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1
Growth Triangles and Climbing the Value
Chain: SIJORI 25 Years On
Francis Hutchinson, ISEAS
“Getting them to come, that is the easy part.
Getting them to stay or to grow, that is the difficult
part”.
Dato Chet Singh, Penang Development
Corporation
2
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
The SIJORI Growth Triangle
Launched 1990 – Singapore, Johor (Malaysia), Riau (Indonesia)
Different factor endowments, single destination
Singapore – high-end, skill-intensive
Johor – mid-range, labour- and land-intensive
Riau Is – lower-end, labour- and land-intensive
Government-led
Low-cost
Quicker than FTAs
Export-oriented – escape small domestic markets
By-pass constraints –
land, labour for Singapore
capital and technology for non-core locations
Enable all locations to climb the value chain
3
4
Architecture of Territory, FCL
5
The SIJORI Growth Triangle
1990-97 - Initial period of enthusiasm
• Concerted marketing, strategic investments by governments
• Manufacturing (E&E) investment into all locations
• High growth rates and structural transformation in ‘periphery’
Driver of Change - Asian Financial Crisis
• End of New Order in Indonesia
• Relations between Singapore and Malaysia cool
• Selective approach to investment decreases
• Ad hoc, and essentially two sets of bilateral relations
Singapore-Riau Islands, elements of concerted marketing overseas
Singapore-Johor, Singapore – investment destination, elements of competition,
low-level collaboration
• Some frustration at non-core status
• Value chain, technology transfer, volatility
6
7
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
What We Know Regional division of labour established between core, non-core
locations (1990-1999)
In Singapore, over past 2 decades, E&E sector has:
Grown in absolute terms, in output and VA
Contracted in employment more skill- and capital-intensive
Narrowed range, increased in high-tech, -precision, and –value (Toh
2014; van Grunsven 2013)
more semiconductors/IC and data storage
fewer consumer electronics & peripherals
Data: output, value-added & employment, BUT what about firms?
Patterns of entry and exit? Interactions between firms?
Nationality? Sub-sector? Location?
What about non-core locations?
What about connections between core/non-core locations?
8
9
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
‘Mapping’ the E&E Sector in SIJORI
ISEAS & Leo van Grunsven, Dept of Economic Geography,
Uni of Utrecht
Aim: understand how the electronics industry has evolved
over the past 20-25 years in SIJORI
How have the size and profile of the E&E sector in the 3 locations
evolved?
What specialization and upgrading do we see in the core and non-
core locations?
Is there a link between events in Singapore and the other locations?
Phases:
One: collate and analyse data on nationality, sub-sectors, entry and
exit from Johor and Batam
Two: company interviews in Johor and Batam to understand
upgrading (if any)
Three: collate and analyse data on (nationality), sub-sectors, entry
and exit from Singapore
10
11
0
100
200
300
400
500
600
E&E Firms in Singapore
12
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
ConsumerElectronics
Semiconductor Data Storage Comp & Periph Components CommEquipment
Electric Other CEM
E&E Branches in Singapore
1995 2012
The Electronics Sector in Singapore
Remarkably steady in numerical terms Initial contraction early 1990s
Significant growth late 1990s
Slumps in early 2000s, 2010s, global/industry trends, policies?
Branch development: Consumer electronics, comp & peripherals, components down
Semiconductors, comm equip. CEM, and electric prods. up
Consistent with picture from export data, except:
Data storage (disk drives) firm numbers up, and exports down.
CEMs separate rubric, can see their increase
Electric items, can also see their increase
More diversity
So, yes, overall upgrading and increase in value-added
But more embedded in local economy and more diverse than export
data indicate 13
14
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
15
0
50
100
150
200
250
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Electronics Firms in Johor and Batam
Johor Batam
16
0
10
20
30
40
50
60
70
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Firm Entries and Exits, Johor (1996-2012)
Entries Exits
0
5
10
15
20
25
30
35
40
Firm Entries and Exits in Batam (1990-2012)
Entries Exits
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
E&E Branches in Johor
1995 2012
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
E&E Branches in Batam
1995 2012
The Electronics Sector in Johor and Batam
Different trajectories from Singapore. Johor up, Batam down.
Different from each other, from 2/3 of Johor, Batam is now ¼ the
size.
Branch Composition:
Less diverse than Singapore.
Similar profile, consumer electronics, components, electrical
products, CEM
Trend – Johor: consumer electronics, electrical down;
semiconductor, CEM up.
Batam: consumer electronics, components, semicon down;
electrical and CEM up.
Broadly, no move into production spaces ‘vacated’ by Singapore.
CEM only exception.
‘Regional’ Prod Networks could be a new linkage.
18
19
0
10
20
30
40
50
60
70
80
1990-1997 1998-2003 2004-2012
Perc
ent
Firm Entries into Batam
Singapore Japan
0
10
20
30
40
50
60
70
80
1990-1997 1998-2003 2004-2012
Perc
ent
Firm Entries into Johor
Singapore Japan
20
0
10
20
30
40
50
60
70
80
90
1990-1997 1998-2003 2004-2012
Perc
ent
Firm Exits From Batam
Singapore Japan
0
10
20
30
40
50
60
70
80
90
1990-1997 1998-2003 2004-2012
Perc
ent
Firm Exits from Johor
Singapore Japan
Local Firms?
Some participation by local firms:
22 Malaysian firms in Johor (5% of total; 28% survival).
25 Japanese/Malaysian joint ventures.
6 Indonesian firms in Batam (3% of total; 100% survival).
Little significant JV activity
Malaysian firms appear to be more locally-grown and
vulnerable
Indonesian firms part of large consortiums
21
Upgrading - interviews
Johor: 27 firms, Singapore (7); Japan (16)
Functions: most have remained static, 10 had minor
upgrading – low-level R&D, procurement, marketing
Product Portfolio: bit more than half - evolution in product
portfolio as new products are introduced, but still static
within corporate hierarchy. Some major upgrading
Automation: yes, particularly in those that assumed more
complex functions
Technology: developed elsewhere, then transferred
High-end: low level, but in 10, increased R&D needs have
led to hiring of technical staff.
22
Upgrading - interviews
Batam: 13 firms, Singapore (5) Japanese (3)
Functions: no significant evolution
Product Portfolio: still product parts rather than full products,
upgrading linked to industry evolution – few radical
developments
Automation: yes, prevalent, but in response to scarcity of
labour
Technology: developed elsewhere, then transferred
High-end capabilities: more than half – ‘irrelevant’
23
24
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
Conclusions
Singapore – growing well and upgrading. Fewer workers are
producing more of value, attrition of lower value-added
sectors and growth of semiconductors.
Johor – the number of firms is growing. However, much is
driven by regional (Singaporean) firms, rather than global
firms. Sub-sector, stable, persistence of low value-added
operations (electrical, consumer e, components).
Riau Islands – number of firms is shrinking. Activity is by a
small number of global firms. Persistence of electric,
components, and consumer e.
Upgrading at the firm level in Johor is modest, minimal in
Riau Islands
The two non-core locations have not moved into spaces
vacated by Singapore. CEMs?
26
Structure
The SIJORI Growth Triangle
What We Know
“Mapping” The Electronics Sector
The Electronics Sector in Singapore
The Electronics Sector in Johor and Batam
Local Firms; Upgrading?
Conclusions
Why?
Why?
Focus of policy attention:
Preferential provision of hard infrastructure
Tax incentives and relaxed strictures on local equity
What about?
Adaptation versus adaptiveness?
Stewardship of local economy to nurture related branches
Technology mapping
Knowledge generation – libraries, market intelligence
Targetted skills provision?
Collective facilities (to test prototypes)
27
Methodology Classification of E&E into ten sub-sectors, based on ISIC
Johor and Batam – firm entries, exits, and nationality obtained from
investment authorities.
• Malaysia: MIDA, Johor Technopark, Johor Industry Guide
• Indonesia: BIFZA, Industry Directories
Branches:
• Investment authorities, industry directories, company websites
Issues:
• Possible over-reporting of firms in operation; inconsistent product info
Singapore:
• Singapore Electronics Manufacturers’ Directory
• Most comprehensive listing available, free, you need to opt out
• Firms listed by product (not nationality)
Issues:
• Different source. Interview requests (150 firms) – accurate.
• Under-reporting of MNC affiliates and SMEs; over-reporting of
production facilities. 28
29
Classification Examples Code
Consumer Electronics Audio/video, speakers, telephones 1
Semi-conductors 2
Semi-conductor Devices Integrated Circuits
Wafers Solar wafers
Data Storage 3
Magnetic and Optical Media DS Substrates, Motor Drive Ass.
Computers & Peripherals Printer Cartridge 4
Modem Router
Thermal Printer Engine
Electronic Components and Boards Multilayered Circuit Board 5
Surface Mount Components
Communication Equipment Telephones 6
Radio Transistors
Electric 7
Domestic Appliances Aircon, vacuum cleaners
Wires and Wiring Devices Copper rods and wires, harnesses
Motors, Generators, Transformers Surge arrester, cold control thermostat
Batteries, Accumulators
CEM Diverse 10
Other Medical devices 8
Support Metal stamping, plastic injection 9