What we should do to keep Singapore attractive for MNCs

For eight consecutive years since 2006, Singapore has held the crown for the World’s Easiest Place to Do Business, according to the World Bank. This is quite an achievement, and is made possible by the relentless revisions and additions to the pro-business policies of the Singapore government.

Singapore’s attractive tax regime with its zero capital gains tax, smart immigration laws, English speaking workforce and strong legal system have coalesced to make it the preferred place for international firms.

It is not surprising then, that Singapore is a gateway to Asia for MNCs seeking to expand into emerging Asian markets. According to AmCham Singapore, as of 2012, 59% of Fortune 500 companies have their regional headquarters in Singapore.

Still, Singapore must cautiously defend this favorable position from Hong Kong, which offers MNCs a more direct entry to the huge China market. Pro-business policies alone will be insufficient as they can be copied by other economies, threatening Singapore’s position. Singapore needs to go beyond its existing pro-business offerings to allow corporate centers to become value adding entities for their organisations.

The regional headquarters of MNCs located in Singapore, also known as corporate centers, are strategically set up to get closer to growing markets. For example, in 2012 P&G relocated its HQ for beauty and baby products 9,600 miles from Cincinnati to Singapore in order to position themselves closer to Asian markets’ growing demand.

Along with such a move came the relocation of P&G’s star leadership team comprising of President for Global Baby Care Martin Riant and Group President for Global Beauty Deb Henretta.

Unfortunately, local offices regularly lament that their corporate centers actually limit the flexibility required to innovate and localize products.

According to our research, Corporate centers are often labeled ‘value destroyers’ for interfering with operational planning, leveraging resources with little corresponding return, and introducing bureaucracy that reduces the value of the organisation to employees, customers and investors.

This is worrying, as MNCs may lose confidence in Singapore’s ability to host regional offices that can create value for the HQ. A case in point is P&G’s move to Singapore: its move to Singapore may not have completely succeeded in delivering all possible results, as P&G has lost market share in nearly 50% of its businesses from December 2011 to 2012 according to a UBS report.

Why are corporate centers not able to create value for their parent company, even when they are operating in Singapore’s pro-business economy?

The answer requires MNCs to take a deeper look at the way corporate centres create value. There are three primary levers - Resource, Synergy and Learning - that MNCs’ Corporate centers should use to create value.

Resource: This is where the corporate center has direct control over resources that is allocated to its foreign subsidiaries around the region. Value creation via economies of scale and scope, combined with a stable business environment, allows the corporate center to efficiently allocate resources. Leveraging the resource lever allows corporate centers to leverage available local resources to maximise competitive advantages.

Synergy: The corporate centre can create value by streamlining its internal processes and prioritising Global optimization over Local optimization. This requires a holistic view of the region to identify and deploy best practices that can create synergy and greatest value for the entire organization rather than just through a single subsidiary.

Learning: Using this lever requires the corporate center to codify valuable experiences from its foray into a new region into organisational knowledge. It also allows the appropriate parts of the organisation to make independent decisions while other parts remain controlled by the corporate center. This lever facilitates the creation of new competitive advantages and faster rates of innovation within the organisation.

Currently, Singapore’s pro-business environment only facilitates the Resource lever by allowing MNCs to locate themselves closer to their target markets through corporate centers that enable efficient and cost effective use of local resources.

To enable further value creation, Singapore’s economic policies must address the additional levers of Synergy and Learning, and ensure that MNCs can deploy them within the corporate centers to create further value for HQ.

Former president S. R. Nathan mentioned that Singapore is "beginning to reap the fruits after more than two decades of efforts" in research and development (R&D) by attracting leading companies such as Google, Rolls-Royce, and BMW.

This is an indication that Singapore is en-route to implementing the lever for Learning and Synergy. Both of these levers work hand in hand because global optimization (synergy) is very difficult to achieve in a multinational setting if organizations fail to harness the power of learning.

If Singapore can provide more of such competencies it will truly become much more than just a gateway to Asia.