Asiaweek (HK)
January 10, 2001

Innocents Abroad

Move over, state, and let Singapore's private firms take the lead


The only remaining virtue of Singapore's dilution of its equity stake this month from its flagship industrial park project in Suzhou is its Asian veneer. As a face-saving measure, Singapore will retain a small stake in the project that was once billed as its bold attempt to recreate the Singapore business experience in China. It did not work out. Instead it drained Singapore's resources, causing the republic huge embarrassment.

A large share of the blame must be borne by the Chinese, who went back on promises they had made to Singapore and allowed a cut-rate competitor to be built. But failure lay at Singapore's doorstep too, for its failure to grasp the mercantilist nature of China. This debacle reflects a deeper problem for Singapore: its model of state-driven capitalism. Few businesses would have taken the audacious gamble to invest in creating a Singapore-style township near Shanghai. But Singapore bureaucrats, invincible at home, believed they could replicate one overseas.

Unfortunately, Suzhou is not an isolated case. It is part of a growing list of Singapore's state-driven, high-profile overseas failures. These include Singapore Telecom's abortive forays in Hong Kong and Malaysia, Singapore Airlines' repeated attempts to acquire a stake in airlines in the region and, earlier, DBS Bank overpaying for some overseas assets.

To be sure, Singapore companies sometimes have been caught up in domestic political compulsions they cannot control. But savvy investors do not expect a handshake between ministers as a substitute for political strategy on the ground. Singapore's problem is expecting competent technocrats at home to operate as fire-in-the-belly entrepreneurs elsewhere in Asia without creating a political climate in Singapore that rewards free enterprise.

Since the early 1990s, Singapore's state-owned enterprises (known as government-linked companies, or GLCs) have made several attempts to expand overseas. They were relatively well-managed, had surplus cash, and the region, until 1997, was booming. But the results have not met the high expectations normally associated with Singapore. It's true that the partners sometimes changed the rules, or were reluctant to let a regional competitor take a strategic stake in the local economy. But the sheer variety of the industries involved, and the range of countries, shows that the GLCs found it difficult to operate beyond Singapore.

Singapore Airlines, which is more competitive abroad than other Singapore firms, nonetheless failed to acquire a stake in an Australian airline, nor could it launch new airlines in Cambodia and India. When SIA did take a stake in Virgin, some analysts in London argued that a deal-hungry airline may have paid too much. The story is similar with Singapore Telecom. The state-owned telecoms company made bids in Hong Kong and Malaysia. In each case, it fell at the last hurdle, mainly due to local political sensitivities.

These cases reveal flaws in the Singapore model. Deals that look attractive, and which seek to build on the relationship between top political and business leaders, have unraveled lower down the chain. At that level, Singapore officials appear to lack deftness when the regulations overseas are amorphous. Singaporeans say their unwillingness to pay or take bribes ties their hands. But the U.S. has a robust Foreign Corrupt Practices Act, and many American firms have refused to bribe and yet secured projects they wanted in the same countries where Singaporeans said they had problems.

A home climate that does not encourage risk-taking is another deterrent. Singapore has one of the world's highest savings rates. But there is downside. A large proportion of national savings is pre-empted by the government. As SG Securities has argued recently, when these savings flow back into the market, they are parked as short-term deposits with local banks. As the banks are flush with funds, interest rates remain low. This penalizes the risk-bearers, because activities with higher returns and higher risk are not even attempted. A rational assessment of risk becomes difficult.

This is coupled with another deterrent, cultural conditioning. Singapore does not have an entrepreneurial class; state-led or multinational-led management has crowded out private initiative. The GLCs and MNCs require clear rules and guidelines, and technocrats run the best ones in each case. An entrepreneur would know that tying up with a politically sensitive partner like the Salim Group in the autumn of the Suharto era may not be politically sound, but a bureaucrat would not think that way. No wonder some were surprised by the hostility of locals when Singapore firms in Batam were attacked in the post-Suharto era.

Singapore will have to trust its private sector more. A few private companies have thrived: Creative Technologies is often cited, and CDL Hotels has made a reasonable success of its overseas investments. And reforming the GLCs, once again, becomes a priority. Furthermore, a political environment that allows debate on alternative ways of doing business, and a business environment at home which tolerates failure, are necessary — though not sufficient — conditions from which a new Singaporean model can take shape.

Salil Tripathi was formerly a regional correspondent in Southeast Asia and is now a London-based writer.