Monday, February 25, 2008

Inflationary Asia



Inflation is creeping up across Asia. The headline figure in Singapore has hit a 25-year high with inflation hitting 6.6%.

The figure seems to be higher than expected but the Ministry of Trade and Industry said the January inflation figure was 'consistent' with the government's official inflation forecast.

As pointed out by the AP report, the Singapore government recently raised its inflation forecast for the year to 4.5-5.5%, faster than the 3.5-4.5% announced in November. The Straits Times today said that inflation in Singapore could hit levels not seen since the oil crisis of the late 1970s.

The Singapore government will no doubt think of more ways to contain inflation. An even stronger Singapore dollar is definitely a certain policy option at this stage.

While Singapore's inflation rate seems higher than expected, the Consumer Price Index across the causeway seems too tame in the current environment. According to Bloomberg, Malaysia's inflation is set to hit a 10-month high of 2.9% this year.

Like Singapore, Malaysia has a very open economy. As a result, the two countries do pay the price for imported inflation.

Sophie's World has always had a nagging feeling that the inflation rate in Malaysia is understated. Prices of some items, especially imported goods, in Malaysia seem to be rising more rapidly than those in Singapore.

In many cases, prices of certain items in Malaysia are higher than or equivalent to those in Singapore. This is just Sophie's World unscientific observation. :-)

Even the threat of higher inflation has become an election issue in Malaysia. Check out the Democratic Action Party's campaign song (youtube video above), which includes a pledge to tame inflation in the country. Is there a need to tame it if it is rising at less than 3%?

While inflationary pressure is rising across Asia, the fast-growing region is not expected to see hyperinflation. Asia is still expected to see healthy, albeit slower, growth despite the increasing likelihood of a recession in the United States due to the sub-prime woes.


Earlier postings:
Rising cost of crime, 1 June 2007
Rising cost of living in Malaysia
, 16 Nov 2006
Rising cost of living in Singapore
, 16 Nov 2006

Saturday, February 23, 2008

Jack of many trades

BT profiled DBS Group Holdings chairman Koh Boon Hwee in its Raffles Conversation series today. He sounds like a real talented man with so many big job titles and interesting job experience. But I often wonder which business is his ultimate passion.

It would have been interesting if Boon Hwee had also talked about recent changes in DBS and departed CEO Jackson Tai and COO Frank Wong.

Maybe, it's a story for another day.

DBS Group Holdings' chairman Koh Boon Hwee talks to KENNETH JAMES about his multiple roles as private investor, corporate leader and educationist

GOOGLE the subject of this Raffles Conversation and one is rewarded with this unexpected gem: 'I Love Koh Boon Hwee' T-shirts, complete with bright red heart, for sale at Amazon.com.

Told about it, Koh Boon Hwee bursts out laughing. 'You've got to be kidding me!' he says. 'Anyway, who on earth would buy one?'

Well, let's see. As one of corporate Singapore's most prominent figures, Mr Koh no doubt has his detractors, but there are probably a whole lot more admirers of his corporate story.

After all, his track record is impressive. Our wide-ranging conversation takes place in a meeting room across from his office at the top of DBS Building Tower One; he is chairman of DBS Group Holdings and DBS Bank, the country's largest bank. Prior to this appointment, from July 2001 to December 2005, he was chairman of Singapore Airlines, where he successfully shepherded the iconic international carrier through one of the most turbulent periods in aviation history.

From 1986 to 2001 he was chairman of the Singapore Telecom Group (SingTel), overseeing its transformation from statutory board to regional communications powerhouse. All this while, for 10 years from 1991, he headed the Wuthelam Group as its executive chairman.

On the education front he's enjoyed a long association with Nanyang Technological University (NTU), where he currently serves as chairman of the Board of Trustees.

And this doesn't even include what Mr Koh considers his main vocation: investing in, and guiding, a host of companies in Singapore and abroad.

Not bad for someone whose earliest career 'highlights', following his recruitment to US multinational Hewlett-Packard's Singapore office in 1977, were a couple of million dollar ventures that famously bombed.

That's a story Mr Koh has told with relish many times over. But it's clear that the underlying theme, tolerating and even welcoming failure as integral to the entrepreneurial process, remains as relevant to him now as it did decades ago.

'My partners and I have often backed people knowing full well that we might lose the money completely,' he says at one point. 'But we thought that what the person might learn might actually make him a lot more successful in his second venture. And that has often been the case.'

Which is why he considers himself not just an investor but an 'investor-builder'. Drawing a comparison with venture capitalists, he explains: 'In my mind the venture capitalist has a very specific role; most of the time they are investing money that is raised from other people. Because the fund has a life, you have to plan an entry, and then you make your money by planning an exit.

'I think of myself as an investor-builder because, first of all I'm not managing third-party money, I'm usually investing for myself. (And) to me an investor-builder is someone who doesn't have that time frame sitting in front of him. He can take a five-year, a 10-year, a 20-year perspective. And he can grow with that business from startup through expansion to growth to maturity. Does it mean you will never sell the business? The answer is no, obviously. But is it in the forefront of your mind? Probably not.'

Such an approach allows him the luxury of looking beyond immediate bottomline considerations, although he emphasises: 'Let me say that your judgement is more often wrong than correct. And that's the nature of investing, especially in startup businesses.'

Having said that, he willingly shares his modus operandi: 'I've often been asked, what do I look for? I would say that the first thing I look for is the person behind the idea. Why is he interested in it, how committed is he, what will his tenacity be like when he faces adversity? You know, these are all issues related to soft judgement, and that isn't going to be brought home by going to business school.

'And if the person passes muster, then you take a look at the PowerPoint presentations and the spreadsheets, to get an idea of how large the business will be, and how it might stack up against competition.'

Pressed for an example, he initially declines - 'I'm not so sure that the people who are behind those businesses would like it necessarily publicised' - but finally relents.

He relates: 'One of our more successful investments has been in a company in China that manufactures acoustic components for the mobile handphone market. We were drawn to that investment primarily by the man who was behind it. He was young, he was obviously very smart, but more important than that, I think he had the right attitude.

'He was prepared to work, and you had the feeling in talking to him that although he had this business in mind, and he had a plan for executing it, and he had a passion for it, that it wasn't just about making money for himself. He wanted to really make an impact, to be a factor in at least the part of the business that he was in.'

Mr Koh and his partners decided to back the entrepreneur, who 'proceeded to grow the company very well, and it was eventually listed on the Hong Kong Stock Exchange and he still runs it very successfully'.

So has Singapore finally imbibed this entrepreneurial culture, even embracing failure?

'Oh I would definitely think so,' Mr Koh replies instantly. 'I would say that we are a lot more open, a lot less quick now to stigmatise people because of failure. I think lots of people who may not have been successful the first time get a second chance. Is it quite like Silicon Valley yet? The answer is no, but I think Singapore has made vast improvement.'

But he has some pertinent advice for would-be entrepreneurs here: 'You continue to hear complaints about people starting up and not being able to find startup money or venture capital and things like that. I hear that all the time. My own take on that is there is plenty of money for investment. But getting that money does require hard work on the entrepreneur's part. It does require a soundly thought-out strategy.

'And very often that's not the case in Singapore. The weakness I see is not in engineering skills or technology skills or research and development, it is in marketing and sales. A business plan without addressing a market, without an assessment of your competition, without telling people how you intend to distribute and sell the product, is highly incomplete and therefore unlikely to be funded.'

Mr Koh's emphasis on people and the long term - the 'builder' part of being an investor-builder - is an advantage he brings to the boardrooms of the mega-companies he has been involved with.

At SingTel it helped him guide the stat board through what he readily concedes was a 'very painful' privatisation process.

He recalls: 'In three to four years the organisation shed over 4,000 people, which was 30 per cent of its staff at that point in time. But it was essential to prepare the organisation for competition. Do I enjoy downsizing? The answer is obviously no. I've done it so many times in my life. Every time it's ...' He doesn't complete the sentence.

He continues: 'As a manager, the minute you start thinking of people as digits you can grow and downsize, I think you need to get out of the business, because it means that whatever's left of you as a human being is probably gone.'

SIA was challenging for different reasons. He piloted the airline through a series of storms: September 11 in 2001, the Bali bomb attack in 2002, SARS in 2003, record fuel prices in 2005. The carrier stayed profitable every year, and in fact had record profits in 2005. Even so, his speech to SIA staff when he was leaving was a starkly cautious one.

He explains: 'In a service industry you can have an idea, but the idea is just two to three months away from being followed by everybody else. The nature of the business isn't such that you can look for one big thing and knock everybody out. You must do all of the things that you're doing just a little bit better than the competition. The seats have to be a little more comfortable, your cabin crew has to be a little bit more helpful and polite, your aircraft have to be a little bit more punctual, hopefully 100 per cent ... so that all of those little things add up.'

Now, with impeccable timing, he is chairman of a major bank in a time of global financial crisis. He exclaims: 'I can't think of a better time. You learn a lot.' The way Koh Boon Hwee says it, it sounds like a clarion call. You can see the builder taking charge.


The next education challenge for Singapore

EDUCATION has always been a big thing for DBS Group Holdings chairman Koh Boon Hwee, who is also chairman of the Board of Trustees of Nanyang Technological University (NTU).

But while the education system here is, in his words, 'one of the greatest achievements of Singapore', there is a need now to take higher education even higher, he says.

He explains: 'Two things are happening. First of all, the environment in Singapore is changing, and the universities have to adapt to that as well. Let me give you an example. For the first 20 years of NTU and its predecessor organisation NTI (Nanyang Technological Institute), the goal really was to ensure that we produced enough technical and engineering manpower to fund Singapore's demands, and the technology investors who would be coming in. And that's what we did. Starting from almost zero it went up to a student population of 20,000-21,000, the majority of whom were in engineering. And it's one of the reasons companies come to Singapore.

'But the state of Singapore's economic development now is that we are coming to the stage where it isn't just about providing manpower to fund industry, it is about providing manpower to fund research labs. Which basically means the university cannot just continue to produce manpower that can keep the machinery humming and the plant operating. You now have to produce people who are able to say, how can I improve the design of the plant, how do I improve the design of the product, what new ideas can I have for the next drug, or whatever it is? That's a quantum step up in the quality of manpower you need to produce. And that is the challenge that NTU is rising to.'

Mobile students

The other challenge is that, even in education, globalisation has had an impact, he says.

'Students today are very, very mobile, especially those who come from countries where their parents can afford it. Even if they can't afford it, some of the best universities in the world, the Harvards and the Yales, are now saying, 'We don't care whether you're from India, or from China, as long as you've got the brains, we will fund that education'.

'More important, universities now are ranked. Students all over the world see it, faculties see it. If you are a world class faculty (member), are you going to agree to work in the 212th university in the world, when you know that universities are recruiting all over? Well, today some of the best universities hire from all over the world, so the competition for professorial talent, for student talent, is becoming increasingly global.

'The challenge for NTU is to ensure that we accept those realities of the new environment and rise to that challenge. Which is what we're doing. We've just brought in a new provost, Bertil Andersson, (who is) very research oriented. We need to figure out a way to get our academic faculty to do not only teaching but research as well, and therefore you want to have a person who has spent his entire career steeped in this sort of thing.'

Research mindset

Mr Koh, who is also a member of Singapore's high-level Research, Innovation and Enterprise Council (RIEC), concedes that Singaporeans need to develop what he calls a research mindset.

'We don't have a lot of people who are steeped in R&D processes and protocols. We're not steeped in the idea that if we invest $100 million in R&D, maybe $80 million will be wasted, but somewhere along the line maybe $20 million of it may produce the next breakthrough idea. We're impatient, we have an 'instant-tree mentality', if we want a tree we're gonna plant it right now.

'The development of R&D isn't an instant-tree solution. You can try to shorten the process, which we're trying to do. With the help of the National Research Foundation and A*Star, we have been able to attract some really great scientists. And now we have to be patient.

'We can't say, now we've given you the environment and the funding, please win the Nobel Prize next year! It doesn't work that way. You've got to have the patience to let things develop, accept the idea that there will be some wastage, and you have to take it one step at a time.

Thursday, February 21, 2008

Slow off the mark?

Singapore is not exactly the greatest sporting nation in Asia but it has won the right to host the 2010 Youth Olympic Games tonight.

The news didn't come as a surprise as Singapore looks more exciting than Moscow due to the former's fast-changing landscape. Singapore's new attractions include the Singapore Flyer, the Formula One race later this year, a new downtown by Marina Bay, two big integrated resorts (Marina Bay Sands and Resorts World at Sentosa) by 2010 or 2011.

The hosting of the inaugural junior Olympics will be a big boost to Singapore, which is reinventing itself.

However, it would have been more ideal if the Singapore Sports Hub could have been completed in time for the big sporting event.

Singapore last month said it will award a contract to build and operate the new sports hub at the site of the current National Stadium. The winning consortium will start construction of the waterfront facility in April and complete it by the end of 2011.

Was plan for the sports hub slow off the mark?

Tuesday, February 19, 2008

Free up Asean skies!

Singapore Airlines (SIA) and Malaysia Airlines (MAS) are not about to slash fares anytime soon for the popular Singapore-KL sector despite the recent entry of budget airlines, according to The Straits Times tonight.

Competition has had minimal impact on yields and traffic, ST cited SIA chief executive officer Chew Choon Seng and MAS head Idris Jala as telling reporters on Monday on the sidelines of the inaugural Singapore Airshow Aviation Leadership Summit.

The report added that it took six years of lobbying for governments on both sides of the Causeway to clear the runway for a total of four budget flights a day between Singapore and KL, which Tiger Airways, Jetstar Asia and Malaysia's AirAsia started operating on Feb 1.

Between them, ST said SIA and MAS operate a total of 13 daily flights, offering more than 21,000 round-trip seats a week - four times the capacity of the budget boys.

Well, Sophie's World has a simple solution: Time to free up the KL-Singapore air sector completely, instead of waiting for the Asean Open Skies pact to take effect by the end of this year.

There is still a massive bottleneck for long-suffering travelers between the two countries.

Wednesday, February 13, 2008

Malaysia's election drama begins!

As widely expected, Malaysia will hold its national election in March following move in dissolving the parliament today.

According to conventional wisdom, the administration of Abdullah Ahmad Badawi, who inherited the premiership from popular Mahathir Mohamad in 2003, is eager to secure another electoral mandate before things get worse next year.

Polls are not due until May 16, 2009. Reuters correctly pointed out that analysts had expected him to seek a fresh mandate before the economy begins to slow and inflation picks up steam.

Another plausible reason is the need to prevent former deputy premier Anwar Ibrahim from taking part in the elections. Due to his past criminal case, charismatic Anwar is not allowed to run for public office until April.

The reasons all sound plausible. It's almost a foregone conclusion that the ruling National Front coalition will form the government again. It's just a matter of the margin of victory.

Reuters puts it elegantly: Opposition parties complain that the electorate is gerrymandered in favor of mainly rural Malays, that the pro-government media gives them short shrift and campaigning rules favor the incumbents.

But there will always be drama in Malaysia's political theatre.

Missing MRT link, Part 3

The JB-Singapore MRT link has not been given the green light yet, contrary to an earlier Chinese newspaper report.

Instead, the governments of Singapore and Malaysia have set up a working group to look at ways to help improve transport links between the two countries. And one option being considered is to extend Singapore’s MRT network into Johor, according to The Straits Times report today that cited Singapore’s Ministry of Transport. The Transport Ministry has not issued a media statement as at blogging time today. :-)

The news is definitely significant as it shows the intention of the two governments to work together to facilitate the massive cross-border flow of people between Malaysia and Singapore.

But can they really come up with a neat solution? The answers are not so clear due to the lack of information. There are many, many questions and issues.

For a start, the ST report said the proposed MRT link could start at Woodlands in Singapore and end at the Iskandar Development Region in Johor. Where exactly is it in IDR?

The IDR covers a huge area, accounting for more than 10% of the land area of the state of Johor, which itself is some 28 times bigger than Singapore. The state capital of JB, which is the closest link to Singapore, itself is in IDR. So is Senai Airport, which is about 30km away from the Malaysia-Singapore border.

It’s more ideal if the MRT link begins in Woodlands as reported and end in the heart of JB itself, instead of somewhere else within the IDR.

And what’s the working group’s plan to improve traffic flow along the causeway – a 1-km land bridge linking Singapore and Malaysia? As mentioned earlier, this is the main bottleneck and the source of much political angst between the two governments.

But building a new bridge for the MRT without resolving the causeway problem won’t be ideal. It is akin to doing a minor heart surgery without treating the main clogged artery.

The clogged artery must go, eventually. In its place, a new overhead bridge must be built to help resolve many problems in one fell swoop as argued in Cleaning up Straits of Johor good for Singapore too last year.

The working group must work out a holistic plan to improve traffic flow between the two countries. They must take into account all ways to improve road, rail and even sea traffic in the dirty Straits of Johor.

The current causeway chokes the straits and does not even allow boats or sampans to sail from the northwestern coast of Singapore to the southeast side of Johor, without making one big detour.

Another missing link is a high-speed train from KL to Singapore. Will Francis Yeoh build another rail bridge to Singapore? Or will he dig a tunnel under the Straits of Johor?

Sophie’s World hopes that the Singapore-Malaysia working group will triumph over their respective internal politics and come up with a holistic transportation blueprint that will benefit people on both sides of the straits.

Hopefully, such a plan will forge closer ties between the two close neighbours and withstand time.

Tuesday, February 12, 2008

Missing MRT link, part 2

Is the Singapore MRT finally going to the southern Malaysian city of Johor Baru?

Forum discussions based on a Chinese newspaper article posted on SingaporeSurf on Feb 9 seem to suggest so.

So far, I have not seen any article on the same issue by mainstream English newspapers on both sides of the causeway. Other parties -- the governments of Malaysia and Singapore, and SMRT -- have not made any announcement to clarify whether it is indeed true that the two governments had given the green light for the significant cross-border project. So it's not quite clear what the real situation is, as my understanding of Chinese is almost zero.

As argued earlier, it is a necessary link in Singapore's MRT blurprint. But there are many complications surrounding such a project, as mentioned in an earlier posting -- JB-Singapore MRT?

Wednesday, February 06, 2008

Same old sight

More than a quarter of the population in Singapore must have headed to Malaysia during the Chinese New Year.

This is based on the figure of about 1.35 million travellers that passed through the Tuas and Woodlands checkpoints on five days of the festivities last year, according to Singapore's Immigration and Checkpoints Authority in a ST report this evening.

And as in previous years, many were caught in a massive crawl at the Singapore-Malaysia border. This is seen in the ST picture showing the gridlock at the causeway, which links Singapore and Johor Baru in Malaysia. The report said vehicles were backed up several kilometres. Horns blared and tempers flared as motorists saw their chances of making it on time for their reunion dinner.

Their need to return for their reunion dinner reflects the close family ties on both sides of the causeway.

A friend had to drive 300km from KL to JB to pick up her husband, who works in Singapore. They then braved another 300km back to KL. This is because he couldn't get ticket for any mode of Singapore-KL transportation -- bus, the slow KTM train or new budget airlines.

*Sigh*

Sorry state of Malaysian affairs

The Malaysian government has apologised to the Hindus over the premature demolition of a temple, which had contributed to the massive outcry, street demonstrations and government crackdown last year.

"The demolition should not have been carried out a week before Deepavali. The relevant authorities could have postponed it one or two months. This was wrong on their part. We are sorry for that," Malaysian Deputy Prime Minister Najib Razak was cited as saying by The Straits Times earlier this week.

He also pledged to ensure the orderly relocation of temples built on private property.

Apart from anger over the destruction of Hindu temples in Malaysia, the Hindu Rights Action Force or Hindraf had organised street protest to make a ridiculous claim of US$4 trillion for the suffering of Indians, whose ancestors were taken to Malaysia by the British as indentured labourers 150 years ago.

Hindraf had also filed a ridicuous petition, claiming 'ethnic cleansing' in Malaysia.

Has Hindraf apologised to the government and Malaysians over the ridiculous monetary claim and petition charging 'ethnic cleansing' following the Malaysian leader's apology this week?

Please ignore this posting if Hindraf has said sorry.

Tuesday, February 05, 2008

Singapore's glittering Autobahn, Part 2

Note: Wikiepedia pix shows the current causeway linking southern Singapore and Sentosa island. The other causeway, which connects northern Singapore and Malaysia, has been retarding the flow of water in the dirty Straits of Johor for more than eight decades.

It's great to read about the latest plan to improve traffic access to the tourist island of Sentosa from Singapore's mainland.

According to The Straits Times, the roads leading to Sentosa, VivoCity and HarbourFront will be widened to cater to an anticipated increase in traffic into the area. With one of Singapore's two integrated resorts opening on Sentosa and new condominiums to be built in the area by 2010, traffic is likely to go up by 30 per cent, said the Land Transport Authority yesterday.

The ST article didn't mention it, but earlier news reports had said that Genting International's Resorts World at Sentosa -- the developer of the integrated resort and casino on Sentosa -- had started work on the second bridge to link Sentosa and the mainland.

The second bridge is aimed at easing visitor traffic as over 15 million of them are expected to visit the Resort when it opens in early 2010 or 2011. The report said the 710-metre, 3-lane bridge will run parallel to the existing causeway which connects Sentosa to the mainland. And when completed in September 2009, both will be merged.

The latest roadwork and the new Sentosa bridge will be a great addition to the new transport blueprint unveiled by the government in the past two weeks. Apart from plans to improve the public transportation system, the government will build the North-South Expressway by 2020. Singapore's Autobahn will cost S$8 billion, or at a stggering S$381 million per km.

Many locals and foreigners will enjoy seamless travel from Sentosa to the rest of Singapore, thanks to the government's transportation blueprint.

But they will almost certainly hit a major road bump should they wish to cross over to the southern Malaysian city of Johor Baru. The two countries have not been able to work together to jointly build a bridge to replace the old and congested causeway. A new and wider overhead bridge, which will have many benefits, shouldn't cost more than S$1 billion each.

This is a rough estimate based on the two countries' construction bill of over RM2.4 billion (slightly more than S$1 billion based on today's exchange rate) to jointly build the longer Second Link bridge when bilateral ties were a lot warmer in the mid-1990s.

Malaysia's bill came up to more than RM1.2 billion. Singapore's portion was last reported to be about S$600 million.

A new bridge to ease the massive cross-border flow between Malaysia and Singapore makes good sense. ST had earlier estimated about 250,000 people enter Malaysia via the causeway every day. This works out to more than 90 million people each year, which is a staggering number as it is nearly 20 times the population of Singapore. The traffic volume at the causeway is 6 times higher than the projected number of visitors to Sentosa.

It will be ideal if one could travel from Sentosa all the way to Malaysia seamlessly one day via two wide bridges and the glittering S$8-billion Autobahn.

Sunday, February 03, 2008

S'pore-KL budget flights take off but...

The long-protected Singapore-KL air route has finally been opened up, slightly.

Singapore and Malaysia newspapers highlighted the historic entry of budget airlines in the air sector between Singapore and Kuala Lumpur on Feb 1. Three new players -- Malaysia's AirAsia, and Tiger Airways and Jetstar Asia of Singapore -- will operate a total of four flights a day. Most of the flights will still be dominated by the expensive Singapore Airlines and Malaysia Airlines.

Sophie's World has long argued for the liberalisation of the route, which was dominated by the national carriers of Malaysia and Singapore for the past three decades. It just didn't make sense to shield the two national carriers from the new kids on the block since budget airlines came into play in 2003.

Passengers and commentators will continue to analyse the situation and applaud the move as another step towards open skies in Asean. Sophie's World fully endorses Asean's Open Sky pact by the end of this year to hasten economic and social integration of the region with over 500 million people -- more than one-third the population of China, which is the world's most populous country.

But an open sky pact alone will not nudge the region's disparate economies towards greater integration as long as many countries remain highly nationalistic.

In the case of closely-knit Malaysia and Singapore, the long-term solution is not more flights alone as many people still won't be able to travel freely. Why? This is because air travel is still relatively expensive due to the litany of taxes imposed, and the subsequent connection cost to the city.

For example, The Straits Times highlighted the family of 21 who collectively spent S$3,200 on the maiden budget flight from Singapore to KL. It's a lot cheaper than the S$8,800 they would have forked out on either Singapore Airlines or Malaysia Airlines for the same round-trip flight. At S$3,200, it works out to S$152 per person for a round-trip fare, including all the taxes.

The family could have chartered an entire van or bus for far less and used it to ferry them around in KL for one week. But bus was not an option for them as they said they had some toddlers who couldn't stomach the bus journey to KL. That's not the point here.

The point is at S$152 per person (some budget tickets were given away for free as part of the maiden flight promotions), it is still a high price to travel 320km from Singapore to KL. Budget airfare, inclusive of taxes and surcharges, is still at least 50 percent higher than what many luxury coaches charge between the two cities. In fact, ST said many people paid under S$200 each for a budget airline seat. This is more than double the return bus fare of S$92 charged by luxury coach Aeroline.

The long-term solution to facilitate the extremely high traffic volume between the two capitals is a high-speed bullet train service. It's an idea that was mooted by several Malaysian businessmen in the 1990s and revived recently by Francis Yeoh.

Even former Malaysian Prime Minister Dr Mahathir Mohamad had pushed for the idea as a way to further integrate the two countries. As part of the fast train service between KL and Singapore, Dr Mahathir had proposed a rail tunnel under the narrow Straits of Johor, which separates Malaysia and Singapore.

The rail tunnel project was part of the transportation blueprint in the southern Malaysian city of Johor Baru that involved building a new overhead bridge to replace the old causeway, which connects the two countries.

Although Singapore had officially welcomed the rail tunnel idea, negotiation to build a new overhead bridge was almost stillborn from the beginning. Malaysia finally called off the bridge project two years ago as Singapore had made certain demands -- the right to use Malaysia's airspace and buy sand for its land reclamation -- that Malaysia could not fulfill.

Francis Yeoh appears to be still keen to push ahead with the bullet train project although the rail tunnel and bridge components have been derailed. He could build a new fast rail link to Singapore should Malaysia secure Singapore's blessing, or end the rail track in the city of JB.

The answers are still hazy.

What is clearer is that a fast train service could zip from Singapore to the heart of KL in just 90 minutes -- half the time needed to drive on Malaysia's North-South Expressway. The point-to-point travel will be even faster than air travel due to time needed for airport immigration clearance, baggage clearance and the 57-km road or rail connection between the Kuala Lumpur International Airport and the capital.

Of course, demand will hinge on the eventual price of a train ticket. Sophie's World is hopeful that the price ticket for a fast train service, should it materialise, will be competitive compared to full-fledged airlines or even budget airlines.

But planners in Singapore and Malaysia must not ignore the ultimate bottleneck for road and rail travelers between the two countries -- the jointly-owned causeway.

Saturday, February 02, 2008

Taking ST Engineering to the next phase

The latest Raffles Conversation profile in Singapore's The Business Times today.

Taking ST Engineering to the next phase

Tan Pheng Hock, ST Engineering president and chief executive officer, tells WONG WEI KONG that the defence conglomerate has reached a stage where it is ready to shape the market

SINGAPORE Technologies Engineering (ST Engineering) used to set the pace for other blue chips by being the first to announce its results every year. A few years ago, it stopped doing so. An increasingly complex business spread across the group meant that it had to take more care - and time - to get its numbers right.

But being first just for the sake of it has never been Tan Pheng Hock's way. 'Fast is good, but it is secondary,' he says in an interview with BT. 'Our first criterion is to have a robust set of numbers that we can sign off and say, 'This is it'.'

'Put it this way, we are a big group now. It is not just about cultural diversity but differences in practices, environmental issues, local regulations, practices and procedures.

'When we were Singapore-centric, that was easy because we have been together for the last 30 to 40 years and we have an established set of processes and procedures. However, when you add on companies, you can't say that anymore. So we also have to address these concerns because being first is not necessarily the most important. More importantly is to make sure you have a robust set of numbers.'

Emphasising the process and not just the outcome is at the core of defence and engineering conglomerate ST Engineering, says Mr Tan, 51, who became its president and chief executive officer in 2002. It defines how the group is run, how it interacts with its customers, and how it bids for contracts and makes acquisitions. It is also something Mr Tan learnt from - you wouldn't expect it - his days as a minute-taker.

'One of the values I learnt in my younger days as an engineer was from writing minutes. I used to be arrowed by my boss to write minutes. All of us hated to write minutes. Writing minutes is not fun.

'I realised that if I take it as just writing minutes, it is really no fun. But if I start observing how issues are being discussed, how people make decisions, how people manage dissenting views, how they arrived at the conclusion, then, there is actually a lot of value in it.

'So I said, 'I better observe how things are being done'. I used to sit in meetings chaired by Philip Yeo, Kua Hong Pak or Ho Ching. You learn from people who are already there - they don't teach you, but you can observe how some people make decisions so fast. These are valuable lessons that people don't teach you, that no courses really teach you, but are invaluable.

'So I also try sometimes to get engineers to sit in meetings and say, 'Look, writing minutes is not important. What's important is what you get out of it. Do you get the essence of the three-hour discussion?' In that way, people don't feel like they are being arrowed but view it as recognition, a development rather than a task. So I'm appreciative of that and now I know why I was given that task.'

Years removed from his minute-writing days and as chief operating officer of the group, Mr Tan was to see ST Engineering and its Bionix Infantry Fighting Vehicle lose out on a US$4-billion US Army contract for light armoured vehicles. It was a major disappointment, but Mr Tan says the outcome did nothing to detract from the value of the process.

'Actually we got lots of value out of it - not in dollar terms. ST Engineering created a name in the US that we never had before. Although we didn't win, you can now see politicians and defence industry leaders acknowledging ST Engineering's capabilities. The US Department of Defense has acknowledged that we have good solutions.

'Having done that, we may not bid for the next vehicle but we may work with local industry players as partners as they now know our capabilities. Not all US defence companies, for example, produce vehicles. But they do system integration - add electronics and weapons - so this is where we can complement them.' And notwithstanding the Bionix disappointment, the US has become the biggest market for ST Engineering, accounting for 33 per cent of the group's revenue.

Doing things right, and not taking short-cuts, is the best way to win over the market, Mr Tan says. 'We want the market to trust us. If there is a thing that cannot be done, we'll explain to you why it cannot be done. We are not always right, but we give you an honest view of what can or cannot be done and we are open to your suggestions. We want people to see us as a trustworthy partner, who will not just take a project because we want it but who will take a project and make sure you understand where the limits are, what the challenges are, and the value we bring to you. We want people to know that ST Engineering is a partner, a trustworthy partner, not just a buyer or seller but a partner that will go in with you and take risks with you. We will be there in the long haul with you.'

This approach has helped ST Engineering build an enviable reputation in the market place. Over the past 40 years, ST Engineering has evolved from a local company to today's integrated and globalised company with a work force of 18,000 worldwide, with over 100 offices in 20 countries, including the US, Panama and China. The group's core capabilities are well recognised in four areas - land systems, electronics, marine and aerospace. Building on its defence heritage - it is the principal supplier to the Singapore Armed Forces - ST Engineering has established significant commercial operations which now account for 70 per cent of revenues.

'In the early days we were what I call metal bashers. You have got to start somewhere, and it was more hand and leg work. The second phase was around the 80s when we looked at upgrading and modification work, a bit more engineering work, a bit more value added. The third phase was in the 90s when we started to develop our own system, our own solutions, and our own intellectual property. That was when people started to see us as a creative, innovative company as we developed our own unique solutions.

'In the next phase for ST Engineering, people will no longer see us as takers in the market, and we will no longer be one that waits for the market to change. I strongly believe that we have now reached a stage where we can be a leader in some areas, where we can shape the market, and where we can position the market.'

When he took over as CEO in February 2002, Mr Tan felt that the group was not bold enough in making acquisitions. 'We didn't do many acquisitions in 2001, 2002. Our strength was in buying assets or companies that were in trouble. But it was also our weakness because we were always waiting for an opportunity to arise. You are waiting and you are not making things happen, so I said you cannot grow just by sitting down. We must have a M&A team and consciously have a strategic plan.

'The staff were reluctant to buy good operating companies because they believe that the seller makes all the money, which meant they win and we lose, instead of seeing the deal as a win-win proposition. The seller has reached a point where he could not grow the company any more while we are able to take the company to the next level. That is a win-win deal. We can make money just like the seller.'

Mr Tan then led ST Engineering on the path of actively pursuing strategic acquisitions overseas to diversify its business geographically and its revenue stream. While it is linked to Temasek, the Singapore investment corporation, it has so far avoided the controversy that have dogged some other Temasek-linked investments overseas.

Mr Tan says he does not have lessons to teach the rest of corporate Singapore, but for ST Engineering, it is again all down to the process. 'I stay below the radar. You don't see me talking about companies that I want to look at specifically. I will tell you our areas of interest in general. But I don't tell you about my targets.

'I don't want people to speculate. I also go below radar because at the end of the day, I like to develop relationships with companies before I even start to do any M&A. I think it is important for us to know the people, the management, the culture, the alignment, the confidence in knowing each other. Typically, we spend 12-18 months to get to know each other before we even consider whether it is really worth buying. And you don't see us going in a big way to publicise it.

'One thing for sure is that we are very sensitive to local issues. Firstly, even before we buy, we want to be sensitive. We always ask whether there are potential regulatory or nationalistic issues. If we sense that potentially there is a problem, we may not even want to do it because it may turn out to be too expensive and too difficult to bridge it. We always use our colleagues in those markets because I think some things are easier with their own people.

'We will tackle the politicians, we will tackle the owners, and if necessary, the workforce. We want to make sure that we hear them and that we are sensitive to them. Address the issue upfront if we can, and if not, we have to give certain assurances.

'Our investment in SAS Components could have created a stir in Europe, but it didn't, because we told them, 'Let's focus on this. Let's not focus on the outside world, and we don't have to publicise it. I know we have to tell the union, but let's manage the process sensitively'.'

Does it trouble him that ST Engineering is in the business of making weapons that can be put to use in quite destructive ways? His answer: 'We save lives, we don't kill lives. ST Engineering is not about just a weapons supplier but more. That's why you use the word defence. It is about how you can save lives, and how you can prevent conflicts for example. In our own way, we prevent tensions. I think that is what Singapore is all about as well.'

Mr Tan points out products from ST Engineering which have helped to save lives, including the Sars test kits and the Bronco supply carriers used in the tsunami rescue operations. 'So I think it is beyond just weapons, it is about coming up with a solution that can prevent catastrophe, looking at solutions to save lives. Many of our solutions are utilised in disaster recoveries.'

An engineer by training, Mr Tan graduated with first class honours in marine engineering from the University of Surrey, UK, after securing a Colombo Plan scholarship. In 1993, he was conferred with Master of Science (Management) from Stanford University, USA. He also attended the Advanced Management Program at Harvard University in 1999.

Mr Tan has spent more than 26 years at ST Engineering, his first and only job. He began his career with the group as an engineer in Singapore Technologies Marine Ltd in 1981. During his 16 years there, he advanced from one senior position to another and last held the appointment of executive vice president for yard and business development.

Prior to his current position, Mr Tan held the positions of ST Engineering's group president (June 2001), president and chief operating officer (July 2000), and COO (February 2000). Before these various positions in the corporate office, he was president of Singapore Technologies Kinetics Ltd (formerly known as Singapore Technologies Automotive Ltd) from September 1998. He was named president, corporate affairs, to assist in the integration of the various sectors of ST Engineering during its formation in 1997.

He says that being very much an insider and his exposure to various positions have given him an intimate knowledge of the operations of the group. But it has also not kept him from making tough calls.

He says: 'I assumed the job (as CEO) on Feb 20, 2002, and I already saw that customers' needs were changing. I was a bit worried about one or two of our businesses and one of them was an ammunition plant, about the things they do. Things were getting smarter but we were doing more conventional requirements. At the same time, those were people who had been with the group for a long time, since 1967, 68 or 69.

'The difficulty was that we needed a changing model. So there was the issue for me, 'Do you do the right things or do you do things right?' Doing the right thing was to restructure, retrench, reshape. Doing things right could be continuing to execute things very well, but where are the customers? In October 2002, I had to retrench 460 people.

'It was difficult because you could say that it was not their fault, because the market shifted but we didn't shift fast enough. But at the same time, we had to do the right thing for the company. It was very difficult because it happened in less than one year after I assumed the CEO post. It was not very popular when you did things like this.

'It was the most difficult decision in my life. No one knew how much I agonised over it, because I didn't show it openly. But deep inside, I could not accept having to ask staff to leave. I hope those affected understood why I had to do it and will forgive me.'