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OFFICE RENTS: G O I N G U P AGAIN?

Hunger Games

in the Heartlands

ASIA’S

HYPERSENSITIVE INFLATION RICHARD BRANSON

HOW TO THROW THE PERFECT PITCH

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20 years of free trade in retrospect SINGAPORE BUSINESS REVIEW | JUNE 2012 1


2 SINGAPORE BUSINESS REVIEW | JUNE 2012


FROM THE EDITOR Show me the money

Publisher & EDITOR-IN-CHIEF Tim Charlton Assistant Editor Jason Oliver

For all the talk of a slow down and record unemployment in some European countries, there has been little sign of a depressed employment market in Singapore, if our 2012 salary survey is anything to go by.

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Whether you are an employer or an employee, this will be a relatively benign year for wages.

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Across the board wages are expected to rise by between 4 and 6 per cent this year, but the big gains are to be made in the areas of compliance and risk where salaries could easily rise 20% or more as regulatory burden keeps financial firms solidly underfoot and understaffed. Recruitment firm Robert Half reveals, for instance, that the average salary per year of a senior compliance professional increased 83% to $220,000 from $120,000. Eight out of ten firms surveyed by Michael Page International, a recruitment firm, reveal they will vary the level of salary increase based on performance, rather than offering a standard raise across the board. Firms also plan to employ the same strategy for bonus payments, with majority reporting that bonuses would be awarded on a combination of individual, team, and company performance.

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With unemployment in Singapore at just 2.1% most new job takers will have jumped ship from a previous employer, leaving them with the struggle to fill that position from a limited pool. Add in the demand for higher wages due to inflation and you have a recipe for a difficult time recruiting and keeping talent.

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CONTENTS

10

30

40 feature Asia’s hypersensitive inflation

COVER STORY SALARY SURVEY 2012

COVER STORY 30 Singapore employers wage war

for talent

Attracting new talent and retaining key staff have become harder than ever. Are employers ready for the challenge?

FIRST Office Rents: Going up again?

OPINION

ANALYSIS

12 20 years of SG’s free trade

agreements

17 How to throw the perfect pitch 20 Wagers on minimum wage

FIRST

26 Too many iPhones, not enough

4G capacity

The massive takeup of iPhones in Asia saw telcos spending huge sums of money to upgrade their networks to 4G capacity.

REGULAR

FEATURE

10 Office Rents: Going up again?

14 City Developments’ hotel segment

48 Life & Style

11 Hunger Games in the Heartlands

50 Numbers

hold up

38 Modern homebuyers: discerning or

disconcerted?

39 How high can COE premiums go? 40 Asia’s hypersensitive inflation

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 | JUNE 2012

For the latest business news from Singapore visit the website

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SINGAPORE BUSINESS REVIEW | JUNE 2012 5


News from sbr.com.sg Daily news from Singapore Price pressures persist in SG homes most read MARKETS & INVESTING

Genting raises second perpetual bonds DBS reports that Genting Singapore is raising its second perpetual bonds of up to S$700 million. It is also expected to do well with the four times oversubscription for GENS’ first perpetual bond issue of S$1.8 billion in early March 2012. RESIDENTIAL PROPERTY

How much does residential property cost nowadays? Prices for private residential properties fell in Q1 2012, but that’s not the case for OCR and HDB. Private residential home prices eased 0.1% qoq in Q1 2012, causing sales to rebound in February, the highest since July 2009. Both OCR prices and HDB resale prices rose, with OCR’s increase at 1.2% qoq and HDB’s at 0.6% qoq in Q1 2012.

Authority released a flash estimate that predicted a 0.1% dip in 1Q12 private residential prices, and this could slide even further in coming quarters if developers insist on pursuing a unit downsizing path. HR & EDUCATION

Job opportunities in Singapore decreased by 8% in 1Q12 In the whole Asia Pacific region, job postings decreased to only 2,432 compared to 2,555 in the same period last year. And Singapore wasn’t an exception as employment opportunities also decreased by 8%.

RESIDENTIAL PROPERTY

Price pressure to persist in Singapore private residentials This is a side effect of developer moves to downsize unit sizes and court mass market buyers, says Maybank Kim Eng. The Urban Redevelopment 6 SINGAPORE BUSINESS REVIEW | JUNE 2012

RETAIL

1 in 2 Singaporeans willing to spend more on ethical products But just how ethical is ethical? The number of consumers in Singapore willing to pay more for ethical products has held steady as compared to last year, according to the latest MasterCard survey on ethical spending. TRANSPORT & LOGISTICS

Neptune Orient Lines sinks even deeper Unfavourable market conditions caused the company to pull out

perpetual securities, now which direction will it take? According to the research by Maybank Kim Eng Singapore, NOL announced a postponement of its proposed perpetual securities due to unfavourable market conditions. Maybank Kim Eng thinks that if the need for capital remains, NOL is likely to hold a rights issue. And although container freight looks to be bottoming out, high bunker costs and persistent fears of overcapacity still plague the shipping sector. The additional risk of a rights issue will likely add downward pressure to NOL’s share price. ECONOMY

Singapore Employment Act set for massive review The legislation could be amended to raise wages and ensure good jobs and better financial security for Singaporeans. The Employment

Act, which governs basic employment terms and conditions in Singapore, was last reviewed in 2008. Since then the labor force has become more educated and more involved in the global economy, which the Ministry of State Tan Chuan-Jin said led to a need for a review.

TELECOM & INTERNET

M1’s new prepaid MasterCard to challenge StarHub? This multi-purpose debit card offering from M1 allows users to top up M1’s prepaid cards, pay public transit fares, and make contactless purchases. Targeting a huge customer base- the young, the old and everyone in-betweenall mobile phone users now have the option of making cashless transactions with the additional attraction of getting bonus talktime and other telco-related rewards.


SINGAPORE BUSINESS REVIEW | JUNE 2012 7


8 SINGAPORE BUSINESS REVIEW | JUNE 2012


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FIRST estimates that about 148,000 sqft of shadow office space was available as of 1Q12 islandwide, mainly from financial institutions, inching up from 119,000 sqft as of 4Q11. But, as Goldman Sachs notes, while shadow space is likely to rise further, about 200,000-250,000 sqft, the scale of this non-mainstream supply is not as severe as earlier anticipated (about 300,000-500,000 sqft), and looks digestible when compared with about 1mn sqft seen during the 2008/2009 global financial crisis.

Singaporean rents now sit around 28 % below comparable Hong Kong office space.

So how much new office space will come online over the next five years? Goldman Sachs estimates that about 8.2mn sqft of office supply will come onstream over 2012E-2016E, 13% below CBRE’s forecast of 9.7mn sqft, now that the M+S sites at Marina South and Ophir-Rochor are pushed further out. “If we were to further take into consideration There has only been one Grade the 1.2mn sqft of office demolition/ A office tower completed this year, redevelopment planned, the fiveMarina Bay Financial Centre Tower 3, year net office supply would fall to and it is already 70% pre let with presa more manageable 7.0mn sqft (or tige clients such as mining company 1.4mn sqft p.a.), which equates to Rio Tinto and Regus. Other notable about 11% of office stock in 2011, vs. buildings include OUE’s One Raffles 19% seen in 2008 and 38% in 1994,” Place Tower 2 which is understood noted Goldman Sachs. “Furtherto be currently in negotiation with 3 more, the government has capped potential non-financial tenants for new CBD office supply with none about 120,000 sqft of space, which in the Confirmed List and only one could push the pre-commitment to site (at Marina View) in the Reserve over 70%. List released in the 1H12 government land sale (GLS) programme. Shadow spaces Instead, we see increased office supThe other source of new office space ply outside central region as well as is known as “shadow space”, which is business parks, which is in line with when a master tenant downsizes and the government’s ongoing plan to sub-lets space. A lot of this came on decentralize office space to regional the market in the immediate wake of Capital values are holding up well; system has liquidity commercial hubs. the 2008Capital financial and Colliers valuescrisis are holding up well, mainly attributable to the liquidity in the system, high”

Office Rents: Going up again?

S

ingaporean property managers hoping for a further decline in rents may end up disappointed with new research showing that local rents actually have a fair amount of room to rise. In spite of the perception of expensive office rent in Singapore, the fact is that Hong Kong landlords have been no slouches in raising rents, and in fact Singaporean rents now sit around 28% below comparable Hong Kong office space. A lot of new additional building space in the CBD such as Asia Square has certainly ushered in a lot of demand in Singapore and rents have fallen 4.2% since the end of 2011. However they are now 44% below the 2008 peak just before the crisis and with a lack of new office space coming on the market analysts at Goldman Sachs reckon landlords will regain the whip hand in pricing come 2013.

Office demand in Singapore CBRE estimates prime office rents fell 0.5% qoq in 4Q11 and 3.6% in 1Q12. With office take-up still slow, islandwide vacancies have risen to 12.7% currently from the lows of 7% in 2007/2008. But the banks are not the only game in town. Other companies setting up in Singapore as a regional springboard in mining and energy sectors are expected to lead the office demand charge this cycle. Many of these companies are not the whales that the banks are and they don’t take up multiple floors. The typical size for these companies is from 5,000 to 25,000 feet, and what they lack in size they make up for in numbers. 10 SINGAPORE BUSINESS REVIEW | JUNE 2012

inflation environment, policy measures in other asset segments and sellers’ stronger balance sheets (thus enabling them to hold the assets longer).

OfficeExhibit transactions have slowed since 2Q11; activity level has returned 13: Office transactions have slowed since 2Q11; activity level has returned en-bloc office transactions by unit price and MajorMajor en-bloc office transactions bydate unit price and date (S$ psf) 3,50 0

One Finlayson Green $2,524 psf

71 Robinson Road $3,125 psf

3,00 0

Hitachi Tower $2,901 psf, 2.5%

2,50 0

1/3 interest in MBFC Ph1 (acquired by Suntec) $2,400 psf, 4.0%

49% of Hitachi Tower $2,250 psf

1/3 interest of MBFC Ph1 (acquired by KREIT) $2,400 psf, 4.0%

One Phillip Street and Commerce Point $2,389 psf

Chevron House $2,083 psf

2,00 0

1,50 0

Commerce Point $2,200 psf, 4.0%

Ocean Financial Centre $2,380 psf

Robinson Point $1,527 psf, 5.5%

Anson House $1,744 psf, 3.6%

The Corporate Office $1,956 psf

Anson House $1,916 psf

Parakou Bulding $1,280 psf, 4.6%

1,00 0

Capital Square $2,300 psf

Robinson Centre $2,224 psf Twenty Anson $2,121 psf

IOI Plaza $1,381 psf

Anson House $1,117 psf, 6.4%

Starhub Centre $1,357 psf

Keppel and GE Towers $1,332 psf

500

0 Nov-07

May-08

Dec-08

Jun-09

Source: CBRE,data, Company data, Goldman Sachs Research. Source: URA, CBRE,URA, Company Goldman Sachs Research.

Jan-10

Jul-10

Feb-11

Sep-11

Mar-12


FIRST Success story in the making? Today, Sheng Siong controls 18% of the local grocery market, which together with its two largest competitors account for 83% of the whole market. It is still small compared to its rival, NTUC FairPrice, which controls 46% of the market through 252 outlets as of 2011, but the group hopes to grow its store footprint to 40 outlets by 2015. But while Sheng Siong may be the smallest player in Singapore’s supermarket oligopoly, it is the most efficient, with revenue per sq m 40% higher than NTUC FairPrice, notes Kim Eng analyst Alison Fok.

Today, Sheng Siong controls 18% of the local grocery market

The supermarket’s target market If you haven’t heard of or shopped at Sheng Siong yet, chances are you are a Cold Storage customer, as the firm caters firmly to the low and middle market competing squarely against NTUC FairPrice. “Sheng Siong’s direct competitors in terms of pricing and location would be FairPrice and Dairy Farm’s Shop N Save. Hence, its promotions are generally more aggressive due to its targeted customers’ price sensitivity. Inventory turnovers are consequently high in order to cover operating expenses,” noted Ms Fok. According to Frost and Sullivan, although Sheng Siong has the smallest operation area compared to FairPrice and Dairy Farm, it generated the largest revenue per sq m of SGD17,085 in 2009 compared to FairPrice’s SGD11,924 and Dairy Farm’s SGD8,456. Now that is something for investors to salivate over.

Hunger Games in the Heartlands

S

ingapore’s population may have grown 3.5% a year to hit 5.1 million in 2010, but the number of supermarkets to feed the hungry in the heartlands has hardly changed. That may explain why the local supermarket always seems so packed, with some estates having just one store to service anywhere from 40,000 to 100,000 residents. This rapid growth in population has created room for a third player, Sheng Siong, to make inroads into the effective duopoly enjoyed by NTUC FairPrice and Dairy Farm. Sheng Siong’s humble beginnings The upstart, which was founded in 1985 by three Lim brothers after

they bought over a financially distressed convenience store in Ang Mo Kio with a loan from their father, now boasts 26 outlets and three wet market stalls, ranging in size from 2,400 sq ft to over 40,000 sq ft. The real difference to their business model is that the stores are more traditional and provide “wet” and “dry” options with a wide assortment of live, fresh, and chilled produce, in addition to the normal range of grocery products. It wasn’t until early 2000 when the firm added 13 new stores to its stable during the dot-com crisis by getting new locations at good rents that it really took off and became a serious competitor.

Volume Key Points Volume Key Points

Pulled IPO’s: Diamonds may be forever but not for now The shelving of the $3bn IPO of Formula 1 in Singapore was a bitter blow to not only the bankers, but also the city, which is a proud host of the races and would have fit in well with its place of being a global entertainment and lifestyle centre. And things are no better in Hong Kong where Graff Diamonds pulled its $1 billion IPO in June. Quite a number of high profile listings are being pulled at the moment, and to June this year there was an estimated $1.7bn via four New listings that were withdrawn/postponed from Hong

Kong alone. Still, it’s not as bad as last year, with globally withdrawn or postponed new listings volume having totalled $13.6bn to June 2012, down 51% on the $27.6bn withdrawn in the same period last year, according to Dealogic. Still that will be little comfort for bankers trying to keep their fee income up and their jobs intact through a rather jittery time for major IPO’s. Global new listings volume has reached $54.5 billion via 343 deals so far this year, almost half the $100.1 billion via 654 deals raised in the same period last year, adds Dealogic.

Withdrawn/Postpones New listings on Asia (ex Japan) Exchanges Withdrawn/PostponedNew Newlistings listings on onAsia Asia (ex (ex Japan) Japan)Exchanges Exchanges Withdrawn/Postponed Priced Priced

Value ($m) ($m) Value

No. No.

2005 2005

1,034 1,034

10 10

2006 2006

2,314 2,314

17 17

2007 2007

433 433

55

2008 2008

17,929 17,929

54 54

2009 2009

2,690 2,690

18 18

2010 2010

22,888 22,888

103 103

2011 2011

27,336 27,336

118 118

2011 YTD YTD 2011

2,675 2,675

40 40

2012 YTD YTD 2012

4,996 4,996

42 42

87% 87%

5% 5%

y-o-y %change %change y-o-y

*Note that that volume volume isis based based on on exchange exchange basis basis where where in in the the case case of of dual-listings, dual-listings, *Note the full full value value isis credited credited to to each each exchange. exchange. the

Source: 2012 Dealogic Holdings Plc

SINGAPORE BUSINESS REVIEW | JUNE 2012 11


opinion

EDMUND SIM 20 years of SG’s free trade agreements

EDMUND SIM Partner, Appleton Luff

I

n 1992, Singapore signed its first free trade agreement (FTA), the Common Effective Preferential Tariff scheme with its ASEAN neighbors. Twenty years and 18 FTAs later, it is an appropriate time to reflect on how these FTAs have affected Singapore’s economy. Clearly, Singapore has benefited from its bilateral FTAs and regional FTAs. Export trade has increased significantly as a result of the reduced duties on Singaporean goods. Singaporean investors benefit from legal protection arising from the FTAs. Intellectual property rights in Singapore improved to world-class levels because of the U.S.-Singapore FTA. As a result, the country has become the major regional business hub for foreign investors. However, FTAs are not “free.” Rather, they are the result of hard bargaining between negotiators, with trade and investment concessions exchanged. All FTAs thus have some political and economic costs. As the FTA partners become more intertwined, these costs become more noticeable to the general population.In NAFTA, when Mexican freight trucks cross the Rio Grande, American truck drivers notice. In the EU, when Greek voters turn against austerity plans, the entire regional bloc shudders. Greater integration means more of these “FTA moments.” During these twenty years, Singapore apparently never had an “FTA moment.” I remember a very senior Singapore government official who claimed to me, ten years ago, that Singapore had given up “zero” concessions to achieve its benefits from the US-Singapore FTA. I responded that as a result of the US- Singapore FTA, there would be Citibank ATMs in every MRT stop, Starbucks on every corner and Border’s in every major shopping mall within 10 years (on hindsight, two out of three isn’t bad).

However, the European Free Trade Association (EFTA) members (Iceland, Lichtenstein, Norway and Switzerland) were exempted because their FTA with Singapore required that their nationals be given the same treatment as Singaporeans for tax purposes. Furthermore, U.S. nationals were exempted because of a similar “national treatment clause” in the U.S.Singapore FTA, as well as a “most-favored-nation” clause that requires that U.S. nationals also enjoy the benefits that Singapore provides to any other FTA party (e.g. the EFTASingapore FTA). Thus in December 2011 it became very apparent to the general Singaporean population that there were indeed concessions made to achieve the benefits obtained through the various Singapore FTAs. These concessions had always been there in the FTA texts but did not become evident until property, one of the major priorities of the general Singaporean population, became affected. To Singaporeans’ credit, this first major “FTA “Intellectual property rights in Singapore moment” was handled well. There was more about the additional stamp duty in improved to world-class levels because of the grousing general rather than the exemptions given to the U.S. and EFTA nationals. Compare this with U.S.-Singapore FTA” the daily complaints in the British press about The Singaporean official replied that if that EU measures coming from Brussels. happened, such developments would benefit Nevertheless, as Singapore increases its economic Singaporeans, meaning that there were no costs to integration with its FTA partners, we are bound to the country. have more “FTA moments” as these agreements Yet all FTA signatories eventually become subject affect more parts of the Singaporean economy. The to their “FTA moments.” government and private sector thus need to continue Singapore finally had one last year. In December educating and engaging all parts of Singaporean 2011, the Singapore government imposed an society so that it understands both the benefits arising additional stamp duty of 10% for residential property from the FTAs and the commitments that Singapore purchases by foreigners. has undertaken to achieve those benefits. 12 SINGAPORE BUSINESS REVIEW | JUNE 2012

“FTAs are not ‘free’”


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13


abacus

NOL stuck in the doldrums

Poor unit sales drag CityDev

City Developments’ hotel hold up With poor unit sales and troubling 1Q12 financial results, CDL is set for a bumpy year.

T

he developer’s profit after tax and minority interests in 1Q12 slumped 44.5% to a mere S$156.8 million. According to CIMB analyst Donald Chua, while revenue inched up 9% YoY, cost of sales rose a higher 31% as profit margins for recently launched projects were considerably lower than the past year’s launches. “Project sales yet to be booked include many mass-market projects such as H2o Resi, Blossom Resi, and The Rainforest. We believe its 1Q12 financials augur a poor FY12,” warned Chua. CDL’s property sales do not prove to be helpful as well. Only 258 units were sold in March, mainly from Bartley Residences, The Palette, and The Rainforest. Maybank Kim Eng analyst Wilson Liew does not expect profits from these projects to be recognised anytime soon, given their early stages of construction. “Of these ongoing launches, about 27% of their total units (or 1,179) remain unsold, with the bulk attributable to Bartley Residences,” he added. OCBC analyst Eli Lee notes that CDL’s 466-unit Rainforest and 702-unit Bartley Residences have sold 94% and 41% respectively. “Looking ahead, we expect CDL to launch the 70-unit UP@Robertson Quay, along the Singapore River, and House@Serangon Garden which is a landed housing development comprising of 96 terrace houses at Serangoon way,” said Lee. On the other hand, analysts foresee steady performance in CDL’s hotel segment. Lee notes that strong numbers from the hotel segment continued with 1Q12 PBT up 30.4% YoY to S$40.3 million. Overall RevPar at Millennium & Copthorne, CDL’s hotel subsidiary, was up by 6% YoY in 1Q12. Liew also reckons that M&C’s 29.1% growth in its 1Q12 PATMI was underpinned by a rate-driven sales strategy and continued cost discipline. “Besides the usual growth cities of London and Singapore, M&C also enjoyed strong RevPAR growth in cities such as Seoul, Kuala Lumpur and Jakarta,” Liew added. 14 SINGAPORE BUSINESS REVIEW | JUNE 2012

NOL sinks deeper with a $254 million loss in 1Q12 It is lower than its US$299 million loss in 4Q11, but NOL still seems to be stuck in the doldrums. CIMB analyst Raymond Yap notes that though NOL managed to lessen its core net loss, it was only due to a 3.3% QoQ rise in average freight rates, aided by a recovering spot market and US$100 million in cost savings (against 1Q11) from lower fuel consumption and other efficiencies. “Comparison with the small 1Q11 core net loss of US$10.5 million is poor, because of a 7% YoY fall in freight rates and 3% rise in unit costs. Excluding bunker costs, unit costs actually fell 3% YoY, a good achievement,” he said. Phillip Securities warns that NOL’s logistics EBIT of S$13 million is insufficient to offset the huge losses from the Liner business. Analyst Derrick Heng noted, “NOL’s loss for the quarter was significantly larger than our expectations of US$119 million, mainly due to weaker than expected freight rates. While underlying demand for container services remains weak, we think that 1QFY12 could be the worst quarter of the year.” NOL has been badly hit by weak freight rates and high bunker prices in 1Q12. But OCBC analyst Eric Teo reckons that NOL should turn profitable after rate hikes. “The Shanghai (Export) Containerised Freight Index has so far averaged 33% higher QoQ in 2Q12. In addition, the transpacific, Asia-Europe, and intra-Asia shipping lanes are also averag-

iPhone 5 in October?

ing 24%, 69%, and 36% higher QoQ respectively. Furthermore, Bloomberg’s 380 Centistoke Bunker Fuel Spot Price Singapore Index is currently averaging 2% lower QoQ, indicating that the previously unrelenting rise in bunker fuel prices has finally ended,” he added. StarHub to suffer cost pressures StarHub’s net profit increased 28% to S$88 million in 1Q12 due to lower handset subsidy and traffic costs. “The handset subsidy cost for each smartphone was lower due to a higher adoption of Android phones which comprise 50% of new smartphone sales versus 25% a year earlier,” said DBS Vickers analyst Sachin Mittal. But the following quarters should see more cost pressures for the telco. According to Mittal, the recent launch of the Galaxy S3 phone could raise the subsidy bill for telcos, not to mention the upcoming iPhone 5 which is rumored to launch in October 2012. “StarHub will also incur the cost of exclusive UEFA Cup rights in 2Q12. It will be paying an undisclosed cross-carriage fee to SingTel for carrying Euro Cup matches on SingTel’s pay TV platform,” he added. A potential increase in competition also looms for StarHub come 2H12. A potential rush to upgrade handsets is then highlighted as iPhone 4S is due for a renewal soon, says OCBC analyst Carey Wong. “Management is keeping its revenue growth guidance in the low single-digit range and expects EBITDA margin on service revenue to remain around 30%,” she said.


Co-published corporate profile

The payment principle - improving cash flow with effective debt collection The priority must be ‘getting paid’

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herever you trade and whatever the nature of your business, one thing is certain: you’ll want to get paid. Ultimately, it’s cash that enables companies to develop new products, explore new markets and take on high quality staff, as well as providing the funds to grow. And, of course, cash enables you to pay suppliers, ensuring that you not only have continuity of supply but also maintain a good credit rating, which is vitally important - especially when accessing loans and other funding routes. Effective trade debt collection is an essential part of the credit management process, whether this is handled in-house, externally by a global specialist such as Atradius Collections, or through a hybrid solution combining both these resources. Collecting debts – what are the options? Essentially, there are only two key strategies for collecting a debt: the amicable approach or the legal route. Dealing with the legal route first, it is universally recognised that embarking on any approach that involves lawyers and the courts, in any country, is likely to be costly and drawn out. The complexity of the legal approach varies dramatically from country to country, as each has specific regulatory requirements and procedures that have to be followed to the letter. What’s more, as there is no absolute guarantee of success, this approach is generally regarded as a last resort by professional debt collection agencies and most businesses that have explored this option. While the Singaporean legislative framework may be regarded as comparatively straightforward and certainly familiar to most Singapore businesses, this is not true of many other export destinations. For example, in the USA each state has its own specific laws, while China’s 34 administrative provinces all have their own individual approach to dealing with the legal process. As a consequence, before embarking on any legal path, it is always best to seek advice from professional commercial debt collection agencies, such as Atradius Col-

lections. The benefit of doing so is that we have a global reach and the combined expertise of an integrated team of more than 300 collectors operating in 19 offices worldwide, dealing with more than 120,000 cases each year. Amicable collection solutions International business regulations and financial legislation also influence the procedures that can be used within key markets but, as long as the legislation is not contravened, amicable collection is a much more costeffective route to obtaining payment. While businesses in Singapore and other Asian markets have been relatively stable over the past 3 years or so, the global credit crisis has had a severe impact on almost every other market, prompting high levels of insolvency and encouraging businesses to hold on to cash for longer. Whether collecting domestic or international debts, good credit management is absolutely vital to maximise the potential for receiving payment and minimising disruption to your cash flow. Trade debt collection should never be regarded as an isolated process but as an integral part of the credit management chain. Interestingly, the results of our regular survey of worldwide debt collections processes - the Global Collections Review - show that in Singapore 44% of companies that use a debt collections agency are focusing only on international collections. Effective trade debt collection is not just about picking up the telephone or sending letters to your customers. It’s about understanding the customer’s local operating conditions, and ensuring that the debt collection procedure itself is planned and sustained. Knowledge of the customer’s market, payment history and the current state of its business can all be influencing factors on the

“At the end of the day it’s about the internal branding that is as important as the external branding we pursue.”

Tony Au, Head of Atradius Collections, Asia best approach to achieve success. Within Atradius, we have up-to-date information on 100 million companies worldwide, enabling our collections processes to be highly robust - and to deliver results. To help companies in Singapore and around the world, we regularly publish an updated guide called the ‘Atradius Collections International Debt Collections Handbook’, a free publication that explains the amicable and legal routes available in each of 32 countries. Only with local expertise can businesses ensure they are following a professional and successful approach, which is where the International Debt Collections Handbook/ Atradius Collections can really help. So, if you’re putting tremendous effort into developing your business, look at the effectiveness of your collections procedures to ensure your effort is rewarded and that your debts get paid. Atradius Credit Insurance NV (Singapore) #31-02, AXA Tower, 8 Shenton Way Singapore 068811 +65 - 6372 5372 www.atradius.sg SINGAPORE BUSINESS REVIEW | JUNE 2012 15


Co-published corporate profile

Swiss Post provides a service that’s right for you Our focus is on you the customer. Our comprehensive set of services and complete commitment to your success make us the perfect international partner for your business.

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hether your business is small or large you can rely on us to provide the perfect end-to-end service, delivering much more than your mail. Printing of mailings You can reduce your costs in time, space and labour by using our rapid, quality print service for all of your direct mail and business mail international requirements. Because we know the marketplace our designers can create a mailing that’s personalised and localised to your customers.

Letter shop and worldwide distribution We know that your mail needs to make the best impression and get the right response from your clients and that’s why we take care to finish your mailing to the very highest standard. Whether it’s a special insert or a hand finish, whatever you need our service is flexible enough to be tailored to fit with your requirements, regardless of the size of the mailing you are sending out. Our international network then enables the fast and efficient dispatch of your mail and ordered goods to reach customers across the world.

Response management Customers’ orders will be returned directly to us and payments by cash, debit/ credit card or cheque will be processed by us on your behalf and keyed into our response management online system. By centralising orders, payments and queries with us we can evaluate for you the success of each campaign which you can then assess alongside your CRM strategy. Warehousing of non-perishable goods Why have non-perishable goods taking up space in your premises waiting for dispatch? We can store those goods for you ready to pick and pack for customers. It also means that the speed of dispatch of those goods to your customers is a lot quicker. Free Trade Zone Hub Swiss Post International operates a free trade zone hub for goods that are in transit via Singapore. The simplest, quickest and most reliable way to move goods through Singapore to worldwide destinations. Swiss quality means tailor made services that add real value, and encourage customer acquisition and loyalty. So why not decide today to make more time for your core business? Choose to go Swiss Post and make your business even more successful. www.swisspost.com/singapore

“Swiss Post International operates a free trade zone hub for goods that are in transit via Singapore” 16 SINGAPORE BUSINESS REVIEW | JUNE 2012


opinion

richard branson How to throw the perfect pitch

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“Overcoming adversity is the mark of a true entrepreneur.”

ou have an idea for an interesting new business that you believe will make waves in your industry and beyond. You have checked out your prospective competition, drawn up a business plan, and assembled a team – you’re ready to take the leap. At this point, securing investment for a venture is a hurdle almost all entrepreneurs face, and often with some trepidation. There is no “one-size-fits-all” formula when you are preparing a pitch for potential investors, but here are a few tips that I have picked up over the years. 1. KEEP IT SIMPLE One of my first presentations did not go well. Investors had asked to see me about Student magazine, which my friends and I launched as teenagers. I talked at (not with) our potential backers, telling them about my ideas for extending the Student brand beyond publishing to travel, hotels, and music -- and scared them off. They did not invest in our magazine. Twenty years later, when I was hoping to launch Virgin Atlantic, I was much more aware of my audience as I pitched the idea to my fellow directors at Virgin, and then to a Boeing executive. I had learned the valuable “KISS” strategy: “Keep it simple, stupid.” It is important to present a clear plan that investors can easily understand and repeat to their own colleagues and advisers – avoid baffling people with jargon or complicated presentations. 2. DO YOUR RESEARCH The most important difference between those two presentations was that I put myself in

my audience’s shoes. Before you meet an investor, do your research: Has he or the company he represents made similar investments? Does he understand your sector or have experience with companies similar to the business you are in? Tailoring your presentation to that person’s knowledge of your industry will keep him interested. 3. BE THOROUGH Attention to detail is critical. Long before the day of the presentation, make sure you go over every claim, statistic, and projection in your business plan, check them over thoroughly, and commit them to memory. Know the markets you are going to target, your competition and how you plan to make your mark, and be prepared to defend your argument. What are its weaknesses? 4. HAVE A TEST RUN Before you pitch, it is best to do a practice run with trusted colleagues and advisers so that they can provide feedback. Get each person to play devil’s advocate and point out the issues you haven’t thought of and problems not yet on your radar. Try to make sure your colleagues aren’t telling you what you want to hear, but are telling you what you need to know. Were your listeners persuaded? What did they find memorable? Could they repeat your message back to you? 5. STICK TO THREE POINTS If you’re preparing for a short meeting, pick three key points that will stick with potential investors. These should be things like: What makes your

product or service different? Will it improve your customers’ lives? Why would people buy it? Write these points down on a piece of paper or even your shirt cuff, and then be sure to keep your message focused. With luck, your potential backer will be intrigued enough to call you back for a second meeting. 6. DRESS TO IMPRESS Dress to make a good first impression. The success of companies like Google, Facebook, and Twitter means that not every prospective investor expects – or would be impressed by – a suit and tie. However, being on time and well-dressed will help build early rapport. 7. LISTEN As you make your presentation, how you listen can be just as important as what you say. Pay attention to your audience’s reactions and take the time to ask if they have questions. If it appears that you are not getting through, try to adapt your pitch to focus on the areas that interest them. 8. ASK FOR FEEDBACK If your proposal is rejected, ask for feedback. Did the investors understand the idea? Do they have suggestions for improving your product or service? While their comments may be negative, it is important to keep in mind that their criticisms are not indicative of your chances of future success. Remember, finding investors to provide the sum you need for a launch can be a long process. So make changes to your pitch if necessary, then move on to the next meeting, because overcoming adversity is the mark of a true entrepreneur. SINGAPORE BUSINESS REVIEW | JUNE 2012 17


CO-PUBLISHED CORPORATE PROFILE

Competing on analytics The competitive advantage of the 21st century

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everaging on top rated customer analytics for decision making is the key to sustainable competitive advantage. Repeatedly, we have seen how poor decisions in marketing and customer service have led to irreparable damage. In fiercely competitive markets, such as those seen today, companies seek every competitive advantage to outwit and outmanoeuvre their competitors to earn the customer dollar. Some companies, such as Harrah Entertainment and Canon, achieve this goal through providing superior customer service and better customer experience. Other companies, including Audi and Kia, pursue product innovation aggressively to enhance their market share. Relying on analytics Whatever the means taken, the common trait of these high growth companies can be traced to their relentless pursuit of first rated information and to rely on them for strategic decision making. Canon (Asia) for example, possesses detailed information not only of their customer’s service expectations, but also of the service preference of the various customer segments they serve. Relying on analytics for service decisions have brought positive marketplace outcomes to this multinational. Recent benchmarking studies have shown them to be a customer experience leader in several consumer electronic product categories in Asia. In the area of marketing, they use customer modelling methods to determine optimal prices for their printers and consumables. In doing so, they reduce the risk of poor decision outcomes. The extent to which a company is able to leverage on customer intelligence as a competitive weapon depends on the degree of its analytical sophistication relative to its industry peers. Analytical sophistication is a function of various factors, including the accuracy of information used for analysis, the comprehensiveness of the information and how the information is analysed. Studies have shown the extent of analytical sophistication among

18 SINGAPORE BUSINESS REVIEW | JUNE 2012

companies to be varied, and this suggest great opportunities are present to those willing to take the customer intelligence route towards achieving better marketplace outcomes. Professor Davenport, in his recentbook ‘Competing on Analytics’, presented the following chart depicting the competitive advantage that can be can be garnered with the different types of intelligence. He noted that companies such as Harrah Entertainment have relied on predictive modelling analytical techniques to determine what the company should do to improve their customer loyalty. Similarly, Canadian Imperial Bank relied on the technique but with the objective of predicting the extent of improvements to its bottom line if it were to invest more in improving frontline staffcustomer interactions. In Singapore, Canon marketing group adopted price optimisation models to determine the prices they should set for their printers and consumables. Despite the benefits good customer intelligence offer to a company, determining the form of intelligence that gives it the competitive advantage is a challenge to companies. According to Professor Davenport, few industry research practitioners are of such calibre, with most producing the usual status reports comprising descriptive statistical outputs. Further, most users of customer intelligence are also not sufficiently acquainted with the advances in this specialised field to leverage on it. Leveraging on customer intelligence The president and CEO of ABB Electric, Daneil Elwing, recognised that the only way for ABB Electric to grow in market share in the 1980 was to ‘capture’ the customers of their competitors.

“The extent of a company’s competitive advantage depends on its analytical sophistication relative to its peers.”

Dr. Raymond Teo He employed the services of Professor Dennis H.Gensch to develop customer segmentation models periodically that would allow him to classify its existing and potential customers as loyals, competitive, switchables and lost. Customers classified as loyals are unlikely to switch, while those in the lost category are loyal to competitors. Those in the competitive segment are slightly more likely to purchase from ABB than from its competitors. Those labelled switchables are slightly more likely to purchase from its competitors than from ABB. Armed with this information, the company focused all its efforts on the competiive segment and the switchable segment – on the former to prevent them from switching and on the latter to win them over. The analytical technique used, multinomial logic analysis, also provided ABB with information on the ‘desired attributes’ each client sought. This allowed the company to develop a customised retention and acquisition strategy for each client. Within a short eight years, the new company grew its market share to forty percent. In another study, Professor in Marketing at the University of Connecticut’s School of Business, V. Kumar and his team helped an American telecommunication company segment its customers by considering both the lifetime and referral value of the customers. The segments were labeled champions (high


CO-PUBLISHED CORPORATE PROFILE

“Adapted from ‘Competing on Analytics’ by Davenport”. lifetime and referral values), advocates (low lifetime but high referral values), affluent (high lifetime but low referral values) and misers (low lifetime and referral values). Different marketing strategies were subsequently deployed for the different customer groups. Such differentiated strategies allowed the telecommunications company to enjoy a return on investment of 13.6 times on their marketing campaigns compared to the usual ROI rates of 4 to 6 times. These illustrations point to two critical success factors in the making of analytical organizations. The first is a desire for the company to compete on analytics, with the CEO as a key cultivator of such a culture in the organization. The second is the availability of customer analytics expertise. Professor Davenport termed people with such expertise ‘Analytical Professionals’ and distinguishes this elite group from the ‘Analytical Amateurs’, a group more involved in producing ad-hoc and standard status reports. The professor adds that analytical professionals generally hold Ph.D degrees, are experts in the quantitative analytical methods

and who ‘speak the business language’. Experts note the difficulty of hiring such professionals. Professor Hal Varian, University of California (Berkeley), an ex-Google consultant, adds that this is true even for large companies with deep pockets. Outsourced analytical professionals As an alternative to maintaining a team of analytical professionals, companies can consider the option of using the services of outsourced partners. As there are analytical techniques available for different purposes, it is unlikely that an analytical professional can be well versed in all the techniques. Secondly, domain expertise is a necessary prerequisite of such a person. For example, a professional well versed in the marketing domain may not necessarily be aware of the developments in the field of human resources. Hence, by taking the outsourced partner route, a company can choose, as and when the need arises, different partners with specialized domain expertise. This eliminates the need for a company to maintain large analytical teams with different domain knowledge,

which can be very costly. Few research companies can be considered to be top-rated analytical service providers. A good way to establish the level of expertise in a company is to examine the academic qualifications of the analysts, as analytical professionals often have advanced degrees. ProfitLogic, a retail pricing analytics firm owned by Oracle, uses a cadre of Harvard and MIT Ph.Ds to help clients make pricing decisions. Blue-dge, a company based in Singapore, was set up with people holding Ph.Ds and professional doctorates from top universities to help clients make better decisions in customer service, customer satisfaction and marketing. Many top companies leverage on the expertise of Blue-dge for making marketing and customer service decisions. Dr. Raymond Teo is Director of Blue-dge Analytics and Consulting. He is a thought leader in the field of customer insights. He is also with the adjunct faculty of the Singapore Management University. He can be contacted at raymond@blue-dge. com. SINGAPORE BUSINESS REVIEW | JUNE 2012 19


HONG KONG VIEW

Tim hamlett

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

Wagers on minimum wage

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conomics seems to be a frisky lady, willing to hop into bed with anyone who wants a cuddle and a bit of moral support. Nobody is too ugly or neglected. Every interest group, down to and including organized crime, can find economic arguments to suggest that its activities are not only harmless but beneficial. I am reminded sometimes of those theological arguments in the 17th century in which the participants used to beat each other over the head with rival quotations from the Bible. “Even the Devil can quote scripture,” it was said, without anyone apparently moving on to the question whether an authority so versatile and ambiguous was worth quoting at all. Consider the question of the statutory minimum wage. Now that we have got this thing, there is clearly going to be a running fight over when and how much it should be increased. That there will be increases should not be in doubt; inflation is a fact of life. A minimum which is not occasionally increased will gradually become meaningless. Before the minimum wage was introduced, we heard a great deal about the iron laws of supply and demand. These dictated, apparently, that if the price of labour was increased, then the quantity of its demand would fall. So the minimum wage would lead to unemployment. The people who deployed this argument have now reluctantly accepted that they can hardly use it again, because the predicted fall in employment has not happened. The Sword of Damocles remains tethered to its string, the sky has not fallen, yet recorded unemployment remains in the vicinity of zero. There have been some suggestions that employers have switched to younger staff in an effort to get their money’s worth, but this is a difficult point to substantiate – after all, in the normal course of events, you would expect new employees to be on average younger than retiring ones – and in any case, is hardly what we were told to expect. The domino effect The new horror story goes like this: If the minimum wage is increased, then workers who are already paid more than the minimum wage will ask for an increase to keep up the difference. Well, of course they may ask for it but will they get it? Because according to the line we were given, last year’s wages were not determined by what the workers asked for, or what kept them ahead of other workers. Wages are determined by supply and demand, and the fact that people in other jobs are getting more money should have nothing to do with the supply and demand applicable to a particular case. I suppose this line of argument is a sort of vindication for those of us who supposed all along that the determination of wages was a much more fragmented and complicated thing than the economic fundamentalists supposed. And in fact, a good many economists now recognise that the classical formulations, while an imposing intellectual edifice with some important implications, involve so many simplifications that they can rarely provide much help in dealing with the real world. 20 SINGAPORE BUSINESS REVIEW | JUNE 2012

This has led to a rather chaotic and entertaining cacophony of late: with practitioners of business complaining that economics is fiction, psychologists pouring scorn on the notion of people pursuing their interests rationally, and academic economists complaining that they are a misunderstood bunch because they are aware of the problems and are working on them. Well, perhaps they are. Also wearing the “economist” label, though, are all those ladies and gentlemen producing self-serving predictions for their employers, suggesting that the long-term prospects for their particular industry are rosy, or that short-term deficiencies in its performance are due to external factors beyond the management’s control. Then there are the official crew, producing long-term predictions which they should know are worthless. What is the point of the government offering us predictions for the economy in 30 years’ time when their predictions of revenue in the coming year are regularly and wildly wrong? I note that though economics is routinely described as a profession, there appears to be no ethical code for it. Sometimes the profession it most resembles is the oldest one. This is a pity, because there is interesting stuff out there if you look for it. Consider the question of risk. If you ask people to choose between a certain gain of $900,000 and a 90% chance of $1 million, they overwhelmingly go for the certainty. This is a robust finding you can easily confirm – I tried it on a group of journalism students – and it is a problem for traditional economic theory because the value of the two alternatives is exactly the same. Choosing the lesser evil Even more of the problem is what comes next. If you change the signs so that the choice is between a certain loss of $900,000 or a 90% chance of losing $1 million, then the choice goes entirely the other way. Everyone opts for the gamble and the 10% hope of losing nothing. It offers some explanation for a rather common phenomenon: people whose businesses are in trouble resort to palpably risky, or indeed criminal, behaviour in an effort to escape their problems. If success means survival, then a possible extra penalty for failure is not much of a deterrent. It also reinforces my suspicion that negotiating over wages is a game in which the employee is at a serious disadvantage. He can accept the first offer, or try for more, with the possible penalty of failure to get the job at all. The risk-averse option is to accept the offer. From the employer’s point of view, though, whoever he takes on is going to cost him money. Refusing one applicant just means another chance to spin the roulette wheel. I recognise that this may not be a complete explanation in Hong Kong, where haggling is part of the culture. The employer may expect his first offer to be rejected and the potential employee may feel he is not just allowed to make a counter-offer but will be dismissed as a bit of a wimp if he doesn’t. Clearly there is room for a bit of research here. Until it has been conducted, all predictions should be taken with a pinch of salt. Waging the war for minimum wage


Co-published corporate profile

Getting past the economic blame game Economies need to go through the three phases of crisis before enacting the mandate for change. But where does Singapore and its micro economy stand in these phases?

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teen Jakobsen, Chief Economist at Saxo Bank, identifies three phases of economic crisis - denial, blame, and finally, mandate for change. Trying out some fiscal stimulus, which usually does not work, is part of the first phase - denial. Jakobsen notes that, “In the denial phase, the government says, ‘Listen, this is a short term risk so we can just expand the fiscal deficit for a while because then the weather will improve and things would be good.’” An ineffective fiscal stimulus then ushers in the beginning of the second phase, the blame game. In this phase, interest rates are lowered to make capital so cheap that it can actually work, but eventually does not work either. The result? China’s shrinking economy, India’s currency crisis, and Australia’s financing dilemmas. Now when all else do not work, what is left is the mandate for change or, in other words, reform. “I’m not saying it’s happening tomorrow or next week. What I’m saying is that the world will have to reform otherwise they’ll be stuck,” says Jakobsen. So you have a number of countries in denial, some countries in the blame game and very few that are on the edge of moving on from denial, from the blame game to doing change. According to Jakobsen, the countries that will be moving forward to

Steen Jakobsen, Chief Economist of Saxo Bank

change are the countries that will survive. But where does Singapore stand? Of all Asian countries, Jakobsen is certain that Singapore is in top two in terms of being open to change. Singapore’s micro economy Having worked with Saxo Capital Markets, a subsidiary of Saxo Bank, Jakobsen notes that the last five years have seen a whirlwind of events for the world economy. But as Jakobsen puts it, doing the same experiment and expecting different results is futile, especially at the macro level. “Everything about macro economics is wrong. Everything the politicians and the central banks do is by definition wrong because it is done on the assumption that they know what will happen to the economy.” But the negativity of the macro economy is offset by the optimism in the micro economy, which Jakobsen tags as ‘the updrift of the economy.’ Singapore is one of the few economies that understands the importance of the micro economy as it knows that people need to be incentivized for them to take jobs, stay, live in the city, and eventually contribute some capital. “Singapore is the success story I like the most because it’s a micro economy. It is ruled on the basis of micro economy rather

than macro economy,” says Jakobsen. But he warns that Singapore has to diversify as well. “In the next 10-15 years they need to reduce the dependency on banking and have to be more involved in energy, SMEs, companies more involved in research and development than banking per se.” So apart from understanding micro economics, what has kept Singapore immune from the challenges of the last few years? Singapore’s attractiveness to businesses and low tax base are without a doubt some of the contributors. Jakobsen also notes that security and stability attract capital in this country even if it’s based on fear. “People buy apartments in Singapore not because they wanna live here, but because when the world economy goes bad, they wanna be able to move here. I think a big part of the investments in real property in Singapore is driven by fear rather than rationality.“ Win the blame game Singapore may be enjoying some sort of immunity, but Jakobsen warns that too much of a good thing is also a bad thing. He reiterates that economies need to get past the blaming stage to enact the mandate for change. “50% of the downturn is caused by world events which you cannot do anything about. But what about the remaining 50%? It’s about the competitiveness of not just Singapore, but also Indonesia, Australia,” he adds. Asia has a better starting point than Europe, but Jakobsen notes that there also exists a high obligation to make sure that the societies here are transformed into the mandate for change.

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 licence from the Monetary Authority of Singapore, as well as a Commodity Broker licence 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 SINGAPORE BUSINESS REVIEW | JUNE 2012 21


economic insight

Asia’s hypersensitive inflation Economists explain why the region’s headline inflation rates are particularly reactive to local food and energy price changes.

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hile the world is focused on growth, HSBC economist Frederic Neumann is more worried over inflation. As price pressures remain elevated despite the economic slowdown, Neumann is convinced that for a given growth rate, inflation is nowadays higher and for a given pick-up in growth, inflation now rises even more sharply than before. And if we’re talking about inflation, food and energy matters are undoubtedly inevitable as they comprise a big chunk of local CPI basket. According to DBS chief economist Dave Carbon, perhaps around 85% of Asia’s headline inflation has been driven by food prices. “This is very different from the US and Europe, where inflation has been driven mainly by oil and gasoline prices,” says Carbon. In China’s case alone, food makes up 22 SINGAPORE BUSINESS REVIEW | JUNE 2012

“Around 85% of Asia’s headline inflation has been driven by food prices”

a third of the CPI, notes Alaistair Chan, an economist from Moody’s Analytics. “Food makes up a bigger portion of household budgets, so they are deeply affected by higher food and energy prices.” According to Shikha Jha, a principal economist at Asian Development Bank, energy and food price increases affect consumer price indexes directly through their large share in consumption baskets, but also indirectly by raising production costs of goods that use commodities and food as inputs. Jha notes that across subregions, higher food and fuel prices drove up inflation in developing Asia to 5.9% in 2011 from 4.4% in 2010. In Central Asia, South Asia, and the Pacific, average inflation rates reached around 9% in 2011 while it was more moderate in East and Southeast Asia, where inflation continued to be contained at

around 5%. “Among the five subregions, though still at a relatively higher level at 9.4%, South Asia was the only subregion that managed to avoid the hike last year. This was due to India’s sustained monetary tightening (at a cost to economic growth) to combat persistent high inflation, which damped inflation from 9.6% in 2010 to 9% 2011 and managed to offset the climb in Maldives and Pakistan,” adds Jha. Sensitivity of inflation Neumann explores the sensitivity of headline inflation to changes in global and local food and energy prices. But global and local increases in food and energy costs are differentiated as Neumann notes that global food prices might be well-behaved while a local crop failure pushes up domestic prices. “Similarly, a change in


economic insight global oil prices may have little impact on local headline inflation if, for example, extensive subsidies are in place. But a rise in local energy costs could have a major impact on headline CPI, even if global oil prices remain wellbehaved,” he adds. Across the region, local sensitivities to global price swings vary enormously, partly owing to subsidies and price controls, but also because the import share in consumption differs between countries, says Neumann. Jha concurs and notes that the sensitivity of one country to changes in global price swings varies across the region because of government price interventions in terms of subsidies and price controls and because of differences in the import share of consumer goods among countries. “Exchange rate movements may also interfere with the transmission of commodity shocks into domestic inflation.” Neumann argues that local food price changes matter most for headline inflation, although, surprisingly, in China and India global food price changes matter as well, even if the import content in local consumption is relatively low. According to Jha, higher local oil prices have both direct and indirect effects on consumer prices whereas higher local food prices have a more direct effect as oil is used both for final consumption and as a productive input while food is mostly consumed directly. She notes that an increase in oil prices will increase the cost of production because oil is a universal input needed in the production and transport of almost all goods and services. “On the

other hand, as food accounts for a substantial part of the consumption basket in developing countries, an increase in food prices has a sizable impact on the overall consumer price level.” Local price swings and inflation So to which does headline inflation react most sensitively to - local or global price swings? According to Neumann, headline inflation reacts most sensitively to local food price changes in all countries. Alicia Garcia-Herrero, chief economist for emerging markets from BBVA, reckons that since food items are usually produced locally, global food inflation has relatively limited impact on Asia’s inflation. “Energy prices, particularly oil prices, have a major impact on Asia’s headline inflation. Most Asian countries are net energy/oil import countries. Energy prices affect domestic transportation costs and push up production costs for both food and nonfood intermediate and final products,” she adds. According to BBVA estimations, Herrero notes that a 10% hike in global oil prices may increase India’s headline inflation by 0.5 percentage points, China by 0.2 percentage points, and Indonesia by 0.25 percentage points. On the other hand, Neumann reveals that for a 1 percentage point rise in food or energy prices, whether global or local, headline inflation reacts in different ways in various countries. “Local energy price changes contribute significantly to headline inflation as well, but note that in China, the effect of global food price swings is more important than changes in

Impact on y-o-y headline inflation of a 1ppt increase in local food, local energy, global food, and oil

local energy prices. Pass-through from local energy-price inflation to headline inflation is largest in India, followed closely by the Philippines, Hong Kong, Indonesia, and Singapore,” he adds. Jha notes, however, that the speed and size of this passthrough into other prices and wages vary across countries and sectors of the economy. She also notes that the correlation between headline and core inflation is high for many Asian countries. As Jha puts it: “According to the Regional Economic Outlook of April 2011 from the International Monetary Fund, a 1 percentage point increase in local food and energy prices induces on average an increase of core inflation by 0.2 percentage points in emerging Asia, but only about half that amount in Japan or Australia. This high correlation suggests that the pass-through is fast.” However, these coefficients can be misleading, warns Neumann, as there is a significant difference in the underlying volatility of these variables. But then again, after adjusting for volatility, local food prices still remain a major inflation driver in China, Hong Kong, India, the Philippines, and Singapore. The inflation impulse from rising local food prices tend to fade usually in less than three months. But the impact of higher global food prices on local inflation tends to persist for some time as it lingers for about six months. “On this basis alone, the inflationary impulse from the recent rise in commodity prices in the first quarter will likely linger a little longer,” concludes Neumann.

“Exchange rate movements may also interfere with the transmission of commodity shocks into domestic inflation”

Volatility-adjusted ppt impact on y-o-y headline inflation of a 1% increase in local food, local energy, global food, and oil

Chart 4. Impact on y-o-y headline inflation of a 1ppt increase in local food, local energy, global food, and oil

Chart 5: Volatility-adjusted ppt impact on y-o-y headline inflation of a 1% increase in local food, local energy, global food,

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 Source: HSBC. * Indicates that the coefficient is significant at least at 10% level.

Source: HSBC. * Indicates that the coefficient is significant at least at 10% level.

Source: HSBC. * Indicates that the coefficient is significant at least at 10% level.

SINGAPORE BUSINESS REVIEW | JUNE 2012 23


GAME CHANGERS

CF-Aircraft2

Sunseeker Manhattan 64SG Evening

Ultra-luxurious PALY packages unveiled Nicolas Chemin, Senior Manager at Chapman Freeborn, talks about the Private Aircraft and Luxury Yacht packages launched in partnership with Aqua Voyage. SBR: What makes PALY travel different from other travel packages? Chemin: PALY travel is very unique because it is the first in Asia. It’s a one-of-a-kind ultimate luxury travel experience jointly brought by the leading companies in aircraft charter and luxury cruise and yacht management. PALY travel features a combination of luxury yacht and private jet or helicopter travel experiences designed for the discerning and well-heeled traveller who is looking for exclusive journeys to islands in the region. The destinations are usually the main highlights for most holiday excursions. But with PALY travel, Chapman Freeborn and Aqua Voyage level it up by turning the getaway into an exquisite indulgence. PALY travel offers first-class accommodation and services from the time clients step out of their homes, hop into a limousine, board an exclusive yacht, laze within premiere island accommodations, and finally fly back in a private aircraft and drive straight home on board a limousine. The PALY travel packages were unveiled last April, with Batam and Tioman islands being the first destinations. SBR: Why did you decide to partner with Aqua Voyage? Chemin: Aqua Voyage has emerged as a leading provider of luxury yacht management and private cruise services 24 SINGAPORE BUSINESS REVIEW | JUNE 2012

in yachting destinations across Asia. There is synergy between our companies in terms of clientele base, branding, and high level service standards. Aqua Voyage has acquired a proven reputation in offering luxury cruising services for groups; the recent inclusion of golfing legend Jack Nicklaus’ Westport 130 luxury cruise liner only adds to it. SBR: What is the market size and trend for both private planes and yachts? Chemin: The market size for private planes versus yacht charters differ greatly in the same manner as when we compare the chartering cost for a private aircraft and a yacht. Yacht charters are mostly purchased for leisure. Its market also has a higher purchasing inclination compared with the air charter market. In Asia, private air chartering has a very niche market -- one that comprises high net worth individuals or the ultra-rich. However, we have been seeing an increase in companies who turn to air charters for executive travels, especially for multi-city and time-sensitive itineraries or remote destinations. SBR: How many bookings have you received through your iPhone app and what’s the total value of these bookings? Chemin: It has been slightly over a year since the launch of Chapman Freeborn’s Private Jet app. The company has recorded over 5000 downloads of the app and hundreds of enquiries. However, we are unable to disclose the value of the bookings. SBR: What are the challenges you foresee and how do you intend to face these challenges? Chemin: The main challenge in Asia with regards to aircraft chartering is educating the market. There is a clear distinction between private air charter and a firstclass air ticket. When the market acknowledges that private air charter and first-class tickets are two completely different products, it will reduce price sensitivity and increase appreciation for the benefits that only air charters can deliver – convenience, flexibility, and discretion.


SINGAPORE BUSINESS REVIEW | JUNE 2012 25


ANALYSIS: ASIAN TELCOs

Too many iPhones, not enough 4G capacity The massive takeup of iPhones in Asia saw telcos spending huge sums of money to upgrade their networks to 4G capacity.

T

he last ten years have been something of a trying time for Asian telco operators, with massive capital expenditures met with fierce competition and generally dropping call rates or worse, all-you-can-eat buffets. This has made telecoms a substandard investment, and hence operators have been loathe to spend ever more sums of money to upgrade their networks to 4G. The shift to smartphones brought about by the Apple iPhone has only increased consumers’ desire for data, but if you have ever had a poor signal or found your mobile service slower than advertised, you will realize that too many customers trying to download too much data in one area is not a good outcome.

26 SINGAPORE BUSINESS REVIEW | JUNE 2012

“The shift in focus away from ‘unlimited’ to ‘tiered’ data tariffs in Asia with the introduction of 4G has been encouraging.”

The capacity crunch Smartphones now account for more than half of all new handsets sold in Asia, and with data usage growing by up to 200% a year, there is a real danger of a capacity crunch which will require operators to reinvest in capital and perhaps raise prices whilst they are at it. The only thing holding back the market is the availability of super cheap smartphones, which would extend them to the masses especially in poorer countries such as India and Indonesia. Handsets will need to come down to around $100 to really take off in these markets, while an iPhone still starts at $500. Hindering the growth of smartphones in Asia is also the lack of consumer credit and the adoption of the pre-paid model in many countries which accounts for the vast number

of subscribers. This effectively limits an operator’s ability to subsidise a handset. HSBC notes that with the introduction of 4G, also known as LTE, carriers are now introducing tiered pricing on data. “The shift in focus away from ‘unlimited’ to ‘tiered’ data tariffs in Asia with the introduction of 4G has been encouraging. The crux of our view is that the growth in data demand is increasing exponentially, while operators’ ability to supply capacity can only increase at a linear rate. Given this situation, operators will need to ration usage using price, and re-link usage to revenues via tiered data tariffs.” But Asia telcos are reluctant to introduce tiered data plans. This is happening more slowly in the Asian telco sector than in the US and Europe, reckons HSBC, primarily as the result


ANALYSIS: ASIAN TELCOs of a more interventionist approach to wireless regulation in the region. “This is most evident in Korea, where politicians demanded large tariff cuts, despite escalating operator capex to support data demand. Korean campaign platforms in April 2012 suggest that further tariff cuts are likely.” So whilst operators are expected to invest billions in upgrading to LTE, the problem is that whilst LTE is faster than 3G, it is only 1.3 times more efficient than 3G, which means that capacity limits remain a big issue. The big picture in Asia is therefore one of getting more spectrum in which to offer new LTE services. HSBC’s take is that with recent or pending spectrum awards, operators such as Telstra, SoftBank, and SmarTone all have significant advantages relative to peers. “We expect spectrum costs and wireless capex to continue to rise as data volumes continue to surge. In 2011, we saw the capacity crunch thesis play out in Australia, where Telstra posted strong wireless growth, while rival Vodafone Hutchison Australia lost ground as a result of network issues – some of which were the result of overloading. In China, we believe that the window of opportunity for China Unicom to take share from China Mobile is closing more rapidly than the consensus expects. We expect China Mobile’s TDSCDMA outlook to improve, with the announcement of a TD-SCDMA compatible iPhone a key catalyst in 4Q12 or 1Q13.” Ovum meanwhile believes that there are two major factors that will drive the uptake of LTE in South Korea. Firstly, Ovum expects South Korean operators to abolish unlimited 3G/3.5G plans in 2012 in an effort to reduce network congestion. This will

result in a number of users opting to take advantage of the faster speeds offered by LTE services. Secondly, Ovum believes that the South Korean government is expected to call for further tariff cuts in 2012, which will result in a reduction in the price of LTE services. The regulators burden Perhaps one of the biggest determinants of the success, or otherwise, of an Asian telco in the LTE world is the approach of regulators to pricing. In Hong Kong, greater data demand has been a boon for operators, where the smartphone market has effectively been an oligopoly of SmarTone, Hong Kong CSL, and Hutchison Hong Kong. In Taiwan, the popularity of the iPhone has effectively marginalised the two smaller operators (Vibo and APBT) which lack the scale to commit to the minimum volume of handsets required by Apple. In both markets, the operators have seen strong gains from upgrading existing customers to higher value contracts, resulting in less value-destructive competition. In Hong Kong, the regulator holds the view that prices are not part of its mandate. Pricing for smartphones has been relatively sensible, although the operators bungled an opportunity to move away from flat-rate in February 2012. In Taiwan, data is still priced on a flat-rate basis, but the low levels of smartphone adoption (and network traffic) mean that operators have seen a substantial benefit from migration to smartphones in terms of additional revenue. So how will mobile phone operators introduce a new pricing scheme? LTE still the most likely pricing catalyst, notes HSBC, but that this

Telco revenues as a % of GDP in Asia

ves revenue growth

3,000

70%

2,500

60% 50%

2,000

40%

1,500

30%

1,000

20%

500

10%

-

0% Jun-08

Dec-08

Jun-09

Dec-09

Wireless Serv ice Rev enues, HKDm

Jun-10

Dec-10

Jun-11

Dec-11

5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2007a

Source: Company data. Note smart device adoption is proportion of post-paid customer base.

2008a Region

Smartphone adoption, %

Source: Company data. Note smart device adoption is proportion of post-paid customer base.

change is likely to be gradual, and take place after users have become used to significant data allowances for smartphones. “Consequently we do not expect a step-change in revenues, although long-term capex budgets should be protected. Korea and Japan (both markets that have already launched LTE) offer a good example of how we expect LTE data pricing to play out. In both markets operators offer a significant data allowance in the standard package – as much as 5GB in some cases.” Ovum analyst Nicole McCormick meanwhile advises that operators should look to avoid launching their LTE services with unlimited data offerings as it is highly likely that they will have to move to volume-based pricing at a later stage. “Operators should take the opportunity to launch LTE as a new, premium service with a new pricing model rather than rolling over unlimited data tariffs from existing 3G/3.5G services,” she said. McCormick cited Australia’s leading mobile operator, Telstra, as a good model for mobile services provider planning to launch LTE. The operator, she says, adjusted its mobile broadband tariffs less than a week before it launched its LTE service, increasing the price of its high-end tariff by $10.40 per month and the data allowance from 12GB to 15GB. It then announced that these tariffs and data allowances would apply to all its 3G and LTE users, meaning that LTE users would be used to its tariff structures and data allowance. In contrast, McCormick tags M1’s approach of altering its tariffs and data allowances after the launch of LTE ‘disruptive’ to customers. “Abolishing unlimited LTE tariffs after launch can present considerable challenges for operators, even when

Telco revenues as a % of GDP in Asia

Smartphone adoption and impact on service Smartphone adoption and impact on service revenue growth revenue growth SmarTone: migration to smartphones dri

“Operators are expected to invest billions in upgrading to LTE, the problem is that whilst LTE is faster than 3G, it is only 1.3 times more efficient than 3G”

2009a India

China

2010a Indonesia

Japan

2011e

2012e

Korea

Source: Company data, HSBC estimates

Source: Company data, HSBC estimates

SINGAPORE BUSINESS REVIEW | JUNE 2012 27


ANALYSIS: ASIAN TELCOs the rollout is limited to a small service area and enterprise customers as is the case with M1,” she said. Learning from Singapore Telecommunications case According to Ovum, when transitioning to volume-based pricing models, operators should look to avoid introducing, complicated pricing structures for LTE -- a mistake that Singtel did. SingTel launched Singapore’s second commercial LTE network in December 2011 without offering unlimited data plans. SingTel’s LTE service is accessed using a dongle, and is initially available in high-volume data regions such as the central business district, Orchard, and some shopping areas. The service falls back to SingTel’s 21Mbps HSPA+ network when a user moves out of a LTE coverage area. In an industry first, SingTel has split its monthly data allowance into two buckets – one for 3G and one for LTE. The combined allowance is 60GB, with excess data usage charges capped at $73. While SingTel has limited LTE data usage to 10GB per month, this is a generous allowance by Asia-Pacific standards. SingTel’s LTE package costs 16.7% more than its unlimited 21Mbps HSPA+ dongle service. According to Ovum, splitting the data allowance into two separate buckets for 3G and LTE will add a layer of complexity for consumers, and SingTel will need to provide tools that enable subscribers to easily monitor their 3G and LTE data usage. However, sending multiple SMS alerts on data usage, it said, could become annoying for subscribers.

According to McCormick, operators should instead focus on educating their customers on data requirements and usage limits so as to limit the possibility of bill shock.“To better manage the transition from unlimited plans to volume-based tariffs, operators should introduce measures such as maximum excess usage charges. They should also introduce affordable entry-level tariffs and generous data allowances to ease the transition from unlimited data tariffs. In addition, operators must look to exploit the upsell opportunities that will be presented by the shift to alternative pricing models,” said McCormick. But it has not been easy for Asian telcos to start restricting customers who had been used to an all-youcan-eat data plan. In Japan, NTT DoCoMo back- tracked from its original model of tiered data plans for LTE, and began to offer flat-rate plans also, saying that this was what customers were used to. Pressured by fierce competition, DoCoMo was forced to match the price of its unlimited LTE data plan with Softbank Mobile’s unlimited 3.5G iPhone 4S plan, launched free LTE-to-LTE voice calls to other DoCoMo subscribers and family discounts, and even plans to eliminate its excess data charges by introducing throttling. Most mobile service providers believe that throttling customers’ speeds will encourage them to upgrade to larger data plans. However, Ovum doesn’t believe that a throttled customer is more likely to upgrade to a larger data plan than a customer that pays excess data charges. Also, McCormick notes that while DoCoMo’s

“To better manage the transition from unlimited plans to volume-based tariffs, operators should introduce measures such as maximum excess usage charges. ”

major rivals may launch their LTE services with unlimited plans, Ovum does not believe that they will be able to keep offering them indefinitely. “Japanese mobile operators are under considerable pressure to alleviate the congestion on their 3G networks, which has largely been caused by unlimited data pricing,” she said. What should Asian telcos do? Meanwhile in Korea, usage on 3G smartphones is growing so rapidly (and is priced on a flat-rate basis) that operators have had to increase capex significantly to manage the surge in volumes. But then again, as demonstrated by Ovum, It is possible for operators in markets with wellentrenched unlimited 3.5G data offerings to make the transition to LTE without flat-rate data plans. Even after originally offering unlimited data tariffs for LTE, a number of operators in the US and Hong Kong have successfully transitioned to alternative pricing models. So should Asian telcos adopt a tiered data plan as is common in Europe and the US, where typically 2GB is the entry level allowance, and additional capacity sold in 1GB units? That would be an optimal strategy, but it’s proving difficult to take to market. In South Korea, Japan, and Singapore telcos have begun to offer 5GB or higher data allocations as the starting price. Pricing structures matter if telcos are to affordably finance LTE development and network rollouts. China does not yet offer an all-you-can-eat data plan but then again they only have two operators, so competition is not as intense.

Smartphone penetration levels in Asia Smartphone penetration levels in Asia Country

Singapore

Population (000s)

4.9

Smartphones (000s)

4.4

Penetration (%)

89.8%

Hong Kong

8.0

4.9

61.3%

South Korea

48.6

16.4

33.7%

Malaysia

28.1

5.2

18.5%

Thailand

65. 0

10. 0

15. 4%

Japan

126.9

18.1

14.3%

Indonesia China Philippines India

229.0

18.1

7.9%

1,360.0

77.1

5.7%

95.0

4.8

5.0%

1,220.0

33.2

2.7%

Source: TomiAhonen Consulting, Wired.com, “42 Major Countries Ranked by Smartphone Penetration Rates”, 16 December 2011; HSBC estimates

28 SINGAPORE BUSINESS REVIEW | JUNE 2012


Co-published corporate profile

Could this man be Asia-Pacific’s most prolific marketer? It takes a great deal of passion, wit and determination to turn a business into a distinctive international success. Kym Illman seems to have just the perfect mix as his home-based business grew and flourished into an acclaimed group of companies.

K

ym’s career in media became cloudy after being sacked from Perth’s Channel 9 studios in 1988 where he worked as an audio engineer. But instead of sulking in a corner, he gathered his entrepreneurial guts and established his own business. Today he’s a recognized authority on ambush and audio marketing, a media commentator, best-selling author and presenter of business seminars on the subjects of marketing and customer service. Kym holds nothing back as he continues to strengthen and expand his business across the globe. Kym Illman - THE man He now owns The Message Group, an award-winning group of companies covering a range of industries including audio marketing, digital signage, corporate training and luxury hospitality. With more than 75 people in Singapore and Australia, Kym’s business is present in 20 countries and turns over in excess of SG$16 million per year. His first business, Messages On Hold,

Kym Illman, MD of Messages On Hold

creates promotional audio productions for businesses to play to waiting callers via their phone system. Kym diversified into property with Dream Holiday Homes in 2005, and launched a digital signage company called Messagevision the year after. In 2010, he established an ambient music business called The Groove Gallery. Kym has also been releasing a series of viral video campaigns that have chalked up 9 million views since 2008. Kym’s unmatched skills in sales, marketing and customer services prove him worthy to be a respected thought leader, and his insights are most often sought by aspiring entrepreneurs and marketers. Kym has appeared on The Today

“I’ve been labelled everything from ‘serialpest’ and ‘notorious selfpromoter,’ to ‘creative genius’ and ‘world’s best ambush marketer.’”

Show, Sunrise, A Current Affair, CNN, CNBC and Channel News Asia. He has also been interviewed on countless radio stations. But with fame comes fire.“I’ve been labelled everything from ‘serial pest’ and ‘notorious self promoter,’ to ‘creative genius’ and ‘world’s best ambush marketer,’” says Kym. The master of Mastering Marketing Kym’s great love for making videos (and starring in them) combined with his desire to share unconventional but effective marketing ideas birthed Mastering Marketing, a free online video series. “Many of the businesses I speak with are crying out for marketing advice and ideas that don’t cost the earth. So I produced a series of 90-second marketing videos and made them available to anyone for free via the internet,” he said. MasteringMarketing.com.au hosts new videos every week where Kym himself talks in first-person and shares tips on every aspect of marketing, sales and customer service. He notes: “These days I think most people prefer to watch a short instructional video than read paragraphs of text, as long as they are short, sharp and interesting. For Messages On Hold in particular, we’ve found videos to be much better at communicating the brand’s personality, and getting across the point we’re not just an audio production company, but a full-service marketing company.” The first two episodes are immediately available to visitors upon entering the website - Perfect Marketing and How To Market In A Downturn. After a quick registration that only requires a name and email address, subscribers are given a link to episode 3 and a link to a new episode every week after that. Says Kym, “I hate it when I see marketing done poorly. You could say Mastering Marketing is a forum to share my mistakes with other business owners, so they don’t have to make the same ones!” SINGAPORE BUSINESS REVIEW | JUNE 2012 29


SALARY SURVEY 2012

Singapore employers wage war for talent Attracting new talent and retaining key staff have become harder than ever. Are employers ready for the challenge? Roxanne Uy reports.

T

his year’s salary survey reveals that employers will have to offer salary increases of 15-20% to attract experienced professionals due to the massive skills shortage. According to Robert Half’s research, a net 23% of CFOs and finance directors will be hiring more finance and accounting staff in the first half of 2012. However, it takes Singapore employers almost 7 weeks to fill an open finance and accounting management position - longer than their counterparts in the other major markets in Asia. This results in an upwards pressure to salary levels in these industries. Robert Half notes, for instance, that the average salary for a senior 30 SINGAPORE BUSINESS REVIEW | JUNE 2012

“A net 23% of CFOs and finance directors will be hiring more finance and accounting staff in the first half of 2012”

compliance professional surged 83% to $220,000, making it the hottest gig in Singapore today. Moreover, the pressure of talent retention is most felt in the financial services sector as 78% of Singapore’s top decision makers in this sector are fearful their best people will be poached by a competitor during the next 12 months. Wanted: financial and accounting staff Singapore’s vibrant financial services sector is fuelling demand for professionals in key industries. According to Robert Half ’s independent research conducted among chief financial officers and finance direc-

tors, a net 23% of CFOs and finance directors will be hiring more finance and accounting staff in the first half of 2012, with 65% indicating they need to hire because their business is growing. Demand for technology staff within financial services is also buoyant with a net 22% planning to add to their IT headcount. While demand for finance professionals may have increased, companies still take extra caution in hiring. Andrew Norton, Managing Director of Michael Page International South East Asia, warns that while hiring activity in Singapore remains positive, ongoing weakness of the US and European economies is impacting business confidence levels in Singapore, particularly in exposed sectors such as financial services. Richard Farmer, Director of Randstad Singapore, concurs and adds that due to a cautious approach to hiring, a number of companies are focused on internal mobility – that is, promoting from within – and hiring only to replace roles. “In particular, companies want skilled individuals with local market knowledge and experience that can hit the ground running and add immediate value to their business. Senior-level hiring is still a focus for companies, but the successful candidates must be the ideal fit with in-depth knowledge in their field,” he added. Attracting and keeping key talents In this environment, the cost of losing talent is high and employers then face the burden of ‘selling’ themselves to prospective employees as an employer of choice. “This includes being much more competitive when it comes to the benefits they offer, such as work-life balance, flexible working options, and current technology. With a trend towards more cautious hiring, employees may find it harder to switch roles and should review their options internally,” said Farmer. Norton notes that to be successful in attracting the best talent in a tight labour market, employers need to offer compelling employment propositions that go beyond an attractive salary package. “The role and the company brand are equally important, as well as opportunities for career growth and the professional training and development to support it,” he said.


SALARY SURVEY 2012 But then again, attracting new talent is just as worrisome as retaining good ones. According to Robert Half Director Stella Tang, the pressure of talent retention is most felt in the financial services sector as 78% of Singapore’s top decision makers in the banking and financial services sector are fearful their best people will be poached by a competitor during the next 12 months.

financial services sector. “Roles in risk and compliance and front office relationship managers with a good client base and South East Asia focus remain in short supply. Technology candidates with digital media or mobile experience with certain applications and development are also in high demand and thus have been able to inflate their salary expectations,” he said.

Finding replacements Another challenge for employers is finding replacements for finance and accounting positions in Singapore. Tang reveals that Singapore employers take longer to fill senior finance and accounting positions than their counterparts in the other major markets in Asia. An open finance and accounting management position in Singapore takes an average of 6.5 weeks to fill, compared to 4.9 weeks in Japan, 5.9 weeks in Shanghai, and 6.4 weeks in Hong Kong. “Staff level positions are also slower to be replaced in Singapore, taking an average of 4.5 weeks, compared to 3.6 weeks in Shanghai, 4.1 weeks in Japan, and 4.4 weeks in Hong Kong,” added Tang. But on the flip side, highly skilled job seekers may find themselves in a better position as more and more companies are willing to spend more just to recruit them. As Tang put it, “Their biggestproblem in 2012 may be choosing which job offer to accept. Many finance and accounting people are finding that they have multiple job offers to choose from.” Due to the changing dynamics in the recruitment sector, Norton says salary conditions including salary negotiations have also changed. The war for talent across all industries has clearly seen wages pushed up.

Soaring salaries Tang also sees this trend of increasing salary expectations driven by skills shortage. “Two years ago, the average salary for a senior compliance professional was S$120,000 per year. Today, a top compliance professional can expect an average of S$220,000 – an increase of 83% – making it the hottest gig in Singapore right now,” she explained. Technical jobs such as engineering, procurement, supply chain, and oil & gas are also short of talent, according to Norton. He adds that there are also some shortages in the legal industry, in particular for local certified experts in private practice. Employers may be suffering from higher costs due to increasing salary demands by highly-qualified candidates, but it seems to be the only way to run a business amid a tight labor market. “Overall, skills shortage in all professional markets is placing upwards pressure on salaries, with employers having to offer increases of 15-20% to attract experienced

Waging war Tang warns that a talent shortage exists across all accounting, banking, finance, and IT positions and as these professionals work across all industries, the impact will be felt by a wide range of employers. She further notes that demand for finance professionals is most acute in oil and gas, chemicals, technology, and real estate industries. This demand drives salaries to be tremendously higher. According to Farmer, talent shortage is more prominent in the IT industry as well as banking and

Andrew Norton

Stella Tang

Richard Farmer

Professional skills shortage in next 12 months Prthe ofessional skills shortage in

professionals in a candidate-short market,” said Norton. So what are the chances of salary increases and bonuses for employees this year? Tang notes that according to Robert Half ’s research, 53% of finance leaders in the commercial sector and 57% of those in the banking and financial services sectors are planning to increase salary levels in 2012. She added: “While wages may be rising, bonuses for accountants and finance professionals are expected to remain somewhat flat. Two thirds or 66% of the respondents surveyed by Robert Half expect bonuses to remain unchanged in 2012 from the previous year.” But despite more companies planning to raise their employees’ salaries, Farmer warns that salary increases are unlikely to be as high Pr ofessional in as previousskills years.shortage Michael Page’s Singapore 2011/12 Salary & Employthe next 12 months ment Forecast reveals that the vast 19% of employers indicated they majority would be awarding average salary increases of between 4% and 6% to employees over the 12-month period. Norton noted, “Some 80% of survey respondents will vary the 18% 63% level of salary increase based on performance, rather than offering a standard raise across the board. The same strategy will be in place for bonus payments, with 81% of Yes employers reporting that bonuses No would be awarded on a combination of individual,Unsure team, and company performance.” Skills shortage placing upwards spressure on salaries Skills shortage placing upwar

pressur e on salaries

the next 12 months

ds

6%

19% 21%

18%

63% 73%

Yes

Salaries will rise above inflation rate

No

Salaries will rise in line with inflation rate

Unsure

The skills shortage will not impact salary levels

Source: Salary & Employment Forecast, Michael Page International SINGAPORE BUSINESS REVIEW | JUNE 2012 31

Skills shortage placing upwar

ds


SALARY SURVEY 2012 FINANCE Role

3-5 years

5-10 years

10-15 years

More than 15 years

Salary

SG $’000

SG $’000

SG $’000

SG $’000

General CFO/Finance Director (large organization)

220-250

250-300

300-350

350+

CFO/ Finance Director (small/medium organization)

180-200

200-220

230-280

280+

Finance Director (shared services centre)

200-220

220-250

250+

-

Financial controller (Large organization)

160-200

200-250

250+

-

Financial Controller (small/medium organization)

130-150

150-180

180+

-

Financial Controller (shared services centre)

130-150

150-200

200+

-

Finance Manager (Large organization)

100-130

130-180

180+

-

Finance Manager (small/medium organization)

70-90

90-120

120+

-

Finance Manager (shared services centre)

80-100

100-120

120+

-

Financial & Planning Analysis Manager

100-130

130-150

150-200

200+

50-70

70-100

-

-

Financial/Business Analyst Financial Accountant

45-60

60-100

-

-

Group Accountant- Consolidation

50-65

65-100

-

-

Costing Manager

80-100

100-150

-

-

Cost Accountant

50-65

65-80

-

-

Credit Director

130-150

150-180

180-220

220+

Credit Manager

80-100

100-130

130-150

-

Credit Analyst

45-60

60-90

-

-

Accounts Payable Manager

60-70

70-90

-

-

Accounts Payable Accountant

40-50

50-60

-

-

Treasury Director

180-200

200-250

250+

-

Treasury Manager

100-120

120-180

180+

-

55-70

70-100

-

-

Tax Director

200-250

250-300

300+

-

Tax Analyst

60-80

80-110

-

-

Corporate Finance Director

130-150

150-180

180-220

220+

Corporate Finance Manager

90-120

120-150

150+

Internal Audit Director

200-220

220-250

250-300

300+

Internal Audit Manager

130-150

150-200

200+

-

Specialist

Treasury Analyst

Internal Auditor

60-80

80-130

-

-

Revenue Recognition

80-120

120-180

180-250

-

Pricing Manager

80-120

120-150

150+

-

Pricing Analyst

50-65

65-100

-

-

Auditor

50-65

65-100

-

-

Audit Manager

85-120

120-150

-

-

Tax Associate

50-65

65-100

-

-

Tax Manager

85-120

120-150

-

-

Tax Director

150-180

180-220

220+

-

Role

Associate

Associate Vice President

Vice President

Director/ Managing Director

Salary

Public Accounting (Big 4)

FINANCE 2

SG $’000

SG $’000

SG $’000

SG $’000

Central Finance

60-95

85-130

150-220

260+

Financial Reporting

60-95

85-130

150-220

260+

32 SINGAPORE BUSINESS REVIEW | JUNE 2012


SALARY SURVEY 2012 Tax Accountant

60-95

85-130

150-220

260+

Management Reporting

60-95

85-130

150-220

260+

Costing Controls/ Analytics

60-95

85-130

150-220

260+

Valuations

60-95

85-130

150-220

260+

Quantitative

60-95

85-130

150-220

260+

Price Testing

60-95

85-130

150-220

260+

Finance Projects

60-95

85-130

150-220

260+

Business Analyst

60-95

85-130

150-220

260+

Product Control

60-95

85-130

150-220

260+

Cash

60-95

85-130

150-220

260+

Equities & Finance

60-95

85-130

150-220

260+

Commodities & Derivatives

60-95

85-130

150-220

260+

Internal Audit

60-90

90-145

175-240

250+

IT Audit

60-90

90-145

175-240

250+

Front Office Advisory

60-100

100-170

180-250

250+

AML (Audit Money Laundering)

60-80

80-145

145-240

250+

TTM (Transaction Trend Monitoring)

60-90

90-145

175-240

250+

MAS Compliance

60-90

90-120

130-240

250+

Market Risk

60-90

100-120

120-250

250+

Credit Risk

60-90

100-120

120-250

250+

Operational Risk

60-90

85-130

170-240

250+

60-85

85-140

140-230

220+

50-80

80-120

120-200

200+

Settlement

45-65

65-120

130-200

200+

Corporate Actions

45-65

65-120

130-200

200+

Reconciliation

45-65

65-120

130-200

200+

Documentation

45-80

80-120

130-200

200+

Collateral Management

45-75

75-120

130-180

190+

Fund Administration

45-75

75-120

130-180

190+

Private Equity

100-150

150-190

190-250

250+

Investment Banking

100-150

150-190

190-250

250+

Debt Capital Markets

60-140

110-160

160-220

250+

Equity Capital Markets

60-140

130-160

160-220

250+

Corporate Banking Relationship Manager

40-90

90-130

130-180

180+

Credit Analysis Corporate Bankers

30-80

80-110

110-140

140+

Transaction Banking Sales

40-80

80-120

120-160

160+

Transaction Banking Product Management

40-60

60-100

100-150

150+

60-100

100-140

140-200

200+

AUDIT, COMPLIANCE & RISK Audit

Compliance

Risk

OPERATIONS Operations Project Management Middle Office Client Servicing Back Office

FRONT OFFICE Investment Banking

Corporate/Institutional Banking

Fund Management Portfolio Managers

SINGAPORE BUSINESS REVIEW | JUNE 2012 33


SALARY SURVEY 2012 Research

60-100

100-150

150-200

200+

Institutional Sales & Marketing

45-110

110-140

140-170

170+

350+

HUMAN RESOURCES Banking Finance Head of Human Resources

-

-

250+

HR Generalist/Business partner

55-110

110-200

200+

-

Compensation & Benefits Specialist

60-110

110-200

200+

250+

Learning & Development Specialist

50-100

100-180

180+

220+

Recruitment Specialist

50-100

100-180

180+

220+

Organisational Development

60-110

110-200

200+

250+

HRIS Specialist

50-90

90-160

160+

180+

Payroll Specialist

40-70

70-100

100+

100+

Mobility Specialist

50-70

70-150

150+

160+

-

-

250+

300+

Commerce & Industry Head of Human resources HR Generalist/Business partner

50-100

100-180

180+

-

Compensation & benefits Specialist

50-110

110-200

200+

220+

Learning & Development Specialist

50-90

90-150

150+

200+

Recruitment Specialist

50-90

90-150

150+

220+

Organisational Development

50-90

90-180

180+

250+

HRIS Specialist

50-90

90-130

130+

180+

Payroll Specialist

40-80

80-100

100+

100+

Mobility Specialist

50-90

90-140

140+

160+

-

-

220-280

250+

SALES & MARKETING Consumer Products Sales Director/Regional Director General Manager

-

150-250

250-350

350+

60-90

80-150

-

-

Marketing Director

-

120-220

180-280

220+

Marketing Manager

80-110

100-150

140+

-

Sales/ Key Account Manager

Brand Manager

50-80

70-100

-

-

Product Manager

50-80

70-100

-

-

Marketing Communications Manager

50-80

70-100

90-150

130+

Visual Merchandiser

40-70

50-80

90+

-

Sales/Medical Representative

40-60

-

-

-

Sales Manager

60-80

90-110

150+

-

Sales Director

-

-

150-220

200+

Healthcare

Product Manager

60-80

80-110

100-130

-

Marketing Manager

60-90

100-150

120-170

170+

Marketing Director

-

-

180-220

220+

General Manager

-

120-180

180-300

300+

Business Unit Director

-

-

180-300

300+

-

-

220-290

300+

Technology General Manager Sales/BD Director

-

-

150-220

220+

Account Manager

70-90

90-130

130-180

-

Channel Sales/Direct Sales Manager

-

80-120

120-180

150-220

Marketing Director

-

120-220

150-280

200+

Marketing Manager

80-110

100-150

140+

-

34 SINGAPORE BUSINESS REVIEW | JUNE 2012


SALARY SURVEY 2012 Communications Manager

50-80

70-130

90-150

200+

Direct Marketing Manager

60-110

80-130

120+

-

Product Manager

60-100

80-150

120+

-

Business Services Head of Marketing Communications

-

-

150-220

220+

Marketing Director

-

100-150

120-220

220+

Marketing Manager

-

90-150

120-220

-

Public Relations Manager

50-80

70-130

90-150

150+

Corporate Affairs/Communications

50-80

70-130

90-150

200+

Media Relations

50-80

70-130

90+

-

45-55

55-65

-

-

BANKING & FINANCIAL SERVICES Development, Design & Architecture Analyst Programmer Lead Analyst Programmer

-

70-80

-

-

Architect- Applications, Solutions, Systems, Data

-

125-135

125-155

-

Enterprise Architect

-

-

135-155

-

Application Development Manager

-

-

-

-

45-55

55-65

-

-

Team Lead- Testing

-

65-90

115-130

-

Test Manager

-

-

-

-

45-55

55-65

-

-

-

70-80

-

-

Data Warehousing/Modelling Specialist

-

90-110

-

-

Data Architect

-

-

120-140

-

50-55

55-60

-

-

Testing Test Analyst

Database Management Database Administrator Senior Database Administrator/Data Analyst

Infrastracture/Network Network Support- 1st/2nd level Network Engineer

-

80-90

-

-

Network Architext

-

100-140

-

-

Security Analyst/Consultant

55-65

70-80

-

-

Security Manager

-

-

120-140

-

Infrastracture Manager

-

-

130-145

-

Senior Infrastracture Manager

-

-

-

160-175

Project Co-ordinator

50-85

-

-

-

Project Manager

65-105

120-150

-

-

-

-

140-170

-

Project Director

-

-

-

200-250

Business Analyst

75-100

-

-

-

Project & General Management

Senior Project Manager

Senior Business Analyst

-

90-110

-

IT Manager

-

130-150

150-170

-

IT Director

-

-

-

225-275

Chief Information Officer

-

-

-

300-400

Support/Administration 1st Level Helpdesk Analyst

50-55

-

-

-

2nd Level Desktop Support Analyst

50-60

-

-

-

Unix Administrator

60-70

-

-

-

Network Administrator

60-70

-

-

-

Service Centre Manager

-

130-160

-

-

Source: Salary & Employment Forecast, Michael Page International

SINGAPORE BUSINESS REVIEW | JUNE 2012 35


legal briefing

Singapore get set for activist shareholders as new corporate governance bites It isn’t as problematic as was earlier assumed.

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hat aspects of the new regime are seen as the most problematic? According to Andrew Martin, Principal, Baker & McKenzie.Wong & Leow, the areas that have generated most debate relate to the definition of ‘independent’ director and the composition of the board. When the Code was first introduced in 2001, Martin says that there had been a lot of concern that the requirement to source independent directors for at least one third of the board members was going to be ‘problematic’ because of the limited pool of relevant talent in Singapore. But the change that the Monetary Authority of Singapore has sanctioned to the Code on this issue -- such that now a director who is or was directly associated with a substantial shareholder in the current or immediate past financial year will not be considered as ‘independent’ -does represent, he says, a notable step forward. However, Martin notes that it is not as big a leap as some would like and indeed represents a step back from the original recommendation of the Corporate Governance Council that independence should be determined by reference to the current or any of the past three financial years. He also adds that MAS has derogated from the Council’s recommendations on this provision in another key respect, and that is the definition of ‘substantial shareholder’. Rather than use the 5% threshold for disclosure to the market as per the Singapore Companies Act and the Securities and Futures Act, it has opted for a higher 10% threshold, which according to Martin will probably exclude a number of significant minority investors such as funds. This move though, he says, has actually been welcomed by some corporate governance advocates who are keen to see institutional funds more actively engaged. So, if their nominees are not caught by the revised exclusions to the ‘independence’ definition, this may increase the likelihood of their nominees being appointed. Such corporate governance advocates are less happy though, Martin says, about the transition period that MAS is allowing for the key changes to the composition of the boards of listed companies. Whilst MAS has accepted that the proportion of independent directors on the board should be raised to at least half from the existing threshold of at least one-third in certain circumstances (i.e. where the chairman and the CEO are the same person, immediate family members, part of the same management team or the chairman himself is not otherwise independent), the period to allow for this change will be five years or more (i.e. in time for annual reports for financial years commencing after 1 May 2016). This contrasts, he says, with the general position that the new changes to the Code must be adopted in time for 36 SINGAPORE BUSINESS REVIEW | JUNE 2012

the annual reports for financial years commencing after 1 November 2012. Furthermore, for any changes to the board to address the revised definition of independence, Martin says that companies will be given until the AGM following the end of such financial years, so this could be sometime in 2014 or even early 2015. Andrew Martin

Ralph Lim

Are our listed companies well poised for the changes? According to Martin, there is a perception that some of the smaller listed companies may struggle with the requirements on board composition which is perhaps why the transition period, he says, is so generous in this respect.

“A director who is or was directly associated with a substantial shareholder in the current or immediate past financial year will not be considered as ‘independent’” Ralph Lim, Director for Corporate & Finance at Drew & Napier meanwhile believes that the final version of the Code reflects a balanced Code which companies ought to be able to comply with. This is based on the feedback from the public taken into account by the Council for Corporate Governance. For example, the Council accepted that the nine-year period beyond which directors ceased to be independent should not be arbitrary and the provisions were amended to give the board the discretion to decide whether an independent director was still independent having served nine years on the board, he says. Lim also believes that companies ought to have sufficient time to comply as the revised Code only takes effect in respect of annual reports relating to financial years commencing after 1 November 2012, and the changes need only be made at the AGM following the end of the relevant financial year. Further, he says that additional time is given to meet the requirement for at least half the board to be independent in those specified circumstances, with such changes only required to be made at the AGM following the end of the financial year commencing on or after 1 May 2016. What preparations need to be made? According to Martin, there is a generous transition period especially for the more onerous changes on board composition. He says that companies should start considering sooner than 2013 their current board composition by reference to the new tests for independence. “id.


Co-published corporate profile

At Outback Steakhouse, it’s all about the food

Singapore stands out as Outback Steakhouse’s best performing market Brace yourselves for more delectable steak selections as Outback Steakhouse opens its second store in Singapore next year.

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ith more than 1,000 stores in 22 countries, Outback Steakhouse still manages to offer only the best selections to its customers. It was established in Tampa, Florida in 1988 but has been in South East Asia since 2000 when USEL became a franchisee for Outback Steakhouse. With staff strength of over 300 dedicated Outbackers, USEL currently owns and operates restaurants in Singapore, Philippines, Indonesia, Malaysia, Thailand. And 12 years after, Outback Steakhouse still continues to bring the culture of great experience, generous portions and concentrated service in Singapore.

Sirloin and Shrimp

Outback Steakhouse in Singapore According to Prashant Mukherjee, AVP for Corporate Strategy of Outback Steakhouse, Singapore has become the most promising market for them as it provides a stable operating environment and a very cosmopolitan customer base. “Compared to the other markets where we operate, namely in Indonesia, Philippines, Thailand and Malaysia, Singapore continues to be our best performing store,” he said. On the flip side, Singapore has a wide variety of F&B options and Singaporeans are very well informed and always willing to try new F&B options. However, Outback Steakhouse faces these challenges head on as it strives to remain the customers’ top pick by placing a lot of emphasis on staying fresh and continuing to innovate. As Mukherjee puts it: “In an effort to make our store look more contemporary, we have renovated our store.

“Outback Steakhouse stands out from its competitors through well-executed strategies - correct execution of the basics and focus on customers”

Prashant Mukherjee, AVP for Corporate Strategy A patron can be promised a casual, friendly dining atmosphere in an ambience reminiscent of the Australian Outback Steakhouse. With strong emphasis on innovation and value, we revise our main menu every year. We also launch two lunch menus and three Limited Time offers in a year which forms the testing ground for innovative dishes.” Promising strategies In addition to constant innovation and great food, Outback Steakhouse stands out from its competitors through well-executed strategies - correct execution of the basics and focus on customers. Mukherjee reckons that ultimately consumers come to a restaurant for its quality of food and drinks, service, ambience, and the general overall experience that the restaurant offers. Outback Steakhouse holds a very strong foundation for all these through its three pillars called Serious Food, Concentrated Service and Spirited Drinks. Mukherjee adds, “We are ever in the process of trying to improve the overall experience for our consumers. Recently we have launched a region wide Loyalty program as a means to reward all our loyal customers. Over the years, we have also learnt the importance of having our ear to the ground. We place a lot emphasis on collecting and analyzing consumer insights, so we may serve our customers better.” With its aim of reaching more consumers in Singapore, Outback Steakhouse is set to open a second store in 2013, and looks to open at least another store two to three years from then. SINGAPORE BUSINESS REVIEW | JUNE 2012 37


BIG ISSUE 1 turn-off homebuyers because, fundamentally, it is difficult to discourage a homeseeker who has already psychologically tuned himself into buying.

Modern homebuyers: discerning or disconcerted?

Changes in housing development rules seemed to have made buyers more discerning in their purchases. Or are they just too confused by overwhelming information to actually make a choice?

C

hanges implemented by the Urban Redevelopment Authority in April generated mixed feelings especially on the issue of practicality. Eric Tng, Senior District Director, ECG Property Under the new rules, amenities within 500m must be clearly labelled and drawn to scale. This will help buyers make better informed choices as compared to the current practice of marking down the nearby amenities, and making them appear to be closer than they really are. However, on the rules of building an actual size show flat unit, developers may choose to showcase the bigger units (which might be the minority in the development). In the end, buyers of smaller units will have to leave the actual scale to imagination. I feel rules should be drawn up to better train and police show flat agents to ensure buyers are not pressured or misled. Even with all the facts presented, I wonder how many buyers will go home and study the information before committing to a purchase. More often than not, buy38 SINGAPORE BUSINESS REVIEW | JUNE 2012

“Property buyers must do their own homework and exercise due diligence in their purchase”

ers will purchase after listening to the agent’s sales pitch. Ong Kah Seng, Research Director, R’ST Research These rules can safeguard the welfare of buyers, especially since homebuying interest has been so immense recently. Viewed actively, these rules which require more transparency from developers enhance and bring about a proper standard of communication between agents and buyers. Moreover, these minimise the buyers’ remorse if the delivered products do not meet their expectations. The recent discussions on how to bring about sustainability in the private residential market have been delving on probable cooling measures to cope with increased buyers’ interest. If homebuyers’ interest remain strong and cannot be downplayed, then we should ensure that these “interests” are well considered and that these lead to actual purchase. This can be done through transparency in the buying procedures. Even if we explicitly show the details of a unit, it will not necessarily

Alan Cheong, Property Analyst, Savills With weekly updated data, real estate specialists would be able to collate and compile close to real-time market research of what sells at what prices and vice versa. Now, specialists would get a flavor of the market psychology and determinants of sales sorted in terms of: preferred sizes, quantum paid per unit, units sold by level and facing within a certain period of launch, and preferred layouts by the market. This new information flow is a boon for real estate specialists. It enables the real estate professionals to hone their instincts to provide greater market intelligence to clients. However, for buyers, it may easily develop into a case of information overload. Consumer and investment decisions are seldom rationale and while the provision of more information does necessarily translate to assisting homebuyers to make more “informed decisions”, it does not imply that “informed” equates to “rationality”. The same set of information can be interpreted differently depending on whether you are in the profession or not. Having greater information may not yet have answered this important question afflicting many homebuyers: If I do not buy now, will it be more expensive later? David Neubronner, Head of Residential Project Sales, Jones Lang LaSalle The implementation of these new measures is the right direction forward, as the residential market evolves and the average sizes of newly built apartments shrink. Nevertheless, regulations can only do so much. Property buyers must do their own homework and exercise due diligence in their purchase. For a start, buyers should consider buying only from good and reputable developers. The market condition also plays its part. In an exuberant market, regulations may mean nothing as buyers rush to book units even before the marketing collaterals and show apartments are ready.


BIG ISSUE 2 gapore. In the coming months, as the inflow of blue-collared foreign workers are reduced by more stringent entry regulations and higher levies, wage and business costs are also set to go up over the next two years. All this is pointing to higher inflation and a stronger SGD policy.

How high can COE premiums go? Will it really rise to as much as $100K, a level last seen in 1994?

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ot surprisingly, the key driver for the recent rebound in the headline inflation figures was transport CPI, which surged to 8.6% YoY from 4.4% in the previous month. Not surprisingly, the key driver for the rebound in the headline number was transport CPI, which surged to 8.6% YoY from 4.4% in the previous month. According to DBS economist Irvin Seah, the fading low base effect arising from the COE premiums has been the factor behind recent moderation in inflation rate. But that has little impact, he says, when COE premiums have been marching steadily northward. “In fact, COE premium reaching the previous peak of about $100K in 1994 appears to be on the cards given the spike-ups in recent tenders,” he added while noting that the government’s unwavering determination to bring car population growth rate down to

“Transport contributed around 1.4 percentage points to the 5.2% YoY inflation rate, while housing contributed 2.3 percentage points ”

0.5% per annum, from 1.5% previously, as well as the continued high demand for private vehicles are the reasons behind the surge in COE premiums. Other experts interviewed by Singapore Business Review appear to agree with DBS, stressing that COE premiums will continue to play a key role in inflation movement in the coming months. Leong Wai Ho, Regional Economist, Barclays Capital My sense is that COEs will continue their upward drift until the end of the year. Labour markets are tight and the outlook for discretionary spending remains strong. COEs for larger cars could even test the psychologically important level of $100,000/quota in the coming months. The trajectory for inflation is also worrying - with 5% plus inflation to persist until July. Ultimately, COEs are but one driver of inflation in Sin-

Leslie Tang, Economist, OSKDMG Domestic policies aiming at achieving certain social standards have had repercussions on the economy, particularly policies that aim to limit the number of purchases by foreigners and curb car population. All these policies had the unintended outcome of driving consumer prices higher in Singapore. COE premiums can go higher as the supply remains limited by the number of cars scrapped so far. In fact, there is no reason why COE premiums cannot hit $100,000. Until consumers decide that this is an incredulous price to pay for a car, COE premiums should probably come off. But I don’t expect any significant drop in COE premiums until 2014, unless the government decides to release more COE supply, which is quite unlikely at this point in time. Maybe more curbs to car ownership and improved and more confidenceinspiring public transportation could help dampen demand for private cars. Alaistair Chan, Economist, Moody’s Analytics Australia It is true that higher COEs have been pushing up inflation and was the main driver in March. But it is not the only driver. In fact, housing inflation still matters, even though it is declining. In March, transport contributed around 1.4 percentage points to the 5.2% YoY inflation rate, while housing contributed 2.3 percentage points. It is hard to know how high COE premiums will go since the quantity auctioned is fixed and price moves in response. Hence, stronger demand will push up prices quickly. SINGAPORE BUSINESS REVIEW | JUNE 2012 39


COUNTRY REPORT bile Apps,” says Lindeberg. Memberson helps boost its clients’ profit by up to 30% through customer loyalty programs that make them spend more, visit more frequently, and collect membership points. In fact, Memberson’s consumermanaging applications drove the average spending of a client’s customer from $51 to $58 in just nine months. The retail game changer Though consumers today appreciate loyalty programs, they usually complain about spam or irrelevant offers, lower value engagements, and privacy concerns. Hence, they demand more secure and personalised marketing offers. Lindeberg notes that retailers must implement solutions that assure marketing communication is based on consumers consent. Per Lindeberg & Mika Siirtola, Co-founders of Memberson Pte Ltd. “Consumers are demanding more individualized, personalized, targeted approaches in promotions, communications and engagements, or they will have no problem taking their business to another brand who is offering this level of customized service,” he adds. Thus, in 2011, Memberson introduced a new award-winning concept, Membridge, which As companies with strong Scandinavian heritage, Memberson and SEB both allows retailers to communicate relevant tarexcel in servicing clients in Singapore and Asia. geted information. Majority of today’s loyalty programs fail With eyes set on a vibrant and healthy busiThe company’s big clients, which include to reach their targeted goals due to limited ness environment, Singapore does not fail to Wing Tai, Club 21, and FJ Benjamin, now insight into the effectiveness of the program welcome and cultivate foreign investments have around three million consumers on the and an inability to capture the changes in to drive capital. And perhaps two of the database. member behavior caused by loyalty promost successful businesses with Scandinagrams and promotions, in combination with vian roots operating here in Singapore are From start-up to success rising consumer privacy concerns, according Memberson and Skandinaviska Enskilda As an outstanding Singapore start-up, to Lindeberg. Banken (SEB). Memberson has proven its expertise in proMembridge organizes the consumers’ proMemberson, with its expertise in custom- viding a complete customer relationship file based on demographics, interests, purer relationship management, redefines the management platform for customer loyalty chase patterns and preferred way of receiving retail market with its cutting-edge platform, initiatives. With the retail industry getting messages. Lindeberg, however, differentiates the Membridge Commercial Network. SEB, increasingly competitive, retailers are con- a consumer’s social network from one’s comon the other hand, has contributed positive- stantly waging the war for mercial network. ly to Singapore’s economy in its many years greater market share. This And as social networking “Memberson of operation as a wholesale bank. makes it critical for retailgoes on a hype, most comhelps boost ers to build closer relationpanies follow the bandwagon its clients’ Memberson revolutionizes Singapore’s re- ships with consumers, to and try to reach their customtail industry understand their behaviours profit by up to ers through sites like FaceMemberson started as a start-up in 2007 but and to translate this knowl30% through book and Twitter. emerged as a company with revenues grow- edge into a customer loyalty But Lindeberg warns that customer ing at annual rate of three to four times in concept. And this is where consumers mainly use these loyalty just five years. Its founders, who have Scan- Memberson’s unmatched platforms as a means to enprograms .” dinavian heritage, chose Singapore for its expertise lies. hance their social contacts, business friendly environment and strategic “We provide the comso there exists a need for a location with access to the rest of Asia. “Sin- plete process from advising how the loyalty solution to maintain one’s commercial netgapore is one of the most advanced Retail concept should be designed for maximal work. destinations in the world. returns, to cleaning and migrating existing “Being connected to consumers’ real purOur customers are very skilled and have customer data, implementing the loyalty chases, as opposed to the social networks developed exciting strategiess that we help to platform, integrating in-store technology, where people can only express opinions, a implement and execute with help of our ad- automating membership processes and en- loyalty platform that protects the consumer vanced software solutions,” says co-founder abling multiple consumer channels such as privacy would be an ideal place to build and chairman Per Lindeberg. member web portals, social media and mo- these types of relations,” he adds.

Scandinavian innovation at work in Singapore

40 SINGAPORE BUSINESS REVIEW | JUNE 2012


COUNTRY REPORT

Bo Carlsson, General Manager of SEB Singapore

Membridge’s edge What sets Membridge apart is that it protects consumer privacy while directing commercial information tailored to individual consumer patterns for highest turnout. As Mika Siirtola, co-founder and director innovation and product management, puts it: “Consumers want to protect their privacy, they want to sign up, but they do not know how secure their data will be. Thus, we protect the data — we let consumers own their own customer profiles, and only they can decide how they want to manage these commercial relations with the companies they interact with.” Memberson recently won Red Herring’s Future Technology Award for the Membridge platform. Today, Memberson is the recognized market leader in Singapore, Malaysia, Thailand, Indonesia and China. The Group is eyeing to be the clear number 1 in Asia by tapping the Indian retail market and boosting expansions in Australia and Dubai. While Memberson changes the retail landscape in Singapore through its innovative platform, Membridge Commercial Network, SEB also brings its expertise in the financial industry. As a wholesale bank, SEB has ushered in economical growth in the Singapore through its premiere products and services. SEB slated for growth in Singapore With an established Scandinavian heritage and strong home markets in the Nordic region and Germany, Skandinaviska Enskilda Banken (SEB) also prides itself of being a solid Singaporean operation. A wholesale bank at heart, SEB recognizes

their need for a wide variety of banking services for example trade finance and FX. Our clients are in the ‘foundation’ industries of Singapore’s modernisation - engineering, pharmaceutical and electronics, not to forget trading and logistics,” he added. Singapore’s perfect geographical location coupled with its business-friendly environment proves attractive to international firms such as SEB. Carlson reckons that in Singapore, the infrastructure is in place for running a risk management business as well as access to the latest technology. “We have access to a very competent local work force, and when needed, train and develop our staff further in order to meet our clients’ local and/or international needs. You need a system that is transparent, and in Singapore we have certainty and predictability.” SEB has been growing well in Singapore, as attested by its recent membership to the Singapore Exchange in May 2011.

the importance of having both global and local business dimensions as it serves its home market clients globally while acting SEB going forward and doing business locally. Carlsson notes that their customers are “The Nordics and Germany are our growing their business in Asia and that home markets. We run a truly interna- they have high ambitions, while adding tional business but we also act local. We that capital flows increase in both directake part in the Singaporean way of doing tions, from home markets to Asia and business and from that point of view we vice versa. contribute as part of the fabric of Singa“As many of our Asian support funcpore,” says Bo Carlsson, SEB Singapore tions is centralized to Singapore we also General Manager. support SEB’s growth in As the first Nordic priand our newly opened “during SEB’s China vate bank in Asia, SEB branch office in Hong Kong. many years also opened a fully-fledged Our commitment to, and in Singapore, growing business with, reprivate banking branch in 2005, serving Nordic and the bank has gional Financial Institutions, German individuals living contributed is a further sign of our dediand working or investing positively to cation to the Asian market.” in the Asia-Pacific region. He is also confident that Singapore’s SEB with presence in the economy” SEB in Singapore three financial hubs (SingaCarlsson notes that pore, Shangduring SEB’s many hai and Hong years in Singapore, Kong) is well the bank has conequipped to tributed positively to continue its Singapore’s economy successful as it has provided a progress in multiplier effect to Asia. growing its interna“We are an tional customers. extremely well“We followed our c on s o l i d at e d clients out here 33 bank, and we years ago when they have the finanventured out and cial strength began growing. We to support our Fredrik Lager, General Manager of SEB have grown with customers’ furPrivate Banking them and supported ther growth.” SINGAPORE BUSINESS REVIEW | JUNE 2012 41


Regional EConOmy Briefing: INDONESIA Oil Price, Subsidy Bill, And Budget Deficit

What about Indonesia’s public debt?

Rethinking Indonesia’s energy subsidies Indonesia’s public debt has declined steadily in the past decade, but the country’s sizable energy subsidies still weigh on public finance.

According to Standard & Poor’s (S&P), Indonesia’s deficits averaged less than 1% of GDP per year even with a fairly low revenue intake of 18%. That is due to low deficits coupled with nominal GDP growth of 15%-20% which allowed the country to lower its public debt to an estimated 23.7% of GDP in 2011 from 74% in 2001. S&P notes, however, that this favorable fiscal trajectory has been much more vulnerable to Indonesia’s entrenched subsidy regime until recently. Subsidies in general are blamed for unpredictable budget outcomes and higher risk premiums on government funding. Blame it on subsidies According to S&P analyst Agost Benard, the lingering vulnerability was highlighted when the oil price assumption in the initial 2012 budget had to be revised to US$105 from US$90 and, with it, the energy subsidy amount to IDR225 trillion from IDR169 trillion or comprising just 2% of GDP. Even this larger subsidy bill, he says, would have entailed a 33% rise in fuel prices. Following parliament’s refusal to allow the fuel price adjustment, combined with the earlier abandonment of a planned 10% electricity tariff rise, the government now expects its energy subsidy to be close to IDR270 trillion, comprising 3.1% of GDP. This necessitates cuts in other areas -- most likely capital spending -- to keep the fiscal deficit below the legal cap of 3% GDP, says Benard. Moody’s Analytics echoes the same view, adding that 16% of the total expenditure of the government on the average has been spent on subsidies in the last 10 years. Whilst this has helped tame some inflation pressure, rising global oil and food prices have prompted the government to spend more to keep prices regulated. “The issue is that these funds could have been diverted to much-needed 42 SINGAPORE BUSINESS REVIEW | JUNE 2012

IDR-- Indinesia rupiah. Source: Ministry of Finance and Bloomberg. © Standard & Poor’s 2012

infrastructure and capital development. The government is aware of this and had recently proposed to limit fuel subsidies, but threats of political backlash and widespread protest caused an about face,” said Fred Gibson, an analyst at Moody’s. Indonesian subsidy woes Fuel and electricity subsidies make up by far the largest part of Indonesia’s total subsidy bills at 73%. Over the past several years, the government has floated numerous initiatives and time frames for subsidy reforms, some calling for the complete elimination of fuel subsidies or a drastic reduction in their availability. Most of these initiatives however have not come to fruition, says S&P. “Recent history suggests that when global fuel prices and subsidy expenditures stay at levels that the government finds tolerable and do not threaten a fiscal deficit blowout above the legally mandated 3% of GDP, the urgency for finding a long-term solution to the subsidy problem dissipates,” noted S&P’s Benard. He adds that the problem is even made more complicated by fuel smuggling to neighboring countries where subsidies are either lower than Indonesia’s or nonexistent. Moody’s Gibson notes that Indonesia’s widespread corruption might also be part of the problem. Anecdotal evidence, he says, suggests that the public is aware that more needs to be spent on infrastructure but that many have little faith in the government’s ability to allocate funds appropriately. “Consequently, many feel that public funds should be aimed at reducing the growing cost of living instead of being siphoned by corrupt officials,” said Gibson. Subsidy bias According to Gibson, fuel subsidies tend to favour higher income earners given they consume more energy. Data from the World Bank, he says, show that the top 50% of income earners in Indonesia consume 84% of the subsidy. “From a welfare perspective, removing these subsidies could hurt the poor in the short run as a higher proportion of their incomes are spent on fuel, but the savings from removing the subsidies would free up funds for the government to spend on much-needed infrastructure, capital development, and welfare service, These could allow the government to better target those on lower income levels,” noted Gibson.


Co-published corporate profile

Cybercom paves the way for digital solutions in Singapore With a team of seasoned digital communication architects, Cybercom offers exceptional digital solutions to boost their client’s profitability.

C

ybercom has been operating in Scandinavia since 1995 as a technology consultancy offering business solutions. In fact, the company has been a key partner to the popular brand SonyEricsson in implementing their digital strategy since 2001. In 1997, the company started doing business in Singapore with focus on telecom management and the operator segment. Today, Cybercom sets up a new business era in Singapore – Digital Solutions. Cybercom Digital Solutions was launched in Singapore in 2012 with the mission to bring the best of breed from Digital Business drive into Singapore. From Scandinavia to Singapore Through its online excellence expertise in general, and world-class expertise in Usability and Performance in particular, Cybercom’s mission in Singapore is to boost the online performance of medium to large sized businesses and organisations in Singapore. As Mats Frisk, Cybercom International’s Director of Sales and Marketing, puts it: “We are a Scandinavian company which started in 1995 and has since developed our expertise through the business cycles of the Internet and the Web.” Considering that Scandinavia, where Cybercom started, is one of the most developed regions when it comes to online business management, the company offers unmatched experience to customers in Singapore. “Our model of working is based on passion, innovation and trust and we always focus on business benefits before technical beauty. We have through the years built up a strong know-how of applying the right technology for the right business situation,” adds Frisk. But as Singapore takes a quantum leap into using mobile devices to access the internet, Cybercom is faced with the users’ expectation to get the same brand and business experience no matter what the device they are using. The company deals with this challenge head on through the

‘SPOC’ approach - single point of communications, where the business from one point can reach out on all channels. “This is not only online presence realization in 360 degrees, but it also interconnects the channels in a digital eco system. The approach is of course both scalable and cost efficient,” says Frisk. Cybercom’s competitive edge Frisk notes that their team, which has the finest engineers and business architects with almost two decades of experience, works hand-in-hand with the clients to come up with the most appropriate and comprehensive digital strategy that delivers positive user experience. “We make sure that it is easy finding you on the Internet and that visitors stay on the website by designing a clear navigation path from the start page through the intended digital journey. Equally critical is to ensure customers come back or recommend your website to their friends through social media,” he adds. But what sets Cybercom apart from its competitors? Frisk notes that only a few firms have the same breadth and depth in service offerings that they have. He reiterates that a company’s digital channel is not just about technology for it can be highly instrumental as a business strategy through converting visitors into customers. “By enabling customers’ ideas in combination with our experience, we can boost their business and create a world class communications channel that spreads through all forms of digital media. We are digital communication architects with a toolbox to help boost our customers business performance.” With approximately 1400 seasoned employees, the company is able to offer

“We are digital communication architects with a toolbox to help boost our customers business performance.”

Mats Frisk, Director Sales & Marketing Cybercom Singapore Pte Ltd strategic and technological expertise to companies in telecom, industry, media, public sector, retail, and banking and finance. But Frisk considers high onlinetouch industries as their strongest markets in Singapore - bank and finance, hospitality and retail industries. “Historically we are also strong in the telecom segment, where we have supported operators world-wide since more than 15 years.” Today, Cybercom undertakes assignments all over the world. “We are not in Singapore ‘just’ to build another website to our customers. Our goal is to help companies excel in their online presence, by developing it into a business critical channel and a make it a key tool to differentiate themselves from their competition,” concludes Frisk.

Cybercom Singapore Pte Ltd 133 Cecil Street, #12-04 Keck Seng Tower Singapore 069535 Phone: +65 6536 2780 Fax: +65 6536 2781 www.Cybercom.com SINGAPORE BUSINESS REVIEW | JUNE 2012 43


PROPERTY

Top residential transactions PROJECT NAME

LOCALITY

DEVELOPER

KATONG

RCR

UOL Property Investments Pre Ltd/ UOL Residential Development Pre Ltd

RIPPLE BAY

OCR

MCL Land (Pasir Ris) Pre Ltd

HILLSTA

OCR

PALM ISLES

OCR

SKY HABITAT

TOTAL NO. OF UNITS IN THE PROJECT

UNITS LAUNCHED IN THE MONTH

UNITS SOLD IN THE MONTH

MEDIAN PRICE IN THE MONTH

Non-Landed

244

244

244

1709

Non-Landed

679

293

174

876

TrustHouse Pre Ltd

Strata-Landed/Non-Landed

416

406

154

1054

FCL Boon Lay Pre Ltd

Non-Landed

429

76

153

871

RCR

Bishan Residential Development Pre Ltd

Non-Landed

509

180

131

1583

THE PROMENADE @ PELIKAT

OCR

Oxley Vibes Pre Ltd

Non-Landed

164

164

106

1189

ARCHIPELAGO

OCR

United Venture Development (Bedok) Pre Ltd

Strata-Landed/Non-Landed

577

100

91

1062

EON SHENTON

CCR

70 Shenton Pre Ltd

Non-Landed

132

100

87

2485

THE MINTON

OCR

Peak Garden Pre Ltd

Non-Landed

1145

45

69

927

THOMSON GRAND

RCR

Luxury Green Development Pre Ltd

Strata-Landed/Non-Landed

361

30

68

1292

TWIN WATERFALLS

OCR

Punggol Residences Pre Ltd

Exec Condo

728

0

60

717

PARC VERA

OCR

Sim Lian (Hougang) Pre Ltd

Non-Landed

452

0

54

829

NATURA @ HILLVIEW

OCR

Mequity (hillview) Pre Ltd

Non-Landed

193

50

51

1326

RIVERSOUND RESIDENCE

OCR

Qingjian Realty (Sengkang) Pre Ltd

Non-Landed

590

0

49

865

18 WOODSVILLE

RCR

S P Setia International (S) Pre Ltd

Non-Landed

101

0

46

1806

THE TAMPINES TRILLIANT

OCR

Sim Lian (Tampines EC) Pre Ltd

Exec Condo

670

0

39

805

SELETAR PARK RESIDENCE

OCR

Asplenium Land Pte Ltd

Non-Landed

276

176

36

1161

THE NAUTICAL

OCR

Hao Yuan Investment Pte Ltd

Non-Landed

435

0

36

876

PRESTO @ UPPER SERANGOON

OCR

Oxley Global Pte Ltd

Non-Landed

36

36

35

1279

THE PALETTE

OCR

Hong Realty (Private) Limited

Non-Landed

892

0

35

905

THE LUXURIE

OCR

Keppel Land Realty Pte Ltd

Non-Landed

622

50

34

1042

BARTLEY RESIDENCES

OCR

Bartley Development Pte Ltd

Non-Landed

702

0

33

1263

SMART SUITES

RCR

Distinct Home (Sims) Pte Ltd

Non-Landed

72

0

32

1430

91 MARSHALL

RCR

TEE Homes Pte Ltd

Non-Landed

30

19

27

1464

FLAMINGO VALLEY

OCR

FCL Estates Pte Ltd

Non-Landed

393

0

26

1259

SEAHILL

OCR

Boo Han Holdings Pte Ltd

Strata-Landed/Non-Landed

454

120

26

1337

BLOSSOM RESIDENCES

OCR

Grand Isle Holdings Pte Ltd

Exec Condo

602

0

25

705

THE RAINFOREST

OCR

Cambome Developments Pte Ltd

Exec Condo

466

0

24

771

CRADELS

RCR

Melrose Land Pte Ltd

Non-Landed

125

0

23

1541

TERRASSE

OCR

MCL Land (Serangoon) Pte Ltd

Non-Landed

414

0

20

1008

ROCHELLE AT NEWTON

CCR

Sim Lian (Keng Lee) Pte Ltd

Non-Landed

129

0

19

1434

SYCAMORE TREE

RCR

Astoria Development Pte Ltd

Non-Landed

96

0

19

1400

IDYLLIC SUITES

RCR

Hillwood Development Pte Ltd

Non-Landed

71

0

18

1196

QUBE SUITES

OCR

Macly Pte Ltd

Non-Landed

21

21

18

1297

8 BASSEIN

CCR

World Class Developments (City Central) Pte Ltd

Non-Landed

74

74

16

1939

THE SEAWIND

OCR

Bayshore Green Pte Ltd

Strata-Landed/Non-Landed

222

0

16

1493

EIGHT COURTYARDS

OCR

Yishun Gold Pte Ltd

Strata-Landed/Non-Landed

654

0

15

829

RIVIERA 38

RCR

Eastwood Green Pte Ltd

Non-Landed

102

6

15

1162

THE CRISTALLO

OCR

Tiong Alk Investments Pte Ltd

Non-Landed

74

0

15

1334

VACANZA @EAST

OCR

Hoi Hup Sunway Property Pte Ltd

Non-Landed

473

0

15

1136

THE INTERLACE

RCR

Ankerite Pte Ltd

Non-Landed

1040

0

14

1164

THE SPRINGSIDE

OCR

Kallang Development (Pte) Ltd

Landed

76

0

14

1529

ARC AT TAMPINES

OCR

Hoi Hup Sunway Tampines Pte Ltd

Exec Condo

574

0

13

738

BLISS @ KOVAN

OCR

BBR Kovan Pte Ltd

Non-Landed

140

0

13

1366

PAVILION PARK (PHASE 2)

OCR

Bukit Batok Development Pte Ltd

Landed

264

11

13

1497

MY MANHATTAN

OCR

CEL-Simel Pte Ltd

Non-Landed

301

0

13

1214

44 SINGAPORE BUSINESS REVIEW | JUNE 2012

PROPERTY TYPE


PROPERTY

KRISANA GALLEZO Mid and high-end property markets show signs of life

D

evelopers were successful in catching the buying trends in the past three months amid fewer unit launches recently. According to Colliers International, developers focused on previously launched developments in April and postponed major new launches to the later part of May. This was possibly due to the preparation for changes in the Housing Developers Rules. Nonetheless, private homes transacted during the month rose by 3.7% m-o-m to 2,487 units, the third consecutive quarter where sales have been in excess of 2,000 units despite the latest round of cooling measures. On a larger note, Jones Lang LaSalle says that the recent result is a new record since 2009, when a historical peak of 2,772 units was marked in July of that year, indicating the presence of a healthy pool of genuine homebuyers and long-term investors. Hot Properties According to Propnex Realty CEO Mohamed Ismail, homebuyers are developing an interest in mixed-used developments like Katong Regency which was a top seller among newly launched properties. According to Soo Hoon, a property agent at e-Singapore property, there have been a few recently launched mixed developments that proved very popular and sold quickly despite being 99-year leaseholds built on the outskirts. Katong Regency meanwhile, he says, is a really rare freehold mixed development. It is also a mere five-minute walk from Paya Lebar MRT station. Spot check with property agents reveals that the property was sold out in early May.

“About 70% of its 244 residential units in Katong Regency were booked on its launch at $1,709 psf” High-end sales Strong market demand has also permeated upwards into the high-end segment which recorded more than 100 sold units after a long hiatus of weak market demand since August 2011. Moreover, Ismail notes that the number of units sold above $2,500psf had doubled from March and the Core Central Region (CCR) sales had doubled too. JLL notes that 106 units were sold in the CCR, an increase of 86% m-o-m as confidence in the market improved and developers launched a larger number of units: 126 in total, a 207% m-o-m increase. Several new projects were launched in the CCR,

Krisana Gallezo Senior Reporter krisana@charltonmedia.com

Price gap between CCR and OCR closing

Source: Jones LaSalle

the largest of which was at 8 Bassein where all 74 units were made available for sale but only 16 units were sold. According to Knight Frank property agent Janice Farm, 8 Bassein is designed exclusively for all aspiring professionals who love to live a cosmopolitan lifestyle in the prime district of Novena. The free-hold property, she says, provides a SOHO style living and workspace for professionals and executives. Its unique features include residents’ discretion for business teleconferencing and videoconferencing. Chua explains that more Singaporean buyers are motivated to enter the CCR market with price gap between new sales in the OCR and CCR narrowing to 1.8 times in April from 2.5 times in June 2007. According to Chua, this trend of a bottom up support of the high-end segment can be expected to continue.

CCR attracts Singaporean buyers

Positive outlook Although investors had remained more cautious about the mid and high-end markets, Ismail notes that April saw a returning investor confidence as the high-end property market showed signs of increase. Ismail predicted May sales figures to continue in the range of about 2,500 to 3,000 units sold as developers had lined up their string of new launches including executive condominiums Watercolours and One Canberra. JLL meanwhile forecast sales for the whole year to range between 18,000 and 20,000 units, provided no further policy measures are introduced. So far in 2012, sales volume has reached 9,169 units. Chua nonetheless warns that the risk of further policy intervention to maintain more stable market demand cannot be ruled out. “ SINGAPORE BUSINESS REVIEW | JUNE 2012 45


ANALYSIS: cORPORATE LENDING

EU banking system woes impact Asia

The Euro burns as Asia fiddles

Asian corporates have been on a debt-fuelled frenzy over the last few years with access to lots of cash at record-low interest rates. But that may be about to change.

T

he saying used to be that when America sneezes, the world gets a cold. But these days, it is the influenza infecting Europe’s banking system that could really start to affect Asia’s major corporates. The reason is that over the last decade, European banks have become the biggest lenders to Asia, outstripping the US. Data from the Bank for International Settlements (BIS) show that European banks have the largest presence among foreign banks in the Asia-Pacific region. Their total exposure was $841 billion in December 2011, which was about 4.3% of the total GDP of the Asia-Pacific region. Economic mayhem in the Eurozone, however, has led European banks to scale back their lending to Asia. And what has started as a flood of funds could well dwindle into a trickle if the crisis deepens. Data just released for the fourth quarter of 2011, the latest avail46 SINGAPORE BUSINESS REVIEW | JUNE 2012

“European banks could cut their total assets by another EUR2 trillion, about 7% of their current holdings, by the end of 2013.”

able, shows another steep drop in European lending to Asia. Nearly USD100 billion was chopped off, with aggregate lending to emerging Asia now down to USD1.3 trillion. That still leaves total exposure at an impressive level, of course. The point, however, according to HSBC economist Frederic Neumann, is that even USD100 billion in lending reduction can put a real squeeze on Asian markets. Neumann noted that the markets already saw an acute dollar shortage occurring across the region in the fourth quarter: interbank rates rose, credit sold off and exchange rates came under pressure. He also reckons that in the first quarter, though data are not yet available, deleveraging from European banks likely slowed, but it didn’t stop the process entirely. In its latest Global Financial Stability Report, the IMF estimates that European banks could cut their total assets by another EUR2 trillion

(about 7% of their current holdings) by the end of 2013. Ritesh Maheshwari and Naoko Nemoto of Standard and Poor’s say that while Asia-Pacific financial markets have so far avoided a significant disruption from deleveraging by European banks in 2011 (because the regional banks have solid liquidity and European banks have limited exposure in local-currency denominated lending), the large cutbacks by European banks could significantly affect Asia-Pacific financial markets due to their sizable presence in specific areas and markets such as foreign-currency denominated loans. The financial markets in Asia have already sounded the alarm bells starting last year, said the S&P analysts, as a result of the European banks’ decision to apply stringent lending standards on overseas markets due to higher funding costs and tighter liquidity—in particular for U.S. dollar funding. The rise in offshore dollar funding costs in the latter half of 2011 also choked the market for a while, as it constrained funding flexibility and boosted funding costs for AsiaPacific banks relying on wholesale dollar funding. The worst-case scenario Clearly, the crisis in Europe looks set to drag on for years, according to Fitch Ratings analyst Andrew Steel, what with little or no decisive action being taken to resolve the issues surrounding Greece, and the country remains in political flux. “Fitch has been forecasting a slow and anaemic recovery for Europe since the crisis began back in 2008, and continues to use that as the basis for producing all its rating case forecasts,” he says. Steel adds that what makes the crisis harder to solve is the lack of a general consensus or concerted political momentum behind the various solutions discussed to address the broader issue of future financial stability across the monetary union as a whole. So how will Asia fare in the face of a prolonged crisis? S&P analysts say that in a worst-case scenario, they may consider negative rating actions if stresses in the Eurozone cause a market dislocation and


ANALYSIS: cORPORATE LENDING result in funding difficulties for Asia-Pacific banks. HSBC’s Neumann, meanwhile, says that in the short run, Asia will feel an immediate squeeze if Eurozone tensions re-erupt. He warned that Asia would feel “a real pinch” should the EU bank deleveraging accelerate and prompt banks from other regions to cut back. Cashing in on the crisis While the crisis has caused European banks to be more cautious and review their usual lending practices, Fitch’s Steel believes there’s a bright side to the crisis, especially for Asian banks. Most Asian banking systems have better funding structures and as a result benefit from surplus liquidity. This has meant that they have managed to step into the void left by the European banks to support the financing needs of the Asian corporates. The main beneficiaries, according to Steel, have been the Japanese mega banks, particularly HSBC and Standard Chartered, and to a lesser extent, the Singaporean banks. Asian banks looking to expand their regional exposure have also bought assets from the departing Europeans. Countering the European pullout is the fact that Asia’s domestic banks are still lending and the first quarter of this year saw a pick-up, especially in China where the reserve ratio was lowered. A survey by the Institute of International Finance suggests that banks in emerging Asia remained relatively cautious in the first quarter compared to other emerging market regions, leaving their overall lending conditions largely unchanged from

the fourth quarter of 2011. Neumann noted that bank funding conditions improved rapidly despite the decline in the lending activity of European banks, suggesting that credit growth will continue to accelerate in the second quarter and possibly beyond. “This should provide the region some resilience in the face of European bank deleveraging that will likely continue for another couple of years, if not longer,” he says. The analyst adds that although it is difficult to say how much of the European banks’ deleveraging will occur in Asia, there are some buffers in place for the likely dip in the assets of European banks in the region. “For one, not all European banks in the region will necessarily reduce their assets: some may even grow them further, thereby partly offsetting deleveraging by others. Moreover, US and Japanese banks are stepping up their presence, thus helping to fill the void left by departing Europeans,” Neumann says. In addition, tighter credit supply could present a chance for Asian banks to charge proper risk premiums for liquidity and credit risks. S&P has observed various cases in which local players were well-positioned to fill the gaps created when foreign banks cut their credit lines. For example, Singapore banks recently saw robust growth in U.S. dollar-denominated loans and they have been actively participating in syndicated loans. One of Japan’s big banks, Sumitomo Mitsui Financial Group Inc., acquired the aircraft leasing assets of The Royal Bank of Scotland Group PLC. Meanwhile, Mitsubishi UFJ Financial Group Inc. rose in its ranking

International bank lending to emerging Asia (USD bn)

in the global league table of project finance to second in 2011 from eighth in 2010, at the same time when banks in Singapore, Malaysia, and Hong Kong increased their presence in the interest rate derivatives market.

“Asia will feel an immediate squeeze if Eurozone tensions re-erupt”

Credit risk enhancement : A must But S&P analysts cautioned that while such opportunities could boost the banks’ market positions and increase their revenue diversification, some may need to rely more on wholesale funding to take advantage of the opportunities—which in turn would expose them to volatility in global markets. If there’s one lesson that Asia-Pacific banks are quickly learning in the face of the troubles in the Eurozone, it is the importance of enhancing their credit risk and liquidity risk management. The crisis has shown that banks cannot just recklessly gobble up the new business opportunities left by retreating European banks because they will be faced with a doublefaced dilemma when they do: their stand-alone credit profiles could come under pressure if they become more aggressive in increasing lending, while growing their credit rapidly could cause ratings agencies to lower its assessments of their risk positions or to lower the results for their of funding and liquidity positions. So while Asian banks can blunt the blow from the economic slowdown in Europe by picking up where the European banks have left off, they still need to become more cautious in their lending activities and tone down the appetite for risk because the crisis isn’t ending anytime soon.

European bank lending to individual Asian economies (USD bn) Chart 2: European bank lending to individual Asian economies (USD bn)

1440

450 400 350 300 250 200 150 100

1170 900 630 360 90 Mar-04

Mar-05

M ar-06

Mar-07 Japan

Mar-08 US

Mar-09 Europe

Mar-10

M ar-11

Consolidated foreign claims of European banks - immediate borrower basis (USD bn)

50 0 CN

HK

IN

ID

SK

MA 4Q-2007

Source: BIS, HSBC

PK 1Q-2011

PH

SG

SL

TW

TH

VT

AU

NZ

4Q-2011

Source: BIS, HSBC

Source: BIS, HSBC

Source: BIS, HSBC

SINGAPORE BUSINESS REVIEW | JUNE 2012 47


LIFE & STYLE

Go for gold with these fitness fines London Olympics gear up for record-breaking action. Ride the momentum and aim for gold with these sporting essentials, from great gear to workout trends. KettleBlock

AIBI Parkway Parade, 80 Marine Parade Road, #B1106/107/108/108A Singapore 449269 ;(0) 6440 9989 Kettle bells have made their way from a fringe workout for Russian veterans and somewhat eccentric fitness enthusiasts to a mainstay at modern gyms. Fans tout the efficiency of the workout which targets core strength, cardiovascular fitness, and flexibility in record time. The KettleBlock™ from Powerblock offers a clever solution to these problems. The smaller KettleBlock™ can be adjusted up to 20lb ($348), with the larger block adjustable to 40lb ( $599). Visit http://www.powerblock. com/Kettleblocks.php for more information. Speedo FASTSKIN3 Racing System

Royal Sporting House Tanglin Mall, 163 Tanglin Road, #01-21/24 Singapore 247933; (0) 6735 5875 Speedo has graced the physiques of many Olympian swimmers, including Michael Phelps during his medal sweeping performance at Beijing 2008. He wore a Fastskin3, the preferred piece for many elite swimmers. Speedo has consulted with professional athletes and coaches from around the world, scanned swimmers in motion, and even ran computer simulations to create a design that minimises drag for maximum hydrodynamism. Stock for the FASTSKIN 3 series (not in large quantity however) is likely to come in July 2012. NIKE+ FuelBand

Vibram Five Fingers

1Takashimaya Singapore Ltd 391 Orchard Road, Level 4 Singapore 238873 (0) 6506 0424 Have you noticed those weird-looking shoes with toes slotted like fingers into gloves? This is the modern minimalist footwear that takes its cue from barefoot runners who claim that the more natural gait reduces common injuries suffered by those wearing conventional shoes. It was originally developed for yacht racers but quickly gained ground among minimalist fans for their versatility and comfort. Of the various models, the Bikila ($199 per pair) is the top choice for runners as it is expressly designed with them in mind, providing a 3mm polyurethane insole for underfoot protection and traction without compromising the barefoot experience. Vibram Five Fingers don’t follow regular shoe sizes and must be fitted in-store. 48 SINGAPORE BUSINESS REVIEW | JUNE 2012

Used by the likes of Lance Armstrong, the NIKE+ FuelBand ($200) wraps up a personal trainer (providing targets, assessment, and motivation) into one sleek, ergonomic band worn on your wrist. For athletes of all stripes, the band offers a new metric to set time, calorie, step, or NikeFuel goals and track physical achievements with its innovative technology. You can select the NikeFuel target for the day, then earn it through your levels of activity as displayed via the band’s LED lights. Your results sync with the Nike+ website via its built-in USB . This will be available in SG mid-year of 2012 ViPR

People’s Park Centre 101 Upper Cross Street, #09-13 Singapore 058357 (0) 6438 2306 ViPR (Vitality, Performance, and Reconditioning) is a fitness trend that’s been reshaping London since 2010. The ViPR looks like a rubber tube notched for grip. During any given workout session, this is “lifted, shifted, flipped, tilted, dragged, and thrown”, with weights ranging from 4kgs ($390) to 20kgs ($695) for every ability level. And unlike bulky exercise machines, ViPR can be used inside the gym and outdoors.


SINGAPORE BUSINESS REVIEW | JUNE 2012 49


numbers

Consumer confidence rebounds; signs point to stability Which country/region in Asia is likely to be a significant growth market for your company?

Are you planning new investment in your business in the next 12 months? Not at all likely 1% Definitely Not very likely

1%

32%

Very likely

25%

32%

Quite likely

Source: Ipsos Business Consulting online survey Note: Data are from responses by business executives across all industries

Source: Ipsos Business Consulting online survey Note: Data are from responses by business executives across all industries

Perceptions of job prospects in Singapore over the next 12 months

Nielsen Consumer Confidence Index: Singapore

Perceptions of job prospects in Singapore over the next 12 months

Bad

1LHOVHQ&RQVXPHU&RQILGH QFH,QGH[6LQJDSRUH 







Not so good

 



Good





4

38

45



Excellent

4

4

6

46

64

 

50

44 

42

 4

 4

 4

 4

 4

6RXUFH7KH1LHOVHQ*OREDO6XUYH\RI&RQVXPHU&RQILGHQFHDQG6SHQGLQJ,QWHQWLRQV4

Source: The Nielsen Global Survey of Consumer Confidence and Spending Intentions, Q1 2012

Hong Kong consumer confidence turns around after two consecutive quarters of decline Hong Kong consumer confidence turns around after

two consecutive quarters of decline

101 100

60

3

Macro economic indicators highlight stability in HKstability economy.in Macro economic indicators highlight

HK economy 12

10.5

110

70

5

Source: The Nielsen Global Survey of Consumer Confidence and Spending Intentions Q1 2012

120

80

3

Source: The Nielsen Global Survey of Consumer Confidence and Spending Intentions, Q1 2012

Consumer Confidence Index

90

2

SG Q1'12

 4

SG Q4'11

 4

SG Q3'11



SG Q2'11

21

95 89 77

93

104

99 100 87

82

108

92

109 104 101 93

103 90

108 100 99

107 92

107 105 89

90

86

110 104 104 88

99 103 89

%

7.3 6.5

6 4

4.3

2.6

Q4 2009

Global Average

Q1 2010

Q2 2010

Q3 2010

Q4 2010

Hong Kong

Q1 2011

Q2 2011

Q3 2011

Q4 2011

China

Sources: Nielsen Consumer Confidence & Personal Finance Behavior, Q1 2012

Q1 2012

0

2010

3.7

3.4

Q1 2011 GDP

4.5

5.7

3.8

2

Q3 2009

6.5

5.1

94

79

Q2 2009

9.2

9.1

8

108

70 Q1 2009

10

Q2 2011 CPI

3.4

Q3 2011

3.1

3.3

Q4 2011

Q1 2012

Unemployment Rate

Source: Census & Statistic Department, HKSAR Sources: Nielsen Consumer Confidence & Personal Finance Behavior, Q1 2012

For more information contact: Ipsos, Kellie Ko (kellie.ko@ipsos.com) &Tim Hill (tim.hill@ipsos.com); Nielsen, Maika Randini (maika.randini@ipsos.com); Nielsen 50 SINGAPORE BUSINESS REVIEW | JUNE 2012


Every business has a different story and a different goal. We understand that. Over many years in this market of unique opportunities, we’ve developed the local knowledge, resources and connections needed to turn ambitions into reality. That’s why we’re one of the most well-established northern European banks in the region. For corporates, financial institutions and private banking clients, we’re ready to listen and cater to your needs – in Beijing, Shanghai, Hong Kong, Singapore and New Delhi. For further information, please call us on +65 6223 5644 or visit sebgroup.com/asia SINGAPORE BUSINESS REVIEW | JUNE 2012 51

Jon Hicks/Corbis/Scanpix

When it’s time to do business, we’re exceptionally open.


52 SINGAPORE BUSINESS REVIEW | JUNE 2012

Singapore Business Review  

June - July issue

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