Who will work in S'pore's factories?

SINGAPORE - Homegrown heavy duty plastic bag maker SL Packaging has been in Singapore since 1980.

But an acute labour shortage and high electricity bills finally pushed the company out.

It bought land in Johor a few months ago and is in the process of shifting operations out of its Yishun factory to a new one in Johor near the Tuas Second Link.

"We did not have the quota for more foreign workers. We understand that the government will not reverse its decision on its quota for the manufacturing sector," says Mr Ronald Lim, chief operating officer of listed trading firm Intraco Limited. Intraco owns a stake in SL Packaging's parent Dynamic Colours, which is also listed.

SL Packaging had downsized its factory operations over the years due to high costs. Now, 30 workers remain.

Singaporeans form about a third, and are mostly administrative staff.

"Singapore has a low fertility rate, at one child (per woman). I'm very sure nobody will want to work shifts in a manufacturing environment," Mr Lim adds.

SL Packaging is following in the footsteps of many manufacturers here.

Over the last 20 to 30 years, high costs and difficulties in hiring locals have pushed them to set up shop in nearby Johor or Batam.

Controls on foreign worker inflows like levies and quotas were relaxed from around 2004 to boost the economy.

But since 2010, they have been progressively tightened. The government is on a mission to boost stagnating labour productivity and raise local salaries by a third.

A rule change that took effect in July meant manufacturers can have only 60 per cent of their workforce made up of foreigners, down from 65 per cent.

If a company has more than half of its workforce made up of foreigners, every additional worker up to its 60 per cent quota will cost it $470 a month in levies.

Meanwhile, the new minimum wage in Malaysia from next year is just RM900 (S$360).

Mr Lim, who is also president of the Singapore Plastic Industry Association, says salaries for factory workers in Singapore are near $1,000 a month, while Malaysian workers can be found for half of that.

It is difficult for wages here to rise drastically to attract locals as factories sell to the world and need to be cost-competitive, he says. SL Packaging invested in hi-tech German machines since 1997. "Things are quite automated already. But we still need people to run the shift," he says.

Thus the move out for the factory, which supplies to petrochemical companies like ExxonMobil. "I'm not sure if this is what the government wants. Jurong Island is an important petrochemical hub. Without the support industry, how will people feel," he says.

Sometimes, the grass is not greener on the other side. Local sportswear manufacturer Bodynits Group ventured outside Singapore many years ago as it faced labour shortages here.

But now it grapples with political risks abroad, such as demonstrations by workers in Batam, says founder Lynn Tan.

Meanwhile, other SME manufacturers like rice vermicelli maker People Bee Hoon are staying put despite finding it tough to meet new orders.

"The 'Made in Singapore' brand is still very much valued so we are trying to capitalise on it now. If you move out, people may see the product in a different light," says company director Desmond Goh.

Wang Gee Hock, chief executive of listed firm Superior Multi-Packaging Limited, says the metal pail manufacturer is doing fine despite having maxed out its foreign worker quota for their 130 production workers.

Cost-saving strategies were implemented early. "We got the warning about the tightening years ago from then manpower minister Gan Kim Yong. We outsourced the making of pail covers and handles to our subsidiaries in China and Vietnam. We also upgraded and bought new machines," he says.

George Huang, president of the Singapore Manufacturing Federation, says that many companies are already looking at productivity enhancements to decrease costs.

But this might not be enough to address the challenges of high operating costs and intense competition even as foreign worker quotas get tightened, he says.

"Companies may need to look into incorporating innovation in their business products and processes - such as creative designs, new functions, new services, or better ways of production," he says.

Meanwhile, dialogue sessions between businessmen and the government continue to be filled with gripes about the difficulties of finding local workers.

The government has reiterated that it will not U-turn on its policy of tightening the foreign worker quotas

At a dialogue with the Chinese business community earlier this month, Minister in the Prime Minister's Office Grace Fu faced a comment that the "no U-turn" remarks agitate the business community and might cost the government votes in the next election.

She replied: "The government has to look at the bigger good. We want to create jobs that your children want to work in.

"Do they long for jobs that you're paying your local people (to do) now? The trade-offs are not easy but we got to have them."