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SINGAPORE’S

NO BULLS IN THE

CHINA SHOP RESIDENTIAL

PROPERTY WHAT YOU NEED TO KNOW

offshore RMB market DIVING

CONSUMPTION

SWAYS TO THE BEAT OF

ASSET PRICES

HOTTEST START-UPS OF 2012

Business Bankers

confident of Asian growth

RICHARD BRANSON

BE A LEADER,

NOT A BOSS SINGAPORE MAKES IT HARDER

TO GET PATENTS Life&Style

MICA(P) 244/07/2011 KDM No: PPS1645/3/2008

MAKING THE KINDEST CUT SINGAPORE BUSINESS REVIEW | MARCH 2012 1


FROM THE EDITOR Singapore’s hottest startups set to soar

Publisher & EDITOR-IN-CHIEF Tim Charlton Assistant Editor Jason Oliver Art Director Jane Kristine Cruz

In this issue of Singapore Business Review

Editorial Assistant Queenie Chan

Magazine we thought we would investigate

Media Assistant Daniela Gujilde Editorial Assistant Alex Wong

Singapore’s ten hottest start-ups to watch, or work for, in 2012.

ADVERTISING CONTACTS Laarni Salazar-Navida lanie@charltonmediamail.com Loren Laylay

Our methodology was to ask some of the leading

loren@charltonmediamail.com

venture capitalists in Singapore to name the

Rochelle Romero rochelle@charltonmediamail.com Allan Andrada allan@charltonmediamail.com

hottest and most talked about start-ups and from that we got a list of over 28 companies, which we have whittled down to just ten hot start-ups to watch. Many of these start-ups were also mentioned by several of the venture capitalists we talked to.

ADMINISTRATION Melania Ticman mel@charltonmediamail.com Advertising advertising@charltonmediamail.com Editorial editorial@charltonmediamail.com

What makes this list particularly interesting is that it is very different from similar lists which are coming out of the United States and tend to focus overwhelmingly on tech start-ups. To be sure there are some web companies on our list, such as Anafore, which is involved in social e-commerce.

SINGAPORE Charlton Media Group #06-09 E, Maxwell House 20 Maxwell Road Singapore 069113

What the lists shows is that Singapore is still an inventive, entrepreneurial city and that the future still belongs to those who dare to try something new.

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To all our readers in the year of the Dragon, we wish you luck and prosperity.

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Editorial Enquiries If you have a story idea or just a press release please Email: sbr@charltonmedia.com and our news editor will read it. For a personal message to the editor put the word “Tim” in the subject line. Media Partnerships Please Email: sbr@charltonmedia.com and put “partnership” on the subject line and it will forward to the right person. Subscriptions Email: subscriptions@charltonmedia.com Singapore Business Review is published by Charlton Media Group. All editorial is copyright and may not be reproduced without consent. Contributions are invited but copies of all work should be kept as Singapore Business Review can accept no responsibility for loss. We will however take the gains. Sold on newstands in Singapore, Malaysia, Hong Kong, London and New York ABC logo.pdf

*If you’re reading the small print you may be missing the big picture 

2 SINGAPORE BUSINESS REVIEW | MARCH 2012

 



Tim Charlton

7/30/08

11:05:28 AM

Singapore Business Review is available at the following clubs and hotels: American Club Hollandse Club Laguna National Orchid Country Club Raffles Country Club Raffles Town Club RSYC Seletar Club Sentosa Golf Club Singapore Cricket Club Singapore Island Country Club Swiss Club The Tanglin Club The China Club The Legends Fort Canning Park The Pines Club Tower Club Singapore Fullerton Hotel Grand Plaza Park

Royal Hotel Inter-Continental Le Meridien Orchard New Park Hotel Pan Pacific Raffles Hotel The Hilton The Regent Singapore The Ritz Carlton The Swiss Hotel Stamford Traders Hotel Singapore Darby Park And to 16 serviced residences

SINGAPORE BUSINESS REVIEW | MARCH 2012 3


CONTENTS

11 FIRST Residential Property: It’s a local’s market

38 ANALYSIS Asia pacific poised to become

STORY 30 COVER 10 start-ups in Singapore to watch in 2012

COVER STORY

38 Asia Pacific poised to become

30 10 Start-ups in Singapore to

44 Consumption sways to the beat

18 Business bankers confident of Asian growth even as Europe threatens

As European banks start to deleverage and restrict lending to Asia amid the sovereign debt crisis, fears of a credit crunch abound - but are these worries overdone? Find out as Roxanne Uy reports.

Published Bi-monthly on the Second week of the Month by Charlton Media Group #06-09 E, Maxwell House 20 Maxwell Road 4 SINGAPORE BUSINESS REVIEW | MARCH 2012

of asset prices

Just how much changes in Asian consumption are linked to changes in house and stock prices? Find out as Roxanne Uy and Krisana Gallezo report.

ANALYSIS

the world’s largest casino hub

Behold, 2013 could see Asia Pacific overtaking US as the biggest gaming market. Report by Krisana Gallezo

watch in 2012

Find out some interesting start-ups in town and how they managed to raise funds as Krisana Gallezo reports.

the world’s largest casino hub

34 A game of skill or a game of

chance?

40 Another way to take care

of your employees

REGULAR 28 Numbers 36 Legal Briefing 48 Life & Style

FIRST OPINION

11 Offshore RMB market diving

12 5 critical things SMRT failed to do

for crisis management

17 Be a leader, not a boss

11 Residential property: It’s a local’s market

12 No bulls in the China shop?

For the latest business news from Singapore visit the website

www.sbr.com.sg SINGAPORE BUSINESS REVIEW | MARCH 2012 5


News from sbr.com.sg Daily news from Singapore Year of the dragon: a good or a bad start? most read HR & Education

56% of employers won’t be hiring in 1Q12 Except for healthcare, all sectors reported lower hiring expectations than last year. After falling for the last three quarters, hiring expectations show a small rise in 1Q2012, says a new study of nearly 600 executives across key business sectors interviewed last December. According to The Hudson Report, 44 percent of respondents across all sectors forecast headcount growth in 1Q2012, compared with 42 percent in 4Q2012. Finance SERVICES

Financial constraints to hurt trade finance in 2012 The good news is, in Asia the outlook is not as gloomy as in the Euro area. This is according to new research by the International Chamber of Commerce and the International Monetary Fund. Ranil Salgado, division chief of Trade, Institutions and Policy Review of IMF said recent developments in European financial markets and their impact on global trade finance called for a market snapshot survey.

Trust? Lower occupancies are darkening the short-term horizon for its existing malls but DBS sees an offsetting upside. The nearing public opening of JCube in the Jurong Lake District, which has racked up 90% pre-committed leasers, will buoy the total occupancy rate of the company, according to DBS. This even as other malls underwent asset enhancement initiatives (AEI).

and Australia are in the red but analysts see silver lining. Tiger reported 3QFY12 net loss of S$17.4m vs a profit of S$22.5m in the previous corresponding period. 9MFY12 net losses have ballooned to S$87.9m (9MFY11: S$38.5m profit), but revenue held steady, unchanged at S$457.1m. Operating costs have grown 24% YoY, largely driven by a 37% rise in fuel costs. Yields fell by -6.9% to 7.07 Scts. Economy

Aviation

Tiger Airlines reports profit loss of S$17.4m in Q3 Both cubs in Singapore

Commercial Property

What’s the saving grace of CapitaMall 6 SINGAPORE BUSINESS REVIEW | MARCH 2012

Painful inflation to remain high at 5.6% Blame it on the housing and transport cost components which spark

the rising inflation. According to DBS, both are expected to clock readings of above 10% in December 2011. Transport and Logistics

SingPost’s net profit drops 5% to S$42m in 3Q11 The country’s postal industry struggles for survival amidst dipping mail volumes. According to its financial statement, the group’s revenue saw a marginal increase to S$149.4 million in the third quarter of FY2011/12 against the backdrop of a slowing economy. Markets and Investing

Singapore trader deserved to be fired: RBS RBS said the trader, who sought to manipulate London interbank offered rates, was guilty of gross misconduct. According to court papers filed by RBS in Singapore High Court, the former trader tried to improperly influence

RBS’s rate setters from 2007 to 2011 and persuade them to submit Libor rates at particular levels to his benefit. Residential Property

Almost 40,000 private residential units remained unsold in Q4 The pipeline supply of 77,089 units was the highest ever recorded since 1999. The Urban Redevelopment Authority, releasing the real estate statistics for 4th Quarter 2011, said: As at the end of 4th Quarter 2011, there was a total supply of 77,089 uncompleted private residential units from projects in the pipeline, higher than the 76,255 units in 3rd Quarter 2011.

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Residential Property

Outlook for secondary market worsens Guess what else is giving the secondary market trouble aside from buyers’ growing wariness. SINGAPORE BUSINESS REVIEW | MARCH 2012 7


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Leading Infocommunications Technology Service Provider NCS is a leading infocommunications technology (ICT) service provider with more than 9,000 staff located in 12 countries across the Asia Pacific and Middle East regions. NCS delivers end-to-end ICT services to help enterprises realise business value through the innovative use of technology. NCS’ unique delivery capabilities range across consulting, development, systems integration, outsourcing, and infrastructure management and solutions. It has in-depth domain knowledge in both government and commercial sectors across the region. Headquartered in Singapore, NCS is a whollyowned subsidiary of the SingTel Group. For more information, please visit www.ncs. com.sg

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FIRST

FIRST property measures mainly target foreign buyers whose proportion has been increasing steadily from 11% in 3Q10 to 19% in 3Q11, noted UOB Kay Hian. “We expect foreign buying transactions to slow down sharply in the coming quarters due to the increase in transaction cost by 10% acting as strong deterrent.”

Offshore RMB market diving Almost without warning, the much vaunted offshore Chinese RMB market seems to be slowing down almost too quickly, and it has some bankers concerned. Ever since it became possible to settle trade with China in Hong Kong in RMB, the market took off like a bull out of a gate – rising from 0.7% of all trades in early 2010 to finish 2011 at 9% of all trades. The flood of RMB available in Hong Kong gave rise to the so-called “Dim Sum” Bond, which is a bond raised in RMB by organisations outside of China.

What’s in store for 2012? Alan Cheong, Head of Research Savills Singapore reckons that the good start to residential property sales in 2012 shows that the new stamp duty laws are not having as big an impact on the overall market as some have said. “The high sales numbers imply that effective demand is still Watertown floating very strong. Prices for non-landed launches are also very firm. For example, Watertown’s pricing is still a high water mark for the locality.” Project sales at Core Central Region The rise of DimSum bonds have fallen very sharply to 17 units in S I N G A P O R E Many Hong Kong corporates 012 could finally be the year January 2012, from 35 in December were quick to tap into this new that Singapore’s red hot 2011 and 200 in January 2011. Also, source of funding, especially at property market finally shows project sales at RCR have fallen too, Private Flash Note a time when US and European 3 January 2012 some signs of reversing. Punishing but not so sharply. In January 2012, property lenders were beginning to be stamp duties on foreign buyers 94 were sold compared with 108 in prices tighter. Credit Suisse noted that have scared many away and even December 2011 and 401 in January Rissuance O P E ofRRMB T YbondsE C TSingaporeans OR increased the new are beginning to 2011. But the star performer has been about 6% exceeded the RMB100b level in question the wisdom of buying at the project sales at Outside Central The Inflection Point 2011, compared to just RMB36b these high prices. Region where project sales rose to in 2010, and the number of 2,077 in January 2012 from 527 in issuing institutions also rose To buy or not to buy? Top Stock Picks December 2011 and 933 in January • Private residential prices stayed flat in 4Q11. The Urban Redevelopment from 23 to 86. Ten percent of Property agents are loathe to Company 2011.Rec Target weShare “Therefore believe that the Authority’s (URA) latest flash estimates indicate that private home prices all deposits in Hong Kong are Price Price admit it, but property analysts ABSD possibly had a negative impact stayed flat at +0.2% qoq in 4Q11 vs +1.3% in the previous quarter. This is the (S$) (S$) in RMB – that is RMB622b. But from UOB Hian reckon that City Devts on foreign SELL buyers 8.10 who 8.90 traditionally ninth consecutive quarter of moderation in Kay private residential prices. Overall in there are now signs that RMB • Foreign buying activity to see a BUY sharp slowdown. 4Q11, foreign buyers 3.00 During2.21 volumes ofabout sales are 2011, private property prices increased 6% already (2010: down 18% yoy). PublicaccountedCapitaLand launches in CCR andexecutive RCR,” for about 21%favoured of overall non-landed transactions (excluding Wing Tai BUY 1.30 0.945 deposits are slowing sharply condominiums). The recent property measures mainly target foreign buyers whose on their housing prices advanced at a around slower 30% pace based of 1.7% qoq own vs 3.8% in 3Q11.proportionSource: added Mr Cheong. UOB Kay Hian has been increasing steadily from 11% in 3Q10 to 19% in 3Q11 (refer note and even reversing, with HKMA visits to showrooms that (2010: with 14%). Thedated 8th December). We expect foreign buying transactions to slowdown sharply in the Overall public housing prices climbed up by 11% and in 2011 coming quarters due to the increase in transaction cost by 10% acting as strong December 2011 data showing the hefty offered high of 206.2deterrent.Buyer Profile 4Q11* public and private residential indices are discounts currently being at an all-time Buyer Profile 4Q11* a - 6.2%and MoM decline in respectively. RMB by developers, this year could see 190.4 points Figure 2: Property Price Indices Company Foreigner deposits. prices fall by up The to 15%. Overall 2% (NPR) • Inflection point in physical property prices. flash estimates do not fully 4Q98=100 This matches Fitch data 21% in 2011, private property pricesmeasures 8th Dec250 reflect the recent market slowdown (post additional property which show net withdrawals increased about 6%, compared to anthe first 10200 11)corporates as the datafrom are compiled based on transaction prices during of Chinese 18% jump in 2010. HDB’ s also kept the final150 URA Private Residential Index weeks of the quarter and use a normalisation procedure. We believe banks in the mainland over climbing up byto11% 2011than the flash100 Singapore figures due in the last week ofpace, January are likely be in lower Singaporean Permanent the end of last year. No doubt a 62% HDB Resale Price Index having risen14% in recent 2010. With estimates, marking a downturn after in property prices. Our show flat visits50 Residents (PR) liquidity affirm crunchthe among 15% both public private residential trendChinese of falling volumes (aboutand 20-30%) and moderating prices 0 corporates will hefty hamper the offered by indices currently an all-time high,transaction despite discounts developers. Forat 2012, we expect 1Q91 1Q95 1Q97 1Q99 1Q01 1Q03 Source: 1Q05 1Q07 *Excludes EC’s1Q93 and landed properties URA,1Q09 UOB1Q11 Kay Hian * Excludes EC’s and landed properties offshorevolumes RMB market, and to slow by also 20-30% andinvestors prices toand fall developers by 10-15%.both have Source: URA,Source: UOB Kay URA, Hian UOB Kay Hian the Dim Sum bond market. reason to be nervous. Private Property Price by Segment Figure 3: Private Property Price IndexIndex By Segment • Cautious on physical residential property but value emerging in selective Analysts The big change in the market is the counters. Top(RMB SELL: City Developments, Top BUYs: CapitaLand and Offshore RMB ‘dim sum’ bonds bn) 230 exit ofare foreign from Vikrant Pandey Wing Tai. We believe physicalnoticeable property prices at an buyers inflection point of the High-End +65 6590 6623 the market. During foreignhome buying210 current cycle, with recent cooling measures further4Q11, dampening 190 vikrant@uobkayhian.comMid-T ier accounted aboutover-discounted 21% of sentiment. However, selectivebuyers property stocksforhave the170 overallby non-landed negative prospects, having corrected over 20% transactions, in the past month. We see150 Vijay Natarajan 130 Mass Market value emerging in selective property counters with condominiums. CapitaLand and Wing Tai110 +65 6590 6626 excluding executive vijaynatarajan@uobkayhian.com as our top BUYs and City Developments as our top SELL. 90 The high end segment should be 70 most affected as foreigners have 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 Figure 1: Peer Comparison recently beenUpside/ accounting for up to Source: HKMA URA, UOBUOB Kay Hian Price Target Market Curr Fwd CurrSource: Fwd Book Price/ RNAV Net Source: URA, Kay Hian of all property Company Ticker Rec 30 Dec half 11 Price (Downside)sales. CapThe recent PE PE Yield Yield NAV ps Book ps ROE Gearing *

Residential property: It’s a local’s market

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10 SINGAPORE BUSINESS REVIEW | MARCH 2012 Developers CapitaLand CAPL SP BUY City Devt CIT SP SELL GuocoLand GUOL SP HOLD

2.21 8.9 1.76

(S$)

3.00 8.10 1.80

to TP (%) 35.7 (9.0) 2.3

(US$m)

7,231.3 6,239.1 1,605.6

(x)

(x)

(%)

(%)

(S$)

(x)

(S$)

(%)

(%)

17.9 9.8 8.3

13.4 12.0 4.6

3.2 1.1 5.1

3.2 1.1 5.1

3.29 7.31 2.12

0.67 1.22 0.83

4.27 11.52 2.98

4.8 9.2 9.9

28.0 20.9 150.7

spreads have started to improve in specific loan segments such as mainly big ticket corporate loans, higher funding costs (mainly non-S$ funding) are expected to continue to pressure NIMs in the near term,” he notes.

Banking sector could see earnings drop from 5% up to 17%

Deposit dilemmas Macquarie Securities analyst Eng Seang Seet meanwhile adds that deposits are growing much slower than loans, which meant that by December of 2011 the Singapore banking system had DBU loans to deposits ratio of 87% – a level last seen in January 2005. Also of concern to the banks is the tougher trading environment, with only DBS able to make money from its operations in the 3rd quarter of 2011 compared to losses at both UOB and OCBC, driven by fixed income and forex hedges. What all this means for employment and hiring in banks will have to slow down or even reverse. After going on a hiring binge over the last two years, cutbacks could well be coming through. Alas the days of heady hiring even with the local banks could be fast coming to an end.

No bulls in the China shop?

A

fter two bull years of rising profits and higher employment, this year looks like one where Singapore banks could deliver some nasty surprises. The year of the dragon is looking more challenging for Singapore banks with slower loan growth and a drop in fee income both likely to contribute to a dropping bottom line. In fact, analysts from Credit Suisse reckon that banking sector could see earnings drop from 5% up to 17%. With the economy slowing, loan growth may well slip back to low teens or even single digits, whilst a higher cost of borrowing US dollars could see bank margins compressed. “Things are likely to worsen near term,” warns Anand Swaminathan, banking analyst at Credit Suisse. Meanwhile the lackluster capital markets will make equity raisings and bond issuances harder to get off the ground, which means fee income from these

businesses will also be lower. 2011 was in many ways a stellar one for Singapore banks, who steamed in to fund trade finance in US dollars as European banks and US banks retreated. US dollar loans were the biggest loan growth driver for DBS and OCBC, with contributions to group loan growth from US dollar loans over the past year of 59% for DBS, 26% for UOB and 58% for OCBC. UOB stood apart as the only bank which saw a higher contribution from Singapore dollar loans. The big challenge for the banks this year remains their net interest margin – which is the spread between their borrowing costs and their lending interest rate. According to Mr Swaminathan loan spreads have continued to remain under severe pressure for all three banks through FY11E, only partly offset by better interbank and securities spreads. “While loans

DBS: Can asset quality performance surprise on the upside? Margins: Even if loan spreads surprise on the upside, margins could underperform peers until SIBOR starts going up, given the surplus liquidity in Singapore. Continued pressure on US$ funding costs could keep net interest margins depressed. Credit costs: DBS showed the highest credit costs among peers in 2008-09. Any improvement in relative asset quality performance would be a positive surprise. UOB: Can margins outperform peers?

19 Janu

Net interest margins: To bottom in 1H12E?

Singapore interest margin (%) Figure 12: Singapore banks—net banks—net interest margin (%)

All three banks have continued to see mar pressure from both as and liability sides thro FY11E

2.6 DBS

UOB

OCBC

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1.8

1.6

3Q03

3Q04

3Q05

3Q06

3Q07

3Q08

3Q09

3Q10

3Q11

Source: Company data, Credit Suisse estimates

Source: Credit Suisse

Loan spreads have continued to remain under severe pressure for all three banks through FY11E, only partly offset by better interbank and securities spreads. Securities spreads could come under pressure as well near term as yield curves flattened significantly in 3Q4Q11. While loans spreads have started to improve in specific loan segments (mainly big ticket corporate loans), higher funding costs (mainly non-S$ funding) are expected to continue to pressure NIMs in the near term. If banks can continue to improve pricing power in FY12E, we could potentially see NIMs improving in 2H12E.

Can an increase in pr power offset funding pressure?

keep net interest margins depressed. Margins: UOB is the least stretched on Credit costs: OCBC surprised with US$ liquidity among peers, resulting in Figure 13: Singapore banks—spreads and margins consistently low credit costs during 2008better margin performance if overall (%) 2005 2006 2007 2008 2009 2010 YoY 3Q10 4Q10 1Q11 2Q11 (p.p.) by asset 09 (it was the least affected loan spreads start improving. Loan spread DBS 2.42 2.81 2.78 in 2.34 2.39 2.15 markets). -0.24 2.05 2.06OCBC 2.04 2.06 quality stress non-core Credit costs: UOB’s loan growth through UOB 2.70 2.59 2.58 2.68 2.98 2.83 -0.15 2.80 2.62 2.53 2.43 has2.23been aggressive in overall this cycle has been the most conservative OCBC 2.35 the 2.53 most 2.59 2.71 2.36 -0.35 2.34 2.22 2.17 2.02 spread loan growth (as well as Greater China and diversified, potentially resultingInterbank DBS 0.50 0.55 0.58 0.41 0.10 0.19 0.09 0.26 0.27 0.36 0.33 1.02 finance-related 1.19 1.11 1.25 0.69 0.36 -0.33 0.34 0.29 0.47 0.56 trade growth during in a better asset quality performanceUOB OCBC 0.69 1.00 0.83 1.10 0.65 0.54 -0.11 0.56 0.88 0.82 1.27 compared to peers during this cycle.Securities spread this cycle). With consensus estimates DBS 1.76 1.80 1.72 2.20 2.45 2.15 -0.30 2.04 2.16 2.23 2.30 assuming the lowest credit costs among UOB 1.18 1.13 1.21 1.67 1.60 1.40 -0.20 1.40 1.38 1.20 1.34 OCBC 1.15 during 0.83 1.19 this 1.55 cycle 1.66 1.59 -0.07 1.57 1.53 1.63 1.51 peers as well, OCBC OCBC: Can low credit costs continueOverall Group NIM earnings be 1.97 most during this cycle? DBS 1.84 2.08 could 2.04 1.95 1.79exposed -0.18 1.80 to 1.79 1.80 1.80 1.95 1.90 1.95 2.21 2.33 2.06 -0.27 1.91 1.90 1.92 negative surprises if there is a 2.07 broadMargins: OCBC is the most stretched UOB OCBC 1.73 1.81 1.92 2.11 2.12 1.89 -0.23 1.98 1.96 1.90 1.87 Overall spread based deterioration in1.84 the-0.18 asset quality in terms of US$ liquidity. Continued DBS 1.91 2.20 2.17 2.04 2.02 1.74 1.74 1.74 1.76 1.99 1.99 2.04 2.27 2.36 2.09 -0.27 2.05 1.89 1.88 1.89 environment. pressure on US$ funding costs could UOB OCBC 1.84 2.00 2.10 2.27 2.23 1.98 -0.25 1.89 1.88 1.82 1.79 offset loan spread improvements and Source: Credit Suisse Source: Company data, Credit Suisse estimates SINGAPORE BUSINESS REVIEW | MARCH 2012 11 Singapore Banks Sector

3Q11

QoQ (p.p.)

1.98 2.24 1.88

-0.08 -0.19 -0.14

0.38 0.63 1.58

0.05 0.07 0.31

1.96 1.60 1.55

-0.34 0.26 0.04

1.73 1.89 1.85

-0.07 -0.03 -0.02

1.68 1.86 1.77

-0.08 -0.03 -0.02


OPINION

www.turfclub.com.sg

Marina Mathews

5 critical things SMRT failed to do for crisis management

A

by Marina Mathews Managing Director, Chrysler Communications

ffecting more than 130,000 train passengers, 3 major MRT incidents over a period of 3 days have spurred public backlash. The recent wave of negative publicity that has surrounded SMRT is a lesson to larger organisations to ramp up their Crisis Management Strategies - if indeed they do have one. So how could SMRT have managed this situation more effectively? Here we look at 5 measures that could have been easily implemented with just a little preparation.

at the Singapore Turf Club’s premises, where your ideal event becomes a reality.

1. React quickly, update often. Taking 18 hours to respond to a situation that affects your customers is an absolute no-no. This is the time (pun intended) to be quick, accurate and consistent with your messaging. Reacting quickly demonstrates that the issue is being addressed, even if there are no solutions or tactical measures put in place. Your customers are looking to you to update them with what the latest changes are, and how it will play out in their daily lives. Remember to present information clearly without using jargon or technical terms. Use basic English, as a lack of clarity gives people the sense that you’re either hiding something or purposely confusing them to do so. 2. Make your CEO visible. The number one complaint journalists have in Singapore right now is that CEOs are not visible enough. Access to the CEO is more important than ever during times of crisis. Consider conducting a “door-stop” interview, which will offer more reach to media (and in turn your customers) than a delayed press conference that provides answers way too long after the situation arises. The CEO should also take this opportunity to announce their contingency plan. 3. Use Social Media tools… wisely. How long does it take to set up a Twitter account? No more than 5 minutes, even if you’re not that familiar with the widely used social media tool. Sadly, SMRT set up a Twitter account on Saturday morning, 3 days after the first incident. In addition, when it was first launched the profile read “The official Twitter channel of SMRT. We’re here, 9am-6pm, Mon-Fri (excluding public holidays).” Perhaps someone forgot to tell SMRT that Twitter doesn’t sleep. To prove the point, SMRT was the 5th-highest trending topic globally by 1pm Saturday afternoon. Fortunately, it has been since revised and the time and date availability has been removed.

12 SINGAPORE BUSINESS REVIEW | MARCH 2012

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4. Set up a helpline. Not everyone has access to the Internet and Social Media platforms. Especially the elderly and the less fortunate. A helpline phone number, published in the daily newspapers, is an essential alternative to help keep customers informed. Not only does this personalise the situation, but also it gives SMRT employees the opportunity to apologise to customers and generate feedback. In addition, the feedback data should be reviewed to help with future crisis management planning. 5. Have a compensation plan ready. Beyond all the abovementioned measures, is this last measure feasible? In the case of SMRT I certainly think so. To offer a recent example, Metro Trains Melbourne provided a day of free rail travel (on a weekday) after a major breakdown of services impacted 400,000 commuters. This was announced within 12 hours of the incident occurring and was implemented that week. I have no doubt a “Free Ride Friday” would go some way to assuage the anger of SMRT customers. What are your thoughts?

SMRT-back on the rails?

For bookings or more information, please contact: Ms. Lisa Tan Phone: 6879 1979 Email: business_development@turfclub.com.sg

SINGAPORE BUSINESS REVIEW | MARCH 2012 13


vox pop : Commercial property market

Offices get that echoey sound as tenants cut staff, keep space

Here is a large pipeline of office space but companies continue to rein in their short-term expansion - so what does 2012 hold for occupier demand for office space?

Chia Siew Chuin Director of Research & Advisory Colliers International For the first time since the market bottomed out in 4Q 2009, the average monthly gross rents for Grade A office space in the Raffles Place/New Downtown micro-market fell in 4Q 2011, by 4.3% on a QoQ basis to $10.31 per sq ft as of the end of December 2011. This brought the whole year’s gain to just 14.6%, a sharp moderation from the 31.4% growth rate recorded for 2010. Given the potential risks ahead, the Ministry of Trade and Industry forecast that Singapore’s economy will likely expand more slowly in 2012 with growth being in the range of 1% to 3%, which is below its long-term potential growth rate of 3% to 5%. Additionally, the large pipeline of office space is of concern. The future supply of islandwide office space is forecast to amount to close to 11 million sq ft, which translates to an average 2.2 million sq ft per annum over the next five years from 2012 to 2016. This could place some downward pressure on rents as occupancy levels could ease when new office developments are completed during this period. They are forecast to decline by about 10% to 15% in 2012 as against a 20% to 50% correction seen in the first year of the global financial crisis-led decline in 2009. Chris Archibold International DirectorHead of Markets Jones Lang LaSalle Singapore The Grade A office market

International Director

Chris Archibold in Singapore reached the bottom of the last cycle in Q1 2010. Following that market trough, rental growth increased by approximately 30% across Singapore during 2010 and early 2011. Singapore benefited from strong business growth in SE Asia (14.5% GDP growth in 2010 and 4.8% in 2011). Q4 2011 saw the start of a downturn in rents. Singapore’s fundamentals are strong but the global economy is still very volatile which will affect demand in the short term. As at Q4 2011 island-wide vacancy is currently only 5%; however, CBD vacancy is 7.8% and CBD Grade A vacancy is 8.7%, reflecting the 2.8m sq ft on new Grade A CBD supply that came on stream in 2011. An increase in secondary supply coupled with any remaining uncommitted new supply is likely to increase vacancies to 10-12% in the short term. As a result of this and the negative global economic situation, rentals are expected to ease off for at least the first half of 2012 and possibly

14 SINGAPORE BUSINESS REVIEW | MARCH 2012

director

Chia Siew Chuin the remainder of the year. Beyond this, the Singapore strong fundamentals would point to further rental growth once much of the supply has been absorbed and the global economics are stronger. Petra Blazkova Head, CBRE Research Singapore & South East Asia On the supply side, the Singapore office market grew by 6.1% in 2011 with 450,000 sf completed in Q4. Overall there was over 3 million sf delivered in 2011, representing a 6% increase in the total stock, and which has now reached 51.8 million sf. This is the fastest pace of office development the city has experienced over the past decade and that will be seen in the next five years based on the future office pipeline. The significant new supply helped to improve the overall quality of the office stock and attracted international companies looking to start up operations in Asia. Looking ahead, there are some 9.8 million sf to be delivered between now and 2016. Furthermore, a number

HEAD OF RESEARCH

Petra Blazkova of large units in some existing Grade B buildings were recently vacated. The sheer amount of good quality grade space entering into the market will naturally take some time to be absorbed. As a result of weakening demand, office vacancy rate increased by 40 basis points over the quarter to reach 6.70% in Q4. In the core CBD, the vacancy rate increased to 8.80% from 7.70% last quarter. This is off the back of 3.5 million sf of available office space of which 2.3 million sf is located in core CBD. In 2012, we anticipate a rental correction in the order of 10-15%. On a wider scale, island-wide Grade B office rents declined by 1% to $7.30 psf/month – the first decline since 2009 while Grade B rents in the CBD area remained stable at $7.96 psf/month. The office market will continue to be highly competitive, balancing a downward rental movement with increasing pressure on financial incentives from occupiers.

co-published Corporate profile

The Euro effect – what does the future hold? Singapore is one of the Asian economies most sensitive to the EU crisis - so what risks should we be prepared for in 2012?

E

ven though Singapore has topped the World Bank’s ‘Doing Business’ report for the sixth year running as the easiest place to do business, the ongoing sovereign debt crisis in Europe has already prompted discussion on its impact to our economy during 2012. Already, differing opinions have emerged and although it’s generally recognised that the Singapore economy is resilient and robust, concerns have been raised about our susceptibility to changes in fortunes in Europe and the global economy. The Asian Development Bank has already recognised that, together with Hong Kong, Singapore is one of the Asian economies most sensitive to any financial downturn in Europe due to our exposure in these markets as one of the two highest exporters to the Eurozone. Another major exporter to Europe, China, has already been mentioned in a report by the EU Centre in Singapore as a potential ally in helping resolve the Eurozone crisis as it is also Europe’s largest trading partner. However, even though most Asian economies emerged from the global credit crisis earlier than other markets, with Singapore being one of the leaders, the financial, commercial and political effects of that event are still causing ‘aftershocks’ across Europe. These are now sharply focussed on the Eurozone sovereign debt crisis. So what does the future hold for Europe and how will it affect us? The end result of the current turmoil in Europe is still some way from being fully resolved. So any definitive predictions on the impact on Singapore and other Asian markets are likely to incorporate a potentially large degree of inaccuracy. In addition, there are already two different scenarios being considered as to which path the crisis might follow as we move further into 2012. While one option is for the Eurozone to ‘stick together’ and manage the crisis through minimising further escalation, the other alternative is of a ‘Eurozone breakup’. The latter might seem a simple solution but having any country leave the

European monetary union will be fraught with additional financial problems as well as lead to legal issues. Given the rapid escalation of issues and stress in the Eurozone, breakup scenarios have been explored and analysed in depth. Detailed research undertaken by Atradius economists in a new report on ‘The Future of the Eurozone’ suggests that the consequences of a breakup would be highly damaging not only for any country leaving the Euro but also for those that remain within the currency union. Initially it might appear simple for a country to leave the monetary union as it is a matter of passing a law through parliament to introduce a new currency. Subsequently, contracts would be redenominated in the new currency, including demand deposits and accounts held by banks. In theory, this approach is a mechanical operation, but in practice, there are at least two difficulties. Firstly, the operation would require meticulous preparation. Dismantling the Eurozone would be a completely new experience for policy makers thus increasing the likelihood of policy mistakes. Secondly, a new currency could only be introduced into the highly integrated Eurozone if the operation was made without prior publicity – essentially as a ‘big bang’ - otherwise the disintegration process would be disorderly. Even if a country could overcome these issues, there is arguably no way that a country can leave the Eurozone legally. Intentionally, there is no ‘opt out’ clause in the Maastricht Treaty. So, by default, there is really only one viable option, however challenging, left for policy makers, decision makers and the European Central Bank (ECB), which is to stay united and address the crisis by minimising its escalation and begin to

“Atradius economists in a new report on ‘The Future of the Eurozone’ suggest that the consequences of a breakup would be highly damaging”

Martin Jones Atradius Country Manager - Singapore exert control over the debt levels in the peripheral member states of Portugal, Greece, Spain, Italy and Ireland. Since September 2011, the ECB’s balance sheet has already expanded by more than EUR 300 billion, or 14% and it is expected the ECB will continue to support the banking system via this channel. However, ECB intervention can only offer a longlasting solution if bonds are bought from countries that are temporarily illiquid but fundamentally solvent. The ECB can also only offer relief to distressed countries for a limited period until such time as investor sentiment improves. Whichever scenario prevails, there will inevitably be unrest and volatility within European markets for some time. Any stabilisation or improvement has to be welcomed. We know that Singapore is not immune from the effects of global misfortune, which is why it would be wise to maintain a cautionary interest in development in Europe. A full copy of the comprehensive Atradius report on ‘The Future of the Eurozone’ is available for free download from our website, www.atradius.sg and if you are interested in finding out more about credit insurance and how it can help protect your business, please contact me on +65-6372 5372. Atradius Credit Insurance NV (Singapore) #31-02, AXA Tower, 8 Shenton Way Singapore 068811 +65 - 6372 5372 Martin.Jones@atradius.com SINGAPORE BUSINESS REVIEW | MARCH 2012 15


Co-published corporate profile

opinion

Will Singapore be shaken by the EU crisis? We may have heard everything about the sovereign debt crisis in the Euro zone, how Europe has been under such economic stress and how it has affected different countries across the globe. But what is in store for Singapore amid this highly uncertain times? In what ways can Singapore develop its ‘immune system’ to avoid what’s going on to the rest of the world and particularly in Europe?

A

ccording to Steen Jakobsen, the Chief Economist at Saxo Bank, involving the ‘triparty’ is key to anchor productivity and growth. The employers, the employees, and the government need to be included in one plan which looks forward more than 5 to 10 years. Having worked with Saxo Capital Markets, a subsidiary of Saxo Bank, Mr Jakobsen reckons that Singapore needs to understand that they may get a lot of inflow capital and labor wise over the next 10 years. “So, what you need is to grow continuously from the working class all the way through the expats passing Singapore. They all need benefiting from the reality of the new world and so how you grow the immune system is by making a coherent system of tri-partiness,” he added. This strategy is developing a business mold that substitutes nonexistent and low-productivity jobs with high-productivity jobs. The last 10 years may have been an extension of very small growth, leveraged several times in order to give the feeling of having some real growth. But Mr Jakobsen still sees the most positive 10-15 years as

Steen Jakobsen, Chief Economist of Saxo Bank 16 SINGAPORE BUSINESS REVIEW | MARCH 2012

Singapore is really well placed through education, infrastructure, innovation, and restructuring of the economy. “So, I actually think you have created the 80% quartile conditioning for the immune system to be stronger and the way to test the immune system is throwing bacteria at it. The bacteria being thrown at the Singapore immune system will be the global down draft and I think the government is realistic when they talk about a 1-3% growth rate for a number of years,” he added. So all is well for Singapore, but what could be looming for the world economy? What can we see in the next 6 to 12 months? The world economy in 2012 Mr Jakobsen sees that after socializing the risk in 2008, the next big event is to democratize the loss. “To democratize the loss means to move to what I call the “Crisis 2.0” which is the low point political and economic terms, but it is also the starting point from which we will see something better,” he added. He remains optimistic and predicts 2012 to be a challenging year and

have the lowest productivity, but it will be a year when we can start moving forward. Europe needs to be refinanced, no doubt about that. Mr Jakobsen also believes Europe needs a Chapter 11, and it is not a bankruptcy but rather a protection from investors and the reorganization. Chapter 11 means we need time to reorganize. “You can take Finland after the Great War comes down in Berlin, they had the economy based 80% of export to Russia. They had to go through a cycle of which they had -20% growth, 15% unemployment and they came back to be one of the chartered economy growth in Europe,” he cited. So, Chapter 11 is not something you need to be afraid of. “Embrace Chapter 11 as an opportunity and a restruction of a potential better future.“ Micro beats macro So the world economy is still in crisis. Europe needs to be refinanced and a Chapter 11 is just around the corner. Will there ever be anything positive for the economy? Well, Mr Jakobsen is optimistic in the next 12 to 18 months as he noted that the whole, conducting economic policy is about minimising the compounding, negative, macrothings. “I don’t think anyone is able to take good macro decisions, but I’m extremely positive on the micro US individual. So, the microeconomy up drift will overtake the macro-compounding negative.”

Saxo Capital Markets Pte Ltd is a wholly owned subsidiary of Saxo Bank A/S, the online trading and investment specialist. It serves as the Asia Pacific headquarters and holds a Capital Markets Services license from the Monetary Authority of Singapore, as well as a Commodity Broker license from The International Enterprise Singapore. Clients can trade Forex, CFDs, Stocks, Futures, Options and other derivatives via its leading multi-asset multi-awards online trading platforms. For more information, please visit www.saxomarkets.com.sg

richard branson Be a leader, not a boss

I

“Many CEOs are bosses, not leaders, directing their employees from well behind the front lines.”

t used to be said that children should be seen and not heard. The only justification for a decision that a parent ever had to offer was, “Because I said so!” This authoritarianism carried into schoolrooms and workplaces, where teachers and managers simply replaced parents as the people whose word was law. But attitudes have changed, and these days, if there is anything that sets me off, it’s when someone says, “OK, fine. You’re the boss.” Because in most instances what that person really means is, “OK, then. I don’t agree with you, but I’ll do it because you’re telling me to. If it doesn’t work out, I’ll be the first to remind everyone that it wasn’t my idea.” In today’s business world, kowtowing to one’s boss is anachronistic. And, conversely, being bossy is not a desirable attribute in a manager or anyone else. Fortunately, attitudes have changed in both the home and the workplace. Healthy debate was a way of life in our household. School was a different story, however. My dyslexia and rebelliousness meant that I was destined to be my own boss. As it turned out, from that day on I have always been lucky enough to be my own boss and ended up behind bars just once, but very briefly! To lead forth Latin was never my favorite subject at school – in fact, I don’t think I had a favorite subject, aside from sports – but one word in Latin class that registered with me was the verb “educere.” I remember being greatly surprised to learn that the root of the word “educa-

tion” actually means “to lead forth.” Until that moment, I had thought of education as mere “cramming in.” And while a bad school teacher, like a bad boss, will indeed teach or manage by cramming his opinions into his charges, a good teacher or corporate leader will do the opposite and draw opinions and ideas out of his students or associates. Observe the office floor plan If you are noticing that you and your managers are finding yourselves, despite your best efforts, in the position of giving orders rather than listening for your employees’ decisions, first take a close look at how your office space is laid out. Much of that traditional management structure starts with the actual bricks-and-mortar plan of most office buildings, which reinforces it from the corner office on the top floor all the way down to the darker spaces afforded “lower level” employees on the ground floor or in a windowless basement. Such hierarchical floor plans are often absent at forwardthinking workplaces. We did not build a glass-and-concrete world headquarters for the Virgin Group. I have spent my career working from just three places: houseboat, home and hammock. Our companies are all located in buildings that are individually tailored to their needs, while the address of the closest thing we have to a head office says it all: “The Old Schoolhouse” is anything but a corporate cathedral. From our company’s earliest days, when we set out beanbag chairs at our record store, inviting customers to listen to

music and chat with our staff rather than trying to sell them something quickly and move them out the door, I have long been a fan of open-plan offices. Most should have lots of communal brainstorming spaces, lounges and kitchen areas where co-workers can naturally come together to talk things over. Office walls, doors, desks and counters are barriers to communication. CEOs but not leaders And now take a look at yourself: a leader is very different from a boss. Many CEOs are bosses, not leaders, directing their employees from well behind the front lines. But sitting in the boardroom listening to even the most comprehensive reports from the front can never compare with your being there and seeing, hearing and understanding those interactions with your customers for yourself. If you aren’t frequently out there leading the charge with your employees, you simply cannot stay in touch with the realities of your business. So the next time someone says to you, “OK, you’re the boss” as they head for the door, stop them in their tracks. Say: “Not really – we’re all in this together. So come back here and tell me what you’d be doing with this if you were in my place?” Better still, next time go visit that person in his workspace, put in a shift or some hours beside him, and seek out his opinion on how things are going. Good examples are contagious, and so is real leadership. © 2012 Richard Branson/Distributed by The New York Times Syndicate.

SINGAPORE BUSINESS REVIEW | MARCH 2012 17


SECTOR REPORT: BUSINESS BANKING

SECTOR REPORT: BUSINESS BANKING

Business bankers confident of Asian growth even as Europe threatens As European banks start to deleverage and restrict lending to Asia amid the sovereign debt crisis, fears of a credit crunch abound - but are these worries overdone? Find out as Roxanne Uy reports.

T

he sovereign debt crisis in Europe has started to trickle do wn in Asia and now business bankers are concerned about liquidity shocks and direct exposure to EU debt. But Noel Quinn, group general manager and regional head of commercial banking at HSBC, noted that though there has been weak demand from Europe over the last few months that has led to an export slowdown in Asia, he does not see any evidence at this stage of a liquidity crunch such as we saw in 2008/2009 impacting trade finance. “What we are seeing in terms of trade activity is an adjustment in orders from some buyers in Europe and the US, not a halt in activity,” he added. Credit issues, however, still pose certain threats to Asian businesses as Asia’s recent growth has become credit intensive. There is the possibility of a disruption in the flow of credit, which in turn could affect local consumption and investment. “European banks lend about three times as much as US banks, a ratio that has held steady over time. Also, 18 SINGAPORE BUSINESS REVIEW | MARCH 2012

“The share of European bank lending to total credit in Asia is around 20%”

total lending by European banks have reached US$1.5 trillion, about 20% higher than in mid-2008. According to the Bank for International Settlements, the share of European bank lending to total credit in Asia is around 20%,” noted Quinn. Threats of a credit crunch So with Europe undergoing a debt crisis and the looming possibility of credit flow disruption, will Asia be threatened by a credit crunch soon? Ismael Pili, head of financials research at Macquarie Securities believes it is unlikely to happen in Asia. Indeed, European banks are deleveraging and some are likely withdrawing lending.  “However we think that the vacuum will be filled.  The US banks, such as Citigroup, as well as other local banks are stepping in, while HSBC sees it as a market share opportunity,” he added. Quinn sees some early evidence of European institutions tempering their appetite for certain types of lending, such as syndicated deals that may be rolling over and to a certain

extent, trade finance. “We believe that Asia’s financial systems are fundamentally strong and local financial institutions have adequate liquidity and capital to offset the withdrawal by European banks and mitigate the risk of lending costs spiraling out of control,” he added. Pili also reckons that typical concerns are direct exposure to EU debt, especially for developed markets of Singapore and Hong Kong but he believes the amount is extremely small. “The maximum, and I underscore maximum, exposure is with Singapore banks equivalent to 6.5% of total assets and HK banks at 6.2% of total assets, and I wouldn’t say this is a worry,” he added. What to expect in 2012 So amid these uncertainties in the global market conditions, what does 2012 hold for Asia? Pili warns that Asian growth will be affected by the degree that Europe and the US slows but Asia will do its part to foster growth. “China is looking to be more accommodative, Indonesia has ag-

gressively cut its benchmark rates to a historical low of 6.25%, and Singapore has postured towards loosening with their currency stance. We see scope for other countries to follow suit. We think central bankers’ focus is growth; inflation was last year’s story,” he added. According to Eric Tham, managing director and head of group commercial banking at UOB, global market volatility and uncertainty is expected to persist in 2012 but the global trend of economy gravity shifting to Asia presents growth opportunities in and across the region.  “In 2010, Asia accounted for 29% of the more than US$1.2 trillion Foreign Direct Investment (FDI) invested globally. Based on the momentum of growth over the past four years alone, FDI in Asia is expected to reach US$760 billion by 2013, which accounts for 40% of the world’s total FDI,” he added. But while Asia has proven to be resilient and is expected to continue to deliver respectable levels of GDP growth, the region is not immune to the impact of prolonged uncertainty in the developed world, Quinn noted. “However we believe that intraregional trade and robust domestic demand will provide a buffer against the global slowdown and unlike the West, Asia has the capability to implement stimulus policies in case of a sharper than expected slowdown,” he added. A tenfold surge in regional trade flows If there is anything positive that the demand slowdown from Europe and the US brings, it may be that it will cause capital flows within and across Asia to increase tenfold. Quinn noted that one of the most important developments in Asia is the growth of intra-regional trade, which now accounts for almost half of all trade in Asia. “With the slowdown in trade between Asia and traditional partners in Europe and the US, trade activity within and across Asia has strengthened. For example, we’ve seen significant growth in trade China and Bangladesh, Sri Lanka, Vietnam and India as well. This has helped cushion the impact of weak demand from the West, providing new markets and opportunities for Asian businesses,” he added.

Trade prospects in Asia may just get some additional boost as trade between emerging markets, alongside capital flows, is expected to increase tenfold by 2050. “For example, trade between Asia and Brazil is expected to grow from US$96bn in 2010 to US$206bn by 2025 (163% increase), with much of this trade being in soya. Demand for electronics components and food commodities from Asia into Latin America is also expected to increase as is Asian demand for soya, meats and maize, which are currently imported chiefly from USA and Brazil,” Quinn added. He also noted that the latest HSBC Trade Confidence Index points to a steady level of confidence among exporters and importers in Asia. Despite expected headwinds as a result of global economic uncertainty, half of all traders across Asia expect to maintain the same level of trade finance while 40% expect to increase their financing requirement levels. “According to the survey, Greater China continues to be the most promising region of growth for importers and exporters in Asia and intra-regional trade remains the main driver of trade,” he added. Pili regards banks that have greater regional ties or presence to be better positioned for the regionalization of trade flows and interconnectivity will be a key consideration for bank customers. “We’ve also seen how tight liquidity in a system can spill over to the rest of the region.  For example, mainland corporates or mainland related businesses that have difficulties in funding are turning to banks in HK, Singapore, Taiwan, and possibly even Indonesia. There’s been a

“FDI in Asia is expected to reach US$760 billion by 2013, which accounts for 40% of the world’s total FDI”

Noel Quinn

Eric Tham

Ismael Pili

pickup in trade finance, while foreign currency liquidity has fallen.  For example, Singapore has seen its banking sector’s foreign currency LDR rise to 124% in 3Q11, up from 100% a year ago, while in HK, banks are citing tight HK$ liquidity conditions,” Pili added. The bankers’ outlook Since trade finance boomed amid some tight foreign currency liquidity, Quinn forecasts that Asian businesses will continue to be a key engine of growth for the region – generating income, jobs and growth opportunities for Asia’s fast-growing economies. Asian businesses are evolving to become increasingly international – they are doing more cross-border trade, investing overseas or expanding outside their home markets. “As trade and capital flows shift to emerging markets such as Asia, businesses have the opportunity to grow within and across the region – as reflected by the continued growth in intra-regional trade and investments. Riding on these trends, Asian businesses will continue to require international trade finance, financing options, investment advice and efficient transaction banking platforms,” he added. Likewise, Pili reckons that the developing markets have attractive structural stories that should allow decent growth for the sector over the next several years.  “Strong domestic demand will help prop up growth, as private consumption and an investment cycle kick in.  Indonesia, for example, has an extremely low loan penetration rate, as reflected by a loan to GDP of 28%, while we still see retail lending as largely untapped,” he added.

SINGAPORE BUSINESS REVIEW | MARCH 2012 19


Company Snapshot: Singapore AirlineS

Athens, Singapore Airlines has a problem With Singapore Airlines’ market capitalization down 50% in 2011, what can the carrier do in 2012 to revive its fortunes?

S

ingapore Airlines is losing money on its European routes, with flights to the continent now averaging almost a third empty. By November 2011 passenger numbers were in a free fall, dropping a further 4.4% to just 71.3%, during what should be a busy time of the year. Clearly the European crisis is having a bigger impact than Singapore Airlines ever thought possible, but is the airline doing enough to cut capacity? SIA’s capacity chaos By December it was clear something had to be done - but the new schedule for flights from Summer 2012 showed just two European routes had their frequencies cut, and by a total of just three flights a week. The Singapore to Moscow service was cut from daily to five times a week whilst the Singapore Munich service was cut from daily to six times a week. Analysts like DMG Research reckon the cuts have not been fast or deep enough, noting that “as the capacity cuts for the European region were not aggressive enough, this suggests that Singapore Airlines may have been highly optimistic on the sustainability in air travel demand from that region despite heightening concerns over EU’s growing sovereign debt crisis sparking off recession fears and dampening investor sentiments.” In an emailed interview with Singapore Business Review, Singapore Airlines did not directly address the issue of capacity but did warn that it was “seeing signs of weakness in advance bookings, especially in Europe and United States. As a result, we expect our passenger and cargo yields to remain under pres20 SINGAPORE BUSINESS REVIEW | MARCH 2012

Still expanding its fleet So while the business case may be to go slower on adding new planes, Singapore Airlines remains committed to rapidly expanding its fleet, with an additional 68 aircraft already on firm purchase or lease with Boeing and Airbus to add to its current 105 widebody fleet. As recently as November the airline announced a US$2.4 billion order for an

additional 8 Boeing777-300 ERs. Unfortunately, the other side of Singapore Airlines’ business, that of shifting cargo around the world, is also not doing well. Its load factor is even lower at 64.2%, which means that a third of capacity is flying empty. That is an expensive proposition. Analysts from DMG noted that freight tonnage kilometer was seasonally higher leading up to Christmas, with shipments ticking up to 0.6% y-o-y after 3 consecutive months of negative growth, which he surmised may be due to the shipments of Christmas gifts and shopping items to the Americas. “However, the marginal recovery in Singapore Airlines’ cargo segment is likely to be short-lived as we had earlier highlighted that the outlook for the cargo industry is also not too bright given the decline in PMIs globally. Besides, air freight would be the first hit when an economy deteriorates as purchasing managers cut back on air shipments.” Despite the gloomy outlook, Singapore Airlines’ balance sheet remains strong with almost $4 billion in cash at the end of September 2011 which should help it ride out the turbulence.

Company Focus Singapore Airlines

SIA’s monthly passenger load factors since April 2006 90.0

85.0 Loa d Factor ( % )

SIA’s turbulent ride

sure in the near term.”  With these two regions accounting for over 40% of Singapore Airlines’ passenger business, yields under pressure and no plans to cut the airline fleet, where is Singapore Airlines redeploying its big birds? Down Under is the biggest growth market for SIA next year, with a total of 8 new daily flights to Aussie cities. Regionally, Seoul flights will ramp up from 21 to 28 a week. But this still doesn’t address the core issue of over capacity and yields. Moreover, Singapore Airlines will introduce Scoot in early 2012 with its first route to be Sydney. Just how it will balance routes flown by the parent and the offspring remains to be seen. Singapore is already serviced from Australia by Jetstar and Tiger, so those routes don’t offer a lot of revenue opportunities.

80.0

75.0

70.0

65.0

Source: DBS Vickers Estimates

Source: DBS Vickers Estimates

SINGAPORE BUSINESS REVIEW | MARCH 2012 21


GAME CHANGERS NBN different Quality of Service (QoS) options to customise the internet experience according to what people want.

From left to right: Founders Greg Mittman, KC Lai, Malcolm Rodrigues

Singapore telco giants get a competition with My Republic The newbie boldly shared in an interview with Krisana Gallezo things that the current 3 telco giants allegedly won’t tell you about their fibre broadband services. SBR: What frustrates you with the current local state of fibre broadband services? My Republic: At the moment, the current 3 telcos do offer NBN however, not only do they do not promote it; they do not offer it at its full potential. The principle goal of the 3 telcos does not lie in offering customers the best of the NGN. This mainly stems from their legacies of other types of broadband services they have to promote and sell. SBR: What makes MyRepublic a credible alternative? My Republic: The 3 telcos apply traditional engineering models to the NGN. They have very high contention ratios or number of customers that share one pipe, cap international capacity, and throttle customer traffic at peak hours - 9pm to 2am. MyRepublic has no legacies they need to protect and is only interested in working with customers to give them the best NBN experience. Unlike the 3 incumbent telcos, MyRepublic was purposebuilt for the Next Gen NBN. Created especially to leverage off the Next Gen NBN, MyRepublic believes a user-centric approach that puts the customer first is the only way to understand the game-changing opportunities of the NBN. The MyRepublic team has many former employees from the NBN Companies. They know how to take advantage of the

22 SINGAPORE BUSINESS REVIEW | MARCH 2012

SBR: Who are the founders? My Republic: MyRepublic was set-up in mid-2011 by the people involved in setting up the NBN and ex-senior telco directors. Malcolm Rodrigues, CEO & Co-founder of My Republic was Vice President of StarHub International & Wholesale when he led his team to win the bid to set up and operate Singapore’s Next Generation Nationwide Broadband Network (Next Gen NBN). KC Lai, Chief Commercial Officer & Co-Founder has held leadership positions at all the Telcos in Singapore including serving as StarHub’s Senior VP of Consumer Sales for 10 years. Lastly, Greg Mittman: V.P. & Co-Founder was first acquainted with the Singapore NBN in 2006 when he was tasked to lead Alcatel-Lucent’s NBN team. SBR: How do you intend to face intense competition with the telco giants? My Republic: Our biggest challenge is awareness and credibility. Most customers have not heard of us yet. The ones that try our services, recommend friends and family. There is extremely good feedback on the all the online forums. We believe that through our multi-pronged go-tomarket model which includes over 200 dealer storefronts, roadshows, direct sales, and targeted advertising (traditional and online), we can overcome this challenge fairly soon. We have also found that word-of-mouth is a very powerful awareness tool, especially with the extent of social media used by people today. SBR: What is the first sampling to customers? My Republic: Last February 16, we just launched what is a first-of-its-kind offer. We believe passionately in the quality of our network experience and the personalized service we offer. To back up this belief with a promise, and to force us to win our customers’ hearts and loyalty every day, we are pleased to announce today that we are making the MyRepublic Pure Fiber Broadband service available without a contract. There is no need to lock yourself into a 2-year contract. If we don’t meet up to our service promise, you are free to leave. SBR: What are your future plans? What other services do you offer? My Republic: On top of MyRepublic’s current offerings of 3 customer-centric packages (Pure, Tutor and Gamer), MyRepublic will begin to offer packages for the small to medium enterprises in two months. MyRepublic is also looking at expanding its’ product and services portfolio with many innovative new services over the next 6 months, notably targeting specific consumer groups and communities. In addition, CEO Malcolm Rodrigues foresees the company expanding into overseas markets such as Australia, New Zealand and Malaysia since these countries are in the midst of developing a fiber-broadband network similar to Singapore.

SINGAPORE BUSINESS REVIEW | MARCH 2012 23


PROPERTY

PROPERTY

Top residential transactions Locality OCR

Project Name WATERTOWN

Developer Emerald Star Pte Ltd / FC Retail Trustee Pte Ltd

Property Type Non-landed

Total Number of Units in Project 992

Units Launched in the Month 992

Units Sold in the Month

Median Price ($psf) # in the Month

770

1169 1289

OCR

THE HILLIER

Transurban Properties Pte Ltd

Non-landed

528

528

387

OCR

PARC ROSEWOOD

Kensington Land Pte Ltd

Non-landed

689

236

198

951

OCR

THE RAINFOREST

Camborne Developments Pte Ltd

Exec Condo

466

466

172

753

OCR

THE NAUTICAL

Hao Yuan Investment Pte Ltd

Non-landed

435

0

83

890

OCR

RIVERSOUND RESIDENCE

Qingjian Realty (Sengkang) Pte Ltd

Non-landed

590

200

73

855

OCR

THE PALETTE

Hong Realty (Private) Limited

Non-landed

892

0

37

897

OCR

ARCHIPELAGO

United Venture Development (Bedok) Pte Ltd

Strata-landed

577

0

33

1117

OCR

CARDIFF RESIDENCE

World Class Developments (Central) Pte Ltd

Non-landed

163

4

21

1329

OCR

AUSTVILLE RESIDENCES

MaxLee Development Pte Ltd

Exec Condo

540

0

14

693 1451

RCR

FARRER PARK SUITES

Siong Heng Realty Pte Ltd

Non-landed

29

29

14

OCR

A TREASURE TROVE

Sim Lian JV (Punggol Central) Pte Ltd

Non-landed

882

0

13

903

OCR

CENTRO RESIDENCES

Eunos Link Technology Park Ltd

Non-landed

329

1

12

1507

OCR

THE MINTON

Peak Garden PteLtd

Non-landed

1145

0

12

873

RCR

CENTRA RESIDENCE

Trident Development Pte Ltd

Non-landed

78

78

12

1327

OCR

SEASTRAND

Precious Sand Pte Ltd

Non-landed

473

0

11

986

RCR

NOTTINGHILL SUITES

Mequity Pte Ltd

Non-landed

124

0

11

1596

OCR

BLOSSOM RESIDENCES

Grand Isle Holdings Pte Ltd

Exec Condo

602

0

10

706

CCR

THE SCOTTS TOWER

Far East Success Development Pte Ltd & Whitewater Properties Pte Ltd

Non-landed

231

0

9

3331

OCR

SUITES @ PAYA LEBAR

Fragrance Properties Pte Ltd

Non-landed

99

9

9

1354

OCR

THE LUXURIE

Keppel Land Realty Pte Ltd

Non-landed

622

0

9

1067 1325

OCR

EUHABITAT

Transurban Properties Pte Ltd

Strata-landed

748

0

8

OCR

PARC VERA

Sim Lian (Hougang) Pte Ltd

Non-landed

452

3

8

860

OCR

THE SEAWIND

Bayshore Green Pte Ltd

Strata-landed

222

2

8

1483

OCR

ARC AT TAMPINES

Hoi Hup Sunway Tampines Pte Ltd

Exec Condo

574

0

7

721

OCR

THE GREENWICH

Far East Square Pte. Ltd.

Non-landed

319

0

7

1394

OCR

WOODHAVEN

Tampines Court Pte Ltd

Strata-landed

337

0

7

1045

OCR

TERRASSE

MCL Land (Serangoon) Pte Ltd

Non-landed

414

0

6

1031

RCR

SILVERSEA

Marina Green Ltd

Non-landed

383

0

6

1731

OCR

VACANZA @ EAST

Hoi Hup Sunway Property Pte Ltd

Non-landed

473

0

5

1130

OCR

WATERVIEW

Sim Lian (Tampines One) Pte. Ltd

Non-landed

696

0

5

866

RCR

CENTRAL IMPERIAL

G28 Development Pte Ltd

Non-landed

63

0

5

1050

OCR

THE MILTONIA RESIDENCES

Hoi Hup Sunway Miltonia Pte Ltd

Non-landed

410

0

4

861

OCR

THE SOUND

Bayshore Green Pte Ltd

Non-landed

104

0

4

1644 1904

RCR

FLORIDIAN

Orwin Development Ltd

Non-landed

336

0

4

OCR

NV RESIDENCES

Hong Realty (Private) Limited

Non-landed

642

0

3

814

OCR

THE VUE

Giant Land Pte Ltd

Non-landed

50

0

3

1221 1443

OCR

448@EAST COAST

TEE Realty Pte Ltd

Non-landed

28

0

3

OCR

NV RESIDENCES

Hong Realty (Private) Limited

Non-landed

642

0

3

814

RCR

REFLECTIONS AT KEPPEL BAY

Keppel Bay Pte Ltd

Non-landed

1129

0

3

1892

RCR

STUDIO8

Aston Capital Pte. Ltd

Non-landed

28

0

3

1505

RCR

THE INTERWEAVE

BS Tanjong Katong Pte Ltd

Non-landed

169

0

3

1333

RCR

THE SHORE RESIDENCES

Dover Rise Ltd/Whitewater Properties Pte Ltd

Non-landed

408

0

3

1533

RCR

THOMSON GRAND

Luxury Green Development Pte Ltd

Strata-landed

361

0

3

1259

RCR

TIVOLI GRANDE

KS Development Pte Ltd

Non-landed

82

0

3

1153

RCR

IDYLLIC SUITES

Hillwood Development Pte Ltd

Non-landed

71

71

3

1245

CCR

D’LEEDON

Morganite Pte Ltd

Strata-landed

1715

0

2

1558

OCR

BOATHOUSE RESIDENCES

Easthouse Propperties Pte Ltd

Non-landed

493

0

2

817

OCR

CABANA

Bullion Holdings Pte Ltd & Cabana JV Pte Ltd

Strata-landed

119

0

2

720

OCR

EIGHT COURTYARDS

Yishun Gold Pte Ltd

Non-landed

654

0

2

745

OCR

FLAMINGO VALLEY

FCL Estates Pte Ltd

Non-landed

393

0

2

1228

OCR

PARC BLEU

Precise Development Pte Ltd

Non-landed

55

0

2

1122

OCR

PAVILION PARK

Bukit Batok

Landed

OCR

RANGOON 88

KT Development Pte Ltd

Non-landed

264

0

2

808

28

0

2

1054

RCR

ASCENTIA SKY

Winpride Investment Pte Ltd

Non-landed

373

3

2

1420

RCR

JARDIN

YHS Dunearn Pte Ltd

Non-landed

140

0

2

2028 1121

RCR

RIVIERA 38

Eastwood Green Pte Ltd

Non-landed

102

0

2

RCR

SUITES 2

Wenul Properties Pte Ltd

Non-landed

64

0

2

731

RCR

SUITES @ NEWTON

Giant Land Pte Ltd

Non-landed

67

0

2

2196

Source: Urban Redevelopment Authority

24 SINGAPORE BUSINESS REVIEW | MARCH 2012

KRISANA GALLEZO Strong demand still seen from Singaporeans

E

ven the most recent property cooling measures are having little effect on Singapore property sales at the mass and low end levels, as checks with real estate agents reveals that Singaporeans are still buying. Analysts however appear in consensus that 2012 is going to be tough for the property sector with R’ST Research director Ong Kah Seng even commenting that 4Q 2011 will most likely be the last consecutive quarter where prices increase, defying the property cooling measures which were implemented since 2009. So how bad can it get? PropNex Realty CEO Mohamed Ismael forecasts an overall price correction of approximately 3% dip in the PPI for 2012 in anticipation of increased supply. Not bad at all as analysts remain optimistic that the Singapore property stays attractive both for local and foreign investors. According to Lee Liat Yeang, a partner in Rodyk & Davidson LLP’s Real Estate Practice, assuming that the Euro does not collapse, the low lending rates coupled with the strong holding power of housing developers should avert any drastic price cuts by developers. “There should not be any major price cuts from individual sellers whose holding power should be fortified by ultra low interest rates and low unemployment rates,” he said. 2011 ended with December having the least monthly number of private residential units that were launched by developers in the past 2 years. 937 units were launched by developers in December, falling below the conventional ‘1,000 units’ average monthly launch activity benchmark.

“4Q 2011 will most likely be the last consecutive quarter where prices increase, defying the property cooling measures which were implemented since 2009.” According to R’ST’s Mr. Ong, this shows the ‘knee jerk reaction’ of the latest cooling measures. It is important to note though that the figure remains above the around 9,200 units sold between Q3 2008 and Q2 2009 during the global financial crisis. Which segments are likely to be hit? Mass market condominium launches in the OCR and at the CCR contributed largely to the growth of PPI in 4Q11 with 0.6% and 0.5 marginal increases, respectively. Mr. Lee projects that the 1H2012 will

Krisana Gallezo Senior Reporter krisana@charltonmedia.com

Developers’ Launch and Sales Activity

SOURCES: URA, RST Research

most likely see low transaction volumes compared to similar time in 2011. “The mass market segment should weather the effect of the latest measures in view of its predominant dependence on local buyers who are less affected by ABSD which applies to Singapore citizens with 3rd property and to Singapore PRs with 2nd property, and at lower rate of 3%,” he said. DMG Research said that  while buying demand in the mass segment remains with first time buyers unaffected by the new measures, it expects prices in new launches at the lower end of expectations leading to lower overall residential prices from 2Q12. The outlook for luxury properties is also gloomy. According to Mr. Lee, properties in this segment, especially those that are large in size, will be difficult to sell in view of the sheer large quantum. “The ultra rich buyers are likely to be more cautious in view of global uncertainties affecting their overall risk appetites for investment properties,” he said.   The impact of the latest round of cooling measures is also expected to take its toll on luxury end properties as the segment has the largest exposure to foreign buyers and corporates who are most likely affected by the new set of rules. “The biggest effect should be felt in category of foreign buyers and that of non-individuals in view of the ABSD rate of 10%. This essentially increases the cost of acquisition by more than four folds from 3% to 13% for such buyers,” notes Mr. Lee. He adds that some catalysts, like stamp duty and other rebates, may be needed for the mid and higher sectors of the property market which see more foreign buyers and local buyers with multiple properties. If necessary, a price reduction of about 15 to 20% in this segment should bring most buyers back to the arena.

Singaporeans are still buying but until when?

SINGAPORE BUSINESS REVIEW | MARCH 2012 25


abacus

PROFILE

On track

Rolling the dice

Is Genting losing to Marina Bay Sands? Marina Bay Sands getting the VIP edge on Genting

T

he news is not good, relatively speaking, for Genting, which is seeing its VIP business steady whilst its rival VIPs seem to shy away from Resorts World Singapore as VIP rolling chips volume remained subdued vs Marina Bay Sands’ staggering 36.8% QoQ jump in the latest 3Q11 period - but what is causing the flat growth in Genting’s VIP gaming business? According to DMG & Partners Research, RWS’ more cautious VIP credit policy amid the global uncertainties and its lower number of available rooms at 1,300 vs MBS’ 2,600 may have led to MBS gaining market share, which stood at 45%:55% in favor of MBS. “On an adjusted theoretical hold rate comparison, RWS’ daily net gaming revenue of S$6.7m vs MBS’s S$9.2m implies an annualized gaming market worth S$5.8bn in Singapore,” it added. So what could Genting do to up its game? According to DBS Vickers Securities, RWS should start catching up soon on the back of a ramp up in slot operations (+33% to 2470 machines by end-11, comparable with MBS), higher visitor arrivals with world’s first Transformers ride launched on 3 Dec, and potential spin-off from Genting Plantation’s Johor Premium Outlets. Likewise, DMG Research noted that ramping up luxury hotel capacity should mitigate the downside as the group is expected to open up 200 more luxury hotel rooms at the Equarius Hotel and 20 high-end beach villas from end-4Q2011 onwards which will largely cater to its premium high rollers. SMRT faces derailed finances as repair costs surge The train delays and breakdowns in December under SMRT sure 26 SINGAPORE BUSINESS REVIEW | MARCH 2012

got commuters irritated, but the train operator has more challenges up ahead, let alone a tainted reputation and public image.   OCBC Investment Research analyst Lim Siyi is anticipating a surge in repairs and maintenance costs as well as one-off expenses resulting from the contingency travel arrangements  that had to be made following the train disruptions. “In addition, given the severity and huge public outcry, it is very likely that the Land Transport Authority will levy a fine on the beleaguered train operation for an amount in excess of the previous record of S$387K, also on SMRT for a seven-hour train disruption in 2008,” Lim added. Eric Ong, an analyst at Kim Eng Research, said they have already cut their FY Mar1214 EPS estimates by 2-3% in anticipation of a permanent increase in repair and maintenance costs to about 10% of the group’s transportrelated revenue against the current 9%. “A dividend cut seems a real possibility for the current financial year given the projected earnings slide and higher capex requirement of $600m from the usual $100m,” he added. OCBC’s Lim Siyi said they lowered their operating profits for FY12F by 3.4% to S$180.6m. DBS’ swelling US$ loans Loans in Singapore banks swelled in the first nine months of 2011 but what could have caused this robust

Loan me the money

growth? According to Kim Eng analyst Desmond Ch’ng, loan growth in the first nine months of 2011 had cumulative gross loans for Singapore banks expanding at an accelerated pace of 27% YoY. This was driven primarily by US$ loan growth, which jumped 69% YoY in 3Q11 versus a more paced increase of 16% YoY for S$ loans. US$ loans have grown 62% for DBS. The bank’s total loan portfolio comprised of 31% US$ loans compared to OCBC’s 26% and UOB’s 15%. However, Ch’ng noted that US$ lending is likely to taper off in 2012 as global trade cools and as US$ funding cost rises. “An added inhibiting factor, in our view, is the lack of corresponding US$ liquidity to fund such lending. As it stands, DBS’ US$ loan/deposit (L/D) ratio is already at an all-time high of 171%, while OCBC’s is 166% and UOB’s is just above 100%,” he added. But still, DMG Research forecasts DBS loans to expand 2.4% QoQ, on the back of stronger business loans – MAS data showed Singapore systemic loans expanding 0.3% & 2.3% MoM in Oct and Nov 11, respectively. The analyst said the bank’s 2012 income might be negatively affected by the subdued SIBOR and weak markets. Likewise, Ch’ng reckons that overall sector loan growth will moderate to 10% in 2012. “We expect cumulative loan growth for the three banks to moderate to 10% from 27% in 2011,” he added.

Michael Ault

Pangea’s main room with trophy wall

Pangaea has everyone talking, and grooving Michael Ault is changing the way clubs are run in Asia.

SBR: Since opening in September 2011, Pangaea has arguably become Singapore’s most successful nightclub. How was this made possible? Mr Ault: As you can imagine, the entire Pangaea team is very proud of this achievement. And in truth, it is the remarkable team and training that has allowed this record to be achieved. The first Pangaea in New York (circa 2001), Chaos Miami Beach (1996), and the Surf Club (1981) were all able to lay similar claims, in their day, to this astounding benchmark. The market, of course, plays an important role, as Singapore along with a few other cities has such a staggering amount of disposable income, that these revenue numbers are attainable. Also critical is the speed of the operation and staff. But the basics need to be in place, including speed of service and general efficiencies all contribute to our ability to get the alcohol to the guest as quickly as possible. The high-octane party keeps the patrons drinking, we keep everyone’s drinks full, and we replace the bottles with impressive speed. This psychology along with service and delivery efficiencies all contribute to a very impressive rate of alcohol consumption. We were also fortunate to be able to find some very talented Singaporean service professionals that were willing and enthusiastic to learn this new philosophy. Naturally, other Singaporean clubs are watching closely, and I believe that Pangaea has already raised the bar, and soon, Singapore will be world renown as a top service industry city. SBR: What are the new trends in the industry? Mr Ault: Over the years, we created the international “Lounge Craze” with Spy Bar in 1995, in Soho, New York. We went on to invent the modern concept of “Bottle Service” (See: Wikipedia) and along with that, the Ultra-Lounge. We did away with dance floors and were the first to bring live musicians to play along with the DJ’s. Even the sparklers that you see when bottles are served, which has become ubiquitous the world over, all resulted from our efforts to evolve the nightclub concept. But what we are most proud of is our sheer efficiency that

pervades virtually every aspect of our operation. When we came to Singapore, it took a patron half an hour to order a drink at the bar. On average it took 15 minutes to get your drinks and an additional 15 minutes to receive your change. And this was at the top clubs. At Pangaea, you can order your drinks, receive them, and get your change in less than 5 minutes, although we strive for three minutes. In America, at any top operation, this is commonplace. In the future, I anticipate more completion in secondary markets, as well as a higher degree of saturation. Club operators will copy the innovations of the pioneers, and force us to re-double our efforts. This means we will all have to continue to innovate and come up with newer and better ways to ensure that the guest experience is enhanced. Technology will play a key role, but in the end it’s the personal relationship that a patron has with the club’s staff, ownership and managers that matters most. It’s not unlike Formula One, the engines are far more powerful, the drivetrains infinitely more complicated, but if the driver and his team can’t work together as a single unit, the race will inevitably be lost. We face the same challenges. SBR: In the US you’ve been crowned the “King of Clubs”, how does that make you feel and did you have to compromise for the Asian market? Mr Ault: I feel extremely fortunate and proud to have had such a long and famous track record, and to be frank, I owe much to the support of a great many people. I’ve had my failures, as well as great successes. In all sincerity, I would not want to do business with someone who has not failed. I don’t believe that I was given that title because of my successes, but rather my perseverance and thick skin. When I get knocked down, I get up, and come back fighting. Longevity combined with success is a critical component, but most importantly, sticking to own philosophy and vision. That’s the key. Although I have worked now in five continents, Singapore was a risk for Pangaea. But not because of any cultural differences, but rather the difficulties in convincing top New York, Vegas, and Miami staff to move halfway around the world, away from their lives, friends, and family. I knew I could not possibly do it alone. Being an integral part of one of, if not the most dramatic and successful integrated resorts was of incalculable help in convincing top talent from around the world to come and take the risk with us. As far as Pangaea is concerned, I never had any doubts that given an even playing field, Singapore and its worldwide customer base would wholeheartedly embrace our philosophy and endeavor. Before we opened, many of the entrenched local nightclub players said that no “Western Brand” has ever succeeded in Singapore, and that we were doomed to fail. They had to say that, and I would have been shocked to hear anything otherwise. From a design standpoint, we had to make some minor design changes to suit the market, but these are insignificant details. How can someone not love a club that is dedicated to each guest, and treats its customers like the celebrities that they truly are. SBR: Do you have further plans for expansion around the world? If so, why those particular markets? Mr Ault: We are excited to expand here in Asia. Be it UltraLounges in the right markets, boutique hotels, or a larger entertainment company, we are actively seeking new opportunities and partners. SINGAPORE BUSINESS REVIEW | MARCH 2012 27


OPINION

numbers

There’s no stopping the ka-ching! Consumer Confidence Index drops for 2011

HK consumers are hesitant about the future economic outlook What have you done to save on household expenses?

Source: Neilsen Global Online Survey 2011

Source: Neilsen Global Online Survey 2011

In Singapore, clothing and utilities have taken the biggest hit in the face of low consumer confidence levels

But the spending goes on no matter what

But the spending goes on no matter what Laptop/Notebook

What have you done to save on household expenses?

How do you spend on your spare cash?

How do you spend on your spare cash?

Mobile phone

Private car

Alcohol

% 100

80

Chris Reed Partnership Marketing (Asia) Pte Ltd

A majority of consumers are uncomfortable with the amount of commercial messages they see on social networks, a large global survey has found. About 57% of social network users in developed countries do not want to engage with brands via social media, according to a new study by TNS, a market research firm owned by WPP, that polled 72,000 consumers in 60 countries. If you’re a brand spending millions on Facebook though, you should be worried as this survey does suggest that your money is being wasted on people who don’t want to hear from you and therefore may end up resenting your brand rather than “liking” it. Even though 47% social network customers discuss brands and products

Social consumers want social media advert free with their friends on social networks they show more resistance to brand-generated messaging and advertising, the study found. While anecdotal evidence suggests that people engage less with brands, or “unlike” business pages as they become more savvy users, Facebook and other social media advertising agencies say they see millions of customers voluntarily engaging with brands but usually that is because they are being bribed to do so by free gifts or money off. How many would actually voluntarily do so without that free incentive? Without sounding at all pompous and out of of touch with reality, a Facebook spokesperson actually said, “People do have strong connections to their favourite grocery store and dry cleaner, and they

really do want to connect with these businesses on Facebook.” Interestingly success strangles the monster as people accrue more friends and businesses in their personal networks, it becomes more difficult for brand messages to cut through. I do believe that sites like Linkedin, which I am a member of, would not exist or be as great with a pure (and therefore higher) subs model, it needs advertising to pay for it to run professionally and to expect otherwise is naive. I am free of Facebook and that would be an answer to people moaning about adverts intruding, don’t use it!! The same applies though, quality has to be paid for just like quality journalism on a brand like The FT or The Economist. Nothing is ever truly free!

60

40

20

0 '97

'98

'99

'00

'01

Q3 '02 Q2 '03 Q2 '04 Q2 '05 Q2 '06 Q2 '07 Q2 '08 Q2 '09 Q2 '10 Q2 '11

Sources: PAX 1997; 7 markets; PAX Q3 2010 to Q2 2011; 10 markets excluding Tokyo.

Source: Neilsen Global Online Survey 2011

Sources: PAX 1997; 7 markets; PAX Q3 2010 to Q2 2011; 10 markets excluding Tokyo.

Singapore Singapore#1 #1

Hong Kong Hong Kong #1 #1

40% have a privilege/ priority banking account (regional: 21%)

83% own a laptop/ notebook (regional: 56%)

33% took 1+ international business trips in P12M

65% own a HDTV

(regional: 15%)

(regional: 40%)

35% own a luxury watch of USD 1,000+ (regional: 16%)

55%

own a smartphone (regional: 33%)

Source: PAX Q3 2010 to Q2 2011; Hong Kong

Source: PAX Q3 2010 to Q2 2011; Singapore

Sources: PAX Q3 2010 to Q2 2011; Hong Kong

Sources: PAX Q3 2010 to Q2 2011; Singapore

For more information contact: Nielsen, Deanie Sultana (Deanie.Sultana@nielsen.com); Synovate, Fion Cheung (Fion.Cheung@synovate.com) 28 SINGAPORE BUSINESS REVIEW | MARCH 2012

SINGAPORE BUSINESS REVIEW | MARCH 2012 29


singapore’s hottest start-ups

10 start-ups in Singapore to watch in 2012 Find out some interesting start-ups in town and how they managed to raise funds as Krisana Gallezo reports.

I

t could be a rough economy this 2012 as most economists would say but the market has plenty of interesting newcomers and probably new leaders. Some have been there for a year or two raising more funds and building a niche but it was only in the latter parts of 2011 that they slowly gained momentum. Singapore Business Review surveyed some venture capitalists in Singapore who highlighted some interesting start-ups across industries which they think will gain traction this Year of the Dragon. They are arranged in no particular order.

1. Tickled Media Founder: Roshni Mahtani Funding: Less than SGD500,000. Selffunded from profits plus small angel investments. Tickled Media is an online publishing firm which aims to be one of South East Asia’s largest online publishers for women. According to co-founder and 30 SINGAPORE BUSINESS REVIEW | MARCH 2012

“The founder of Progeniq has created a combined software and hardware solution that accelerates creation of frames for fullscale animated movies by around 8 times”

executive director of the Singapore seed investment funds BAF Spectrum William Klippgen, Tickled Media’s flagship, The Asianparent, is growing fast and the recent deal with LiveJournal gives the company control of 1.1m visitors to the blogging platform each month. The company aims to expand into several countries in 2012. Website: www.tickledmedia.com 2. Progeniq Founder: Darran Nathan Funding: SGD5M. ASI, the investment vehicle of the technical co-founder of Skype, and BAF Spectrum have invested a Series A round along with SPRING Singapore. Progeniq engages in supercomputing. According to BAF Spectrum’s Mr Klippgen, with Progeniq’s accelerator product for the animation industry finalised in Q4 2011, there is strong interest from major studios in California, India and Australia. Mr

Klippgen noted that the founder, a computer whiz, has created a combined software and hardware solution that accelerates creation of frames for full-scale animated movies by around 8 times. “This is cutting-edge parallel computing that is unmatched globally,” adds Mr Klippgen.Website: www.progeniq.com 3. Anafore Founder: Dinesh Raju Funding: Less than SGD500,000. Angel funding from BAF Spectrum and Toivo Annus, technical co-founder of Skype. Anafore is involved in social e-commerce. According to founder Dinesh Raju, the flagship product ReferralCandy, hailed as among the three leading social-referral tools for online merchants, lets merchants automatically issue discount coupons and track their usage through smart plug-ins for all the major shopping platforms including Amazon Stores, Shopify and Singapore’s hottest start-up Magento. BAF Spectrum’s Mr. Klippgen comments: “This is a truly global tech company out of Singapore with most of current customers in the US.” Website: www.referrralcandy.com

4. Wildfire Founders: Christoph Zrenner and Benjamin Duvall, two INSEAD MBA graduates who developed the Wildfire business plan together while studying at INSEAD in Singapore. Funding: SGD2,150,000. It received initial funding of $550,000 in 2009 from Angel and Interactive Digital Media (IDM) Jump-Start And Mentor (iJAM) investment and the remaining SGD1.6 million was completed in 2010-2011 through Series A venture capital investment led by Ideas Ventures. According to venture capitalist Pete Bonee at Innosight Ventures, the company has had success running influencer campaigns since starting its operations two years ago in Singapore, and now serves many major-brand clients in the Asia-Pacific region. “Consumers talk about brands every day. Wildfire, an innovative Singapore start-up company, helps brands listen to these conversations, join them, and harness the power of Word-of-Mouth marketing. Wildfire does this through its social CRM technology, combined with thousands of volunteer influencers who can join conversations in social media and in the real world,” he said. Website: www. wildfire.asia 5. iTwin Founders: Lux Anantharaman and Kal Takru. Lux and Kal, two Singaporeans who worked together at A*STAR, where the original idea for iTwin was developed. With support from A*STAR and their investors, Lux and Kal founded iTwin as a spin-out from A*STAR. Funding: Declined to disclose amount. Series A funding in July 2010 and Series B in Nov 2011. Major investors are Walden International, 3V Source One Capital and Ideas Ventures. iTwin was launched in 2011. According to Innosight Ventures’ Mr. Bonee, iTwin makes remote file sharing easy and secure where all you have to do is that after pairing two iTwin devices, you just have to separate them and use them to connect any two online computers anywhere in the world. “This is a great solution for mobile professionals who need access to files on the go but don’t want the hassle, storage limitations, or security risks of other solutions such as carrying around flash drives. Perhaps this is why this Singaporean start-up has won numerous innovation awards,

including the Red Dot Product Design Award,” said Mr. Bonee. And recently, iTwin won Popular Science’s ‘Best of What’s New’ award & CES’ Innovation honor. iTwin co-founder Kal Takru shared with Singapore Business Review that the firm is going to expand in 2012 beyond peer-to-peer and personal file access, by adding collaboration and Small Enterprisefriendly features. “We just launched iTwin Multi, which allows one person to share with 20 others. And we will have some more Enterprise-centric features within 6 months,” he said. Website: www.itwin.com 6. Znapshop Founder: Wilson Nger Funding: $50,000 which was completed in mid-2011. The funding was given out in tranches after the firm delivered its milestones, said Mr. Nger. It got its funding from iJAm, which is a program initiated by Media Development Authority (MDA). Its incubator is AzioneCapital. Mr Nger is also a pioneer grad from the Singapore Founder Institute program which is brought in by IDA to help local entrepreneurs build start-ups. Znapshop bills itself as a “business empire on your phone,” enabler for tech-dummy small business owners or wannabe entrepreneurs, and gateway for merchants to bring their products and service offerings and reach out to their customers - new and existing - in a simple mobile application. According to Nicholas Chan, a venture capitalist at Azione Capital, with Znaphop,

“iTwin is a great solution for mobile professionals who need access to files on the go”

no longer do small time, computer dummy manufacturers need to figure out how to build a website, take photos, write descriptions in English, and find foreign distributors to carry and display their products. Every function of getting their products from their home factories to the hands of grateful clients across the globe, he says, is all available in the palm of their hands. At the same time, consumers are given the new ability to discover these interesting products and curios through relevant and location-aware promotions, new forms of campaigns, and social shopping. Mr. Chan also added that they do not need to rely on the occasional rare tip in a magazine to discover new finds anymore, now they can discover the shopping richness of their surroundings like never before. It started operation in mid-2011. Website: blog.znapshop.com 7. Asker Founders: Stanley Lim and Simon Evans Funding: SGD50,000 which was fully disbursed to Asker on January 4, 2012 from iJAM initiative of the IDM SINGAPORE BUSINESS REVIEW | MARCH 2012 31


singapore’s hottest start-ups

Co-published corporate profile

Programme Office of Singapore. Asker is a location-aware mobile service where anyone can ask any question and receive an answer from another user in the same location. Azione Capital’s Mr. Chan comments: “Imagine someone who knows the best restaurants, shows, concerts, clothing sales, discount offers, and movies, and giving you this information when you ask for it. Every smartphone user and every business will need this service.” Asker is presently at beta stage of development. According to co-founder Stanley Lim, Asker commenced preparation back in August 2010. However, due to delays, Asker only received funding from iDM in April 2011. From then, it was in full swing. Website: under construction 8. LikeState Founder: Andy Tan Funding: Seed funding of SGD50,000 from MDA under the iJam programme through its incubator Azione Capital. Round of funding was completed in August 2011. According to founder Andy Tan, MDA is currently its major investor with Azione Capital holding a portion of its company’s equities. The company though is looking to raise its second round of seed funding through private investors and MDA’s iJam2 platform. According to founder Andy Tan, LikeState is a mobile application to bring ‘Like’ to the real world. “LikeState is a location-based social network for users to easily capture and share the things/products they ‘Like’ from the offline world/locations with their friends. LikeState aims to better facilitate product discovery and make shopping more social than it already is,” he said. The target markets are metropolitan cities. The company started operations in June 2011 under the name LikeSquad but was changed to LikeState for some patent issues. According to Mr. Tan, the company is launching its app to the public just after Chinese New Year. Website: likestate.com 9. Gmedios LLP Founders: Glenn Poh and Milson Ng Funding: SGD50,000. Self-funded. Gmedios is the developer of a mobile application called GO World!. The application is a location-aware, augmented reality mobile game that 32 SINGAPORE BUSINESS REVIEW | MARCH 2012

Bosch Group: Leader in security systems in Singapore

After being present in Singapore for almost 90 years, Bosch has emerged to be the best provider of reliable large scale integrated systems for mission critical operations.

B

osch Group is one of the world’s biggest private industrial corporations. The Group has been present in Singapore for almost 90 years now. Since 1923, it has been represented by four companies  - Robert Bosch (SEA) Pte Ltd, Bosch Rexroth Pte Ltd, Bosch Packaging Technology (S) Pte Ltd and BSH Home Appliances Pte Ltd.

“What truly differentiates Spendcrowd from other group buying sites is the empowerment of the consumer to source for and organise a deal of their own choice with any business and list them on our site”

allows consumers to discover other consumers (C2C) while simultaneously empowering brands to engage their consumers (B2C) in a real-time virtual-real world RPG. GO! aims to create a preferred marketing and communications mobile channel for businesses to generate awareness about their products and services, as well as in providing new methods of sales results via gaming as an immersive means of brand engagement. Website: http://www.gmedios.com 10. Spendcrowd Founder: Geh Si Wei Funding: SGD30,000. Currently self-funded with no major investors. Spendcrowd is a mobile application that aims to make tracking of one’s spending fun. “Consumers commonly face problems with keeping track of their purchases. With Spendcrowd, users would be able to know where their money went, tag their spending to locations, and

also share their purchases with their friends. Expense tracking is fun again,” said Azione Capital’s Mr. Chan. SpendCrowd intends to become the micro-blogging platform for purchases. According to founder Edward Koh, the company aims to proceed with a beta launch by the end of January 2012 and to become fully operational by mid to late February 2012. Spendcrowd aims to revolutionise the group buying scene and change the way consumers and businesses work together. “We give users the power to source, upload and share group-buying deals with the world anywhere, anytime. What truly differentiates Spendcrowd from other group buying  sites is the empowerment of the consumer to source for and organise a deal of their own choice with any business and list them on our site. There is virtually no limitation to the type of product or service that can be uploaded. No deal is too big or too small,” he said.

Bosch in Singapore Robert Bosch (SEA) is the headquarters for the region with offices in Malaysia, Indonesia, the Philippines, Thailand, Vietnam, and Cambodia. The Automotive Aftermarket and Security Systems, as well as Bosch Software Innovations divisions have their Asia Pacific headquarters in Singapore. Apart from being the regional office for the Bosch Group, Singapore is also home to the Asia Pacific operations of Corporate Research and Advanced Engineering, and Corporate IT of Bosch. Bosch Security Systems in Singapore is one of the key consumer goods and building technology businesses of the group. According to Mr. Wilfred Steeman, Vice President for Regional Sales Asia Pacific at Bosch Security Systems, integrated security systems which automate alarm detection and prevention prove to be a trend in Singapore. “High definition camera, video content analysis and vertical based applications and software solutions will be in demand. The market is also moving towards unified standards in EVAC, audio and video streaming over IP,” he added. With over 90 years in Singapore, Bosch has undeniably made its mark in the country. With support from EDB, it pulls in latest research and development projects from all around the world into Singapore.  “Next is the large pool of talented individuals produced from the national education system that are much needed to support our growth strategy in the region,” added Steeman. Bosch’s competitive edge Unlike its competitors from China, Japan, or South Korea which usually provide

single systems, Bosch emphasizes on its reliable large scale integrated systems for mission critical operations such as airports, seaports, railway stations, museums and prisons. Clearly, it provides a one-stop integrated system to various buildings and facilities by supplying security management software for fire detection, video surveillance, access control, conference systems, public address systems, and professional audio. Bosch is also one of few companies that has systems that are certified for an industry like the oil and gas segment with its range of explosion proofed devices. “To sum it up, Bosch, as a German manufacturer, sticks to its core DNA of producing technologically leading integrated systems that exceed our customer expectations,” said Steeman. Given these remarkable competitive advantages, several Government establishments and buildings in Singapore are being guarded by systems from Bosch. Adding to the list in Singapore are one of the latest polytechnics, a major telecommunications operator, some of the latest tourist attractions and more. Challenges and future plans  Though Bosch has proven its presence in the market, Steeman noted that challenges lie in a high level of misrepresentation from the security industry, especially from the low-end manufacturers who show high specification without substantiated tests. The market is flooded with low-end devices from some Asian manufacturers whose reliability and performance are questionable. “Bosch will continue to emphasize on honesty in representation

“Bosch Security Systems in Singapore is one of the key consumer goods and building technology businesses of the group”

Mr. Wilfred Steeman Vice President, Regional Sales Asia Pacific Bosch Security Systems of our product specification and focus on “stress” tests on our products and live demonstrations to convince our customers,” he added. Going forward, Bosch seeks to move further into vertical applications, and that means expansion of its research and development team in Singapore, and further development of vertical specific applications for customers. According to Steeman, “Singapore will continue to be our Asia Pacific office and spearhead new initiatives in the region, as it has the advantage of a strong reputation in this part of the world, especially with regards to integrity and efficiency.”

Singapore Sales Office Asia Pacific 11 Bishan Street 21, Singapore 573943 Tel: +65 6571 2534 www.boschsecurity.com.sg SINGAPORE BUSINESS REVIEW | MARCH 2012 33


HONG KONG VIEW

Tim hamlett

A game of skill or a game of chance?

A

n interesting dispute has arisen over the status of Poker. Poker is a card game on which large sums of money can be wagered. In the old days it was played clandestinely in smoke-filled back rooms. Many American states outlawed it. There are also legal problems attached to it in Hong Kong. Still, recently a substantial industry has appeared running poker tournaments in places where this is allowed. Players compete against each other and winners get big cash prizes. This gives rise to a question of great interest and importance to tax gatherers: Is Poker a game of skill or a game of chance? To answer a question of this kind is a fairly simple matter. You take the results scored by particular individuals over several years, and see to what extent the same individuals crop up on the leader board. It is not necessary for them to win all the time. But if particular individuals consistently do reasonably well, then there is something going for them more interesting than luck with the cards. It would not be fair to pass on at this point without telling you the result: some players do in fact do consistently well and the statisticians concluded that Poker was to a substantial extent a game of skill. Of course many games which we think of in terms of skill involve luck as well. Sometimes the players are honest enough to admit this. Wayne Rooney commented on a famous bicycle kick goal that it had pleasantly surprised him because such efforts usually ended up “in the back of the stands”. Tiger Woods is regarded with such awe because at his best he triumphed over the infinite variations in luck which afflict golfers and dominated tournament after tournament. The reason for exploring this is that The Economist, reporting the revised status of Poker, commented that the evidence of skill being deployed seemed to be stronger than in the case of stock picking or investment advice. This is the sort of passing comment that makes The Economist such a beguiling read, but it did not offer any detail on the evidence about stock picking. There have been some famous anecdotal studies in which professional stock pickers were outdone by variations on the pin, including selection by six-year-old child and by trained monkey. But these are after all single cases. There is also Nicholas Taleb’s celebrated observation that if you set up an experiment in your computer in which the results of stock picking are distributed entirely randomly you still get a small population of apparent experts, and a large population of moderate performers, which is more or less what we see in the real world. This shows us what is possible, but not what is. What does the Noble Prize winner say? However I have now come across the original test, which was conducted by Daniel Kahneman. Mr Kahneman is a psychologist whose work on decision-making won him the thing usually called the Nobel Prize in Economics, though the people who award the other Nobels object to this. 34 SINGAPORE BUSINESS REVIEW | MARCH 2012

tim hamlett Former Editor of Sunday Standard and Associate Professor of Journalism

Kahneman was invited to speak to a financial firm, and asked them for some data to play with. He was given the rankings of the firm’s 25 stock advisers over eight years. It was then a simple matter to compare the ranking of each adviser for each year and see if there was any significant correlation, which would indicate that some advisers were more skillful than others. Kahneman says he “knew the theory and was prepared to find weak evidence of skill.” In fact he found none at all. The results were what you would have expected if the advisers had been throwing dice or darts. This is not a matter of it being impossible to beat the market because all the value is already in the price. Some people do manage to beat the market. The problem is that they do so by being lucky, not by being skillful. It seems that the purpose of the business press is like that of the racing press - to make a process for producing random outcomes look so complex and so logical as to engender the illusion that people can make money by betting on it. We scribblers foster the illusion of skill. Kahneman says that people often prefer personal impressions to statistical evidence, and adds rather kindly that analysing company performance is obviously a skilled job; it just doesn’t lead to any useful information about the future of stock prices. He did not expect his observations to make any difference to the company concerned, and nor did they. The point has been repeatedly confirmed and is now widely known. It has made no difference to the rest of the industry either. I suppose this should come as no surprise. It has after all been manifest for a long time that astrology is bunk. Newspapers continue to print it and readers continue to believe it. Compared with the people who read the business tealeaves, though, astrologers are not quite so spectacularly overpaid. Then of course there is what we should I suppose call the fung shui industry. It would have been easy to conclude from a recent case that this was primarily engaged in extracting fabulous sums of money from rich and gullible old ladies. But that is not fair. Fung shui merchants extract money apparently effortlessly from rich and gullible people of all ages and both sexes. Those of us who believe that banking is a sober, realistic and cautious activity (if the events of the last few years have left any such people) have to account for the odd positioning of the escalators in the HSBC’s handsome if somewhat post-industrial headquarters. The perverse angles at which they ascend from the ground floor were apparently adopted on the advice of a guru whom the bank consulted in order to ensure its corporate harmony with the wind and the water. I am not sure that the subsequent history of the bank is a good advertisement for this sort of precaution. But there it is. We all heaped scorn on Nancy Reagan, who consulted a stargazer about auspicious dates for Ronald’s public activities. Superstition is perhaps a sin. But which of us is without sin?

Just my luck! SINGAPORE BUSINESS REVIEW | MARCH 2012 35


legal briefing

legal briefing

Singapore makes it harder to get patents Pre-grants will no longer be awarded to applicants with outstanding patentability objections.

S

ingapore will move from a “self-assessment” system of granting patents to a “positive grant” system to bring it into line with the UK and Japan. What are the proposed changes? According to Baker & Mckenzie senior associate Gene Kwek,  the current patent system of Singapore can be considered a “self-assessment” system which allows a patent to be granted even if there are objections raised in the patent examination report. IPOS now intends to tighten the current system by adopting a “positive grant” system. Mr. Kwek explains that broadly speaking it would mean that IPOS may only grant patents with a positive examination report. Patent applications which have outstanding patentability objections maybe refused. The proposed change, he says, essentially contrasts two philosophies: On one hand, having a lower bar to an entitlement of a right, but with a correspondingly weaker right of enforcement and potentially higher risk of challenge; and on the other hand, raising the bar to entitlement, but rewarding such entitlement with a correspondingly stronger right and potentially lower risk of challenge. In the latter case, a patent is tested more rigorously by the registration authority; in the former case its is left to be tested by and between the parties themselves. Rajah&Tann partner Lau Kok Keng adds that the current regime was established with the objective of putting in place a patent regime that would encourage a rapid growth in the undertaking of research and development in Singapore. However, one of the issues with the current ‘self-assessment regime’, he says, is that it allows a patent to prosecute to grant even on the basis of an unfavourable examination report.  Some proprietors are nonetheless prepared to register weak patents to create barriers of entry against competitors. “This problem is exacerbated when proprietors seek to monopolize markets through an active enforcement of weak or invalid patents and they may sometimes succeed because revocation of patents can be a technically challenging and costly exercise for the alleged infringing party,” says Mr. Lau, noting that the key proposed changes re-focus on quality rather than quantity of patent grants in Singapore. Another issue that Mr. Lau notes is that proprietors generally have little incentive to voluntarily narrow the scope of their patent claims under the current self-assessment regime. This is 36 SINGAPORE BUSINESS REVIEW | MARCH 2012

Lau Kok Keng

Gene Kwek

Lam Chung Nian

Gerald Koh

despite that their corresponding patents may have been substantially narrowed through amendments filed in opposition proceedings in other jurisdictions. “In some cases, proprietors may sometimes file post grant amendments only late into a revocation and/or infringement proceeding but the opposing party may have already incurred significant costs addressing a patent which may be granted on claims which were too broad to begin with,” says Mr. Lau, adding that delay in the filing of post grant amendments is likely to be given consideration under the stricter new regime. Mr. Lau however cautions that under the new regime applicants may face greater risks of having their applications rejected. Nonetheless, he says that if their prosecution does succeed, the patents

“The new policies will step up the enforcement of anti-money laundering rules by doubling the manpower of the Suspicious Transaction Reporting Office of the Commercial Affairs Department and by enhancing its analytical and reporting systems to detect criminal activity and illicit funds”

Napier partner Gerald Koh, Singapore’s current patent regime is “less rigorous” than those in the U.S., Europe and Japan as it is based on a self-assessment system. “The current patent regime was borne out of necessity and only commenced in 1995. Prior to that, Singapore would grant protection for patents which had been registered in the UK. In order to encourage growth of a nascent IP industry and for innovators and businesses to be enticed to patent their inventions and products, the bar to patentability was not set too high. However, now that the IP industry in Singapore is more mature and developed, it is timely and appropriate to consider adopting international standards which are more rigorous,” he said. In general, Mr. Koh says that the change in regime would be a beneficial one in strengthening the overall confidence of businesses and inventors in the Singapore patent protection regime. “Patent proprietors can have more confidence in the merit of their patents. For other businesses, having fewer patents of questionable merit on the patents register would mean more certainty in their ability to conduct their business,” he adds, noting however that any attendant cost increase must be carefully managed so that it remains attractive for businesses and inventors to invest in patent protection. Baker & Mckenzie’s Mr Kwek meanwhile states the importance of the changes in Singapore’s thrust to position itself as an IP hub. Mr. Kwek foresees that

there will be greater initiatives to incentivise creativity. This, he said, will nurture a greater recognition of the value of intellectual property rights, which should translate into a greater interest in, and desire for, protection, commercialisation and exploitation of such rights by inventors, authors and owners. “I believe in the forefront we may see increased interest particularly in patent and copyright protection. In tandem with these developments, there will be a

Singapore’s current patent regime is “less rigorous” than those in the U.S., Europe and Japan corresponding need for more robust legal frameworks, practices and processes. We could see our intellectual property frameworks being put to the test,” he said. WongPartnership’s Mr. Lam also shares the same view, noting that Singapore have come a long way since the time when patent protection was obtained by re-registering patents obtained in the UK. The present patent regime has established the foundations for building up local capability in examining and prosecuting patents. “Singapore recognises that a world-class IP protection regime is a key engine of our future economic growth and a robust patent regime will complement this, so the new changes should allow for Singapore to build on this foundation and take things to the next level,” he said.

obtained are likely to be strong and possibly more resistant to subsequent revocation challenges. WongPartnership partner Lam Chung Nian adds that amendments relating to positive examination would be that patents which do not meet patentability requirements will be weeded out pre-grant, rather than these having to be subsequently challenged as would be the case under the present regime. Mr. Lam welcomes these changes as well as other changes that will streamline the patent application process. He cautions though that one impact of the positive examination regime is that it would also mean that the cost to patent applicants in seeing their applications through could also increase. How would the proposed changes impact Singapore’s patent regime? For the legal experts, the move to a positive-grant regime would align Singapore patent system with those from established jurisdictions, such as the United States, UK and Japan.  According to Drew SINGAPORE BUSINESS REVIEW | MARCH 2012 37


ANALYSIS: ASIAN GAMING

ANALYSIS: ASIAN GAMING

Asia’s gaming industry is not bothered by the global economic turmoil

Asia Pacific poised to become the world’s largest casino hub 2013 could see Asia Pacific overtaking US as the biggest gaming market. Report by Krisana Gallezo

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he financial balance of power in the global casino gaming industry is seen to undergo an eastward shift with Asia Pacific projected to account for almost half of the total global casino revenues by 2015. The report by PricewaterhouseCoopers (PwC) showed that casino gaming revenues in Asia Pacific surged by a remarkable 49.7% in 2010 to $34.3 billion with all but four countries in the region reporting growths. By 2015, PWC forecasts that the region will reach $79.3 billion, an 18.3% compound annual increase as many markets are likely to accelerate their plans to develop licensed integrated casino resorts to spur growth in their economies. “Asia Pacific will be the fastest-growing region for casino gaming spending over the coming five years. Having overtaken EMEA as the second-biggest region 38 SINGAPORE BUSINESS REVIEW | MARCH 2012

“Asia Pacific will be the fastest-growing region for casino gaming spending over the coming five years”

in 2008, Asia Pacific will surpass the US in 2013 as the biggest region, and will end the forecast period accounting for 43.4% of the total global market,” says PwC. Is it too good to be true? The current global economic turmoil is not a concern for Asia’s gaming industry in the near term.  PwC notes of the resiliency of the industry while citing how the region’s hotspot, Macau, weathered the ill effects of the global financial crisis which took its toll in 2008. After pausing a breath in 2009, rising by just 9.7% from 31% the previous year, Macau saw its casino revenues growing in double digits again by 57.8% to $23.4 billion in 2010.  The figure is even more than twice the revenue of Nevada in the US. Standard&Poor’s (S&P) adds that

a possible slowdown in the next 12 months is inevitable but gaming operators are now better positioned than they were in 2008 to accommodate risks associated with investments in new gaming developments and any moderation in gaming demand.  Also, it expects operators in the region, with their improving financial capacity, to aggressively bid for casino licenses and invest billions of dollars into gaming projects. “Our view is based on the significantly improved cash flow of these operators from existing properties, resulting in a better balance between cash generating assets and assets under development. As many of these assets move from the construction phase to stabilized levels of cash flow generation, they should provide operators with greater capacity to accommodate any unexpected moderation in gam-

ing revenues or capital availability,” says S&P’s analyst Joe Poon. PwC expects Macau to continue driving growth in the region with new capacity. Galaxy Macau was opened in Cotai in May 2011 with 450 gaming tables, approximately 1,100 electronic gaming machines and 2,200 hotel rooms. Meanwhile, Sands China, which halted construction in 2008 because of the drop in credit availability, is now scheduled to open phase I of Sands Cotai Central in 2012 and phase II in early 2013. Sands Cotai Central will have approximately 300,000 square feet of gaming space and 5,800 rooms, including hotels from Starwood, Shangri-La, Hilton  Worldwide, and Intercontinental Hotels Group. “The development of the Cotai strip in Macau has been hot and will get even hotter. Based on current announced investment plans, the Cotai strip will continue to be the main battleground for the Asia Pacific gaming market, with operators seizing more land whenever they can for further expansion. The proven success of the resort-style complex model that includes gaming, shopping, restaurants and entertainment to serve the mass market will be expanded. This is because the mass market, rather than high rollers, is the main driver of profit for casino operators,” says PwC Hong Kong Assurance Partner Ivan Ng. S&P believes that Macau’s position as the world’s largest gaming market will be difficult for other countries to challenge. “Earnings of casino operators in Macau for the first 11 months of the year were much stronger than we expected, despite credit-tightening measures in China. The record high gross gaming revenue of Macau in October indicates that the demand from China continues to be strong,” it notes. S&P believes that revenues will continue to grow this year, albeit at a slower pace at 10-15% due to higher base recorded in 2011. Much of this growth, it says, will be absorbed by a new property at Cotai -- Sands Cotai Central, Las Vegas Sands site 5 and 6. “We expect high rollers from mainland China to continue to fuel growth in Macau’s gaming industry. The industry has also not seen a yearon-year decline in monthly revenues

since between late 2008 and the first half of 2009. Gaming operators in Macau have limited exposure to direct lending to VIP players and we don’t think bad debts will have a significant impact on the credit profiles of these companies,” says Mr. Poon. S&P forecasts that more projects will start in the next few years in Cotai, but warns that the city could face challenges, such as inadequate infrastructure, labor shortage, and a cap on the number of gaming tables. Singapore and Japan to dictate a new order Australia was a distant second to Macau at $3.4 billion in 2010 even as revenue figures excluded gaming machines in hotels, pubs and clubs. PwC however cautions that Australia may be facing intense competition not only with Macau but with newbie Singapore. Surprisingly, Singapore, which is just in its first year of operation, managed to make it to the third spot with $2.8 billion revenues in 2010.  According to PwC, Singapore’s dramatic emergence as a casino gaming centre is a prime example of new territories entering the market. Revenues have surged from zero in 2009 to US$4.4 billion in 2011. PwC reckons that the figure will even balloon to as much as $7.2 billion by 2015, even if there were only two licenses that have been issued, in anticipation of growing numbers of

“Casino spending in Singapore will be sustained by the two integrated resorts, Resorts Word Sentosa and Marina Bay Sands”

tourists and build-out of facilities. “Increased competition from Singapore and Macau is adversely affecting the Australian market as growth slowed to 1.2% in 2010 from 2.2% in 2009,” says PwC, noting a flat growth for Australia in 2012.  According to PwC, Australia’s casinos are finding it harder to attract high spenders from other countries with the opening of resort casinos elsewhere in the region including Resorts World Sentosa and Marina Bay Sands in 2010. S&P meanwhile adds that regulatory uncertainty remains a focus for Australia’s casino operators. “The Federal government is preparing to introduce gaming machine reform legislation in Parliament next year. Although the scope of the legislation is unclear, it could include mandatory pre-commitment requirements (for gaming machines with maximum bets above one dollar) that could have a material negative impact on gaming revenues,” says Mr. Poon. Magdalene Choong, investment analyst at Phillip Research, meanwhile projects that casino spending in Singapore will be sustained by the two integrated resorts which opened in 2010. Over the next five years, Ms. Choong believes that Resorts World Sentosa and Marina Bay Sands will reach combined revenue of $10 billion with the introduction of junkets. “We premised that growth will come with the introduction of junkets

The proven success of the resort-style complex model will be expanded SINGAPORE BUSINESS REVIEW | MARCH 2012 39


OPINION

ANALYSIS: ASIAN GAMING as they are likely to introduce high rollers with larger bets than existing ones and junkets can bear the default risks thereby reducing the negative impact on IRs’ earnings (but after the introduction of junkets, the gaming revenue growth should stagnate as space constraint faced by the casino places an upper limit on the growth rate,” says Ms Choong.  S&P’s Mr Poon also adds that the performance of the gaming industry has exceeded their expectations since the two integrated resorts opened in 2010. “Net revenue for both the resorts is likely to exceed US$5.0 billion in 2011. These resorts’ net revenue was about US$3.5 billion in 2010. We expect growth to be 5%-10% in 2012, or even higher depending on the timing of the granting of the junket licenses. Singapore’s

Casino Regulatory Authority is reviewing the applications of junket operators,” he said. Late last year, the Singapore government has announced  a measure aimed at controlling gambling in the domestic market but even this has minimal impact to the integrated resorts, says CIMB analyst Loke Wei Wern. Under the new measure, all casino advertising and promotions will now have to be given prior approval by the Ministry of Community Development, Youth and Sports (MCYS). At first glance, it is negative on the two Singapore IRs. It restricts the casino operators’ flexibility in luring punters and rewarding loyal customers. More importantly, it underscores the constant regulatory risks plaguing the Singapore gaming industry.  Ms.

“All casino advertising and promotions will now have to be given prior approval by the Ministry of Community Development, Youth and Sports”

Breakdownofofglobal global gaming market revenues Breakdown gaming market revenues

Source: PWC

Sources: American Association, Indian Nevada Gaming Commission, Nevada Gaming Commission, New Jersey CasinoLLP, Control Sources: American GamingGaming Association, National Indian National Gaming Commission, Gaming Commission, New Jersey Casino Control Commission, PricewaterhouseCoopers Wilkofsky Gruen Associates PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Commission,

40 SINGAPORE BUSINESS REVIEW | MARCH 2012

Loke however notes that the impact to operators will not be significant as Singaporeans currently account for only an estimated 30% of the IRs’ visitors. South Korea, which was ranked fourth at $2.6 billion revenues in 2010, meanwhile, is expected to benefit from a new gaming center. PwC however cautions that South Korea, which only opens casinos to foreigners, may have to face an intense competition with Japan with the opening of some proposed casinos in 2014-15. “If the proposed opening of casinos in Japan takes place, it would have a ripple effect on the region. Japan could be expected to attract visitors from South Korea, which could divert them from going to Macau,” says PwC, adding that South Korea may also lose around 2 million Japanese gaming tourists.   Other emerging drivers According to PwC, the Philippines already has a vibrant casino gaming market, and new casinos in the country will propel spending at a 16.9% compound annual rate to $1.2 billion in 2015, making it a major gaming area as well. “In the Philippines, casino gaming revenues fell 5.9% in 2010, but are rebounding in 2011, and we  project a 10.8% increase for the year as a whole,” notes PwC.  Belle Corp’s planned complex in Manila Bay is expected to open in 2013, although the project has experienced some delays. The Philippine Amusement and Gaming Corporation (PAGCOR) is the monopoly provider with the exception of the Cagayan Special Economic Zone, which issues its own casino licenses. Casinos in the Cagayan region however are only open to foreigners. The casino gaming market in Malaysia, which is dominated by Genting Highlands, is expected to pass the $1 billion level in 2014, but PwC notes that it is being impacted by competition from Singapore, and hence projects that growth will be modest. In Vietnam, the opening of resort casino in Da Nang in 2010 will be followed in 2013 by the first LasVegas style resort, the MGM Grand Ho Tram. Casinos in the country however are only open to people with foreign visas.

Lai Poon Piau

Executive Director Workplace Safety and Health Council

Take care of your employees’ safety and health and they’ll take care of your business. In a typical workplace in Singapore, safety and health is very often overlooked. It is a misconception that work incidents only take place in traditional sectors like construction. In truth, out of about 10,000 recorded work injuries every year, 40% happened in new sectors recently covered under the Workplace Safety and Health (WSH) Act.

Another way to take care of your employees staff interviewed believes that good WSH performance will have a positive impact on company business. According to the statistics by the General Insurance Association of Singapore, nearly half a million dollars are being paid out for work injury compensation daily. It is estimated that 700,000 man days are lost due to workplace incidents daily or equivalent to about 2,300 employees sitting idle for a whole year. Work incidents hurt productivity and continuity of business operations.

Safe work environments help companies retain talent Putting in place good WSH practices are Makes monetary sense to do so also an important indicator that determines It is critical that employers pay heed to employees’ loyalty to their company. The WSH as an unsafe workplace is a threat not benefits of happier, motivated and healthier only to the well-being of your employees employees are clear. The obvious loss in but also the sustainability of your business productivity and medical costs aside, an bottom-line. In a recent perception survey unsafe environment affects employee morale conductedadtech2012_184x125_print.pdf by the Ministry of Manpower 1 1/12/2012 4:37:13 PM and WSH Council, 87% of 589 management and their enthusiasm towards their work.

Employers who show concern and commitment towards safety and well-being strengthen their employees’ commitment to the workplace and leads to increased employee retention. Good WSH practices make for good reputation There are also benefits of good reputation to consider when adopting WSH practices. Leaders of companies are well aware of the impact that safety performance can have on their reputation – both positively and negatively. It’s easy to start your WSH journey Managing work hazards and improving work procedures for safer outcomes is simpler than you can image. Here are some tips that you can share with your employees on how to keep your workplace safe (more info can be found on www. wshc.sg).

13 – 14 June 2012 | Suntec International Convention & Exhibition Centre

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Save the dates! The exhibition & conference spread over 2 days will be the perfect opportunity to catch up on the latest technologies and trends, providing you with insightful new knowledge and many new business connections SINGAPORE BUSINESS REVIEW | MARCH 2012 41


OPINION

Regional EConOmy Briefing: KOREA Inflation projected to decline in 2012

Jacky Tan

Senior Marketing PR Manager (Asia Pacific), Evorich Flooring Group

Korean exports on the rise

Korean exports brace for headwinds in 2012 The upward trend in demand for Korean goods in the US won’t last long as the country is under threat of a recession.

Will Korea’s exports last? Korean exports will face headwinds in 2012 but HSBC doesn’t expect them to collapse. Rather, export growth will be mainly supported by demand from China and a weak Korean won, says Ronald Man, an economist at HSBC. The key risk lies on American shores. According to Man, recent US data signalled sustained confidence despite the jitters in Europe, which has also been reflected in the upward trend in its demand for Korean goods. “However, given our chief US economist Kevin Logan is maintaining the US on recession watch, we do not expect the strong upward momentum to be sustained. That said, new free trade agreements signed in 2011 with the EU and US should help cushion the fall in shipments. Even if not all barriers are phased out immediately, Korean exporters are still expected to reap significant benefits in 2012,” he added. For instance, Korea’s automobile industry remained robust. Man noted that within the first four months since the enactment of the EU FTA, shipments of Korean automobiles into the EU surged by 88% compared to the same period in the previous year. “Eyes will be on talks over the trilateral FTA between China, Japan and Korea. Together, China and Japan constitute roughly 30% of Korea’s total shipments last year. Negotiations are expected to take place in 2012. However, a reduction in Korea’s tariffs against countries such as China is likely to hurt its SMEs. With elections at hand this year, we expect progress on this front to be slow,” he added. Where is inflation heading? HSBC expects headline CPI to average 2.6% in 2012 and pressure is set to ease on the back of lower commodity prices 42 SINGAPORE BUSINESS REVIEW | MARCH 2012

Source: HSBC, CEIC

amidst weak global demand, as well as the high base effect from last year’s strong inflation print. Man cites the following three factors as the top three contributors to inflation in 2011 (4.0%): “First are food and non-alcoholic beverages (7.5% y-o-y in 2011, contribution of 1.1ppt to CPI). Last year’s food prices were driven much by surging pork prices, given the foot-andmouth outbreak in Korea. With domestic pork supply stabilising, we expect less upward pressure on this front in 2012. Second are housing, water and fuels (5.9% y-o-y, contribution of 0.8ppt to CPI). There are two things to look out for in 2012. First is Jeonse, a local form of rental payment, which may continue to rise if overall investment returns on assets do not pick up soon. Second, fuel prices are expected to ease alongside commodity prices. Last is transportation (6.3% y-o-y, contribution of 0.8ppt to CPI). This component has been driven by “fuels and lubricants.” With commodity prices expected to moderate, costs here should slow down in 2012. We emphasise an upward bias to our forecasts for 2012, reflecting a potentially stronger-than- expected recovery in emerging markets, which would fuel demand for commodities, pushing up their prices.” What will drag growth? Private consumption should slow down in 2012, with its growth being the weakest in the first quarter, according to HSBC. Man emphasizes that a particular area to keep an eye out for is the employment market. “In December 2011, the HSBC Korea PMI employment sub-index recorded its first monthly contraction in almost three years. With stagnant wage growth, flat property prices in Seoul and rising household debt, the purchasing power of consumers will continue to be eroded. Furthermore, as banks continue to tighten lending to households despite sustained demand for credit access, maintaining consumption growth is going to prove increasingly difficult. Whilst we expect a slight rebound in consumption during the second half of 2012 as economic activity picks up, the magnitude of the upward swing should be moderate.” According to HSBC’s estimates, 1.8% consumption growth is expected in 1H 2012 over the same period in 2011 and 2.0% in 2H 2012. “The Bank of Korea has penciled in a stronger rebound of 2.6% and 3.2% in each respective half. With household debt climbing to almost 160% of disposable income in 2011, tighter liquidity conditions and a low saving rate of around 4%, we believe the exact source of such a strong rebound will no doubt raise a few eyebrows,” it added.

“Singapore has to take the expected economic slowdown in 2012 in its stride,” quoted Prime Minister Lee Hsien Loong during his 2012 New Year speech recently. Many will feel that it is impossible to get a high salaried job, especially during an economic slowdown. However by following these 5 ways to “market” yourself to your potential employers, you can get a high salaried job even during a recession. Let’s look at these 5 ways. #1 Write an Outstanding Resume Imagine you are an employer; you received more than 100 resumes in a day for only one senior managerial position in your company. What is it in the resume that attracted you so much that you are dying to see this interviewee and wanted to employ him or her so badly even before the interview? Yes, because the interviewee is… DIFFERENT Most importantly, you have to think out of the box in creating a different kind of resumes reading experience for your potential employers.. #2 Don’t Think About Security Do not look at your job as a form of security. Nothing in this world is secured, you need to fight for it. If you have time, watch the first two seasons of The Apprentice and you will understand the real meaning of fighting for yourself. If you think that a job is secured, you

5 ways to get a high salaried job during an economic downturn will fail to grow, simply because you are sitting comfortably in your own comfort zone. Hence, don’t think about job security, think of winning consistently in your work instead. Don’t ask what kind of benefits the company has for you; ask the company, what are the things that you are going to achieve for them instead. #3 Build Your Industry Value Your industry value simply means that not just people in your industry know who you are because they are aware of the achievements that you have made in your current company. In this case, even during recession, you will still have headhunters and employers in your industry approaching you and offering higher paid jobs. This is the benefit of having your industry value. For example, if you are a HR manager, you must be one of the top HR professionals in your country and your company has grown tremendously due to your contribution during your employment. People will notice you and they don’t mind to invest heavily on your paycheck. Hence, continue to build your industry value, starting from today! #4 Be an Expert in Your Industry One thing that you can start doing so is by contributing and sharing your opinions and knowledge in your industry. It is always easy to hear, read or listen to some story and advice. However, it is never easy to write, to create and to give advice as most people are lazy to do all these. Yet, you may not know that

when you start giving advice and sharing your knowledge, people will begin to view you as an expert in your industry. And this will therefore give you the edge over others who are competing with you for the same high paid job. Just by putting in more efforts than your peers in contributing your knowledge to your industry people, getting a high paid job even amidst a recession will be as easy as lifting up a feather for you. #5 Be Confident, Stop Complaining Complaining will just make you more depressed, angrier about your life and worse still, you will gain nothing, you are still stuck in the low paid job and nothing good will happen at all. Stop bothering about your potential dream job being taken away by a foreign talent. It is you that is taking your dream job away. And the only thing that you can do to get that high paid dream job, is to be confident about yourself and be positive about the world out there. No matter what happens to the economy, that confidence inside you can consistently help you achieve the things which are so great that many people will think it is impossible to achieve. So, in summary, it is you that determines the amount of salary paycheck you are going to get. Listen to your instincts and trust your confidence. Be an expert and increase your industry value. And in no time, you will definitely see yourself as one of the top percentile of high salaried employees in Singapore someday.

SINGAPORE BUSINESS REVIEW | MARCH 2012 43


ANALYSIS: ASIAN CONSUMPTION

ANALYSIS: ASIAN CONSUMPTION

Consumption sways to the beat of asset prices

Just how much changes in Asian consumption are linked to changes in house and stock prices? Find out as Roxanne Uy and Krisana Gallezo report.

W

hen talking about swings in asset prices largely influenced by troubles in the West, Asian economies seem to overlook that there’s more to worry about than falling exports. Effects of the rise and fall of the asset values to consumer spending are oftentimes missing in the picture though local spending could be hit as well if equity markets begin to sell off. HSBC economist Frederic Neumann noted that analysis of sensitivities  of consumer spending to swings in stock market in Asia is generally lacking but that does not mean that the effect on the region is negligible. “Swings in asset prices, in Asia as elsewhere, have a powerful psychological effect. Not only do they 44 SINGAPORE BUSINESS REVIEW | MARCH 2012

“Results showed that households react sensitively to changes in asset values in Hong Kong...”

keep traders on the edge of their seats and fund mangers reaching nervously for their handhelds, but consumers also take a keen interest. Their savings, after all, not to mention their pensions, depend on the rise and fall of asset values. As a result, households swiftly adjust their spending, with powerful consequences for growth,” he added. How do asset prices affect consumer spending? HSBC’s first quantitative study on Asia illustrated the estimated impact of swings in equity and, where available, in house prices. Unsurprisingly, results showed that households react sensitively to changes in asset values,

especially, and above the norm of other emerging markets, in Hong Kong, Taiwan, Singapore, Korea, and also in Thailand. Household expenditure in Taiwan, which showed the highest sensitivity, rises by 0.7% for every 10% change in the stock index. When comparing Indonesians to Malaysians meanwhile, the former appears to be more sensitive to changes in equity price which, according to Neumann, reflects the greater prominence of household debt among Malaysians that allows consumers to “smooth” their spending through swings in asset prices.  Data in China is negligible at 0.08% but this is primarily because there are just a few Chinese participating in the stock market as they

prefer to have their big chunk of savings in bank deposits, says Neumann. While the arguments may be true, Moody’s vice-president and senior analyst Sonny Hsu notes of other factors affecting consumer spending. Hsu says that in Hong Kong the volatile equity market conditions actually have had limited impact on consumer spending as part of the strong retail growth can be attributed to the significant influx of mainland tourists. “Consumer spending has been strong in Hong Kong, but the strong spending is likely due to very strong labor market conditions although the sizable appreciation of property values over the past 2 years may also have contributed to strong consumer spending,” he added. Perhaps a more interesting finding is that virtually everywhere, consumer spending declines by more when shares fall, than it rises when equity values climb. According to Neumann, presumably, this has to do with a fundamental human bias towards risk aversion, though it may also reflect other factors, such as the fear – whether realized or not - of job losses when shares tumble. In Hong Kong, private consumption spending rises by about 0.5% following a 10% rise in the stock market and declines by almost 0.5% as well when stock market declines by 10%. Wage effect or wealth effect? CIMB analyst Ching Quan Jian also reckons that consumer spending tends to increase/decrease by around 0.3-0.5% assuming a 10% gain/loss in the equity market - with the impact larger in countries with more developed financial markets. “While not negligible, we believe that the impact from rising wages which have twice to three times the impact on consumption compared to stock market wealth effects, and stronger regional currencies will continue to propel consumption growth in the region,” he added. On the other hand, Andy Sim, vice president of equity research at DBS Vickers, notes that upward swings in asset prices, by virtue of the “wealth effect,” will usually lead to higher consumer spending as well as stronger economic growth. To some extent, this effect has perpetuated Asia’s economic growth since the rebound from the global financial crisis (GFC). “That said, Asia’s consumption has

risen by more than 25% since the GFC and asset value is certainly not the only factor underpinning this strong growth. The robust economic fundamentals, the buoyant employment and growth prospects, an emerging middle income class and rising consumerism, as well as the well-calibrated and sustainable macroeconomic policies are some of the other important contributing factors,” he added. HSBC’s study has proven the correlation between swings in asset prices and local consumer spending in Asia. According to Neumann, this highlights that the trouble in the West is not only transmitted through exports from the East, but that a wider sell-off in asset prices can harm growth in Asia as well. “The effects of the potential impact of a 10% decline in equity and in real estate prices, though varying, are generally quite sizeable, and would provide an especially big challenge if they occurred simultaneously,” he added.

“In Hong Kong, private consumption spending rises by about 0.5% following a 10% rise in the stock market”

Self-fulfilling expectations? DBS’ Sim argues that a sell-off in

stock markets do not in itself cause changes in consumer spending, but expectations of wider economic conditions will evidently have an impact. And though things may blow up in Europe and the US may fall back into a recession which may trigger risk aversion and a flight back to safety as witnessed in 2H11, CIMB’s Quan Jian noted that this is not their base case. “We remain bullish on the other regional markets. Growth in Malaysia will be sustained by its economic transformation program and supported by spending in an election year while re-construction effort in Thailand will help cushion the economy. In Indonesia, our economist and strategist both remain highly optimistic on the back of strong consumption growth, improving fiscal position and, potentially, lower risk premiums,” he added. Likewise, Sim does not envisage a major selloff in Asian stock markets though 1H2012 will see slower growth and higher volatility. “We are positive on ASEAN for its lower beta and see that growth risks are lower in Malaysia and Thailand due to fiscal priming,

Percent impact on private consumption spending from a 10% change in the stock market index

Source: HSBC; NB: *denotes statistical significance at least at 10% level

Changes in stock market capitalization over time (% of GDP)

Source: Bloomberg, CEIC, HSBC

SINGAPORE BUSINESS REVIEW | MARCH 2012 45


ANALYSIS: ASIAN CONSUMPTION and Indonesia due to monetary priming. While we see slower growth in China, valuation support should limit downside,” he added. According to Quan Jian, considering the sluggish response of consumption to shocks and the strong persistence of consumption growth, unless we have prolonged bear markets, the impact should be well contained. Our main worry this year is still the development in the advanced economies, which have a corresponding impact on employment, especially in the externally-oriented industries. “However, assuming Europe continues to muddle through and the growth trajectory in the US remains positive, admirable economic growth in the region of between 3.0-8.0% is still achievable in 2012,” he added. Real estate woes But there’s another factor hurting local consumer spending that does not even require an international trigger to make an impact. Real estate prices rising in dizzying heights are also a cause of concern. According to Hsu, property values have appreciated greatly in Hong Kong, China, Singapore and Taiwan since early 2009. “Concerns of a real estate bubble had led to a slew of cooling measures, targeting at both supply and demand, undertaken by the respective governments in the region such as China and HK SAR as well

as Singapore,” said Sim.  Neumann noted that the usual suspects stand out, with estimated effects being quite large in Hong Kong, Korea, Taiwan, and Singapore. Remarkably, however, the estimated effect is rather large in China as well. “This is important since it implies that a potential deflation of China’s property prices would have an impact on local consumption spending as well. In fact, based on our results, the effect may be larger than it is generally in Hong Kong and even in the United States,” he added. In terms of real estate prices, Quan Jian is not overly concerned at this moment with the exception of maybe Hong Kong, Taipei and Vietnam. “Our property analysts have pointed out that overall fundamentals - affordability, population and income growth - remain healthy and supportive of property prices over the long-term, barring a major correction,” he added. So how could real estate prices actually affect local consumer spending? According to DBS’ Sim, a rise in real estate prices typically generates a positive “wealth effect,” the so called “feel-good-factor,” which could in turn have a positive effect on consumer spending. We do need to realise, however, that in periods of demand-led rise in real estate prices, these are generally, if not always, in times of robust economic growth, high employment, which contrib-

“A rise in real estate prices typically generates a positive “wealth effect,” the so called “feelgood-factor,” which could in turn have a positive effect on consumer spending”

utes to consumer spending as well. “Hence, it would be difficult to attribute changes to consumer spending solely to rising real estate prices. On the other hand, intuitively, we should also be aware that if property prices rise too fast such that affordability, in turn, falls rapidly, there is a possibility it could turn into a situation where peripheral consumption could be crimped,” he added. Likewise, Quan Jian added that consumer spending could be affected through imagined wealth effects or expectations of potential capital gains as individuals find themselves wealthier with surplus assets and increase their consumption back to their equilibrium ratio against income. However, much will depend on the institutional arrangement of the property markets as well. “Rising real estate prices are shown to have much larger impact in the advanced economies, due to various means in which owners could extract gains, either through home equity loans or as a collateral for further credit extension. In Asia, where arrangements to liquidate housing gains are less common or even restricted, the impact will, I believe, be much smaller. Further, debt levels in the region remain manageable and banks’ balance sheet resilient. As such, the US experience of multi-year de-leveraging is unlikely to happen here in Asia,” he added.

Singapore Business Review Now serving 90,000 monthly on sbr.com.sg

Both matter: percentage decline in consumer spending in response to a 10% fall in equity or residential real estate prices

Get daily industry specific news for Singapore only at sbr.com.sg. Monthly web traffic of over 50,000, newsletter 45,000 and visitors over 35,000 after launching in January 2010. Source: Bloomberg, HSBC; NB: * denotes at least partial statistical significance at 10% level, real estate results not available for India and the Philippines

46 SINGAPORE BUSINESS REVIEW | MARCH 2012

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LIFE & STYLE

Making the kindest cut

Be your own MasterChef in the kitchen with a cutting edge knife, whittling, slicing and dicing your way to culinary heights. Wüsthof Razorsharp Pte Ltd, 315 Outram Road #01-03 Tan Boon Liat Building, Singapore 169074 Forged in Solingen, Wüsthof knives are forged with characteristic Teutonic precision, with over 40 different manufacturing steps required in the process. The brand prides itself on exceptional sharpness and long lasting cutting edge, with blades measured by laser prior to sharpening. While their Classic Ikon series is harder wearing and easier to maintain with its high-performance synthetic handle, a connoisseur may prefer the sheer beauty of the Ikon seriesThe handle of the Ikon is carved from African Blackwood, one of the hardest wood species in the world and sourced from carefully monitored farms. The wood is painstaking selected and matched for each blade. Laguiole http://www.laguiole.com Possibly the prettiest steak knives in the world, these distinctive knives are created in the eponymous town in southern France. Traditionally a pocket knife, these have expanded to include attractive corkscrews and stunning tableware. Languiole’s sinewy blades and exquisite hand crafted handles with its iconic bee symbol (or horsefly according to some). Prices range according to the material of the handle, for example exotic woods, or dark and light cow horns.

Giesser Messer Sia Huat Pte Ltd, No. 7, 9 & 11 Temple Street, Singapore 058559 Made in Germany, these knives are renowned for its combination of traditional German meticulousness and superb quality. With an illustrious history dating back to 1776, Giesser Messer is a wellestablished name, favoured by chefs and foodies alike. Famous for its high grade stainless steel, these knives deliver precision and a sharp edge. Moulded, textured handles compliment the sharp blades of the knives to make using these an easy and relatively fuss-free experience.

48 SINGAPORE BUSINESS REVIEW | MARCH 2012

Zwilling J.A. Henckels Available at major department stores or Pantry Pursuits (http://www.pantrypursuits.com/) Founded in 1731 in Solingen, this German brand continues to make a superb range of knives for the kitchen, as well as stylish flatware and scissors. Their top blades are precision forged from a high-performance steel developed for aviation and space technology, which certainly guarantees efficient dissection of your medium rare Wagyu. The unmistakable “Twin” trademark has been part of the brand since its 18th Century origins (though its precise design has evolved), and is a reference to the zodiac sign, “Gemini”, commemorating brand’s 13th June birthday. GLOBAL Lemon Zest, 43 Jalan Bukit Merah Saga, #01-80 Chip Bee Gardens, Singapore 278115 Chef’s favourite GLOBAL is extolled by professional s for their reliable quality, lightness and superlative construction. The blades utilize GLOBAL’s own formulation of stainless steel, CROMOVA 18, which is ice tempered and hardened to a C56°-58° rating on the Rockwell scale, a degree of hardness able to hold a ferocious edge for an extended period. The steel also repels corrosion and the final knife is carefully weighted for balance. Recommended by QUINTESSENTIALLY, the world’s leading luxury lifestyle group with a 24-hour global concierge service. Contact hongkongbusiness@quintessentially.com.

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LAST WORD

sujit mittra

Why Singapore is best placed to be Asia’s lifestyle and luxury center

W

hen I arrived in Singapore in the first week of the 21st century to live and work, little did I know that the island city would still be my home 12 years later. In that period, Singapore has emerged as the center - or hub, as it is more popularly known here - for many sectors: banking, financial services, information technology and logistics. More hubs are on the way: wealth management, biotech and even international arbitration. So what really makes Singapore an attractive center for different types of businesses? Geographically, Singapore is very well positioned, an easy distance from the two economic Asian giants of China and India. That combined with business-friendly policies, excellent facilities for expatriates to live and work, the deliciously-varied cuisine on offer at the hundreds of cafes, bistros and restaurants across the island and above all almost everyone speaks English, so no language issues unlike in Hong Kong and Tokyo. In the last decade, Singapore has executed a wonderful image makeover. No longer is it seen as a staid, no-chewing-gum country offering limited lifestyle experiences. It is now seen as a vibrant, fun city offering a kaleidoscope of lifestyle experiences in dining, entertainment and sport. A year-round concert calendar at the Esplanade, Formula 1 night race on the city streets, fine dining by Michelin star Chefs, all-night partying at Clarke Quay and worldclass events, such as the World Gourmet Summit and the Audi Fashion Festival, that bring hordes of upscale visitors to Singapore. Then there is upscale shopping experience. A decade ago, haute-couture was associated more with Hong Kong than Singapore. That has now certainly changed with more bespoke designer wear and accessories now available here. At Orchard Road, several stand-alone stores of luxury brands have sprouted in the newfangled malls. No wonder, there is already talk of Singapore emerging as a lifestyle and luxury center for Asia. A place that consumers from around the region visit to get their slice of unique experiences. A place that houses the regional headquarters of the major lifestyle and luxury brands. A place where senior business leaders gather to discuss the opportunities and challenges of growing the luxury market. A place that sets the trends for the upcoming fashion season and the next. In short, Asia’s answer to London and Milan. This aspiration is appealing and eminently achievable. So what could possibly hold back Singapore from becoming the lifestyle and luxury hub for Asia? One could argue the size of the Singapore market is not big 50 SINGAPORE BUSINESS REVIEW | MARCH 2012

by sujit mittra Managing Director, 360° Marketing Consultancy

enough to justify this positioning. But that holds true for banking and information technology as well. Singapore has always punched above its weight because it has established itself as a regional powerhouse, not just a one-market entity. In talking to people in the business as well as delving into consumer insights, the one chink in Singapore’s luxury and lifestyle armor appears to be the customer experience it offers to well-heeled customers. While the infrastructure and the diversity of experiences is world class, the customer service overall still leaves much to be desired. Whether at the ultra-chic boutique, the bespoke luxury jeweler, the chichi fine dining restaurants or even members-only private clubs, the customer service levels fall woefully short of the world class hardware that Singapore boasts of. Why is this so, you may ask. Could it be that the staff is not properly trained on how to deliver a truly world class experience? Could it be that in their quest for cost containment, brands prefer to spend less on the type of staff they hire, whether locally or from overseas? Could it be that the staff is not rewarded appropriately to motivate them to delight customers? Or could it be simply that the brands believe that they can continue to flog average customer service and still continue to attract customers on the strength of their brand alone? Any or all of these are reasons enough why Singapore may not achieve its aspirations to be the lifestyle and luxury center in Asia. Therefore, the sooner these issues are addressed the better. What are your thoughts on Singapore as Asia’s lifestyle and luxury center?

What could be more luxurious in Asia than Singapore?

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