A SINGAPORE LIVED-EXPERIENCE OF SUPPLY CHAIN FRAGMENTATION IN A GLOBALISED ECONOMY

This is a follow-up to my earlier post "Is Singapore disadvantaged by the FTA with the US?" In his criticism of the US-SG FTA, Foong Swee Foong says it is simply ".. the transfer of parts between the two countries, the so-called supply chain, taking advantage of the zero tariffs and ease of custom procedures." He sees no value-adding, just parts moving around.

During the 1990's Seagate Singapore was the biggest disk drive producer in the world. In Seagate’s hard disk drive (HDD) manufacturing ecosystem, production is distributed across a multi-tiered supply chain involving contract manufacturers and specialised service vendors. Component fabrication begins at contract manufacturing facilities, where primary structural parts are produced using processes such as metal casting, forming, or die casting, depending on the component specification. These semi-finished components are then routed to specialised subcontracted service providers for secondary processing operations. These typically include surface finishing processes (e.g. buffing, polishing, and deburring), metrology and quality inspection (such as flatness measurement, dimensional verification, and surface roughness analysis), as well as thermal and surface engineering treatments (including heat treatment for stress relief or hardening, and surface modification processes such as coating or passivation).

Following these value-added processes, the components are returned to contract manufacturers for precision machining operations, such as CNC drilling, tapping, and other tight-tolerance mechanical feature creation (e.g. screw holes and alignment features). Finally, the machined and fully validated components are delivered to Seagate’s final assembly facilities, where they are integrated into finished hard disk drives. These drives undergo system-level assembly, final quality assurance testing, and burn-in reliability screening before being packaged and distributed to global markets.

At one time, the whole supply chain was concentrated in Singapore. With rising cost, upstream low tech and labour-intensive service vendors one by one relocated across the Causeway into Johore Bahru, Malaysia, some into Malacca, a little later on even sub-contractor die casters relocated to Penang and then Thailand, spawning their upstream supply chains there. Eventually, all the processed disk drive housing and component parts are delivered back to Seagate Singapore.

In the 2000's I spent a short while with one such vendor in thermal and surface treatment processes in JB. I remember the daily trips with the hassle of clearing immigration and boy oh boy those hour long jams in traffic where you pray never to have a bad-tummy day. The sub-contractors sent the parts across to JB. We received the parts from other vendors in JB or Malacca, heat treat and powder-coat them, and delivered back across to Singapore. 

All I understood at the time was we were living through the consequences of a structural change when Singapore shifted gear into a higher value-added economy as our neighbours caught up with us. As cost rises, low tech supply chains got pushed next door. Foong is right, we see parts moving around -- Singapore - JB - Malacca - Penang - Thailand - Singapore - US (OEMs). My lived experience was in reality, a microcosm of a fragmented supply chain.

Globalisation evolved over the centuries in waves, energised by developments such as the age of exploration, steamships, gold standard, Bretton Woods, GATT and US-led order post WWII that stabilised trade. Modern age globalisation was roughly 1980-2008, energised by China's opening, Reagan/Thatcher's liberation, WTO, containerisation and IT revolution. This was the period of  fragmentation of supply chains. The 2008 financial crisis broke the momentum and in turn protectionism raised its ugly head, US-China rivalry came to the fore and with that came new risks, leading to de-risking and 'friend-shoring'. Today status quo is not a full reversal of globalisation. But it has slowed, and globalisation has taken on more political overtones. The world is undergoing a re-run of supply chain fragmentation, but this time, coalescing around a bi-polar world of US and China.  

The virtues of supply chain fragmentation has to be seen holistically. It is a whole system optimisation:

Cost efficiency
It facilitates production scaling which reduces marginal costs.
Development uplift
It takes advantage of low cost regions, but lifts standards of living.  
Specialisation & learning curve
Each location focuses on what it does best resulting in faster skill accumulation and higher productivity.
Innovation dispersion
Fast iteration and adoption of ideas, processes and tech as they spread across borders.
Resilience through diversification
Multi-country sourcing reduces single-point failure risk.
Speed to market
Parallel production and regional hubs shorten delivery times and enable faster scaling.
Capital efficiency
Firms deploy capital where returns are highest, thus lowering overall cost of capital.
Market access bundling
Production footprint doubles as entry to local markets.
Standards convergence
Global supp,ly chains push harmonisation of quality, safety, and tech standards.
Human capital upgrading
Workforce training, managerial practices, and tacit knowledge diffuse along the chain.
Ecosystem formation
Clusters of suppliers, logistics, finance, and services co-locate, compounding efficiencies.
Inventory & risk optimisation
Firms can balance Just-on-Time vs buffers across regions to manage cost and reliability.
Financial deepening
Trade finance, FX hedging, insurance markets expand alongside cross-border flows.
Optional or strategic flexibility
Ability to reroute production or sourcing on response to shocks, policy changes or demand shifts.

Nike is a "fabless" or asset-light global company. It designs, markets, and controls the brand in US, but production and much of logistics are outsourced. If you buy a pair of Nike shoes, it is probably manufactured in Vietnam, China or Indonesia, but they are shipped probably from Singapore  Malaysia or Thailand.

In 1984 the Singapore branch of an international bank I was working in, placed an order for an IBM system 34 midframe computer. I was surprised it was shipped to us from Australia. The machine was designed in US, component parts came from all over the world (US, EU, Japan) and finally assembled and configured in Australia. 

In today's globalised economy, manufacturing is just one layer. There is logistics, assembly, distribution. Order fulfillment in the e-commerce world adds more intricacy. Sitting on top of the structure is the control, the HQs and regional HQs -- where the designing, finance, investment decisions are made.  

What has played a large role in this supply chain fragmentation influencing who goes where?  That's right, FTAs. Foong criticised Singapore as ill-advised to put everything in the US basket with the FTA and may be disadvantage in a world with China's rising. While that may not be entirely wrong, it had no historical context. At the time of the US-SG FTA signing, China was just emerging, not yet arrived. In the then uni-polar world of a US-led global economy, it makes sense for a small country like Singapore to plug into the US-centric ecosystem that gives us first mover advantages. 

My sharing the personal anecdote of working in JB provides evidence, and removes my post from a generic commentary. It is easy to describe globalisation as an elegant system of fragmented production -- each component made where it is cheapest or most efficient, moving seamlessly across borders until it becomes a finished product. The reality is far messier. I share another anecdote from JB that explains.

While working in that Singapore firm providing thermal and surface treatment for Seagate components in JB, I encountered a constraint that revealed an entirely different layer of the system. The production process was distributed across multiple specialised vendors -- die casting, treatment, finishing -- some in Singapore, others just across the causeway in Johor.

From an engineering standpoint, parts should have flowed between these vendors as needed. But they could not. Johore Customs rules governing the economic zone required that parts move only between the Singapore entity and each Johor vendor directly. Lateral movement between vendors in Johor was not permitted. In effect, a networked production system had to be artificially reconfigured into a hub-and-spoke model to satisfy regulatory requirements.

I raised this issue all the way up to Johor’s Director of Customs, expecting perhaps an administrative workaround. There was none. His suggestion was simple: consolidate all processes within a single entity so that parts movement would remain compliant. He might as well have said Seagate should do a backward integration (take over upstream suppliers) and become a fully vertically integrated production system. (Just in case you wonder how it went -- we stopped pushing the matter. Simply act like all other vendors and "move parts around". If inspectors caught up, simply slip then an envelope.) 

From a regulatory standpoint, vertical integration was perfectly logical. From a production standpoint, it undermined the very principle of specialisation that made the system efficient.

This tension is not an anomaly -- it is the hidden structure of globalisation. Supply chains are not only engineered for cost and efficiency; they are engineered to comply with layers of rules governing origin, movement, and jurisdiction.

This is where FTAs matter. Not because they eliminate tariffs -- often already low in places like Singapore -- but because they shape, standardise, and sometimes relax these constraints. They determine how freely a “part” can move, how value is attributed, and whether a fragmented production system can function as intended.

Singapore’s advantage lies precisely here. It does not compete to host every stage of production. Instead, it positions itself at the point where these constraints are managed -- where rules are clear, enforcement is predictable, and firms can organise complex cross-border flows with confidence.

In a world where production is fragmented but rules remain bounded by jurisdictions, the ability to navigate those rules becomes as valuable as the ability to manufacture.

In a previous blog post I mentioned the "public goods problem". "When something works well (clean water, stable currency, public transport, etc) it's collectively enjoyed but individually under-credited. People only mobilise when the good is threatened or degraded. In simple colloquial terms, when things work, we get free-riders - diam diam, bo-chap; when things fail - kow peh kow bu."

There is a common, rather lazy counterfactual claim among Singaporeans, that because Singapore sits at the crossroads of major maritime trade routes, it would have developed into what it is today regardless -- Raffles or no Raffles, PAP or no PAP.

Geography matters. But it is not destiny

Singapore has faced structural constraints -- limited land, a small population, no natural hinterland. It was never going to compete with countries like China, Vietnam or India in large-scale production. Its early success as an export-oriented economy in the 1870s-80s was not inevitable. It was a strategic response to those constraints.

What is often missed is how dramatically the world has changed over the past 50 years. Globalisation did not simply expand - it became more complex, more fragmented, and more system-driven. Production, capital, and decision-making no longer sit in the same place.

Singapore's approach has been to plan ahead and reposition itself accordingly. As globalisation accelerated, it did not try to hold on to older models of growth. Instead, it moved deliberately to place itself where value would increasingly concentrate in this new system. 

In the next post, I will try to explain what this shift actually means, and where globalisation has brought us today.
 

 

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