Speech by Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister for Finance at the Business Excellence Awards Ceremony

1. It is a pleasure to join you for the 2012 Business Excellence Awards Ceremony.

2. We are here tonight to recognise the commitment and achievements of outstanding businesses – businesses that invest in people, that foster creativity and innovation, and that deliver superior performance and results. My congratulations to all our award winners.

An uncertain global economic climate

3. The global economy continues to see weak growth, and with a high degree of uncertainty on top of that.

4. Europe is seeing further deterioration in its near-term economic prospects. On any reasonable assessment, the combined impact of fiscal consolidation and bank deleveraging will keep growth at well below normal levels for at least a few years. However, there are some encouraging signs for the medium term. The structural changes that are required to bring competitiveness back in the European periphery have begun – structural changes that are needed so that these economies can gain grow through exports. And in Germany too, there is a gradual shift that has begun, towards an economy that can provide the domestic demand that is needed to help Europe grow.

5. In the US, there are some positives too. Housing prices have bottomed, and both households and banks have stronger balance sheets that they did two years ago There is also hope of some compromise with regard to the impending ‘fiscal cliff’. However, a short-term bargain within Congress still leaves open the larger challenge of finding common ground on taxes and spending over the longer term. Until a long term fiscal deal is achieved, business uncertainty will remain high and long term investments weakened. Hence, in the US too we face a real possibility of sub-par growth for a few years.

6. The emerging economies are doing better, including in Asia. China is likely to avoid a hard landing. But the continued growth of emerging Asia depends on reforms to improve efficiency and sustain productivity growth - including reforms to open up their economies to more competition and foreign investment, and to provide a more level playing field in finance so that smaller enterprises can raise funds. There remain risks with regard to the commitment to continuing reforms, particularly where it involves vested interests. 

7. There are also other dangers that we have to watch out for globally. A war in the Middle East will cause an oil price shock that will hurt the world economy.

8. As an open economy, Singapore will be affected by these global forces and risks on the horizon. Our economy has slowed for that reason. Both government and businesses will have to stay agile in this environment. 

9. Fortunately, our unemployment rate is low. Jobs are still available, and we have stepped up our training schemes to help those who remain unemployed to be matched to employers’ needs.

Restructuring our economy for the long term

10. Our greater challenge is not that of coping with short term shocks, but of adjusting to the new and permanent reality of a tight labour market. That challenge has to be central to business thinking in Singapore.

11. Our new normal is very different from that in the advanced countries. The new normal in the advanced world is one of fiscal deleveraging, sub-par growth for at least a few years to come, and high long term unemployment. The new normal in the Singapore economy is essentially about a permanently tight labour market. 

12. This new normal is both challenge and opportunity. Business in many sectors have great difficulty finding labour, as our labour force is now growing much more slowly than it used to. Our SMEs especially face this challenge. But there is also considerable scope left for businesses in every sector of the economy to invest in labour-saving technologies and management practices. We know that, because our overall productivity levels are well below those of the international leaders - in every sector, and especially in the construction and in retail and F&B services. 

13. Raising productivity is therefore a major opportunity and must be our key objective - in the interests of our businesses and our workers. It is the only way we will sustain our competitive edge in a tight labour market. And it is the way we will provide better jobs in every sector for Singaporeans, and help them earn higher incomes over time.

14. Let me put this another way. Without good productivity growth, a tight labour market will mean a zero-sum game between business profits and wages. Firms will have to pass on increases in wage costs to consumers, or face weaker profits. But if firms innovate and raise productivity, we can create better jobs with better wages while preserving or growing profits. Productivity growth is the only way we can get this positive-sum game between wages and profits.

15. We have set ourselves an ambitious target of achieving productivity growth of 2-3 % per years over the decade starting 2010 - in other words a 25% plus increase over 10 years. Although we had a sharp jump in productivity as we came out of the crisis in 2010, much of the heavy lifting in industry restructuring remains ahead of us. We cannot expect overnight change, or a dramatic overhaul of business methods in a few years. But we have to press ahead, and inject more momentum in the productivity journey.

16. We must put all our efforts into achieving this critical transition in our economy, and move from the upper-middle league of countries with regard to our average levels of productivity and wages, into the top league of high productivity and wages. It will take time, but we can get there through determined restructuring.

17. The Government is committed to helping the business sector, including our local SMEs in particular, to restructure and grow as we make this transition in our economy in the coming decade and beyond. We are providing broad-based support to help as many businesses as possible to innovate and adjust to a tight labour market. We are also focus additional resources on Growth-Oriented Enterprises and emerging Globally-Competitive Companies (GOEs and GCCs), so that they can develop deep and compelling capabilities and make their mark internationally.

18. But we must also allow market forces to drive competition and growth. The Government cannot decide which companies will grow, and which will be phased out. We must allow market forces to restructure our economy, even if it involves some pain, so that the more innovative and efficient enterprises have more room to grow.

19. We are committing substantial resources into training, so that workers can raise their skills and craft and develop expertise in every job. Workforce training is a public good, and well worth the substantial government subsidies we are putting in. We are expanding and introducing new training initiatives for all levels of the workforce - the ordinary worker, sales staff, foremen and supervisors, technicians and PMEs, and even senior management staff. Improving the quality of our human capital is the key to sustained productivity increases.

Reducing reliance on foreign manpower

20. We have taken steps to avoid a growing reliance on foreign workers. If low cost foreign labour is readily available, there is little incentive for employers to invest in their operations, upgrade, design better jobs and raise productivity. This is why the Government, since 2010, has phased in a series of measures to check the growth of the foreign workforce, particularly at the lower and middle levels.

21. We know businesses need time to adjust – productivity and innovation investments and labour demand cannot be increased or adjusted overnight – which is why we have phased in the measures - the increase in foreign worker levies has been phased in over three years, and the 5% reduction in dependency ratios has been implemented in a way that allows companies up to June 2014 to adjust.

22. Let me say a few more things on our foreign worker policy, because companies are understandably concerned about where they stand and what the future may bring.

23. First, let me make clear our basic objective, which is to ensure that the ratio of foreigners in our workforce does not grow indefinitely. We set out in the Economic Strategies Committee (ESC) report that we should avoid having the foreign workforce grow beyond one-third of the overall workforce on a continuing basis in this decade. It can move above or below the one-third mark in the short term - depending on state of the construction cycle for example - but we don’t want it to go up indefinitely. But managing foreign worker growth is, inherently, an inexact business. It is not a science. Let me explain. We cannot fix the foreign worker numbers in advance – the Government cannot decide how many workers each firm will get, and we cannot therefore know the outcome in advance. This is not like car population policy where we determine the exact number of COEs each year. The COE price varies, and as we know, depending on demand it can rise sharply in a single year. That is not the right approach to foreign worker policy, and will make life extremely difficult for our businesses.

24. Unlike the car population policy, what we do in the case of foreign worker policy is we set foreign worker levies and the dependency ratio ceilings (DRCs), and let companies decide on how many workers they need based on their ability to grow. Pay the foreign levy and you can get the workers, up to the level permitted by the DRC (dependency ratio ceiling). And the DRC means that if you can attract more Singaporeans, you can hire more foreign workers. This is a practical approach that avoids major disruption, even as we tighten policies.

25. It means we cannot tell in advance exactly how many workers we will bring in. Instead, if we find that companies are bringing in more foreign workers than anticipated, and the growth of foreign workforce is too rapid, we will have to tighten further. In other words, policies will have to adapt depending on actual outcomes to enable us to achieve the objective of capping the ratio of foreign workers at one-third of the overall workforce over time.

26. What is the alternative? It is to announce policies say five to eight years in advance, and lock in the policies for that whole period. But if we do so, if we lock in our policies, and then find that far more foreign workers come in than anticipated, we will have to make even more drastic changes at the end of the period. That approach means even more uncertainty for businesses over the long term. It is therefore better to be clear on our long term strategy, avoid any U-turn, but to adapt and refine policy depending on actual foreign worker growth outcomes along the way. This is the better way over time, because it provides a degree of certainty over directions whilst avoiding major changes down the road that could lead to significant disruption in the economy.

27. I wanted to explain this – that we will not be able to announce and lock in policy for many years at a time. It will risk having more drastic changes over the long term, when we find that outcomes are well off the mark.

Enabling Companies – Broad Based Schemes

28. Allow me to share some of the progress in our measures to help companies upgrade. The Productivity and Innovation Credit (PIC) supports companies that have made the effort to upgrade. (It offers a 400% tax deduction on productivity and innovation-related investments.) Take-up has been encouraging, even among small firms. About 1 in 2 small SMEs^[1] with a turnover of $1-10 million have claimed PIC benefits. The take-up rate for micro SMEs with a turnover of less than $1 million is however much lower at 17% or less than 1 in 5. (The take-up rate for larger companies with a turnover of more than $10 million is more than 70%.) We will have to find every way to help more companies, especially smaller SMEs, to take advantage of this scheme.

29. We will continue to fine-tune and enhance the PIC to meet business needs. For example, in Budget 2012, we increased the cash payout rate from 30% to 60% for up to $100,000 of businesses’ PIC expenditures. This will benefit smaller companies in particular those with lower taxable income and are unable to benefit fully from the PIC tax deduction.
30. We have expanded the prescribed list of automation equipment that is automatically eligible for PIC. (The list now includes, for instance, interactive shopping carts or kiosks used in retail, automated housekeeping equipment such as mattress-lifting equipment for the hotel sector, and machines used in laundry processes such as linen feeders, machine folders and stackers.). 

31. Besides equipment in the prescribed list, where PIC is granted automatically, IRAS will also be flexible in applications for PIC grant so long as the equipment automates some parts of the business, reduces the manpower required or raises output^[2]. For instance, IRAS has granted PIC for dishwashers used in F&B businesses as they save on manpower.

32. Outreach is critical, especially to the smaller enterprises, and we will do more to promote the PIC. Besides in-house seminars, IRAS also partners major trade associations and chambers of commerce, such as the Singapore Chinese Chamber of Commerce & Industry, Singapore Indian Chamber of Commerce & Industry and Singapore Food Manufacturers Association, in promotion efforts. About 240 seminars in English and in Chinese have been conducted since 2010, reaching out to about 32,000 participants and company representatives. (To help SMEs that require one-to-one advice, IRAS also partners SPRING and the Enterprise Development Centres (EDC) to run PIC Clinics involving consultation sessions of up to 45 minutes for each SME.)

33. I encourage all companies to make full use of the PIC, and to approach IRAS or the EDCs if they need help or advice.

34. We have also stepped up direct grant assistance. SPRING launched the Innovation and Capability Voucher (ICV) in June this year to help our SMEs upgrade their capabilities. In a short space of time since its introduction, we have awarded around 1,100 vouchers worth $5,000 each to SMEs^[3]. Most of these were micro and small SMEs.

35. Companies are also internationalising to grow their business. The Global Company Partnership, or GCP for short, is an example - it is a strategic initiative by IE Singapore to grow globally competitive companies. Customised assistance in the form of funding support and consultancy is provided to help them with market access, manpower development and financing challenges.

Enabling Companies – Business Excellence (BE)

36. SPRING’s BE initiative is yet another way we are enabling companies. The BE framework allows businesses to benchmark themselves against i ndustry leaders. It can help businesses to look at excellence and innovation holistically and systemically, and identify opportunities for breakthroughs and improvements.

a. A 2012 impact study on 220 BE private sector organisations, conducted by the National University of Singapore showed that productivity in BE organisations was on average 11.5% per cent higher than that of their industry counterparts. They also achieved an average productivity growth of 3% per year from 2008-2011.

37. BE organisations are able to achieve productivity breakthroughs and improvements through innovation and the adoption of better management and business practices, which include automation and the streamlining of operational processes, more effective customer engagement through better training and optimisation of manpower and financial resources.

38. High performance BE organisations, large and small, are found across different industries. Megachem is a homegrown specialty chemical contract manufacturer with a presence in Singapore and 11 other countries. Using the BE framework, it established a high performance culture for its people, by recognising its staff for achievement of business goals, their future potential, and service excellence and innovation. The company also set up its own Megachem Institute of Management to oversee all people development activities. Megachem’s focus on business excellence has contributed to good performance. From 2008 to 2011, its revenue grew by 12.6% per year surpassing $100 million in 2011. Its investments in automation and training have paid off. It resulted in a 6% productivity growth per year. Megachem has shared its productivity gains with its employees through higher remuneration .

39. But BE is not just for large firms. ISEP Pte Ltd, established in 1998, grew from a small process automation integrator to total solutions provider in the engineering services sector with 32 employees today. It provides industrial systems engineering services and products to a wide range of customers from diverse industries. As part of the BE efforts to enhance customer value, ISEP segments its customers to better determine their needs, and involves customers in its new product design and innovation. Its revenue grew on average by 31% per year from 2008-2011. This also translated into better wages for its staff at all levels. Median wages grew by an average of 20% per year for clerical staff, for example.

40. We are working also with the MNCs within the BE community to help their SME suppliers to upgrade their management capabilities, to be more productive and build consistency in product and service quality. For example, Kenwood Electronics Singapore has been helping their suppliers implement quality management systems and processes, such as parts conformance, waste management, process planning and total factory management, to meet quality standards such as zero defects. Under this Business Partner Initiative, Kenwood shares the cost savings 50-50 with their suppliers for a win-win partnership. SPRING will encourage more BE large companies to work on such collaborations, and can defray the cost of collaborative projects.

41. SPRING will also train PMEs in BE, so as to build management capabilities in more organisations. It is now working with Institutions of Higher Learning (IHLs) to include BE in their curricula. For example, UniSIM successfully launched a compulsory course on BE for their business undergraduates in July 2012 with pilot enrolment of 90 students. SPRING and UniSIM have also signed an MOU to further collaborate on projects that will facilitate a wider adoption of the BE framework as a management tool to drive organisational growth and improve productivity. Students can take up work attachment projects in BE organisations, and be exposed to BE assessments. SPRING has also been working with other IHLs like the NUS Business School and Nanyang Polytechnic to incorporate BE concepts into their curriculum^[4], and will continue to strengthen the collaboration with the IHLs over the next few years.

Enabling Companies – Productivity Consultants

42. More can also be done to give companies the tools to raise their productivity. Tonight, I am pleased to announce that the Singapore Workforce Development Agency (WDA) and SPRING have collaborated on a new initiative to build a pool of productivity consultants for the various sectors. They will be rolling out Productivity Consultancy Training Programmes that are customised for various sectors. These consultants will review companies’ processes, identify areas of improvement and recommend effective process innovations and productivity-enhancing technologies.

43. SPRING and WDA have engaged the Japan Productivity Center (JPC) to develop a Productivity Consultant training programme that is contextualised for the local retail and food services sectors.

44. For the manufacturing industry, WDA is partnering A*STAR’s Singapore Institute of Manufacturing Technology (SIMTech) to roll out a “Manufacturing Productivity Associates” initiative, to train productivity experts in manufacturing to support companies in conceptualising and implementing productivity improvements.

45. SPRING and WDA will give more details on the two initiatives tomorrow.

Conclusion

46. The Government remains fully committed to partnering businesses on this this restructuring journey. Together, I am confident we will be able to make the transition into a vibrant and highly-competitive economy.

47. I congratulate this year’s BE Award winners and encourage more to come onboard the BE journey. Tonight’s winners are good role models who have shown us the way. High-performing companies are a win-win for businesses and workers alike.

Footnotes

^[1] This comprise active companies. It excludes those whose status according to ACRA is dormant, inactive, no business done, in liquidation, receivership or has been dissolved.

^[2] For example, specific tunnel oven and mixers have been allowed for PIC as they are of larger capacity in production and reduce the manpower required to manage the work. Similarly PIC have been granted on an egg-tart-making machine that reduces labour required, and a grill that eliminates manual rotation of the skewed meat and cooks more batches of skewed meat each time.

^[3] Of this, 40 per cent went to micro SMEs, and 50 per cent went to small SMEs

^[4] For example, Nanyang Polytechnic has developed a 15-hour General Studies Module on Business Excellence for its diploma courses in the School of Engineering. NUS Business School has introduced the BE framework into its Service Operations Management Course under the Business Administration Programme.