Wednesday, October 26, 2011

Uniquely Singapore: staff shortage and the foreign worker crunch

Oct 26, 2011
special report
Tough to meet orders

AN UNUSUAL quiet has settled on the once bustling production floor at Apex Technologies; machines that once hummed with activity lie dormant, accumulating dust.

The lack of activity is not due to the usual suspect of falling orders, but to a shortage of workers to operate the machinery, said managing director Alan Hoong.

The Toa Payoh precision engineering firm makes moulds for the semiconductor industry, employing mainly foreigners.

It had about 60 on the payroll a year ago, but that has fallen to around 35.

The factory used to run two shifts, with one worker manning one machine, but Mr Hoong has had to combine the two shifts into one and get each employee to operate multiple machines.

Even with this radical revamp, the company is struggling to regain the level of productivity it once had.

'It is quite drastic. Even right now, we are having difficulty filling orders,' Mr Hoong said, even with sales dropping due to the global economic slowdown.

He estimated that the company has lost about 30 per cent of orders due to the staff shortage.

Mr Hoong said it takes anywhere from six to 12 months to get workers up to speed because of the level of training required. And while foreign workers are hard to employ, locals are simply not staying on.

He has tried all avenues, from hiring local ex-convicts to older workers, but most give up after a few days of training.

'Most don't have the patience - they quit halfway and become property agents,' he said.

The labour supply headache extends to senior staff as well, with foreigners who had spent almost a decade at the company working their way up to become supervisors, group leaders and project managers having to go.

'We spent so many years training them, and they were willing to stay on, so imagine the relationship, trust, goodwill.

'Now, the work permit gives us a two-year term, but by the time the workers are trained enough to be independent, we have to send them back,' said Mr Hoong.

'I feel helpless, and angry.'

He said Apex Technologies has explored the possibility of moving into automation, but it would cost around $10 million, which the company cannot afford at this moment.

'That (automation) needs a much higher skilled person to manage, but that is my only hope. Right now, I have foreigners willing to undergo the training, but locals don't want to,' he said.


Plenty of customers, but not enough staff

MR WEI CHAN, founder of Next Door Deli in Ang Mo Kio, is beset by various problems, but a lack of customers is not one of them.

It is quite the opposite, in fact. He has had to put expansion plans on hold, and his shelves are half empty.

The crux of the problem is that Mr Chan, 47, also the business development director of popular bakery Pine Garden's Cake and Vietnamese delicatessen Baguette, has been unable to find vital new employees in recent months.

Despite spending up to $4,000 on advertising each month, he is still looking to employ eight more staff, including bakers and drivers for the three businesses.

In total, they have 38 staff, of whom 20 are local. The 18 foreigners include Malaysians, Chinese and Myanmarese.

 He told The Straits Times: 'I would love to make kueh. I have the recipes, but I simply do not have the manpower. For my deli, I would want to operate for longer hours on the weekends, if possible.

'I could also operate my machines 24/7, and that would increase production by a lot more. The opportunity cost of not having enough employees is really high.'

Mr Chan actually prefers to hire Singaporeans because foreigners who have been trained to bake or cook may eventually not have their S-passes renewed.

The cost of hiring a foreigner works out to be the same as a local, after including the cost of housing and the levies.

A baker can earn from $2,200 to $2,500 a month.

'Singaporeans simply are not interested in being bakers. When they do actually turn up for the interviews, we end up being 'interviewed',' he said.

Some of the questions the job seekers have asked Mr Chan include 'Does the bus stop in front of your shop?' and 'Can I get a cash advance?'.

He likens the situation to how households in Singapore no longer employ Singaporean maids.

'Can you find Singaporeans who want to be maids? There are jobs that we don't want to do, and we have to look elsewhere. By restricting the number of S-passes and E-passes, it is really hurting our business,' he said, referring to the various types of employment passes.

Automation is also not a real solution for his bakery and deli. Although productivity can be improved by 3 per cent to 4 per cent, there are some processes that still require the human touch.

'Can a robot refill my salt and pepper shakers? Or do that?' he said, pointing to an employee who was wiping dust off one of the decoration pieces in Next Door.

'Customers love our bakery for customised cakes. A robot cannot do that for us,' he said.


Firms feel impact of foreign worker crunch
Businesses protest, but some economists believe the limits are necessary
 By Aaron Low, Magdalen Ng & Melissa Tan

WINNING a $3 million contract should have been a triumph for Mr Robert Goh's electrical engineering business, but the foreign worker levy is ramping costs up so high that the 15-year-old company's future is in doubt.

 SJ Thames Engineering employs about 20 foreigners for technical and basic engineering work, but once-healthy margins are being squeezed hard by the levies.

The cost per foreign worker is about $2,000 to Mr Goh. This cost includes $250 for lodging, salary of about $900 and a levy of $450.

'But even if I offer that amount, I can't get a local to join,' said Mr Goh, who placed an advert recently for an engineering job that attracted just six Singaporeans out of 160 applications.

He said that implementing productivity improvements is not that straightforward as the work is labour-intensive.

Mr Goh's concerns are mirrored across the business community as disquiet increases over government measures to slow the flow of foreign workers.

There have been a series of moves over the past 12 months to make it costlier for companies to hire foreign workers, both at the unskilled and semi-skilled levels.

At the lower end of the skills scale, the Government is raising the levies of Work Permit holders. Companies will have to pay between $130 and $320 more a month for each foreign worker by July 2013, depending on the company's sector.

At the higher end, the Manpower Ministry is raising the salary criteria for Employment Pass holders to level the playing field for Singaporeans competing with foreigners for the same jobs.

This is to ensure that Singaporeans remain the core of the workforce, Deputy Prime Minister and Manpower Minister Tharman Shanmugaratnam has said.

Tax breaks and incentives were also implemented alongside the foreign worker policy changes to entice firms to increase productivity by investing in technology.

The main objective of these measures is to wean companies off cheap foreign labour as the country and its infrastructure cannot absorb infinite numbers of workers, said economists.

They are also meant to help raise productivity and indirectly increase salaries of Singaporeans.

The Government wants to lift real wages by 30 per cent over the next decade, largely through increases in productivity.

The impact of the measures is already showing up. A Citigroup report found that 130,000 non-residents entered Singapore in 2007, while 191,200 came here in 2008. In the recession year of 2009, this dropped to just 57,000.

Last year, even when the economy recovered and grew at 14.5 per cent, the number was even lower at 51,300.

And the latest rounds of tightening are likely to choke the numbers even further, even though the Government has said the economy must stay open to foreigners.

The prospect of not getting access to foreign workers is clearly worrying many bosses.

In a rare show of public disapproval, the major business associations have issued statements in the past month highlighting their concerns, warning that without access to manpower, companies are thinking of packing their bags.

The strongest warning came from the Singapore International Chamber of Commerce, which represents multinational firms. It said its members are watching the foreign worker situation carefully.

Chief executive Phillip Overmyer said: 'If this continues, you would probably see some companies shrinking their Singapore operations over the next few years, and this would mean fewer jobs for Singaporeans.'

Singapore Chinese Chamber of Commerce and Industry president Teo Siong Seng told The Straits Times that businesses can see that Singapore cannot simply just take in more foreigners every year.

'But many firms are asking, 'If locals don't want to work here, why is the Government restricting foreign workers to these sectors?' Shouldn't there be a more flexible approach, to look at each sector?' said Mr Teo.

Some companies such as contract manufacturer VDL ETG Singapore have been successful in entering higher value markets and switching to more efficient modes of production, but many others are struggling to do so.

The basic problem most have is being unable to attract locals in the first place, said marine firm BH Global Marine.

Executive chairman Alvin Lim told The Straits Times: 'We are willing to pay $2,500, higher than the $2,000 we pay for foreigners, for a new local, but they tell us, 'Saturday, Sunday I don't work. Go out to sea to troubleshoot, very tough, cannot'.'

As a result, the company has set up a branch in China, where it needs to pay only $1,000 for an engineer, he said.

'In Singapore, we try to get Singaporeans, but if we cannot get, then what can we do. No choice but to move overseas,' said Mr Lim.

Despite protests from businesses, economists believe pain is inevitable if Singapore wants to move up the productivity ladder.

Lee Kuan Yew School of Public Policy economist Hui Weng Tat said Singapore should focus on 'industries and businesses in which we have a comparative advantage'.

'Export-oriented, labour-intensive businesses and industries that thrive on relatively cheap labour should be restructured or relocated overseas. This may be painful in the short term, but necessary for the long-term good,' said Professor Hui.

But Mr Lawrence Leow, president of the Association of Small and Medium Enterprises, pointed out that restricting foreign workers affects small businesses and may, in the longer term, hit the entrepreneurial dreams of aspiring businessmen.

He said: 'It is about the whole eco-system and whether the Government remains friendly to business. But if it gets too hard, people will just pack up and chase their dreams elsewhere.'

Higher costs may force MNCs to move
THE increased foreign worker levy is affecting not just smaller firms, but causing pain for some multinationals as well.

Operational costs at ASM Technology Singapore, a subsidiary of the Dutch-owned ASM International, have increased by 5 per cent to 7 per cent year-on-year.

The average starting pay of an engineer ranges from $2,700 to $3,000 a month. The increased levy of $200 is more than 7 per cent of the total salary.

The semiconductor equipment manufacturer has approximately 1,100 employees at its Yishun site - two-thirds are engineers, and about 12 per cent of all employees are foreigners.

Mr Patrick Lim, ASM's vice-president for corporate services, told The Straits Times: 'Our manpower and production are not immediately affected by the increased levy because we can still afford to pay.

'But over time, the rising costs will not be something that we can ignore.'

Mr Lim said Singapore's competitive labour costs have always been a draw for multinationals, but once these expenses rise too high, the companies will have to look elsewhere.

Relocation is an option that cannot be ruled out for ASM Technology if costs continue to increase.

'Singapore's problem is also compounded by our strong currency. Put these two factors together, Singapore is no longer attractive compared to places like Hong Kong or China,' said Mr Lim.

'Once companies start to move their (research and development) teams out of the country, there will be less activity in the manufacturing sector, and Singapore will lose its competitive advantage.'

[As Singaporeans become more selective about the jobs they will do, perhaps these jobs should move out of the country. However to be replaced with jobs where Singaporeans have a comparative advantage is easier said than done. What are our comparative advantages? We criticise, complain, and denigrate. But how many movie critics can Singapore support?]

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