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Speech at National SME Convention

Mr Tan Chuan-Jin, Acting Minister for Manpower and Senior Minister of State for National Development, Resorts World Sentosa Singapore, Compass Ballroom East 2

Mr Tony Chew, Chairman, Singapore Business Federation (SBF)

Mr Lawrence Leow, Chairman of the National SME Committee

Distinguished guests,

Ladies and Gentlemen

A very good morning to you.

  1. I am honoured to be here with all of you for the inaugural National SME Convention. Mr Manu Bhaskaran has described the current economic challenges well. The last ten years have not been easy for Singapore companies – the dotcom bust, September 11, SARs, the financial crisis. We focused on staying competitive, supported local companies, attracted foreign investments, all the while maintaining good access to labour. As a result, not only did we weather the volatility well, we gained a stronger foothold, uncovered new pockets of opportunities, and our economy became stronger and more vibrant. We created good jobs and raised incomes for Singaporeans. But is this enough? Can we rely on the same approach going forward?
  2. I think not. What brought us to where we are today will not bring us to where we want to go. We are in a good position today, because of what we did. But at the same time, we are running against real constraints as a country. We need to restructure our economy towards becoming less reliant on labour inputs, but more on productivity-led growth. And SMEs play a central role.
  3. I have met many of you, not just in my official capacity, but also as an MP, a friend and as a customer. Invariably, our discussions end up on manpower issues. So I am aware of the challenges that you are facing:

    a. Rising business costs, due primarily to rental and manpower costs.

    b. Difficulties in hiring workers – due to the shortage of locals and the tighter foreign worker rules. On local workers - a few of you even told me that local staff are asking for salary hikes, or threatening to leave and holding bosses ‘hostage’ as this means the companies would then be hit with a reduced FW quota. As a result, you and your management feel stretched, especially for small SMEs, and this makes it difficult to expand and overall morale suffers.

    c. Many schemes, low awareness– Many of you know that the Government has many schemes to help you. We have conducted a survey, which I will touch on later. But in general, there are many schemes, but it seems that we need to create more awareness and understanding of how these schemes can help, to drive more SMEs to tap on them.
  4. And some of you are probably asking yourself – Where do SMEs fit in the grander scheme? Does the Government want SMEs to do well? If so, why is the Government tightening foreign worker supply? What should SMEs do? These questions are valid and important. So let me focus on answering these three questions.  

    Q1. Where do SMEs fit in the grander scheme and does the Government want SMEs to do well?
  5. My answer is a clear yes. SMEs are vital to Singapore.

    a. First, you create jobs for Singaporeans – SMEs hire seven out of every ten workers in Singapore. And as your companies grow and develop, you create good jobs, raise incomes and social mobility, and generate exciting opportunities to meet the aspirations of our children.

    b. Second, you are an anchor of the Singapore economy – SMEs contribute more than 50% of GDP. In times of crisis, SMEs stay rooted in Singapore and work with us to restore growth and protect Singaporean jobs.

    c. Third, collectively you are Singapore’s ambassadors –Your companies represent the Singapore brand – high standards, dynamic, and sound credibility. And as your companies grow overseas, you expand our economic sphere of influence and fly the Singapore flag high.
  6. So, the Government not only wants SMEs to prosper, but to grow to become the global leaders in your respective fields.

    Q2. If the Government wants SMEs to prosper, then why tighten foreign worker supply?
  7. This is one of the most common questions that I get, one that comes from stakeholders, and often comes with a certain tendency to target companies or Government, as the “enemy”. This is not helpful. There is no “enemy”. We are all in this together, and we move in the same direction. The key question is how can we, as businesses, as the Government, as an employee, work together to ensure that we maintain our agility - the hallmark of our success?
  8. The reality is, our days of relying on low cost foreign labour to compete are limited. Depending on low cost labour inputs is an easy way to “ride the tide”. Capital investments have high fixed costs and lock up cashflow. R&D takes a long time to yield results. In comparison, labour is a much more flexible (and cheaper) input. When business is good, you hire more. When business is poor, you let some go. So it is not surprising that companies take this route.
  9. But we are coming closer to our physical constraints. Even as we are building more flats, adding more MRT lines, and building more healthcare facilities to accommodate more people comfortably, we must be mindful that there is after all a “social threshold” – Singaporeans want Singapore to feel “Singapore”. Where is this threshold, it is hard to say. But we must not forget this.
  10. At the heart of this is our unique position – Singapore is both a city and a country. Global cities such as London and New York City, they are both cosmopolitan cities. But they are also part of larger countries. That means that if an American no longer likes staying in the city, he can move to the suburbs. But as a Singaporean, we do not have such a luxury. So we must find a way to operate, going forward, in a way that preserves our vibrant economy, our cosmopolitan society and our Singaporean home.
  11. Another reason, which I believe as businessmen, many of you appreciate, is that relying on low-cost labour is a race to the bottom. While price competition is inadvertent and a necessary business consideration, the price advantage that we offer cannot be based just on lower labour cost. If so, we will not be able to sustain our competitiveness against our neighbours, who will always have more ready access to low cost labour. Even China, with its huge population, is seeing its companies, such as textile firms, relocating to other countries with even lower labour costs. Instead, Singapore must be competitive because we deliver higher value even if we are more expensive.
  12. So we must learn to adjust and operate under the new norm. We have set our sights high – to achieve a stretch target of 2-3% of productivity growth. Looking ahead, over the next 10-20 years, the composition of labour market will continue to shift. Our competitors will continue to innovate and move up the value chain. So we must act now from our current position of strength, to rely less on low cost foreign labour, focus on growing productivity and innovation, and continue to remain open and diverse, as a dynamic economy.
  13. This is the reason why since 2009, the Government has embarked on a calibrated series of measures on the foreign manpower front. To use the analogy of a tap – we are not closing the tap, but we are turning down the flow, to regulate it better. It is part of a broader strategy to restructure our economy, away from labour-intensive growth, towards growing the economy by becoming more productive, more innovative, and better at what we do.

    Q3 – So what should SMEs do?
  14. It is not for me to tell you how to run your business. But it is my responsibility to make sense of the different perspectives, explain our problems, highlight the tradeoffs, and set out the vision forward.
  15. In a way, we have a “happy problem”. Our businesses are growing, so they are hiring more workers. It is from this position of strength, of good growth and low unemployment rates, that we must move ahead with our restructuring.
  16. And I urge SMEs to lead the way. And you not alone in this. The Government will continue to provide support in the following ways:

    a. First, we will manage the pace of manpower tightening carefully. We need to keep a steady momentum on the restructuring, but concurrently, we watch closely the global macroeconomic conditions and domestic pressures. Currently, there is some concern over persistence in demand for S-passes. We are considering our options. Depending on the economic outlook, we may or may not announce measures in the earlier half of next year.

    b. Second, to moderate the impact on companies, we will make sure that the changes are incremental, announce them early, and give companies time to adjust. Just as what we did for the DRC changes that just came into effect in July this year. Companies can still continue to retain their existing foreign workers, but will have two years to adjust to the new DRCs.

    c. Third, to provide clarity on the Government’s position - there will be no U-turn in our foreign manpower policy, It has always been about moderating the increases, to a sustainable rate, one that enables businesses to grow, and Singaporeans to have good job opportunities and healthy wage growth.

    d. But at the same time, this does not mean that we are closing the tap completely. We will always need foreign workers to do the jobs that Singaporeans no longer want to do. And on a broader level, Singapore must remain an attractive location for global investment and talent. Foreign investment and talent help to drive demand for our businesses, fuel economic activity, and support our drive towards becoming a highly innovative economy.

    e. Fourth, we will consider any suggestions on how we can optimise our current policies, as long as it does not compromise on our long term objective. For example, earlier this year, we increased the period of employment of unskilled work permit holders, from 6 years to 10 years. This was in response to suggestions from construction companies that they wished to retain experience workers who are more productive.

    More recently, we started a pilot programme for the hotel sector to deploy their work permit holders more flexibly. I hope that with the positive outcomes from the pilot, we can then extend the same flexibility to other industries. In considering such optimisations, the Government will ensure that such optimisations are fair to all stakeholders, does not introduce loopholes, and cannot be easily exploited or “gamed”.

    f. Fifth, we will continue to support SMEs to grow by being more productive. Many of you are aware of these schemes but may have yet to benefit. The National Productivity & Continuing Education Council (NPCEC) commissioned a study (amongst 263 SMEs) and this is currently on-going - there are a few preliminary findings that I would like to share with you:

    i. Most companies are aware that there are schemes available, but more than half do not research further;

    ii. Among those who research, about 1 in 3 cannot find schemes that are applicable to them;

    iii. Among those who find applicable schemes, only 1 in 2 apply.
  17. So there seems to be some inertia on the part of companies. We will look into it – how can we make these schemes more easily understood, readily accessed, and directly applied. Over the next few months, the Government, together with NPCEC, will look at how to administer such schemes better. We must work on this together to increase the utilisation of these productivity schemes, so that collectively, the economy can becomes more competitive and we create good jobs for our people.
  18. So I am delighted to see that SMEC has organised today’s inaugural “National SME Convention”. Indeed, industry associations play a central role, in conveying concerns of the industry, in working together with the government to develop meaningful solutions, and creating opportunities for all stakeholders to come together to understand each other.
  19. On this note, I am happy to note that SBF, the Singapore Business Federation, and SNEF, the Singapore National Employers Federation, will be jointly organising, a National Productivity Convention in second half of 2013.

  20. To conclude, as the Chinese saying goes – 良药苦口利于身 – (liang yao ku kou li yu shen) bitter medicine is good for the body. Many developed economies have made the transition away from labour-intensity, towards productivity and innovation driven growth models.
  21. So can we, but only if we work together. Currently, we still have an edge – our economy is strong, unemployment rate is low, and the fundamentals are in place. So there is no better time for us to restructure ourselves for the long term. Otherwise, we will find it difficult to grow our economy, as we enter a period of more volatile business cycles and stronger competition.
  22. And growth is not for its own sake. It is to create a greater economic and social space, so that our children, and our children’s children, have exciting job opportunities, have the means to achieve their aspirations, and ultimately lead better lives than us.
  23. Let us walk the journey together in the decade ahead. Together, we can lead the change that we want to see. With this, I wish you a fruitful conference ahead.