Effects of the Economic Downturn in Japan and Singapore - Term Paper Example

CHAPTER Introduction Between 2008 and 2009, several countries in the world experienced the worst financial crises ever since the Depression if thelate 1930s (Jordan 2009). The financial crisis affected both developed and developing economies and forced several governments to take urgent steps to prevent a total collapse of their financial systems. A similar impact was felt in Asian economies especially in Japan and Singapore. In fact, Singapore was the first Asian country to witness the negative effects of the economic downturn. The crisis stalled most business activities and sectors and paralyzed the economy leading to job losses and bankruptcies. The current study examines the effects of the 2008 financial crisis on the Singaporean IT (Information Technology) sector and focuses primarily on the trends experienced thereupon among the various IT projects in progress within this industry. The importance of this crisis is highlighted from the fact that it forced Singapore into a drastic and critical recession and threatened to stall the entire South East Asian economy. According to GDP (Gross Domestic Product) estimates, which were released by the Ministry of Trade and Industry of the government of Singapore, the country was expected to grow from -2% to 1% in the year 2009, an estimate lower by 1% to 2% as measured in November 2009 (Daniel 2010). Beginning November 2008, global demand and investments in trade had been paralyzed and in turn had an adverse impact on several economic sectors in Singapore such as wholesale, retail, transport and storage sectors. For instance, the manufacturing sector is estimated to have contracted by 3.7% in 2008 and is a bit better than the 5.8% contraction for the year 2007 (Bradley 2009). The services and construction sectors also registered a slower rate of growth by as much as 5.3% (the figures were an incredible 17.3% in 2007) (Bradley 2009). Laying a primary emphasis on mitigating job losses, the government of Singapore responded to the crisis by adopting several measures. Amongst them, one of the most significant initiatives implemented included a job-retraining program aimed at improving the professional skills of workers and to reduce the burden on businesses by paying for related expenses incurred over job training. In several other cases, the government also closed down several projects or instructed business to do so if it felt that they were to resource intensive or hampering the reversal of the crisis (include author). A broad review of related literature and news reports (include authors) suggests that the IT industry was generally favored and supported by the government during this period of economic recession and restructuring. For example, a tender to provide passive fiber grid for the next generation of national broadband network in Singapore was awarded in September 2008. Decisions like these clearly indicate a high level of trust and commitment on the part of the Singapore government to support the IT sector and use of IT services despite and signifies the relevance of IT as an instrument for emerging out of the crisis. Further, a passive ICT infrastructure was to be implemented in Singapore by Netcom OpenNet to deliver speeds of 1Gbps and beyond. The government committed itself towards extending a grant of S$750 million to the contracted company so as to support the network implementation (James 2009) in the hope of opening up several opportunities along the way for many other I.T projects. Also, expenditure on ICT hardware as well as software systems was boosted up, a move which is believed to have opened up a bigger market for suppliers from international firms. The problems of Singapore have been compounded with growing insecurity and the threat of terrorism is affecting international trade between Singapore and its trading partners. In a bid to improve security, Singaporean officials visited many Israeli companies for consultation on adopting viable measures to thwart these vulnerabilities. Security measures like video analytics, light weight X-Ray machines, biological detectors, chemical detectors, explosive detectors, blast containment and protective computer equipments were some of the equipment recommended from their analysis. Purchasing, installing and maintaining these cutting-edge security technologies has given a big boost and served as an incentive to the IT sector and providers in Singapore. While Singapore continues to bank heavily on its proven IT expertise, the 2008 financial crisis appears to have had a significant impact on the progress of IT projects like the ones mentioned above. The study has worked towards developing a clear understanding of these issues by developing an elaborate guideline of research objectives and associated questions which have been thoroughly investigated. These include the evaluation of the performance of IT projects in Singapore between 2008 and2009, the economic scenario in Singapore during the financial crisis and the performance and course of IT projects in Singapore before, during and after the crisis. CHAPTER 2: Literature review 2.1 Overview of Economic Downturn in Singapore Singapore is a leading economic powerhouse in Asia and the third largest in the world in terms of network readiness (Singapore Economic Development Board (EDB) 2009). Though Singapore is one of the wealthiest countries in South East Asia, it was also among the first few to recede into an economic recession during the 2008 financial downturn (Benjaathonsirikul 2009). The country has an established and efficient Information Technology (IT) industry with a robust intellectual market comprising over eighty prominent companies that provide a range of IT services including both software and hardware. Even in the midst of economic downturn, the IT industry in Singapore continued to experience significant growth. The domestic IT market has been values at US$4.8 billion for the year 2008 and the government has increased its spending in establishing a broader Information and Communication Technology (ICT) infrastructure across the island nation (Business Monitor International 2009). Exports are the mainstay of most South East Asian economies and Singapore is no exception. Singapore was particularly vulnerable to the economic downturn due to its high dependency on exports and has critically devastated its overall economic growth. In response to resolving the impact of the downturn, the government of Singapore put in place several strategies, with one of them being to invest more in its IT sector. 2.2 Investments on I.T Projects During the crisis period, several medium to large sized IT projects that were encouraged and funded based on their relevance to important and critical sectors that could assist the government’s efforts in staving off the crisis. This led to further investments in IT projects that were being developed to assist sectors such as health care, e-government, homeland security, manpower, transport and education. An example of such investments can be cited in the case of the implementation of the nationwide broadband network for homes which cost nearly US$750 million (Business Monitor International 2009). The government introduced a stimulus package of US$20 billion into the IT Industry to prevent the country’s economy from slumping further. This stimulus package is expected to bring about a significant positive impact to the IT projects being developed and has benefited from the enhanced collaboration between the government and other commercial players who understand the importance of the crisis. These strategies highlight the faith placed by the Singapore government and local business on the viability of IT projects as important tools for rejuvenating economic growth (Adams 247). Singapore, which lays a great emphasis on technological advancement, has continuously nurtured investments in technological initiatives as sees it as a prospective contributor in the growth and expansion of its economy. In fact, the government has at times stalled projects in some sectors in order to fund its ongoing IT projects. For example, a construction project worth S$4.7 billion was scrapped in 2008 in order to in order to facilitate investments for other needy sectors of the economy (Business Monitor 2009). The government of Singapore believes that by boosting its investment in operational and security technologies, efficiency would be created to safeguard the economy and its associated elements such as border security compliance (Business Monitor International 2009). In the financial year 2008-2009, the government of Singapore recognized the need to extend further support to the healthcare and medical sectors. Through detailed studies it was discovered that there was reduced efficiency in the provision of health care services to the public due to inefficient handling of patient records and documents. For instance, multiple medical records are stored at different clinics and hospitals in different formats and are not connected, synchronized or consolidated. When patients consult different doctors, they need to undergo repeated tests and medical procedures leading to more expenses and financial difficulties. This inefficiency not only escalates unnecessary cost but also inhibits a doctor’s capabilities to develop an overall understanding of the patient’s medical history leading to a poor and inefficient diagnosis. This has prompted the government to undertake necessary steps in enhancing its existing Electronic Medical Records (EMR) system. The expansion and revamp of this electronic system was performed by Israeli Healthcare IT companies and brought about an increased efficiency in the country’s healthcare services. Although other sectors of the economy were experiencing hurdles in continuing their projects, investments in leading IT technologies have recently helped Singaporean firms capture more markets and expand business operations. This has in turn boosted the performance of other economic sectors as in the case of the water authority of Singapore which was funded substantially in 2009 from funds made available through improved tax reserves. The generation of these additional funds has been cited to the vast improvements delivered by new IT projects that have helped cut down costs in government spending. The water authority has further benefited in efficient water resource management through support from related management software which has established the positive impact of encouraging IT projects even during periods of turmoil and economic difficulties (Chia 297). 2.3 Effects on other Economic Sectors The negative impacts on the economic growth were inevitable and affected various sectors of Singapore economy in many ways. The private sector was especially weighed down by the credit crunch as well as reduced external demand for the country’s exports. Initial signs of recovery were evident by late 2009 after the country had invested heavily in the consolidation and expansion of its IT projects and undertook massive improvements in its technology infrastructure. Local demand for goods and services began to improve and financial schemes were put in force to assist local enterprises in improving their workflows, minimize costs and offer better products and services at competitive prices. 2.4 Enhancing Productivity In the post-crisis period since the later part of 2010, Singapore has recognized productivity as the primary driver for ensuring a sustainable growth that is capable of weathering similar economic downturns in the future. In this context, the administration wants to look beyond certain drivers of development that have largely achieved growth on a temporary basis1. For example, the over leveraging of business activities in developing markets has led to undesirable effects in the forms of bubbles and has led to economic crashes in the past. In the context of productivity, the government looks to enhance the skills of workers in various sector including the IT and services industry and is keen to enable them work smarter through the better leverage of Information Technology and soft skills, which are perceived as the basic catalysts for enabling sustainable growth of the overall Singaporean economy2. In the IT sector, the government is taking steps to develop a pool of professionals who are receptive to innovation and evolving leadership in embarking on challenging initiatives. During early 2010, the Singaporean government opened a ‘National Productivity and Continuing Education Council’ which works towards improving the technical and IT skills of local workers and boosts their productivity3. Moreover, the government has forged alliances among various internal departments to facilitate the utilization of IT expertise in these domains and create a more effective workforce in every related sector. However, these initiatives demand a long-term perspective, commitment and oversight from the government, private industries and investors. The IT sector, through related projects, has a two-fold capacity to become a primary element of driving growth in the Singaporean economy – the first is to enable the growth of the enterprise through the best and proper utilization of all available resources, while the other is to occupy the role as an engine of innovation and growth to have an impact beyond national borders4. There is no room for doubt that innovation in the Singaporean IT sector will not just create new jobs, but also help in securing new customers. The government believes that the power of the Internet revolution is still underutilized and a lot of inroads can be made into utilizing its capabilities and features in a number of domains necessary for public security, economic growth and sustainability. Along with this trend, there is also some effort towards educating local people to use this technology so that it becomes a success in reality within the coming few years. Read More