Singapore Entrepreneurs

What is a special economic zone? What is a free trade agreement (FTA)? How does our economy flourish by establishing special economic zones (SEZ) with Indonesia (Batam and Bintan). Our contributor, Justin Lee discusses the implications of such economic activities that will help those who are looking for entrepreneurial opportunities out there.

Contributed by Justin Lee

Today, Singapore’s Prime Minister Lee Hsien Loong signed an agreement to setup a Special Economic Zone (SEZ) in Batam and Indonesia with Indonesian President Susilo Bambang Yudhoyuno.

Picture from Channel News Asia

The Indonesian leader described the signing of the agreement as a historic event.

It is hoped that Batam, Bintan and Karimun will regain its status as the thriving hub of business activity that it once was.

With keener competition from China, India and Vietnam, many companies moved their operations away from places like Batam, and the business climate there began to freeze in early 2000.

Not bad, I like this idea. I think this agreement underscores our understanding that we are getting expensive and that any successful global city requires a vast hinterland and cheap sources of production.

Singapore has always recognized that we are small and our approach has always been to go virtual.

That’s why we’re working on so many Free Trade Agreements. Because it’s our only salvation. It helps us to expand our boundaries “virtually”.

Just look at the following list of FTAs that we’ve signed:

• ASEAN Free Trade Area
• Australia
• European Free Trade Association
• Hashemite Kingdom of Jordan
• India
• Japan
• Korea
• New Zealand
• Panama
• Trans-Pacific SEP (Brunei, New Zealand, Chile, Singapore)
• United States

And the following that are in the works:

• ASEAN & the People’s Republic of China
• ASEAN-Australia and New Zealand FTA
• ASEAN-India FTA
• ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
• ASEAN-Korea FTA
• Bahrain
• Canada
• Egypt
• Mexico
• Pakistan
• Peru
• Sri Lanka
• State of Kuwait
• State of Qatar
• United Arab Emirates

(I took this from fta.gov.sg)

From an initial glance, there is actually a great amount of opportunity. I lament that fact that young people probably don’t know much about this.

I think this is important knowledge to have because by beginning to study these FTAs we can get out of our mindset that ‘Singapore is a small place’.

You see, yes the United States sounds like it is one big homogeneous market. But from my experience, there are actually lots of different rules and laws across the different states.

So besides having to understand cultural differences between the East Coast, West Coast and the Midwest, an entrepreneur in the US has to understand legal differences too.

Hence, I’d like to suggest that instead of limiting ourselves to thinking that “Singapore has a small market”. We should really begin to consider how we can take advantage of these FTAs.

Our FTAs are definitely one of of the best things that our Foreign Ministry has churned out. Ever so diligently, they seek to increase our size “virtually”.

Training the Next Lap

Actually, I think that the entrepreneurship/business classes in University should include a class about “Taking advantage of our Free Trade Agreements”.

This would help start students of entrepreneurship off by equipping them to really understand the policies, benefits and implications of such agreements.

By doing so, it will help to create sufficient understanding amongst local entrepreneurs so that we can grow a new generation of local companies able and savvy enough to take advantage of these new policies.

Bintan, Batam Special Economic Zone (SEZ)

I think this SEZ is significant, simply because it’s so close to home.

Also, previous SEZs have not worked out well (like the Suzhou one). So I hope we’ve learnt something from those episodes.

With this agreement, Singapore now truly controls the Straits of Malacca. (We hope)

Don’t underestimate this. Because 1/3 of the world’s trade in physical goods reportedly flows through this Straits.

As long as there are physical goods, this will be a very important strategic location to USA, China, Europe and Japan.

Indonesia has a population of over 200 million people. That is the real target of this SEZ. To be able to tap on the large population of workers. (I hope it doesn’t end in exploitation though.)

Imagine the Riau Islands re-emerging as an economic force. Will this happen? Can this happen?

I think so, if we can get this place going, I think it will be fantastic.

Imagining the Future

Imagine a company, financed and headquarted in Singapore with a manufacturing base in Batam. Product designers design them in Singapore, the product designs are then emailed over to Batam, manufacturing, assembly and takes place. Within the same day, the first run of this new product is produced and ready for shipping.

The products are loaded up at Batam’s port and sped across to Singapore’s port where large vessels take in the containers and continue to ship them to the rest of the world.

That’s truly Just-in-time manufacturing.

Taking Full Advantage of our FTAs.

By having a large manufacturing base just off our shores, we can finally capitalize on our FTAs.

Many of our FTAs require transhipment of goods through Singapore’s ports for them to be effective. So for example, for a Thai manufacturer to take advantage of US-Sg FTA, he’ll have to ship through Singapore. That is definitely less enticing than if it was manufactured in Batam.

Also, Singapore/Batam is actually very centrally located. A product manufactured here can actually reach Europe/Middle East faster than from China.

Bridges and Budget Airlines:

One thing that’s lacking is fast transportation into Batam. For this to really work, we should have a causeway or a bridge so that we can drive straight into Batam. That way, the flow of business will be higher. Of course that is really expensive.

The cheaper way would be to setup Budget Airline routes so that we can fly into Batam and Bintan. This is especially important for Bintan because it takes the same amount of time to get to Bintan by boat as it takes to fly to Bangkok!

Expanding Singapore

In a previous post on “Expanding Singapore“, I wrote something along these lines. I wrote:

Copy Singapore, Ride on Singapore Inc
Also, I sometimes wonder why the Malaysians and the Indonesians haven’t caught on to develop attractive sister cities in their properties surrounding Singapore?

If I was Indonesian, I’d setup a competing “Singapore” on Batam and Bintan and replicate, copy, steal whatever Singapore does. Sounds devious. But it could be quite a smart strategy to position itself as the “cheaper Singapore”. That way, we’ll be kept on our toes to continue innovating and moving toward knowledge based services.

…

Ultimately, I believe this would be complementary to all parties involved. To grow the immediate region would attract even more opportunities to Southeast Asia. Singapore would have its hinterland and Malaysia/Indonesia would strive hard to compete with all its national pride.

I’m glad that both Indonesia and Singapore has seen the benefits of concluding such an agreement. I applaud them for thinking ahead and concluding this so quickly.

Now, it’s time to execute and make this a successful proposition…

Editor’s Note: This article is reproduced from Justin’s blog with the same title. For more information on the usage of FTAs, you can also refer to the article “The ABCs of FTAs - Fundamentals of Free Trade Agreements that you should know” in the ACE website.