hub for information-intensive industries, Singapore also did well. In 1984, three sectors—commerce, financial and business services and other services—accounted for 62.7% of total new businesses whereas in 1994 these sectors accounted for 75.9% of new businesses (Department of Statistics, 1994: 161). Singapore compares favorably with the other Asia Pacific countries in terms of economic growth and productivity growth. During the 1985-95 period, Singapore’s GDP grew at an average annual rate of xxx A country level macroeconomic study by Wong Poh Kam (1994), which derived estimates from a Cobb-Douglas production function for the period 1980-92, estimated that the return on IT investment in Singapore was well over 80%. Figure 4. Productivity, value added and GDP growth
per capita, 1984-1994
Source: Department of Statistics, Yearbook
of Statistics, Singapore 1994 (Singapore: DOS, 1994). Table 7. Wealth and
productivity growth in the U.S. and Asia Pacific
Sources: World Bank, 1997 World Development
Indicators on CD-ROM. Washington,
D.C.: The World Bank, 1977. Sources specified
by the World Bank: GDP: World Bank national accounts data and OECD
National Accounts, 1960-1994, Volumes 1 and 2; GDP growth (annual percent): World Bank national accounts data and OECD
National Accounts, 1960-1994, Volumes 1 and 2; labor force: International Labor Organization, using
World Bank population estimates; population:
World Bank; Taiwan data: national sourcees; Statictical Yearbook of the Republic of China, Taipei: Taiwan, 1994. CONCLUSION: IT-LED DEVELOPMENT A DUAL NOTION The Singapore case illustrates how a small, late-industrializing country can establish a viable competitive position in a highly globalized dynamic industry. More importantly, Singapore illustrated how focusing on IT, including both production and use, can contribute to national economic growth and development. The notion of IT-led economic development is based on the premise that intensive computer production and use will create new jobs, improve the productivity and growth of the organizations that use it, and contribute to overall economic and productivity growth. The traditional approach to accelerated economic development is to seek comparative advantage in endowed factors of production such as land, labor, raw materials, or capital. Being a small island country, Singapore lacked population, land and raw materials. Consequently, between the 1960s and 1980, Singapore focused on its strategic location and development of basic infrastructure to achieve competitiveness with other NIEs in the region. In 1980, as development brought the infrastructure of other countries to its level, Singapore moved to a skills-intensive human resources based development strategy, combined with a strong emphasis on labor productivity. IT was seen as an important tool for achieving productivity growth. Computerization would improve productivity and communications improve regional and global access. Singapore launched a public sector computerization program to increase productivity in the government sector, and as a visible success to encourage computerization in the private sector. Related objectives were upgrading the basic infrastructure (telecommunications, transportaiton) and labor force to facilutate computer use, and to attract investment from high technology industries, especially the information industries. This strategy assumed that basic factor endowments in labor and raw materials are less important to productivity than more complex factors such as human resources with specific skills, appropriate resident scientific infrastructure, and access to sophicated services and supplies. In the mid-eighties, IT came to be viewed as a broader economic weapon—one that could be used for increasing company competitiveness by linking suppliers, producers and markets so that companies could compete in international markets. And, rather than only improving productivity, government computerization was seen as having potential for improving the ability of the private sector to compete internationally. The key was further streamlining government and making direct linkages to the private sector to increase the efficiency of trade and commerce both domestically and internationally through computer networks such as TradeNet, GraphNet, BizNet and general facilities for email, electronic collaboration, electronic document interchange (EDI) and electronic commerce. Thus, Singapore was on the road to development of national information infrastructure before the notion became popular in the U.S. and the rest of the world. In the 1990s and beyond, Singapore’s strategy is continue on the previous paths but also to move both upstream and downsteam in production by building semiconductor fabs at one end and software factories and post-production media at the other end. It has become a critical component of Singapore’s drive to become a modern nation, to such an extent that IT can now be said to be leading economic development in the country. The government has initially promoted industrialization by supporting strategic industries in which it felt Singapore could compete in international markets. It started with labor-intensive industries such as textiles, but soon moved to include more capital-intensive industries such as petroleum refining. Electronics was another targeted industry. The emphasis shifted over time from simple components in the 1960s to consumer electronics in the 1970s and then to computers and peripherals in the 1980s. Employing an MNC-led development strategy, the tiny city-state grew into one of the world's largest producers and exporters of electronics products. Not only has the Singapore taken a comprehensive approach to IT policy, but it also has taken care to integrate the different elements of the strategy. The ability to develop a coordinated strategy for production, use and infrastructure contrasts with the lack of coordination evident in Japan and Korea in recent years. The critical difference for Singapore has been support from the highest levels of government, particularly former Prime Minister Lee Kwan Yew and his economic advisors, who have guided Singapore's efforts to create an information economy. The government has used IT as an important part of its continuing campaign to attract foreign companies to Singapore. Singapore has successfully promoted itself as the "Intelligent Island," i.e., a superior location for manufacturing, trade and financial service industries and a regional hub for Southeast Asia. This self-promotion sometimes irritates other countries in the region, and it is difficult to determine whether Singapore's public relations effort has a significant effect on the investment decisions of MNCs (versus direct financial incentives, for example). But there is no doubt that the focused efforts of the EDB to work closely with MNCs has been an important factor in Singapore's success. Some skeptics argue that the Intelligent Island
campaign is actually targeted for domestic consumption, with the goal of
promoting national pride and identity.
Others argue that Singapore can not hope to become Asia's information
hub when it restricts the flow of information through various forms of
censorship. But apart from the hype
and controversy, Singapore's government has created an excellent
infrastructure, developed its human resources and technological capabilities,
and attracted world class computer makers and a deep network of suppliers and
subcontractors. As a result,
Singapore has become a major hub in the computer industry's global production
system. Singapore's rapid economic growth in the past three decades has been driven by foreign direct investment and the computer industry has been no exception. The government of Singapore created a very attractive investment environment for MNCs, with low wages, peaceful labor relations, a stable political and economic environment, good infrastructure, and attractive tax incentives to foreign investors. Also, the government provided financing through state-owned development banks and joint ventures with state-owned enterprises when necessary. Its strategy involved not only attracting MNCs, but also providing them with incentives to upgrade the technological level of their local activities and to help local suppliers improve their capabilities. As a result, Singapore has grown into a regional hub of computer hardware production, serving as a production and distribution base for a number of MNCs, whose activities support an extensive base of suppliers and subcontractors. In addition to promoting production, Singapore has promoted public and private sector use of IT, and supported both production and use by upgrading its information infrastructure. In coming years, Singapore will face different types of challenges as it expands its role in the computer industry. Singapore works well as a safe, stable enclave for managing high-tech production and trade. Its strategy of developing similar enclaves elsewhere in Asia is more difficult for a country used to hosting MNCs in an environment that it controls, but has less experience going out into foreign countries to do business. And while Singapore's plans to move upstream from computers into semiconductors fit well with its present political/economic model, it might be more difficult to move downstream into the entertainment and information services industries, which are uncomfortable with the type of control the Singapore government is accustomed to exerting. Singapore's continued success will thus depend on its ability to adapt to new environments while retaining the well-coordinated partnership between government and the private sector that has served it well for thirty years. REFERENCES Amsden, Alice H., Asia's Next Giant: South Korea and Late Industrialization (New York: Oxford University Press, 1989). Applegate, Linda M., James I. Cash Jr. and Donald Q. Mills, "Information technology and tomorrow's manager," Harvard Business Review, Vol. 88, No. 6 (November-December, 1988), pp. 128-136. APO (Asian Productivity
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