Country Environment Analysis – Singapore

Abstract:

The country of Singapore enjoys a highly developed and successful free-market economy. The first section of this report details the economic, social, and political aspects of Singapore from a business perspective. Furthermore, this report will identify and analyze challenges that any business must consider upon entry into this growing marketplace.

Social Perspective:

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Geographic Location: Situated in the northern part of the equator, Singapore lies between Indonesia and Malaysia. The island has a huge coastline of 193km. Half of the terrain contains metropolitan areas while reservoirs, open military areas, plantations, and parklands cover 40%. Covering an area of 699 sq. km. , the country is believed to be among the world’s most beautiful nations.

Population: As of June 2011, Singapore's population stood at 5. 1 million, making it among the three most densely populated nations in the world (MediaCorp Pte Ltd, 2011). Singapore has a multicultural population with Mandarin, English, Tamil, and Malay listed as the country’s four official languages. English is commonly used throughout Malaysia and is often referred to as the national language.

Improved healthcare in the country has resulted in reduced infant mortality rates. However, the overall population growth rate is relatively low at 2% from 2009 to 2010. Immigration is a significant driver of population fluctuation, as local population growth has actually declined in the past decade.

Literacy: According to the United Nations Development Programme Report (2011), Singapore has a literacy rate of 94. 7%, which ranks 75th in global literacy by country. Education is regulated and supervised by the Ministry of Education which oversees both private and public schools. All public schools instruct students using the English language and their native tongue (referred to as “Mother Tongue Language”). According to Wikipedia, education spending typically accounts for 20% of the national annual budget in Singapore.

Cultural Values: Singaporeans have a hierarchical history, and for the local population power distance is generally high. Respect for authority and social formalities are highly valued in Singapore’s local culture. Respect for parents, elders, teachers, and employers is held in high regard. Due to the emphasis on family values, Singapore has developed a collectivist culture that focuses on the betterment of society; as opposed to the individual. Local residents generally express a modest humility when communicating with foreigners; which could be interpreted as “feminine” in reference to Hofstede’s cultural framework.

Art / Music / Food: Held annually, the Singapore Arts Festival is a noteworthy event in the country’s celebration of the arts. The festival integrates visual arts, dance, and theatre. Besides home participants, global artists are also showcased. Today, the Festival is an international event. Additionally, the arts center has traditional and classical music representation focusing on the four main cultures in the country. Singaporean cuisine signifies ethnic and cultural diversity and food is seen as a uniting cultural strand that is fundamental to their national identity.

Religion: Due to its strategic position, Singapore is home to many religions. Once it was declared a port, several ethnicities and nationalities from around the globe immigrated to Singapore. 3% of the population practices Buddhism making it the core faith, 18% are Christians, 15% are Muslims and 5% are Hindus. Besides, close to 17% of the populace do not practice any religion as they claim to be free-thinkers (Chong, 2010).

Economic Perspective:

Singapore has a highly developed and successful free-market economy. It enjoys a remarkably open and corruption-free environment, stable prices, and a per capita GDP higher than that of most developed countries. The economy depends heavily on exports, particularly in consumer electronics, information technology, pharmaceuticals, and financial services. Since the early 1990s, a focus on globalization has driven Singapore’s economy to new levels of growth and development. Also, you can read about the History of the Culinary Arts. It has signed 13 free trade agreements to encourage international commerce and it boasts globally competitive tax incentives to draw international investors.

Current GDP Breakdown: Singapore’s current GDP falls to $239. 7 billion. GDP per capita is roughly $60,000 which ranks fifth highest in the global community. According to trading economics. com, Singapore experienced an annual GDP growth rate average of 5. 54% between 2007 and 2011. Despite a 1. 5% GDP contraction in the third quarter of 2012, Singapore’s overall GDP is expected to follow historical growth of around 5% this year.

Export, Import, and Trade: Singapore is the 14th largest exporter and the 15th largest importer in the world. According to the WTO, Singapore has the highest trade-to-GDP ratio in the world at 407. 9%. International trade is essential for Singapore, as it has virtually no natural resources. A large percentage of trade is conducted to meet domestic demand for energy, food, and other necessities. Singapore also regularly engages in trade, whereby industries and businesses in the country import raw materials, before refining them for re-export. 47% of Singapore’s exports consist of re-exports. Singapore has relatively few barriers to trade. Trade partners have zero tariff rates applied to their products; other than alcoholic beverages. Some import restrictions exist, which are focused primarily on environmental regulation, health, and public security concerns.

The import of rice also requires import licensing in order to ensure food security and price stability. In 2010, Singapore’s exports were valued at $351. 2 billion (USD). The primary export partners include Hong Kong (11. 6% of total exports), Malaysia (11. 5%), the US (11. 2 %), Indonesia (9. 7%), China (9. 7%), Japan (4. 6%). Singapore’s imports were valued at $310. 4 billion. The U. S. was Singapore’s primary source of imports (14. 7% of total imports) followed by Malaysia (11. 6%), China (10. 5%), Japan (7. 6%), Indonesia (5. 8%), South Korea (5. 7%).

Primary Industries: The petroleum and petrochemical industry in Singapore is one of the biggest in the world. Singapore imports oil from other countries before refining it for further use in other countries. Singapore has the third-largest oil refinery in the world. The Singapore Petroleum Company (SPC) is also a leading player in the petroleum industry and is engaged in exploration, production, refining, and distribution. Manufacturing is another major industry in Singapore. Although Singapore has specialized in digital and electronics manufacturing for the past forty years, the country has diversified into other forms of manufacturing. Thanks to government initiatives and subsidies, biomedical and pharmaceutical manufacturing are seen to be the future of Singapore's industries.

Singapore is also a global leader in services, particularly in finance. Singapore’s banking system is considered to be among the strongest in the world. Singapore has the fourth largest foreign exchange market in the world after London, New York, and Tokyo. The Singapore Government Securities is the only Asian market, besides Japan, to be part of the Citigroup World Bond Index. The Singapore Exchange (SGX) was also the first demutualized, integrated securities and derivatives exchange in Asia-Pacific (Wikipedia, 2012). Economic Forecast: From 2011 onwards, Singapore’s GDP growth rate (constant prices, national currency) is expected to grow between the ranges of 4. 008 percent to 5. 162% in the next five years. According to the Ministry of Trade and Industry (MTI) in Singapore, 2012 may see a higher growth rate of 5 to 7% as its primary trade partners continue to recover economically.

Political Perspective:

Singapore's government is a blend of democracy and authoritarianism. It is a Parliamentary republic with a legal system modeled after English common law. The president is voted into office by the popular vote for a six-year term. Voting in elections is required by law, so every citizen 21 years and older are legally obligated to cast a vote. The cabinet and the prime ministers are appointed by the president. There are 84 parliamentary seats and each person serves a term of five years. The judicial power belongs to the Supreme Court which is split into the Court of Appeals and the High Court. Judges in both of these courts are appointed by the president of Singapore.

Political Parties: There are five main political parties: The Worker's Party of Singapore, the Reform Party, the Singapore Democratic Party, the Singapore Democratic Alliance, and finally the People's Action Party which happens to be the most dominant. This dominance is due to the fact that PAP brought Singapore from an impoverished nation to one with incredibly rapid economic growth. Although this party has brought a certain level of prosperity to the country, they have also instituted extremely strict laws and censorship on almost all aspects of life.

Current Political Environment:

In the past, Singapore was very conservative with spending and investment. However, in 2001 Singapore's government began structuring a stimulus package that included tax rebates for businesses and citizens, lower public service fees, a more expansive welfare program, and financial assistance for smaller businesses. The monetary stance was changed to keep their currency competitive while assisting the increase in exporting. Since then, Singapore has relied less on government intervention and more on the liberalization of the economy. This came about due to the lack of improvement government intervention made and the requirements for a World Trade Organization membership.

Because the PAP holds over 90% of the seats in Parliament they have little trouble getting their policies approved by Parliament which only requires a two-thirds majority. As a result, there is not a proper check and balance in Singapore's parliament against the PAP. However, recently their dominance may be lessening according to the outcomes of the 2011 elections that show a significant decline since 2006.

In order for the PAP to stay dominant they must focus on maintaining a strong economy and addressing immigration issues while gaining the trust of the younger generations. Due to Singapore's low birth rate, immigration has been essential to its economic growth. The percentage of native citizens had gone down to 74% in 2010. This has forced native citizens to compete with immigrants for jobs. In the upcoming years, it will be up to the government to legislate integration programs, lower the immigration rate, and smooth over ethnic tensions.

Relationships Abroad: Singapore developed a good relationship with the United States during the Cold War due to the PAP's anti-communist platform and its ability to spread free trade through the Asian-Pacific region. In 2003, the United States and Singapore signed the first bilateral agreement between the United States and an Asian country. Singapore's government has not only pursued good relationships with the United States they also focus on good working relationships with Australia, Jordan, India, Korea, New-Zealand, and Panama through the signing of Free Trade Agreements.

The government is currently negotiating similar agreements with countries such as Bahrain, Canada, Egypt, Mexico, Sri Lanka, Kuwait, Qatar, and the UAE. (Politics & Government, 2007)

Challenges to business in Singapore:

According to the World Bank’s Ease of Doing Business Report, Singapore has the most conducive regulatory environment for business among 183 economies worldwide. While this exponentially expanding economy provides many opportunities for business development, there are a few challenges that must be considered by global entrepreneurs. Singapore has grown at a very rapid rate over the past few decades, and its economic success has attracted many industry leaders.

This increase in business has created a very competitive marketplace, which presents challenges for new entrants. High competition is a barrier to entry for amateur organizations, and stiff competition often means reduced margins. Many companies who are considering an expansion into Singapore have concerns regarding economic growth and profitability. Many of these concerns stem from rising costs in the labor market and reductions in productivity. According to the Ministry of Trade and Industry, labor productivity fell 2. 2% in the first quarter of 2012, following a downward trend for the past 12 months. Also, manufacturing costs rose 4. 6%, and overall labor costs are up 3. 7%.

The productivity reductions can be attributed to contagion from struggling European and U. S. markets. Higher costs in goods and services are driving increases in both labor and operating expenses. Access to raw materials is also a concern for manufacturers considering business in Singapore. Geographic limitations and limited access to resources often force manufacturers to import raw materials. Logistic costs associated with the delivery of raw materials can often become cost prohibitive. This problem grows increasingly prevalent as the cost of fuel continues to rise globally. Another barrier to entry for new business in Singapore is the government’s recent effort to restrict the inflow of foreigners.

Singapore’s citizens are growing increasingly discontent with income inequality and rising costs of living. In response, the government has been enacting a series of benefit restrictions for permanent residents and foreign workers. For example, certain workers are not permitted to bring parents or in-laws into the country, and healthcare benefits are being reduced. In July 2012, Singapore’s parliament considered amendments to its immigration law which would make new residency or long-term work permits a criminal offense. These social indicators are red flags for new businesses who fear the impact of legislative protection.

Summation of Macro Environment Analysis:

Singapore proves itself to be a promising location for businesses hoping to internationalize. Its diverse and vibrant culture welcomes newcomers as evidenced by its high rate of immigration. Singapore's technology-focused economy is growing at a stable rate with little sign of slow-down. This can be partially attributed to its political stability. It has been run by the same political party for decades, allowing Singapore to keep steady international relationships with foreign countries and their business partners. While all of these factors encourage business investment, new entrants must also consider legislative protection and the increased costs of labor and manufacturing in their decision.

Country Environment Analysis Abstract:

With its rich cultural tapestry and beautiful landscape, modern-day Singapore has a lot to offer its tourists. The second section of this report details Singapore’s recent efforts to make the country a major travel destination. As the fastest-growing sector of its economy, Singapore has recently made huge investments in its tourism industry. Singapore’s government has constructed a mass rapid transit system (MRT) which serves as a means of transportation for sightseeing tourists. Singapore is also focused on building attractions such as amusement parks and botanical gardens.

Singapore is a melting pot of different cultures; as a result, it offers a cornucopia of cuisines and cultural events. Along with its high population of English-speaking locals and low crime rate, it serves as an ideal travel destination for westerners.

Scope of the Tourism Industry:

Singapore has developed a rich tourism history over the past 300 hundreds of years. At the southern tip of Malaysia, Singapore is a primary destination for eastern trade. This bustling trade environment has attracted a culturally diverse population, and it is no surprise that this environmentally beautiful hub for international business has become one of the premiere tourist destinations. Singapore’s tourism industry is massive. The Singapore Tourism Board notes $22. billion in tourism revenue for 2011. In that same year, Singapore attracted over 13 million tourists, which was a 13% increase from 2010. This is an astounding number for a nation whose population is just above 5 million. 76% of these visitors were Asian; primarily from Indonesia, China, and Malaysia.

Singapore attributes much of its growth to improvements in infrastructure and air connectivity. Investments in port access, roadways, and air space have streamlined the movement of people and products throughout Singapore. The government has also invested heavily in railways for its MRTS which moves an average of 2. 4 million people per day. Furthermore, developments in telecommunications have helped to improve information accessibility, which has improved the ease of travel for both business travelers and tourists. In the year 2000, Singapore’s government decided to liberalize its telecommunications sector.

Previously, two companies controlled the entire telecommunications industry. In an effort to encourage global competitiveness, the government compensated the two companies and opened the floodgates of telecommunication competition. Allowing market forces to drive this sector resulted in a revolution of progressive technology which has solidified Singapore’s current position as a technological hub. So why is Singapore growing increasingly popular as a “must-visit” international destination for tourists? Many economists note the business-friendly environment which has attracted top-tier investors from around the world. This environment has produced a cosmopolitan culture of engineering, art, food, and music.

Noting the official languages of English, Malay, and Chinese, many international visitors also find it easy to communicate. Singapore’s government realized the unique opportunity for its tourism industry long ago and developed the Singapore Tourism Board in 1964 to facilitate and develop its tourist activities. Given its rich history of tourism, Singapore has developed many attractions over the years. Visitors can tour museums of contemporary art, explore Singaporean history, walk its pristine botanical gardens, and experience its science centers and exotic zoos.

But some of the most impressive attractions have been developed in the past decade. The Marina Bay Sands Resort is a contemporary architectural masterpiece that opened in 2010 and holds the record as the most expensive casino property in the world at $8 billion.

Singapore also has its own Universal Studios which opened to the public in 2009. This “Hollywood-themed” amusement park attracts visitors from around the globe and is popular with western tourists who find comfort in its familiarity. Tourist attractions are big businesses in Singapore, and the STB works to ensure that there is no shortage of entertainment.

Areas of Opportunity and Risk:

Future development: As previously detailed, Singapore is one of the fastest-growing economies in the world. The connectivity of the country is vital to increasing competitiveness. Toward this end, one of the future plans for infrastructural development is the expansion of its MRTS, in an effort to connect all geographical areas in the country.

Since Singapore has slowly become a regional hub for petroleum production and exploration and a tourist destination, the MRTS is aimed at providing reliable, fast, and cheap transportation of people and goods around the country. As previously discussed, communication facilities, particularly telecommunications, have fueled growth in most parts of the country. Future plans related to communication include opening up most parts of the country by investing in the telecommunication sector.

Satellite systems and submarine cables are projected to reach most parts of the country by 2014 to enhance geographic development. Other future development plans include the transformation of the city into an exciting and buzzing place by illuminating all areas with LED lights. The objective is to attract more tourists to the city. The major areas of the city targeted for this transformation include the Singapore River, Orchard Road, Marina Bay, and the whole of the Central Business District. The projected number of tourists by 2015 is expected to reach 18 million (from 13 million in 2011). Hence, future plans include improving current tourist attractions.

Funding/Investment: With its fast-growing economy, Singapore is considered an important investment destination as compared to many countries in the world. Singapore has numerous funding opportunities for investors ranging from traditional banks to grants provided by the government for investment purposes.

Institutional support for both private and public funding is encouraged in Singapore. Funding opportunities are provided both to foreign and local investors. With the wide range of funding and financing opportunities, numerous investment opportunities are available in Singapore. As previously mentioned, one of the fastest-growing sectors of the economy is the tourism industry. This sector provides numerous investment opportunities; particularly investments in tourist handling facilities such as guest houses, leisure resorts, and hotels as well as investment in transportation facilities. Oil production and exploration are other areas of opportunity.

With the rising demand for cheap gas and oil products in Singapore, oil exploration is an important investment opportunity for multinational corporations dealing with onshore oil exploration activities. Other opportunities include investment in the financial sector such as providing financial services and trading in the stock market.

Political Stability: While political stability is an area of risk in many countries of the world, it is an area of opportunity in Singapore. Singapore is ranked first as the most politically stable country in the Asian region. The political structure in Singapore makes the county an area of opportunity since the country's major sectors are not governed through political appointments. Important sectors of the economy are governed by bureaucrats.

This means that performance, skills, and loyalty to the policies of the nation qualify one to be appointed to any office in the country. Further, the dynamic nature of the country’s population contributes immensely to its political stability. The country has a multi-religious and multi-racial character where providing fair chances for all in terms of health, education, and investment opportunities continue to maintain economic balance (GuideMeSingapore. com, 2012). Hence, Singapore’s political system is an area of opportunity rather than an area of risk. This is a further investment incentive for U. S. MNEs.

Security of tourists: Singapore has a well-organized security system. The Internal security organ of the government is bestowed with the responsibility of ensuring the security of both local and foreign nationals. Hence, tourists are accorded utmost security by both private and government forces and protected from any instances of hate or racial utterances. Tourist sites and facilities are guarded by national law enforcement authorities to ensure that tourists move freely without threats to their security (Ramesh, 2010). Singapore was recently noted as the number one “Ultra-Safe Destination” by Opentravel. com; which boasted its crime rates as the lowest in Asia. Hence, the security of tourists is a major area of opportunity in Singapore.

Financial Stability: The country’s projected revenue is expected to hit more than $40 billion according to 2011 estimates. Expenditures are estimated at $35 billion leaving a trade surplus of more than 5 billion. In this regard, Singapore boasts of a trade surplus rather than a trade deficit. This means that the country is economically stable and it has stable resources for the purchase of capital goods for the development of the country. The economic growth rate is an important indicator of the country’s economy. The projected economic growth rate is expected to hit more than 7. 5% by the end of 2012. With sound financial stability, international investors can have confidence in their expected return on investment.

Country Environment Analysis Summation:

The tourism industry in Singapore appears to have a lot of promise. Its diversity offers tourists a rich cultural experience while still allowing ease of communication and transit. It also boosts a low crime rate, an increasing number of attractions, and a stable political and economic environment. Those wanting to invest in Singapore’s tourism industry through the construction of resorts and hotels will be welcomed by Singapore’s traditionally pro-business policies but potentially discouraged by its recent push towards protective. One thing is certain, the tourism industry in Singapore is booming, and the potential for growth is attracting the most innovative firms in the game.

Works Cited:

1. http://www. asiaone. om/News/AsiaOne+News/Singapore/Singapore. html Chong, T. (2010).
2. Management of Success: Singapore Revisited. Singapore: Institute of Southeast Asia. GuideMeSingapore. com. 2012.
3. Why choose Singapore? Available from http://www.guidemesingapore. com/incorporation/introduction/singapore-incorporation-advantages Retrieved on 10th November 2012. GuideMeSingapore. com. 2012.
4. Introduction to Singapore’s political system. http://www.guidemesingapore. com/relocation/introduction/singapores-political-system
5. Janus Research Reports -Doing Business in Singapore vs USA - http://www.guidemesingapore.com/research-reports/usa/doing-business-singapore-usa
6. Ramesh, S. (2010). “Government goal is to ensure all citizens enjoy fruits of growth: PM Lee” Channel News Asia (Singapore) Mahtani, S & Raghuvanshi, G. (2012)
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12. Shibani Mahtani and Gaurav Raghuvanshi – WSJ - 06/101/2012 - Singapore Restricts Foreigners - http://online.wsj. com/article/SB1000142405270230356770457751 8591429808110.
13. Wikipedia. com (2012). http://en.wikipedia.org/wiki/Mass_Rapid_Transit_(Singapore)
14. http://en.wikipedia. org/wiki/Singapore_Tourism_Board http://en.wikipedia.org/wiki/Gardens_by_the_Bay
15. http://en.wikipedia. org/wiki/Tourism_in_singapore

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