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Foreign Workers in Asian Economic Successes

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Seven of the world’s ten richest economies by real gross domestic product (RGDP) per capita are in Asia and the Middle East, and all have sizeable populations of foreign migrant workers (FMWs) that have contributed greatly to growth. The proper handling of FMW involvement in an economy is crucial for continued prosperity.

Despite the widespread reliance of many economies on FMWs, much of the related research has focused on the narrower issue of the impact of foreign labor on local employment and the resultant downward pressure on local wages (e.g., Borjas et al. 1996. Goto 1998). In comparison, very little evaluation has been done on the extent of their contribution to economic growth across countries. One reason for this omission could be that for completeness, any evaluation of the contributions of FMWs would have to take into account not only direct economic effects, such as the potential crowding out of employment of competing local workers, but also the long-term consequences for the host country’s productivity and competitiveness. While the availability of FMWs helps countries with small populations, there has not been much discussion about whether the fact that such workers are usually transient could ultimately have consequences for the accumulation of experience and learning in the host country. If such a problem occurred, it could manifest in the form of poorer productivity performance (Tan 2012). I aim to discuss this issue from the perspective of selected Asian and Middle Eastern economies whose dependence on FMWs has been a prominent policy issue.

Contribution of FMWs

Tables 1 and 2 highlight how important FMWs are to these flourishing economies. Of the ten richest economies in terms of RGDP per capita in 2010, Qatar ranked first and Singapore fourth (Table 1). Qatar’s FMW numbers stood at 74.2% of the total population—nearly double Singapore’s 38.7%. Table 2 shows the top economies in employment growth, and again, Qatar and Singapore stand out, having the first and ninth fastest rates of job growth from 2006 to 2010. Despite the magnitudes of the migrant workforces, Table 1 also suggests that there is more to economic performance in terms of RGDP growth than access to FMWs alone.

Table 1. Top 10 Economies by RGDP Per Capita and Migrants as Proportion of Population

Tab1

Source: databank.worldbank.org
RGDP = real GDP.

Table 2. Top 10 Economies Employment Growth, 2006–2010, 2001–2005

Tab2

Source: databank.worldbank.org

The seven Asian and Eastern economies in Table 1 comprise oil-rich Gulf states and East Asian economies. In terms of the pace of increase in employment, Qatar’s experience is closest to that of Singapore. Following the 2008 global financial crisis, these two economies created jobs far in excess of their natural populations’ capacity to meet the demand for workers. This was welcome news for the two countries and stood in stark contrast to the chronic unemployment afflicting many of the world’s large, well-established economies.

The lack of large native population bases in Qatar and Singapore meant that their employment growth in recent years has been made possible through the availability of FMWs. Qatar’s economic success has been a relatively recent phenomena, occurring only after a change of leadership in the early 1990s. To exploit its oil wealth, it turned to foreign workers. In contrast, Singapore had been reliant on FMWs since its independence. However, after experiencing downturns in 2001 and 2003, Singapore’s government embarked on a rapid upgrading of its transportation, tourism, and housing infrastructure. The resulting jobs boom in the services and construction sectors more than made up for the relatively tepid performance of the export-dependent manufacturing sector (National Population and Talent Division, Singapore 2013).

Three key facts are relevant to FMWs’ contribution to the success of these economies. First, the phenomenon of relying on migrant workers is not new. At various times in history, fast-growing economies have relied on migrant workers to exploit the momentum of the economic opportunities that have come their way. Second, the high employment growth rates for the economies in question are a recent phenomenon, as the rates have been lower in the past. For example, Table 2 illustrates that Qatar’s employment growth rate from 2001 to 2005 was one-third of that from 2006 to 2010. Singapore’s employment growth rate was also much lower from 2001 to 2005 than from 2006 to 2010. And third, migrant population proportions can drop sharply as illustrated by Kuwait, Qatar, and the United Arab Emirates in Figure 1.

Figure 1. Migrants as Proportion of Total Population, 1995–2010

Fig1

Source: World Bank’s World Development Indicators database available at: data.worldbank.org Accessed December 2012.

Hence, despite their rarity, the high employment growth rates of Singapore and Qatar are not new. What is unusual, especially in Singapore’s case, is the pace of the increase in recent years and the continuing demand by local employers for FMWs. This is evident from the concerns about the tightening of restrictions on the supply of FMWs, which includes a combination of higher levies on each FMW employed and more stringent quotas requiring employers to match their FMW headcount with a prescribed number of Singaporean employees.

Unique Challenges

The sheer magnitude of the proportions of FMWs in Qatar and Singapore, as well as in the other highlighted economies, suggests that their contributions and management present policy implications that differ greatly from Western countries. Australia, New Zealand, and the United States also rely on FMWs but handle the issue differently because they do not have the same stringent physical limitations that restrict a small island nation like Singapore. By accommodating the issue from an immigration standpoint, such countries have systematically acculturated their FMWs. Indeed, it is common for many prospective migrants to enter these countries as young students, and then remain as permanent residents or as new citizens.

The rising inflow of FMWs in Asia and the Middle East suggests that their aim is to meet short-term economic needs rather than to stay long term. Such FMWs could be managed based on a short-term perspective, for example, by housing those at the lower end of the income scale in dormitories. It should not be surprising then that the narrow scope of the individual migrant’s experience in the host economy and lack of acculturation would limit the depth of the involvement of such FMWs in productivity improvements.

From the perspective of economic strategy, however, the contributions of FMWs extend beyond their contributions to immediate economic needs. A key aspect of the employment of FMWs is their role in counter-cyclical policy management. This may account for the declines in the migrant proportions for the Gulf states shown in Figure 2.

Singapore’s handling of unemployment is a case in point. Figure 2 shows that in two of Singapore’s last three contractions in annual economic output, the labor market downturn post-dated the contraction. However, the last downturn, caused by the 2008 global financial crisis, was unusual for the net gain in employment during the year of the recession in 2009. The net gain came about through the government’s innovative job credits scheme that tilted the cost advantage to favor Singaporean workers over their FMW counterparts. This example emphasizes the importance of wage costs in influencing the demand for FMWs. As Asian and Middle Eastern economies develop, wage relativities will change, which will shift the pattern of FMW employment in the coming years.

The emphasis on skills over costs is the guiding principle behind the system of levies and quotas that Singapore uses to manage its foreign manpower requirements (Ministry of Manpower, Singapore 2013). Foreigners working in Singapore are categorized according to their roles, educational qualifications and skills level, with the latter proxied by the monthly remuneration of the individual concerned. Employers who satisfy quota requirements may employ foreign personnel under the appropriate quota limits subject to the payment of a levy. The system is graduated to discourage excessive reliance on low-wage FMWs, in favor of the more highly qualified and skilled ones.

Figure 2. Annual Economic Growth and Employment Changes in Singapore, 1992–2010

Fig2
Source: RGDP (real gross domestic product) growth is from the Annual Economic Survey, published by Singapore’s Ministry of Trade and Industry; employment growth is from the Report on the Labour Force, published by Singapore’s Ministry of Manpower.

Looking to the Future

In recent years, the reliance on FMWs appears to have been driven by short-term economic contingencies rather than any long-term strategic plan. FMWs bring enormous benefits to their host economies, and their home countries benefit from the incomes they repatriate. As the 21st century progresses and Asia’s economic march continues, there are concerns in some of the fastest growing economies about potential labor shortages. Ironically, some will occur in previously populous countries that earlier had surplus labor, which constituted the first waves of FMWs.

In some countries, such as Singapore, there is concern that FMWs are “crowding out” opportunities for citizens. The greatest economic challenge that countries with large number of FMWs face is how to manage their reliance on FMWs to ensure the viability, vibrancy and unfettered movement of talent and ideas for the coming decades.

Policymakers dealing with labor issues need to anticipate a much more open and integrated pan-Asian economic landscape. In such a setting, workers are likely to be more inclined to operate regionally rather than be bound by national boundaries. In small economies like Brunei Darussalam; Hong Kong; and Singapore, the disdain for national boundaries will be even stronger. Ultimately, the natural progress of economic development will favor the freer movement for FMWs, not less. So early planning of FMWs involvement in an economy is crucial. At the same time, more restrictive policies should be avoided, and instead governments should recognize that the inevitable shift in wage relativities will affect employer demand for FMWs.

written by Randolph Tan of Asia Pathways. see more.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef

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Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!
https://www.facebook.com/benjamin.christian.kwan

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
twitter.com/laingcallum
linkedin.com/in/callumlaing
Download free copies of his books here: www.callumlaing.com

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Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang

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Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

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