BUSINESS ECONOMICS COURSE (MM5006)

Singapore Inc.

Syndicate 3, YP 50 A
Nadya Firstyani M

29113374

Catra Novendia U

29113478

La Ode M. Idrus

29113483

Maisa Ulfah

29113487

MASTER OF BUSINESSADMINISTRATION
SCHOOL OF BUSINESS AND MANAGEMENT
INSTITUT TEKNOLOGI BANDUNG
2014

Introduction
Singapore is a small-size country which is only 692,7 square kilometres of landmass.
Regardless its size, Singapores percapita income had grown from $427 income per capita in
1960 to be $20,748 in 2002 and its GDP grew 10.3%, in 2000. Unfortunately, in 2001
Singapores economy shrank by 2,2%. Prime Minister Goh Chok Tong and the Peoples
Action Party (PAP) have to deal with the task of returning the economy to a sustainable level
of growth. In order ro promte singapore as a hub for global business, The Economic Review
Committee (ERC) released its first recommendations that is to do a variety of tax cuts and
incentives to attract foreign investment and also recommend an increase in the goods and
services tax (GST) to balance the loss in revenues.
To decrease Singapores dependence on the U.S. economy and the electronics
industry, the Economic Development Board (EDB) had developed an ecosystem strategy
by investing and promoting new science and technology clusters to move its economy up
the value chain toward knowledge-based sectors.

Country Background
Colony to Republic
Singapore has a total landmass of 692,7 square kilometres with 3,378,300 residents in
2002 which is composed of 3 main ethnicities (Chinese 76.5%, Malay 13.8%, Indian 8%) and
speak 4 languages : English, Mandarin, Malay and Tamil. Singapore was found by Sir
Stamford Raffles in 1819 in search of a trading port and base to secure british trade routes in
the region. During world war II the British surrendered Singapore to the Japanese in 1942. At
the moment, residents of Singapore died from malnutrition and disease or were executed. In
1945, British had regained colonial control and decided against reuniting Singapore with the
Malayan peninsula and proclaimed Singapore a separate crown colony. Five years later,
british loosened control and they only retained control for the colonys defense, security, and
foreign affairs. Thus, Singapore held first election for the legislative assembly and Lee Kuan
Yew elected as the prime minister after the PAP took 41 of 53 seats. The PAP sought to
acquire full independence from britain as part of the noncommunist federation of malaya.
Singapore joined with Malaya, Sarawak and North Borneo to form the federation of
Malaysia.
There were many problems between the Malay central government and the
Singaporean government like about the political tension which then triggered the riots
between Malay and Chinese ethnic groups. Malaysia then oust singapore from the federation

as they worried about the communist might take over the central government. With this
dismissal, on August 9, 1965 Singapore became an independent nation which was switch
over from colony to republic country.
Early Years of Republic
With no natural resources of its own, singapore was not a natural country, but manmade. So that the government headed by Lee established two priorities for its most pressing
needs. First, they take a seat in United Nation in order to strengthening its defenses and
gaining international recognition. In line with the first priority to secure its independence, the
cabinet formed the Ministry of Interior and Defense to build both police and army forces. The
second priority was the economy, the PAP create the Housing Development Board (HDB) in
an effort to create jobs and to secure its political standing. The HDBs primary objective was
to build basic public housing units quickly, providing jobs and homes for Singaporeans at
subsidized rates.

Political System
Singapore was governed by a parliamentary system in which the member were voted
into office in general elections every five years. As the constitutional head of state was the
president and elected directly. To choose the prime minister, the president with the majority
of parliaments support formally appointed the candidate. With the advice of the prime
minister, the president elected the cabinet from the parliament. The cabinet consisted of the
prime minister and 1416 elected ministers responsible for the affairs of state.
Control
To transform Singapore into an attractive site for foreign investment, the government
required sufficient control. The control were included :
1. Control of labor union
In post-independence of Singapore, labor strike were a common event and this would
threatened Singapores attractiveness for foreign investment. Thus, unions that broke the laws
were banned, and many of their leaders were arrested. Wages regulated through the National
Wages Council and employers would be given greater freedom over hiring and firing.
2. Control of PAPs Power
It is important to maintain the PAPs remaining power as benefits were usually tied to
it. The PAP used the HDB to build and maintain its political base. When the PAPs power

showed signs of weakening in the early 1990s, renovation priority was given to
constituencies that voted heavily for the party.
3. Control of Media
The PAP controlling media under Singapores Newspaper and Printing Presses Act,
MITA limit the circulation of publications judged to be engaging in the domestic politics of
Singapore. The government defended censorship on the grounds that it was necessary to
maintain the countrys delicate racial harmony. The government also established the
Censorship Review Committee to consider loosening restrictions.
4. Environmental Controlling
To create the good standard of living, distinguish itself for investment and destination
for tourism, Singapore beautify its environment with the clean and green movement. In
order to maintain its environment, the government did anti-spitting campaign, planted million
trees, palms, and shrubs, cleaned Singapore river, and improving the lands drainage system
also reduced the insect population. People were charged for heavy fines if they were littering
and damaging public areas.
To resolve traffic problem, Singaporean Government developed an electronic cordon
pricing system which charged higher rates for driving into central business district at peak
times. Personal vehicle ownership was also sharply curtailed by taxation and the high costs
associated with bidding for the limited number of certificates of entitlement (COEs).
5. Crime Control
Crime rates in Singapore remained low due to strictly penalties. Although many
considered Singaporean authority to be repressive and overbearing, as a Straits Times
columnist surmised, Singaporeans appear(ed) willing to overlook the sacrifice of civil
liberties for the practical benefits of an orderly and comfortable society.
Anticorruption
To enforce anticorruption law, in Singapore there are an independent group named the
Corrupt Practices Investigation Board (CPIB) that reported directly to the prime minister. To
prevent corruption and made it less tempting, the Singaporean Governments salaries were
higher than other countries. A formula of government salaries scale were determined to keep
the salaries become competitive with those of business world. For example, an entry-level
minister or senior permanent secretary earned a salary equal to 60% of the median salary of
the top eight earners in six professions ranging from bankers to multinational CEOs.

External Relations
ASEAN
Singapore is the member of ASEAN which its primary purpose was to provide
individual members with leverage in negotiating international trade issues for the region a a
whole. ASEAN then formed AFTA (asian free trade area) to eliminate trade barriers among
member counties and also provided a forum for resolving regional relationship disputes.
Singapore faced hard relationship with Malaysia after its expulsion from federation Malaysia.
Malaysia become the major water suplier for singapore and it already agreed to extend the
agreement but in 2002 Malaysia announced that they would increase the water price. So
Singapore decided to lowering its dependence to Malaysia as the Singaporean scientist
recycled water from sewage named NEWater.
China
China is a considerable competitor for Singapore in terms of foreign investment
destination. In addition to its financial investment, Singapore hoped to leverage its unique
administrative skills and infrastructure knowledge in a partnership with China to industrialize
Singapore. As Singapore jeopardized by Shanghai as the global financial services hub for the
region, Singapore planned to defed its economy position by moving up the value added chain
while benefitting from Chinas growth at the same time.
Security
In spite of already become the part of the british commonwealth, Singapore still spent
5,3% of GDP on its defense budget and they had more than 250,000 reservists and a
technologically sophisticated arsenal of more than 350 tanks and 150 combat aircraft. They
took care about the defense seriously remembering their past history about racial riots and
terrorism activities in their country.

Economic Growth
In order to maintain tight control over its economy, Singapore concentrating on six
policies : investment in the state, active encouragement of foreign investment, a pro-business
environment, free trade, a tight monetary policy, and high savings. In 1961, Ministry of trade
and Industry (MTI) had established the Economic Development Board (EDB) to act as a
one stop shop for foreign investment. The EDBs initial goal in the 1960s was to drive

investment into the four labor-intensive industries of ship refitting and repair, metal
engineering, chemicals, and electrical equipment and appliances.

Government-owned Companies
Singapore government had stakes in almost all areas of economy, and the
government-linked companies were supervised through the Singapore governments
investment company : Temasek Holdings. Temasek holdings are an investment company
owned by Singapore Government, operates under the provisions of the Singapore Companies
Act. Temasek owned about 20% of Singapores market capitalization. Altough Temasek is a
government-owned firm, it was run like any other commercial company that is concern to the
goal of having greatest return on investment.
Foreign Direct Investment
By 1960, Singaporean had very few restrictions and no capital gains tax to foreign
direct investment. Thus, MNCs attracted by Singapores stable and open economy, efficient
government, tax incentives, and docile labor supply. The attracted MNCs to Singapore gave
several benefits that was gained employment, technology, managerial expertise, and human
capital for the country.
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Efficiency and Infrastructure. In infrastructure field, the government developed

industrial estates to house of foreign firms. For instance, transform the swampland
into the Jurong industrial estate for manufacturing firms. In terms of efficiency, EDB
also provided a quick-start environment for manufacturers. Only in two months, EDB
enabled National Semiconductor to begin production. This bureaucracy attracted other
MNCs to relocated their operations to singapore.

Tax Incentives. To attract foreign investment, the Singapore government provided tax
relief. They gave tax exception for the start up companies and MNC for a period of
five to ten years.

Educated Labor. Singapores GDP growth rate achieved 13,6% in 1968 and continued
to grow and this made a growing labor shortage. Singaporean Government then
launched plan to develop Singapore into a modern industrial economy based on
science, technology, skills, and knowledge by establishing Skills Development Fund
in 1979 to improve the skill base of Singapores workers. The government attempted
to discourage low-cost industries by raising wage levels while increasing the skill
base of the worker population. As a result, Singapores economy contracted 1.4% in

1985. By 1988, Singapore was growing again at a rate of 11.3%, the highest economic
growth rate in the world.
Pro-Business Mind-Set
Labor. Singaporean Government endeavor the businesss needs, both present and future. To
anticipate future needs, the government preparing the infrastructure and educating workers
years in advance. The government also put the secretary of the NTUC (National Trade Union
Congress) in the cabinet so the unions would be aware about the reason behind the
governments policies. The union along with the government collaborated in create the
necessary conditions to help encourage companies to invest in Singapore as Singaporeans
known for their strong work ethics.
Foreign labor supplemented both skilled and unskilled workers. Unskilled workers
were issued short-term work permits. Meanwhile, the higher the level of skilled, the easier it
was to attain a work permits. The issuance of work permits used to regulate unemployment
and thus wages and inflation.
Productivity. To fulfill the needs of investors and improve its workforce quality, Singapore
had launched the productivity movement and established the Singapore productivity agency
named SPRING (Standards, Productivity, and Innovation Board) which were concerned in
highlighting the importance of productivity to the country and its workforce. Union leaders
took a mandatory module on the subject of total-factor productivity (TFP). This movement
then showed some sign of paying off as Singapores TFP growth rate improved from an
average of less than zero from 1980 to 1985 to an estimated 3.8% between 1985 and 1990.
Due to the Asian financial crisis of 19971998 and the later global economic downturn,
however, the productivity fell by 5.4% in 2001 and the government refocused its efforts. In
April of 2002, to complement the countrys shift toward a knowledge-based economy,
SPRING repositioned itself to promote additional innovation as an engine for future
productivity growth.
Free Trade
As its industries grew, Singapore became a major global exporter with trade as the
key engine. They implemented an export-oriented growth strategy because its domestic
market and natural resources were too small so they didnt used the import substitution. The
government gradually removed almost all tariffs and invested in improving infrastructure and
the efficiency of its ports. In an effort to promote Singapores export goods and as

international trading hub, the government established the Trade Development Board. As the
result, in the early of 21st century, Singapores current account balance was 21% of GDP.
Excluding the years of economic downturn, Singapores external trade grew often in doubledigit percentages.
Monetary Policy
All elements of monetary, banking, and financial aspect in Singapore controlled and
regulated by its de facto central bank, the Monetary Authority of Singapore (MAS). Later,
MAS also had additional authority over the insurance and securities industries. Through an
exchange rate-centered policy, MAS maintained a low inflation rate and kept interest rates on
a par with foreign rates.
High Saving
Upon retirement, Singaporeans received tax-exempt benefits on the basis of past
contribution plus interest which the rates were based on fixed deposit and savings deposit
rates but it was guaranteed to pay at least 2,5% per annum. This fund were managed by the
Central Provident Fund (CPF), which is a publicly managed, served to provide social security
for Singaporeans. The fund (percentage rate from the employer and withheld from the
employees salary) could be borrowed by the government to be invested in infrastructure and
new economic ventures. So that, it is important to maintaining a high rate of savings as it
made Singapore possible to finance its own development.
Later, CPF not only served the retirement needs but also provides for homeownership benefits, health-care, insurance, and investment. Each CPF member contributed to:
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The Ordinary account : covered savings that can be used for housing, insurance,
education, investment, and family member.

The Medisave account is a combination between ordinary account plus the national
health plan, and also covered membersand their dependentsmedical expenses.

The special account was reserved for selected investment, old age, and contingency
purposes.

Each accounts received different percentages of the total contribution according to the
members age. At the end 2001, Singapore had the highest domestic savings rates in the
world (46% of GDP).

Enterprise Ecosystem
Enterprise Ecosystem here is an environment where all companies both big and small,
and also foreign and local, thriving in synergy and symbiosis. Beginning in the late 1980s,
Singapore along with Malaysia and Indonesia developed manufacturing sites in Johore
(Malaysia) and Batam Island (Indonesia). The second step to realize this project was
encouraging innovation and entrepreneurship in all existing and new sectors. EDB also
established the Technology Investment Fund to invest directly in promising private company.
The government would let the third party investor do the due diligence. In order to meet the
needs of entrepreneur, government bureaucracy was also modernized.
Biomedical Sciences
The new BMS covered the pharmaceutical, medical technology, biotechnology, and
helath care service industries. Since the launch of the BMS, Singapore gained a reputation for
its holistic approach to growing the industry. Singapore invested S$ 1 billion to transform
Singapore as Biopolis which were devoted exclusively to biomedical R&D efforts. Their
goal was nailed 15 global life-science manufacturing firms housing there, and by 2002 they
already got half of it including Meck, Pfizer, and Wyeth. The key of this BMS industry is the
intellectual capital. Thus, the EDB planned to strengthen its higher education by attracted at
least 10 world class education institutions by 2008 and had special focus on building the
countrys scientific knowledge base.
In year of 1991, already had the National Science and Technology Board (NTSB)
which had primary concern to raise the level of scientech in Singapore. The NTSB then
renamed the Agency for Science, Technology and Research (A*STAR), built Singapores
scientific knowledge base through a series of five-year plans. A*STAR had four division
worked to fund and promote scientific research and education with the goal of creating the
Boston of the East. A*STAR supported most of the countrys public-sector research
through grants and assistance in finding funds.

ERC Recommendations
Tax incentive played important part as other countries like Hongkong and Ireland
offered competitive income tax rates. With the aim to reducing both corporate taxes and
personal income taxes by 20% before 2005, in year of 2002 Lee recommended that the
government cut corporate taxes from 24.5% to 22% and personal income taxes from 26% to

22%. The Monetary Authority of Singapore estimated that the tax cuts could boost real GDP
by 1.2% and investment by more than 10% between 2004 and 2007.
Some of the tax cut, would be covered by a rise in the GST from 3% to 5% by the end
of 2003. As people's income increases, income tax will push them into higher tax brackets,
which take larger proportions of their income. GST will not. The ERC recommended
increasing competition to help build a more entrepreneurial and vibrant Culture or in other
word, the government should gradually divest itself from all nonstrategic businesses.

Decision
Since Singapore faced the problem with its human resource capital, the microstrategy
of enterprise ecosystem along with tax incentives wouldnt be enough to fix that problem. In
the case stated that Singapore had difficulty retaining its skilled workforce. In 2002 survey 20% of Singaporeans considered leaving citing factors such as the high cost of living, the
stressful education system, and the unresponsive, overbearing government. So that, beside
focus in two strategies above, government also should focused in keep singapore attractive to
its people. By keep Singapore attractive to its people, it will strengthen its human resources.
With better human resources quality, the productivitym efficiency and value added products
and services will increase. Thus, the position of Singapore in world economy will be
guarantee.