The Singapore economy

Manufacturing firms seek value creation to stay viable

Mr Soh, JEP Precision Engineering's CEO, has been reaching out more to polytechnic and ITE students in efforts to secure the firm's next generation of workers.
Mr Soh, JEP Precision Engineering's CEO, has been reaching out more to polytechnic and ITE students in efforts to secure the firm's next generation of workers.ST PHOTO: TAMARA CRAIU
A man working in the JEP Precision Engineering headquarters, on March 8, 2016.
A man working in the JEP Precision Engineering headquarters, on March 8, 2016. ST PHOTO: TAMARA CRAIU

Businesses and consumers are grappling with the prospect of slower growth. In the fifth part of a series looking at how the economy is coping, Marissa Lee examines the impact on the manufacturing industry

When Mr Tan Kai Ching set up Modern Pak's plastic moulding factory at Tai Seng industrial estate 27 years ago, he easily earned $1 million in profits a year.

Mr Tan jokes that back then, he was earning almost as much as a government minister.

Mr Tan's field, like some other parts of manufacturing, have been hollowed out over the years as the sector moved up the value chain.

 

After posting deeper and deeper contractions each quarter last year, the wider manufacturing sector shrank by 5.2 per cent for all of last year, the first contraction since the global financial crisis. A survey of purchasing managers last month showed factory activity has sunk to its lowest level in three years.

SoilBuild, which manages Mr Tan's block and two more in Tai Seng Avenue, said the units have a healthy occupancy level, although tenants reckon more than 30 per cent are vacant. A lawyer's notice stuck to the door of one unit demands a sum of $38,282.35 plus contractual interest from its former tenant, a furniture business.

Some pockets of manufacturing, it seems, are hollowing out. Steeply rising rents and a tighter foreign labour policy have forced many factory bosses, who operate on thinner margins, to quit or downsize their businesses here, and focus instead on their overseas arms.

Mr Tan said: "My lease expires in August; it could also be my last day."

SoilBuild plans to demolish its buildings in or after 2018 for redevelopment, and many tenants - veterans of the shop floor - plan to retire with the trade.

The cobwebs in the walkway, shuttered units and toilets crying out for cleaning are a sorry reminder of how the fortune of some parts of manufacturing here has turned.

Mr Steven Low, who heads sales at MecPac Engineering, said: "Don't talk about relocation, how long will the company last?"

MecPac makes gaskets for oil rigs and shipyards. Business is down by 50 per cent this year and his workers have nothing to do, Mr Low said. His situation is familiar to many in the industry.

The slump in oil prices has hit the transport engineering cluster hardest, as firms serving the marine and offshore sector suffer a fall in business from rig delivery delays and cancellations. Mr Low declared: "I'm going to retire soon."

Mr Tan assured his neighbour: "Go talk to A*Star (Agency for Science, Technology and Research). They can do roadmapping with you; it will make you feel better."

As the manufacturing recession deepens, the Government has urged firms to innovate business models and eke out further productivity gains through "value creation", research and development.

It is a tall order, many factory bosses say, because while they have been creative in keeping their costs down, most firms are contract manufacturers, which means they do not own their own products and have limited room to improve on them.

But Mr Soh Chee Siong, chief executive of JEP Precision Engineering, is certain he can climb the technology ladder step by step.

He hopes to work with Spring Singapore on predictive data analytics for his machines, which make engine casings and landing gear components for aircraft.

This would enable his machinists to predict if a part is going to come out right as the machine is running, so they can make adjustments and cut down on "scrap", or parts that are badly manufactured.

Additive manufacturing is another technology that could drastically change aerospace manufacturing in the next decade, said Mr Soh.

Rolls-Royce and General Electric already plan to use 3D printing technology for jet engine parts, he said.

"In the past, it was called sintering and people enhanced it to be better. Basically, you (make a product) layer by layer. We can do that to make cheaper, lighter fixtures," Mr Soh said, as these small devices used to hold parts in place during machining are JEP's own property.

Another facet of manufacturing, fast growing in significance, is the biomedical sciences cluster.

More than a decade ago, the Economic Development Board (EDB) set out to diversify the pharmaceutical industry away from traditional bulk chemicals and into biologics manufacturing, a more sophisticated process in which medicines are derived from living cells.

Today, Singapore is home to nine biologics plants run by big names like Switzerland's Lonza and Britain's GlaxoSmithKline, with a total capital expenditure of about $2.7 billion.

Home-grown biotechs are still rare. But Aslan Pharmaceuticals, which develops drugs for types of cancer more common among Asians, is running clinical trials in hospitals across the island.

Aslan's first drug could hit the market as early as next year, said Dr Carl Firth, who leads the 30-man outfit in a Chinatown shophouse.

Policymakers say manufacturing remains a key pillar of Singapore's economy. This is so because it provides good jobs for Singaporeans and generates healthy spillovers to the rest of the economy when various services, such as distribution, transportation and financing, are required in the production process.

"The Government is committed to sustaining it at around 20 per cent of our national output," said Mr Lim Kok Kiang, assistant managing director of the EDB.

In 2005, manufacturing made up 27.8 per cent of national output.

The strategy has been set for Singapore to expand into profitable and "niche" manufacturing sectors, such as advanced manufacturing, specialty chemicals and biologics.

But industry players have also warned that putting too strong a focus on "picking winners" while driving out the rest, may work against the push to create an innovation ecosystem here.

Mr Alan Lee, managing director of Tacam Steel which has made steel doors for Changi Airport and Heathrow Airport Terminal 5, said that how inventive a nation's manufacturing cluster can be depends a lot on its scale, and access to a good supply chain of various capabilities.

"Manufacturers are not individuals or small teams using software and ideas to create a business. You're talking about nuts and bolts manufacturing," he said, where it is of "strategic importance" to keep a robust base of general manufacturing firms that can help entrepreneurs to make prototypes of new products and roll them out quickly.

A case in point is local start-up Pirate3D, which failed to deliver on its 3D printers last year. Co-founder Brendan Goh said that more than 50 per cent of its printers' components had to be sourced from overseas, while the other 50 per cent sourced locally came highly priced.

Meanwhile, the dominant firm in consumer 3D space builds its printers almost entirely in Taiwan, at a low cost, he said. "The industry (is) moving out of Singapore, so you don't get a robust manufacturing support industry here," Mr Goh said.

EDB's Mr Lim noted that Singapore continues to build on its core strengths in electrical, mechanical and process engineering: "These are capabilities necessary for us to attract the highest value-added activities to Singapore and move into adjacencies, such as the space industry."

A version of this article appeared in the print edition of The Straits Times on March 11, 2016, with the headline 'Manufacturing firms seek value creation to stay viable'. Print Edition | Subscribe