Introduction and insight of what to be faced

Topic: BusinessTeamwork
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Last updated: September 9, 2019

Introduction Prior toinvesting in a foreign country, it is imperative to know what the permutationsthat you may face. There are various different challenges that you may face andobstacles along the way which would need to be defeated to invest in a foreigncountry. In order to be equipped it is important to do your research before toget a good understanding and insight of what to be faced with. Investing inSingapore, traditions must be appreciated and possible alterations to make sureit is aligned within the countries framework and which would mean it doesn’tnegatively impact the company.  FDI has played a crucialrole through the years in accelerating the economic development in Singapore.Being a small country with no natural resources, Singapore has depended onleading international companies not only in bringing in capital funds tobroaden the economic base, but also in upgrading the technology and skills(Intelligence, 2018).

 Fdi Confidence Index The fdiconfidence index suggests that Asia isamong emerging and frontier markets, developing Asia still far surpasses otherregions in terms of attracting FDI. Singapore is currently ranked in the top 10in the ranking of fdi confidence index. It currently scores 1.61 out of 3 onattractiveness of fdi.

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It has seen no change to previous year, however it isforecasted for further strong growth this year due to its strong regional andfinancial hub (AT Kerney, 2017). The Gdp growth seems to be on the up, figurespublished showing a increase of 1.7% in 2016 and 2017 are expected of 2.2%(Atkearney.com, 2018) As figure 4shows Asia showed the highest inflows in FDI between 2014-2016. There was adecrease in 2016 however this seems to be a trend apart from in north Americaseeing a slight increase.

Whereas the EU in 2016 also seen a decline in fdiinflows. The sectors that seem to be having great success are the manufacturingindustry and financial services. As research suggests that Singapore is heavilyreliant on exports as this extents through the markets, this could halteconomic growth and fdi inflow could suffer (Unctad.org,2018). Political economy Singapore’s largely corruption free government, skilledworkforce and a well established infrastructure has attracted more than 3,000multinational corporations (see figure 7). The manufacturing and financialservices account for 26% and 22% of Singapore’s gdp. As a company setting up overseas, huge interest is on thepolitical, legal and economic systems, as these can have major implications andsignificance on our company’s success.

According to the rankingsystem published by Doing Business2017 (world bank). Singapore is ranked second in ease ofsetting up a new business. This would suggest the recent growth the country hasseen, and the reforms put in place allowing quick set up to take place.  Singapore pridesitself on stability and security.

The political system has key five keyprinciples to ensure high-qualitygovernment; keep politics open and contestable; maintain accountability for theGovernment; uphold a multiracial society; and have suitable stabilisers andchecks and balances in the system (straitstimes). Selected civil liberties such as freedom ofassembly and freedom of speech, remain restricted. However, ‘the Peoples Actionparty’ has incorporated economic liberalization and international trade’ (Heritage.org, 2018).

As figure 2 shows the power is centralized and leaders are heavily reliant and on therules of what is expected from them. Control is expected and attitude towardsmanagers is formal. Communication is indirect, and the information flow isselective.  Singapore, with a score of20 is a collectivistic society. This means that the “We” is significant, peopletend to belong in-groups, families or organisations. This allows for them to aftereach other in exchange for loyalty. People in the collectivist culture have ahigh interdependence with others and there is interpersonal sensitivity (HofstedeInsights, 2018). There is huge emphasis on family values and familyrelationships.

As a company setting up this will have to be respected andmanagers would play a major role in understanding the family culture andrespectability amongst people. Social relations should be conducted in such away that were respect is shown to everyone (Hofstede Insights, 2018). The economy of Singapore is a highly developed capitalist mixedeconomy. Whilst governmentintervention is kept at a minimum (Pages, 2018).

The economic system tendsto favour foreign investors with the government providing incentives forcompanies setting up in the country providing registration with the Singaporeeconomic board. However, the country continues to maintain monopolies in certainsectors (financial services, professional services, media andtelecommunications).  The offer oftax concessions means it lures in many companies and easy loan conditions aspart of the investment incentives.

Singapore has three free trade zones that providesame opportunities to locals and foreign companies. This will allow Free trade which means companies can import, sell or export goods withoutcustoms, excise duties or goodsand services tax. The Legal system is similar to the one wecurrently have in the UK based on the English common law. Singapore’s legal framework and public policies aregenerally favourable toward foreign investors. Foreign investors are notrequired to enter into joint ventures or cede management control to localinterests, and local and foreign investors are subject to the same basic laws. Ourcompany will benefit from this, apart from regulatory requirements in somesectors, the government does however screen certain investment proposals withthe purpose of determining eligibility for various incentive regimes.

  As acompany moving or investing abroad the political economy of a country plays avital role in the success of the investment. Having a poor political economywill increase risks are imposed on the investment and the long-term goals put injeopardy.  Foreign direct investment FDI has played a fundamentalrole through the years in accelerating the economic development in Singapore.Being a small country with no natural resources, Singapore has depended onleading international companies not only in bringing in capital funds tobroaden the economic base, but also in upgrading the technology and skills.

Singapore is the 7th largest recipient of fdi and 3rdlargest amongst east and south east asia. This shows how big the scope of themarket it is and what potential it has when considering to invest.  The Singaporeaneconomy expanded 2.5 percent year-on-year in the June quarter of 2017, equal toa downwardly revised 2.

5 percent growth in the prior quarter and below marketconsensus of a 2.8 percent growth evident by figure 3. While the manufacturingsector and services sector grew gradually.

Year-on-year, the manufacturing sector grew by 8.0 percent,compared to an upwardly increase 8.5 percent growth in the preceding quarter. On a quarterly basis, the GDP expanded an annualised 0.4 percent,compared to previously 1.9 percent reduction in the previous three months andless than market estimates of a 1.1 percent growth.

(see figure 3 in appendix). To help further growth the Monetary Authority of Singaporehas committed $225 million over the next five years to grow financial sectortechnology and innovation scheme. This benefits Singapore and companiesinvesting which shows not only further growth but measures in place to sustainthe sectors where it is thriving currently.

 The Singapore Trade Development Board (stdb) mission is to develop Singapore as a premierinternational trading hub by promoting Singapore’s goods and services, ‘pioneeringentry into new markets, attracting international traders to base in Singaporeand advancing the nation’s external interests’ (Kim Inglis). As a business setting upoverseas Singapore’s smalldomestic market combined with no tariffs on most imports and low corporate taxrate of 17% makes Singapore a popular low-risk high-return FDI destination. The strategic location makes it a crucial logistics hubfor global trade. According to the World Bank’s 2014 Logistics PerformanceIndex, Singapore is ranked first among all the economies.

Also is the world’sbusiest transhipment hub, handling about one-seventh of the world’s containertranshipment. This would allow easy exports to other countries and the crossroads of maritime routes andits proximity to big markets are strategic advantages (Www3.weforum.org, 2018). In the last few decades, Singapore has invested heavily in developingindustries to scale for growth.

Manufacturing is a key industry for Singapore,accounting for 20 to 25 percent of the GDP, while the services sectorcontributes around 60 percent of the GDP (Wto.org, 2018). Singaporecurrently has regional economic integration with its three free trade zonesmeaning free flow of goods, harmonised tax rate and a common currency. Thiswould mean the barriers are lifted and no restrictions between the members. Oneof these is APEC were there are 21 members. This helps to reduce costs whencrossing borders and improving access to trade.

As a company setting up this isbeneficial as it means it helps to reduce your costs and when exporting tothese countries.  Singapore isa combination of both liberal marketeconomies and coordinated market economy. A liberal market economy which means equity based, big stock markets. This allows makes iteasier for investors to switch their assets – ‘this leads to strong pressuresfor short-term profits’ (Hall & Soskice, 2001).

Liberal marketeconomies means it is more competitive and contract based through pricecompetition. The level of turnover in companies is also high due to low levelsof trust between employer and employee (Atavist,2018).  Firms operating in a lme model tend to give an advantage in industrythat require radical innovation for example telecommunications and biotechnology(Hall & Soskice 2001).

Whereas the coordinated market economy focuses onthe manufacturing industry for example which encourages information sharing andcollaborative firms and there is non market relations. Singapore has no natural resources andcurrently has no minimum wage and a generous tax system (Intelligence, 2018). Openness to regional and internationaltrade Singapore’sopenness to ‘global trade and investment and its transparent and efficientregulatory environment encourage vibrant commercial activity’ (Inglis, 2014), and the private sector is a prime source of economic flexibility.However, state involvement in key sectors remain extensive, this is believed tobe slowly down and opening to domestic markets to foreign banks (Heritage.org, 2018).  The country possessesexcellent transport infrastructure, its labour market is extremely efficient.

The financial sector is well developed, stable, and trustworthy. However weshould be aware that Singapore’s macroeconomic environment has somewhatdeteriorated ‘as a result of a persisting deflationary spell’ according to somescholars (Inglis, 2014). Singapore continues to halt behindthe world’s most prolific innovation powerhouses in this capacity.  Singapore’smultiple approach on trade policy are ‘intended ultimately to promote atransparent, fair and rule-based trading regime that covers not only trade ingoods and services but also investment flows, intellectual property, free flowof skilled labour, competition policy, market access, technical cooperation,and capacity building’ (Eria.org, 2018).  Singaporegovernment adopted an interventionist approach to develop its economy (newmanapproach).

This was done through a cross strategy of mixing economicinterventions with a free-market approach. This means our company and proposalscould potentially be screened before getting the go ahead(Uspprism.files.wordpress.com, 2018).  Singapore currently has 21 regional bilateral free tradeagreements with 32 trading partners  (Wto.org, 2018).

This will bolster and give more exposureto our company to be able to trade in a country where it is able to takeadvantage of the trade agreements it has, in place when distributing andexporting our goods.  Environmental issues/ ethics andsustainability The freedomof speech and press are inhibited for public gathering of 5 or more and permissionis needed. The states intervention is relatively high in terms of freedom ofspeech and creating a democracy (Sirkoski, 1996).

This can be seen as to have anegative impact and impose restrictions on our company when investing in thecountry. As the rights for example we currently have in the Uk will not beapplicable in Singapore.  Environmental issues there is a huge focus put on by thegovernment at the moment in reducing carbon emissions and boosting industrialenergy. This will be regulated by the ECA act coming into place this year. AsHannah Koh writes in her journal article this will make Singapore ‘a moresustainable country and a cleaner environment’.

As a company we would have toabide by the act coming into place and also reduce gas emissions which willalso be regulated from 2019 (eco business). This will however mean certain costimplications in order for our company to adhere and fall in line with theregulations coming into affect.  As Melissa low from theuniversity of Singapore argued ‘Companies may be cautious of implementingchanges that require high capital costs’.  And while this would have a positive impact onthe country and people. For management it ‘usually approves of projects thatrequire low investment and short payback periods of two to three years’ (FintechSingapore, 2018). In recent years pollution and environmental issues have beenhugely scrutinised, with people defending by the ‘size of the country’ and its’high use’ of the reason. Ethics in Singapore is hugely emphasised on itsanti-corruption policy.

This is promoted by the four key pillars of anti-corruption by the government. For our company to fall inside of these measureswe would have to align our business strategies and enter the market adhering tothese policies and demonstrating good ethical practise. Some of these includedata privacy, whistleblowing and disclosure and privilege (see figure 6).  The workforcedevelopment agency in Singapore has put in measures and schemes to implementthe reform of jobs to them also be available for less skilled workers. The’Workpro’ scheme for example will ‘help employers adopt a progressivemanagement practise and improve employment practise’ according to (Mohammed AlOmari, 2013). This would affect us as we would have to aim to develop andimprove employability practises which could have cost implications and meansaffects our progression. As a low skilled workforce could mean short termsuccess and may not fully see our full potential until our workforce isexperienced.

 Conclusion  As the reportassesses and analysed the fdi of Singapore, it would suggest that the positivesoutweigh the negatives in investing in the country. There are no doubts certainchallenges would be confronted, however this would be the case in mostcountries when choosing to open up for business. When investing into a foreigncountry traditions and culture must be given huge significance and respected. Singaporeis currently making colossal developments and establishing itself as a majorplayer in the Asian market and across the globe. It is a country which isimproving and growing all the time as evident in the report.

I believe with theideas put forward our company would benefit from expanding and investing inSingapore. A well stable political and legal environment and the zero toleranceon corruption and other aspects identified, allows solid foundations, ready tobuild upon for our company to be a success. 

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