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Multinational business Week 10 Lecture Multinational business in Singapore and Hong Kong

Multinational business Week 10 Lecture Multinational business in Singapore and Hong Kong

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Multinational businessWeek 10 Lecture

Multinational business in Singapore and Hong Kong

SINGAPORE

Facts

• Population: 5.4 million• British colony until 1959• $60,410 per capita• Unemployment: 2%• FDI inflow: $56.7 billion• Economy depends on exports particularly in consumer electronics, information technology

products, pharmaceuticals and on a growing financial services sector• GDP growth averaged 8.6% between 2004 and 2007• Economy contracted 0.8% in 2009 as a result of global financial crisis• Rebounded 14.8% in 2010 because of renewed exports• Slowing to 5.2% in 2011 and 1.3% in 2012 as a result of soft demand for exports during the second

European recession• Open market: average tariff rate is 0% and very few non tariff barriers

Facts:

• Regulatory efficiency: launching a business takes three days and three procedures and no minimum capital is required• No statutory minimum wage but wage adjustments are guided by

national wage council• Rule of law: law suits against opposition politicians and parties can

bankrupt them• Singapore has one of Asia’s best intellectual property right• Freedom from corruption

Source: 2014 Index of Economic freedom

Singapore

• 200 years ago: jungle, tropical island• Barely inhabitant• No natural resources• Infertile lands

Why so many people settled in Singapore?

• Shaped by one man “Lee Kuan Yew”• Ruled for quarter of a century

How was Singapore like before

• Ambition of British pioneer in 19th century• It is regarded as Sir Thomas Stamford Raffles “little child”• During small force of his troop landed on this tiny island• He wanted to create new Singapore there but no legal right to do

anything• He made “Hussain” the brother of sultan of Malaya, the sultan of Singapore• Hussain received handsome salary from East India company and in

return Raffle will get to run the country

How did the jungle turned into city?

• Singapore have the cross roads of great shipping lane• Fortune based on international trade

• During this time Britain generated more income overseas than in Britain• Half the profit came from trading Chinese tea• Bought tea from China in return for Opium from India• Ships had to pass through “Malacca straits”• So they needed a port somewhere around there for the stop over for their

ships

• Singapore needed to be more than stop over to develop• How can Raffle persuade trader?• Provide place where people can trade freely• Sell goods without having to pay tax• Nothing like this anywhere in Asia

• Concept of FREE TRADE lured traders from other region• Ships were coming to Singapore like bees coming to honey pot.

Movement of people to Singapore

• Chinese community• To enjoy the benefit of free trade and to escape the hardship

• Indian • As a traders and were soldiers of east India company

• Malays • Came to make money and to worship freely

• Raffle handed over the authority to his friend • Slavery, gambling, prostitution, cock-fight, no control of opium• Daily robbery and slavery

• When Raffle came back, he fired his friend and drew a blueprint of Singapore

Town plan map of Singapore by Raffle

History

• Singapore built on the purpose of free trade• People who were getting richer were local trader: free trade and no

service charge whatsoever• No tax at all to finance state expenditure• Financial crisis for East India company: collapse of Chinese tea trade

because of Indian tea• Government: encouraging vice (selling licence to sell opium) and

collecting slice of profit from prostitution

Change in Singapore came from unlikely source• Suez canal opened in Egypt• Cut down 5000 miles and bought 50% increase in trade

• Now became the hub of south east Asia: first place where westerners companies wanted to operate• As a result, today Singapore is the 16th biggest trading company of

the world• Received further boost from another part of the world “Brazil” in

1877• Rubber plant smuggled and sent to botanical garden of Singapore

Change in Singapore contd..

• Rubber was regarded as white gold during that time• Government encouraged everyone to plant it• Not enough land to meet global demand• Opened up huge rubber state in Malaya

• During that time, Malay had tin mining and popularity of canned food was increasing in west• Singapore the ideal place to export these tin to west after processing

• Malaya and Singapore had integrated economy as a result

Independence of Singapore

• Lee Kuan Yew (Harry Lee) took control of Singapore in 1959• Modern Singapore built on the same foundation of Raffle’s little

child• Free trade- never touched• Journey to independence that no one expected and• Few believed to survive

Independence of Singapore

• Independence began from China town of Singapore: three quarter of the population were Chinese• Along with this free trade came the invisible cargo of ideas: political

ideology from elsewhere• 1911: nationalism swept away from China• 1937: • Japan invasion of China, little effect on Singapore but angry reaction from

Chinese community in Singapore and boycotted Japanese product

• December 1941: • Attacked Pearl Harbour, hours later set sight at Singapore and attacked

Independence of Singapore

• Before this incident people in Singapore never had feeling of Singapore as their home• Now they were carrying gun to save this island• But could do nothing against Japanese force and British surrendered• Chinese community were the target and Japanese killed around 50,000

to 100,000 Chinese who were involved in anti Japanese activity and were suspected of informers• Dropping of atomic bomb in Hiroshima and Nagasaki brought the war to

an end• Few Japanese executed and rest were deported to Japan

Independence of Singapore

• As promised Malay was made independent by British after war in 1957• But Singapore still a colony• 1950: communism was one step closer to come to Singapore, had eye

on British and destroyed rubber factory to demonstrate power• 1954: People action party (PAP) formed under the leadership of Lee

Kuan Yew• First ever election was held in 1955 and Labour front wont the election• 1959: another election and this time PAP won• First native born Singaporean to control the island.

Independence of Singapore

• Merger between Malay and Singapore only ways to become independent from British• But Malay were not accepting this until the communist leader were

imprisoned• Jan1, 1963: communist leader were arrested for another decade • 1963: new country was formed “Malaysia”

Independence of Singapore

• Now Lee Kuan Yew was the second man• After merger, lots of racial violence in the industry of Singapore• Malay government demanded special right for Malay • 1965, Malaysian Chinese relation were beyond control• Prime minister of Malaysia broke away from Singapore• As a result Singapore is the independent country now

Modern Singapore

• LION CITY- ASIAN TIGER

• Wealthy stable country

• How did Singapore became an Asian tiger?

Independent Singapore

• Defence became new priority• Created citizen military service• All male should compulsorily take training of military for the emergency

situation• National service was made compulsory

• Military count on nothing if not built on strong economy

Independent Singapore

• Independence: economic disaster• 100 years of dependency on Malaya: rubber plantation and tin mining• Singapore: no factory, no employment• To make matter worse, British military were pulling out (who were the

major employer)

Changes again from unlikely source

• Revolutionary movement in China scared off westerner investing in Hong Kong and Taiwan• Instead they turned into Singapore• Late 60’s: 1st western electronic company set up assembly line• 70’s: producing circuit board and silicon chips• 80’s: leading country in producing consumer electronics

• Government allowed MNC to run in full freedom and with their 100% ownership

Why foreign companied were attracted• Low tax• Cheap wages• Well trained workforce• Better industry relation• 1968: new labour law restricted right to strike• Laws were against “GO SLOW”, government gave freedom for company to

sack the whole lot if found doing that and start with fresh ones

Lee Kuan Yew Vision

• Lee Kuan Yew wanted Singapore to be more than a Haven country for foreigner• He wanted people to learn from these MNC• But the question was who will come and create such companies• Government created the companies• Government officials given business training and• Were set in charge on the companies that government has opened

Singapore Airline

• 1972: as a result of that vision, Singapore airline was established• With the purpose of operating as a commercial airline rather than just

the national flag carrier• During that time airline industry was highly regulated• They differentiate themselves from other airline by better in flight

service such as free drink, free earphone• As a result huge catering operation (even today more than 65,000

meals per day)• Safe airline to travel: new planes and were renewed very quickly.

Singapore success

• State owned company dominates in Singapore• 60% state owned• Bottom line is “productivity”• Socialism but different form in Singapore• For e.g. Housing:

• massive construction of public building• Re-housing of majority of population• Instead of renting out, encouraged people to purchase (such houses were cared after and

looked after)• Today 80% of people live in a property built by state but owned privately

• Government wanted to reduce the dependency which was emerging out in Britain

Singapore economic success

• For decades Singapore have enjoyed economic success• But the price is the compliance • People had to accept the changes whatsoever the government has

deemed to be necessary• PAP lost election on one of the state on 31/10/1981 and also on 1894

on the same state to Jay Ratnam• They never had opposition party until then • But Jay Ratnam was not into parliament for long time as he was

prosecuted over the false declaration of account for his party

Challenge for Singapore

• How to maintain stability?• Small city nation: little instability will affect a lot• 1993: Singapore political system became international news when

American teenager Michael Faye was convicted of vandalism• He received hefty fine and was sentenced for four month and he was

caned• American authority were against this but Singapore stood to their “Rule

of law”• This shows that now they can even stand against the strong nation as

well

Clean freak City

• Ban on chewing gum• Not allowed pick flower from the park• Need to flush the public toilet, or else face the penalty

Attracting foreign firms

• After this bad publicity, to attract foreign firms, they need to be more appealing and more fun place to work• As a result, they marketed Singapore as the city of art• Allowed night life• Basically they wanted to show to the world that they are changing

Landscape of Asia is changing

• Singapore is changing accordingly as well• With India and China emerging as a industrial power, Singapore is

looking for new ways

• Now again they are relying on the hand of unlikely people such as from creative industry (animation)

Government plans

• Targeted the education system• Want pupil to think outside the box beyond the grades and text book• Invested billions of dollar on bio technology• So that they don’t just have to rely on hard work but also on ingenuity

Hong Kong

History

• British colony• 1840/41 Opium wars• 1898- 99 year lease• 1997- independence from British rule, reverts to China’s authority as

Hong Kong Special Administrative Region

History

• Post war economic development of HK mirrors the political/economic development of mainland China.• 1949: Chinese Communist Revolution• 1958: Sino-Soviet Split• 1978: ‘Two Systems, One Country’ Policy initiated under Deng Xiaou

Ping• 1997: HKSAR• Population: from ¼ million in 1949 to approx. 6 million today

HK’s developmental profile

• Similar to that of Singapore’s• entrepot role (trading post where merchandise can be imported and

exported without paying import duties)• MNC headquarters• Hotels/restaurants• Light manufacturing• Finance: regional financial centre (Hong Kong Stock Exchange; home to

regional HQ’s of 160 or so foreign banks)

• Main differences with Singapore: • Weaker central government• HK has one major client: mainland China

References

• https://www.youtube.com/watch?v=Lx1F6xquCec• https://www.youtube.com/watch?v=qORFN--bcAQ• https://www.youtube.com/watch?v=Yv2wc0ZcdcY