Mr Lee Yi Shyan at the 2nd Singapore Productivity and Innovation Conference, 21 July 2011

OPENING ADDRESS BY MINISTER OF STATE FOR TRADE & INDUSTRY AND NATIONAL DEVELOPMENT, MR LEE YI SHYAN, AT THE 2ND SINGAPORE PRODUCTIVITY AND INNOVATION CONFERENCE, 21 JULY 2011, 9.30AM, GRAND COPTHORNE WATERFRONT HOTEL

Mr George Huang, President, Singapore Manufacturers’ Federation,

Dr Ahmad Magad, Vice-President of SMa and Member of Parliament,

Mr Wong Hong Kuan, Chief Executive, Singapore Workforce Development Agency (WDA),

Distinguished guests,

Ladies and Gentlemen,

Good Morning. Thank you for inviting me to the 2nd Singapore Productivity and Innovation Conference organized by the Singapore Workforce Development Agency (WDA) and the Singapore Manufacturers’ Federation (SMa).

Innovation – Apple Inc.

Several years ago, a study by the Personal Computing Industry Center estimated that a US$299 iPod sold in the USA, Apple made a gross profit of US$80 (or 35 per cent of the wholesale price of US$224). In terms of value capture, the report also suggested that America (Apple and the distribution channel) retained US$163 of the US$299, far ahead of others in the value chain such as Japan (US$26) and Korea (US$1).

Fast forward from 2007, Apple has continued to innovate with a number of products such as newer iPods, iPhone and iPad. In terms of services, it has introduced iTunes, App Store and soon, iCloud. According to a recent report in the Wall Street Journal[1], Apple is reported to have found a successful formula in marketing – its iconic Apple Stores - which are now mushrooming in major cities. In many ways, Apple Stores have transformed the retail experience through innovations in customer service, process design and store design. As a result, Apple's annual retail sales per square foot have soared to US$4,406, far higher than what other retailers, including jeweler Tiffany & Co (US$3,070) and luxury retailer Coach Inc. (US$1,776) can achieve.

Why do we talk about Apple? Well, there are many reasons. Apple designs very well. It has only a few product lines but they are all popular and easy to use. It provides a “Genius Bar” in its stores to answer its customers’ technical questions. Apple knows the importance of hardware and is equally mindful of the need to ensure its software applications work seamlessly. And of course it is a very successful company going by its market capitalization of some S$440 billion - that is about half the size of all the stocks added up in the Singapore Stock Exchange.

For sure, America has many fast-growing innovative companies besides Apple. There are Facebook, Google, Group on and so on. Each of these case studies offers us a huge lesson on innovation. These companies also explain why the American economy is so resilient, and that the best talents from around the world continue to gravitate to the US to try out new ideas in their colleges and marketplace.

Rethinking our business model

I think the Apple example gives us a good backdrop for today’s conference. Where we are in terms of company size, product offerings and cost structure does not allow us to go backwards to low-cost manufacturing. The only way is to go forward to create greater value in our products and services, in order to compete globally.

We are rather familiar by now with our own record. Singapore's productivity growth in the last decade has been weak. Between the years 2000 and 2009, productivity grew by only 0.8 per cent, down from the 3.5 per cent in the 1990s. Our economic growth during that period was largely fuelled by growth in the labor force rather than productivity growth. Continued labor force growth, in particular the continued growth in the foreign workforce, is not sustainable given our limited space and resources.

As with the case of Apple, which does little manufacturing by itself, we will need to re-think our own business model to focus on the right part of the value chain.The transition from low value-add to high value-add activity will not be easy. Doing more of the same, or doing better than before may not be sufficient. Doing things differently may be the key to a quantum leap improvement. This is how, I believe, we can achieve the target of securing 2 to 3 per cent annual productivity growth for the next decade.

In Singapore, there are more than 9,000 manufacturing companies, of which more than 98 per cent are SMEs. Our manufacturing SMEs collectively employ 63 per cent of the manufacturing workforce, but account for only 30 per cent of our total output and 43 per cent of its value-added. In terms of productivity, the value-add per worker for manufacturing SMEs is $79,000 - this is less than half of non-SMEs’ value-add per worker of $181,000[2]. It is clear there is much room for our manufacturing SMEs to catch up in productivity.

Among our SMEs which are committed to transform, the first thing they do is to adopt the right mindset. Consider Markono Print Media, a printing company that decided not to sit still in face of market consolidation and stagnant demand. Instead, Markono responded quickly by investing in new technology while training of its workers. The outcome is it saw 20 per cent productivity improvement.

Initiatives to help SMEs in productivity and innovation

Government initiatives abound when it comes to helping SMEs improve their productivity and innovate. For instance, SPRING Singapore and the Enterprise Development Centers (EDCs) launched the Productivity Management Programme (or PMP) to raise SMEs’ awareness and address productivity challenges in their businesses. It serves as the first stop where SMEs can seek expert advice and use the Integrated Management of Productivity Activities (IMPACT) Assessment Tool to diagnose gaps in productivity and develop an action plan. More than 2,000[3] SMEs have received help through the PMP.

One such company is E-Steel Pte Ltd, a trading company for steel piping and systems and related products. For any trading company, inventory turnover and logistics process flows are critical factors for success. Before undergoing the productivity review, E-Steel was not able to accurately forecast its inventory and manpower requirements to support its sales generation. Through the PMP and IMPACT Assessment toolkit, E-Steel managed to streamline its process flows and implemented productivity improvement actions to raise operational efficiency. As a result, E-Steel can make better forecasts for its stock requirements and inventory levels can be optimized. Productivity measurements were also established and monitored as its first step towards a sustained productivity journey. As an outcome, E-Steel achieved 30 per cent savings in man-hours, which reduces over-time (or OT) costs and creates capacity within the company to handle more sales orders.

To further support SMEs’ productivity efforts, WDA and SMa launched the WSQ Certified Productivity and Innovation Manager or WSQ CPI Manager programme last year. Managers play a key role to help SMEs translate the company’s emphasis on productivity into improved processes and work plans that workers can participate in. This programme provides a structured and systematic approach to review or formulate business processes so as to improve companies’ operational efficiency and productivity. Participating companies have achieved success with an average productivity improvement of 15 per cent after the four-month project implementation phase.

Besides making efforts to improve their respective business, I want to urge companies to collaborate to increase the industry pie rather than fight for it. This can be done through sharing innovation and best practices facilitated by platforms such as the EDCs.

For example, in the oil and gas industry, the traditional drilling techniques used today are proving to be highly inadequate for the increasingly harsher environments. More than 20 companies here have thus collaborated on a Gun Drilling Initiative (GDI), facilitated by SIM Tech. Experts conducted tutorials and seminars to give these precision engineering companies a better understanding of the trends, applications, material and tooling for deep-hole drilling in different industries. The initiative has helped local precision engineering companies to meet the needs of the oil and gas industry and to even enable companies to venture into other high VA market segments. It has also equipped the companies with the capabilities to serve a wider pool of customers and to be more competitive in the international market.

Launch of SME强(Qiang)

To reach out to even more companies so that they too can participate in the productivity movement, I am pleased to announce the launch of a WSQ training programme called “SME Quality Initiatives to Assist, Nurture and Grow” or in short – SME 强(Qiang). This is a simpler version of the CPI Manager programme specially made for SMEs. It integrates WSQ training workshops and project implementation to enable SMEs to realize productivity and process improvement within two months, rather than the current four months. SMEs can also tap on the mentorship scheme, which helps each participating company to develop ways to sustain the productivity gains achieved. I would like to encourage everyone to consider using the SME 强programme.

Conclusion

I would like to congratulate the 10 companies that will be honored in the inaugural “WDA-SMa Productivity and Innovation Awards” later. These companies have completed the five-month WSQ training and excelled in their site assessment.

SMa plays an important role in training and equipping our manufacturing SMEs to take concrete steps to raise productivity. To do so, SMa would need to build up a network of experts and partners like SIMTech and other Centers of Innovation (COIs) to collaborate with the companies. SMa would also need to increase its outreach to SMEs. In time to come, I hope that SMa would be the first stop for manufacturing SMEs looking to connect with technical experts to improve productivity.

I wish all of you a fruitful session today.

[1] Secrets From Apple's Genius Bar: Full Loyalty, No Negativity, Wall Street Journal, 15 June 2011.

[2]Raw Data from EDB’s 2009 Annual Census of Manufacturing Survey. Data Computed based on SPRING’S SMEs definition.

[3] As of end-June 2011