MARKET STRUCTURE, INDUSTRY CLUSTER AND SINGAPORE'S EXPORT COMPETITIVENESS

Abstract

"The great thing in this world is not so much where we stand as in what direction we are moving." - Oliver Windell Holmes, Sr. Such words of wisdom are invariably pertinent in any context. The above quote, being applicable to individuals as well as nations, aptly sums up the theme that underlies this thesis. It is established that the creation and maintenance of national competitive advantage is fundamental to the development of any economy. As technology can cause a radical transformation of factor advantages, classical rationales like the theory of comparative advantage are found to be insufficient for the explanation of industrial success in a rapidly evolving international arena. The concept of competitiveness can be delineated into two elements: cost-based advantage and product-based advantage. Both can be measured by the World market share held by the exports from a particular nation while unit price and cost indices can verify the latter's cost-competitiveness. Product-based advantage, being intangible forms of innovation to the export product and its production process, is more elusive. However, it can be discerned from the level of research and development expenditure relative to output and value-added, and the number of new patents realised. Since competitive advantage can stem from the patterns in which a nation's firms organise and perform discrete activities, a sophisticated understanding of the structure of the industry is essential to any formulation of competitive strategies. Examples of East-Asian mechanisms of competitiveness are analysed along the lines of market structure. It is observed that the exports from industries characterised by strong patterns of linkages occupy substantial world market shares. Since high world market shares represent a firm's competitiveness, it appears that industrial organisations like the Korean chaebol and the Japanese keiretsu can stimulate competitive advantage. The thesis attempts to bridge the gap between abstract theories on competitiveness and previous studies of the chaebol and kereitsu before proceeding to investigate the Singapore case of clustering. There is a focus on the market structures and industry clusters of two high-growth industries - Chemicals and Electronics - because it is recognised that not all firms are equally competitive and the success of one particular industry can reinforce the performance of the rest. This is because of vertical and subcontracting relationships can improve cost-based competitive advantage through the abatement of procurement and information costs. It is found that the government plays a minimal part in creating cost-based advantage for pre-existing linkages have and will always continue to be maintained on the basis of pure economic sense. The government can, nevertheless, encourage the upgrading of quality and service in the supporting industries with tax and policy incentives. The premium prices and high market shares commanded by some commodities in the electronics and chemical dusters contradict the notion that a small and open country like Singapore is doomed to the position of a price-taker in a perfectly competitive world. On the other hand, the low research and development expenditure undertaken by these firms attests that innovative research by foreign MNCs is carried out elsewhere. A critical role is required of the government in this instance since the propulsion into the innovation-driven stage stipulates that firms not only to appropriate and improve foreign technology but, create them. In fact, the government actually extends duster development beyond the national boundaries. Industrial targeting by lead agencies is biased towards established MNCs and big local companies. The former is courted and used to jump-start the formation of international linkages through joint ventures and cooperative research. The government also rears its interventionist hand with deliberate policies to create advanced and specialised factors like technology infrastructure and specialised research and development. It must be reminded that the prime objective of the study is to determine the direction in which the competitive advantage of exports improve and upgrade. As such, a preview of the cluster development in Singapore is presented before proceeding to the conducing sections on policy implications and the possibilities for further research.