Introduction
The economic conditions of Singapore were stimulated starting with the sixties – seventies, when the country started to focus on the international trading. The international trade focus came as a solution for solving the country’s poor economic system, getting Singapore out of the third world countries and emerging into a developed nation. Currently a developed economy, Singapore ranks the third in the world in terms of living standards, standing out as the most open economy and the third per capita ratio in the world (Central Intelligence Agency “Singapore”). However, this Asian country applied a series of economic measures for becoming the strong economy it is nowadays, accomplishing “an economic miracle”, for transforming from a third world country into one of the top world’s country from the living standards point of view. Although there were various business strategies that Singapore pursued for improving its economy, the one on which this analysis focuses is the inward foreign direct investment (IFDI). The IFDI was initiated as a measure of going out of the poverty and economic crisis that characterized Singapore after it gained its independence in 1965.
Summary of the Findings
II.1. Addressing the country’s poor economy through inward FDI
Singapore’s history is associated with a long period of dominance by foreign powers. While it was under British political and economic control until the Second World War, the country entered under Japanese dominance after Japan defeated UK, but it remained under Japanese supremacy only between 1942 and 1945. After the WWII ended Singapore returned to British control, only that this time Singapore enjoyed increased self – governance levels, deciding to merge with the Federation of Malaya in 1963. Malaysia, formed of Singapore and the Federation of Malaya lasted only two years because, due to various disputes Singapore was ruled out and became independent, while facing unfavorable economic conditions (Abeysinghe 1). Both the Federation of Malay and Indonesia restricted the trading with Singapore, which forced the country to drive an economic reorganization, looking to partner with foreign countries. The country approached inward FDI through internal political, economic and legal changes meant to attract investors, while in the meantime it developed its resources and industries, continuing to increase its FDI attraction. Due to this gradual and courageous approach, Singapore is one of the top countries in terms of FDI attraction.
II.1. a) Initial conditions for attracting the FDI
For attracting foreign direct investment into the country, the government of Singapore had to change its legal system and adjust it to the business requirements of the international partners. A series of measures were applied to redefine the economic context and favor the business relationships between Singapore and foreign business partners. Countries such as United States, Japan, United Kingdom and many others were attracted to invest in Singapore through foreign direct investment by the incentives received but also by the geographic conditions, which mainly implied the Singapore’s harbor, which facilitated the aquatic trade. The country lacked an industry and other relevant knowledge or resources, but it attracted the investors due to its harbor. The economic strategy of Singapore was to gradually reach economic development through strengthening various economic conditions at a time. The inward foreign direct investment was encouraged on various fronts. The promotion of its strategic economic localization was the first strategy, followed by the incentives political and legal initiatives. Later there followed other strategies, such as the development of the local industries, through foreign partners, which attracted more foreign investors. In time, as Singapore became a hub of knowledge in information technology, research and development or financial domains, it strengthened its resources, attracting other foreign partners, interested in accumulating know-how and growing in a developed Asian economy.
Among the initial conditions that constituted the basis of the Singaporean emerging economy there were the tax reduction policy for accelerating the entry of the foreign investors on the local market or the utilization of the local savings in stimulating the local labor force (Abeysinghe 4). The cordial, well- educated and trained workforce was another initial condition that attracted the foreign investors in Singapore. Under the coordination of Goh Keng Swee, the Singaporean Ministry of Finance stimulated the foreign investments into the country by encouraging the education in English language, promoted over the Chinese within the educational centers (Klein 20). The country imposed multiple restrictions for establishing the security and stability while avoiding the turbulent riots or violent outburst that characterized other emerging Asian economies, which were, because of this reason, unable to compete with Singapore in terms of FDI attraction (Abeysinghe 2-3). The peaceful political and social context and the stable economic environment were highly appreciated initial conditions that conducted to the rapid absorption of foreign investments into the country.
In addition, the infrastructure of Singapore, with the organized transportation and the effective communication system also constituted to speeding the foreign investments in the country and increasing the international competitiveness (Kwong 209).
II.1. b) Developing industries through FDI
As the multinational corporations introduced sophisticated machines and software, they were absorbed in the local economy and implemented in emerging domains, such as biomedical sciences or information technology (Hsu 1), domains not traditionally specific to Singapore. With the introduction of foreign machineries meant to facilitate the manufacturing domains, intensively focused on labor intensive activities, the foreign investors sought the opportunity of growing, by exploiting the low-cost and well – educated Singaporean market for establishing consumer electronic goods plants in this country (Kendall, Park & Tan 213). The products and services created in Singapore by foreign companies are marketed outside the country, in Japan, United States and other developed or developing countries, such as the anti-ulcer drug Zantac, created by the Singaporean subsidiary of Glaxo, exclusively in charge with research and development (Kwong 49).
The attraction of FDI also brought in the country companies such as Shell, which besides generating significant employment opportunities, it also introduced the oil and gas industry in Singapore, becoming the third largest oil refinery globally (“Two Decades of Independence”).
II.2. Accessing foreign know - how and strengthening the quality of the traded goods
For Singapore the attraction of foreign direct investment meant not only increasing the domestic budget but also contributing to a sustainable development by strengthening the local resources and the economic conditions. By engaging foreign business partners to invest in Singapore’s economy the government of this country stimulated the local industry. With foreign resources and foreign investments the country’s government managed to optimize the know-how, the international technology and experience for creating its own industry. Singapore capitalized on the technological transfer, facilitated by the introduction in the country of foreign software and machinery, introduced by the multinational corporations that shaped the country’s manufacturing (Kwong 207).
The high volumes of multinational technology also required qualified personnel for handling the sophisticated technology or machinery and software. For this reason, Singapore’s strategy implied educating its people in technical fields, for preparing them to proficiently face the challenges of employments in multinational corporations (Kwong 208). The labor market in electronic components, refinery or biomedical services became highly dominated by the Singaporean skilled work force, which improved the country’s qualitative resources, contributing to raising its living standard.
The FDI allowed not solely technological transfer, but also the absorption of skills and strategic experience, permitting the local entrepreneurs to learn from their foreign counterparts and further implement the assimilated information into their business practices (Klein 3). Soon, the absorbed technology, machinery, software and know-how were maximized into developing more refined goods and services in consumer goods, such as electronics, biomedical products and services, refineries or an emerging financial sector (Kendall, Park & Tan 229).
II.3. Continuing to pursue the inward FDI for benefiting of international competitiveness
Currently Singapore still pursues aggressively the inward FDI, as a strategy of pursuing its global competitiveness. The country activates in uncertain economic conditions, as it is vulnerable to changes in the world prices because it imports all the materials needed for its industries and for this reason it keeps the import prices as stable and attractive as possible (Kendall, Park & Tan 230). Its FDI grew constantly since its inception, with only few setbacks in 2009, when the economy of the country contracted with 0.6%, affecting also the FDI for a short while; it came back stronger in 2010, when it reached US $ 470 billion and remains stable ever since, despite the uncertain economic conditions that contoured the developed markets (Hsu 2). Currently the new investment opportunities are exhausted in Singapore, but there is a high focus towards developing the research and development, for increasing the quality of the products and services offered (Kwong 52), answering an increasingly demanding clientele.
Conclusion
The Singaporean market demonstrated that through a sound strategy and by seizing the right opportunities a state can emerge from a third world country into a flourishing economy. The inward foreign direct investments driven by the Singaporean government were meant to take the country out of the heavy poverty and enhance the economic activity. In the meantime, the economic environment that the country’s government shaped, through incentives and tax reduction for foreign businesses brought more than a mere existence to the Singaporean people, but generated qualified and well trained workforce. These aspects contributed to increasing the quality of the services offered and implicitly the living standard of the population. The Singaporean economic miracle was in fact a natural development of an effective business strategy and visionary thinking, which consolidated on the foreign capital for reaching one of the world’s top developed nations.
Works Cited
Abeysinghe, Tilak Singapore: Economy. Retrieved from https://courses.nus.edu.sg/course/ecstabey/singapore%20economy-tilak.pdf. Accessed 10 June 2015. 2007. Web.
Hsu, Locknie. Inward FDI in Singapore and its Policy Context. Columbia: Vale Columbia Center n Sustainable International Investment. 2012. Print.
Kendall, Jon, D., Park, Donghyun & Tan, Randolph. East Asian Economic Issues. Vol.3. Singapore: World Scientific Publishing Co. Pte. Ltd. 1997. Print.
Klein, E. Capital Formation, Governance and Banking. Nova Science Publishers, Inc.
Kwong, Kai-Sun. Industrial Development in Singapore, Taiwan, and South Korea. London: World Scientific Publishing Co. Pte. Ltd. 2001. Print.
Two Decades of Independence. Available at http://countrystudies.us/singapore/11.htm. Accessed 20 June 2015. N.d. Web.
