Looking ahead to the post COVID-19 supply chain ecosystem in Singapore has been saved
Looking ahead to the post COVID-19 supply chain ecosystem in Singapore
Written by Wong Meng Yew, Deloitte Southeast Asia and Singapore Global Trade Advisory Leader, Cecil Leong, Deloitte Singapore Global Trade Advisory Partner, and Tony Kerr, Deloitte Singapore Global Trade Advisory Partner. The below are their personal views and may not represent the views of Deloitte.
As published in Singapore Business Review on 1 February 2022.
Singapore may be a small country, yet it punches high in the following areas—thought leadership, regional leadership, innovation, and determination. It is these same qualities that are required to develop new, more efficient, and effective supply chains.
Reflecting on the past three years, we find supply chains severely disrupted in the region. It first started with the trade war between the United States (US) and China. Just when businesses thought they had gotten a grip on that, the world was hit with the COVID-19 pandemic, which exposed the serious vulnerabilities of the supply chains. We saw limitations at borders because of inefficiencies and the requirement for large amounts of documentation, manufacturing lockdowns, and complex new laws for businesses to comply with.
Some businesses running on a just-in-time inventory system were left without availability of new inventory because access to their suppliers no longer existed. Logistics were totally disrupted by a shortage of containers or ships. Additionally, there was the substantive increase in costs of freighting goods by sea, air, rail, or road, along with the increased lead and delivery times.
The need for supply chain visibility was also highlighted by the pandemic as importers are required to have visibility across their entire supply chain to ensure that there are no components or finished goods that are manufactured under slavery or forced labour. For an importer, this is a huge challenge and the consequences of non-compliance can be catastrophic on the company and its market share.
These difficulties provide opportunities for the Singapore government to continue to be innovative as the authorities need to consider how to best cater to the growing e-commerce trade, while considering further incentives to continuously entice businesses to the country. In the past, Singapore may have been considered an expensive option for a company to establish a substantive manufacturing business. However, costs across the region have also increased substantially, bringing Singapore back into the equation.
The pandemic also accelerated the pace of technology in business and its use in the supply chain system. An example of the Government’s initiative in this area was at the Industrial Transformation Asia-Pacific (ITAP) 2021 event, where the launch of a S$18 million (US$13.18 million) Supply Chain 4.0 initiative was announced. The aim of this initiative is to integrate technology to assist small and medium enterprises (SMEs) to better cope in the event of any disruptions to their supply chains.
Led by the Agency for Science, Technology and Research, with The National University of Singapore and the Singapore University of Technology and Design’s Centre for Next Generation Logistics as partners, this programme will require the development of digital solutions, including artificial intelligence (AI) which will be used to meet the requirements of businesses.
Through this, it should be able to provide early identification of trends that may disrupt supply chains, allowing businesses to make the required changes ahead of time. Businesses can also use the collected data to forecast demand for new products, and for further strengthen and fine-tune their supply chains.
The digitising of supply chains may be key in strengthening the supply chains’ resilience, but it is only part of the solution. With automation and AI, production lines can be converted to be more efficient, requiring fewer resources. The same would apply to automating warehousing. Due to the rapid growth of this industry, manual tracking of items is extremely labour-intensive. Automation of receiving and distributing warehouses is essential to increasing the efficiency and effectiveness of this area of supply chain.
The space within these factories could be further compressed with more efficient use of available space. The further development of AI and other initiatives such as customs modernisation through e-Customs, upgrading single window portals, and the streamlining of documentation requirements, will greatly assist in enhancing supply chains. With all the new compliance requirements and lessons learned from this pandemic, an end-to-end digitalisation of the supply chain is essential to allow full visibility and control for all parties to the supply chain.
In July last year, the Singapore Government launched the Singapore Trade Data Exchange, which facilitates the secure sharing of information between the supply chain ecosystem participants via a common data corridor. This will enable logistic players and shippers to optimise cargo handling and operations.
In its continuous effort to create opportunities for Singapore businesses, its citizens, and countries within the region, the Government has been instrumental in establishing industrial parks in other countries that benefit Singapore businesses, as well. In that same spirit, the signing of agreements between the government and corporates at ITAP 2021 to strengthen supply chains, shows how innovative Singapore, its government, and businesses are.
The establishment of the Southeast Asia Manufacturing Alliance (SMA), formed out of Sembcorp Development and Gallant Venture, offers companies a suite of manufacturing locations in Southeast Asia through collaborative agreements with the Singapore Economic Development Board (EDB) and Enterprise Singapore. This illustrates how Singapore works with businesses and its neighbours to provide a suite of options to assist them in meeting their needs.
For example, CapitaLand is SMA’s first private sector strategic partner, providing companies access to Nusajaya Tech Park in Johor Bahru. Sembcorp Development, part of Sembcorp Industries, provides businesses access to the Vietnam-Singapore Industrial Park in Vietnam and the Kendal Industrial Park in Semarang, Central Java. Gallant Venture offers companies access to Batamindo Industrial Park in Batam and Bintan Industrial Estate.
According to EDB, “By investing in both Singapore and in another Southeast Asian market with these strategic partners, companies will be eligible for benefits that make their set up in Singapore and the region more seamless and cost-efficient”. Speaking at ITAP 2021, Deputy Prime Minister Heng Swee Keat said: “By providing access to connections and expertise through Singapore, we help businesses grow their manufacturing footprint in Southeast Asia”. These statements speak volumes about how the Government seeks to not just benefit Singapore but plays an important role in promoting trade across the Association of Southeast Asian Nations (ASEAN) supply chain.
As of 1 January 2022, the world's largest free trade agreement, known as the Regional Comprehensive Economic Partnership (RCEP) involving 15 countries, including Singapore, went into effect for the relevant ASEAN and ASEAN+1 countries who have successfully ratified the agreement. The RCEP offers companies opportunities to rethink their supply chains, new markets, enhanced pricing efficiency, and access to a broader range of suppliers, components, and raw materials. Participating countries will also be able to expand their economic ties and connectivity with the region and gain access to regional markets that are growing rapidly. The rules of origin provide the following:
- Common set of Product Specific Rules (PSRs) for all 15 parties that will reduce the complexity for businesses claiming preferential tariffs.
- Allow cumulation across ASEAN and RCEP participating countries.
- First co-equal Chemical Reaction rules in ASEAN agreements for selected product lines.
- Options to prove origin.
There is also the simplification of customs procedures with the release of express consignments and perishable goods within six hours of arrival, and release of other goods within 48 hours. This is particularly significant during the COVID-19 pandemic as it demonstrates ASEAN’s strong commitment to maintain open and connected supply chains, boosting the region’s competitiveness as a location for supply chains.
On the tax front, while some may consider the introduction of Base Erosion and Profit Shifting (BEPS) 2 and its levelling out of corporate tax rates as a disincentive, we would ask that businesses consider all the other factors that Singapore has to offer, such as the following:
- Singapore is centrally located to access markets in ASEAN, RCEP, Australia, New Zealand, and India, considering the high cost of transportation.
- It has a highly skilled workforce and excellent education and technical facilities.
- It has a pro-business government and government entities specifically targeted with the responsibility of encouraging and assisting investors.
- Import and excise taxes are applied on just four categories of items, although all are subject to Goods and Services Tax (GST).
- The customs import, export, and processing laws, as well as business set up and compliance requirements, are transparent.
- It is still and excellent location to establish a regional headquarters and research and development facility.
In closing, Singapore is also a great location for global data centres. We live in a country that is relatively protected from many of the tragic natural disasters that affect other countries in the region. Data storage and recovery relies upon this data being available at short notice in cases of disasters and if your data centre is in that disaster area, the chances of it being immediately accessible would likely be zero to slim. In today’s world of e-commerce, there is surely a need to ensure that data is secure, protected, as well as readily available for immediate backup by global companies.