SINGAPORE: The recent news about Micron’s investments in Singapore made for interesting reading.
Micron has several facilities around the world. It is indeed a positive signal that it has chosen Singapore as the location for its next cutting-edge plant.
The investment is good for Singapore because of several reasons.
WELL-PAID JOBS FOR HIGHLY SKILLED EMPLOYEES
The first is the product focus of the planned investment — 3D NAND flash memory chips, the leading edge products in the semiconductor industry.
Manufacturing in the semiconductor industry tends to be highly automated, which means the jobs created by the Micron investment will be for highly skilled people and well-paid, exactly the kind of jobs that Singapore wishes to attract and its citizens aspire to do.
Equally importantly, the employees in this cutting-edge facility will acquire skills that may be useful to other firms considering similar investments in Singapore.
The investment could, in fact, enhance the competitiveness of Singapore for attracting further investments in semiconductor manufacturing.
STRONG FUTURE FOR NEW FACILITY
The product focus of the proposed investment is also important from another perspective.
3D NAND flash memories are higher capacity, provide faster data access and are cheaper to produce than older designs which makes their usage a logical choice not only in consumer devices such as smartphones but also in high-end computer servers used in data centres.
The growing demand for many of these devices (such as smartphones) and applications (such as high-end computers used in data centres) will imply a strong future for the proposed facility, including possible expansion of facilities and investments in the future.
There are also important multiplier effects for cutting-edge investments such as the one Micron is making in Singapore.
These range from the jobs created in industries that supply goods and services to the new facility (e.g. utilities, raw materials, construction and other services) to the higher spending power of employees working in the facility, thus helping a range of goods and service industries.
In fact, the multiplier effect means the actual economic benefit of the investment is several times the value of the investment.
Micron will also be undertaking research and development (R&D) in Singapore, thus creating the possibility of developing more highly paid and highly skilled jobs. Equally importantly, it may provide opportunities for the many technology graduates and scientists that Singapore universities are training.
DEEPENED PRESENCE IN SINGAPORE
The new investment also deepens the already strong and longstanding relationship between Micron and Singapore, another plus.
Micron employs more than 20 per cent of its global workforce in Singapore. Since it is a leader in cutting-edge semiconductor manufacturing, having a strong relationship with it can only be beneficial for Singapore, moving forward.
A high-tech manufacturing investment such as the one by Micron also diversifies the base of economic activity in Singapore.
A focus on R&D intensive sectors such as biotechnology and nanotechnology, while important to Singapore’s continuous economic development, also carries several risks related to the uncertain nature of technology development, and the intense competition among many players. Many countries and cities for instance, are vying to be biotech hubs.
Services sectors such as financial services, another focus area for Singapore, on the other hand, provide skilled and highly paid jobs but these tend to be fewer in number, versus manufacturing facilities.
Many companies in the service sectors such as FinTech tend to be small, have lower margins (many may even be loss making, at least in the short-term) and volatile (with plenty of entry and exit).
Investments by a global leader such as Micron in manufacturing are contrasting and complementary in terms of stability of the investor and the number of jobs that can be created.
JOBS BUT ARE THESE FOR SINGAPOREANS?
On the flip side, the investment may also raise a few concerns. One concern could be about how many of the 1,000 new jobs would go to Singaporeans.
Without having an idea of the number of Singaporeans with the appropriate skill, it is difficult to estimate the number of jobs going to locals versus foreigners.
It is noteworthy however that the Singapore government is aiming for a gradual increase in population and given the low fertility rate in Singapore, inward immigration of foreigners with a high degree of skill may be one good way to achieve the gradual increase in population.
CONSISTENT WITH SINGAPORE’S FUTURE ECONOMIC DEVELOPMENT PLANS?
Another concern is whether the new investment is consistent with Singapore’s development plans, specifically whether a manufacturing investment is as good a fit with future development plans as an investment in the services sector (e.g. financial services or FinTech) or in technology sectors such as biotechnology or nanotechnology.
While services account for a greater proportion of GDP as economies develop, a base of manufacturing industries is always useful for any country, especially if the manufacturing industry is high tech.
There is also a strong learning-by-doing effect in manufacturing industries - meaning the likelihood of a country having the latest generation manufacturing is contingent on whether the country had a manufacturing plant based on the previous generation technology.
One reason the US “lost” the semiconductor manufacturing (other than Intel, which was interested in protecting its technology and hence kept its manufacturing within the US, and Micron which still makes memory chips in the US) was that the US manufacturers got out of commodity sectors (incidentally, memory chips or DRAMs) because they were less profitable.
The learning-by-doing effect meant that manufacturers that exited one generation of technology, found it rather difficult to get back in the game for the next generation.
Interestingly, Micron persisted with memory chip manufacturing through good times and bad, which explains its strong position in the industry today. The Micron investment thus will help Singapore stay in the game of semiconductor manufacturing.
A complete analysis would require that the benefits and costs – in terms of the incentives provided to Micron to invest in Singapore – be weighed together.
I believe, however, the benefits are manifold and Singapore will continue to accrue them over the long term.
Micron’s proposed investment is win-win for Micron and Singapore. In addition to creating high-value added jobs in Singapore, it is likely to have a multiplier effect on Singapore’s economy and improve its competitiveness in attracting future investments in semiconductor manufacturing.
Nitin Pangarkar is an Associate Professor in the Department of Strategy and Policy at the National University of Singapore (NUS) Business School.