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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.

Entrepreneurship

Why Angel Investors are Shaking Up the Global Startup Scene

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Candace Johnson is someone who has made a global impact on our modern international telecom and broadcast business. She co-initiated the foundation of SES-Astra and SES Global, which today owns a fleet of 54 satellites and broadcasts 6500 TV channels. And she founded the world’s first Internet-based online service, Europe Online, making it into one of the first broadband Internet services.

But it was in her role as president of EBAN, the European trade association of several hundred business angels, which brought her to Eindhoven’s High Tech Campus recently. She explains why angel investors are making a difference to the global start-up scene and explodes several myths that surrounds the way they do business. She spoke with StartupDelta’s Jonathan Marks.

Building the match between angel investors and hardware startups

“People often think that angel investors are people who do investments around the corner, locally, or in services like e-commerce. To be frank, when the HTCE management told me that they were focussing on the hardware side of things, I was thrilled.”

“What I’m trying to do as President of EBAN, and having incubated MBAN (MENA Business Angels Network) and ABAN (African Business Angels Network) under my presidency, is to extend the scope of angel investments. The vast majority of angels are already tech savvy. But we need to educate our successful angel investors to invest more in hardware and infrastructure. We also need to help start-ups develop a pitch that speaks to the interests of angels, so they can get funding for their initiative.”

“We run the EBAN Training Institute with the goal of raising standards. We’re seeing more and more that the best angel investors are serial entrepreneurs. They bring their trusted network, expertise and experience to the table.”

“Money is important too, but it is not at the top of the list. Business angel investors are high net worth individuals who usually provide smaller amounts of finance (€25,000 to €500,000) at an earlier stage than many venture capital funds are able to invest. They are increasingly investing alongside seed venture capital funds.”

Angels are more important than most people know

“We follow the guidelines and standards developed by the European Venture Capital Association. For over seven years, during the depths of the financial crisis in 2008 until the recent recovery started, it was the angel investors who took over the role of early stage financing. More than €7.5 billion are being invested annually in Europe, with a sustained growth in recent years. Of that €5.5 billion comes from angels. In fact we have had to professionalize our profession to meet the demand of the growth in this early stage ecosystem.”

We always have an exit strategy

“Angel investors can only continue to invest if they have exits. I hear many people talk about investing. Only a few discuss exits. I want to change that. I also stress that proven entrepreneurial success is essential in order to become a member of our association. We need to ensure that useful “lessons learned” are shared with the start-ups. They are always based on hands-on real-world experience. We have no time for people who are using new blood to try and correct mistakes they made in their own failed companies.”

“EBAN was started in 1999 together with the European commission. For the first ten years, I think people were too focussed on the investing part. Now we need to focus on exits and returns on investment. Without returns, business angels are out of business. And remember there is only a short window of opportunity during which start-ups can scale-up to becoming global success stories”.

“Our feeling is that you should not make an investment in a company unless you can see the path for the exit. The exit may be a trade sale, an IPO, etc. The exit also does not have to be 100 %. It does, however, have to bring you a return on your investment so that you can continue to invest. This approach helps you focus on building great companies. There’s always competition in healthy markets, so no-one can afford to waste time. We’re not a charity; we’re doing this because we love building and financing global success stories. We’re therefore looking for companies with a real marketable product, not a prototype or a collection of well-presented ideas.”

Is there specific advice you can share with high-tech startups?

“In the last few years we’ve seen the rise of the accelerators alongside incubators. They have helped raise standards because a good idea needs to be validated by the market before it is the basis for a high-growth company.”

“As investors, we always need to see a start-up demonstrate that they have first clients and initial revenues. We’re not saying that they have had to scale or show market traction. But if we are going to put in our personal money, then we expect the founder to be resourceful enough to work out the first product, to have found the first clients and show us evidence of the first revenues.”

“The incubators who help get an idea into reality and the accelerators have been good at making startups better prepared for angel investment, offering the right coaching to turn an idea into a validated business. That means angel investors are better able to select the growth companies and focus on making a good return on their investment.”

Hanneke Stegweg

“We recognise that young companies need to present their business proposition to the angels attending our annual conference. So we’ve created ways that teams get immediate, honest feedback on the quality of their business presentation. We have one full day of preparation and coaching followed by a Global Investment Forum. The best go on to pitch to the entire network. This year, the “company to watch” category was won by Hanneke Stegweg, who is the Dutch CEO of the iLost company. Together with Neelie Kroes, I am keen to see more women founders lead entrepreneurial teams.”

What needs to change for things to move faster?

“We held this year’s EBAN congress in Eindhoven at the recommendation of several members. They all work in the innovation and financing of innovation field. But this region also came up in our discussions with StartupDelta. We have worked closely with Neelie Kroes when she was with the European Commission.”

“We were tipped off to the High Tech Campus specifically by our Russian members: the Russian Business Angels and the Skolkovo Foundation who are building the Skolkovo science park just outside Moscow.”

“And last, but not least, I know Eindhoven from my work in telecommunications and broadcasting hardware field. We often came here to work with Philips on the establishment of the DVD and MPEG-4 standards.”

“During our visit to the Brainport area it was clear that there is more than enough money in the region and a healthy appetite to invest in innovation. But there are some caveats that we feel need to be addressed.”

“Frankly, I think we are rather tired of the “nice-to-have” e-commerce companies. We would prefer to reinvest in world-class companies who are building something tangible, solving a real-world challenge. They need to demonstrate they can scale and become global.”

“We can see that the efforts by many have helped to raise the bar in the Netherlands and that’s good news for everyone. But remember there is a difference between entrepreneurs and SME’s. Entrepreneurs are the only ones to change our world. They create large companies, worthwhile employment, and that grows into large revenues.”

Failure is not an option

“We should get rid of this talk of failure being an option. If you’re taking angel money, it is NOT OK to fail.”

“If you take third party money, you have a responsibility as an entrepreneur to do everything you can to make a return on the investment of your business angel. The media keeps talking about friends, family and fools. But that’s nonsense! Founders, families and friends build great companies!”

“I have always been a free marketer at heart. Europe and The Netherlands need to create nations of investors. I believe in the power of private sector-led investment. Government needs to follow the leads set by business angels, not the other way round. We are investing our own money and using our years of experience to scale up these companies. An entrepreneur who is not willing to work and dedicate her or his lives 24/7 to achieve the goal should look elsewhere for money!”

“We’re fortunate that the EBAN network acts as a magnet for excellence. We were honoured to have the President of the European Research Council and the Head of Technology Transfer of the European Space Agency address our Congress to show us where the technology trends are going and where we should invest.”

“From a venture and entrepreneurial financing perspective, we were most grateful to our colleagues from the United States who joined with our European, MENA, and African colleagues to set the bar high in creating, building and financing global success stories. Amongst those joining us in Eindhoven from the United States were the president of the Global Accelerator Network from the USA, the president emeritus of the Angel Capital Association of the USA, the President of Start-Up Angels and Board Member of Up Global from the USA. We also welcomed the President Emeritus of the Crowd funding association of the US as well as the chairman of New York Angels. And we were delighted with the presence of David S. Rose, the president of GUST.com. These are some of the world’s best experts in angel investing.”

“They all said they were pleasantly surprised by the high standard of the startups that came to Eindhoven from all over the world. It was well above what they had expected. Start-ups from Africa, Middle East and Europe traditionally explain what they do, rather than explaining to investors why their idea is important. But that’s changing rapidly for the better. Entrepreneurs are also getting better at defining what they need in order to scale-up.”

NEXT STEPS : It’s all about active networking

“I should explain that in expanding our reach in Europe, with have formed alliances with the European Space Agency and the European Research Council. They also have their own accelerators and incubators. I think the onus is on the angel investor community to help bring this scientific community to a higher level of entrepreneurship. They need to think about the market for their inventions from the beginning. I believe we can help these organisations filter out the very best ideas and give those the attention they need to scale ideas into real businesses. There needs to be a validated market need for the technology they are developing.”

“We have two main events. There is the annual EBAN congress, this year in Eindhoven and next year in Porto, Portugal. And we run the EBAN Winter University, this year running from November 17–19th in Copenhagen. We’re doing this with leading organisations active in Europe’s creative industries. And all this is in addition to individual events and competitions organised by EBAN members at a local, regional and national level.

Increasingly we’re assembling cross-border syndicates, both between European countries and increasingly inter-continental networks linking Europe with innovation hubs in Africa, Middle East and North America. As companies scale and go global, it is important they have access to an international shareholder network. It’s a softer landing when they cross continents.

We also believe there is a way in which we can build partnerships with techno-business parks around the globe, led by the flywheel initiatives shown by High Tech Campus Eindhoven over these very fruitful days in the Netherlands.

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About the Author

This article was written by Jonathan Marks, Executive Director at Photon Delta. See more.

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Entrepreneurship

Myths & Facts about Entrepreneurship

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Today, there is a pervasive and nearly deafening mantra insisting that you quit your job and become an entrepreneur. The collective says you should do it today because every day you wait brings you closer to a life of poverty and regret.

A central theme in the entrepreneurial world is challenging the status quo and questioning conventional wisdom in search of new and better ways of doing things. If you’re just going to follow the pack, you may as well just get a real job and call it a day.

Entrepreneurship can be incredibly rewarding. Starting your own business may be the best decision you ever make. But it’s not for everyone. There’s a lot to consider before you take the plunge and a lot of myths to expose, starting with these.

Let’s take a glance at some of the Myths of entrepreneurship:

1. You’ll be Happier

Entrepreneurship can be incredibly rewarding. Starting your own business may be the best decision you ever make. But it’s not for everyone. There’s a lot to consider before you take the plunge and a lot of myths to expose, starting with these.

2. You’ll have more freedom, control and work-life balance

If you’re on your own, chances are you’re going to find yourself wearing all sorts of hats and working 24×7 for a very long time. Work will become your life. There’s nothing wrong with that, but not everyone feels more freedom and control that way.

3.You’ll be more fulfilled

Do we know what just about everyone loves to do? Great work that accomplishes goals they can be proud of. One can do that working for a big company, a small company, or their own company. Fulfillment has nothing to do with business ownership. If one wants to manage, lead, or run a business, it’s better off learning the ropes in a good company before starting your own.

4.There are no jobs; technology and outsourcing killed them all

It is shockingly untrue. If technology destroyed jobs, then which one will you call the most lucrative and fastest-growing industry on the face of the earth.That’s right: technology. If you can’t find a job, chances are you lack in-demand skills or education, in which case, yes, you might want to consider starting a small business which does not require much of exclusive skill sets in particular.

5.Entrepreneurs Live a Glamorous Lifestyle

That’s again untrue. Most entrepreneurs do not live a glamorous lifestyle; if they do, their investors should cringe. Entrepreneurs are notoriously frugal, hard working and opportunity-obsessed with little time for outside activities. These qualities are not hallmarks of the glamorous life.

Now,Let’s look at some of the facts of entrepreneurship.

  1. Most successful entrepreneurs succeed by exceptional execution of ordinary ideas: See Jiffy Lube, Starbucks and Charles Schwab.
  2. Most successful entrepreneurs concentrate on minimizing risk rather than taking huge risk at the time of starting their companies.
  3. Successful entrepreneurs use their innovative passion in many ways, such as buying companies, creating new ventures within larger companies and re-strategising nonprofits.
  4. More than 80 percent of new ventures are boot-strapped from personal savings, credit cards, second mortgages and the like. The median start-up capital is about $10,000. Waste Management began with a single truck; Sam Walton started with $5,000. So, in short access capital is not required to startup.
  5. Being first to execute well and delight customers is not at all important for success. A lot of startups have entered quite late in a particular startup industry and have done well.

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About the Author

This article was written by Utkarsh Sharma.

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