SINGAPORE AS A REGIONAL HEADQUARTERS

Abstract

Since the late 1970s and the first half of the 1980s, the Singapore economy has been undergoing significant structural changes. From the late 1960s, it has been mainly reliant on the manufacturing sector as the engine of growth. By the late 1970s, Singapore had become a major world production centre for electronic products and components. Sustained rapid economic growth, and its ensuing labour shortage and rising costs, eroded Singapore's competitive advantage as a low-wage manufacturing base. This made it necessary to shift the industrial structure towards one characterised by high technology manufacturing and high value-added services. The late 1970s saw the share of the financial and business services sector in total GDP increased steadily. By 1985, it caught up with the manufacturing sector. Foreign involvement in the financial and business services sector also grew rapidly during the early 1980s. The 1985 recession served as a catalyst for the promotion and development of Singapore as a total business centre, and the development of high technology and high value-added manufacturing and services as twin engines of growth. Externally, the globalisation trend has been accelerating as multinational corporations distribute different activities in different locations according to the competitive advantage of each location. In view of Singapore's strong infrastructure foundation and the rapid development of skills and information technology, they see Singapore as having the capabilities to support the complex requirements of total business operations. Thus, Singapore is able to capitalise on the regional division of labour through encouraging MNCs to set up operational headquarters in Singapore. The OHQ scheme was announced in June 1986 and Singapore became the first country in the region that explicitly set out to capture the higher-level control functions of MNCs. This thesis attempts to examine the rationale and viability of Singapore as a base for regional headquarters. First, the study briefly examines the rationale behind the restructuring of the Singapore economy from a manufacturing base to a regional manufacturing and business hub, focusing mainly on RHQs as part of its broader strategy. Second, this study examines the rationale behind the demand for such RHQs by foreign MNCs, and the strategies and fundamental factors of Singapore as a base for RHQs. The methodology consists of a literature review and a firm-level survey. The literature review draws mainly upon the academic works of Michael E. Porter, John H. Dunning and G. Norman, as well as journal articles from Business Asia, Asian Wall Street Journal and The Economist. For the firm-level survey, questionnaires were faxed to 56 MNCs with RHQ operations in Singapore and a total of 26 firms responded. The results of a similar survey conducted in Hong Kong by the Hong Kong Government Industry Department was drawn upon as a basis of comparison. Five MNCs were selected from the respondents as case studies to reinforce certain conclusions put forward by this study.