International Business - Singapore - Case Study Example

The rise of globalisation has led to emergence of many factors in the economic world. Such factors include the rise of trade among nations of the world, which is referred to as the international trade. Though international trade has been present since the 18th century, it has been experiencing gradual changes and transformations from the classic international trade where it was mainly between countries to the modern international trade as a result of rise and growth of multinational companies in the international trade order. The rise of multinationals has changed international trade substantially and, therefore, this essay is geared towards looking at the effects of international trade on the modern day trade, as well as globalisation with Singapore serving as a case study. Introduction Singapore is an island state lying on the south of Malay Peninsula. The island is diamond-shaped, and it is regularly termed as the Singapore Island. The country is a contemporary city-state and has emerged to be among the world’s biggest commercial centres and one of the busiest ports around the globe. A former colony of the British, the country joined with other former British colonies in 1963 to form Malaysia even though it was later expelled from the union two years later. However, the country has picked up from this setback to achieve rapid development to be regarded as among the four Asian Tigers. Factors such as a well-functioning international trade for instance manufacturing as well as globalisation have expanded Singapore’s economy to catapult it into such success. Singapore’s international trade The importance of international trade to Singapore’s economy cannot be overestimated due to the country’s small domestic market as well as lack of adequate natural resources. According to World Trade Organisation’s rankings, Singapore ranks in the 14th spot among the largest exporters and is ranked 15th biggest importer in international trade in the world. The World Trade Organisation further point out that Singapore enjoys the highest trade to GDP ratio in the world. Since attaining its independence in 1963, Singapore adopted an economic policy that encouraged export-motivated industries as a means of increasing the quantity of goods and services targeting the international markets. In addition, the government removed trade barriers that existed to curtail the import of goods, as well as services (Siddique, 2007). Moreover, the government views the growth of free trade as an important element to the country’s continued economic prominence. Historically, Singapore has been relentless in its advocacy for free trade relations among the members of APEC, Asia-Pacific Economic Cooperation organisation. Additionally, the island state has been vocal in its support for the formation of a free trade zone among the southern, eastern Asian countries known as the ASEAN, that is, Association of South East Asian Nations (Siddique, 2007). As aforementioned, the domestic market of Singapore is relatively small. As such, Singapore had to align itself with external agencies and trade partners to be the commercial hub that is widely recognised and respected. The United States has since 1999 risen to be one of the biggest trade partners of Singapore accounting for a large percentage of all exports arising from the manufacturing of computer accessories and electronics. The US-owned multinational companies which have invested and based in Singapore constitute the large number of the export manufacturers to strengthen the development of the country’s international trade. Malaysia is likewise an indispensable trade partner of the island state just ranking marginally below the United States in terms of the export market. Other strategic trading partners include China, the United Kingdom, Canada, Japan as well as the Australia (Cassanova, 2004). In terms of the imports, Japan, and the United States constitute the largest suppliers of Singapore by taking a large percentage of the total imports of the country. Malaysia also continues to be a major traditional big supplier of Singapore’s imports. Worthy of note is that the major import commodities include foodstuffs and raw materials which explains why despite Singapore is not having any viable oil deposits is one of the biggest oil exporters in the world (Siddique, 2007). In theories of international trade, the mercantilist theory of trade asserts that to know if a country is doing exemplary in the international market, the difference between its imports, when compared to exports, need to be known. This is referred to as the trade balance. Therefore, the trade balance of a given country such as Singapore is normally calculated as the figure got when the value of exports of goods and services is subtracted from the value of the imported goods and services being a percentage of the Gross Domestic Product. In instances where the value of exported goods and services is more than the value of imported goods and services, a trade surplus is realised resulting in a positive trade balance. However, where the value of imported goods and services is more than the value of exported goods and services, a trade deficit is realised which translates to a negative trade balance (Siddique, 2007). Going on the above to analyze the value of Singapore’s exports as compared to its imports, it becomes evident that Singapore mainly has a positive trade balance due to its policy of importing mainly cheap raw materials and unfinished goods and consequently exporting expensive high-value supplemented goods. The trade surplus achieved by Singapore at the turn of the millennium which culminated in a positive trade balance has propelled the country’s international trade to great economic heights in the past 30 years (Siddique, 2007). Impact of Globalisation on Singapore’s economic and cultural setting Economic impact Globalisation is a phenomenon that impact on every aspect of a country including its economic development, as well as cultural practices. Shifting the focus to Singapore and the impact of globalisation in the city state, it is of importance to note that the efforts taken by the country in promoting free trade and engaging and executing free trade agreements has greatly influenced globalisation in the country for the past decade to make Singapore be viewed as a global state. Additionally, encouraging and facilitating of setting up of multinational companies in island state’s economy has influenced the rise of globalisation in the city-state (Koh, 2010). The country has been credited for its ability to build on the positive effects of globalisation to build an established vibrant and resilient economy. For instance, Singapore has enjoyed unrivalled returns in its bid of wooing investments and talent from across the globe to its economy to maximise on such investment consequently converting an average economy that mainly relied on fishing activities into a modern day city state focused on economic growth with up to the world’s best infrastructure. The government’s policy of adopting free trade practices in an open economy has made Singapore an indispensable economic partner of the world’s rising superpowers of China and India. In addition, the vast tourist attractions in the city state plays a vital role of ensuring that entrepreneurs, as well as tourist from different places of the world, visit the country for purposes of business as well as leisure (Koh, 2010). However, despite the positive impacts of globalisation to Singapore’s economy, it also comes with its fair share of negative effects. Majorly, the concept of free trade and open economy coupled with Singapore’s dalliance with external economies leaves the city state’s economy vulnerable to unexpected and bound to happen changes in the global economy. The global economy remains highly volatile and unstable due to different economic and political regimes in the respective countries, which have the effect of changing the economy when it is least expected. Global economic recesses remain a reality as well as fluctuating inflation rates around the globe (Koh, 2010). In addition, the endless entry of imported talent has negatively impacted of the employment opportunities of the city state’s indigenous population. Although the country is widely lauded for its low unemployment rates, the situation may change due to the competition of the available employment opportunities with the ever increasing foreign talent and skill coming to the city-state. However, the government has risen to combat the happening of such a situation by engaging affirmative actions geared towards giving the local population an edge to the employment opportunities. The major problem that remains unresolved in the inequality in income allocation in the country that appears to be ever widening between the haves and the have not (Koh, 2010). Cultural impact Singapore has various races and ethnic dimensions such as the Americans, Chinese, and people of Malaysia, Indians, and Europeans. Despite their distinct and unrelated races, these people have existed together for many years peacefully and harmoniously. As a result, the city-state is hailed as one of the most multicultural nations in the world. When referring the culture of Singapore, therefore, it is the outcome of the combination of these diverse races that have made this country their home and have co-existed peacefully for many decades. The larger Singaporean culture, therefore, is a combination of these distinct cultures. Despite this, the Singaporean people remain true to their culture by observing and keeping their traditional customs and consequently passing the tradition down to the incoming generations. This keeps the city-state a fairly traditional society (Velayutham, 2007). Nevertheless, the effect of globalisation has been felt in this traditional cultural setup particularly the western culture. Among the positives of globalisation to Singapore’s culture is the opening up of the Singaporean people to other different lifestyles of the world, which they have come to appreciate and accept. Additionally, globalisation has resulted in improved literacy levels in the city state even making the Singaporean people start using western brands (Velayutham, 2007). As with the case with the effects of globalisation in the economy of Singapore, even in terms of culture globalisation has its negative effects. Often it is easier to assume that globalisation had no effect on Singaporean culture since Singapore has long been a westernised country since the time of British colonisation. However this being the case it is not entirely true since on the very basic family level, most of the Singaporean families are keen to keep their ancestral and cultural traditions intact passing down the generations. However, globalisation has brought in different lifestyles into the fray which have greatly blemished the Singaporean culture down to even the change of language from the native language to the English language which now serves as the official language in both the government and business transactions (Velayutham, 2007). Factors affecting Singapore’s international trade The governments domineering policy in the regulation and proprietorship of many Singapore companies has come under intense criticism. This has served to discourage the setting up of new businesses in the country thereby slowing economic growth and development. In addition, the country faces growing rivalry from its adjoining states. The rise of the Thailand economy for instance draws a new dimension to the picture with these neighbouring states also offering great investment space with a bid of attracting multinational companies to their territories. Additionally this has made the country susceptible to variations in global market demands. However, the uncertain political and economic in its neighbouring states for instance Indonesia serves to underlines Singapore as the preferred investment destination confirming its position as the market leader in the region (Sadhu, 1990). Moreover, the ever-shrinking labour pool and swelling business costs has been a negative factor in the country’s economic growth. The policy of the government of an open economy has resulted in numerous multinational companies setting base in the country with all of them fighting for the ever pressed factors of production in the country. The result of this has been an increase in the production and costs since the tough competition for the reducing factors of production pushes their demand to increase leading to an increase of expenses required to access these indispensable factors of production (Sadhu, 1990). Recommendations The government of Singapore should consider reviewing its policy of an open economy to be more restrictive to guard the local companies that fail to break even due to the presence of huge multinational companies in the economy. This will in addition serve to reduce the competition and over stretching of the limited factors of production thereby bringing the costs of production down (Sadhu, 1990). In addition, the government should consider reviewing its highly restrictive policies in the regulation and formation of Singaporean companies to boost investor confidence. The regime should consider developing attractive business incentives as well as attractive tax regimes to attract multinational industries. The government should devise policies geared towards maintaining the multinational companies already established in the country lest they are poached by the neighbours (Sadhu, 1990). Conclusion Singapore has emerged to be a market leader in the international trade despite having a small domestic market. This shows that the international market presents an ideal ground for the economy of any state to develop and grow beyond the local economic confines. References Siddique, M. A. B. (2007). ‘Regionalism, trade and economic development in the Asia-Pacific region.’ Cheltenham, UK, Edward Elgar. Casanova, M. F. (2004). ‘The U.S. Singapore Free Trade Agreement.’ New York, Novinka Books. Velayutham, S. (2007). ‘Responding to globalisation: nation, culture and identity in Singapore.’ Singapore, Institute of Southeast Asian Studies. Koh, A. (2010). Tactical globalisation: learning from the Singapore experiment. Bern, Peter Lang. Sandhu, K. S. (1990). Management of success the moulding of modern Singapore. Singapore, Inst. of Southeast Asian Studies. Read More