Singapore weathers the perfect storm

Industry veterans are confident that despite being buffeted by two big storms in the past 10 years, Singapore’s IT sector will bounce back. The more interesting bets, however, are on how this will happen.

The Asian crisis took everyone by surprise in 1997, recalled Saw Ken Wye, chairman of the Singapore IT Federation (SITF). Up till then, Asia was attracting almost half of total private capital inflows to developing countries — over US$100 billion in 1996. But when the meltdown began, market doubts, compounded by a lack of transparency, sent foreign investors fleeing.

Singapore emerged relatively unscathed. According to the World Economic Forum’s Global Competitiveness Report, Singapore was still the world’s most competitive economy in 1999. But what had an even bigger impact on the IT industry was the dotcom and telco crash the following year, said Saw.

Piyush Singh, managing director of IDC Asia-Pacific, described it as the “perfect storm”, with the Internet stock crash in 2000, economic downturn, and a telecom capacity glut.

And then, said Saw, “just as we were getting up, we got kicked in the shin by SARS (the Severe Acute Respiratory Syndrome outbreak in Asia)”.

Still, Saw believes that the local IT industry is a resilient one. “We have 100,000 people employed within the industry today. Most companies are ramping up staff again,” he pointed out.

In Singapore, according to latest preliminary figures from the Infocomm Development Authority’s (IDA) Annual Survey for 2003, the infocomm industry saw a revenue growth of 1.7 per cent last year, to reach S$32.7 billion (US$19 billion). Companies said they expected positive revenue growth in the region of six to seven per cent in 2004 and seven to nine per cent in 2005.

Beyond Singapore, IDC projected that IT spending in the Asia Pacific region, excluding Japan, would grow 10 per cent to US$88 billion this year, a sharp increase from the 3.4 per cent growth in 2003.

While Singapore has the ingredients to make the comeback, with its capabilities in areas like software, hardware and embedded solutions, the question remains: “How does the industry position itself? Are we fast followers or are we leaders?”

The IT environment has changed, and so have Singapore’s aspirations, observed Saw. “There is less of the feeling that we should be a software center per se. We do not have enough of a talent pool.”

Singapore has also lost a bit of the edge it used to have in regional leadership. It was first in the world with a nationwide broadband network in 1997, but “when people talk about broadband now they think of Korea”. Size continues to be a blessing and a curse — a blessing when it comes to pushing out IT adoption and piloting new technologies, but a curse when it comes to taking these one step further. “We have always faced the challenge of size and scale,” said Saw. “It’s hard for us to reach critical mass.”

It is a question that Lee Kwok Cheong also grapples with as chief executive officer of National Computer Systems (NCS). NCS is one of the largest local systems integrators, and a subsidiary of Singapore Telecom.

“When you think about the IT industry, you think about Creative Technologies, but that is in the consumer space. The IT industry has grown a lot, but when you talk about big, world class companies growing out of Singapore, I have to scratch my head. That must say something. Why?”

The development model of the past — attracting multinational corporations to invest here — worked well in its own way, but somehow, there is still a gap. “The industry as a whole has grown. We have many strong players and from that perspective we are healthy. But in terms of local companies being able to come up, we have had no major successes.”

Lee hopes to position NCS one day as a Singapore-grown company with — if not global — at least regional recognition. But he acknowledges the enormity of the task. “It is a challenge for Singapore to build companies. It is difficult to build a global brand.”

Tetsuo Watanabe, managing director of Brother International Singapore, observed that in the past, Singapore IT industry players were concerned about developing new technology, formalizing standards for hardware and software, and seeking applications for the machines.

“Now, the industry is faced with an abundance of patents and ideas, and not enough creative ways of marketing them,” he said.

“What Singapore’s IT industry needs is to work with designers and communicators outside of their own fields — to create a melding of form and function. Even a prototype has to look and feel good to the investor.”

A different set of challenges confronts companies in the services arena. “We find that the capacity to pay for services depends on the stage of economic development of the country. Some countries will pay for hardware but not services,” said Lee.

Growing a services company is not a straightforward M&A exercise. “The IT services sector is not likely to have an equivalent of a SingTel buying Optus. Companies like IBM and Hewlett-Packard (HP) are not available for you to acquire,” he observed wryly.

And yet, there is a pressing need for services companies to develop a critical mass, as well as a regional presence. “If I’m a ‘Citibank’ for Singapore manufacturing companies, I need to be able to serve them in the region,” he pointed out.

We must be pragmatic, said Saw of SITF. “We must ask ourselves — where do we make the money? Yes, there is some in Singapore, but the big growth is elsewhere. We have to go regional. We cannot neglect China as a market. Or India for that matter.”

But going regional, in Asia, is a complex endeavor. “It’s not like in the United States where you can go to California, succeed, then go to New York. You have the same country, the language is the same, you can support whole of U.S. from a few points,” said Lee.

“But when you are in Thailand, you need to worry about the Thai language interface. Cultures are also very different. Hong Kong, like Singapore, is very transparent, but some other countries may do business in a different way.”

NCS itself has had a presence in China for six years. Said Lee, “It is the norm rather than the exception that when you go regional you will have problems.”

But, he emphasized, “the expectations should not be instant success”.

“We have not failed, but we had unrealistic expectations. You cannot expect smooth sailing year on year, but the overall trend will be upward”.

It has certainly been that way for NCS. Currently, 80 per cent of the company’s business still comes from Singapore, but the regional revenue has grown from zero to about S$100 million over the past few years. Lee does not believe in pegging a “magic ratio” to his overseas revenue targets. “When there’re customers, and there’s business, you’ve to do it.”

But, he said, it is only a matter of time before revenues from the overseas business will be higher than that from Singapore.

For the Singapore IT industry as a whole, too, the dynamics of competition are changing. “Singapore will continue to be a hub but this time, we are no longer thinking of Singapore vis a vis Kuala Lumpur or Hong Kong. Now the thinking is not about different locations competing against each other, but different value chains.” It is a view shared by Khoong Hock Yun, assistant chief executive of IDA (Infocomm Development Authority of Singapore).

Speaking at a recent panel discussion at iX2004, he said, “When people form partnerships today they form competitive differentiators. Partnerships determine the flavor of the competition.”

For the Singapore IT industry to differentiate itself, it needs to take a look at what Singapore is good at — areas such as logistics, transport, financial services and e-government, and come together to form clusters, said Saw of SITF.

Earlier this year, local financial software provider, System Access, became the first Singaporean company to lead a group of other home grown financial services companies, to break into the European, Middle East and African markets.

The five were BCS Information Systems (clearing and payment solutions), Fairex (forex trading solutions), Comex (credit card processing systems), Focus5.Net (CRM for sales, marketing and channels), with System Access (universal banking) taking the lead.

Established in 1983, System Access had achieved global success in the internationalization of its flagship banking software product — Symbols.

The cluster approach enabled the partners to leverage on System Access’ existing customer base, global sales force and international distribution channels. “It brings a lot of synergy and value to the customers as well as for our partners” said System Access chairman Leslie Loh.

As for Singapore itself, Lee of NCS is confident that as routine manufacturing moves out to countries like China, Singapore can play a role in areas like management, coordination, design and logistics.

An example of that happening is with Creative Technologies, which made its name in the United States and which is betting on China as a manufacturing base and market, but continues to operate out of its headquarters in Singapore.

Another example is that of Sri Lankan software company hSenid, which plans to build up a team in Singapore to do research, with a development team in Sri Lanka responsible for building up its products.

HSenid specializes in the development of mobile applications for the telecommunications and enterprise markets as well as the development of human resource management systems.

“The key is to have the people plan the architecture and systems integration in Singapore, work with the client to get the requirements, and feed them back to the development team in Colombo. We will be doing this for both customers in Singapore and in the region,” said hSenid’s chief executive officer Dinesh Saparamadu.

From the vendors’ perspective, there is optimism that Singapore enterprises will continue to invest in IT. “Singapore CIOs and IT managers are increasingly sophisticated in their understanding and usage of IT to achieve a diffe

Take storage, for example. “A few years ago, EMC had an uphill task of educating the market on the need to separate their storage from their server infrastructure to enable networked storage consolidation, easier management and business continuity. Today, this is a given amongst most of the IT managers and CIOs we speak to today,” said Rajendran.

In the IT security world, too, it is no longer just about investing and buying new technology to solve the current threats and concerns.

“It is about the business value of information security — keep the bad guys out, let the good guys in, but keep the wheels turning,” said Kwek Hong Sin, managing director — Asia, of Quantiq International.

The challenges will not stop coming at us, she said. “You either keep ahead or you are out of it. But without challenges, we will not progress.”

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