SINGAPORE: A growing number of firms that require higher value-add capabilities – such as those in the aerospace and biomedical industries – are seeking to set up their regional headquarters in Singapore, even as others are moving out of the city-state to cut costs, observers said.
The city-state remains a key hub for business activities such as research and development (R&D) and training, amid the shift in focus towards higher value-add activities, economists said.
Said Mr Harvey Koenig, head of ASEAN Incentives Advisory at KPMG: "Singapore is a high-cost location and not every industry will be able to work through Singapore. Sectors such as aerospace, biomedical science and financial services have continued to come and invest in Singapore by virtue of things like political stability, being able to find the right kind of talent, and supporting infrastructure like banking facilities to support high value-added activities.
"Singapore continues to provide support for research and development, and grants to spur activities such as this."
Mr Jeff Ng, an economist for Southeast Asia at Standard Chartered Bank, said companies engaged in higher value-added manufacturing or those in the information communications, financial services and tourism sectors could be attracted to Singapore as the Government has been focusing on these sectors over the last few decades.
SOME RELOCATING TO 'RATIONALISE CAPITAL'
Still, some firms are shifting their regional headquarters out of Singapore. Container carrier Maersk Line recently announced plans to merge its Asia headquarters in Singapore and Hong Kong into a single head office in Hong Kong. Meanwhile, other offshore and marine firms - including Subsea 7, McDermott, Technip and Saipem - have relocated to Kuala Lumpur.
Some companies may be looking to cut costs, while others may be shifting to be closer to where their key business activities take place, economists said.
An economist for Southeast Asia at ANZ Research, Mr Wei Wen Ng, said: “Given this current environment, (with) economic conditions that are challenging, liquidity that's very tight … All sectors, be it the shipping industry, in manufacturing or finance, corporates are looking to rationalise their capital. So, inevitably cost competitiveness would arise.
“Singapore has maintained its edge in terms of being a hub in this region by having close interlinks with the rest of the region. It has a depth of labour and expertise, but the reality is that we're seeing a rise of various hubs … This kind of labour expertise can be gradually replicated as regional economies climb up the global value chain. So Singapore has to work very hard to maintain the apex of this value chain."
Standard Chartered’s Mr Ng noted: "If you look at the economies that will provide the biggest contribution to global growth, this year it'll continue to be China, which contributed about one-third of global growth last year, and looks set to contribute the same for the years ahead.
“Companies may also decide that given that the centre of economic activity lies around North-east Asia or near China, they may … shift their HQ nearer to China to focus their operations on centre of economy activities as well."
Total business expenditure - which represents the incremental operating expenditure of firms in Singapore - came in at S$5.6 billion in 2015, a drop of about 20 per cent from the previous year. This is expected to come in within the range of S$5.5 billion to S$6.5 billion for 2016.