26-27, November 2014
Orchard Hotel Singapore
On 26 November 2014, Mr S Iswaran, Minister in the Prime Minister’s Office and Second Minister for Home Affairs and Trade and Industry, delivered the opening remarks at the 2014 Annual Asia Competitiveness Institute Conference. The conference was organised by the Asia Competiveness Institute of the National University of Singapore’s Lee Kuan Yew School of Public Policy.
The three keys to competitiveness
In the face of globalisation and increasing market integration, staying competitive will become even more vital to Asian economies. That is why developing a nuanced understanding of competitiveness at all levels of organisation is crucial, said Minister in the Prime Minister’s Office S Iswaran in his opening remarks at the 2014 Annual Asia Competitiveness Institute (ACI) Conference.
Mr Iswaran, who is also Second Minister for Home Affairs and Trade and Industry, highlighted three key factors underpinning competitiveness: skills, scale and sustainability.
Competition based on skills, not cost
First, skills and knowledge will take on increasing importance to Asian economies as they seek to find a new competitive edge. Previously, many Asian economies competed primarily on cost, achieving rapid growth by shifting resources from primary industries to export-oriented manufacturing and competing with developed nations through the supply of low-cost rural labour to cities. However, Mr Iswaran noted, some argue that this phase of catch-up growth in Asia is over, with the growth in labour and capital inputs beginning to taper and the supply of rural labour shrinking dramatically over the last few years, driving up urban wages. “This means that Asian economies can no longer compete on the basis of cost alone,” he said.
Asian economies will thus have to move towards activities that emphasise skills, knowledge and innovation, while working to raise productivity, said Mr Iswaran. He noted that some economies have already taken steps in this direction, such as the “Make in India” initiative recently launched by Indian Prime Minister Narendra Modi. The Singapore government has also embarked on a major restructuring effort to deepen skills and expertise, encourage targeted productivity efforts and capture growth opportunities in high-value sectors, said Mr Iswaran. He lauded ACI’s initiatives to help policymakers better understand how to encourage firms to be more efficient. One example is a new exercise that ACI is working on with SPRING Singapore, in consultation with the European Central Bank, to benchmark Singaporean SMEs with regional SMEs.
Finding the “USP” to tap on economies of scale
On the second factor of scale, nations must sharpen their individual comparative advantages – their “unique selling proposition” (USP) – to make the most of globalisation. Technological advances and the lowering of trade barriers mean that businesses now have more flexibility and mobility in where to site their operations and talent worldwide. Mr Iswaran cited Apple as an example: its products are designed in California but assembled in China, using components supplied by economies all around the world, including Mongolia, Japan, South Korea and Taiwan.
However, the scale and flexibility of such global enterprises also intensifies competition, which can come not just from emerging markets but developed economies as well, said Mr Iswaran. A recent Boston Consulting Group survey found that more than half of US manufacturing companies with at least $1 billion in annual sales were considering returning production to the US from China, due to factors such as the increased ease of doing business and better access to skilled labour in the US. Asian countries must therefore enhance their business environment and labour quality to remain attractive to investments, he said.
Environmental, social and fiscal sustainability
The final factor of sustainability has a number of different aspects. One is the need for countries to reduce the adverse environmental and social effects that can arise from rapid economic development. Mr Iswaran noted that liveability has additional importance in the Asian context because of the breakneck pace at which Asia is urbanising and creating “mega cities”. Pollution hurts both the health and productivity of the workforce, while a poor living environment affects a city’s standard of living and its attractiveness to talent and investors. Ensuring that cities are environmentally sustainable and liveable will thus be critical to long-term competitiveness, he said.
At the same time, rising inequality can lead to social discontent and unrest, disrupting the economy and reducing the country’s productive capacity. Mr Iswaran called for inclusive economic growth that preserves social mobility and incentivises hard work, adding that this is an “important social dimension” to sustainability. He praised ACI’s Global Liveable Cities Index, which covers 64 cities, for taking into account not just a city’s economic competitiveness but also environmental and social factors such as pollution, income equality and community cohesion.
Another dimension to sustainability is on the fiscal front, said Mr Iswaran. Governments must spend responsibly as persistent deficits and high debt levels can lead to a loss of confidence in government, with severe economic consequences. Citing Indonesia’s recent cuts in state fuel subsidies as a positive example, Mr Iswaran said the move will allow the Indonesian government to focus more resources on areas including education and infrastructure to boost the country’s potential for long-term growth.
At the conference, Mr Iswaran and Indonesian Coordinating Minister for Economic Affairs Sofyan Djalil witnessed the signing of memoranda of understanding between ACI and four bodies: the Indonesia Investment Coordinating Board, the Indonesian Agency for Agricultural Research and Development, the Competitiveness Research Network of the European Central Bank, and SPRING Singapore. Mr Iswaran also launched seven books by ACI and presented tokens of appreciation to 16 Indonesian provincial representatives.