Singapore's focus on high value-added activities cements position as trade hub

DESPITE shifts in electronics trade flows, Singapore has adapted to the shifts with a focus on high value-added activities in the global supply chain, helping cement its position as a trade hub.

For instance, the emergence of China as a global electronics production centre has resulted in weakened linkages among some Asean economies, namely Indonesia, Malaysia, Singapore, Thailand and the Philippines. While Singapore used to be a major source of both electronics components and final products for the region, it has since ceded market share to China.

That being said, there still exists considerable trade in components. Singapore, for instance, is the second-largest source of integrated components (ICs) for Malaysia (after Taiwan) and Indonesia (after China). Malaysia also imports parts from Singapore and Thailand for its production of reader machines, which command a global share of about 15 per cent. Similarly, Thailand sources ICs from Malaysia for its production of HDDs (hard disk drives) which accounts for about 18 per cent of global exports.

Regionally, Singapore acts primarily as a distribution centre for exports of electronic goods, in particular ICs, although Asean economies have reduced their reliance on this intermediary role over the last decade. Malaysia and the Philippines export about one-fifth and 10-15 per cent of their IC products through Singapore respectively.

Malaysia has established itself as the largest supplier of ICs to the US and Mexico, and has a share of 9 per cent each in the IC imports of the European Union (EU) and China. Given that Malaysia's exports to Mexico are channelled through the US and a part of that trade comes through Singapore, Malaysia's significant role in these major markets has bolstered Singapore's re-exports.

However, to meet the growing demand for ICs from China, Malaysia is forwarding more of its IC exports to Hong Kong instead, while the Philippines has almost halved the proportion of ICs exported through Singapore over the last decade.

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In general, the regional countries are sourcing more directly from the North-east Asian economies or via Hong Kong instead of importing from economies such as the EU and Japan through Singapore. That being said, Singapre's IC re-exports to markets outside of China, including the US and EU, remain much larger than Hong Kong's by about 1.3 times on average.

It is also worth noting that Singapore re-exports other electronics components and final products from China to the Asean countries. Singaproe's re-exports account for the largest proportion of electronics imports into Indonesia (32 per cent) and the lowest in Vietnam (5 per cent).

For exports out of South-east Asia, Singapore plays a much smaller role as a distribution centre, with notable volumes from only Malaysia. Malaysia ships to Singapore about 10 per cent of the mobile phones, and 15 per cent of PC parts. Among the HDD producers in the region, only Malaysia exports a small portion (of less than 10 per cent) via Singapore.

In terms of how electronics supply chains have shifted since the implementation of additional US tariffs on China's products, it appears that the major nodes in Asia's electronics supply chain have remained broadly intact, although there has been some reorganisation of production away from China and towards manufacturers elsewhere in Asia, particularly Vietnam, Taiwan and Malaysia.

Meanwhile, China appears to be adjusting to the tariffs by shifting production away from final goods and towards intermediate products. There is also tentative evidence of in-sourcing by the US and gains by Mexico, which suggest that the tariffs have catalysed the growth of the US-Mexico electronics production network.

Today, Singapore accounts for as much as a fifth of the world's production of semiconductor equipment, in large part due to the country's focus on high value-added activities in the global supply chain. Many of the world's top semiconductor companies have a presence in the Republic, which serves as their regional headquarters, research and development centres, or advanced wafer fabrication facilities. This has helped to entrench Singapore as a major global distribution hub for ICs and resulted in a rich domestic ecosystem of materials and equipment and EMS (electronics manufacturing services) players.