TR EMERITUS

By Kevin Lee Recently reported in the press is the news that SMEs in Singapore are complaining about the restrictions on foreign workers and want the government to loosen the restrictions that limit the hiring of foreign workers. A recent business survey indicates that these SMEs are quoting the same excuses that they have using all along - locals shun labour-intensive jobs, and the turnover rate for foreigners is lower. These business also want to hire foreigners because this reduces business costs, or, in other words, because foreign labour is cheap. These latest results show that Singaporean businesses are heavily dependent on lowering the cost of factor inputs in order to compete in the market, rather than improving factor productivity. The difference between the two is illustrated as follows. Company A hires Singaporean worker Mr Chan at $15 an hour to produce 10 widgets per hour. Mr Chan manufactures the widgets using equipment Y, which depreciates at $25 per hour. The cost of production per widget is hence $4 per widget: ($15+$25)/10 = $4. Company A can lower the cost of production by either lowering the cost of the factor inputs (labour or capital equipment), or by improving the productivity of these inputs. Company A chooses to lower the cost of production by reducing the cost of factor inputs. Company A fires Mr Chan and hires Mr Balakrishnan from India who is willing to work for $5 per hour. However, Mr Balakrishnan was previously a farmer and he has only started to learn how to operate the manufacturing equipment, and so he can only produce 8 widgets per hour. Company A's strategy lowers the cost of production from $4 per widget, to $3.75 per widget: ($5 + $25)/8 = $3.75. However the the productivity of Company A has declined. Its production per worker has fallen to 8 widgets per hour, compared to its previous output of 10 widgets per hour. Company B chooses a different strategy. Company B starts out with the same equipment as Company A, and employs Mr Wong at the same wage as Mr Chan. Company B also invests in research & development to improve the technology of its manufacturing equipment. Because Company B has been investing in research & development, it has a new piece of equipment. This equipment costs more, and has a depreciation rate of $43 an hour,compared to $25 previously. Company B also trains Mr Wong to use this new piece of equipment. The result of this improved manufacturing process is that Mr Wong is now able to produce 16 widgets per hour, compared to 10 widgets previously. At the same time, because of Mr Wong's improved skillset, Company B increases Mr Wong's salary to $17 per hour. The net result of this is that Company B's cost of production is now $3.75 per widget = ($17+$43)/16. This is the same as Company A's result. However, unlike Mr Chan, Mr Wong not only keeps his job, but also has received a pay raise. Mr Wong is also able to afford another child because of his higher income, and help improve to Singapore's poor fertility rate. Furthermore, the longer term impact of this strategy is that Company B is able to continue lowering the cost of production, because it can continue to invest in R&D. Company A, however, is unable to bring down its costs further, because it is unable to find workers who are willing to work for much less than $5 per hour. Furthermore, Company B is able to expand its production and hire the experienced Mr Chan, who was previously fired by Company A. The difference between Company A and B is the difference between night and day. Company A has chosen the strategy of lowering the cost of factor inputs, but this strategy rarely results in sustainable competitive advantage. In most cases, this strategy results in price wars and intense competitive rivalry that ultimately kills profitability when such price wars are not accompanied with increases in productivity. Company B, however, has a sustainable competitive advantage. Its R&D program will continue to produce better equipment and labour productivity gains, and will allow it to lower its cost of production even further. In contrast, Company A cannot reduce its factor costs much further and will soon be put out of business. Two fundamentally different strategies, two fundamentally different results. Singaporean businesses are thinking like company A. Instead of focusing on improving productivity, they have chosen to pursue lower factor input costs. They repeatedly complain that Singaporean workers are too expensive and want to hire cheap foreign labour instead. Eventually, like company A, these businesses will be outcompeted by their more innovative counterparts. In view of these SMEs' mentality, is it surprising at all that Singapore's productivity growth has remained stagnant relative to the US since 1995, as the recent Singapore Competitiveness Report shows? Is it surprising at all that the standard of living for the average working Singaporean has hardly improved in recent years? No. Singaporean businesses need to buck up and start innovating. The government also needs to stop feeding this quick-fix mentality with its liberal immigration program. Quick-fix is ultimately no-fix, and Singaporean businesses must innovate or die. Other articles by Kevin Lee: >> PAP's quick fix mentality will exacerbate Singapore's economic challenges About the Author: The author is an Investment Analyst who is always on the lookout for innovative companies  Read More →

The "revamped" P65 blog which is supposed to be "non-partisan" in nature is fast turning out to be a farce with the latest revelation that one of its regular bloggers Mr Fredric Fanthome is not only a YPAP member, but a new citizen from India as well. The P65 blog was set up after the 2006 elections by the post-65 PAP MPs to connect with the online community, but floundered due to the lack of commitment and traffic. It had recently undergone a major "revamp" in August this year with a complete new editorial team to replace the PAP MPs who no longer blogs on the site. According to YPAP Chairman Teo Ser Luck, the P65 blog will no longer carry just the PAP's views and will steer clear of supporting a political party. Instead, it will be open to all post-65 Singaporeans, who can write about 'anything under the sun', from entertainment and the economy to race and religion, said Mr Teo Ser Luck, 41, who leads the group of 12 post-65 PAP MPs. "We have our own Young PAP website for the politically inclined,' he added, referring to the PAP youth wing which he heads. 'The p65 blog is to allow other young people to share their views, which are non-partisan, neutral and can be constructive criticism of policies," he said. [Source: Straits Times, 12 August 2009] Though Mr Teo said initially that none of the writers are affiliated to theYPAP, one of them, Vikram Nair admitted a week later on the P65 blog itself that he is a YPAP member. Two other writers are in organizations affiliated to the PAP including unionist Mohamad Nazir Sani, 35, and grassroots leader Terence Quek, 34. Contrary to Mr Teo's claims that the views espoused on P65 are "non-partisan" and "neutral", a quick glance at the articles shows that they reflect the ingrained mindset of the PAP and are strongly pro-government both in substance and tone. For example, in his controversial article on the "cooling-off" day, Mr Fredric Fanthome wrote that the opposition should not just oppose for the sake of "opposing"  and that its role is to offer "constructive" criticisms. He also defended the GRC system using the PAP's standard explanation that its continued existence is necessary to ensure minority representation in parliament. It appears that the P65 blog is staffed by PAP apologists rather than "independent" bloggers as claimed by them. If the PAP thinks that the revamped P65 blog in the guise of a "non-partisan" site not affiliated to it will help it establish a presence in blogosphere, then it is grossly mistaken. Barely four months after the site was "revamped", its already pathetic readership drops by more than half from an alexa traffic ranking of 20,934 in August to just 43,219 now. Perhaps it is more apt to rename the P65 site as a YPAP-P65 blog or a YPAP-new citizens blog.   Related articles: >> P65 blogger Fredric Fanthome is a new citizen from India >> P65 blogger supports "cooling-off day" >> P65 bloggers fail to address issue of site ownership >> P65 blog now “open” to all Singaporeans >> PAP MPs “MIA” from P65 blog!  Read More →

Written by Our Correspondent Health Minister Khaw Boon Wan made a personal trip to Kandang Kerbau Hospital to apologize to one of the victims of the medication blunder Madam Poh in person three days ago. Madam Poh was given an overdose of chemotherapy drug over hours instead of days by two pharmacists who used the wrong infusion pump. She is currently recuperating in KKH. Mr Khaw wrote on his blog that he was stopped before he could finish his sentence. He heaped praises on Madam Poh and her family for their magnanimity: "I apologised to her but she stopped me before I could complete my sentence. This is truly a wonderful family, brought up with sound decent human values. We had a good chat, about many things, including LASALLE's art therapy as her son is keen on guitar music." When interviewed by Chinese paper Lianhe Wanbao, Madam Poh said she was very touched by Mr Khaw who spent 20 minutes speaking to her and her family. Her husband, Mr Yap said that they had already forgiven to two blundering pharmacists and hoped that they would not be sacked by the hospital. A devout Buddhist, Mr Khaw who just celebrated his 57th birthday also shared some of his life philosophy with his readers: "At 57, I have learnt not to get too excited with good news, nor too depressed with bad news. Every dark cloud will eventually pass; just as sunshine does not last forever. The key is to stick to basic values in life: do as many good deeds as possible, even if minor; do no bad deeds, even if they seem slight." One of Mr Khaw's birthday wishes is to see his daughter recover fully from an injury sustained during a road traffic accident last week. She was apparently knocked down by a taxi and had been discharged from the hospital. Mr Khaw declined to divulge more details when asked by reporters. Read Mr Khaw's blog here Copyright © The Temasek Review, 2009 Interview source: Lianhe Wanbao, 9 December 2009  Read More →