Population woes
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Limlim, you make it sound as if it is so easy to maintain a steady 10% profit year on year. When market situations change, revenues can fall significantly, wiping profits out. Do yourself a favor and pick a few local listed companies, and just track their historical revenue stream and margins for a few years and see if life is so simple.
You forget, even when companies are loss making, they are legally obliged to pay their workers. Employees don’t share in the risk the same way that business owners do. If a business fails, the workers may be out of the job, but the owner may be in deep and difficult debt.
Businesses basically need to be as profitable as they can so that their equity is deployed in the best way possible. It is also a buffer against the inevitable bad times. If a business mismanages its profitability and puts itself at risk in downturns, how does that help the employees?
You only look at one side of the story.
I am also an employee of my company, but I try to understand the constraints my employer works under. -
TIGHTENING FOREIGN LABOUR INFLOWS
Nov 03, 2012
From ST insight.
Have we gone too far?
How big a price is Singapore paying for tightening the tap on foreign manpower? Insight reports on economic growth forgone, jobs lost and the potential outflow of business and investments.
By Robin Chan & Janice Heng
WHEN a North American company thought of starting an operation in Asia this year, Singapore was one of its top choices.
After being wooed by the Economic Development Board (EDB), it plumped for Singapore early this year.
To its horror, the Ministry of Manpower (MOM) rejected its application to bring in seven foreign executives on high-skilled Employment Passes (EPs).
It was only after the EDB stepped in and talked to the MOM that the company finally secured those seven passes.
For foreign firms which come to Singapore expecting a smooth run, such hiccups can come as a surprise.
After all, the city state ranks at the top for ease of doing business on various surveys. It is also consistently ranked as one of the most competitive economies in the world with easy access to labour.
But that story of one company's brush with a tighter foreign manpower regime - in place since 2009 - was one Mr Shanker Iyer shared, to illustrate the growing fears among foreign companies and even the larger multinational corporations (MNCs) about the policy's impact on their ability to plan ahead.
Mr Iyer is chairman of the Singapore International Chamber of Commerce (SICC), which represents more than 700 global companies based here. He says that as Singapore continues to tighten the tap on foreign workers, some firms are starting to think more carefully about what investments they want to sink here.
\"MNCs with heavy investments look long-term. But with the changes in foreign worker policy, they are concerned with how exactly to look ahead,\" he says.
Since the start of the tighter regime in 2009, small and medium- sized enterprises (SMEs) have been loudest in their protests.
They have complained of rising costs and the difficulty in finding local workers to do low-skilled or service jobs.
But at an SME convention last week, Mr Phillip Overmyer, the chief executive of the SICC, upped the ante for Singapore by warning that even MNCs may have to invest elsewhere if the tightening continues with no end in sight.
The process of tightening was always going to be a painful one, hence the Government's emphasis on careful calibration.
But as the effect of manpower woes ripples across the economy, it is timely to ask how much more Singapore can afford to tighten the tap on foreigner inflows. And are the benefits of this policy commensurate with the costs in terms of lost competitiveness and economic growth?
Losing SMEs will be painful, as jobs and livelihoods are on the line, but the impact will be doubly hard, and perhaps irreparable, if a big, global firm decides to quit Singapore.
Looking elsewhere?
THE Government has reassured businesses that the foreign labour tap will not be turned off.
Yet it has also repeatedly said there will be \"no U-turn\" in its efforts to slow foreign labour growth. The aim is to spur companies to invest in raising productivity so that wages and economic growth can go up in a sustainable way.
The MNCs say their beef is not with these new stricter limits on foreign worker inflows, but the way in which the change in direction has been carried out. It has struck them as being piecemeal and unpredictable since its start three years ago.
The foreign workforce supply has been tightened in phases since mid-2009. Foreign worker levies have been raised and the criteria for S Passes and EPs made stricter.
Dependency ratio ceilings, or how many foreigners a company can hire for each local worker, have also been lowered across both manufacturing and services.
But still more measures have been added and have yet to kick in. This year, the income level for expatriates who want to bring in their dependants was raised from a monthly income of $2,800 to $4,000.
And in a recent interview with The Straits Times, Acting Manpower Minister Tan Chuan-Jin said that more measures to further limit the growth of S Pass holders here are in the works.
Says SICC's Mr Overmyer: \"There is no clarity in the process of tightening. So an MNC will ask itself: Can I afford to set up this operation here, and then find out later that it doesn't work because I cannot get the people? These are issues that companies are looking at.\"
Cheap foreign labour aside, most of the impact seems to be at the level of middle-income foreign workers, who fall in the SPass or lower-level EP categories.
S Passes, for mid-level jobs such as technicians, are restricted to 20 per cent of a company's workforce. And a young graduate has to make at least $3,000 a month to qualify for an EP.
Recruitment firms say it is getting harder for foreign fresh graduates to secure employment here as a result. The change has also hit some senior hires at lower salary levels.
Mr Pan Zaixian, general manager at Singapore-based HR firm Kerry Consulting, says: \"For junior roles, or salary-sensitive roles where the income is near the qualification limit for the work pass, there is no guarantee that they can get the pass.\"
The concerns are already forcing some companies to move operations out, such as those in manufacturing or research and development.
Smaller local and foreign firms have been some of the first to move. They are relocating, in some cases, to the Iskandar region in Johor, where land costs are significantly lower and there are no quotas on foreign workers.
They can operate from there and yet be close enough to their home bases in Singapore. A recent study by the Association of Small and Medium Enterprises found that almost 30 per cent are thinking of relocating due to the labour crunch.
Could MNCs soon follow suit?
Mr Manoj Vohra, director for Asia-Pacific at the Economist Intelligence Unit, warns that stricter limits on foreign manpower may cost Singapore its competitive advantage over its neighbours. \"Singapore will have a lot of competition from other investment centres in the region, and so if it gives away its edge, then it raises questions over its long- term competitiveness,\" he says.
He believes that some MNCs may have slowed their growth here, or had their investments in new sectors impeded because of the policy tightening.
Dr Chua Hak Bin, economist at Bank of America Merrill Lynch, says: \"The fear is that this could also lead to more knowledge- based, capital-intensive companies - which actually bring in good jobs for Singaporeans - choosing to set up shop, invest, and make large commitments elsewhere, if Singapore's foreign labour policy is not clear.\"
Among Singapore's rivals are Hong Kong, which also wants to be a hub for financial services and regional HQ offices, and the emerging Iskandar region, which has an abundance of cheap land for manufacturing and heavy industry.
Mr Iyer, who was at a recent dinner with representatives from Hong Kong, says they are eager to pounce on companies that no longer have the patience to wait out the uncertainty in Singapore.
\"Hong Kong has zero issues with this. They told me it is to their benefit that this is happening,\" he says.
Mr Keith Martin, chief executive of Global Capital and Development, which is developing Iskandar's Medini business district, says the region can be a complementary, cost-effective solution for many MNCs and SMEs in Singapore.
He says: \"Quite simply, Singapore cannot fully realise its growth targets without more affordable business space in close proximity.\"
MNCs, by virtue of their global nature, have the ability to move their operations to the most competitively advantageous countries.
And if MNCs leave Singapore or move their operations elsewhere, the consequences will not be confined to their direct employees. MNCs employ less than a third of Singapore's workforce. But they are important clients for many local SMEs, which not only provide jobs to many locals, but also generate half of gross domestic product (GDP).
A toll on growth
LAST week, Dr Chua issued a report that said Singapore's tight foreign labour policy could cost the economy 1.3 percentage points of growth this year.
By his calculations, if firms could hire all the workers they wanted, job growth would be 150,800 this year, up from an estimated 115,000.
This would add $4.2 billion to GDP. Growth would hit 3 per cent, rather than the 1.7 per cent average of the first three quarters. Another $1.1 billion in taxes would be collected - which could mean more for social spending.
Dr Chua says of his estimates: \"It was intended to show that the policies do have real negative consequences which may outweigh the marginal benefits.\"
Coming at a time when Singapore is flirting with a recession and struggling to contain rising costs, he believes that the Government can afford to be more flexible in its tightening of foreign manpower.
But other economists believe Dr Chua may have over-estimated the impact. They are more sanguine, with Dr Tan Khay Boon, senior lecturer at SIM Global Education, saying \"the current trade- off is a short-run situation\".
\"Labour productivity needs a long time to grow as workers need to be trained, technology takes time to be acquired and incorporated in the production process,\" he says.
If anything, a tight foreign labour policy is necessary to raise productivity - by incentivising companies to \"move up the value chain\", says Credit Suisse economist Michael Wan.
Their view is that growth lost now due to insufficient manpower may be a necessary sacrifice for productivity-driven growth in the future.
Government ministers have also moved to temper job growth expectations, with labour chief Lim Swee Say warning this week that \"the days of strong job growth of 80,000, 100,000, 120,000 a year are not going to happen too often in the future\", and more moderate job growth of 65,000 to 75,000 a year should be expected in the future.
Still, most experts doubt that a mass exodus of firms from Singapore is on the horizon. In the short term, the choices for MNCs that want to be in Asia are still fairly limited, they said.
\"I don't think we necessarily need to be overly concerned,\" says Credit Suisse's Mr Wan. \"Singapore is still pretty attractive as a hub.\"
Barclays economist Leong Wai Ho thinks the probability of MNC flight \"is low at this stage, although it is rising\" due to other issues such as rising business costs. \"Many firms base themselves in Singapore for reasons other than costs - for good security, good connectivity, intellectual property rights protection and for the spectrum of skills available here. For this group, the probability of moving will be low,\" he adds.
American software company Red Hat says its strategy will remain the same in Singapore, where it has had its Asia-Pacific regional headquarters since 2000.
Mr Damien Wong, general manager for Asean at Red Hat, says: \"There are reasons that we have put our regional HQ in Singapore. Those factors haven't changed. The fact is that the infrastructure is solid, things generally work well, and there is a stable environment. Those are still factors that hold true.\"
But he adds: \"We won't rule out possibilities. We are still considering how the environment is changing and what suits the company best.\"
Asked whether the EDB was concerned Singapore would lose competitiveness and foreign investments, its assistant managing director Alvin Tan says the agency has received feedback from companies on the tight manpower situation and is monitoring it closely, but that \"companies will have to make adjustments in the way they operate and manage their manpower pool\".
\"The Government's tightening of foreign worker controls since 2009 is a deliberate and planned approach towards steering the Singapore economy towards higher productivity-driven growth. Singapore still needs to rely on a complementary foreign workforce, but will continue to raise standards in terms of skills and quality,\" he says.
\"Singapore continues to remain attractive to investors due to its strong economic fundamentals including a stable business environment and good connectivity to other markets in the region and around the world. We remain confident that companies with an active interest in tapping the growth of the pan-Asian market will continue to put Singapore on their radar screen.\"
Still, that Singapore can continue to maintain its competitiveness in the next decade and beyond is not a given, which is why it is imperative to raise productivity.
Dr Pasha Mahmood, a professor of strategy and Asian business at the Swiss IMD Business School, which publishes the yearly competitiveness rankings of economies, says that the only way forward is for Singapore to keep tightening its foreign workforce and to raise productivity.
But what if MNCs want to leave in the meantime?
What Singapore can do to stay attractive, he says, is to \"keep the tax rates low, have good infrastructure, and educate people and equip them with the right skills to stay competitive\".
As for how this may affect Singapore's standing in the rankings, he says that the annual report looks at more than 300 indicators of competitiveness, so foreign labour is unlikely to change the overall picture very much.
Mr Overmyer says what companies need is predictability.
\"There needs to be a structure in place, so that companies know what is going to happen two or three years from now, or more,\" he says, adding: \"Right now, EDB can't commit to anything.\"
He thinks more clarity may result from better coordination between the different government agencies and ministries.
But there may be a limit to how exact the Government can be, since it needs to take in political, social and economic factors in a situation that is fluid.
Mr Vohra says: \"How do you balance the demands of the local population with growth and competitiveness? That is the tricky question. If a bunch of economists was making all these decisions, then it would be easy. But the political climate and a whole host of other factors have to be taken into account.\"
Says Dr Mahmood: \"How high the foreign worker levies are may not even matter to businesses in the future because the make-up of industries will have changed and they no longer need those workers.\"
It would therefore be unwise for the Government to commit to a specific number or proportion, they argue.
For companies, their best bet may be to trust that the end goal of a restructured, highly productive and competitive economy will be worth the present muddling through. -
Good post Lilac. Of course we can always bury our heads in the sand.
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in our company even if the economy is down and revenue’s are down, there are no salary cuts, they drive the profits of the agencies supplying us with temporary workers though… 2 years ago the agencies profit by as much as 30%, this year, their profit is down to 7%, and by 2013 only 3.6%
companies usually try to cut costs in many different ways, but they cannot cut salaries as they will be facing a lot of regulatory issues if they do so…(unless probably they file for chapter11 -
3Boys:
Compete nonsense puck from thin air? so the million dollar profits posted by listed companies are fake isit?
Your assertion that a small drop in profits will not affect the businesses much is complete nonsense, plucked from thin air. You have it in your mind that you are stating facts when it is really pure speculation since you have not demonstrated any understanding of what drives businesses.
The profit figures in BLACK & WHITE are speculation?
Stop making simple thing complicated and confusing to layman.
Revenue - Cost = PROFIT. period. -
3Boys:
Possible.. bcoz, I believe most pple as well, are only exposed to 1 side of the story.
You only look at one side of the story.
I am also an employee of my company, but I try to understand the constraints my employer works under.
And a short statement like \"biz go bust if no cheap workers\" doesn't tell the full story either, how you expect workers to swallow that?
As for the details in running a biz.. I can accept that indeed some biz, especially F&B and labour intensive ones need help in that area. So let's not debate on those since there is no disagreement on the need for affordable workers.
However, for PMETs, it is different. For most companies, PMETs are indirect cost, and I doubt it can be 50% of running cost, especially for manufacturing with turnover in millions. I don't see the mass influx of FT necessary to sustain these business. Of coz, This not not include those send from HQ which are deemed as necessary support. I only talked about those recruited locally. -
Lilac66:
Totally MISSED the issue.TIGHTENING FOREIGN LABOUR INFLOWS
Nov 03, 2012
From ST insight.
Have we gone too far?
How big a price is Singapore paying for tightening the tap on foreign manpower? Insight reports on economic growth forgone, jobs lost and the potential outflow of business and investments.
By Robin Chan & Janice Heng
WHEN a North American company thought of starting an operation in Asia this year, Singapore was one of its top choices.
After being wooed by the Economic Development Board (EDB), it plumped for Singapore early this year.
To its horror, the Ministry of Manpower (MOM) rejected its application to bring in seven foreign executives on high-skilled Employment Passes (EPs).
It was only after the EDB stepped in and talked to the MOM that the company finally secured those seven passes.
For foreign firms which come to Singapore expecting a smooth run, such hiccups can come as a surprise.
These pple are send from the HQ. Naturally, the company needs them. I believe most locals are not concerned about these workers and they are small in number anyway. And, they do NOT really compete with locals for jobs anyway.
The concern is the large number of FTs hired/sourced LOCALLY.
When they hire locally, why do they need to hire foreigner instead of locals? -
Always bring in those "non-issue" and use as smoke screen from the REAL issue which they avoid.
FW is good example… tighten FW for what… most pple recognise the need for them to keep biz.
Now, they quote the example of the FT sent from HQ…
totally missed the problem area. -
limlim:
Compete nonsense puck from thin air? so the million dollar profits posted by listed companies are fake isit?3Boys:
Your assertion that a small drop in profits will not affect the businesses much is complete nonsense, plucked from thin air. You have it in your mind that you are stating facts when it is really pure speculation since you have not demonstrated any understanding of what drives businesses.
The profit figures in BLACK & WHITE are speculation?
Stop making simple thing complicated and confusing to layman.
Revenue - Cost = PROFIT. period.
I am NOT trying to make things confusing. BUT, this is the crux of the problem when people take an overly simplistic view of numbers. I have tried very very hard to boil it down and explain how these things work and to help people look beyond the headline numbers, which is all people do and hence arrive at the same erroneous conclusions that you do.
Millions of dollar based on what revenue and what number of employees?
If a company makes 10 million dollars of profit on an employee base of 100,000 people and revenue of 1 billion, that's only a productivity of 100 dollar per employee and margin of 1%. To you a 10 million dollar profit is a lot and should be distributed to workers, to any other observer, this is a company in deep trouble.
Don't be fooled by the headline numbers, you got to dig below to understand. -
limlim:
What do you mean they are INDIRECT costs? Please don't throw such terms around out of context. Labour impacts bottom line directly.
As for the details in running a biz.. I can accept that indeed some biz, especially F&B and labour intensive ones need help in that area. So let's not debate on those since there is no disagreement on the need for affordable workers.
However, for PMETs, it is different. For most companies, PMETs are indirect cost, and I doubt it can be 50% of running cost, especially for manufacturing with turnover in millions. I don't see the mass influx of FT necessary to sustain these business. Of coz, This not not include those send from HQ which are deemed as necessary support. I only talked about those recruited locally.
So the only group that are deserving of wage protection are the PMETs? Because you are one of them? Why not the production line workers, why not upper management?
It is clear from these last 2 posts that you really have no clue. I wrote a long post on margins, yet you choose to focus on raw numbers instead, reveals a complete lack of understanding of what matters to businesses.
If Microsoft made $1 billion in profits in 2012, would you consider that an obscene amount of profits which should immediately result in a pay rise for workers?
<http://www.microsoft.com/investor/reports/ar11/financial_highlights/index.html>
Microsoft turned over nearly $70 billion in 2011 and $1 billion in profits for MSFT would be a total disaster and they probably need to be finding a way of cutting costs and growing top line.
You can't just look at one number and jump to some inappropriate conclusion. You ave no sense of proportionality. I have written at great length and pleaded with you to go educate yourself a little on how these things work for companies, please find a few local companies and dig through their annual reports, over a few years. A company with a MARGIN (extremely important number) of 10%, with labour cost of 50% of total costs (not unusual for quite a few industries), if they raise labour costs by 10% ($3000 pm to $3300 pm, for example), would approximately HALVE its margin from 10% to 5%. This is an economic/accounting fact, and I am not trying to confuse anyone, I am trying to EXPLAIN that it is not as simple as you think!
I am NOT trying to confuse you, I am trying to make you understand what companies need to look at when they make decisions on costs, salaries, or ultimately whether to continue a business. In fact, you are confused right now because you wonder why, with all the seemingly huge profit numbers, why companies don't raise wages or complain about competitiveness. I am trying to explain to you, PLEASE PLEASE PLEASE look beyond JUST A SINGLE number, it is not the only indicator of the company's health!
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