Singapore: The new launchpad for foreign firms based in China

It also comes as no surprise that companies with headquarters in China are increasingly looking to diversify their business into Southeast Asia to overcome any challenges and uncertainties within the region. Rapid innovations accelerated by the pandemic and the adoption of endemic COVID-19 policies continue to make it an attractive destination for foreign investors seeking alternative locations for operations.

Singapore, in particular, has become a favoured destination for firms looking to enter this growing market. Two years after it endured its worst recession since 1965, Singapore recorded an increase of US$24.3 billion of foreign direct investment (FDI)  in June 2022.

Why firms are broadening their horizons beyond China

China’s Ministry of Commerce states that their overall inflow of FDI increased 21.5% to US$123 billion  for the first seven months of 2022. Mr Guo Ting Ting, assistant to the minister, stated that the current batch of stabilisation policies  are geared to encourage growth and maintain the steadiness of foreign investment.

An annual survey  by the US-China Business Council, however, illustrates that American firms in China are experiencing record-low optimism about business conditions in the region. This can largely be attributed to strict lockdown policies, supply chain hurdles, and a deterioration in bilateral relations with Western countries.

Tommy Wu, lead China economist at Oxford Economics says that firms are more cautious when making investment decisions and are “not putting all of their eggs in one basket by implementing the ‘China-Plus-One’ strategy”.

The ‘Plus One’ strategy arose from the overconcentration of business interests in China; it is a strategy where companies avoid investing only in China and diversify their businesses to alternative locations. The strategy is increasingly seen in venture capital (VC) and tech firms.

China’s tech crackdown , heavily regulating the digital economy, has also affected the domestic VC market. For example, Source Code Capital, which oversees assets worth US$5.2 billion, plans to open its first overseas office in Singapore after investing in some of China’s greatest internet heavyweights, including Tiktok owner ByteDance and food delivery platform Meituan.

Chinese tech companies such as Alibaba, ByteDance, Huawei, Kuaishou, China Telecom and China Mobile are also among the growing list of companies directing their investments to Singapore for data centres and labs.

Singapore as the next global hub

Singapore, ranked 2nd for ease of doing business in Asia , has long been regarded as a global business hub. Several factors, such as political stability, open business policies, a skilled workforce and advanced infrastructure, continue to attract foreign firms – especially tech firms, startups and scaleups.

Tommy Wu also states that the Singapore’s comparative advantage in technology, its proximity to China and its role as an innovation hub in Southeast Asia makes it a prime location for these companies. This is evidenced by the fact Singapore is currently ranked as the top innovation hub  outside of Silicon Valley, housing 80 out of the world’s 100 tech firms.

Global heavyweights such as Amazon, Microsoft, Tencent, Cisco, and Meta all have a presence in Singapore. These firms are growing their footprint within the jurisdiction too, with Amazon creating more than 200 new roles in Singapore   and Razer launching its regional headquarters and increasing its local headcount to 1,000.

Scaleups in different industries – ranging from fintech, interactive entertainment to customer service software – have also opened regional hubs in Singapore. This includes Stripe, HoYoverse, Freshworks, and Zendesk, to name a few.

What’s next for these relocations?

Singapore is one of top ten most innovative economies in the world , the only country from Southeast Asia to make the list. The Singapore government takes pride in its collaborative approach to developing the digital economy for future-proof and sustainable growth.

Although it has a smaller pool of talent compared to China, Singapore remains dedicated to grooming the next generation of tech talent through initiatives such as TechSkills Accelerator (TeSA). Furthermore, Singapore maintaining close ties with Beijing and the West, means it is seen as a neutral jurisdiction for tech firms wanting to protect their foreign partners.

The advantages of relocation are not limited to Singapore alone. Chinese tech firms benefit from establishing their regional headquarters in Singapore, as it helps build global recognition. These relocations also create a ripple effect whereby local businesses, through working with foreign firms, will cultivate a tech ecosystem that supports the exchange and development of innovation.

Western businesses have made significant investments in China over the past 30 years, drawn by the country’s low labour production costs, as well as the growing size of its domestic consumer market. However, as the world becomes borderless through technological advances, firms are ready to adopt the best digital solutions available, irrespective of cost.

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