Dr Lee Boon Yang, Minister for Information, Communications and the Arts Speech - Singapore Computer Society's Annual Gala Dinner, Swissotel The Stamford
Dr Lee Boon Yang, Minister for Information, Communications and the Arts
Speech - Singapore Computer Society's Annual Gala Dinner, Swissotel The Stamford
Singapore, 28 February 2004
President of SCS, Mr Martin Tsang,
Members of SCS,
Ladies and Gentlemen,
Good evening.
Introduction
1. Thank you for inviting me to this Gala Dinner. This is a good way to start the year especially this year. Why? Because 2004 looks set to be a better year for Singapore. Most business people I met and spoke to recently have expressed good feeling and confidence that their business will improve in the months ahead. I was told that this year's turnout of 88 tables is the highest on record. So even the SCS Gala Dinner Index is on the upturn. And why not? While the hard statistics and forecasts by experts are important indicators of economic recovery, less structured indicators such as new sense of confidence and optimism are equally telling and useful reassuring evidence of improved sentiments. People in the business know and feel it, and their actions as consumers and entrepreneurs reflect improved economic prospects.
2. However, just to be sure let me take you through some quantitative indicators. In November 2003, IDA released the results of a survey done in March 2003. In this survey companies in the Infocomm sector forecast revenue growth of 7.5% this year. Since March 2003 was a time of still-gloomy prospects in the face of the Iraq war, one could argue that had sentiments been measured later in the year, after Singapore had successfully fought SARS, they would show even better prospects. IDA's latest business expectation survey revealed that a net balance of 21% of Infocomm companies expected business to improve during the period January to June 2004, compared with the preceding 6 months. This net balance of 21% is significant as it reinforces last October's record of the first positive net balance of 13% since business sentiments fell into negative territory from July 2002 to September 2003. The most negative sentiment was for the period January to June 2003 when the net balance was -37%.
3. Turning to expert forecasts, the IDC has predicted that the Asia Pacific IT market will record US$88 billion in revenue in 2004, up 11% from 20031. For Singapore, our IT market will grow in revenue by 5% from US$3.2 billion in 2003 to US$3.4 billion this year2.
4. Along with improved business turnover, we are also seeing a turnaround in the job market for Infocomm professionals. Data from the Ministry of Manpower's quarterly Labour Market Survey of establishments with 25 or more employees showed a year-on-year increase of 3.6% workers employed in the Infocomm sector in the first 3 quarters of 2003. This was in comparison to a decline of 2.6% for the same period between 2001 and 2002. The total number of retrenched Infocomm workers in the first 3 quarters of 2003 stood at 890. This is the lowest level in the past 3 years from 1,600 in 2001 and 1,200 in 2002, indicating a possible bottoming out.
5. With better business prospects, it is all too easy and tempting to conclude that life will return to the good old days and to sit back gear up for another IT boom. I am afraid this will not be the case and the sooner we all recognise this reality the better we will be prepared for the new challenges. Singapore has the fundamentals to do well, but the future will not be an action replay of the past. The reasons are three-fold. First, Singapore's small market. Second, the entry of new and highly competitive players in the Infocomm scene. Third, expected consolidation in the industry. These factors herald a tidal wavesea of change with enormous impact on us.
6. First, market size and growth. Despite our small population, Singapore ranks seventh in 2003, among the Asia-Pacific economies whose IT spending by enterprises are monitored by Gartner. We are ahead of all the other ASEAN countries though Malaysia and Thailand are not far behind, at 8th and 11th respectively. What this means is that in 2003, and more so in the preceding years Singapore stood out as a very large IT market in this region.
7. But if we consider projected growth rates for 2004 alongside the absolute market sizes, then it becomes clear that Singapore is a small and mature market. China's sheer size puts it heads and shoulders above all other markets. At a projected growth rate of 7%, it represents huge market opportunities. India, whose current IT spending is already about 50% higher than Singapore, is also the fastest growing market with a projected growth rate of 17%. Indonesia is expected to see 16% growth.
8. Singapore may be a sophisticated ICT market, but the reality remains that it is a small market and growth rates cannot match those in regional countries. Those of you with regional responsibilities would have seen this coming for some years already. With PC penetration rates ranging from 2.8% in China to 14.7% in Malaysia, compared with the 62% in Singapore3, it is no surprise that companies are enjoying more impressive sales growth outside of Singapore. While the Government and other users here can keep ICT investment levels steady, they cannot install 2 PCs for each person and 2 pieces of the same software on each computer. Even the planned investment of about S$700 million this year under our e-GAPII and other Government IT programmes cannot match the opportunities which are available in the region.
9. The second factor is the entry of new players, particularly China and India, into the globalised economy. The immediate and most acutely felt impact is the downward cost pressure created by the entry of legions of highly skilled workers in these countries. They have suddenly turn business process outsourcing into a globalised proposition. American IT professionals writing software code suddenly find themselves being out-competed by eager Indian graduates of prestigious Indian Institutes of Technology, happy to make one-quarter of the American's pay and delivering much better output. Indian companies have also succeeded to secure a larger share of the global IT market spending. Their software exports share of the overall global market rose from 1.5% in 20014 to 1.9% in 2003.
10. Outsourcing to India has even spread to journalism. Reuters has just spelt out its intent to hire a reporting team in Bangalore to cover 'basic' reporting about small and medium companies listed in the US. Reuters sees this as freeing up their journalists in the West for value-added work, such as interviewing when a story needs further investigation. Silicon Valley, which had been attracting Indian programmers has also taken to outsourcing on discovering that it is a lot cheaper to email work to India. According to Time magazine even Wall Street employs an army of accountants, analysts and technicians to pore over documents, do deal analysis and maintain databases. These days so long as work can be made routine, they are vulnerable to being outsourced overseas based on the cost savings. These even include former skill-based jobs such as the reading of X-ray pictures and the drafting of blueprints.
11. The third factor is more industry-specific and cyclical. We are all waiting for the economy to recover, after what could possibly be the worst year for the industry. But when growth comes back, it is likely to come with massive consolidation. Gartner has predicted that there will be a massive consolidation in the IT industry world-wide, with as many as 50% of IT companies likely to disappear from the scene by 20055. This consolidation is a response to the very large expansion in supply capacity brought about during the boom years. Copycat players who cannot differentiate themselves from others are unlikely to gain much from the coming recovery. So not everyone will be positioned to enjoy warmth and sustenance as the winds of growth sweep down on us.
12. So our challenge as Infocomm players is to find new sources of growth in the face of a small domestic market, keener competition and inevitable consolidation. This evening I would like to suggest a three-prong strategy. It is an old-fashioned strategy - to globalise, innovate and leverage.
Globalise to Grow Revenue
13. Globalisation is gathering speed. Either we get on the train when we still can or we will be left stranded when it picks up speed without us. Today globalization is being facilitated by the waves of liberalization in trade, investment and migration. So goods, services, capital, ideas and people move across borders and are combined in new and more productive ways to gain market share and improve returns.
14. SingTel for example, started as a state-owned and state-operated telco serving the local market. But the introduction of competition at home has spurred it to spread its wings and look for new sources of revenue overseas. It has not been an easy process. But SingTel learnt quickly and today the results are impressive. It is now Asia's largest multi-market mobile operator. Singtel is also a leading example of convergence between IT and telecommunications. It has acquired National Computer Systems to offer a full-suite of ICT services.
15. But SingTel is an exception. Most local Infocomm companies are small. Based on data from IDA's Infocomm Industry Survey for the year 2002, more than 80% of local companies had revenues of less than S$2 million. Our companies know well that they have to look beyond the Singapore market and that opportunities for expansion lies overseas. But they are severely hampered by their small size when venturing overseas and faced with competition from the globalised ICT giants.
16. Last year when my colleague Mr Khaw Boon Wan attended your Gala Dinner he talked about making IT sexy again. I understand that he struck a sensitive nerve and got a good response. Unfortunately I am not able to repeat his performance. So instead of stirring images of sexiness, I intend to talk of more serious pursuits, courtship and marriage. IDA told me that it has started a 'dating service' with SiTF to encourage companies with strengths in different parts of the ICT value chains to band together when venturing into key overseas markets. I understand that this SDU service for Infocomm companies has made some progress and while wedding bells are not yet ringing, some partnerships have already been formed. Plans are being finalised for a major move to seek opportunities in the China market. I am happy to announce that more than 20 local companies have signed up to come on-board. And they are in the process of finding a home in China.
17. As part of IDA's clustering strategy or 'hunting in packs', the partners have organized themselves around 4 clusters serving different market segments - financial services, healthcare, logistics, and transport. These are segments which we believe Singapore companies have some inherent strengths and competitive edge. Each cluster is headed by a leader who has an established a track record of doing business in China. The appointed leader of a cluster or 'pack' will play the role of a 'big brother' to the other local enterprises and help to steer them through the intricacies of operating in a new market. The four leaders are NCS, SCS, IPACS and Stratech.
18. I believe that clustering is a good start. The Government cannot simply force small entrepreneurs into marriage even if it makes business sense and there is an impending tidal wave of consolidation. What we can and will do is play Cupid. We can bring the potential partners together and let the merit of partnership and even marriage be discovered by the partners themselves. We will help our ICT companies through the critical initial courtship to discover the strategic advantage of marriage and working in a cluster to tackle a new level of competition. To scale Everest requires a much higher level of organisation and much more skills and stamina compared to climbing Bukit Timah or even Mt Kinabalu.
19. Let me illustrate. A Singapore company, System Access, graduated from a one-man company cutting four-figure deals locally to deals worth tens of thousands of dollars before growing into a 350-strong million-dollar company with a growing overseas business. i-FLEX Solutions, an Indian company competing in the same space, has more than 2,700 employees and bags deals that average US$1 million each. The next big opportunity in the global banking industry will come when the major banks make the decision to replace their 20-30 year old core mainframe systems. This will see System Access, i-Flex and others competing in a race to the summit.
20. For companies which think that it is fine to stay with Bukit Timah and avoid the pain and risk of scaling Everest, the Gartner prediction of consolidation is a sobering one. There is no room on Bukit Timah for all climbers. Those who wish to succeed will need to find new hills and mountains to climb, or go water-skiing instead.
21. This leads me to the 'innovate' part of the equation. Innovate to Create New Value
22. Professors W. Chan Kim and Renee Mauborgne of INSEAD have coined the term 'value innovation' to describe the strategy of companies which are able to create a new business concept that differentiates them from their competitors. Their advice is for firms not to compete head-on with their competitors, as this will simply lead to thinner margins and losses eventually. The Professors called this strategy the 'red-ocean' strategy. My guess that it is red because it often leads to lots of red ink or blood on the floor. Instead, companies should take a careful look at what customers really want and offer this to them. At times, this may mean asking non-customers why they are not buying, to gain insights into what customers really want. Often, insights are obtained when companies look at the value proposition of related industries and combine them in a way that was never done before. This is the 'blue ocean' strategy.
23. Some Singapore companies have already succeeded because they have embraced this concept of value innovation, whether they have heard of the concept or not. Take for example Creative Technology Ltd. They launched a multimedia revolution by making products that bring IT and entertainment together. From the original Sound Blaster card to its Creative Zen Portable Media Center, Creative has truly lived up to its name and is very much into the 'blue ocean'.
24. The typhoon warning has been sounded. Me-too companies will find the going very tough in the coming years, despite a recovering economy. Now is the time to take advantage of the various IDA and EDB initiatives to create new products and solutions, so that you will stay ahead of the competition and venture into the 'blue ocean'.
Leverage to Compete
25. The rise of India and China have caused widespread concerns, especially in the US and Europe where labour costs are high. We should take the challenge seriously, but not fall into a doomsday mindset thinking that Singapore can never compete with India and China.
26. We should not aim to compete head-on with India and China across all segments of the business. The cost advantage of India over Singapore for operations like call centers is so large that it is not possible to overcome. Indeed, we hear that countries like Guyana and Tunisia are offering even lower costs than India. We need to identify areas that best leverage on our competitive advantages, such as our strong legal regime, project management systems integration and application expertise and our excellent communications infrastructure.
27. Let me illustrate with what I think are two areas in which Singapore can carve a niche for itself. Firstly, in providing services for high-end processes, such as treasury operations for financial institutions and processing services for large managed healthcare operations in countries like US and UK. Secondly to serve as a hub in managing, coordinating and monitoring services that are delivered out of lower cost regional countries. These areas require specialized skills which are readily available in a sophisticated market like Singapore but are still lacking in markets like India and China. I am sure that India and China will acquire such higher skills in time, but there is a window of opportunity which Singapore should capitalize on. In sectors like financial services and healthcare, many activities are highly regulated and mission-critical. They require an environment with robust legal regime and excellent connectivity. Singapore provides the right geography, high bandwidth, connectivity, strong capabilities and a conducive environment to service such needs. It is for these reasons that IT services companies like IBM, EDS, HP, Satyam and Scandent use Singapore as a location to fulfill regional shared services contracts awarded by their clients. Singapore can certainly play the role of a catalyst by establishing ourselves as a modern day entrepot of ICT trade.
28. The Government will continue to provide support in terms of capability development so that our ICT professionals and companies are better prepared. We intend to continually sharpen the edge of our Singapore IT professionals and arm them with deeper and more up-to-date domain knowledge. In November last year, IDA announced its plans to work with various academic institutions and professional organisations like Singapore Management University, Nanyang Polytechnic and the Chartered Institute of Logistics and Transport Singapore to develop new cross-disciplinary courses that will deepen Infocomm professionals' domain knowledge in five user industries: finance and banking, logistics, business services, wholesale and retail, and manufacturing. We intend to leverage on our talents to compete. Recognising Leaders in Our Midst
29. To summarise, most indicators show that the dark clouds are disappearing. But while the worst days may be over, we are unlikely to see a return of the good old days. The going will become tougher not easier, despite improving economic growth. Let us not under-estimate the challenges we face as Infocomm professionals, as managers, as enterprises and as a nation. We have a firm foundation. We should build upon it.
30. Our companies need to fly in formation and spread their wings abroad. Our companies should also aim to differentiate their offerings, to create a distinct value proposition. The rise of India and China will create competition but their growth will also spark off new opportunities. IT professionals who continue to hone their skills and entrepreneurship will find no lack of employment and business opportunities.
31. Once a year, SCS brings together the leading IT professionals at this Gala Dinner to honour those who have made their mark in the business. SCS's IT Leader Awards honour innovative IT professionals who have contributed significantly to the development of the industry. Over and above according recognition to deserving individuals and organisations, these awards will also inspire the rest of the IT community to strive for excellence in their business and profession.
32. On this note, I would like to extend my heartiest congratulations to the winners of this year's IT Leader Awards.
33. Thank you and have an enjoyable evening.
Notes:
1 IDC Asia/Pacific Predictions 2004
2 IDC Singapore IT Spending & Industry Segmentation, 2003
3 ITU, World Telecom Development Report 2003
4 IDC, NASSCOM
5 Top Ten Predictions for Asia Pacific in 2004, Gartner, January 2004
Related Resources:
.webp)