Analysis of Singapores Open Cross-Border Transaction Conditions - Literature review Example

Analysis of Singapore In the recent years, the circumstances of globalization evoked certain transformations in different economies of the world. Among the most important drivers for change in global business, researchers frequently mention failure of Soviet Union, appearance of European Union, economic miracle of Japan and growing importance of China. However, it worth mentioning that some small cities like Singapore by choosing good strategy in global business managed to develop their economies to the level that turned them into significant actors on global arena. In other words, not only huge countries and alliances are able to have weight in global business processes nowadays. In this context, the country that consists of one developed city is the new trend in global business and politics. Thus, it is interesting and important to investigate the way Singapore manages to be so prosperous. For this aim, the presented essay overviews Singapore’s open cross-border transaction conditions and explains in detail both the effect of multinational corporations and domestic government on the development of this economy. In the essence of Singapore global business strategy, dependence on trade relations creates the core of its national economy. It is common to deal with this global city as the country that has a strong tradition of protected by government imports in combination with free market economy (Lin and Ewing-Chow, 2014, p. 6). In its essence, Singaporean economy concentrates on “port, oil processing, multinational corporation manufacturing, some science-based high-tech, a service sector and a growing financial sector” (Preston, 2007, p. 15). In general, Singapore has one of the highest trade to GDP ratio in the world and relies heavily on importing goods like food, energy, and industrial raw materials (Selvam, 2003, p. 69). According to the recent statistics, Singapore is in top-15 of largest merchandise exporter in the world and has a trade to GDP ratio of 404.9 (“Starting a Trading Company,” 2015). Thus, global business scenario depends on the ability of this country to involve foreign investments effectively. In this context, it is evident that Singapore imports all the basic goods. As for the resource base of Singapore, it is similar to Japan in the inability to rely on natural resources. As Dunning (1997) noticed, since nineteenth century, when natural resources were the foundation of development, passed, the key to economic prosperity in the twenty-first century is in ability to create the new knowledge (p. 54). And this was the chance for Singapore to become important on global business arena. In addition, small size of this city-state made it necessary to develop business strategy based on openness and active trade in order to sustain its economic growth (Lin and Ewing-Chow, 2014, p. 8). In the given circumstances, the economy of Singapore got the chance to develop into the global actor. Along with developing economies of Hong Kong, Taiwan, and South Korea, Singapore is considered as the part of “Four Tigers” group in contemporary global business world (Peng, 2014, p. 19). As for the factors of Singapore’s success, the reliance on open cross-border transactions is determining among them. In this context, Peng (2014) widely discusses Singapore in context of foreign exchange market as of the place with no central, physical location but the market with geographically dispersed sellers that experience constant dependence on each other (p. 218). Furthermore, Singapore works on not only opening its market for international cross-border trade in goods and services but also including legal sector in this process (Selvam, 2003, p. 67). For instance, resolving a standardized case in Singapore takes only 150 days, which is the fastest contract enforcement in the world (The World Bank, 2013, p. 90). In short, Selvam (2003) summarizes the overview of Singapore economy that this country “has positioned itself as one of the more highly developed and successful free-market economies with a remarkably open and corruption-free business and legal environment, implementing practically no barriers to the free flow of goods and services in and out of Singapore” (p.69-70). In this context, the effect of this strategy is so successful, the international institutions call Singapore the easiest country in terms of trading across borders (The World Bank, 2013, p. 86). In terms of above-mentioned and other indicators of the World Bank, the country got the title of the easiest country for doing business in 2014 for the seventh year in a raw (Lin and Ewing-Chow, 2014, p. 5). In order to evaluate the perspectives of Singaporean business scenario critically, it is necessary to investigate the importance of both multinational corporations and governmental incentives in supporting chosen global business strategy. On the one hand, the activity of multinational organization is a crucial part of Singaporean economy. In this context, it is hard to define the theory that explains outstanding successes of Singapore in conditions when most countries rely on their own resource base. Only in the end of previous century, scholars had started to include Singapore in their analyses. For instance, Porter used home-based single diamond approach in order to discuss eight developed countries with Korea and Singapore as newly industrialized countries. In detail, this approach considers that some companies in one industry are related to the performance of other industries. He takes (1) factor conditions, (2) demand conditions, (3) related and supporting industries, (4) firm strategy, structure and rivalry, (5) government and (6) chance as six angles of theoretic diamond he analyses in each country (Chang et al., 1998, p. 137). In the view of Porter, Singapore is still “factor-driven economy,” meaning that it is still on the first stage of its economic development (Chang et al., 1998, p. 136). As he writes about Singapore’s economy, this is a production base for foreign multinationals with low-cost, well-educated workforce and good infrastructure (Chang et al., 1998, p. 139). In this context, the fast development of Singapore in the recent several years proves that the level of this economy increased dramatically. The problem with single diamond model is that it does not incorporate the effects of multinational activities in the model (Chang et al., 1998, p. 137). While criticizing this approach, scholars started to write about double diamond approach in the background of global business. In this new comprehensive model, authors talk about domestic and international dimensions of firm performance (Chang et al., 1998, p. 138). In case of Singapore, the inclusion of multinational corporations reflects the real situation with success of its economy. In double diamond model, Chang et al. (1998) make it evident that “inbound FDI [foreign direct investment] brings foreign capital and technology, whereas outbound FDI allows Singapore to gain access to cheap labour and natural resources” (p. 140). To explain attractiveness of FDI flow, Lin and Ewing-Chow (2014) mention better employment level and higher level of new technologies involvement (p. 9). In the given theoretical framework, increased cross-border transactions on Singaporean territory make it necessary for local and foreign firms to cooperate on the regular basis (Selvam, 2003, p. 70) and form the appearance of Singaporean economy together. In addition, attraction of foreign investment revealed its sharply visible effect, because Singapore is a small country (Dunning, 1997, p. 256-257). On the territory of Singapore, only in logistics and supply chain management there operate about 300 international and local management companies. In shipping sector, it offers 200 shipping lines with connections to 600 ports in almost the half of countries in the world (“Starting a Trading Company,” 2015). In other words, analysis of Singapore is not comprehensive enough without considering dimension of global business activity and taking into account impact of transnational organization on this economy. On another hand, foreign business requires guarantees from domestic government, and Singaporean leaders understand that. As Chang et al. (1998) revealed, governmental factor in small economy like Singapore is more important than it is anywhere else (p. 148). Consequently, the authors warn that governmental incentives that have not so much influence in bigger countries may significantly damage the level of competitiveness in small economies (Chang et al., 1998, p. 148). In Singapore, previous wise governing was a crucial element of contemporary success on global market. From the very beginning, the country cared of economic prosperity. For instance, in the 1980s Singaporean leaders encouraged industrial diversification from emphasizing on weak manufacturing for perspectives in financial and professional services (Lam, 2000, p. 403). To date, this awareness of comprehensive regulation in conditions of small economies has turned the country into the global leader. In terms of governmental effectiveness, charts made by international organizations consistently acknowledged Singapore as the country that has efficient government and legal system, high quality of the judiciary and the consistency of its application of law (Lin and Ewing-Chow, 2014, p. 6-7). Among the factors of success, Lin and Ewing-Chow (2014) mention the stability of legal British heritage (p. 7) and wide involvement of Internet technologies in facilitating and accelerating starting of businesses (p. 18-19). In addition, Singaporean leaders encourage improvements in education, economic infrastructure, and national defense (Lam, 2000, p. 407). Furthermore, good foreign investment management is also the result of governmental policy. As Dunning (1997) assumes, “The best example of a pro-active FDI strategy is …adopted by the Singaporean government, and which has used a battery of policy interventions to ensure that inbound FDI meets its development objectives” (Dunning, 1997, p. 12). Correspondingly, Peng (2014) writes about effective sticks (threats to block access to local market) and carrots (tax incentives and free infrastructure improvements) system adopted by government of Singapore in order to “attract MNE [multinational enterprises’] investments in higher value-added areas” (p. 405). Moreover, Singaporean leaders encourage participation in different agreements: from regional platforms like APEC to smaller decision-oriented alliances like Trans-Pacific Partnership (TPP) with Brunei, Chile, and New Zealand (Peng, 2014, p. 252). Because contemporary international law is incapable in terms of international transactions regulation, Singapore cares of including international investment in its legal sphere by itself. These measures include “cross-border geographic expansion of manufactures and service suppliers, international joint ventures, mergers, acquisitions, strategic alliances and affiliations, infrastructure projects, privatization and other” (Selvam, 2003, p. 67). As part of this global business strategy, Singapore created five free trade zones (FTZs) in the country, meaning Port of Singapore, Jurong Port, Sembawang Wharves, Pasir Panjang Wharves, and Airport Logistics Park of Singapore. In these areas, no duty or taxes are payable on goods stores, only if they leave to some local consumption from FLZ (“Singapore,” 2015). In this context, it is noticeable how Singaporean government managed to encourage cooperation between local business and foreign investors. In particular, in order to get permit on import, export or transshipment, it is necessary for foreign traders to work with local freight forwarders and traders (“Singapore,” 2015). Consequently, these incentives helped Singapore to top the list of most business-friendly countries in the world (The World Bank, 2013, p. 2). Among the five global business scenarios identified by Preston in 2007 (muddle through alone, globalization (American sphere), globalization (general), regional hub (East Asia) and Hotel Singapore), all the future transformations in Singapore will still have an inertia of openness and easy conditions for doing business in global context. In order to sum up, Singapore demonstrates one of the brightest examples of how to use open cross-border transaction in order to build successful global economy. By ruling small, young, and poor in natural resources country, Singaporean leaders had chosen effective business strategy of open market and encouraging multinational corporations to this city-state. These actions enabled the country to top the list of indicators that the World Bank uses to measure easiness for doing business. Moreover, double diamond model showed that understanding of Singaporean economy is not comprehensive enough without including activity of multinational corporations in it. Finally, the small size of Singapore increases the value of governmental incentives, and wise management of its leaders made it possible for this city-state to guarantee the sustainable economic development in the case this global business scenario will develop either in the same or in different direction. References: Dunning, John H., 1997. Alliance Capitalism and Global Business. London and New York: Routledge. Lam, Newman M.K., 2000. Government Intervention in the Economy: A Comparative Analysis of Singapore and Hong Kong. Public Administration and Development, 20, pp. 397-421. Lin, Lin and Ewing-Chow, Michael, 2014. The Doing Business Indicators in Investor Protection: The Case of Singapore. Working Paper. Singapore: National University of Singapore. Moon, Chang H., Rugman, Alan M., and Verbeke, Alain, 1998. A generalized double diamond approach to the global competitiveness of Korea and Singapore. International Business Review, 7, pp. 135-150. Peng, Mike, 2014. Global Business. Third edition. Mason, OH: South-Western, Cengage Learning. Preston, Peter, 2007. Singapore in the Global System: Relationship, Structure and Change. New York and Oxon: Routledge. Selvam, Arfat, 2003. Cross Border Legal Services in ASEAN Under WTO. 8th General Assembly. 29 November-2 December 2003. Singapore: ASEAN Law Association. Pp. 67-79. 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