Singapore Government Press Release

Media Relations Division, Ministry of Information, Communications and the Arts,

MITA Building, 140 Hill Street, 2nd Storey, Singapore 179369

Tel: 6837-9666

Distinguished Guests,

Ladies and Gentlemen

It�s a pleasure to join you this morning for the opening of GlobalTRONICS 2002.

This year�s GlobalTRONICS comes at a time of continued turbulence in the electronics industry. We are past the worst of the cycle, but the picture remains uncertain for the next few quarters.

The global tech sector is plodding along the path to recovery, with no clear sign of having lifted itself out of the slump that began more than a year ago. Chip sales worldwide improved earlier this year, but have levelled off in recent months. New orders in the US for electronic products have recently fallen (May and June), even as inventory levels continued to slide. The global book-to-bill ratio for semiconductor equipment, an important leading indicator of growth, fell to 1.16 in July - its lowest level in four months. It has renewed questions about the prospects for a recovery in consumer purchases of PCs and other electronic goods. Last week, Gartner Dataquest lowered its forecast of growth in global chip sales from about 3% to virtually zero (minus 0.1%) for 2002. It also downgraded its forecast of global IT spending this year from 8% to 3%.

The electronics industry in Singapore will mirror conditions in the global cycle. Electronics production has picked up since late last year. But the momentum has slackened in recent months. The outlook is unclear for the next few quarters.

We have to keep a close watch on the prospects for the industry over the near term. But we should not lose sight of the longer term. We have to build up our capabilities now and train our sights on the horizons ahead, even as we navigate the current sea of turbulence. If we focus only on the choppiness around us, we will get motion sickness. We will not make it onto the next big wave of growth.

The longer term prospects of the electronics industry are not in doubt. It is a matter of time before the industry turns around more decisively and surges ahead. That is why the major chipmakers worldwide are still investing substantial sums to build more efficient factories and more advanced chips, despite the current uncertainties.

Technology is the key driver behind the electronics industry. The proliferation of innovations in electronics is relentless. There is continuous evolution in the enabling technologies as well - the processes, materials and manufacturing tools that support the electronics sector.

Technology is also behind a second driving force, which is falling prices and profit margins. Profit margins are being squeezed by shorter shelf lives and the rapid commoditisation of electronics products. The price of a megabyte of storage has fallen from US$3.75 in 1992 to less than one cent today.

Technology and prices are therefore reshaping the electronics landscape, and competitive dynamics between companies in the business. It is vastly more competitive industry than it was even 3-4 years ago. To compete and remain profitable, manufacturers have to stay trim, and keep a tight rein on costs. Constant improvement is required just to stay in the business.

Should we diversify away from electronics? Whenever a downturn occurs in the electronics industry and our economy is hit, we naturally question if we should reduce our dependency on the industry. Some diversification is already taking place. We are developing more engines of growth in the economy, like biomedical sciences and service activities like logistics, finance, health and design services.

But we should ensure that electronics remains a key pillar of Singapore�s economy. We should continue to invest in manpower and R&D for Singapore to stay competitive in the industry and maximise its growth. There are a number of reasons why we should stay in electronics, for the foreseeable future.

The first is global. Electronics has become the largest manufacturing industry in the world, with an influence on communications, entertainment and education and productivity extending to every corner of the globe. There is every indication that it will continue to grow rapidly, for at least another 20 years. We should keep our position in the industry, and ride the ups and downs of its cycles, as long as we can compete and stay relevant to the industry.

A second reason is that electronics provides good jobs, and is a source of productivity growth in the Singapore economy. The electronics industry employs about 100,000 Singaporean workers. Between 1990 to 2001, the value-added per worker in the industry has grown by more than 3 times in real terms, compared to 1.8 times for the overall manufacturing sector, and 1.3 times for services.

The third reason has to do with Singapore�s size, and the limits to how far we can diversify as we enter an innovation-driven economy. We do not have the critical mass of manpower, skills and capabilities to support a truly diversified economy. This is all the more so as we move up the value and innovation ladder. Success will depend not just on chance, or on keeping costs down, but on having deep pools of knowledge and skills. Even as we groom local talent and skills, seek to absorb foreign talent and borrow expertise from all over the world, there will be limits to the number of industries which we can acquire deep competence in, with a workforce of little over 2 million. We cannot therefore avoid focusing on the key industries in which we stand a good chance of success, and build capabilities to sustain our competitive advantage in them.

A fourth reason has to do with our accumulated competencies in electronics, which are a source of competitiveness that we should build on. We have over the years developed strong competencies in electronics, and a whole infrastructure of supporting industries, skills and internationally reputed research capabilities around it. It will be unwise to abandon this infrastructure. Singapore has been able to grow its electronics sector by keeping pace with the changing needs of the global industry, building on accumulated advantages and constantly reinventing the sector. We have evolved from a low cost production base for labour-intensive electronics manufacturing to one that leverages on intellectual capital and an ability to operate highly advanced technologies. We started out with consumer electronics and semiconductor assembly and test activities in the 1970s, and moved on to hard disk drive manufacturing in the 1980s. Since the 1990s, we have moved into wafer fabs.

Let me briefly address the issue of costs. With a small labour force, high standard of living and limited land, we cannot match our competitors in every dimension of costs. We cannot seek to compete on any sustained basis by running down wages because that defeats the whole purpose of economic policy, which is to increase standards of living.

However, competitiveness is not just about unit costs of labour. On a system-wide basis, Singapore offers a competitive location in terms of cost efficiency, quality and reliability. From point of import of materials and equipment to point of shipment of goods, Singapore offers electronics manufacturers a competitive advantage through efficient and reliable logistics, the availability of skilled manpower, and a strong cluster of local and foreign suppliers and supporting industries. Earlier this year, the Government announced significant tax cuts to strengthen Singapore�s attractiveness as an investment destination. We will continue to keep a close watch on the cost of business in Singapore in totality.

It is because of our efficiency as a total system that Singapore continues to receive a strong vote of confidence from the electronics industry. Despite the depressed state of global electronics last year, fixed assets investments (FAI) commitments in the electronics and precision engineering (EPE) cluster in Singapore reached S$5.6 billion. This amounted to over 60% of total manufacturing FAI commitments last year.

We can further enhance our cost competitiveness by working with our neighbours. Under the Integrated Sourcing Initiative (or ISI) in the ongoing Free Trade Agreement (FTA) negotiations with the US, certain electronic components made in the region, in particular Batam and Bintan, will qualify as Singapore products and enjoy the concessions provided in the US-Singapore FTA. This will enhance the integration of electronics manufacturing in Singapore and the region. As a geographical cluster with complementary strengths, we will be better able to compete internationally.

Singapore is also retaining its position as a key node in the international supply chain in electronics, as its centre of gravity shifts to East Asia. One striking indication of this is in our bilateral trade in electronics with China, which is fast emerging as global production centre for the industry. In the second quarter this year, our electronics exports to and imports from China both grew by 34%.

Our local electronics companies are also increasingly venturing overseas to tap business opportunities and to better serve their international clients. International Enterprise Singapore (IE Singapore) has helped more than 100 Singaporean electronics and support companies to set up operations in countries such as China, Mexico, Indonesia, India and Hungary to take advantage of their lower-cost environments while siting higher value-added activities in Singapore. Local companies such as Venture Manufacturing, Omni Mold, Beyonics, Amtek Engineering, have now established a presence in far-flung locations, enhancing their ability to serve global customers.

In the evolving competitive landscape in the electronics industry, design is increasingly becoming a tool of differentiation, for enhancing product competitiveness, and for defining brand identity. The iconic examples like Palm V and iMAc are well known. There are many others in the electronics industry, distinguishing themselves by their design.

We intend to establish Singapore as one of the leading international hubs for industrial design. This will fortify our position as provider of integrated design and manufacturing solutions. To do this, Singapore will actively seek out and attract world-class design studios that serve international markets. Several Singapore based industrial design firms have already been providing design solutions to MNCs from around the world and have won international awards. We will continue to deepen our strengths and build new capabilities in design.

We have done well in the past, and we are determined to sustain our advantages in electronics and move up the pole. We will provide an efficient and reliable infrastructure for the operations of electronics manufacturers, from which they can plug into the rapidly growing Asian supply chain. We will upgrade manpower skills continually, and stay at the cutting edge of research and innovation. We will secure many more good years for the electronics industry in Singapore.

Much like the electronics industry in Singapore, GlobalTRONICS has continuously evolved and succeeded in finding new ways to better serve the electronics community. Since its inception in 1992, GlobalTRONICS has consistently presented the best of Asia�s electronics manufacturing technology and processes. From its initial focus on core manufacturing activities, GlobalTRONICS now exhibits innovative design and manufacturing solutions.

I am glad to note that IE Singapore has conferred on GlobalTRONICS 2002 Approved International Fair status in recognition of its truly global outreach. GlobalTRONICS is now one of the biggest trade shows in Singapore and the third largest event of its kind, globally.

On this note, I congratulate the organisers for staging a successful event. I expect it will continue to thrive in the years ahead. It is my pleasure to declare GlobalTRONICS 2002 and the GlobalTRONICS Business Summit open.