growth triangles and climbing the value chain: sijori 25 ... · what we know regional division of...

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Growth Triangles and Climbing the Value

Chain: SIJORI 25 Years On

Francis Hutchinson, ISEAS

“Getting them to come, that is the easy part.

Getting them to stay or to grow, that is the difficult

part”.

Dato Chet Singh, Penang Development

Corporation

2

Structure

The SIJORI Growth Triangle

What We Know

“Mapping” The Electronics Sector

The Electronics Sector in Singapore

The Electronics Sector in Johor and Batam

Local Firms; Upgrading?

Conclusions

Why?


Launched 1990 – Singapore, Johor (Malaysia), Riau (Indonesia)

Different factor endowments, single destination

Singapore – high-end, skill-intensive

Johor – mid-range, labour- and land-intensive

Riau Is – lower-end, labour- and land-intensive

Government-led

Low-cost

Quicker than FTAs

Export-oriented – escape small domestic markets

By-pass constraints –

land, labour for Singapore

capital and technology for non-core locations

Enable all locations to climb the value chain

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4

Architecture of Territory, FCL


1990-97 - Initial period of enthusiasm

• Concerted marketing, strategic investments by governments

• Manufacturing (E&E) investment into all locations

• High growth rates and structural transformation in ‘periphery’

Driver of Change - Asian Financial Crisis

• End of New Order in Indonesia

• Relations between Singapore and Malaysia cool

• Selective approach to investment decreases

• Ad hoc, and essentially two sets of bilateral relations

Singapore-Riau Islands, elements of concerted marketing overseas

Singapore-Johor, Singapore – investment destination, elements of competition,

low-level collaboration

• Some frustration at non-core status

• Value chain, technology transfer, volatility

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7

Structure


What We Know





Conclusions

Why?

What We Know Regional division of labour established between core, non-core

locations (1990-1999)

In Singapore, over past 2 decades, E&E sector has:

Grown in absolute terms, in output and VA

Contracted in employment more skill- and capital-intensive

Narrowed range, increased in high-tech, -precision, and –value (Toh

2014; van Grunsven 2013)

more semiconductors/IC and data storage

fewer consumer electronics & peripherals

Data: output, value-added & employment, BUT what about firms?

Patterns of entry and exit? Interactions between firms?

Nationality? Sub-sector? Location?

What about non-core locations?

What about connections between core/non-core locations?

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9

Structure


What We Know





Conclusions

Why?

‘Mapping’ the E&E Sector in SIJORI

ISEAS & Leo van Grunsven, Dept of Economic Geography,

Uni of Utrecht

Aim: understand how the electronics industry has evolved

over the past 20-25 years in SIJORI

How have the size and profile of the E&E sector in the 3 locations

evolved?

What specialization and upgrading do we see in the core and non-

core locations?

Is there a link between events in Singapore and the other locations?

Phases:

One: collate and analyse data on nationality, sub-sectors, entry and

exit from Johor and Batam

Two: company interviews in Johor and Batam to understand

upgrading (if any)

Three: collate and analyse data on (nationality), sub-sectors, entry

and exit from Singapore

10

11

0

100

200

300

400

500

600

E&E Firms in Singapore

12

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

ConsumerElectronics

Semiconductor Data Storage Comp & Periph Components CommEquipment

Electric Other CEM

E&E Branches in Singapore

1995 2012


Remarkably steady in numerical terms Initial contraction early 1990s

Significant growth late 1990s

Slumps in early 2000s, 2010s, global/industry trends, policies?

Branch development: Consumer electronics, comp & peripherals, components down

Semiconductors, comm equip. CEM, and electric prods. up

Consistent with picture from export data, except:

Data storage (disk drives) firm numbers up, and exports down.

CEMs separate rubric, can see their increase

Electric items, can also see their increase

More diversity

So, yes, overall upgrading and increase in value-added

But more embedded in local economy and more diverse than export

data indicate 13

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Structure


What We Know





Conclusions

Why?

15

0

50

100

150

200

250

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Electronics Firms in Johor and Batam

Johor Batam

16

0

10

20

30

40

50

60

70

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

Firm Entries and Exits, Johor (1996-2012)

Entries Exits

0

5

10

15

20

25

30

35

40

Firm Entries and Exits in Batam (1990-2012)

Entries Exits

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

E&E Branches in Johor

1995 2012

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

E&E Branches in Batam

1995 2012


Different trajectories from Singapore. Johor up, Batam down.

Different from each other, from 2/3 of Johor, Batam is now ¼ the

size.

Branch Composition:

Less diverse than Singapore.

Similar profile, consumer electronics, components, electrical

products, CEM

Trend – Johor: consumer electronics, electrical down;

semiconductor, CEM up.

Batam: consumer electronics, components, semicon down;

electrical and CEM up.

Broadly, no move into production spaces ‘vacated’ by Singapore.

CEM only exception.

‘Regional’ Prod Networks could be a new linkage.

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19

0

10

20

30

40

50

60

70

80

1990-1997 1998-2003 2004-2012

Perc

ent

Firm Entries into Batam

Singapore Japan

0

10

20

30

40

50

60

70

80

1990-1997 1998-2003 2004-2012

Perc

ent

Firm Entries into Johor

Singapore Japan

20

0

10

20

30

40

50

60

70

80

90

1990-1997 1998-2003 2004-2012

Perc

ent

Firm Exits From Batam

Singapore Japan

0

10

20

30

40

50

60

70

80

90

1990-1997 1998-2003 2004-2012

Perc

ent

Firm Exits from Johor

Singapore Japan

Local Firms?

Some participation by local firms:

22 Malaysian firms in Johor (5% of total; 28% survival).

25 Japanese/Malaysian joint ventures.

6 Indonesian firms in Batam (3% of total; 100% survival).

Little significant JV activity

Malaysian firms appear to be more locally-grown and

vulnerable

Indonesian firms part of large consortiums

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Upgrading - interviews

Johor: 27 firms, Singapore (7); Japan (16)

Functions: most have remained static, 10 had minor

upgrading – low-level R&D, procurement, marketing

Product Portfolio: bit more than half - evolution in product

portfolio as new products are introduced, but still static

within corporate hierarchy. Some major upgrading

Automation: yes, particularly in those that assumed more

complex functions

Technology: developed elsewhere, then transferred

High-end: low level, but in 10, increased R&D needs have

led to hiring of technical staff.

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Upgrading - interviews

Batam: 13 firms, Singapore (5) Japanese (3)

Functions: no significant evolution

Product Portfolio: still product parts rather than full products,

upgrading linked to industry evolution – few radical

developments

Automation: yes, prevalent, but in response to scarcity of

labour

Technology: developed elsewhere, then transferred

High-end capabilities: more than half – ‘irrelevant’

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Structure


What We Know





Conclusions

Why?

Conclusions

Singapore – growing well and upgrading. Fewer workers are

producing more of value, attrition of lower value-added

sectors and growth of semiconductors.

Johor – the number of firms is growing. However, much is

driven by regional (Singaporean) firms, rather than global

firms. Sub-sector, stable, persistence of low value-added

operations (electrical, consumer e, components).

Riau Islands – number of firms is shrinking. Activity is by a

small number of global firms. Persistence of electric,

components, and consumer e.

Upgrading at the firm level in Johor is modest, minimal in

Riau Islands

The two non-core locations have not moved into spaces

vacated by Singapore. CEMs?

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Structure


What We Know





Conclusions

Why?

Why?

Focus of policy attention:

Preferential provision of hard infrastructure

Tax incentives and relaxed strictures on local equity

What about?

Adaptation versus adaptiveness?

Stewardship of local economy to nurture related branches

Technology mapping

Knowledge generation – libraries, market intelligence

Targetted skills provision?

Collective facilities (to test prototypes)

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Methodology Classification of E&E into ten sub-sectors, based on ISIC

Johor and Batam – firm entries, exits, and nationality obtained from

investment authorities.

• Malaysia: MIDA, Johor Technopark, Johor Industry Guide

• Indonesia: BIFZA, Industry Directories

Branches:

• Investment authorities, industry directories, company websites

Issues:

• Possible over-reporting of firms in operation; inconsistent product info

Singapore:

• Singapore Electronics Manufacturers’ Directory

• Most comprehensive listing available, free, you need to opt out

• Firms listed by product (not nationality)

Issues:

• Different source. Interview requests (150 firms) – accurate.

• Under-reporting of MNC affiliates and SMEs; over-reporting of

production facilities. 28

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Classification Examples Code

Consumer Electronics Audio/video, speakers, telephones 1

Semi-conductors 2

Semi-conductor Devices Integrated Circuits

Wafers Solar wafers

Data Storage 3

Magnetic and Optical Media DS Substrates, Motor Drive Ass.

Computers & Peripherals Printer Cartridge 4

Modem Router

Thermal Printer Engine

Electronic Components and Boards Multilayered Circuit Board 5

Surface Mount Components

Communication Equipment Telephones 6

Radio Transistors

Electric 7

Domestic Appliances Aircon, vacuum cleaners

Wires and Wiring Devices Copper rods and wires, harnesses

Motors, Generators, Transformers Surge arrester, cold control thermostat

Batteries, Accumulators

CEM Diverse 10

Other Medical devices 8

Support Metal stamping, plastic injection 9

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