Singapore once decoupled from the region and
saw its economy take off. Now, it's time to do the reverse, and focus on its
neighbourhood
The
modest two-storey facade of Fassler Gourmet's food factory in Woodlands Terrace
belies the home-grown seafood and soup manufacturer's reputation as one of the
largest suppliers of smoked seafood in Singapore.
For more
than 20 years, the company, set up in 1991, had been content to cater solely to
the domestic market. It counts among its customers all major hotels here, along
with big-name restaurants and supermarkets such as Cold Storage and NTUC
FairPrice.
But last
year, it made the move to sell its products outside Singapore - to countries
such as Brunei, Cambodia, Indonesia and Malaysia - and that has opened up a
world of possibilities.
On going
regional, chief executive Mellissa Chen says, "In Singapore, there's
definitely still more to do. But in terms of growing Fassler and expanding the
brand, export is the way to go. That's where the bigger growth is."
The
smoked salmon specialist, which runs on a staff strength of about 50, now sells
its products overseas in small quantities with the help of partners with a
presence or a network of customers across various markets. The aim, says Ms
Chen, is to double or even triple its export business over the next five to 10
years, with Malaysia and Indonesia as its key foreign markets.
The bulk
of the company's turnover still comes from the Singapore market.
"Asean
is exciting for us because the opportunity is here, right at our
backyard," Ms Chen says, citing the fast-changing dynamics in the region,
such as the emerging middle class and rising levels of disposable income.
"The
market is ready, and it's something we can immediately provide," she says,
adding that the firm's halal-certified processes already lay the groundwork for
it to penetrate the region's sizeable Muslim market.
POISED
FOR TAKE-OFF
In a
global economy where growth prospects are for the most part dim, Asean is a
bright spark.
With a
total market size of more than 600 million people, "if the countries work
well together and, increasingly, if the markets are more integrated, it
represents a tremendous opportunity for companies in Asean, and that includes
Singapore", says corporate titan Koh Boon Hwee.
In fact,
the potential to scale Fassler's business beyond Singapore and into Asean was
one reason Mr Koh's private equity firm Credence paid $23 million to buy out
the company from its founder in November 2014.
"No
one can really predict how fast or how slowly things will progress, but the
direction is correct. Ten or 20 years down the road, I think Asean, as an
economic region, will be quite a formidable entity," says Mr Koh. "It
will be twice the size of Europe, almost 1.5 times the size of the United
States. And if you believe as I do, the standard of living within Asean will
continue to grow, which means the purchasing power and the consumption ability
of these 600 million people should be far better than it is today," he
adds.
"So
yes, there is plenty of reason for optimism here."
At a
conference this week on Singapore's Future Economy, Mr Caesar Sengupta,
Google's vice-president of product management, spoke of South-east Asia as a
region enjoying "exponential growth". It is the world's
fastest-growing Internet region with an existing Internet user base of 260
million that is set to nearly double to 480 million by 2020. The region's
Internet economy is also expected to grow to US$200 billion (S$269 billion) by
2025.
Already,
the 10 Asean countries combined - Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, the Philippines, Singapore, Thailand and Vietnam - make up the
seventh-largest economy in the world, with a gross domestic product (GDP) of
US$2.43 trillion last year.
They
marked a milestone in economic integration when the Asean Economic Community
(AEC) was established on Dec 31 last year, with an eventual goal of a single
market and production base with free flow of goods, services, investments and
skilled labour, as well as freer movement of capital across the region.
If growth
trends continue, the Asean region could be the world's fourth-largest economy
by 2050. And as incomes and purchasing power rise, the region's significance as
a centre of demand - not just supply - is set to grow.
"Asean
never had it so good. It is poised for the next stage of takeoff - though only
if its members know how to play their cards right," says Associate
Professor Tan Khee Giap of the Lee Kuan Yew School of Public Policy. "If
Asean can stay united as a political entity and become more integrated as an
economic entity, it has the potential to be a significant economic community
close to the likes of the European Union by 2030."
For
Singapore, Asean's growth as an entity will open many more doors, says SIM
University senior lecturer Lim Tai Wei. "Asean represents a large market
for Singaporean products and services, especially with an expanding middle
class of consumers. Singapore is at the centre of this regional trade
arrangement, and it enjoys a fast-mover advantage as an energetic advocate of
free trade for decades," he notes.
A PIVOTAL
MARKET
The Asean
growth story comes at a time when companies globally are making the move
towards inshoring - also known as reshoring or next-shoring, or the practice of
bringing back manufacturing activity to where the demand is.
It is the
reverse of offshoring, or the practice of setting up production facilities in
low-cost, developing countries like China, which has been the industry norm in
the last decade, notes Mr Matteo Mancini, partner at global management
consulting firm McKinsey & Company.
But Asean
presents a unique proposition - it is able to host the entire spectrum of
business activity, from production to consumption.
"If
someone wants to invest in Singapore, he will be told by consultants that
Singapore is very expensive and that he should put his headquarter functions
there, but the manufacturing operations somewhere else, like Malaysia or
Vietnam," says Mr Ong Keng Yong, former Asean secretary-general and
Singapore's Ambassador-at-Large. "So we have this kind of 'distribution'
of the incoming investments, which is conducive for businesses across the
board."
He adds:
"These days, US and European companies are thinking about moving back to
home countries because of issues like rising labour costs, regulatory
compliance costs and the protection of IP (intellectual property) rights. Going
forward, Asean investors must play a more prominent role in the business and
manufacturing sectors of Asean member states."
Many
Singapore firms are in fact already stepping in.
Conglomerate
Sembcorp Industries, for instance, has singled out emerging countries such as
Vietnam, Myanmar and Indonesia as focus markets for its urban development and
power businesses. "In these markets, urbanisation and industrialisation
continue to drive growth for essential solutions and infrastructure," says
Sembcorp group president and chief executive Tang Kin Fei. "These markets
are expected to see continued economic growth and, along with this, demand for
utilities such as power is expected to rise."
Even now,
the Asean region accounts for a "significant proportion" of
Sembcorp's urban development business, notes Mr Tang, adding that the group's
land bank in the region grew nearly 30 per cent in the last five years alone,
while it also ramped up power capacity in Myanmar and increased investment in
Vietnam's power market.
Real
estate giant CapitaLand, which has been building up its presence in the Asean
region since the late 1980s, is keeping an eye out for more room for expansion
in key cities.
The
opportunities in Asean are "immense", says CapitaLand president and
group chief executive Lim Ming Yan. "As key cities in the region develop,
demand for infrastructure and real estate will invariably rise."
The group
has to date 26 malls in Singapore and Malaysia, a portfolio of about 7,850
homes across eight residential projects in Vietnam, and over 16,000 units under
its serviced residence arm, The Ascott, in nine of the 10 Asean countries.
Smaller
outfits like home-grown beverage brand Allswell want in as well. Mr Jate
Samathivathanachai, director of strategy and investments, says the company,
which sells its products mainly in Singapore and Brunei and exports small
quantities to Cambodia and Vietnam, is looking at manufacturing its drinks in
Johor Baru, Malaysia.
"Our
biggest challenge is that our drinks are 100 per cent made in Taiwan, so they
are not duty-free in Asean, under the rules of origin requirement," says
Mr Samathivathanachai. "So we're now exploring making our products in
Johor Baru. We could buy the essence or extract of the drinks from our partner
in Taiwan and bottle them in Malaysia."
By 2030,
the continued growth of Asean cities could add US$930 billion to the region's
annual GDP, says Mr Mancini. This shift will be supported by the growing
consumer class, which could double to 163 million households by then, making
South-east Asia "a pivotal market of the future for companies in a range
of industries".
Analysts
see Singapore playing a key role in supporting the growth of the
rapidly-emerging digital economy, says Ms Alison Kennedy, managing director for
Asean at Accenture Strategy.
"The
question for Singapore is how does it organise its economy to play in this new
digital world? For me, the real potential lies in the ability to connect in
digital trade," she says, adding that Singapore has the infrastructure,
for instance, to facilitate and lead secure trade transactions within Asean.
EY
Asia-Pacific partner Tad Carmody adds: "You could see Singapore become an
exporter of enabling systems, such as expertise, skill sets, technologies and
IP. It's not going to be an exporter of goods. Its true value is in its ability
to enable - that is exactly what all of Asean needs."
Indeed,
Singapore firms can take advantage of the manpower pool and relatively lower
land costs in other Asean markets, says Mr Ivan Tan, group director for
South-east Asia at trade agency IE Singapore.
"We
also see investment opportunities relating to infrastructure needs, consumer
needs, such as food and beverage, healthcare, education, and the growing
digital economy, such as e-commerce," he says, citing Indonesia, Myanmar
and Vietnam as markets ripe for investments.
STAYING
RELEVANT
But
Asean's rise also comes with its own set of challenges for Singapore.
For one
thing, it could spell more competition for Singapore as other member states
play "catch-up" and the playing field evens out.
Jakarta,
for instance, has announced plans to become a regional financial hub, a role
Singapore has been playing for years.
Mr Koh,
former chairman of top corporates such as DBS Bank, Singapore Airlines and
Singtel, says Singapore companies will find it easier to succeed in an Asean
economy that is open, although it is less likely they will end up as the only,
or biggest, winners.
"Countries
like Indonesia, Malaysia, the Philippines themselves will be the biggest
winners. They have the advantage of having a big domestic market," notes
Mr Koh, who also sits on the investment board of GIC, Singapore's sovereign
wealth fund. "Today, with certain degrees of protectionism, they are shielded
from the competition and there is no need for them to be best in class. But a
little more incentive to compete and globalise could see them succeed in an
open environment."
But Mr
Koh believes that Singapore will remain relevant. "There are certain
activities that naturally make a hub. Take the financial services sector in
Europe - a lot of it is centred on London not because it's in the centre of
Europe, but because it's where people enjoy living, working and so on."
Singapore
must make sure its environment, from the rule of law to education to security,
is friendly and open, and stays that way, he says, adding: "If the world's
most talented people want to live here, somehow, activity will flourish."
More
competition, in fact, could even be helpful for Singapore in moving up the
value chain, notes SIM's Dr Lim. "Singapore is small and nimble and can
identify niches in which it has a comparative advantage," he says, citing
areas such as urban planning and development, infrastructure project
management, education, biotechnology and financial services.
Accenture's
Ms Kennedy says: "Rather than seeing the rise of Asean as competition,
this single market can instead serve as a growth multiplier for Singapore.
"And Singapore has advantages it can already leverage on - its history in
trade, its location at the centre of Asean, and the trust that people have in
the Singapore Inc brand."
The
region's growth, she adds, will spell opportunities for local small and
medium-sized enterprises, in particular, as they leverage on Singapore's
strengths to develop their businesses.
Fassler,
for its part, is banking on its Singapore brand as it expands into Asean. Right
now, import and export regulations pose a big challenge as each market has its
own set of rules.
"There
is more time and costs involved, the logistics are not that straightforward,
and there is no guarantee," says Fassler CEO Ms Chen.
But she
believes the "Made in Singapore" tag will help the company navigate
its way.
"That's
the strength of running a business here - the stringent regulations and
processes you have to pass, certifications, things like that. All of this is
already a selling point and an advantage because Singapore is seen that
way," she says. "So yes, notwithstanding all of those challenges,
we're still forging ahead."
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