What would be the impact of increasingly higher energy prices and a weakening US dollar — and hence a sharply stronger Singapore dollar — on businesses here? What can be done to combat the negative impact, and exploit the opportunities, of these twin developments?

Predeep Menon Executive Director & CEO Singapore Indian Chamber of Commerce & Industry (SICCI)

DEPENDING on the economic sector in question, these two trends can either provide some relief or turn out to be a double whammy. For instance, the trading sector is generally taking a hit, as US dollar deals are now generating less revenue when the deals are booked locally in Sing dollars. Unfortunately, even for companies in the aviation or logistics sectors, the escalation in energy prices outweighs the forex benefits and any relief is minimal and transient.

On the flip side, a stronger Sing dollar could mitigate inflationary pressures on our domestic economy and should result in cheaper US dollar-denominated imports. It could also induce greater investment in overseas markets and encourage more Singaporeans to travel abroad – a further boost for our travel industry.

However, there is great concern over the spiralling cost of energy and other key commodities. The weakening US dollar also indicates a loss of confidence in the US economy. This, many analysts fear, could lead to the undesirable situation of stagflation. Hence, our companies need to hedge their risks better as well as boost productivity, thereby enhancing their cost-competitiveness in a volatile global marketplace.

Capitalise on opportunities

Mike Sim Executive Chairman/CEO Sinwa Ltd

FOLKS in the shipping industry like to say that if not for their industry, half the world will starve while the other half will freeze. Rising oil prices or the weakening greenback will not change the fact that people everywhere will still have basic needs like food and energy. Additionally, oil prices will stay high irrespective of the weakening US dollar because global demand for oil – driven largely by China and other rapidly industrialising countries – far outstrips supply.

Due to the imbalance, oil and gas exploration activities are intensifying all around the world. Therefore, companies that can successfully find ways to tap into this boom can actually thrive amid a sliding greenback and escalating oil prices.

Sinwa began to diversify into the offshore oil and gas sector in late 2006, and we have since established two joint ventures with separate partners, one to build and charter a jack-up rig and another to convert and charter a seismic vessel. These two developments have allowed us to diversify from our mainstay of ship supply and logistics, as well as provided lucrative new revenue streams.

Sinwa continues to realise more business opportunities in the offshore sector. In Western Australia we are focused on the oil and gas sector because exploration activities in that part of the world have increased rapidly in recent times. We are rapidly developing our warehousing and logistics infrastructural capabilities to meet increasing demands for such facilities in the near future.

Business opportunities abound regardless of what the external environment is. The trick lies in identifying new business opportunities thrown up by the external landscape and capitalising on them.

Charles Reed CEO interTouch

THE US recession will affect some parts of Asia and result in higher inflation and slowing growth. Singapore, however, not only has a pro-business environment that attracts high foreign investment, it also has a robust regulatory infrastructure to boost and sustain growth. The recent Budget also indicates that incentives are in place to help businesses in Singapore tide over global downturns.

Rather than focus on the negative impact of the slowdown, companies should focus on the opportunities. For example, new revenue sources can be explored by keeping a close watch on fast-changing consumer and industry trends. Organisations can also make strategic decisions to diversify their businesses and expand their scale and scope in order to create a natural hedge against economic volatility.

Ultimately, businesses need to be committed to a long-term vision in order to sustain their growth and success. At the same time, business flexibility is critical – tactics and policies should be constantly reassessed and tweaked to ensure that any challenge resulting from an economic downturn can be translated into a business opportunity.

Aye See Tan Managing Director, Asia Pacific Savvis Singapore Company Pte Ltd

BUSINESSES in Singapore are already seeing an increase in their power costs. This will have a negative impact on companies deciding whether to base their businesses in Singapore. To overcome these challenges, companies should consider how they can better manage their power consumption through technology and economies of scale. In our case, we see an opportunity for managed service providers, like us, who can offer value together with economies of scale as an outsourcing option for companies here.

The economic crisis in the US has narrowed the gap between the US and Singapore dollar significantly. We think that cash-rich businesses or those that can tap into low interest rate borrowings here will be well-positioned to take advantage of this opportunity to expand their investments into the US or consider strategic acquisitions that will add value to their existing business.

Pinaki Rath Managing Director Gold Matrix Resources Pte Ltd

BUSINESSES have generally reconciled to the strength of the Singapore dollar and have hopefully hedged themselves appropriately. It is not just that the Singapore dollar is strengthening – it is more about the endemic weakness in the US dollar. Witness that most Asian currencies are strengthening against the US dollar as well. So we are in a level playing field, except possibly with respect to China where the yuan is keenly priced and closely shepherded.

It is fair to say that higher energy prices hurt our economy because they act like a tax increase. In real terms, oil prices have returned to levels last seen in the 1970s. However, oil’s impact is not as powerful when set against their diminished economic importance due to higher energy efficiency nowadays. Singapore businesses are now better able to take the punch.

During current inflationary pressures, businesses can further improve by observing financial restraint and making the most of the strong currency by investing it wisely. We can then be proud to have an economy worthy of a more expensive Singapore dollar.

Be nimble

Liu Chunlin CEO K&C Protective Technologies Pte Ltd

HIGHER energy prices spell inflation and uncertainty. A weaker US dollar, and a correspondingly stronger Singapore dollar, will make our goods and services less competitive. Marginal businesses squeezed between the higher business cost and lower demand may get into trouble, and possibly trigger off a chain of defaults. The cloud of uncertainty will add to the woes. Companies which have entered into medium and longer-term contracts without fluctuation clauses will worry a lot. Add to this the spectre of pandemic flu – witness the current flu episode in Hong Kong and some other Asian countries.

Looking back, things picked up for the Singapore economy around the time the integrated resorts were announced after years of recession and consolidation. There might have been a false sense of optimism, that we were on an inevitable roll. Perhaps we had taken our eyes off the basics of productivity and innovation and complacency had set in. This will put our longer term success at risk.

We need to manage the economic uncertainties of higher oil and commodity prices by remaining nimble, that is, willing to change strategy and tactics when they do not work or new factors emerge. Besides that, we need to get back to the fundamentals of greater productivity and gaining global market share through R&D and innovation. While some countries and companies are swept over by the wave of uncertainty and change, we need to ride this wave.

Geraldine McBride President and CEO SAP Asia Pacific Japan

IN A world subject to increasing energy prices and more volatile currency fluctuation, the need to enhance productivity of people and processes to deliver customer value has never been greater.

The ‘constant adjustment paradigm’ that organisations must not just adapt to, but learn to thrive within, is a force which will increasingly pervade commercial decision-making in most business scenarios, moving forward.

It is not just the impact of oil prices and the US dollar which are challenging businesses today. What is happening is that all the previously stable relationships between input factors, across all businesses, are becoming progressively more volatile.

As the world’s leading business software company we see a continued need for businesses to grow by responding quickly to such changes. We see the kind of business environment we are currently experiencing as providing additional opportunities for us and for those clients who work together with us to grow their capabilities.

Look East …

Sam Yap S G Group Executive Chairman Cherie Hearts Group Int’l Pte Ltd

RISING energy prices will no doubt have a severe negative impact on businesses as they almost certainly translate into higher operating costs.

A stronger Singapore dollar may also prove to be disadvantageous for many Singapore companies, as our exports become less attractive to US-based customers, who make up a significant portion of our customer base. The good side, though, is that Singapore companies will be able to get US imports more cheaply than before.

On balance, the twin developments, while likely to have a negative impact on Singapore companies in general, are unlikely to cause catastrophic damage since Singapore has been ‘looking East’ by diversifying into Asian economies. Furthermore, with our strong fundamentals of skilled labour, transparent operations and good infrastructure, Singapore will be able to capitalise on its competitive strengths to explore markets such as the Middle East, which have huge potential, as well as attract investments from these places.

Teng Yeow Heng Michael Managing Director TR Formac Pte Ltd

IT is increasingly clear that our export market is going to be very difficult in the coming months and we need to depend more on our domestic and Asian markets. On the domestic front, thanks to the building of the two integrated resorts and the hosting of major events such as the Formula One grand prix as well as the Youth Olympics, Singapore’s growth can be sustained in the construction and service sectors to tide over the hard times. On the Asian front, fortunately, China and India are still growing strong. This will help mitigate some of the negative fallout form the US slowdown.

In the short term, the strong Singapore dollar may not be a totally bad thing as it will help bring down imported inflation and allow us to invest overseas more cheaply. However, a strong Singapore dollar is worrying for us in the long term if our businesses cannot compete successfully in the higher value-added market segment.

In the short term, most of our major competitors will feel the impact of higher energy costs and therefore, it may be less worrying for us in terms of losing competitiveness. In the long term, access to cheaper alternative fuels can be the crucial determining factor in how well we can compete.

Annie Yap CEO The GMP Group

BUSINESSES can expect consumption, production and operating costs to escalate with sky-rocketing energy prices coupled with the flagging greenback. With the US being one of the world’s largest economies, no doubt many countries will be affected by the imminent US recession.

However, I agree with Minister Mentor Lee Kuan Yew that Singapore is at the heart of the world’s biggest growth region – Asia. Singapore has grown significantly less dependent on the US economy over the years and has diversified to include Asian markets. This is one way Singapore businesses can exploit the situation – by foraging in emerging Asian markets like China and India, which are cited to be the fastest growing economies in the world.

And with ongoing mega projects in the pipeline like the integrated resorts, the Formula One grand prix and the most recent unveiling of the government’s $20 billion plan to extend MRT lines, Singapore can and will weather the storm. Such projects will definitely combat the negative impact of the ailing US economy while providing plenty of opportunities for the local market, especially for the building and construction and hospitality and services sectors.

…and beyond

Derek Goh Executive Chairman/Group CEO Serial System Ltd

THE twin negatives of rising energy prices and a falling US dollar will trigger a monster of a stagflation in the US economy. This will have a great impact on the global market as the US will cut imports and suffer high unemployment.

Singapore will be badly hit by this double whammy of high cost of production and a fall in exports. As an export-oriented economy, Singapore businesses will suffer a great setback if we do not seek alternative energy substitutes and boost domestic consumption quickly.

With a strong dollar, we could invest in better yielding projects abroad to generate healthy income for our funds. Singapore businesses should explore and exploit more aggressively emerging markets like Vietnam, Russia and Brazil.

We should build a strong shelter now for stormy days ahead.

Wee Piew CEO HG Metal Manufacturing Ltd

WHILE the weakening US dollar has helped mitigate the full impact of record-breaking oil prices and imported inflation, exporters – especially to the US – will be hurt by the strength of the Singapore dollar. The Monetary Authority of Singapore is in an unenviable position of preventing the Singapore dollar from rising too much which hurts our cost competitiveness but at the same time having to manage the impact of rising imported inflation.

These are significant global trends which small countries like Singapore, let alone Singapore companies, have to learn to cope with. Businesses that are dependent on the US market will have to start looking for new markets. With rising oil and commodity prices, there are other markets which are thriving – the Middle East, Russia and Brazil.

Be prepared

Lim Soon Hock Managing Director Plan-B ICAG Pte Ltd

BUSINESSES should brace themselves for tough times ahead. The lethal combination of ever higher energy prices and a weakening US dollar, which is the last thing the world wants to see, will wreak havoc on the global economy, and is dreaded equally by governments, businesses and the man in the street.

In such a situation, businesses should curtail if not abort expansion and investments, as well as seek to monetise assets, for example, clearing inventory even if it means selling below cost. Cash is king.

On the other hand, companies with a significant cash horde may want to consider acquiring businesses in the US or elsewhere. Given the strong Singapore dollar, this is a rare opportunity to buy into companies or acquire intellectual property at a relatively low cost, to expand into key overseas markets or to strengthen the company’s product portfolio.

Businesses should also start to plan for rightsizing. Retrenchments, if any, should be a last resort. Instead, companies should look into a shorter working week and adjust salaries towards a higher variable component tied to the company’s performance. It is also a good time for companies to invest in more training and development to equip employees with better skills and know-how for the recovery.

I see the onset of an economic tsunami. Businesses will do well to prepare themselves and err on the side of caution for a secure future when the economy recovers, which I believe will take at least a year or two to happen.

Goh Chong Theng General Manager, Singapore Rabobank International

SEVERAL reasons have contributed to the rising price of oil. These include the global supply-demand imbalance, political instability in several oil-producing regions, increased capital inflows into commodity markets and short-term demand spikes due to seasonal weather phenomena. The weakening greenback exacerbates the trend because oil prices are denominated in US dollars.

The Singapore dollar has strengthened against the greenback in recent months; however, its rate of appreciation is still far lower than that of oil prices. Although it is only a matter of time before the greenback recovers, many of the aforementioned reasons behind rising oil prices remain long-term challenges. Therefore, the inflationary impact of higher energy costs is likely to affect businesses – and ultimately consumers – beyond the short term.

A scary scenario could unfold amid prolonged inflation here – businesses may face insatiable demand for higher wages (due to increased living costs) on top of rising material and energy costs. This could eventually lead to productivity losses, profit reductions and perhaps a slowdown in the local economy.

Companies ought to plan for such a worst-case scenario so that they are better prepared should it become a reality. For example, Rabobank consciously keeps labour costs and various overheads under control. Yet we do so without undermining our core competencies in the agricultural, energy, commodities, telecommunications and marine/logistics sectors.

Going forward, the government must ensure that our national policies are designed to keep business and living costs (comprising property prices or rentals, taxes, transportation charges and more) under control. If Singapore wants to remain successful in the unending quest for capital and talent inflows, then we must remain an attractive place to work and live in.

Watch costs

Benjamin Low Managing Director, South-east Asia and India Secure Computing

SINGAPORE’S export economy will inevitably be affected by the twin developments of US$110 oil and a weakening US dollar. For companies like ourselves that trade in the US dollar only, this development is indeed very beneficial. A weak US dollar and stronger Asian currency will help our customers as our products and services become more affordable for them. We hope this will translate into increasing revenue as our customers will be able to purchase more of our products.

On the flip side, our cost structure and salaries are all denominated in Singapore dollars. This has effectively driven up the cost of business substantially even without any further increase in fixed business operation costs such as rental.

Hence, we are under greater pressure to watch our spending and continue to increase our top line and margins to counter rising costs. We will have to drive our sales revenue up substantially to counter the increasing business operation cost.

The biggest threat today, in my opinion, is a crisis of confidence. If financial markets continue to deteriorate, the housing sector and the stock market will continue to slide. This will effectively deter customers from spending which will affect not just corporates, but consumers as well. The threat of hyper inflation is also on the horizon if the cost of goods continues to spiral out of control.

Glenn Tan CEO Motor Image Enterprises

HIGHER energy prices, a weakening US dollar and a stronger Singapore dollar will raise the cost of living and make the business environment even more challenging. With the buoyant economy and low unemployment of the past few years, Singaporeans have become complacent. With tough times ahead, we must change our mindset and prepare for some hard work, otherwise we will lose our competitive advantage.

Companies will have to streamline their operations to maximise efficiency and productivity while minimising costs. More importantly, employees must play their part. They must be more reasonable in their expectations and be willing to ride the wave with their employers instead of job-hopping and driving up employment costs.

Salaries have gone up but productivity has dropped. If this continues, Singapore will lose out to its neighbours. While consumers tighten their belts in search of better value, they too must be realistic and accept that costs have increased.

However, it is not all doom and gloom. I believe that tough times are fertile ground for creativity and innovation. We should take this opportunity to re-invent ourselves to keep ahead of the competition. This will require a concerted effort from all Singaporeans.

Leon Perera Group Managing Director Spire Research & Consulting Pte Ltd

THE weakening US dollar will pose three negatives – weakened competitiveness of Singapore exports to the US market, weaker US foreign direct investment landing in Singapore and risks to those firms who price in US dollars (which includes a broad swathe of internationally-oriented professional services firms operating in Singapore).

To manage these dangers Singapore needs to continue diversification of export and FDI markets, in particular taking advantage of the rise of emerging markets like China, India, Russia and the Gulf states as export markets or sources of FDI. Firms pricing in US dollars should introduce regular (for example, quarterly) schedules for fee revisions based on exchange rate movements. Conversely, Singapore firms should seize this opportunity to purchase strategic assets in the US before a dollar rebound.

The impact of rising energy prices on Singapore’s general competitiveness will be more limited, as energy is usually a small component of total business cost. The main impact will be in terms of higher general rates of inflation. Companies should pay close heed to their cost curves during this time, reducing unnecessary expenses and re-engineering business processes for greater efficiency.

David Hope VP & Regional Managing Director Lawson Software, Asia & Japan

THESE challenges are not unique to Singapore, of course. The key is that Singapore needs to work across all fronts to ensure that it remains a competitive and compelling country to invest and do business in.

Examples of areas where businesses face real challenges include the daily cost of living and working in Singapore where office and residential rentals have both increased substantially over the last 18 months.

And if Singapore aims to be an attractive and long-term competitive place for foreign talent and investment, then it is important for it to offer a range of housing options, such as government housing for rent including the Singapore Land Authority’s black and whites and pre-war bungalows, the supply of which appears to be rapidly decreasing due to changes from residential to commercial usage.

During a time of rising costs, local businesses need to focus on improving efficiency and productivity to secure competitiveness. They can take advantage of a stronger Singapore dollar, which makes US-dollar priced tier one global technology tools – such as licensing for enterprise resource planning, supply chain and business intelligence – more accessible.

Others

Thomas Ting Managing Director TJ Systems (S) Pte Ltd

PERSONALLY, from a consumer’s point of view, a stronger Singapore dollar is definitely a good thing. Even for some businesses, for example, the travel industry, profits arising from the US exchange rate will be higher.

However, higher energy prices will affect the operating costs of local businesses, with even higher bills for transportation.

If the cost of energy or fuel continues to escalate, I’m sure the food industry will have to increase their prices and as a result, entertainment costs for businesses will go up as well.

Perhaps, the government can help companies with some relief on taxes or encourage companies to use energy-saving products. There’s definitely a need to promote awareness on saving energy.

It may be a good time for businesses in the energy-saving sector to increase their market share at this time.

Dora Hoan Group CEO Best World International Ltd

A MODEST and gradual appreciation of the Singapore dollar is supportive of economic growth. Local enterprises can benefit from a stronger local currency to dampen inflationary pressure by reducing the cost of imports. A weak dollar means a fall in prices of US products in foreign markets which will therefore benefit US exporters and foreign consumers. I believe, though, that it should be managed at a level that is neither too high nor too low to help sustain long-term economic growth and stability both here and abroad.

When a currency becomes too strong or too weak, it tends to distort international competition. In the 1990s, for instance, a strong dollar distorted US competitiveness against foreign markets. During the same period, China and several Asian countries had been happy to see their currencies depreciate in line with the US dollar since it allowed their exports to stay buoyant.

Sound monetary management must strike a balance among all factors affecting markets, which is quite tough to do in today’s market-driven era. I suppose it is a good strategy to allow the Sing dollar to appreciate at a rate which doesn’t disadvantage Singapore exporters, but at the same time keeps inflation at bay.

Michael Reading Managing Director Island Power Company

RECENT developments in the US have sent a strong signal to all businesses that the global landscape can change rapidly and that Asian markets are closely tied to events around the world.

The US Federal Reserve has recently sought to stabilise financial markets as the US banking crisis continues to unfold. The lesson to learn in periods of instability is that time is of the essence, and both businesses and the government must respond quickly to be effective.

With the global rise in commodity prices, the associated increase in utility costs poses a major challenge for businesses. The Singapore government must implement policies that help to improve Singapore’s competitiveness swiftly. Introducing new players in the energy market is one strategy of driving competition and keeping utility costs down, ultimately benefiting the end consumer and keeping the Singapore economy competitive.

Wong Teek Son Executive Chairman and CEO Riverstone Holdings Ltd

THE US dollar is a common currency used across the world for business transactions. It is impossible to ignore the impact of the weakening dollar on the global economic outlook.

Singapore is a major exporter of hard disk drives and semiconductors to the US and the developments will slow the electronics manufacturing sectors as costs are driven up.

Riverstone, a leading manufacturer of high-tech cleanroom gloves, relies on a natural hedge to weather the storm as the company uses raw materials bought in US dollars. To mitigate currency risks, we will engage business deals in different currencies based on location of operations.

Further, companies need to brace themselves for a challenging year and concentrate on their key propositions to sail through the storm.

Source : Business Times – 24 Mar 2008