Singapore, the Southeast Asian city-state, is experiencing a significant transformation in its economic landscape as it becomes a preferred destination for multinational companies and international talent. The ongoing challenges in Hong Kong, primarily driven by its Covid-19 policies and US-China tensions, have led to a notable exodus of firms and professionals to Singapore. This article explores the factors contributing to this shift, the potential implications for Singapore’s business environment, and how foreign businesses can leverage this transition through the Market Readiness Assistance (MRA) grant. Read more about business in Hong Kong.
Hong Kong’s Historical Significance
For decades, Hong Kong has served as the primary choice for multinational companies, particularly in the financial sector, seeking a foothold in the Asian market. With over 9,000 multinational companies operating in Hong Kong in 2021, it was a thriving hub for regional headquarters and offices. However, recent data reveals a significant change.
The Hong Kong Exodus
Between mid-2021 and mid-2022, more than 113,000 Hong Kong residents, representing 1.6% of the population, decided to leave the city. The reasons for this exodus are multifaceted. Some are pursuing a new life in different countries, while others are opting for Singapore as their new base, primarily to escape the Covid-19 restrictions imposed in Hong Kong.
Singapore’s Appeal to Multinational Companies
A study conducted by the American Chamber of Commerce in Hong Kong indicated that 5% of global/regional headquarters had concrete plans to relocate, with an additional 50% being uncertain about their future in Hong Kong. Among the choices for relocation, Singapore emerged as the most competitive destination. The city-state’s strategic location and pro-business approach have won favor among international companies, even though Hong Kong continues to be a global business hub.
The Rise of Singapore as a Business Destination
According to data published by the Singapore Economic Development Board, approximately 7,000 multinational companies have established their operations in Singapore. Notably, nearly half of all regional headquarters in Asia are now based in the city-state. The city-state boasts several advantages that have traditionally attracted international businesses to Hong Kong, including political stability and neutrality.
Shifts in the Business Landscape
The exodus from Hong Kong is not an isolated incident but rather a continuation of a trend observed over the past few years. During the last four years, Hong Kong witnessed a 5% decrease in the total number of regional headquarters, with departures from 36 US and 34 Japanese regional headquarters being particularly prominent. Mainland Chinese companies have increased their presence, but these numbers only partially compensate for the outflow.
The Impact of Covid-19 Policies
Apart from geopolitical considerations, differing Covid-19 policies have played a significant role in influencing these corporate relocations. Singapore gradually eased its zero-Covid policy from August 2021 onwards. By April of the following year, fully vaccinated travelers from around the world, including the US and Europe, were allowed to enter Singapore without pre-departure testing and quarantines. In contrast, Hong Kong has adhered closely to China’s zero-Covid policy, resulting in extended lockdowns and negative sentiment among residents and businesses.
The Toll on the Financial Sector
The financial sector in Hong Kong has been adversely affected. Many firms are downsizing and relocating non-China related jobs to Singapore. Some are even providing options for their staff to relocate to other cities to retain talent, reminiscent of the pre-1997 handover era. The Hong Kong Investment Funds Association has warned the government about the detrimental impact of Covid-19 travel policies, stressing the importance of international travel to maintain the city’s status as an international financial center.
Diversification of Family Offices
Singapore, traditionally home to family offices from Southeast Asian countries, is now attracting renowned family offices from Europe, China, Hong Kong, and the United States. Some are establishing their first office in the region, while others are opting for a second office in Singapore to diversify risks and capitalize on the advantages of both locations.
Developments in Wealth Management
In response to this influx, major financial institutions such as UBS, HSBC, Citi, Deutsche Bank, and Julius Baer have expanded their teams in Singapore to cater to family offices. French asset manager Amundi offers outsourced chief investment officer services for family offices, while global custodian Northern Trust has set up a dedicated Global Family and Private Investment Offices team to provide customized asset servicing and advisory solutions.
Challenges and Opportunities for Singapore
- The rising influx of foreign companies and talent has presented new challenges for Singapore. The rental market is experiencing a surge in demand, leading to intense competition for properties, especially in popular expatriate areas. The high demand has driven up rental prices, making it more challenging for both expatriates and locals to secure accommodations.
- Additionally, inflation has climbed to multi-year highs, primarily due to internal and external factors. Rising food, fuel, and electricity costs are expected to further increase the cost of living in Singapore. The impending increase in the goods and services tax (GST) is also likely to affect residents.
- One unique challenge in Singapore is the high cost of owning a car. Unlike many other countries where owning a car is relatively affordable, Singapore has stringent requirements and costs associated with car ownership. The expense associated with acquiring a car, including the certificate of entitlement (COE), is prohibitively high.
Implications for Foreign Businesses
The evolving landscape in Singapore provides foreign businesses with opportunities to establish a presence in the city-state. One such opportunity is the Market Readiness Assistance (MRA) grant. The MRA grant is a government initiative designed to facilitate the entry of foreign professionals and businesses into Singapore.
This grant offers a streamlined process for foreign businesses to set up operations in Singapore, benefiting from the city-state’s favorable business environment. The grant covers various aspects, including company registration, taxation, and permits, making it easier for businesses to navigate the regulatory landscape in Singapore.
Application for the MRA Grant
The MRA grant application process involves submitting a detailed proposal to the relevant government agencies. The proposal should clearly outline the business’s intentions, the benefits it will bring to Singapore, and its plans for job creation and investment in the local economy.
The evolving business landscape in Singapore offers foreign businesses the chance to be part of a thriving and diverse market.
Reach out to experts and consultants learn more about the process of setting up an MRA grant in Singapore.