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Free «The Political and Economic Risks that are Faced by a Malaysian Manufacturing Firm» Essay Sample

Singapore is an island country that consists of one main island and other sixty-three small islands. It is linked to Malaysia via a causeway and a bridge that is referred to as the Straits of Johor. To its south, Singapore is linked to Indonesia via the Singapore Strait. As for Singapore’s climate, it has a tropical rainforest climate that is characterized by the inexistence of distinctive seasons. Singapore has also a uniform pressure and temperature, high values of humidity and abundant rainfall. Average temperatures in Singapore during the year usually range from 23 to 32 °C (73to 90°F). As for humidity averages, they reach around 79% in the morning and 73% in the afternoon. All in all, Singapore is widely known as hi-tech country with a promising economy, and it is also politically known for conservatism of most of its political leaders, in addition to the strict social control of the country.

Political Risks:

Generally speaking, Singapore is politically stable country with almost no turmoil and civil disobedience. The country is essentially a multi-party state; however, the People's Action Party (PAP) has been in power since the time of independence. In that sense it can be said that Singapore enjoys a considerable range of democracy and political stability, which can be a suitable environment for investment and trade. Accordingly, a Malaysian manufacturing company that is operating in Singapore, whether via trade or direct investment, would enjoy the political stability of Singapore and would not suffer from any turmoil or unstable conditions. For example, in a politically stable country such as Singapore, there is little chance for demonstrations, civil disobedience, or strike that would negatively affect the Malaysian manufacturing company. Actually, most political and economic analysts agree that there are certain factors that accelerate or hinder the process of development in any country. Those factors are also responsible for achieving development successfully. One of the most important of these factors is political stability. Also, democracy and rule of the law are the basic tenets of political stability, which can accelerate any efforts of development, exerted by the government and individuals (Diaz-Bonilla & Sherman, 2007). Hence, the Malaysian manufacturing company would not suffer from lack of rules and laws that adequately regulate trade and investment in Singapore. Once democracy and political stability are achieved in a given country, sense of solidarity and cooperation among all the sects of society is needed in order to make the development experience a success, and this is exactly the case in Singapore, which will be positively reflected on any foreign firm operating in Singapore, such as the Malaysian manufacturing company.



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Economic Risks:

Singapore's efficient trade strategy has resulted in the successful economic development process in the country. Through implementing successful trade strategy, Singapore was able to overcome severe financial crisis, from which the Singaporean economy suffered during early years of the last decade (Markiewics, 2003). Consequently, any foreign company that operates in Singapore will enjoy the stable economic conditions in the country and will have minimal fears from economic fluctuations. As such, the Malaysian manufacturing company that will operate in Singapore will not have to worry about economic risks that are resulted from sudden or unexpected taxes or any other economic laws for example.

Although the financial crisis hurt the economy of Singapore, as well as its public and private businesses, the country has been able to manage its economic structure once again, succeeding to achieve a higher growth rate in recent years due to the efficient acceleration of trade policies. In essence, the liquidity and currency pressure was the main cause of the Asian crisis, including Singapore. This stressed the role of the crisis management to play in solving such problems (Hoogvelt, 2001). Therefore, the Malaysian manufacturing company would benefit from the highly developed and professional crisis management that exists in Singapore, especially within the economic environment.

In case of financial crises, Singapore is able to manipulate a process of restructuring for the financial sector in the country which witnesses the crisis. Such restructuring process will surely lead to stabilization of the financial system to be capable of facing any liquidity dilemma in the future. Such approach would benefit any foreign firm that operates in Singapore, such as the Malaysian manufacturing company. Besides, it is not only the financial system that should be restructured, but also there should be the corporate restructuring (Dabrowski, 2003). So, Singapore, like many other East Asian countries, started to restructure its corporations to help solve the liquidity problems. The process of corporate restructuring in Singapore has involved elimination of the “legal, tax and regulatory obstacles” in order for the restructuring process of corporations to be efficient. Hence, the successful restructuring approaches followed by the Singaporean government should encourage foreign corporations, such as the Malaysian manufacturing company, to operate safely in Singapore.

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For Singaporean corporations, the timing is very significant and indicative because the year 1999 represented a clear shift from centrally-based economy to the market-based economy, not only for Singapore alone, but for the whole Asian region (Little, 1999). This warned the management of Singaporean corporations of the possible drawbacks and negative consequences that may by faced by their companies, which was not fully ready to confront such strategic shift in the economy. In that sense, the management of the Malaysian manufacturing company that operates in Singapore has to react appropriately in order to face any signs of lack of public sympathy with the company.

Therefore, it can be realized that the management of the Malaysian manufacturing company that operates in Singapore should recognize the importance of exploring new markets and gaining new customers to enhance trade opportunities with foreign partners. Actually, this care about customer satisfaction is a clear shift in the management strategy of most public and private corporations in Singapore (Markiewics, 2003). Consequently, as for the Asian crisis, there is no doubt that liquidity and currency pressures were the main cause of this crisis. Hence, there is extreme importance for the role of the crisis management in solving such problems. In case of financial crises, there should be a process of restructuring for the financial sector in the country which witnesses the crisis.

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Consequently, the quick and efficient reaction of the government and private corporations of Singapore helped the country overcome its financial problems and adjust the trade balance with international partners. This should give a positive indication for the Malaysian manufacturing company that will find minimal economic risks to worry about in Singapore. This is reflected in the significant growth rates and higher development indicators in the country since the start of this decade (Uchitelle, 1998). In its attempt to trace, investigate and assess the development processes in all countries of the world, the United Nations Development Program (UNDP) issued a yearly report, in which it thoroughly and deeply analyzed the development efforts in individual countries. To achieve this aim, the UNDP uses pre-identified indicators, against which the development efforts are measured. These indicators are usually indexed in many forms to assess different aspects of the development programs in each country (Markiewics, 2003). One of these main indicators is the Human Development Index (HDI), which is an indicator that attempts to measure the average achievement of a given country in basic human capabilities. These capabilities include many factors, such as the degree to which people lead long and healthy life, are educated and knowledgeable and enjoy a decent standard of living. After measuring each of these factors, countries are usually ranked according to the HDI (Farah). However, the HDI is not the only indicator that measures development programs in countries. Rather, there are other indicators, such as the HPA, which measures the economic capabilities of each country; Gender-related Development Index (GDI), which measures the achievement in the same basic capabilities as the HDI does, but takes into account gender inequalities in achievements; and Gender Empowerment Measure (GEM), which measures the degree of women participation in economic and political life and if they take part in decision-making processes (Salvatore, 2002). However, if all the above human development and economic indicators are carefully examined across countries, various discrepancies can be easily realized among the countries that belong to various regions of the world. To illustrate this assumption, the HDI and HPI of Singapore are shown in the following table:

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Human development index, 2002


Human Poverty Index (HPI-1) Value (%)


HDI Rank



Singapore is a country with minimal political and economic risks that may face a Malaysian manufacturing firm exporting to it. Actually, Singapore follows a Strategic Trade Theory (STT), which emerged in the 1980s as a challenge to the traditional trade theory that advocated the concepts of free trade, competition and minimal trade barriers. Recognizing that pure implementation of free trade can sometimes be harmful for countries' economies, the government of Singapore tended to implement a revolutionized approach of trade that advocated the planed government intervention in certain trade measures to maximize economic benefits. In that sense, STT challenged the old-established notion that called for pure competition markets with as few interventions as possible. So, Robert Gilpin defines STT as “the culmination of earlier challenges to conventional trade theory because it incorporates a growing appreciation of imperfect competition, economies of scale, economies of scope, learning by doing, and the role of technological spillovers” (Giplin, p. 214). In that sense, STT can have significant impact not only on local economies and trade, but also on the world’s trade mechanism, especially trends of free trade and globalization.


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