Singapore's government has reduced foreign worker quotas for the service sector because not doing so can affect the "employment outcomes" of local workers and a flaring-up of socio-political problems here.

This comes from Senior Minister of State for Trade and Industry Chee Hong Tat in Parliament on Tuesday, Feb. 26, speaking in response to various members of parliament who expressed concerns regarding the impact of Finance Minister Heng Swee Keat's announcement last Monday:

Chee acknowledged that the industries affected include accommodation, information and communications, food services, retail and professional services.

But he said that the number of S-pass holders in the services sector in Singapore is currently at the highest we've seen in the past five years.

"We knew it would be painful for the affected companies, and we agonised over this difficult decision during our many rounds of inter-ministry discussions.

On balance, we decided that it was better to make a move now to moderate the overall number of foreign workers in Singapore before the problem gets out of hand."

Here are some of the points made by MPs who spoke on Tuesday:

Impact on the hotel industry

MP Denise Phua for Jalan Besar GRC said the hotel industry would be particularly hard-hit by the quota reduction.

Phua cited the example of one Benedict Choa, the owner of Cube Boutique hotel. Choa was still having manpower issues despite:

• having fully used up his foreign worker quota,
• automating his guest check-in system,
• being ready to employ local Singaporeans, if only he can find them.

Phua said the manpower shortage in the hotel industry had largely to do with shift jobs being unpopular with Singaporeans.

Additionally, in the case of larger enterprises, such as the Pan Pacific Hotel Group, Phua said that there was the factor of the shrinking pool of workers from China and Malaysia as well.

Impact on the F&B industry

NMP Douglas Foo noted that the food and beverage industry would also be hit hard by the quota reduction.

In this case, Foo said, the impact would arise out how a labour shortage would hit the industry's reliance on unique and fresh experiences to attract new customers, as well as retain old ones.

"Building a relationship with customers takes time, as do training."

Businesses would also have to deal with increased costs and greater welfare demands as part of the need to attract new workers, he added.

Taken together, Foo said, such costs posed the risk of driving food and beverage enterprises out of business all together, even if technology was utilised for operations.

"For these businesses, no matter how technology may alleviate operation demands, a lack of readily available human resource, which will invariably in turn drive up already increasing labour costs, will work in tandem to drive businesses out of Singapore or out of business altogether."

Can these companies attract Singaporeans to work?

Here, MP Jessica Tan for East Coast GRC built on the positions of the other two MPs, by reiterating that more needed to be done in addressing the challenge of attracting Singaporeans to the service sector.

Tan elaborated on the challenge by listing out the following questions:

"Why is it challenging for companies in the services sector to reduce their dependency on foreign manpower? Is it a question of not being able to attract Singaporeans to the jobs? Are the factors due to the demographic changes with an ageing population?

Is it because of the demands and working conditions of the jobs? The higher expectations that Singaporeans have of work? An issue of the salary levels? Or an issue about the cost of getting Singaporeans to do the job in the service sector?"

Tan added that it was necessary for businesses to innovate in order to achieve greater productivity.

Moreover, the innovation could not just be about the leveraging of technology and automation — it also required a re-think of business models.

What's the incentive for companies to automate?

MP Chong Kee Hiong for Bishan-Toa Payoh GRC said that even if automation and digitalisation presented a possible solution in overcoming the manpower shortage stemming from the quota reduction, there might be little incentive for companies to do so.

Chong said that such a drive could put an upwards pressure on labour costs for companies, with some even finding the process troublesome and a distraction from their daily operations.

He pointed out feedback in the service sector that not all processes could necessarily be automated.

Companies could also have a reduced incentive to automate by hiring older workers to do simple tasks, while focusing their hiring on foreign workers with higher skills.

Chong added that this last measure could also make particularly bad optics to the younger generation of Singaporeans:

"There are comments that poor Singaporeans have to work to their deaths and so forth. Although these comments do not reflect Singapore’s reality, they are out there.

While there might be some seniors who said that they worked to pass their time, due to the nature of these menial jobs, most people have concerns and reservations. We must also ask ourselves what is the perception our young children have of us as a society when they see frail senior citizens picking up after them, clearing tables and mopping toilets?"

Chee: A difficult but necessary decision

In acknowledging the challenges, Chee called the decision a difficult but necessary one to take before the issues could potentially get worse.

Chee noted that several companies in the service sector have since taken steps to improve productivity by adopting technology and re-shaping their processes.

Chee added that Enterprise Singapore and the Economic Development Board are working closely with companies and industry associations to help them to cope and work more efficiently with less labour.

Other things the MTI is doing, Chee said, include working to streamline business licensing processes and shorten them, as well as to reduce licensing costs.

He acknowledged also that business leaders have pointed out that technological solutions can't completely replace labour, especially in the services sector.

"But we also know that in the current operating environment, it is important for all companies – big or small, traditional or modern – to have a good understanding of technology and what it can do to improve their products, reduce costs and enhance service quality. Otherwise, you risk being overtaken by your competitors."

You can watch his speech here:

Top image collage from Gov.sg and Population.sg