PAINFUL as it may be, Seagate's decision to let go of 2,000 employees from its Ang Mo Kio plant by the end of next year was perhaps inevitable - especially after the disk drive maker reported a net loss of US$3.09 billion for its last full fiscal year that ended on July 3.

It was also not unexpected: As far back as January 2007, Seagate's then chief financial officer, Charles Pope had told BT: 'It would be reasonable to expect that in time some of the lower-margin enterprise drives would be manufactured outside of Singapore in lower-cost locations.'

However, Seagate's closure of its Ang Mo Kio plant by no means takes away from Singapore's attractiveness as destination of choice for the global electronics industry. It's only another reflection of the changing nature of manufacturing here. The disk drive industry works on wafer thin margins and manufacturers tend to choose the cheapest locations, given good logistics. There was a time when Singapore fit the bill to a T, which is why Seagate relocated some of its manufacturing here from the US back in 1982.

That move triggered a lot of interest in Singapore as a manufacturing hub for electronics, and not only among disk drive makers. However, there are now several places in Asia which offer lower costs than Singapore and good, or good enough, logistics. Seagate's decision should therefore come as no surprise.

The company's move to relocate lower margin manufacturing is in keeping with Singapore's natural progression from a low-cost manufacturing base to a centre for R&D and high-end speciality manufacture. Thus, it is again no surprise that Seagate is retaining its corporate functions in Singapore, plus its higher-end disk media plant in Woodlands, as well as its R&D centre at Science Park.

The same structural shift is apparent among electronics manufacturers in segments other than disk drives, such as semiconductors and photovoltaic equipment. Investment in the electronics sector as a whole remains impressive. Figures from the Economic Development Board show that $2.25 billion of new investment has been committed so far this year in the sector despite the severe beating that the electronics industry has taken in the current downturn.

However, with the industry moving up the value chain, the quality of people who work in it is also changing. Employers are looking less for assembly-line workers and more for highly qualified professionals in areas such as research, engineering and design.

This transformation means Singapore will need to keep producing engineers and other graduates with the right skill sets to attract high-end electronics investment. But at the same time, there is the ongoing challenge of creating new jobs for people with average skills and education. The Seagate pullout is not the first case of its kind, and it will not be the last.

This article was first published in The Business Times.