This article was contributed and first published in The Business Times on 28 January 2015.
Only time will tell how Singapore and Hong Kong will manage their affairs effectively to stay ahead.
ASIA, with over 4.3 billion people, accounts for 60 per cent of the world's population. The demand for significant investment for the development of emerging Asian countries and the prospect of leveraging on Asia's enhanced purchasing power makes it imperative for multinational businesses to focus on Asia. This shift towards Asia is further augmented by the economic slowdown in developed markets.
Singapore, Hong Kong, South Korea and Taiwan were once labelled the "Four Asian Tigers" on the back of the economic boom of the 1970s and 1980s. But today, it is quite clear that the race for being the preferred Asian hub location is primarily between the two former colonial cousins, Singapore and Hong Kong.
Many multinationals expanding in the region choose to set up their regional headquarters in either Hong Kong or Singapore to manage and oversee their Asian operations. Their decisions are made taking into consideration the two countries' business-friendly policies, established infrastructure, available local skilled workforce, high standard of living and relatively low taxes.
While Hong Kong enjoys unmatched proximity and hence, easier access to mainland China, Singapore has managed to transform dramatically to be more dynamic and to position itself as one of the best places for doing business in the world. The Economist Intelligence Unit's 2014 Business Environment Rankings study ranked Singapore the best place in the world to do business while Hong Kong was ranked third. The ranking was based on 10separate criteria, covering political environment, macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, labour market and infrastructure.
At this juncture, Singapore appears to have pulled ahead to become multinational companies' preferred destination as an Asian headquarter location. A Towers Watson Asia headquarters study found that Singapore hosts 41 per cent of Asia-Pacific headquarters among 319 global Fortune 500 companies. In comparison, Hong Kong hosts 34 per cent (while mainland China hosts 16 per cent).
Singapore has made remarkable economic progress since the 1960s. It has supported both local and foreign investors to develop and expand new business opportunities, engage in strategic planning partnerships, and create economic space beyond Singapore.
Deliberate actions were implemented to encourage local companies and Singapore-based multinationals to locate their resource-dependent operations (for example labour-intensive industries) in resource-rich countries in the region, and yet explore opportunities to undertake higher-end activities that require Singapore's unique set of competencies.
In contrast, Hong Kong seems to have become less attractive than it used to be - it is now scoring lower on quality of life and higher on cost of living. In addition, qualified labour does not seem to be as easily available nor as affordable, and English usage in general is on the decline. Further, the business community has concerns over the heightened political tensions and the perceived creeping encroachment by the Chinese government on judicial independence in Hong Kong.
Despite such negative factors, Hong Kong is still considered by businesses as the preferred headquarters location for managing the Greater China market. But to access the rest of Asia, multinational companies are showing more interest in setting up their headquarters/hubs in Singapore, taking advantage of its business-friendly environment, political stability, favourable fiscal incentives and its expanding network of tax treaties and free trade agreements. In addition, Singapore's family-friendly environment and wider education options are attractive to senior, highly-skilled expatriates.
It is not surprising why, in the recent past, some large US corporations, such as General Motors and Archer Daniel Midlands, decided to move their headquarters from China to Singapore instead of Hong Kong. Likewise, some European companies, such as Aon, have also chosen Singapore to base their Asian operations.
However, Singapore as a city-state needs to overcome a few challenges to continue attracting and anchoring future global corporates.
Firstly, it needs to help local businesses invest more on productivity and be less reliant on labour. Secondly, to retain its competitiveness and enhance cross-border trade and investments, Singapore should try to renegotiate its old tax treaties and seek to have a tax treaty with the US. A tax treaty with the US will help Singapore-based companies access the US market and also manage any potential cross-border tax disputes. Thirdly, Singapore needs to continue building strong relationships with regional countries. In particular, Singapore should take a leading role in facilitating Asean integration so as to promote market access - only when there is a bigger market in this part of the world would multinationals anchor their headquarters here.
Singapore has already created new economic space by establishing industrial parks in the region, for instance, in China, India, Indonesia, the Philippines and Vietnam. The building of such overseas economic space will not only supplement the domestic economy, but will also stimulate cross-border business activity in the region. For example, the recent appointment of a consortium of Singapore companies as master planners for the new capital city of Andhra Pradesh state and its surrounding region provides opportunities for Singapore companies seeking further expansion in India.
The ability to play to our strengths so as to stay relevant, the capacity to change, stay ahead of world trends, innovate and make quick adjustments to meet changing times are some of the crucial factors that would contribute to Singapore's success. Only time will tell how Singapore and Hong Kong will manage their affairs effectively to stay ahead as the preferred Asian headquarters location over the next 50 years.
Hong Kong seems to have become less attractive than it used to be - it is now scoring lower on quality of life and higher on cost of living.