The Business of Singapore - Term Paper Example

INTERNATIONAL BUSINESS (SINGAPORE) By Introduction Over time, Singapore has been identified as one of the most highly trade oriented market economy. It is one of the most pro-business countries with low tax rates of about 14.2 percent of the Gross Domestic Product (GDP). All business transactions in Singapore are open and had been ranked as the 7th least corrupt nation in the whole world. The country has the third highest per capita Gross Domestic Product (GDP). The country has a stable political economy; as a result, it attracts a number of investors from different parts of the world. Thus, it benefits from the inward inflow of FDI (Foreign Direct Investment) who represent the global investors. The country is also a regional hub for wealth management as it ensures that there is enough revenue for the purchase of raw material and natural resources which are not available in the country. In view of this, the case study analyses Singapore’s international trade, explain how globalisation has affected its economy and its culture and evaluates the factors that are affecting its international business through SWOT analysis. International trade Since the 1960s, research has shown that Singapore has improved in its export and import sector of the economy. It has been ranked as the 15th largest importer and 14th largest exporter in the world. International trade has a great impact on Singapore’s economy. Singapore adoption of export-oriented industrialisation made it easy for the country to succeed in the international market. Additionally, they have few barriers to the importation and exportation of goods and services. That means that the country has few trade barriers. The country also trades with the Most Favoured Nation (MFN) (Hinkelman & Shippey, 2004, p. 93). There are zero tariff rates which apply to some of their products. Additionally, they have six lines for alcohol beverages making it one of the best exporters of alcohol beverage. However, there are different import restrictions because of environmental, health, and security concerns. It considers free trade as an important factor which facilitates the growth of the nation. Accessed from http://www.lanka.com.sg/posters/trade_and_investment/120326050317table.gif Primarily, the United States is one of the largest Singapore’s trading partners. United States influences Singapore’s international trade (Koh & Lin, 2004, p. 56). From the sale of the manufactured goods such as the computer peripherals and electronics, the country imports natural resources and agricultural products. Singapore has limited arable land, thus; it depends on the aggro-technology park. Additionally, the country relies on intermediary trade where it purchases the raw material and refined them through the manufacturing process and re-exports them to different countries in the world. Some of the companies that rely on important raw materials are the oil refining company and wafer Fabrication Company. There are also some enterprises in Singapore which are formed to promote international trade. One of them is the International Enterprise, which is a governmental agency that drives the Singapore’s external economy. It is instrumental in establishing connections in the developing and emerging nations. Singapore Imports Source:www.TRADINGECONOMICS.COM –Statistics Singapore Balance of Trade in Singapore In a balanced economy, the exports of a country exceed its imports. Singapore has balanced trade because its exports exceed its imports. It imports raw materials and refines them to finished products which are more expensive than the raw materials. Over time, Singapore has been running a surplus of over 20 percent of its Gross Domestic product from 2004 to date. The strong export performance is attributed to the kind of goods it exports such as mineral fuels and electronics. Its balance trade is also attributed to the aggregate levels of investment and savings. The economic trade balance is determined by its investments and savings (Casanova, 2005, p. 36). The excess savings in Singapore are channeled to other countries for investment in agricultural sectors. Singapore being a net exporter makes it easy for the country to become a net investor in the rest of the world. To facilitate its savings, Singapore has a longstanding institution which provides a compulsory saving scheme for all workers in the country. Exports are the main source of income. Thus, the country works towards exporting more goods and services. It relies on raw materials from other countries and refines them for re-exports. The main exports in the country include chemicals, petroleum products, and electronic components. The imports include chemicals, foodstuffs, machinery and equipment, and mineral fuels. It relies on purchasing the intermediate goods and exporting the high-quality products which are refined. Additionally, the Monetary Authority of Singapore also plays a major role by slowing down Singapore’s dollar appreciation. It accumulates the exchange reserves by selling its currency markets. In the last 3 decades, Singapore has managed to trade balance and has achieved a trade surplus of US$10 billion. Singapore has been balanced its economy because of its vulnerability to the changing global economy. The economic and political uncertainty from its neighbouring countries such as Indonesia, Thailand, and Philippines strengthens its position making it a stable economic country. Singapore Balance of Trade Source: www.TRADINGECONOMIC.COM- Singapore Statistics Trading Partners A free trade agreement was signed on February 2003 (Singapore-Australia Free Trade Agreement (SAFTA)); it started operating on July 2003. Singapore also becomes a party to Australia New Zealand Free Trade Agreement (AANZFTA). Singapore has also partnered with several countries such as Iceland, Switzerland, Norway, India, Japan, Korea, United States, and Panama. Regionally, Singapore used the Trans-Pacific Strategic Economic Partnership Agreement, which included countries such as New Zealand, Chile, and Brunei the agreement later expanded to international countries such as Australia and United States. Singapore supports major trading organisations such as the World Trade organisation. In 1996, it hosted the World Trade Organisation first Ministerial Meeting. It works closely with members of the World Trade Organisation. Singapore has also hosted the 1999 and 2006 meetings of the World Economic Forum, and it is also an active member of the organisation. The primary exports in the different countries include consumer goods, mineral fuels, consumer goods, and electronics. The primary export partners include Hong Kong, Japan, Malaysia, Indonesia, and China. Import partners for Singapore include South Korea, Indonesia, China, and Malaysia. The North American Free Trade Agreement (NAFTA) is also instrumental in the formation of different Singapore’s partnership facilitating free trade in America. It is an agreement which was signed by the United States, Canada, and Mexico (Hinkelman & Shippey, 2004, p. 128). Top 12 Singapore’s trading Partners Source: UAE Embassy statistics Globalisation After World War II, the effects of globalisation were experienced in different countries. Over time, globalisation in Singapore is driven by two factors, which include technological advancement which lowered the costs of communication and transportation. The other factor is the increased liberalization of the capital and trade markets. Singapore is free from the imposition of trade tariffs, export restraints, and import quotas. The country freely exports and imports goods and services leading to the expansion of its international trade. In place of protectionism international organisations such as General Agreement on Tariffs and Trade (GATT), World Trade Organisation (WTO, World Bank, and International Monetary Fund were established. Singapore is a member of the organisation, thus opening it to the world of international trade. International trade in Singapore has been possible because of the free market and the highly educated workforce who provide quality labour for the industry. They also have some of the policies, which attract foreign investors such as the foreign direct investment (FDI) inflows (Koh & Lin, 2004, p. 22). With globalisation, Singapore has developed hi-tech equipment, which has facilitated its growth. The innovations and development of technology have facilitated the growth of its industrial sector. The high-tech technology has been facilitated by access to perfect infrastructure, electronic parts, and political stability. Singapore has also established biotechnological companies which have facilitated the rapid industrialisation in the country. The level of education has also been boosted by the high-tech technology. Singapore is imports raw material and produces finished products as a result of globalisation. Globalisation leads to the exchange of ideas from one country to another, hence ensuring that there is development of trade. There is also faster transfer of goods and services because of the development of transportation and communications sector as a result of globalisation. The multilateral negotiations an international organisation such as General Agreement on Tariffs and Trade also have quickened the globalisation and establishment of different markets in Singapore. Globalisation in Singapore has opened up a free trading regime, which is very crucial for the prosperity of the country’s international trade. International organisations such as European Union make it easy for states to trade freely without paying taxes and custom duties (Choudhury, 2012, p. 23). Economic and cultural benefits and drawbacks Singapore is dominated by individuals from different parts of the world, but mostly from India, China, and Malaysia. That means that there are different languages spoken in Singapore, which include Tamil, Chinese, English, and Malay. The difference in language makes it hard for trade in different parts of Singapore to be carried out effectively. It is an Island which is located in the Southern part of Malaysia. As a result of its location, it serves as a trading port especially for British ships. The country is prone to many foreign influences as people came from different parts of the world to work in the country. For instance, the Indian and Chinese workers moved to the harbour thus passing their culture to the Singapore people. The foreign influence of Singapore culture has remained at 40 percent of the population is from foreign nations (Abshire, 2011, p. 44). Thus, the country has a mix of its traditions, languages, and religions. Singapore has different economic benefits has the country is a free trade country. One of the economic benefits is that there are no barriers put in place by the government to restrict the flow of services and goods from one nation to another. When some of the barriers such as trade tariffs and subsidies are put in place, they protect the domestic producers. However, in Singapore case, exports and imports facilitate the growth the growth of the country’s international trade. The country imports the raw materials and exports the manufactured goods, which are more costly in the market, hence stabilizing its economic status (Choudhury, 2012, p. 221). Through imports and exports, a country has a variety of goods and services to choose from. Thus, there is a reduction of the prices of goods and services produced in the market. The consumers can choose from the variety of the goods and services supplied in the market. There is also improved in the standards of living because of the creation of job opportunities. SWOT Analysis Strengths Singapore success in the international market has been facilitated by several strengths which include the connection of Chinese, Malay, and English speaking people. Through this connection, the country creates treaties easily with different countries which in turn facilitate trade. The country also hosts international games and animation companies. The revenue acquired from the companies is used to expand trade. Singapore also hosts high-end VFX studios that use modern technology leading to the development of the country. Additionally, Singapore has a strong and open economy, hence, facilitating international trade in the country. It has also developed strong links with the global economy (Casanova, 2005, p. 39). Weaknesses Singapore focuses on the international market. As a result, it has a limited size of the domestic market. It imports the raw material in bulk and exports into other countries. Although the country has different production companies, they are small in size. Thus, they provide job opportunities to a limited number of people in the Singapore. There is also highly fragmented market because of the different languages in the country, most of the times the country does not stand as one voice. There is a small pool for local professional as the country aims at international trade only. Opportunities One of the opportunities for Singapore is the rapid growth of the air transport. As a result of globalisation, the globe has become smaller, and people can move to different parts of the countries faster because of the accessibility of the modern forms of transport. Singapore also has a high Gross Domestic Product per capita. The GDP assures the company that it can still sustain its country and continue with the business operations. There is also a high rate of electronics use such as smartphones showing that there is a market available for the produced electronics. Threats With globalisation, there is stiff competition from other manufacturing companies such as Japan and China. The competition affects the sale of its products. The aging population is becoming more than the younger population. Thus, with time labor for companies may not be available leading to the collapse of the companies. There are also few young people who are talented. Most of them perform procedural jobs, and they do not give their ideas concerning the production process. Recommendations 1. Enhancing the Global Trader Program As Singapore faces competition from different countries, it must review the importance and relevance of the GTP. Through that, it will be able to respond to the global trends and move quickly to its production sector. 2. Creating a strong Singapore Based Exchange Singapore is supposed to create alternative traditional exchanges to facilitate the growth of the international trade. There should also be the formation of alliances and mergers among the companies in Singapore. Through this, Singapore will create a strong based exchange, offering different services under one roof. The merger also facilitates expertise as people with different skills come together to work towards achievement of a common goal. 3. Deepen and develop Singapore’s corporate bond market The corporate bonds provide the trading enterprises with longer repayment period and greater flexibility. There should be the facilitation of trading debts and bonds. The bonds also ensure that the established companies are stabilized. Bibliography Abshire, J. E., 2011. The history of Singapore. 3rd ed. Santa Barbara, Calif: Greenwood. Casanova, M. F., 2005. The U.S. Singapore Free Trade Agreement. 2nd ed. New York : Novinka Books. Choudhury, B., 2012. Public services and international trade liberalization : human rights and gender implications. 2nd ed. New York : Cambridge University Press. Hinkelman, E. G. & Shippey, K. C., 2004. Dictionary of international trade : handbook of the global trade community includes 19 key appendices. 6th ed. Novato, Calif.: World Trade Press. Koh, T. & Lin, C. L., 2004. The United States-singapore Free Trade Agreement : Highlights And Insights.. 2nd ed. Singapore : World Scientific. Read More