Regional Outlook : New Economic Hubs Are Emerging in Asia : * Countries with a shortage of workers are teaming up with nations that have cheap labor. The result: profits for each.


Here on this island of the Indonesian archipelago, a small city is rising on a plot of raw, red earth that only months ago was virgin rain forest. Instead of Indonesian names, however, the buildings carry the corporate logos for companies such as Phillips, Thomson Television and Seagate of the United States.

When it's completed, the development will actually be a massive, $300-million industrial site housing 50,000 workers. And while many companies with labor-intensive manufacturing plants have moved to Southeast Asia in recent years to take advantage of cheap labor, the Batam Industrial Park may be unique in that it is aggressively being promoted by Indonesia's southeast Asian neighbor, the island nation of Singapore.

Batam lies just 12 miles off Singapore, the most developed country in the region and one of Asia's four "dragons"--the newly industrialized lands that also include South Korea, Hong Kong and Taiwan.

Batam is one of the pillars in the creation of a Southeast Asia "growth triangle," linking the economies of Singapore, Indonesia and Malaysia. In a nutshell, the plan envisages a marriage of Singapore's technical know-how, vaunted infrastructure and wealth to the cheap labor and natural resources available in Batam and the neighboring Malaysian state of Johor.

Singapore's growth triangle concept is just one of what Sanjoy Chowdhury, a regional economic analyst at Merrill Lynch & Co., refers to as an emerging pattern of "growth pockets" or "hubs" throughout Asia.

"With the Cold War over, economics will tend to dominate Asia's cross-border transactions," Chowdhury said in an interview. "In a sense, almost every Asian economy will be involved."

According to trade experts, the ingredients for these growth pockets are similar throughout the region: A concentration of capital and expertise but a growing labor shortage in one country; plenty of workers at cheap wages and an abundance of untapped raw materials in one or more neighboring nations.

The tendency of some governments in the region to frown on the use of "imported" migrant workers makes the growth pocket approach even more appealing in much of Asia. Reservations about migrants, some analysts contend, make it unlikely that Asia will ever move toward the kind of economic unification envisioned in Western Europe by the end of 1992.

The oldest example of a growth pocket in Asia is Hong Kong, which started off as an inexpensive manufacturing center. With wages skyrocketing and labor growing short, many Hong Kong businesses ultimately moved their plants to Canton in southern China to take advantage of the number of workers there. Taiwan followed a similar pattern.

"It is almost irrelevant to talk now about Hong Kong's domestic exports," Chowdhury said, "as the distinction between goods manufactured in southern China and Hong Kong domestic exports is rapidly blurring."

Other growth pockets that Chowdhury sees on the horizon include:

* Thailand, Burma and the Indochina economies of Vietnam, Cambodia and Laos.

* A linkup between northern Sumatra in Indonesia, Penang Island in northern Malaysia and southern Thailand.

* North and South Korea.

* Northeast China and Soviet Asia.

While the Hong Kong-China-Taiwan triangle is the most developed, it mainly produces basic items such as textiles and toys. Singapore is hoping to position itself as the hub of an emerging high-tech center.

With Singapore keen to move into Vietnam once the U.S. embargo is ended there, it clearly sees the region as a manufacturing rival to Taiwan, Japan and even the United States, particularly in such areas as computers and consumer electronics.

Phillip Yeo, chairman of Singapore's state-run Economic Development Board, reckons that by transferring labor-intensive industries offshore, Singapore can maintain about 26% of its economy in the manufacturing sector but constantly upgrade its own facilities to higher and higher technology.

"Basically, Singapore's problem is one of manpower," Yeo said in an interview. "We're not short of technical manpower, but the semi-skilled workers. We need Batam and Johor to grow."

Thus, Singapore unveiled its plan in December, 1989, to encourage the creation of a growth triangle in which manufacturing companies would spin off their less advanced factories to Johor, which is linked by a causeway to Singapore, and Batam, about half an hour away by high-speed ferry.

Singaporean officials say the proximity of the two regions is the key to the plan's ultimate success--factory owners, they believe, won't tolerate more than an hour to transport components between branches of their operations.

In February, the Singapore government published its road map for future development in a book called "The Next Lap." The book said economic activity around the world was increasingly concentrated in hubs like New York and London.

"Each strategic center attracts business from an extended hinterland and prospers out of proportion to the size of the local economy," it said. "Each is a hub servicing the region and linking it to the world."

In Singapore's view, it will remain the hub of regional manufacturing activity with corporate offices and advertising agencies also locating on the island. Both Batam and Johor already depend heavily on Singapore's state-of-the-art airport and port to move goods in and out rapidly. Batam's economy is so dependent on Singapore that most transactions in shops are denominated in Singapore dollars rather than the weaker Indonesian currency.

A glance at wage rates in the three countries makes clear why the idea is so attractive: in Singapore, an average factory worker earns about $470 a month, while in Malaysia the figure is about $380 and in Indonesia only $65. While the wages are extremely low, Indonesia faces significant unemployment with a fast-growing population of more than 180 million.

In addition to Singapore's shortage of labor, another limiting factor, particularly in chemical and pharmaceutical industries, is the fact that the island nation has no water of its own. It now pipes in water from Johor and has reached agreement with the Indonesian government to import water from the island of Bintan. On the way to Singapore, half the water from Bintan will be diverted to the Batam Industrial Park.

Although it is rarely discussed openly, the water issue suggests another motive behind Singapore's promotion of the growth triangle. Simply stated, predominantly Chinese Singapore is worried about being caught between the two large Muslim countries of Malaysia and Indonesia. By becoming an indispensable economic partner of both, it is also ensuring its own survival.

Johor has been developing as a manufacturing base for Singapore companies for more than a decade, with Singapore now Malaysia's third-largest investor after Japan and Taiwan. Johor already has 13 separate industrial parks--so many, in fact, that complaints have been raised in Kuala Lumpur about developing Johor at the expense of the rest of the country.

But Malaysia's growth has been so rapid that the country is also nearing full employment. It has been forced to import plantation and construction workers from Indonesia. And as wage rates have climbed, Johor has begun to lose its cost advantage.

Hence, Singapore's move to develop Batam, an island about two-thirds as large as Singapore but with a population of only 100,000. Efforts by Indonesia's government to develop the island had been largely unsuccessful when Singapore proposed a joint development in 1989.

The Batam Industrial Park is a joint venture between Indonesia's largest company, Salim Group, and two government-owned agencies in Singapore. The park consists of 1,200 acres of duty-free manufacturing area, as well as worker housing and shops.

Batam park supplies employers with labor recruited in the capital of Jakarta. The employer pays a "package price" of $135 a month per worker, which also covers the cost of food and housing in barracks set up near the factories. The workers, nearly all of them school-aged, single women, are brought to Singapore for training by the contracting employer before being deployed in the factories.

Singapore's penchant for planning everything down to the last nut and bolt has paid off in the rapid completion of the first phase of the industrial park, with multilevel factory buildings already turning out products just 18 months after the first contracts were signed.

Earlier this month, AT&T; announced that it is establishing a consumer products factory on Batam and moving some of its production from Singapore to the island, at a cost of $10 million. The Batam plant will produce one of AT&T;'s cordless telephones.

Another U.S. firm that has opened a factory in Batam is Seagate, the world's largest producer of hard disk drives, which are used in computers to store data. The Batam plant will make printed circuit boards for assembly in Singapore.

"We wanted to get into Batam and see what their people can do," said Michael Griesgraber, Seagate's regional director of marketing and communications. "We were at the point where we needed to either build something new or go somewhere else. They made it enticing."

Like many of the other companies starting up in Batam, Seagate's operation is a pilot project with just a few hundred employees. "We're not going to make a plunge into an unknown situation," Griesgraber said.

Although the Singaporeans have effective control of the project and are promoting it overseas, the Indonesian government retains its legal authority on the island. Indonesia's government is renowned for its corruption, and it remains to be seen whether it will keep a hands-off approach to the new park.

A communications tower has been built directly linking Batam with Singapore, but contact between Batam and the outside world will still travel through Indonesia's rickety communications system.

While no one will disclose details of the rental agreements between companies and the park, the Singapore government has reportedly offered extremely generous terms to major Western and Japanese companies to try Batam in hopes of also luring smaller companies that service the major producers. The first phase of the project is now sold out, but there is still a lot of land to develop.

Growth Triangles in the Pacific

Combining capital, cheap labor and raw materials.

Batam, Indochina - Johore, Malaysia - Singapore

Singapore wants to be the hub of a high-tech center.

POPULATION WORK FORCE PER CAPITA INCOME (in millions) (in millions) (in U.S. dollars) Indonesia 189.4 76.10 $430.00 Malaysia 17.9 7.05 26.42 Singapore 2.7 1.31 10,810.00

Southern China - Hong Kong - Taiwan

The most developed of the economic growth triangles.

POPULATION WORK FORCE PER CAPITA INCOME (in millions) (in millions) (in U.S. dollars) China 1,119.9 553.00 $371.00 North Korea 5.8 2.73 10,916.00 Taiwan 20.2 8.32 6,889.00

Penang, Malaysia - Southern Thailand -Sumatra, Indochina

Indonesia's rickety telephone system may hurt business.

POPULATION WORK FORCE PER CAPITA INCOME (in millions) (in millions) (in U.S. dollars) Indonesia 189.4 76.10 $430.00 Malaysia 17.9 7.05 26.42 Thailand 55.7 30.50 1,238.00

South Korea - North Korea - Far Eastern Soviet Union

One of the potentially most lucrative growth triangles.

POPULATION WORK FORCE PER CAPITA INCOME (in millions) (in millions) (in U.S. dollars) North Korea 21.3 7.00 $1,069.00 South Korea 42.8 17.90 4,968.00 Soviet Union 291.0 152.00 2,000.00*

* Estimate

Source: Asia Yearbook, 1991; World Bank

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