Why you might want to shut your business in SingaporeBy Adrian Tan
According to the Business Optimism Index (BOI) conducted by the Singapore Commercial Credit Bureau and released early this year, Q1 2015 marks the second-lowest score in two years. Based on their scoring system, Singapore BOI score was +1.11.
Contrast that to +10.79 for Q4 2014 and +33 over Q4 2013. The drop is really significant.
How did this come about? The key concern stems from sentiments towards global political situations as well as softer regional demand in export-oriented sectors.
And in a more recent study conducted by SBF-DP, their six-month forward-looking SME Index is showing slipping business confidence. Importantly SMEs are expecting profits to decline from an Index Score of 5.47 from 5.54.
It doesn’t help that more companies are dragging their payments in the first quarter of 2015 compared to last quarter of 2014. It is usually a role reversal as Q4 would see many decision makers absent due to leave clearance and long holidays back in their native countries. You can’t sign cheques if you are not physically in front of me.
All the signs appear to be pointing to the same direction.
Let’s look at the canary bird of Singapore – the retail sector.
Canary birds are small songbirds that were brought over from Spain to Europe by sailors in the 17th century. Besides possessing very good vocals, they also come with extremely delicate digestive systems. There are many foods that we would enjoy but will instantly kill them off.
Property services firm Cushman & Wakefield latest report reveals an expected drop in retail rental in the coming 12 months after witnessing a decline in Q1. For now the drop appears to concentrate in the city fringe areas such as City Hall and Marina Square Centre.
"Consolidation of space among various trades has been more evident since the start of 2015. Fashion apparel and accessories brand Lowrys Farm exited the market earlier this year, while other tenants such as Marks & Spencer and Cold Storage in Centrepoint, John Little stores at Marina Square and Tiong Bahru Plaza, and Japanese department store Isetan at Wisma Atria are expected to cease operations by the second quarter of 2015," Cushman said.
To me the knock-out punch came from Isetan. The rest comes and goes during good and bad times. But mainstay such as Isetan is your unwavering tree even during a full-blown hurricane. They didn’t shut down their Wisma flagship store during 9/11, Sars, or Global Financial Crisis.
The gaining popularity of e-shopping, increasing competition along Orchard Road, and (especially) the curb of foreign-workers are redefining the concept of business challenges for the sector. And we have not even touched on the workers that you CAN hire, the job-hopping self-centred generation y and z that disappear from work after lunch or show hints of staging a walk-off after a week of employment so they can get an increment.
Why do they deserve the increment? Well, probably because we owe them a living (or so they think).
So consumers around the world are facing their own domestic issues that led to less spending on our exports. Their domestic issues seemed to have no end in sight. And we are now essentially a service-based economy. Manufacturing can’t compete across all levels, be it a t-shirt or a processing chip for a mobile device.
All that naturally lead to a shrunken domestic market. We used to have foreign workers at all levels spending their income from groceries to bungalows in Sentosa. But the tightening of foreign worker quota meant less people with money to spend. You can already see the impact in the clubbing scene with recent mass closure of clubs.
The immersive challenge that business in Singapore will face will be unprecedented.
We can no longer be dependent on more domestic demand and neither can we lower our price point to sell cheaper than Myanmar or Vietnam. I’m no economist, but pragmatism tells me the best way is to shut down the business in Singapore and replicate them in cheaper third-world countries. That is how we grew in the 1980s when our cost was low and our people were much hungrier.
Good thing is we have now 20 years of experience to know what works and what doesn’t. We do not possess price competitiveness in manufacturing but we have 2 decades of manufacturing expertise. We just need a different market to bring the cost back to 1980s level.
And make it Singaporeans' turn to become the foreign workers in other countries.