Foreign worker flow choked in Singapore

INSIGHT: DOWN SOUTH By SEAH CHIANG NEE

From July, manufacturing firms will see their quota of foreign workers reduced from 65% to 60%, while the quota in services will drop from 50% to 45%.

FOR the first time in years, Singapore is cutting back on the intake of foreign workers to placate widespread public resentment.

“In the next five years, we have decided to tier down our need for foreign workers,” declared the strategy’s architect, former prime minister Lee Kuan Yew.

It was a tacit admission that its ambitious immigration strategy had run into trouble among Singaporeans and needed to be cut back – at least temporarily.

Lee’s son, Prime Minister Lee Hsien Loong, added: “We should consolidate, slow down the pace. We can’t continue going like this and increasing our population 100,000 to 150,000 a year, indefinitely.

“And we should give Singaporeans time to adjust, and our society time to settle, and integrate better the new arrivals.”

He mentioned no time-span for the reduction, but Lee Senior spoke of five years, evidently to take into account the next general election due in 2016-17.

A strong anti-People’s Action Party vote could make the policy more uncertain. But if it performs well, the doors may be opened even wider, according to analysts.

This in effect means the next election will serve as a referendum on future immigration.

The cutback is as follows: From July, manufacturing firms will have their quota of foreign workers reduced from 65% to 60%, while the quota in services will drop from 50% to 45%.

This was announced by Finance Minister Tharman Shanmugaratnam in his recent Budget speech.

He also said that the dependency ratio ceiling for “S” Pass holders – mainly mid-level skilled foreigners – would also be reduced to 20% from 25%. This affects middle-class Singaporeans most of all.

“The number of foreign workers has risen 7.5% each year for the last two years and account for a third of the city-state’s work force,” Tharman told parliament.

“We have to reduce our dependence on foreign labour. It’s not sustainable. It will test the limits of our space and infrastructure. A continued rapid infusion of foreign workers will also inevitably affect the Singaporean character of our society.”

A number of foreigners here – especially permanent residents – were a little rattled by the move, particularly Indians and Filipinos.

One family of PRs contacted me to ask if I thought this was prelude to a reversal of policy or a start of worse things to come.

The government has said those who are already here would not be affected.

There are other reasons for the review. One is a feared economic decline ahead and an expected drop in employment chances.

Another is the sustained drop in productivity growth from 11% (in 2009) to 1% last year, partly blamed on the import of too many cheap, low-skilled workers.

During the past year, the authorities had already been tightening rejection rates. The rise in foreigners slowed from 4.8% to 4.1%, and PR growth also slowed. From 6% a year from 2005, it rose by only 1.5% this year.

Lee Kuan Yew, who had long been the staunchest champion of the immigration policy, appeared to have softened his stand a year ago.

He said then: “We’ve grown in the last five years by just importing labour. Now, the people feel uncomfortable, there are too many foreigners.

“Trains are overcrowded with foreigners, buses too, property prices have gone up because foreigners with permanent residence are buying into the market.”

Actually, Singapore’s attitude towards low-skilled foreign workers runs counter to that a generation ago when the manufacturing era and large economies like China and India were emerging.

Sensing a threat in the 70s and 80s as they could offer more and cheaper workers and land to foreign factories, Lee – then at the height of his leadership – ordered a restructure to move Singapore’s economy to higher skill levels.

By the late 1980s state leaders raised salaries and cost of operations for low-skilled manufacturers to operate in Singapore. The idea was to move them to nearby Batam, Malaysia and Thailand.

“We don’t want investors to come here to manufacture low-margin products like umbrellas, plastic and clogs,” one government economist said.

I remember as a newspaper editor I sat in on a briefing by Economic Development officials in Brussels who told Lee Kuan Yew that they were faced with several requests from European investors to relocate to Singapore.

These were medium-size operations, but Singapore could not meet their demand for Singapore workers.

“We can tell them to operate in one of our nearby hub cities in Malaysia or Indonesia to make use of their workers under Singapore supervision,” Lee suggested.

The officials replied: “No, Sir, they insist on Singapore workers; otherwise they would have set up business in other countries.”

The industrial revolution was still in full swing. But Lee saw the shortcoming in Singapore’s small size in manpower and land.

The solution was to move to high-skilled levels, especially in services. Tertiary education and job retraining went full swing.

At the time he was against the intake of too many unskilled foreigners.

In several briefings, he sniffed at Europe’s mass import of low-skilled workers from Asia and Africa, saying it is something Singapore will not emulate.

The rich Europeans were addicted to imported cheap labour to do “dirty jobs” that locals refused to do, a reliance long turned into a national addiction.

As a result, more and more unskilled foreigners were needed.

Today with the strong reliance on “cheap foreigners”, it is becoming a lot harder to turn back to the original strategy of high-skilled services by using trained Singaporeans.

Think business, think margins

ON YOUR OWN By TAN THIAM HOCK

An Innovation Competence Process Coming From Knowledge Management (Photo credit: Alex Osterwalder)

ABOUT 20 years ago, when Forbes started compiling a list of the richest Asian billionaires, many rumours spread. My favourite story involves a president M of a neighbouring country. He was known as the 10% president. Just make sure you budget a 10% margin for him if you want to participate in any infrastructure projects in his country.

After diligently amassing a tidy fortune over his long rule, president M was surprised when the new list from Forbes placed him a few places below another head of state from a neighbouring country. This head of state had only been in power for a few years so president M decided to make a state visit to learn the ultimate trade secret.

After a sumptuous dinner at the palace on a hill, the head of state led the president to the balcony with a great view. When asked for his secrets to such quick success, he asked the president, “Can you see that beautiful highway? And that long bridge across the river? And the power station next to it?”

Faced with a vast landscape of lush virgin forest and hills, the puzzled president said, “Sorry. There is nothing there but a forest in my view.” The beaming head of state explained patiently, “That’s my trade secret. I only take 100% margin!”

No, I am not asking you to make a 100% margin. Because you can’t. Unless you are a very powerful and corrupt politician or head of state. But it just shows that you will make money faster when your business enjoy high margins. Net profit is basically gross profit less expenses. The higher your gross profit (sales minus cost of goods), the faster you cover your expenses, the more you make as your sales increase. All because you have high gross margins.

No, I am not asking you to invest only in high margin business. If sales turnover is small, your net profit remains small. Sometimes high volume, low margin business provides a very high return on investment, like the Walmart hypermarket business. A 2% net profit on a turnover of US$400bil will net the shareholders a cool US$8bil (RM24bil) a year! Only Petronas makes more money than Walmart. And that’s because the abundant oil and gas from the sea bed is free!

But for entrepreneur wannabes who need to start on a small scale, I always recommend high margin business opportunities. You are under less pressure to achieve high sales volume and you need less working capital. You just have to watch your expenses and cover your opportunity cost of being employed.

High margins can be created through innovation, brand perception, necessity and scarcity.

In my pre-university days, I worked for 3M as a sales promoter. 3M is well known for its innovative research and development programme of developing next generation products. These are products that are sold at premium prices and fetch at least 70% margins across their 5,000 product lines! Once copycats flood the market and reduce their product margins, they just discard the product line and launch newer and more innovative products at higher prices.

Then you have Apple products which is at a premium to its competitors and they fetch higher margins through a combination of technological innovation and higher brand perception. Microsoft has been selling their so-called software diskette at an average of US$200 when their cost of production is US$2 per diskette. Out of necessity, your business computers must be installed with their operating system and Office application software. No prizes for guessing the reasons why these two companies are the most profitable in the world.

Why must you pay two times more for Gillette blades versus other blades when a shave is just a shave? Why must your wife pay RM5,000 for a plastic monogram bag when a full calf leather bag cost a mere RM500? And will a RM1,000 jar of cream make you look 10 years younger? If you have innovative products, make sure you hire the best marketing minds to create a superior brand perception, raise the prices and reap the rewards.

With a growing world population and depleting natural resources, we have seen continuous price increases in oil, minerals and agricultural products. What used to be cyclical in demand and supply, where prices fluctuate in 10-year cycles, have now become a continuous increase in demand versus depleting supply.

Compared with massive overcapacity in manufacturing of almost any conceivable product from consumer goods to ships to cars; it is a no brainer where the high margin business will be in the foreseeable future.

For entrepreneur wannabes, you should develop a competitive business model where you can charge a higher price for your goods or services. Be creative. Build yourself a superior brand image. Make sure your services or your products are a necessity.

A “must have” by all concerned. Embrace high margin mentality when you evaluate business opportunities. Then go forth and multiply.

This advice is free. But if you make your millions, just remember to send me a cheque for 10% of your earnings. Lest you forget that I do not have to be a crooked politician to earn my clean 100% margin.

● The writer is an entrepreneur who hopes to share his experience and insights with readers who want to take that giant leap into business but are not sure if they should. Email him at thtan@alliancecosmetics.com