Any casual visitor to Singapore can easily get a sense of the city-state’s thriving services sector, from the towering bank buildings and glittering glass-fronted office blocks all the way down to the merchant stalls of China Town and Little India. One has to look a bit further afield – or as far afield as is possible in such a tiny territory – to see the factories and industrial operations. But that does not mean they do not exist or that they are not thriving.

It is an easy mistake to make. “People equate Singapore with Hong Kong, where much of the manufacturing has moved to China,” says Manohar Khiatani, director for the logistics and transport cluster and for European business at the Singapore Economic Development Board (EDB). “But in Singapore, the manufacturing presence has been maintained.”

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Dual approach

The fact that Singapore is a small city-state adds to the perception that manufacturing doesn’t quite fit.

But Mr Khiatani is at pains to stress that, for Singapore, services and manufacturing act as twin engines of growth. “There is a misconception that Singapore is only interested in services,” he says. “But manufacturing is a very important part of our economy, accounting for 26% of our GDP, and we are committed to developing the manufacturing sector.”

After all, there is no reason to choose between the two. Singapore believes it has inherent strengths in both areas and that the sectors are in fact complimentary. “Manufacturing has a tremendous multiplier effect,” Mr Khiatani says. He uses the example of logistics: many manufacturers come to Singapore in order to capitalise on the high-quality logistics services bolstered by the presence of the world’s busiest port with 400 shipping lines to 700 ports worldwide.

Top ranking

Singapore maintains a leadership position in several sectors of manufacturing. It is the top ship-repairing location worldwide, boasts the top aerospace repair centre and is a leader in auto-insertion machines. Perhaps surprisingly, it also has the third largest oil refinery in the world, after Houston and Rotterdam, and is one of Asia’s largest petrochemical manufacturing centres. The city-state is particularly strong in electronics, mechanical engineering, chemicals and biomedical sciences.

According to the EDB’s 2003/04 annual report, in 2003 the fixed asset investments (FAI) – the method the board prefers for tabulating its FDI inflows, which includes capital investments in facilities, equipment and machinery – from manufacturing projects hit S$7.51bn ($4.53bn). Total business spending (TBS) – which refers to a company’s incremental annual operating expenditure when the project is fully implemented – from services projects was S$1.92bn. Total value added from manufacturing and services projects combined was S$8.57bn and total employment creation was 16,900 jobs.

Of the FAI from manufacturing projects, the largest chunks came from electronics (S$4.22bn) and chemicals (S$1.57bn) with the remainder spread among biomedical manufacturing (S$0.85bn), precision engineering (S$0.42bn), general manufacturing industries (S$0.23bn) and transport engineering (S$0.21bn).

The TBS from services projects was disbursed more equitably among headquarters and professional services (S$0.696bn), information communications and media (S$0.623bn), logistics (S$0.268bn), engineering and environmental services (S$0.168bn), education (S$0.112bn) and biomedical services (S$0.056bn).

Once they’ve set up shop, foreign manufacturers are taking their activities in Singapore further up the value chain. They are no longer just manufacturing here but also carrying out research and development (R&D). Singapore has an environment that is highly conducive to R&D. For its small population, there is a high density of trained engineers and science graduates, and an open immigration policy that makes it easy to import talent. Singapore has 90 research scientist and engineers per 1000 people.

Smart work

Singapore also lays claim to the best intellectual property (IP) regime in Asia as a strong protector of IP rights and signatory to all international IP agreements. A 2003 report by Political and Economic Risk Consultancy ranked Singapore as the Asian country with the lowest risk for intellectual property violations, ahead of Japan.

There is also the possibility of working with local research institutions through collaborative agreements, as companies such as Phillips, HP, Motorola and Rolls Royce have done.

As a result of these factors converging, R&D spending in the city-state has increased and is now 2.2% of GDP. “This offers an indication that more and more companies are finding it attractive to conduct R&D here,” Mr Khiatani says. And who can blame them?