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KWR Special Report
Expanding Your Business In Southeast Asia:
Interview with Philip Overmyer, Chief Executive, Singapore International Chamber of Commerce

By Keith W. Rabin, President KWR International, Inc.

Thank you Phil for speaking with us today. Before we begin perhaps you can tell us a little about your background and your experience in the region.

I worked for AT&T in the US for a long time and in 1989 the firm sent me to Singapore. It was supposed to be a two-year assignment and turned into 12. For the first few years I had responsibility for five counties in Southeast Asia. Then in 1996 AT&T spun off their hardware business and I began taking care of their business dealings with telephone companies in Asia, including Japan, NZ, India, China, the Pacific Islands and everything in between. I ran that until 2001 when AT&T started to dismantle itself. I then returned to Washington and worked with a trade consulting firm until in 2003 I was "drafted" to return here to Singapore to run the Chamber as its Chief Executive.

Unlike many Chambers the Singapore International Chamber of Commerce (SICC) has members from around the world. Can you tell us about your organization, its history, and the issues you focus on? Given companies from different economies have different interests, how do you bridge their different needs?

The SICC is one of the oldest Chambers in Asia. This is our 137th year anniversary and we were founded in 1837. When it was founded it was the only Chamber in Singapore and formed by large multinationals of the time, with interests in transportation, logistics, trading and other sectors. That has continued to this day. Our members are large companies. About 60% of the firms are foreign companies headquartered overseas, and the other 40% are Singaporean. Our membership includes companies from about 40 different countries.

We focus on two main areas. The primary activity is to provide companies with opportunities to share ideas about Asian markets - new trends, market conditions, things on the horizon - not only in Singapore. In fact the local market is so small few concentrate on this market but use Singapore as their headquarters. Our other focus which has grown more important in the last 7-8 years or so is government advocacy work. We coordinate closely with agencies such as Singapore's Ministries of Trade and Industry, Finance and Manpower, etc. across a range of issues that effect our companies' ability to maintain a profitable presence here. We make them understand the challenges - and they are very responsive and seek us out given our 800 membership generates about 60-70% of corporate revenues here.

There is not as much of a concern about different style and interests between firms of different nationalities as you would think. That is because most of our members focus on reaching into markets throughout Asia. Therefore they have a lot of common interests even if they are managed from different countries. The challenges of marketing into Southeast Asia are the same or similar for each of them.

It is also important to note most of the people employed by our member firms are Singaporean. The top person may be an expatriate but most of the employees in the company are local. And increasingly the top executive here will be Singaporean. That is a major change from 15 years or so ago when much more of the top management was comprised of expatriates.

Additionally, to keep in tune with the needs of our companies we have a Board of Directors drawn from a variety of companies, countries and sectors. At the moment there are about 25 people on our board, representing companies from about 15 different countries.

Singapore is consistently rated by the World Bank as the No. 1 place to do business in the world even though it has a high cost structure and small domestic economy. Given most people are far more familiar with China and India what should they know about Singapore and the opportunities it offers.

You are right -- Singapore is an especially easy place to get started and in which to conduct business. Everything is done in English and the rules are simple and straightforward. You can get a company registered in a couple of days and there are excellent support services so it is very easy. And since most everyone speaks English it is relatively easy to hire people, though when the markets heat up we reach full employment quickly.

It is an outstanding place to locate a regional headquarters for the business reasons noted. It is also a very easy place to live. Transportation can be accessed easily to almost anyplace and it is safe and pleasant, with good medical care and schools for children. There are many cultural activities and many things are being done to build-up and beautify both the downtown area and major shopping districts.

Some companies also find Singapore a great place to manufacture their top-end products. It is by no means a low-cost platform so most firms who manufacture here use it as a place to manufacture only their highest-end products and components and then produce other products and components and assemble them elsewhere in Asia.

We have been working closely with the Riau Islands, an Indonesian province with three Free Trade Zones (FTZ) about an hour from Singapore (14 kilometers) serviced by hundred+ ferries between these two destinations every day. How do you view the potential of these FTZ's and what are your thoughts on announcements Singapore and Indonesia will cooperate more closely in their development?

When I first came to Singapore in 1989 it was almost the same time when they announced this collaborative process to develop Batam as an industrial center and in fact AT&T set up a manufacturing facility there. Now there are many companies in Singapore who produce high-end components here and then ship them to Batam or some of the other islands for assembly, packaging and shipment. As I mentioned manufacturing costs are expensive here so companies tend to do high-end technical production of components in Singapore and then produce intermediary components and do final assembly in Batam. This provides high quality products at much more competitive costs.

And in recent years a lot of the difficulties in doing this have been overcome so it is getting easier and easier and it now looks like other Riau islands are following Batam and developing in similar fashion. This trend is likely to accelerate in coming years as Singapore shifts more to becoming a service and lifestyle center.

One thing though you have to recognize is that Singapore and Malaysia are getting to the point they will use the Iskandar area of Malaysia in a similar way. Some people say that will be the end of Batam and the Riau Island FTZs - but that is not what I am hearing from my companies.

I think if you have both locations it introduces more options and competition and enhances the whole competiveness of the region and our ability to compete with China and other locations. Both areas will grow as they have different cost structures and capabilities and what makes this attractive to business is that you can have corporate and product management and other functions, for example R&D, etc. in Singapore and technology people here and then get it started here in small factories and then have these two neighboring areas of Riau Islands and Iskandar to which you can distribute larger-scale production.

Today, however Iskandar is not yet developed and it is difficult to extend this kind of product production beyond Batam. So Batam's capability is only used on a limited basis and many firms just ship high-end components from Singapore to China for final production. But as Iskandar develops and as integrated production capabilities across the Riau Islands become more efficient, we will see more companies keeping much of their production closer to home and managing it more efficiently across all three locations. Singapore, the Riau Islands and Iskandar will all gain higher value output as a result.

Indonesia and Singapore are both part of the Association of Southeast Asian Nations (ASEAN) a region that is largely unknown in other parts of the world despite its rich potential and considerable size and potential when measured on an aggregate basis. Can you talk a bit about ASEAN, its potential and history as well as how you view it developing in the future?

ASEAN in my view is a place that has tremendous potential as a market and production center for big companies from all over the world. The potential is enormous but since the region has not been able to move forward with sufficient speed to break down many of the border, currency and regulatory issues they are a long way from achieving the transparency of being able to produce products within different countries such as you can do in US states or the EU.

As a result access is now country-by-country and province-by-province unlike the US and the EU. On the other hand India and China are standalone countries so once you enter them you can start to penetrate their whole domestic economy. And they are so enormous their market opportunities consume Western companies resources compared to ASEAN. That is a shame given the opportunities here and the fact in many ways there is less competition so the margins can be higher.

To recite one anecdote I was just talking with an analyst and he visited a senior US congressional staff to explain why ASEAN is so important to the US. After listening for a few moments the staffer asked "why are you pronouncing 'Asian' that way?" And that illustrates the big problem. Until now ASEAN has not functioned as a unit so it is not only more difficult to operate regionally, there is also less recognition of its needs and potential.

But once it does seize the initiative it will increasingly take on the look of the "third market" on the scale of China and India and those who are already established will have a major advantage.

Most US and European firms look to Asia as a way to lower manufacturing costs to produce products for sale back in their domestic economies. Today, however, Asia is quickly becoming a center of consumption and increasingly a primary driver of global demand. How important is an Asian market presence? How are your members shifting their orientation and what do firms need to keep in mind as they shift from "supply" to "demand" focused Asia business development strategies?

You are absolutely right that is what is going on. For companies already here with facilities throughout the region they are asking - if 90% of what we made was to be shipped back to US and Europe and those markets are now flat - how can we direct some of this back into Asia - mainly the larger markets, China, India and now Indonesia is also emerging. What should I make? How do I modify it to satisfy the need of these markets? And what do I need to do in order to be able to distribute there?

The next sphere is the mid-tier companies, including those that market to a sector or part of the US or Europe. These are well-established, capable companies and they want to know how they can get into Asia. Most of them want to focus on China and India - since these are the big markets they hear about.

Singapore is trying to work with these companies to let them know that China is tough. People don't speak your language, there are complex government relationships and regulations - but if you come to Singapore you can establish a headquarters here and gain access to all the expertise that exists here and in the neighbors. That will help you to penetrate China and India and also to gain the benefits of economies within Southeast Asia. So put up your base here, gather people with unique skills for each target market, and then venture into each Asian market with a unique strategy and team of experienced people, while also gaining the benefits of ASEAN as it emerges.

For years we have been writing about the Asian consumer and what has struck me on this trip is how much progress has been achieved. Even last year Asia was in recession but now is growing fast and purchasing-power-parities seem to be disappearing right before ones eyes. At the same time many people continue to view this as a low-end market and ask if we can't compete with China and India in the US how can we do it in Asia? How do you address these concerns?

It is a different market and if you look at China you see the sheer size is enormous. But what is particularly interesting is how rapidly the middle part of that market is growing. Look at Shanghai and see the high-rise buildings and luxury products. Fifteen years ago you could not see a car and today you can't even see the road. At the same time you would not go in with the same high-end product you would market in the US, but there is still a strong and growing demand for other good-quality, high-end products.

For example, I wouldn't take my 52 inch plasma screen and market it to apartment dwellers - mostly because the apartment is not big enough. Rather, I might develop a high-end home entertainment system more targeted to the size of the apartments. The bottom line though is there is a huge middle class that is growing and which will expand over time. Similar trends are evident in India and throughout Southeast Asia.

A few years ago we surveyed 150+ US technology executives concerning international business expansion and found while most acknowledged the importance of Asia few possessed the capabilities or resources needed to develop an effective entry strategy. What should these companies, particularly mid-sized firms understand as they consider both the opportunities and challenges of Asia?

I think the most important thing when you make the move is to really understand and accept the fact that the entire cultural structure here is significantly different than what you are used to in the US.

You cannot enter these markets with the same business style, products and sales techniques you use in your home markets. There are two ways to learn. One is to go in by yourself, which is very high risk. The other is to hire people who are closer to your way of doing business and understand the general nature of your business as well as the market you want to enter. And then use these people to help you enter and to do your planning and develop your strategy.

For example in Europe you know there are massive consumer differences in each country, and even between cities. Each one has very different structures and tastes. That is also the case regionally in the US. Asia is the same way and in lots of ways even more so.

So you need help. You need to go to the more developed markets in Asia and gain the support you need with people who can help you. This is exactly what Singapore hopes to do for companies new to the region. If you are in Singapore, drop by the SICC and we will show you how it works.

Thank you Phil so much for your time and attention. Before we conclude are there any final words you would like to leave with our readers?

I think ASEAN is at a crossroads where the growth of the world markets will be focused on Asia for at least the next several years. So this will be a tremendous opportunity for countries in the region to appeal to foreign companies who are seeking to expand into this market. This is not only true in terms of US and European firms, but also for companies from Japan, Korea and even China and India who see the potential of the region.

ASEAN has an enormous opportunity to take advantage of this and if we get it right and get it done soon it will be viewed as an alternative market to China and India. So there will be three enormous markets here in Asia - not two and in many ways one can view ASEAN as the safest and best of the three.

But to succeed, ASEAN must get its act together, and do so quickly. If ASEAN projects a unified and integrated market place to international companies it will become a very powerful market place. But if we don't get it done soon, ASEAN will simply be a collection of neighboring countries, and each one will be evaluated on its own small markets.

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This interview is part of an ongoing series highlighting Asia-related business, trade and investment opportunities and issues.

Keith W. Rabin serves as President at KWR International, Inc., a consulting firm specializing in the delivery of Asia-focused trade, business and investment development, research and public relations/public affairs services for corporate and government clients. For more information, please visit http://www.kwrintl.com.

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KWR International Advisor

Editor: Dr. Scott B. MacDonald, Sr. Consultant

Deputy Editors: Dr. Jonathan Lemco, Director and Sr. Consultant and Robert Windorf, Senior Consultant

Publisher: Keith W. Rabin, President

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