Talent crunch will set back innovation

The business transformation that the government is pushing for will move only very slowly if the country lacks a critical mass of right-skilled workers


WHAT'S the No. 1 item on the wish list of local small and medium-sized enterprises (SMEs)?

According to the UOB Asean SME Transformation Study reported in The Sunday Times last week, it is "subsidies to ease the burden of rising manpower costs".

In a page one story last Wednesday, The Business Times also highlighted some of the problems companies are grappling with on the manpower front. The article, headlined "Status quo on foreign manpower rules a let-down for businesses", had some startling statistics: For example, it pointed to a 2016 survey by the Infocomm Media Development Authority, which indicated that from 2017 to 2019, the demand for infocomm professionals will rise by more than 42,000, with the jobs for technical IT specialists alone expected to grow by about 33,400.

It also cited the chief executive of tech talent search firm Wonderlabs Ivan Chang, who pointed out that in 2015, for every one English-proficient tech talent the firm was able to headhunt, three or four clients would be ready to make a hire. Today, for every such talent, there are 25 who want to hire - a roughly eight-fold increase in demand, in just three years.

Another chief executive, Marcus Tan from cyber security firm Cloak Apps, pointed out that Singapore universities produce only "10 or 20 really good developers" a year. But most are snapped up immediately by banks or big-tech companies - or else want to do PhDs or work overseas, leaving few or none of these talents for SMEs.

If this is any indication of the reality on the ground - and it is consistent with anecdotal evidence from almost any company you talk to, big or small, local or foreign, or any headhunter - the business transformation that the government is pushing for promises to be excruciatingly slow, if not elusive.

In an otherwise wide-ranging and creative Budget, full of ideas and incentives for innovation and upskilling, as well as far-sighted social policies, the one glaring omission was any move to decisively ease the acute skill shortages that companies are currently up against.

Apart from deferring worker-levy increases for the struggling marine and process sectors, Finance Minister Heng Swee Keat offered no immediate relief for businesses.

Let us leave aside the important issue of the projected decline in the working population from 2020. This medium-term problem also needs to be addressed, and immigration policy has to be part of the solution. But let us focus on just the more immediate problems that may arise from the continued shortage of skills that companies are facing.

One is that it will dilute the effectiveness of some of the government's own well-meaning ideas for economic transformation.

Take the proposed industry transformation maps (ITMs), under which government agencies will help companies reposition themselves for the future economy. The hope is to get companies to sign up to these ITMs, and as more of them do this, the better are the chances that their industry will transform.

However, companies will only sign up to what they have the capacity to execute. If they lack the skills to do what the ITMs prescribe, the process will be slow to take off. So, while all kinds of elaborate ITMs can be drawn up on paper, in the absence of access to right-skilled workers, they are unlikely to get very far in practice. Or else, the ITMs will have to be scaled down to match the skill levels that exist, which could mean that transformation will have to be more incremental and less ambitious.

The Productivity Solutions Grant proposed in the Budget, which will support companies in the adoption of off-the-shelf productivity solutions, would come up against a similar problem. Companies will be limited to choosing only those solutions they can implement with their limited skill-sets.

Another creative idea in the Budget is the "open innovation platform", through which companies can crowd-source digital solutions from local technology providers. But in a skills-constrained environment, what is likely to happen is that the demand for solutions will far exceed the supply, resulting in costs shooting up as well as delays in executing on orders.

Consequently, rather than relying on the platform, companies will end up outsourcing solutions to firms overseas, which can offer them more competitively. Indeed, some of the local suppliers of solutions could themselves turn into outsourcing agents - which is already happening. If it is to really work well - that is, provide technology solutions locally, quickly and at a competitive price - the pool of skills locally available would need to be much bigger than it is.

To address this need, the Budget proposes piloting a "capability transfer programme", in which foreign specialists will be brought in to transfer skills to local trainees. This will be helpful. But first, its effects will materialise gradually over a number of years as successive cohorts are trained and gain experience. Second, capabilities would be more effectively transferred through osmosis, by practitioners working side-by-side on actual projects with local workers, than by trainers.

The Budget's proposed expansion of the Tech Skills Accelerator (TeSA) programme, which trains people in emerging digital skills, will also be helpful. But this, again, will produce benefits only gradually. Companies need already-trained and experienced people right now.

The government has not explained why it is reluctant to relax the rules on foreign manpower. Speculating on the possible reason, some economists suggest that it could be because policymakers are concerned that any such relaxation would discourage firms from investing in productivity improvements.

If this is indeed the reason, its validity is limited. In some cases, the greater use of manpower might indeed thwart productivity improvements - the automation of construction activities, for example, might not happen if firms have easy access to low-cost construction workers.

But in other areas, more manpower is precisely what is needed to boost productivity and transformation. If firms are to develop and deploy technologies such as artificial intelligence, the Internet of Things , 3D printing (or "infofacturing", which is essentially driven by software), or blockchain, they need more data scientists, software engineers and developers, not less.

Starving them of manpower, far from solving their problem or helping the economy, will set back innovation. Indeed, skilled manpower is the very source of competitive advantage in such areas. Moreover, the competition in these areas is global, and Singapore companies have to compete with firms in countries with fewer or no manpower constraints.

Last but not least, there is one more reason to liberalise the rules governing skilled foreign workers. It is the fact that, at least in the field of technology, the best talent gravitates to where the best talent already is - because those are the happening places where the most exciting experiments are underway, where cutting edge companies are getting built, where venture capitalists congregate and the ecosystem for innovation flourishes the most.

Singapore needs to accelerate the process to become such a place. Maintaining tight controls on the inflow of talent is not the way to do it.

So we hope this will change, and that we will not need to wait for the next Budget for that to happen.