Riding The Wave

Source : The Business Times , Aug 06, 2007

What risks should businesses in Singapore be most concerned about for the rest of the year? What, if anything, can they do to cope with these risks?

Annie Yap CEO The GMP Group

IN spite of recent general success in Singapore and the region, we cannot forget that it is an interlinked global economy. Whatever happens beyond our arms’ reach will affect us like an arrow from a seasoned archer, making the economic outlook very difficult to predict. Singapore must keep in mind the possible worsening of financial imbalances between greater forces like China and the US.

In that respect, businesses cannot afford to be complacent in the current upbeat sentiment. Good times allow for a more creative use of budgets, but it should not warrant impulsive risk-taking and uncalculated decisions. Factors like rising prices from increased levies and taxes as well as higher overheads resulting from wages and rental should be taken into account in formulating forward-moving policies. Then there are other possible factors that could come into play in the near future, like rising oil prices, or even shock occurrences like terrorist attacks or a flu pandemic. It pays to have pre-emptive plans for any adverse change in business conditions.

CONTROL COSTS

Tony Sealy Managing Director Intense Animation Studio

SINGAPORE is looking more expensive than it has done before. This will deflect business to other countries, especially India and China. There may be a global hitch in stock markets causing a tightening of belts all round. Advertising, promotion and training are all candidates for cutbacks if that comes about. Companies will do well to control their costs as vigorously as ever and to widen their customer base beyond Singapore. Short of a world economic catastrophe, any correction is likely to be moderate and short-lived.

Ross Wilson Managing Director Consumer Products and Services APac Region Trend Micro (Singapore) Pte Ltd

IN my view, business risks can be categorised into those we can control or ameliorate (business costs) and those we cannot (the rest). While we have planned for the impact of the uncontrollable risks, my focus will be on managing those that I have some influence over. Singapore is a global hub and, as such, global business risks have always been a feature of doing business here.

Lars Ronning President, Asia Pacific (excluding China and Japan) Tandberg

FOR the rest of the year, businesses in Singapore should keep an eye on their business costs in the face of rising rentals due to the office-space crunch. The labour market is also extremely competitive presently and this will have a direct impact on the company’s bottom line. While businesses are struggling to cope with these challenges, they can employ technologies like visual communications that will help mitigate the rising business costs. For instance, video conferencing can help reduce office overheads such as employee travel expenses by allowing employees to communicate both internally and externally from the comfort of their office. At the end of the day, the bottom line is all about reducing the cost of operations while remaining productive.

MANAGING RISKS

Wee Piew CEO HG Metal Manufacturing Ltd

AS an open economy with a small domestic consumption base, Singapore is susceptible to winds of change from the major economic powers like the US and Japan and rising Asian powers like China and India. As I see it, the major risks looming in the coming months will continue to be the extent of sub-prime mortgage woes on the US economy and the overheating and asset bubble of the Chinese market. Both these uncertainties will likely continue to impact equity and currency volatility not just in Singapore, but globally. There is very little that a small country like Singapore can do in the face of such volatilities except to continue on its own path towards re-inventing the Singapore economic model, maintaining fiscal prudence and promoting good corporate governance.

On the other hand, I do not see rising business costs as a major risk for Singapore for the time being. It is precisely because Singapore is an attractive destination for businesses and investors alike - especially in recent years where it is re-inventing itself - that wages and property prices are rising.

Phillip Overmyer Executive Director Singapore International Chamber of Commerce

FOR the past 12 months, Singapore has enjoyed strong growth across most sectors of the economy, with advance estimates showing that real GDP rose by 8.2 per cent on a year-on-year basis in the second quarter of 2007. The big question many firms must struggle with now is the extent to which potential problems in the US or China markets may impact production in Singapore. Fears over the US housing market, market tightening in China, and the ripple effect these factors will have on the broader economies are probably the largest worry facing companies with significant operations in Singapore. And the shifting roles of the US and China in both production and consumption make these analyses much more difficult today.

Beyond these issues, the general consensus of our members from various industry sectors is that there are few serious risks facing businesses in Singapore. I would call them ‘challenges’ instead, and these could be narrowed down to a few key factors such as labour, rental/property price increases, and the possible outbreak of bird flu.

As the economy prospers, companies inevitably do require more labour and higher skills. Our ageing population also means more foreign workers with appropriate skill sets are roped in to fill vacancies. In many sectors, such as IT and banking, while wages have been on the increase, the local labour pool has not been able to match up accordingly. Foreign labour and expertise are still required to fill in the gaps to cope with the increased number of projects in the market.

Higher property prices and rentals do add another factor to the equation, and this may also translate to higher costs in the hiring process, as employees demand higher wages and more incentives. Finally, the possible outbreak of bird flu is like a ticking time bomb and companies have to seriously consider putting their business continuity plans (BCP) in place if they haven’t already done so.

Angeline Teo Principal Consultant d’Oz International Pte Ltd

THE challenges for businesses over the past months and in the coming months will continue to be increasing rentals, some over 100 per cent; GST hikes; and escalating staff costs with new recruits asking for higher salaries and existing ones demanding increments. Companies will experience higher staff turnover if they do not quickly embark on a staff retention strategy.

It is an opportune time for organisations to reassess their business strategies and re-invent themselves to stay relevant in this competitive economy. While most are concerned about savings, successful companies will invest in their people through a series of transformational programmes and training.

Saw Phaik Hwa CEO SMRT

THE Singapore market outlook remains healthy for the next six months but sentiments are that a correction is inevitable and may be significant. What is important at this stage is for businesses, especially small and medium enterprises, to keep a closer watch on market developments. I would say, ride the wave but factor in the impact of a weakening US dollar when making investment or market entry decisions. There will also be upward pressure on operating cost, be it from new oil price shocks, rising manpower costs, or from business interruption risks such as the threat of terrorist acts and pandemics.

Even the best of contingent plans will not fully shield a business from a market correction or terrorist strike. The challenge for businesses like SMRT which provides public transportation will be keeping such an essential service affordable amid escalating operating cost.

Leslie Loh President SunGard System Access

BUSINESSES all over Singapore are being shaken by a sudden increase in overheads. Compounded with the risks in currency exposure, the impact on profit are proving to be rather significant. Many companies are taking the opportunity to seriously assess their exposure, in order to take timely action on any adverse risk. We are fortunate in that, in times of uncertainty and risk, the demand for financial software grows, especially those for risk management. Businesses have found, particularly in volatile markets, that risk management software makes them less exposed to this volatility.

Eric Hoh Vice-President, Asia South Region Symantec

TO quote Senior Minister Goh Chok Tong, speaking as chairman of the Monetary Authority of Singapore, we should always be prepared, despite the country’s rosy prospects. There are a multitude of external factors that we need to contend with, such as financial risks, health risks, environmental risks and security threats. With Singapore playing a critical role as the regional hub, we need to use this opportunity during the good times to make strategic technology investments that can help us safeguard the infrastructure and data that reside here. We need to build robust risk management systems that can minimise the impact of downtime on infrastructure, applications and data caused by unplanned disruptions. And this is Symantec’s vision - to build confidence in the connected world.

Ng Kong Yeam Group Executive Chairman Sino-America Tours Corporation Pte Ltd

DESPITE the fact that the expected annual growth of Singapore will rise to 8 per cent annually for the next few years, businesses should truly be concerned with and able to manage risks for the rest of the year. Oil prices will rise within this year, so all corporations which consume oil must reduce the cost thereof.

Do not speculate in property transactions in Singapore this year. The property transactions in the US prove to us that the spectacular rise in property will not last forever. The falling US dollar will increase the price of products produced by us in Singapore sold to the US market. Producers must learn how to regulate the transactions, having regard to the rate of exchange.

Rentals and wages will increase the cost of all businesses, so businesses must plan their growth with that in mind. Enter the India and China markets and transact with them using their currency or our currency. Indian and Chinese currency will rise within this year.

Eugene Wong Managing Director SIrius Venture Consulting Pte Ltd

I FEEL that the risks for Singapore businesses for the rest of the year is how to cope with managing future expectations with the rising prices in rental and resources as well as labour. And also how entrepreneurs need to be focus on their business to develop higher value-add to overcome these new higher factors of production and not be distracted with ‘easy’ money in shares or properties.

AVOID OVERSTRETCHING

Glenn Tan Group Chief Executive Motor Image Enterprises

NOWADAYS, you read news about rising office rentals and salaries every day and these are all adding to the cost of doing business in Singapore. When times are good and the economy is booming, it is very tempting for people to get caught up in the euphoria and start overcommitting themselves. The biggest risk any business can face is to develop a blind spot caused by overconfidence. In my opinion, businesses should watch their spending and borrowing even more carefully during the good times to ensure that they don’t overstretch their resources in the long run. If you plan to survive in business, you should be prepared for both boom and bust scenarios. That way, you won’t be caught unprepared when the economy takes a dive and you are stuck with expensive loans and overheads.

Fong Loo Fern Managing Director CYC The Custom Shop Pte Ltd

THE current stockmarket and property euphoria is reminiscent of the boom time in the early 90s. The job market is rosy and young people are finding it easy to get high salaries. This optimistic environment bodes well for the retail industry. But, it also means that operating costs and rentals will continue to increase and margins will be eroded.

It is so tempting in this optimistic environment to go on an expansion spree and to go into businesses that may not be related to our core business. In my area of business, I will tread on the side of caution. We will continue to invest in staff training, improve service delivery and watch our operating costs. In a small market like Singapore, extensive retail outlets may not mean increased profitability.

T Chandroo Chairman/CEO Modern Montessori International (MMI) Group

COMING a long way from the economic doldrums of the late 90s, we are now experiencing a buoyant and optimistic New World in business. Nevertheless, there is a tendency to over-speculate and over-indulge, especially in this exciting Boom Time. Some of the risks that businesses in Singapore may want to avert include overgearing in property and overspending on credits. Escalating rentals and inflationary pressures can also be allayed by having private developers here release more commercial space into the market. The current economic climate may be favourable, but one should always practise prudence (eg in shares and investments) because discreet and well-thought-out plans can help curtail premature or unforeseeable shortfalls.

PRUDENCE

Lim Soon Hock Managing Director PLAN-B ICAG Pte Ltd

BUSINESSES in Singapore should be very concerned with the depreciating US dollar and the rising business costs: the worse kind of economic scenario to be in. While our fundamentals are strong, it is not realistic to expect our economy to be insulated from the US economic woes and other potential market turmoil.

Our growth prospects, like the rest of Asia, are largely dependent on the US. Until the US is replaced by another mammoth economy - and China is a potential, but not for some more years to come - as the world’s economic engine, whatever happens in the US will have adverse repercussions on the rest of the world. I contend that when the US engine slows down, that of the rest of the world will also slow down, sooner or later, at least for the foreseeable future.

Going forward, I would be conservative in coping with the risks but not be risk-averse. Businesses will do well not to over-invest, keep borrowings to the minimum, watch inventory and contain costs. This would also be a good time to monetise assets and build up a war chest for future expansion and growth.

Tan Kok Leong Principal TKL Consulting

BUSINESSES in Singapore for the rest of the year probably should be more concerned about the risks of a weak US economy and its strong impact on the volatility of the global economy, the possibility of outbreak and spread of diseases such as dengue fever or bird flu, and the unknown work of terrorism.

Probably more prudent on investment, more liquid financially and more savings or insurance may help.

Pinaki Rath Managing Director Gold Matrix Resources Pte Ltd

THE biggest risk is the sense of complacency stemmed by continuing reliance of Singapore businesses on America and Japan. America faces threats of slowdown and Japan a looming political crisis - any of which could spoil the party. The other worrying development is that cheap money is being squandered in prestigious offices and swanky apartments. It is imperative to keep costs down, more so in a good year to ensure enduring competitiveness. The need to increase engagement with China, India, Vietnam and the Middle East cannot be over-emphasised. And Singapore businesses must follow the example set by the government on this front.

Tan Ser Giam Chairman Eastern Navigation Pte Ltd

THE problems in the United States with the sub-prime housing loans and the persistent trade and budget deficits is taking a toll on the US economy and will affect the rest of the world. US treasury secretary Henry Paulson is making attempts to instill confidence in the US economy and talking the US dollar up. The United States can ill-afford to raise interest rates without hurting the mortgage markets and businesses; but not raising interest rates will see a weakening of the US dollar. Whether the US will go into a recession or not will depend on whether China and oil-producing countries continue to purchase US debt.

I see the chances of the US economy going into recession to be more imminent than what the US government and analysts would want us to believe. The carry-trade risks will also exacerbate the crisis.

In a financial crisis, bankers who have been knocking on the doors of businesses will suddenly retreat and it would be more difficult for businesses to borrow money from the banks.

In these circumstances, it is best for businesses to watch their cash-flow and ensure that they have enough finances to tide over the difficult periods.

FLEXIBILITY IS KEY

Lee Kwok Cheong CEO SIM

POTENTIAL risks to the financial system and geo-political risks have been well articulated. Companies face the same risks. I do believe the going would stay good for 2007. My current risk concern is therefore more around supply bottlenecks.

Companies need staff and facilities to ride the growth. On the one hand, we need to compete for them to stay in the game. On the other hand, we worry about ending up with a salary base and a fixed cost that would make us uncompetitive when the good times (inevitably) come to an end.

Building up capacity and capability while retaining flexibility to downsize quickly has to be the way forward. For most companies, this would mean smart outsourcing and investing in scalable systems.

Poh Mui Hoon CEO NETS

BUSINESSES in Singapore are more likely to face a combination of risks, which can include rising costs and weakening US growth - among others. The cost pressures from higher rental and wages are consistent with the booming economy Singapore is enjoying, further exacerbated by more MNCs moving or expanding their operations here. However, this is likely to ease off in a few years’ time when new office supply hits the market and the pace of hiring slows down. Weakening US growth can impact our export industries and financial market, cascading down eventually to weaken consumer confidence. To cope with these developments, companies can exercise flexibility in expanding and hiring, while staying nimble by ensuring their business portfolios and markets are well diversified. NETS, for instance, has embarked on a regional expansion strategy that will see our international markets contribute to a greater share of our revenue.

DIVERSIFY

Sam Yap S G Executive Chairman Cherie Hearts Group

RISING business costs in terms of soaring property prices is probably the single greatest concern for businesses in Singapore today. This is in spite of steps already taken by the government, the effectiveness of which remains to be seen.

As such, companies could look into expanding their businesses overseas. Cherie Hearts, for instance, is aggressively seeking business opportunities in Hanoi and Johor’s upcoming Iskandar Development Region.

Nonetheless, we remain committed to Singapore as our ‘home ground’ and hope to tune in to some ‘goodies’ in the upcoming PM National Day Rally! Will be welcomed if PM can raise this issue and announce some measures to further cool the ongoing property speculation.

Wong Teek Son Executive Chairman and CEO Riverstone Holdings Ltd

AS a leading supplier of cleanroom consumables in the semi-conductor and hard disk drive industry, Riverstone is constantly exposed to the cyclical demand from our clients. Singapore is exposed to the elements of global demand, especially the electronics and manufacturing industry. The seasonal risks are mounting with rising overhead costs and market volatility.

Businesses need to manage the factors of demand, by diversifying to average out their risk exposure in this dynamic environment. Riverstone is serving most of the largest names in the semiconductor and hard disk drive industry and is continuously extending and improving value-added services and product offerings to our clients to mitigate these risks and maintain our position as the leading cleanroom consumables manufacturer.

Fahmi Rais CEO iBrand Stretegy Group Pte Ltd

THE service sector sees an upswing with the current wave of business and spending optimism. However, B2B may see cost management as a challenge as supply chain keeps passing the costs. If that is containable, profitability outlook will scale-up, otherwise, there will be contraction despite the better than expected economic growth. The rest of the year looks set to cruise unless stock market continues to see spiralling shock-and-crashes. While favourable business climate is expected to continue next year, the time is apt to consider diversification (as opposed to expansion) for better risk-control and distribution of disposable resources.

CONTINGENCY PLANNING

Charles M Ormiston Director Bain & Company

THE biggest risk I can think of right now is some form of pre-emptive strike by the US and/or Israel against the Iranian nuclear facilities. The window for such a strike appears to be in the next couple of years. I believe this would catalyse a major setback to the global economy - a very significant spike in energy prices (US$150 per barrel?), an escalation of violence in several Middle Eastern countries, and a disruption in already strained relations between the US, Russia, China, France, Germany and the UK.

The US economy is sending a number of mixed signals - credit risk and overcapacity problems in the housing sector, potential setbacks in the private equity sector and higher market volatility set against good growth and employment performance. A huge question is the extent to which Asia has ‘decoupled’ from the US economy and would not be dragged down by a US downturn.
Rapid economic growth in the last 20 years has not been evenly distributed - the efficiency and benefits of capitalism have always accrued more generously to the most flexible and equipped. Changing demographics are also causing shifts in the percentage of voting populations who are elderly, who maintain different political objectives then the working population. I believe these two dynamics will result in greater divergence of political agendas in key democracies and will result in setbacks in trade liberalisation, laissez faire attitudes towards mergers and acquisitions and less progressive taxation policies. These pressures will disproportionately affect the West.

Within Singapore, the inflation in house prices and rentals is sharper then I would have ever predicted a couple of year ago. This will unsettle both expatriates and the ‘have nots’ in the Singapore property sector. The financial sector is notoriously cyclical.

Set against this, I would certainly advise firms to undertake a rigorous contingency planning process for 2008 - take the steepest revenue drop your firm has had in the last 12 years (Asia crisis, dotcom bubble burst) and run a scenario for that level of fall in 2008. Simply ask your management team the question - what would we do if this happened again? This often leads to a second question - given this risk, which of the ‘contingent actions’ should we take now to avoid being ‘caught out’ if there is a sharp downturn in 2008?

Sanjay Prabhakaran Director, South-east Asia Baxter Healthcare (Asia) Pte Ltd

LOCAL companies have had plenty of experience in managing risks such as rising business costs, currency fluctuations, tightening labour supply and the like. I am sure that they will continue to vigilantly guard against these risks.

However, the biggest risk of them all (particularly so in this part of the world) is one that they generally cannot protect themselves against. Therefore, the onus of safeguarding businesses - in fact, all of Singapore - against Risk No 1 lies with the Government.

Risk No 1 is bird flu because a full-blown pandemic in Singapore can potentially bring everything to a virtual standstill, as observed during the SARS crisis of 2003.

Recent H5N1 outbreaks in countries like Indonesia and Vietnam are stark reminders that Singapore is in close geographical proximity with some of the world’s most worrying H5N1 hotspots. Hence, pandemic preparedness should be right at the top of Singapore’s healthcare agenda at the moment. The government should work in tandem with the corporate sector in ensuring pandemic preparedness. Proactive measures to contain any outbreak include preparing contingency plans like inoculating front-line healthcare workers, practising good hygiene, and, most importantly, building vaccine stockpiles.

OTHERS

Charles Reed CEO interTouch

IN many respects, Singapore is an excellent place for businesses to prosper. That is why many companies set up offices and even headquarters here, like interTouch. However markets are dynamic and constantly present new challenges.

The first risk that businesses in Singapore face is the issue of higher operating costs as a result of escalating property prices. Attracting as well as retaining talent will also be a challenge as wages increase and employment opportunities are no longer limited to geographic boundaries. Companies must therefore allocate the necessary resources to develop effective cost management and good HR practices.

Finally, today’s business climate is not just about products and services. Social and environmental issues cannot be overlooked. But with many companies trying to go green, developing an environmental initiative that will actually succeed will require commitment and strategic planning.

Richard Chua Managing Director Yusen Air @ Sea Service (S) Pte Ltd

THE world electronics industry is going through a down cycle now, although everyone is hoping that it is going to pick up from the second half of the year for the Beijing Olympics 2008. This turnaround is very crucial to the Singapore economy as more than 50 per cent of our manufacturing is electronics-based.

At the top of the risk factors which may delay this turnaround would be a dive in the property and stock markets, both are at the peak now. Oil prices are said to be going up, the airlines have revised their fuel surcharge their times in the last few months, coupled with the increase in GST and employer CPF contribution rate, corporations in Singapore are keeping their fingers crossed for the turnaround to come faster.

Derek Goh Executive Chairman/ Group CEO Serial System Ltd

THE recent Wall Street jerks in response to the US sub-prime mortgage market is an early signal of the volatility of the US economy which has a major impact on the global markets. Thus, the potential risk for the next six months clearly is the slowdown in US imports that will put the brakes on manufacturing powerhouses China, India and Japan.

Singapore exporters with large markets in US will be badly impacted if US imports slow to a standstill by X-Mas. One consolation is that the huge US arms deals with the Middle East will bolster the US defence industries that contribute to US employment and consumption growth. Barring any unforeseen circumstances, Singapore economy should be able to sail smoothly into 2008.

Michael Reading Managing Director Island Power

PRICES of resources and fuel have been on an upward trend globally which translates into rising electricity generation costs. Increases in utility costs at a time of burgeoning demand will be a major challenge for all stakeholders.

To achieve optimal energy efficiency and key environmental objectives, as well as ensuring the security of critical energy supplies, the Singapore government must follow through on its progressive plans to liberalise the energy market. This will help eliminate barriers to entry for new entrants, mitigate the market and pricing power of incumbent energy importers and generators and enable all generators to have access to competitively priced fuel supplies which results in efficiently priced electricity for consumers.

Alfred Wong Managing Director/Architect Alfred Wong Partnership Pte Ltd

WITH all the hype about the boom in the real estate as well as the share market (up to very recently being on a high level) combined with the news of the $100 million condo for one Singaporean family and the sale of $1 million cars, we are in danger of losing our image as a society with frugal habits and a high standard of work ethics.

Despite the volatility in our equity market owing to US fiscal problems, our much publicised ambition to put money in extravagant projects in the private and public sectors may give the wrong signal to potential investors, who have up to now, regarded Singapore as an Asian Switzerland.

Anton Ravindran CEO & Co-Founder Genovate Solutions Pte Ltd

RISING inflationary pressures due to increase in rental and property costs (according to reports our prime office rents have appreciated more than 3 times as fast as Hong Kong and Japan) amongst others can not go on unabated.

The current “irrational exuberance” experienced which may have partly contributed to the upward inflationary pressures is the biggest risk that businesses such as ours face given the cost/price advantage experienced by our competitors in the region.

However, whether this is a temporary woe is too early to conclude and generally the market forces will eventually correct.

But the trick for business is to be prepared to avoid becoming a victim of the bout of “irrational exuberance” and the market not to exceed the speed limit and not to be overly reliant on government intervention. The best way to cope is to go back to the basics of building successful companies and sustainable businesses even in today’s digital economy.

David Choo K T Senior Partner/VP Consumer Products Kepner Tregoe Asia Ltd

FROM a financial perspective, Singaporean companies could protect themselves by hedging against interest rates and currency fluctuations. However, on an ongoing basis, business leaders should continuously be managing risk of business failure, attributed to losses caused by changing markets, shorter product life cycles, greater customer demands, increased competition or lowered efficiency.