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Speech By Mrs Josephine Teo, Minister of State For Finance And Transport At The HCS Connection 2012, "Reshaping Human Capital For Business Success In The New Economy"

25 May 2012

Mrs Fang Ai Lian, Chairman, Human Capital Singapore Management Board

Mr Ho Meng Kit, Chief Executive Officer, Singapore Business Federation

Distinguished Guests
Ladies and Gentlemen
Good evening.

It gives me great pleasure to join you this evening at the HCS Connection 2012 jointly organised by Human Capital Singapore (HCS) and the Singapore Business Federation (SBF). I understand that the next item on the agenda is dinner and will attempt to make my remarks short and sweet.

2      Within this room there is a high degree of understanding of what is happening around the world. It is getting more complex and competitive, not less. In fact, before joining you, I had a meeting with the Lord Mayor of the City of London. He is the ambassador of the financial and professional sectors in London and he was making is rounds in South-east Asia like the Philippines and Thailand.

3      We discussed some of the challenges the economies, especially those in Europe, are facing. We touched on the issue of financial regulation and the difficult trade-offs and balancing that needs to be done by the European regulators. On the one hand, tightening the screws and ensuring prudential measures are being introduced in a way that will protect financial investors. At the same time, they have to ensure that this does not kill off the credit supply and momentum that is needed to generate growth.

4      We specifically discussed the financial transactions tax, which the UK is stridently opposed to. However, there are some in continental Europe who ask for this, partly in response to political pressures as this is an election year for many European countries. It is a very complex balancing act that takes place between regulators, political leaders and policy makers. It is a very complex set of dynamics that each one of us operates in. We are all impacted one way or the other – sometimes more directly, sometimes we are further away from the heat.

5      Hence, global leaders have to be more competent. In particular, we have to become better in dealing with the shifts in policies and in innovation to allow our businesses to find a way out in dealing with these multiple challenges. We have to become more skillful in navigating the different tradeoffs. At the same time, among the whole suite of challenges, we have to find more ways for our businesses to become more productive. This is especially so in Singapore, where we know that quite apart from all these external challenges, we are also dealing with the challenge of becoming more productive because of resource constraints.

6      If I may, I just want to make two points. Firstly, let us cast our minds back to a time not too long ago, where HR managers were particularly worried. I know this very well as I was in the labour movement at that time. I recalled in the beginning of 2009, a few months after the Lehman Brothers collapse, we were looking at a global unemployment of 50 million. In Singapore, we might have to lay off 100000 people. There was a great sense of concern on how the next few years would turn out.  We introduced the Resilience Package and it worked well. By the third quarter of 2009, we were already seeing a rebound. We actually closed 2009 with a 1.9 per cent growth and some job creation.

7      Due to this rebound, and also because we wanted to take a fresh look at how we were shaping the economy, DPM and Minister for Finance chaired the Economics Strategies Committee (ESC). The ESC decided that we should take a fresh approach towards productivity and innovation. I was part of the ESC and was quite involved in the process. I still remember the amount of angst when the ESC presented its report. On the one hand, there was great anticipation. On the other, people said that productivity was really nothing new. Indeed, it is something that we have talked about in the past. However, we have a renewed focus on this issue.

8      This was subsequently followed up by a series of measures the Government took, in particular to tighten the follow of foreign workers. If you recall a couple of months ago in Budget 2012, we made further moves to restructure our economy, so that we can sustain the growth momentum for the longer term given the constraints that we face. There are two important points of emphasis in Budget 2012. Firstly, there is the need to reduce our dependence on foreign workers hence the adjustment of the dependency ratio ceilings. Secondly, we want to help our SMEs to make that transition.

9      I want to share with you today some encouraging signs that we are beginning to see a shift in mindsets. In 2010 and 2011, a lot of companies found it challenging and stressful to have to make these adjustments. However, in the last couple of weeks, I have seen signs of a mindset shift by many business owners who acknowledge that it is probably better to bite the bullet and try to transform their businesses. If they are smart about it, they will want to be among the first to make their businesses leaner and more capable of capturing a different kind of opportunity. They will have the first-mover advantage.

10      Some examples that come to mind, and they have been reported on, include Tiong Seng Construction. They make pre-cast components, which are in high demand as real estate developers are still tendering for land. This is also an area where Singapore lags behind in productivity compared to more mature markets such as Japan and Australia, where the businesses have somehow found a way to be more productive using better processes and automation.

11      Tiong Seng Construction decided to go heavy on automation for its pre-cast manufacturing facility. With automation, it only needs one-third of the workers to produce almost double the tonnage of pre-cast components. This means that its costs are contained and they can afford to pay their workers more. It is also able to go to the market place with a better value proposition.

12      It might have been difficult to think of a business like Tiong Seng going into this direction two to three years ago because there was no need to. There was an easier path where manpower was readily available. This is causing them to think differently and encouraging them to make the investment.

13      We are also seeing the mindset shift in many traditional businesses that have gotten used to a way of operating. However, they too, now find that they have to challenge themselves. The logistics industry has been in Singapore for a long time. For example, there are many businesses that specialise in relocation to cater to the large expatriate population in Singapore. It is a labour intensive business with some skill involved. However, the margins are quite thin because the business is so competitive.

14      Mr Dick Chia, the CEO of Helutrans, came to the conclusion that if he continued to do the same thing, in no time, he will find that his company will severely constrained with no room to grow. He decided to take the bold step of doing something different - art logistics. The business of transporting expensive art pieces requires a higher skill set and knowledge. He found a niche and invested in the training of his staff to do this business.

15      Today, Helutrans handles 80 per cent of the Hongkong auction business. This has given him a runway to grow his business further, as this industry has better margins with fewer competitors - for now. It is an encouraging sign that people are willing to make that shift in mindset. I am hopeful that if we continue on this path, we will be able to see a transformation of the Singapore economy would have taken some pain but ultimately seen a lot of gain.

16      The second point I wanted to share was that we have to reach out to as many businesses as possible because we know it is difficult to make that transition. We have put in some effort, for example the Productivity and Innovation Credit (PIC). However, some businesses are worried that there is a complex process for them to gain this credit. As it turns, out one in three SMEs has applied for PIC. There is an additional page to fill in when companies file their tax returns, which my staff informs me takes between half an hour to one hour.

17      Not all businesses are aware of this and so we have to make an effort to reach out to them. I encouraged my colleagues to reach out to more businesses in the heartland. IRAS then started a series of seminars held at community clubs. I visited one such session at Kampong Kembangan CC and I was quite encouraged by the turnout. This effort has to be multiplied many times over. MOS Teo Ser Luck has also urged SPRING Singapore to reach out to the merchants’ associations in our heartlands and to let them know what schemes are available and to encourage them to look at their businesses from a different perspective. It is a lot of ground work but well worth the effort. I urge you to join in this effort by participating in these outreach efforts such as those organised by SBF.

18      Apart from the mindset shift and continued efforts from the Government to work with business chambers and associations, this is part of keeping ourselves engaged in the international business environment and making sure our people are up to mark. We have to make sure that skills, innovation and productivity remain the cornerstone of our economy. It is not easy, but I think it is well worth the effort.

19      On that note, thank you for your attention and I wish you a very fruitful session ahead.