Global Supply Chain in Singapore's Services Sector: Retail Value Chain and Productivity Improvements.

• Author: Thangavelu, Shandre Mugan

1. Introduction

   It has widely been recorded that Singapore managed to achieve tremendous economic growth in a short span after its independence. Often highlighted as the East Asian economic miracle, the city-state attained its "developed" status in just thirty-five years, and now enjoys one of the highest levels of per capita GDP in the world. Between 1999 and 2011, Singapore was able to sustain very high levels of growth, averaging between 6 and 9 per cent per annum. However, in recent years, against the backdrop of recent global and domestic challenges, the country is rebalancing towards lower growth.

   Singapore's economic success can be attributed to five factors. First, it has stable and robust institutions that minimize the impact of political and investment risks to the economy, thereby enabling businesses to plan ahead with a considerable degree of certainty regarding their future. Second, Singapore has developed its infrastructure extensively, allowing the economy to enjoy stable returns on both public and private investments. Third, the government periodically engages in comprehensive long-term planning that looks way beyond the immediate future. Fourth, the country maintains an open-economy policy focused on maintaining a low tax base and supporting a pro-business environment. And fifth, Singapore places a lot of emphasis on human capital development. These five fundamentals have enabled the nation to generate tremendous growth consistently over the five decades since independence.

   Notwithstanding these achievements, Singapore is gradually adapting to a lower growth trend due to structural adjustments in the economy arising from both policy- and market-based factors. In recent years, the growth rates of Singapore's gross domestic product, gross fixed capital formation and non-domestic oil exports have declined, and so has the employment share of its manufacturing sector. The market factors responsible for the current economic adjustments include: a shift towards the services sector away from manufacturing; falling exports in manufacturing, coupled with weaker productivity growth; convergence of institutions in Southeast Asia leading to greater competition as regional countries "learn to govern" and liberalize their institutions; the lack of indigenous technology and entrepreneurship, partly due to industrial development policies of the past; and the intrinsic limits to growth and productivity as a city-state.

   Given that Singapore is beginning to rebalance towards services activities, the global value chain activities of the services sector and trade will be very crucial for its economy. In this respect, the productivity and competitiveness of retail will be particularly vital. Therefore, this paper explores the value chain activities of the country's retail sector and also examines the key factors that could increase its productivity growth.

   Since the 1990s, the retail sector has been expanding and internationalizing its activities, thanks to the Internet and falling transaction costs across countries. Vast improvements in information technology have increased the efficiency of procurement and value-added activities in the regional and global value chain activities of the retail industry (Ganesan et al. 2009). Major retailers like Wal-Mart, Carrefour, Metro, Woolworths, Tesco, H&M and GAP, have been incredibly successful in carrying out value chain activities (VCAs) and processes (VCPs) internationally. Simultaneously, as they continue branching out to even more countries, these companies are also exploring value-added and value-capturing activities.

   While discussing the sector, the demand side cannot be ignored. Globally, there are growing changes in consumer preferences and the way goods are purchased. Factors like higher-than-before customer expectations on new product varieties and services, and the demand for more-for-less are driving retailers to seek more value-added activities. Such consumption trends are transforming the retail landscape in three dimensions: global sourcing practices; multichannel routes to markets; and relationship-based innovation (Ganesan et al. 2009; Sternquist 1997). As a result, retailers are not only trying to maximize sales and revenues, but also developing strategic means to collaborate with their supply chain partners to drive demand and generate sustainable growth.

   Major retail players in Singapore, too, are following a linear framework of supply chain activities, mainly focusing on marketing and distribution functions. However, recent literature highlights that multichannel and more forward-looking activities like global best practices and consumer innovation-based activities are needed to remain competitive and productive in the regional and global value chain. Given this background, this study argues that...