Singapore yards can beat effects of labour curbs

Singapore yards can beat effects of labour curbs

SINGAPORE - Singapore rigbuilders lose out to Korean or Chinese rivals in not having a large pool of labour, but analysts think that they could have a winning hand if they transition to an intellectual property reliant business.

"Rig building yards typically move to lower-cost countries, due to the industry's labour intensive nature. China has the right labour mix to build rigs, given their wealthy stock of labour," said Anthonie Versluis, managing partner, Southeast Asia, Roland Berger Consultants.

"For Singapore players to keep their edge in the rig building business, policies would have to be deliberately eased for rig builders to enable them to gain access to the labour needed to build these rigs."

The labour situation is set to worsen in Singapore.

In Singapore's 2013 Budget, Deputy Prime Minister Tharman Shanmugaratnam announced further foreign worker curbs on the offshore and marine sector.

Their foreign labour pool would shrink a further 30 per cent by 2018 as dependency ratio ceilings (DRCs) will allow only 3.5 foreign workers to every Singaporean employee.

Mr Versluis thinks Singapore may need to move more functions abroad to safeguard its market share.

However, Religare Capital analyst Vincent Fernando pointed out that Singapore cannot escape from its labour and land constraints.

Mr Fernando, however, sees another way forward for the yards to remain competitive - that is, moving into an intellectual property intensive model.

"If Singapore rigbuilders shift towards an intellectual property business, they turn their location into an advantage," he said. "Singapore is very strong in protection of intellectual property, it has an educated working population and there are good policies from the government supporting a knowledge economy. They will not have to try and constantly fight a battle where they face a disadvantage."

New York Stock Exchange-listed National Oilwell Varco is one such example. The maker of mechanical components for land and offshore rigs holds a 60 per cent global market share, and Keppel and SembMarine are buyers of their equipment.

Both Keppel and SembMarine have made the transition into owning their own models and designs and have their own R&D arm.

SembMarine subsidiary Sembcorp Marine Technology produces proprietary designs for jack-up rigs, drillships and semi-submersibles.

It also added new product lines such as well intervention semi-submersibles and accommodation semi-submersibles to cater to their clients' needs.

Besides new products, Keppel Offshore & Marine Technology Centre also looks into process technology to improve productivity.

The bad news is if that is the direction Singapore is headed, so are the Chinese.

Shanghai Zhenhua Heavy Industries, with shipyards in Shanghai and Jiangsu, paid US$125 million to acquire US-based offshore engineering company Friede & Goldman in 2010.

Yangzijiang Shipbuilding and China Rongsheng Heavy Industries also set up offshore engineering centres in Singapore to tap local talent, hiring former SembMarine and Keppel employees.

But the coffers of Keppel and SembMarine are deep. They can, points out Mr Fernando, quickly swallow smaller companies that are equipment makers or that hold designs to rigs.

"Singapore will always have an offshore industry," he said. "Margins are on a downtrend so now it's a good moment to accelerate the move into an intellectual property type business."

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