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Singapore's economy moving up the value chain

There has been a shift towards higher-value services-related activities within the manufacturing sector, which could pave the way for further transformation and growth.

SINGAPORE: Singapore's economy is climbing up the value chain. Despite concerns over recent lacklustre exports data, economists have said there has been a shift towards higher-value services-related activities within the manufacturing sector, which could pave the way for further transformation and growth.

SHIFTING LABOUR-INTENSIVE PRODUCTION OVERSEAS

The semiconductor chips in EZ-Link cards are made by Infineon Technologies, which started operations in Singapore about 40 years ago doing low-cost assembly. With semiconductors becoming smaller and more complex over the years, Infineon has been constantly upgrading its processes.

Its labour-intensive production has largely been shifted to other countries while higher-value activities like research, design and test-bedding are now being done in Singapore.

Mr Andrew Chong, president and managing director of Infineon Technologies Asia Pacific, said: "As the complexity increased in semiconductor industry, testing has become a key differentiator. One of the features of innovation in testing is automation. With automation, we have been able to pilot new processes and concepts in Singapore, which we deploy to our other manufacturing sites around the region.

He added that this has allowed the company to upskill its workers. "We have moved our operators to do some of the work of technicians, while we have moved technicians to do the work of engineers, and this has fitted very well with the concept of increasing productivity of activities."

KEEPING PACE WITH CHANGES

Meanwhile, IT firm IBM has been keeping pace with changes as technology advances. Singapore first served as a manufacturing base for its hard disk drives, but it is now producing high-end main frame servers and also providing IT solutions services such as those related to data gathering and usage.

IBM's managing director, Ms Janet Ang, said: "Our vision is how can we unleash this data, the new natural resource, that we have built up across all industries in these past 30 to 40 years of computerisation journey. We see that we have to start from today, looking at the convergence of technologies and the importance of bringing technology and business together. Leveraging all the new capabilities - cloud, computing, analytics, mobile, social - and of course harnessing around that the security that enterprises need."

Last year, according to statistics from the Monetary Authority of Singapore, services-related revenue for the largest electronic firms in Singapore accounted for about 55 per cent of total revenue, up from 48 per cent in 2007.

INDUSTRIAL PRODUCTION ON UPTREND

Economists said this move up the value chain is reflected in recent economic data. Industrial production - which captures some higher-value research and design activity - has been on the uptrend, while physical goods exports, which does not, has been on the decline.

Some economists see these trends as early fruits of restructuring. They however note that these developments are not without costs, and smaller players that lack economies of scale to compete may have relocated. But they are positive about signs of a shift up the value chain across the economy, even in the services sector.

"You are seeing companies setting up regional headquarters in Singapore to capture the value proposition that Singapore can tap into regional ASEAN demand. You are also seeing evidence that companies, such as Facebook and Google, are setting up their sales and marketing offices here. So within services, we do see some evidence that Singapore is shifting up the value chain," said Mr Michael Wan, an associate for Non-Japan Asia Economics at Credit Suisse.

In the last half a decade, investment commitments in services grew by an average annual rate of about 30 per cent. Going forward, demand for services is expected to rise even further with increasing trade and cross-border investment.

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