SM Goh Chok Tong at the 5th Russia-Singapore Business Forum

It gives me great pleasure to welcome all of you to this 5th Russia-Singapore Business Forum (RSBF). This forum has come a long way in establishing itself as a premier forum for our officials and businessmen to network, share views and explore opportunities.

Tapping on the Growth in Asia

When we met in September last year, the global economy was just emerging from the crisis. The recovery has since continued apace. Major economies such as US, Japan and the EU posted positive growth in the first half of this year. While downside risks remain, global economic growth is expected to hit 4.6 per cent for 2010.

In coping with short-term uncertainties, businessmen also need to focus on long-term structural trends. The recent global economic crisis was a transformative moment for Asia. It underlined Asia’s emergence as a major global economic engine. During the crisis, China and India continued to post strong economic growth. Major Asian economies should outpace global growth this year, with the region’s GDP expected to reach 7.75 per cent. Based on current trends, within five years, IMF believes Asia’s economy will be about 50 per cent larger, account for more than a third of global output and be comparable in size to the economies of the US and Europe.

Fuelled by rapidly expanding domestic markets, Asia is fast producing its share of corporate titans. Today, China has the third largest number of companies in the Fortune 500 rankings, after the US and Japan. Its number has nearly tripled to 46 today, from 16 just 5 years ago.

At the same time, the number of Asian billionaires is on the rise. There are over 230 of them in 2009, up from 130 in 2008, with Chinese and Indians dominating the list. Their combined wealth doubled to about US$730 billion in the same period. More importantly for businesses, the global middle class is expected to explode from some 1.8 billion today to 5 billion by 2030, with over 80 per cent of the growth coming from Asia.

It is conventional wisdom that we need to tap on this growing market. But the question is how. Here, I would like to share some thoughts on how companies could approach this region.
Asia as a market

First, companies need to see Asia not just as a low-cost operations base, but also as a key market. Two main trends which will underpin Asia’s development are a surge in its middle class and rapid urbanisation. Asia’s middle class spent nearly US$5 trillion in 2009. This is expected to rise to US$32 trillion by 2030, accounting for about 60% of global middle class spending then. This will drive demand for better quality products and services ranging from laptops and smartphones to more sophisticated financial products.

The rapid urbanisation across Asia will also create many opportunities for companies in urban infrastructure, consumer goods and services as more people move to cities. This is not limited to top tier cities like Shanghai and Beijing. Opportunities can also be found in second and third-tier cities and provinces like China’s Chengdu, Chongqing and Wuhan and India’s Mumbai, Delhi and Kolkata.

With Asia posting healthy economic growth, this sizeable market has become the key reason why companies are setting up operations in Asia. The opportunities are vast but this surge of consumers will come from very diverse cultural and ethnic backgrounds. Their tastes and preferences will not just be different from their developed country counterparts but also among different Asian countries, and they will evolve rapidly.

Asia as talent pool

This brings me to my second point. Businesses should also consider setting up higher-value operations in Asia due to the growing concentration of talent here. Today, India supplies more technology workers than any other country, and China is on track to pass the US as the home of the largest R&D workforce. It is also not just about accessing talent. HQ and knowledge-driven functions sited here will build an in-depth understanding of the region as a large and fast-growing consumer market in its own right. Otherwise, it will be difficult for decision-makers to develop the instincts and local knowledge critical to making good strategic and operational decisions. Whether it is product development, marketing, distribution or cost structures, companies will need to tailor them to local conditions.

Looking beyond China and India

Lastly, besides China and India, there is another potentially big market - ASEAN which also has a sizable consumer base of 500 million. ASEAN is on its way to build a single market and production base – or what we call an ASEAN Economic Community – by 2015. This means goods, services, investments and talent can flow more easily within the region. And it will translate into lower transaction costs for companies doing business here. It will also enable them to tap on the complementary strengths of ASEAN countries and deploy a whole value chain of activities in the region.

Singapore as Global-Asia Hub

Singapore is a good springboard for Russian companies making their foray into Asia. Located at the heart of Asia, we are connected to the key regions of growth. We have Free Trade Agreements (FTAs) with ASEAN, China, India, Japan, Australia and New Zealand. As a global business city, Singapore has good infrastructure, connectivity and a highly skilled workforce. We also aim to make Singapore not just an efficient business city but a leading cultural capital abuzz with ideas and talent from diverse fields.

We know it will be important for companies – including Russian ones - to better understand the region’s needs, lifestyles and preferences if they want to successfully tap on its opportunities. And Singapore, in many ways, is a microcosm of Asia. Factors like our cosmopolitan population, the rich mix of MNCs here – both from the West and emerging ones from Asia – and our cultural diversity all make Singapore an ideal base for Russian companies seeking to understand the region, through ready access to market knowledge as well as networks with people. There is also a good supply of what we call “Asia-ready” talent here, that is, people with strong experience and expertise in Asian markets to help companies spearhead their strategies in the region.

In addition, the deep and liquid capital markets in Singapore afford Russian companies an effective fund-raising platform to finance their overseas expansion as well. I encourage more Russian companies to raise capital here through listings.

Bilateral Relations Enter New Phase

Later this afternoon, I will be co-chairing the inaugural Singapore-Russia Inter-Governmental Commission meeting with Deputy Chairman and Chief of Staff of the Russian Federation Mr Sergey Sobyanin. We expect to have frank and broad-ranging discussion on how to advance our cooperation in various areas – economics, culture, education and others. I am confident this new platform will bring our strong bilateral relations to greater heights. Both sides will also be signing the Investment Promotion and Protection Agreement today. Together with the Avoidance of Double Taxation Agreement, this agreement will help promote greater bilateral business flows with Russia.

Of course, the Russia-Singapore Business Forum has become a familiar annual affair where businessmen from Russia and Asia meet, exchange ideas about developments in both regions, make new contacts, and discuss collaborative projects on the side. The theme of this year’s RSBF on tapping on growth opportunities in Asia is most timely. I am confident that many good ideas will be exchanged during this forum.

I wish your forum huge success. Thank you.

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