SINGAPORE'S OUTWARD INVESTMENTS

Abstract

Increasingly. direct foreign investment from developing countries is a phenomenon that is of growing significance and thus interest to economists. Literature and research in this area though ongoing are still limited. In particular. there is a lack of research on Singapore's outward investments in the past, due in part, to the lack of information from home official sources and the difficulty in obtaining data from host country sources. However, the recent surge in local investments to Malaysia, the globalisation efforts of Singapore multinationals as well as the government's increasing concern in promoting overseas investments have generated much interest in the subject of this academic exercise. This study represents a modest attempt to identify the reasons behind the outward investments of Singapore. The theoretical framework is laid out in Chapter I, where literature on foreign direct investments (FDI) is reviewed. FDI from developed countries is mainly explained by two major approaches : the microeconomic approach (Dunning's eclectic theory) which expounds on firm specific advantages and the macroeconomic approach (Kojima's hypothesis) which focuses on country specific motivations. A reconciliation of the two theories is attempted. The characteristics of multinationals from developing countries as well as their differences with multinationals from developed nations are also discussed. Chapter II focusses on the domestic factors responsible for Singapore's investments abroad. The push factors are examined both from a macro perspective as well as the micro perspective of firms. The major macro factors were found to be that of Singapore's high savings rate and the subsequent necessity to diversify risks as well as the dire need to restructure the economy. The latter has led to the outflow of capital to overcome high labour cost in Singapore on one hand, and to access technology and markets on the other. Some issues addressed are as follows : Should the high savings rate of Singapore justify outward investments? Can Singapore continue to depend on technology transfers through foreign inward investments? Will the shortage of domestic entrepreneurs constrain overseas investments? Consequently, the role of the government in providing incentives, direction and sharing risk will be discussed. Empirical enquiries provide the micro perspective : firms' strategies and their motivations for investing overseas. In broad terms, these include the lack of investment opportunities in Singapore due to her limited size as well as the need to diversify. The trend and characteristics of Singapore's outward investments, including the industrial distribution and geographical spread is examined in Chapter Ill. Accounting for the direction of Singapore's overseas investments are factors such as host government attitudes and incentives, the availability of low cost labour or advanced technology and the possibility of internalising them, the attractiveness of the host countries' exchange rates and markets as well as cultural and geographical factors. Empirical support of our findings are drawn from a study of the 507 overseas operations of 56 publicly listed firms, the results of a survey of 17 firms as well as the data obtained from host country sources. To be consistent with Dunning's eclectic theory of FDI, some form of proprietary knowledge or relative ownership advantage must be present before overseas investments can take place. Chapter IV thus analyses the competitive edge and ownership advantages of Singapore firms, and these can be attributed to our track record and experience in hotel management and infrastructural building, the ease of obtaining finance, the geographical location of Singapore, as well as research & development breakthroughs for some firms. Finally, some problems associated with investing overseas are briefly examined to put into perspective the cost and risks involved. The concluding section contains a summary of the main findings of our study, some policy recommendations as well as areas for further research. Recommendations include the stepping up of local R&D efforts, the appropriate dissemination of acquired technology, as well as the sharing of knowledge and strategies of globalisation efforts through national symposiums.