VI. ICT AND INVESTMENT FOR PRODUCTION

Box VI.1. Unilever establishes a regional ICT management centre

Consumer goods giant Unilever has set up an ICT Infrastructure Management Centre (IMC) in Singapore to service its Asian and Pacific market. The move will streamline traditional country-by-country ICT management centres into IMC. Unilever has invested $1.6 million to build IMC. The Centre, which became operational in February 1998, is still at an embryonic stage but is expected to provide round-the-clock service in the near future. It was to employ 30 ICT specialists and technicians by the end of 1998, increasing this to more than 90 by 2002. The company has thus recognized that it needs to innovate beyond products to include the ways in which it can use ICT to give it some competitive advantage.

IMC will support Unilever businesses in Australia, China, Indonesia, Japan, Malaysia, New Zealand, the Philippines, the Republic of Korea, Singapore, Taiwan Province of China, Thailand and Viet Nam by improving quality and service, while reducing operational risks involved in managing the ICT infrastructure; directing ICT investment on a regional basis; and developing and deploying best practices. It will thus be able to introduce the latest ICT developments to all Unilever companies in the region. The ICT infrastructure that IMC will manage consists of all of the group networks (both WAN and LAN), and network and application servers. The Centre is expected to provide existing users with a better service standard through the innovative use of applications, a bigger and better capability for dealing with consumers, and better communication with business partners.

In the IMC set-up, the technical services section consists of a group of people who will be responsible for defining and setting standards, testing new technologies, preparing plans and disseminating them in the region. An operations division manages daily delivery of ICT services. A customer services division serves internal Unilever customers. It handles the traditional help desk for off-site users, keeps abreast of corporate plans and business growth which can impact on the ICT infrastructure, keeps the company aware of what is technologically possible from IMC, and handles changes making management procedures more ICT-friendly.

IMC is expected to give Unilever companies the region access to the technologies and innovations that Unilever has adopted worldwide. As most of the companies in the region are not able to afford technical skills directly, Unilever hopes to make these available to all sites through this Centre. IMC is also intended to enable fast deployment of ICT, thus enabling companies to meet the needs of the market place quickly. The challenges foreseen for the future include coping with growth, attracting high-calibre people to IMC and keeping pace with the innovative use of ICT.

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Source: S. Ramaswamy, "Unilever sets up regional IT infrastructure management centre", IT Asia <http:/ita.newscom-asia/jul98/unilever> (23 December 1998).

Box VI.2. Hindustan Lever enhances its competitive ability through ICT

One of India's leading consumer companies, Hindustan Lever Ltd. (HLL), produces a diverse range of products, from personal care to household goods. One of the earliest TNCs to set up shop in India, HLL had net sales of $2 million (Rs 80,000 million) in 1997 and has more than 60 factories, 90 warehouses and 13 branches manufacturing and marketing an array of toiletries, cosmetics and home-care products. Integrating these units to ensure smooth flows of information and to satisfy changing customer needs is a daunting task. HLL has addressed this problem through extensive computerization, but has not gone in for total automation. HLL has massively distributed resources, such as depots and factories, and the flow, processing and presentation of information to these is effected by a combination of manual, data processing, mail and automatic transfer systems. The functions of HLL that are computerized include manufacturing, purchasing, production reporting, material resources planning, distribution, despatch planning and financial accounting.

Although HLL uses a ready-made software package, it has customized its applications to meet local requirements. Some areas such as taxation, yield calculations, replenishment calculations and quality are quite India-specific, so it has had to develop its own in-house ICT expertise. The company has about 50 professionals in ICT at its headquarters, and another 30 on-site specialists in other branches and factories.

The communications infrastructure of HLL is massive. The company is one of the largest users of VSATs in the private sector. Nearly 210 VSATs link its corporate office, regional offices and manufacturing facilities. The company also has 70 LANs in different locations, all linked by VSATs for efficient communication. Inter- and intra-office communication is carried out through cc:Mail. HLL was previously using stand-alone software packages, which meant additional data entry and a longer turnaround time on documentation. Now all functions are integrated using one software package.

HLL has realized several benefits from this use of ICT. On the distribution front, a daily replenishment system demands that all warehouses transfer their stock, sales and receipt data to buffer depots, which compute the next day's requirements and generate loading slips accordingly. The VSAT network is utilized to carry out this function. Similarly, all inter-unit reconciliation is done automatically with the systems "talking" to each other. This has reduced the time taken for the month-end reconciliation exercise from four days to just one day. Likewise, where factories took four to six days to close their accounts, they are now capable of doing this in just two days. In the area of financial accounting, consolidation of nearly 100 accounting units is achieved in a record time of eight to 10 days. Fresh investment is being planned in the area of communications to utilize the new ICT infrastructure available in the country. For example, HLL plans to link its regional stockists to HLL systems to monitor pipeline stocks and demand, which is expected to improve service and the predictability of supply.

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Source: A. Achar, "IT keeps Hindustan Lever India ahead of competition", IT Asia <http:/ita.newsom/jun98/hindustan> (23 December 1998).

Box VI.3. ICT industries in Singapore

Singapore is a leading example in the region of development and upgrading of ICT-intensive industries. The following account provides a glimpse of the progression of the major types of ICT industries in the country.

Semiconductors

Semiconductor activities began with assembly and testing. During the 1980s, designs for semi-customized chips and wafer fabrication were introduced selectively. Companies also introduced regional management and marketing and distribution services for the Asian and Pacific region. In 1992, around 5 per cent of the world's chip testing was carried out in Singapore. For each of the TNCs, the choice of location was determined by a combination of corporate strategies towards internationalization and capacity expansion, and host country attractions (for example, the infrastructural advantages of Singapore over competing locations). The TNCs found Singapore a congenial and efficient location in which to set up mature, labour-intensive operations and then to expand and upgrade. The TNCs chose Singapore because of its efficient air and sea ports, the relative low cost and high skills of the labour force and the availability of government assistance. In each case, operations began with labour-intensive production, primarily the assembly and testing of mature products such as discrete semiconductors, and linear and bipolar integrated circuits. Over time, TNCs introduced more complex products requiring greater engineering support, sophisticated processes, personnel training, some automation and more intensive quality control. This led firms to cooperate with local university engineering departments and, more recently, the government's Institute of Microelectronics.

NEC Corporation provides an example. It was incorporated in Singapore in 1976 and went through a series of product transitions, beginning with transistors in 1977 and linear integrated circuits in 1979. By 1986, it was assembling 256K DRAMs, and by 1991, the 1 and 4 megabit DRAMs. With each product transition, testing and assembly became more complex and automated.

Initially, wafer fabrication took place outside Singapore in the TNC parent plants. It required greater investment in skills (especially engineering), plant, machinery, technology and management. By 1984, Singapore was able to meet these conditions, and SGS-Thomson became the first chip maker to set up wafer fabrication in the Asian and Pacific region outside Japan. Then in 1990, Texas Instruments became a partner in a sub-micron (that is, leading-edge) joint venture called TECH Singapore, to fabricate 4 and 16 megabit chips. TECH Singapore was a shared $330 million venture between Texas Instruments (26 per cent), the Singapore Economic Development Board (26 per cent), Canon (24 per cent) and Hewlett Packard (24 per cent). The partner firms gave several reasons for fabricating wafers in Singapore, including the growing importance of the market in the region which justified investment closer to customers; high levels of capacity utilization owing to Singapore's efficient infrastructure and the willingness of management and workers to work long hours overtime; benefits to firms from policies and incentives through the Economic Development Board; and relative low cost of production engineers in Singapore compared with Europe, the United States and Japan. (One company estimated that the entry level salary for an electronics engineer in Singapore was roughly 50 per cent of the cost of the American equivalent.)

As TNC subsidiaries graduated to more complex products and processes, more mature products were transferred to Malaysia and other low-cost sites. Texas Instrument's joint venture (TECH Singapore) and SGS-Thomson's wafer fabrication facilities also experienced a catching-up with their TNC parent firms, but this process is by no means complete. In 1992, little mainstream product design or research and development was carried out in Singapore. Output produced in Singapore was advanced and mainstream, but not at the leading edge (for example, 4 and 16 megabit DRAMs, rather than 64 megabit). Some companies continue to conduct most of their product design and research at parent headquarters.

Hard disk drives

During the 1980s, Singapore's hard disk drive industry grew to become a multi-billion dollar industry. Modern hard disk drive production is a large volume, high-precision, automated activity which requires investment in computerization, continuous engineering and research back-up for new product design. Singapore was the world's largest producer of hard disk drives in 1991 and 1992 and its industry was dominated by American producers. Firms began with relatively simple assembly tasks but quickly moved to manufacturing, product development and marketing.

The companies chose to locate in Singapore because of tax and other incentives, low labour and engineering costs (compared with the United States), effective training schemes and efficient air and sea freight systems. Around 60 per cent of total hard disk drive sales were exported to the United States, compared with 25 per cent to EU and 10 per cent to the region. At the time of start-up, there was little local supporting industry, but with expansion, foreign materials and component suppliers followed the TNCs into Singapore. In consequence, locally purchased materials and domestically manufactured inputs significantly increased.

Consumer electronics

Consumer goods firms were the first to become established in Singapore. One of the earliest entrants was Philips Singapore, which began its commercial activities in Singapore in 1951. It started producing radios and PABX in the late 1960s and diversified into domestic appliances (mostly flat irons), cassette recorders, televisions and components in the 1970s. By the 1980s, it had upgraded to produce test automation machines, precision moulds, audio equipment, colour televisions, compact disc players and tuners, while continuing to manufacture precision tools and dies for other Philips factories. By 1992, with operations generally requiring sophisticated engineering support, it hired many graduate engineers and technicians from Singapore.

AT&T Consumer Products Pte Ltd. (ACP), a relatively late entrant, started in 1986 with an investment of S$100 million, making corded (standard) residential telephones, mostly for the United States market. As labour costs increased, it relocated more mature products to a satellite factory in Batam, Indonesia (part of the ASEAN growth triangle). New products were introduced to the main plant in Singapore. By 1990, ACP was AT&T's corporate centre for top-of-the-range cordless telephones, with the design and development of new digital phones being carried out in-house. The plant was advanced by world standards, using automated processes and computerization and requiring high-quality engineering support to ensure output standards. Lines were able to switch from one type of product to another fairly quickly. Local research was responsible for providing design support for ACP and its suppliers in the region. With the close business and technological relationships between ACP and its supply partners, local companies were linked to ACP by computer to relay purchasing and other business information back and forth. By providing these suppliers with engineering support, ACP helped to train local firms in advanced manufacturing techniques and modern business practices.

Both ACP and Philips have formal training programmes and formed educational links with local institutions. As of 1992, they supported 70 programmes for basic training, skills upgrading and quality control. ACP also funded scholarships at the National University of Singapore and Nanyang Technological University. Both firms were involved in the government's local industry upgrading programme to assist local suppliers in improving their production systems, product quality and management efficiency. Philips first established educational links in 1971, with a four-year craft apprenticeship programme organized with the Ministry of Education to supply craftsmen and technicians and in 1975, Philips collaborated with the Economic Development Board to establish the EDB-Philips Government Training Centre for precision engineering training. This demonstrates that, with appropriate government policies, TNCs can be persuaded to train local employees and transfer technology to their subsidiaries.

The development of indigenous electronic firms

Although TNC electronic firms started going to Singapore in the mid-1960s, the development of the indigenous component of the electronics industry was negligible until the 1980s. Also, Singapore did not have a large number of students going to the United States to be trained in electronics technology. While the influx of foreign investment and production did provide many Singaporean engineers and technicians with training and exposure, much of this was in manufacturing process technology, not in product technology know-how. The transfer of know-how took place mainly through the involvement of indigenous firms in the electronics contract manufacturing and supporting industries, rather than the development of original design brands. The dominance of TNCs in electronics continued in the 1990s. Although foreign majority firms form only 56 per cent of all electronic firms in Singapore, they accounted for 85 per cent of the electronic industry's total capital.

An increasing number of indigenous electronic firms did emerge in Singapore in recent years, particularly in the personal computer sectors, where the barriers to entry are lower than in mass consumer electronics and semiconductors. At least 20 indigenous Singaporean firms now have sales of S$100 million or more. These include Creative Technology and Aztech, which are the world leaders in audio card and multimedia products; IPC and GES, two leading own-brand personal computer manufacturers; and a large number of contract manufacturing firms such as Venture Manufacturing, Wearnes Technology, Natsteel Electronics, Flextronics, Tri-M, Eltech and Gul Technologies. These local private companies have grown primarily through their own strategies to compete with foreign firms, although various forms of government assistance schemes and technology transfer from public research and development institutes may have helped them to a certain extent.

Development of electronics supporting industries

The number of firms that supply various inputs and services to the electronics sector has grown significantly. These supporting industries are involved in a variety of activities, including plastic mouldings, metal stamping and tool and die making, precision parts and components, electroplating and finishing, mould making, jigs and fixtures, casting, printed circuit boards assembly, and industrial automation equipment. They are dominated by local SMEs, many of which have become publicly listed on the local stock exchange over the last three or four years. Several have regionalized their operations; as well as serving TNC operations based in Singapore, they increasingly supply TNC operations in Malaysia, around the region and, in some cases, worldwide.

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Source:The information for this box was drawn from Michael Hobday, Innovation in East Asia: The Challenge to Japan (Aldershot, Edward Elgar, 1995), pp. 136-161.

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