SINGAPORE'S subdued retail sector can take a leaf out of the playbook of the manufacturing sector, which has harnessed technological advancements to benefit from the latest upswing in global demand for its products.
The Monetary Authority of Singapore (MAS) is urging retailers to look to e-commerce as a way to explore new markets, which is what manufacturing firms have done, in the process restructuring their sector.
Taken together, MAS's analyses, published on Thursday in its twice-yearly macro-economic review, show how the success of the manufacturing sector can point the way to the future economy for other sectors - a viewpoint that economists first spoke about previously to The Business Times.
The recent Committee on the Future report noted that the current base of high-value manufacturing and services activities here provides a strong value proposition for "servicised manufacturers that operate across the value-chain". It suggested that Singapore continue to encourage the growth of a vibrant manufacturing sector.
The review, noting that the retail industry is facing disruption by e-commerce players, said "innovative business formats and technology" will be needed to transform the sector.
When global chip sales turned around in the second half of 2016, Singapore's manufacturing firms were able to tap into that surge in demand to grow, MAS said in its review.
This recovery is expected to be sustained, it added, meaning that Singapore manufacturers can continue to tap into this surge in external demand.
But how this upswing will affect Singapore's manufacturing, or even its entire economy, is different from previous recoveries.
This is because the face of Singapore's manufacturing is changing. Rapid technological advancement in the semiconductor space, together with rising research and development (R&D) costs, have led firms to specialise in specific activities along the value chain, depending on where their comparative advantages lie.
This would mean that the full effects of the global upswing are more spread out now. MAS said: "The larger share of research and design activities in output value implies that the uplift has not translated fully into merchandise export performance."
Said ANZ economist Ng Weiwen: "Manufacturing now affects the entire supply chain," he said. "You need R&D for the chips, which are counted as tangible exports. But R&D is intangible; it can be captured in the services export side of things."
In the same vein, MAS urged retailers here to look towards e-commerce to tap into new markets, including those overseas.
"There remains ample scope for local retailers to capture the wider regional market, some of which have made significant strides in improving technological access."
MAS noted that online spending has grown in recent years. In particular, the value of "card not present" transactions - used as a proxy for online shopping - grew by an average of 20.2 per cent a year between 2012 and last year.
This means that foreign players are now also active in Singapore's retail scene - without having to invest in brick-and-mortar space. Half the top 10 e-commerce sites in Singapore are from overseas.
Singapore retailers should therefore look beyond traditional distribution channels for the next phase of their expansion, urged MAS.
"With greater internet penetration across the region, traditional brick-and-mortar retailers can unlock new income streams by utilising e-commerce channels.
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