An article from Today’s online edition. Reading it with some bold thoughts. Today is the 14th.
TIME TO STOP BEING CHEAP AND GOOD
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To maintain living standards, S'pore needs to command a premium for its
products and services and not stay stuck in the middle
Vincent Chia
WHILE Singapore was recently cited in a survey as having a lower cost of
living for expats than most major cities, 2006 for Singaporeans will go
down as the year of price increases.
We have had to live with higher fuel costs, public transport fare hikes,
even 10 cents more for kopitiam coffee. The announcement of a likely
goods and service tax hike next year adds to the overall pressure of
escalating costs.
Thankfully, costs are only one part of the equation – if increase in
income offsets the increase in costs, then our standard of living is the
same.
Given the excellent economic growth expected for 2006, most employees are
looking forward to a decent year-end reward. The stock market has been
buoyant, property prices are going up. Civil servants will be getting a
pay hike next year, and employees in 12 private sector industries can
expect an average 4.2 per cent wage increase (“No peanuts in these
packets”, Dec 13).
There will, however, be those Singaporeans who are paid fixed rates or get
negligible pay increases. Only if the Government's offset package, one
year of no Government fees increases and Workfare schemes address this
shortfall, will they not suffer a reduction in standard of living.
But in the long run, costs are on an upward spiral. When businesses are
faced with more costs, to maintain profitability, they will either have to
charge their customers more or cut other costs.
Given the relatively high cost and percentage cost of labour in Singapore,
this is one candidate area for cost-cutting. Pay raises may be curtailed.
Or workers will be worked harder for the same pay.
These two effects of higher prices to consumers and slower pay increases
will reduce the standard of living of not just the lower-income groups but
also the middle class. And as we see costs spiral upwards, so will the gap
between the rich and the poor grow even wider.
The common solution touted by most is to grow the pie so that everyone can
have a bigger share. While this is not wrong, we have to appreciate that
Singapore has a small domestic market and no natural resources. How much
faster can our tiny red dot grow?
Harvard Professor Michael Porter, who was in town recently, is an expert
on competition. His theory of Competitive Advantage is well accepted
management wisdom: A company should either be a cost leader or a
differentiator. In other words, either be cheap or be good. If a company
persists in being “stuck in the middle”, it will be less profitable.
Singapore as a country today is “stuck in the middle“. We are not cheap as
compared to China and India. The escalating costs that we are experiencing
today will widen this gap further. So, we should stop trying to be cheap.
But on the other hand, when it comes to being good, can we say we are
comparable to the best in Europe and the US?
In major cities such as Paris, New York, London and Tokyo, you could
easily pay about $400 a night for a four-star hotel. Yet there are still
lots of people who want to visit these cities, for business or for
leisure.
In Singapore, a night's stay at a four-star hotel would cost just over
$100. This figure is probably kept low to ensure that more tourists visit
Singapore and boost the retail and Mice sector.
Coupled with our best efforts to make Singapore attractive, this appears
to be a “cheap and good” strategy. And while hotels are planning to raise
their prices next year to an all-time high, rates will still be far
cheaper than in Hong Kong and Shanghai.
Looking to the future, when we have our two world-class integrated
resorts, we will hopefully be as attractive a tourist destination as the
major cities. But will our hotel prices still be cheap? Do we want to
continue to be “stuck in the middle”?
While we can still strive to grow fast, we also need to shift our focus
towards differentiating ourselves. This differentiation will enable us to
command a premium for our goods and services. And this premium will give
us a higher income to offset our escalating costs.
We all want to maintain, if not increase, our standard of living here, but
we cannot buck the trend of rising costs. It is thus time to stop being
cheap and good.
The writer is a co-founder and writer at Oaktree Research, a web of
knowledge on business and finance. (www.oaktree-research.com)
