Can Singapore be Asia’s tech capital?
Singapore’s policymakers have driven a coherent campaign promoting Singapore as an Asian technology centre, in addition to its role as a global finance centre. But does the city-state have sustainable fundamentals in place across scale, scope and ecosystem economies to establish itself as Asia’s pre-eminent technology capital?
Despite a number of sound fundamentals, the situation is uncertain. It lacks the sizeable talent pools and domestic economies of larger neighbours like Malaysia or Indonesia, let alone China and India with their multiple hubs and large internal markets. Yet it’s managed to punch above its weight and capitalise on inefficiencies across regional jurisdictions, its economic infrastructure and geo-economic advantages as a means of arbitrage.
In a 2017 commentary, the CEO of the Singapore Exchange (SGX), Loh Boon Chye, noted: “Singapore has many winning factors — such as government funding, infrastructure support and talent — which have contributed to the growth of our tech and startup ecosystem. But as a country, we can do more. Winds in the technology world are starting to change. Chinese companies like the Alibaba Group and Tencent Holdings have joined the multi-billion tech club, which once used to have only American names.”
“At present though, the US remains the biggest and deepest market for technology companies and startups, and will continue to be so for some time. In Asia, there is no stock exchange that holds a strong leadership position in technology initial public offerings (IPOs).
To become a global technology hub, Singapore needs more robust funding platforms that will finance the future needs of Asia’s startups, small and medium enterprises (SMEs) and new-generation companies. With a third of this year’s unicorns hailing from Asia, the centre of gravity for tech will arguably soon shift east.”
More recently, a December 2020 TechCrunch report suggested the city-state could become the “Silicon Valley of Asia”, with Chinese tech majors planning regional hubs and adding to the menageries of tech majors with like Google, Facebook, Amazon, Stripe, Salesforce and Grab already maintaining headquarters or significant operations there. This convergence of claim it backed up the grow
Since the dot-com bubble burst in the early 2000s, rival hubs have emerged that have seen Silicon Valley’s lead erode. In the US, California’s lead in the innovation sector and its Silicon Valley centrality is being threatened by the innovation sector fostered by Texas.
And globally, the last two decades have seen the rise of multiple startup hubs in Europe; across Asia with multiple tech centres in China and India; and across the cities of Southeast Asia.
With all this competition for the global technology crown, Silicon Valley, let alone Singapore, have their work cut out for them. So what’re the chances of Singapore’s ecosystem being able to maintain a major global role?
Government support & talent component
Historically, Silicon Valley’s foundation was rooted in support from the government. The public sector played a key role in mobilising and allocating the resources to drive the development of Silicon Valley and its semiconductor sector.
The US government was at one point Stanford University research’s biggest customer, and this drove the development of an ecosystem ideal for technology innovation and commercialisation.
Back to 2000, California maintained a commanding lead among US states in research and development (R&D) investment, venture capital investment and other measures of future promise. However, Texas and other states have since risen as challengers. And corporate relocations by major enterprises like Oracle and Tesla in the 2020/2021 period imply further changes ahead.
Bloomberg reports: “Texas is the top destination for a growing number of companies moving out of California — and has been for upward of 12 years. In 2019, for example, 1,800 companies left the state; most went to Texas. This has been paralleled by population shifts, with a net shift of 42,500 people leaving California for Texas, the largest such movement of people in the country.”
This represents an influx of “well-educated, affluent tech workers” likely to transform Texas and its economy, laying the foundation for a growing talent pool. This happened to Israel following the collapse of the Soviet Union, which saw an influx of Russian Jews, many of whom possessed deep scientific and technical expertise.
Israel adapted the policies of the US to its innovation ecosystem, as a way to generate employment and capitalise on this wellspring of human capital in the early 1990s. Besides contributing to its emergence as a ‘Startup Nation’, it’s also transformed Israel significantly in the last three decades.
Singapore has learned from this experience, emulating and adapting both Israeli and US policies to varying degrees. It has grown its own innovation sector and entrepreneurial ecosystem and is now offering tech talent visas as a means of facilitating leading international talent to work there. But the 2020/2021 period has also highlighted growing nativist sentiments even as scaling technology enterprises grapple with a talent crunch.
The government seeks to maintain a dual-track approach where it develops a ‘Singaporean core’ in the form of a local talent pool while also being more selective in foreign hires. Talent is vital for it to remain a commercial centre.
But border and talent restrictions throughout the COVID-19 pandemic have also driven Singapore-based firms to hire remotely, given the complications, complexity and intense competition involved in talent acquisition.
It also highlights how tenuous and delicate Singapore’s role as a regional technology hub, whether in the Southeast Asian or Indo-Asia Pacific context. With talent being a key factor foreign enterprises consider in establishing a presence in Singapore, it’s clear the city-state must remain open to talent.
Socioeconomic disparities
Singapore’s policymakers will also have to contend with the spectre of a socioeconomic divide that becoming a technology capital can bring. As a finance centre, Singapore is a city-state without a hinterland, an advantage that Tokyo, New York, London, Hong Kong and Shanghai have.
A May 2021 Bloomberg report notes the pandemic has driven wealthy and affluent individuals from across Asia to Singapore, with global banks gearing up to serve high net-worth individuals (HNWIs) in the city-state.
JPMorgan Chase, HSBC and UBS are all planning to boost their hires in the city-state in the near future, with the city-state also attracting as much of the new assets in the region as Hong Kong. Singapore’s fundamental appeal as a wealth management centre remains robust despite the global COVID-19 pandemic.
The influx of wealthy foreigners remains strong despite the latest virus clampdown. It has also led to a boost for Singapore’s property market, with the strongest growth in the luxury sector. This means Singapore has become an outlier in the rental market. While traditionally comparable to London as a destination for capital preservation via property purchase, its rental rates are now rising even as rates fall in New York, Hong Kong and London.
But this also means that the rise in asset prices also drives the corresponding growth of already significant living costs in the city-state, as well as exacerbating the wealth disparity in the island nation. Conspicuous wealth displays are causing resentment, coupled with declining social mobility and rising inequality means its frictions will rise.
This concentration of wealth has also occurred in Silicon Valley is something that bears lessons for Singapore policymakers. The COVID-19 pandemic forced many residents to grapple with unemployment, loss of housing and illness, while the technology corporations thrived.
The 2021 Silicon Valley Index, released by the nonprofit Joint Venture Silicon Valley’s Institute for Regional Studies, highlighted how the wealth became more concentrated among those already affluent.
In fact, the index gauges that income inequality has grown twice as quickly as the rest of California and the US in the last 10 years; the top 16% of Silicon Valley households hold 81% of regional wealth while the bottom 53% hold 2% of the wealth.
This is compounded by close to 20% of Silicon Valley households lacking savings, which rendered it difficult to pay for food, housing, groceries and healthcare during the varying lockdowns implemented during the pandemic, which also drove job losses.
Hong Kong factor
There are strong push factors in the form of Hong Kong’s loss of rule of law and business exodus — there are parallels to post-Brexit London — being beneficial to Singapore.
While some argue for Hong Kong’s continued importance as an international financial centre despite compromised rule of law, many global enterprises are voting with their feet.
These MNCs are accompanied by tech firms not servicing mainland China. Many financial services firms are exiting or otherwise recalibrating their presence in Hong Kong.
As of December 2020, 52 banks and financial companies and 24 insurers left the city, with firms like The Vanguard Group, The Motley Fool and others announcing exits, with Singapore being perceived as the only viable replacement.
The Lowy Institute, a Sydney-based international policy think-tank highlights: ”Any centre, including a financial one, needs the right environment to thrive and prosper. Politics has now deprived Hong Kong and London of such hinterland. “
“Why should a foreign banking interest aiming to settle in the Chinese financial market not choose Shanghai, with a more stable environment, rather than Hong Kong, where the future looks uncertain? And why should those who are looking for a financial foothold in Asia, but have strategic reasons to preserve distance from China, not choose Singapore, Tokyo, Mumbai, or indeed Sydney?”
Professionals are heading to rival commercial centres such as Singapore, for those exploring pan-Asian plays. Meanwhile, Shanghai attracts enterprises and expatriates with a sustained focus on the mainland Chinese economy. Mixed opinions are expressed on Hong Kong’s future, with many concluding the city no longer offers the viable prospects it did in the past.
Media reports highlights how significant volume of international companies have shifted regional HQs out of Hong Kong — the city is seeing its highest rate of commercial real estate vacancies in 15 years according to data compiled by Cushman & Wakefield— with most of the space surrendered by foreign businesses. Not helped by the SARS-COV-2 pandemic, reportedly more people have departed Hong Kong in 2020 than any year since the 2008 global financial crisis.
In an interaction with Wall Street Journal, Frederik Gollob, chairman of the European Chamber of Commerce in Hong Kong, shared: “Being in Hong Kong always used to be a no-brainer. Now, for the first time, businesses are having discussions around, do we need to be in Hong Kong?”
The prospects for international businesses operating in Hong Kong and with a focus on mainland China are also worsened by Beijing passing an “anti-foreign sanctions law” to punish MNCs that comply with foreign sanctions against China. Applicable to Hong Kong, it empowers Chinese authorities to “claim damages or seize assets from companies that are deemed to be aiding the enforcement of such penalties” and further
With “potentially irreconcilable compliance problems” for foreign businesses — there is explicit legal conflict between foreign jurisdictions and China — Mini van de Pol, head of law firm Baker McKenzie’s Asia-Pacific compliance and investigations group in Hong Kong explained in a media interaction: “The law now provides a basis for damages claims against multinational and Chinese companies who are seen as aiders and abettors if they comply with foreign sanctions to discriminate against China and its national interests.”
Conclusion
Singapore has a lot of factors playing to its advantage, with some observers considering it a leading alternative to Silicon Valley. It’s established business and technical infrastructure, legal transparency and political continuity have continued to draw MNCs, SMEs; and startups ventures to the city-state. It’s consistently ranked as a potential world-leading technology hub and features sustained, robust government support and intellectual property (IP) laws.
It’s also a neutral node in the geopolitical competition between the US and China, as well as a springboard to Southeast Asia, India and the broader Indo-Asia Pacific — consisting of the Indian Ocean Rim region and the traditional Asia Pacific — with a network of free trade agreements enabling low-friction economic and capital flows.
But Singapore’s approach to conducting new projects and an emphasis on ‘proven innovation’ is occasionally “too restricted by old standards and bureaucracy”, compounded by a work culture that can inhibit implementations of new and innovative solutions. And this is a systemic matter, rather than simply the experience of a single entrepreneur.
It also lacks a coherent and sustained capital market-economic growth nexus, with equity capital markets hobbled by meaningful public sector support, compounded by perceptions of shortfalls in corporate governance, liquidity and valuations. This makes it hard for local entrepreneurs to exit locally and investors to generate returns.
Local tech enterprises like Grab, Razer and Sea Ltd have chosen to list abroad, meaning substantial capital from Singapore flows outside the city-state. Much of this is then invested abroad, rather than being recycled domestically into the local entrepreneurial ecosystem or the returns among the investment public.
However, some are reportedly considering secondary ‘homecoming’ listings, with Hong Kong’s homecoming share sales, spurred by US political pressure. This unlocked significant extra liquidity for those companies, though whether it’ll even happen, let alone positively impacts Singapore’s stock market remains to be seen.
There’s also the limited land supply and hinterlands other global finance centres possess in abundance. Singapore’s limited land banks have to juggle competing demands between housing, industrial, commercial and other sectors. This partially contributes to elements of rentier behaviour in Singapore, with policymakers having to balance its economic development; stature as a commercial centre; and maintaining affordable living costs.
Singapore’s potential to succeed as a technology capital comes down to evolving a sustainable finance-growth nexus; developing sustainable solutions to resolve its limited land capacity and finding a way to balance its competing land demands; and leveraging the window of opportunity created by a disrupted world.
All of these are within the realm of possibility, if its household, private and public sectors can collaborate and build a mutually beneficial convergence. But despite a seemingly favourable impression shared by a number of observers and strong infrastructure, no firm predictions regarding its potential success as a technology capital can be made.
