The Future of a Hub: Can Singapore Stay On Top of the Game?

Viewed from abroad, historical perspective, Singapore?s position as a hub is far from inevitable or unassailable. History shows that hubs come and go. Malacca used to be the centre of the spice trade in Southeast Asia. Venice was the centre of East-West trade throughout the Middle Ages. Rangoon, now Yangon, was the aviation hub of Southeast Asia before 1962.

Is Singapore in danger of also ceding its hub status as a result of forces beyond our control? The case of Malacca is instructive. By the 16th Century, the city on the Malay peninsula had become the most important port in Southeast Asia. It served as the bridge between the spice-producing islands of Southeast Asia and the markets in Europe and Asia. Malacca became so integral to East-West trade that a Portuguese traveller and writer, Tome Pires, proclaimed that ?who is Lord of Malacca has his hand on the throat of Venice?.

Malacca was a forerunner of the free port that Singapore was to become. It welcomed foreign merchants as well as their trade. But after the Portuguese conquest of the city in 1511, it declined as the spice hub of the region, as the Portuguese ? and later the Dutch ? sought to achieve monopolistic control of the spice trade. Fierce competition from neighbouring ports such as Johor meant that traders had other options. The city soon declined and today is best known as a tourist attraction.

Half a world away from Malacca, Venice emerged as the European hub of the global trading network. For nine hundred years, Venice was a flourishing centre of trade between Europe and Asia, especially in silk, grain and spices. Geography played an important role in Venice?s rise. Its relative isolation from the mainland insulated it from the confusing and often deadly politics of the Italian states.

Venice concentrated its resources and energies on advancing its commercial interests in distant regions. By the 13th century, Venice was the second largest city in Europe after Paris, and its most prosperous. It linked the main trade routes between Europe and Asia.

But eventually Venice also declined. The fall of Constantinople to the Ottomans in 1453 disrupted the traditional overland trade route from Europe to Asia, forcing Europe to find alternative trade routes to the East. At the turn of the 16th century, Portugal?s discovery of a sea route to the East Indies undermined Venice?s monopoly. New ports emerged to become Europe?s main intermediaries in the trade with the East, striking at the very foundation of Venice?s wealth. With its centrality as a commercial hub broken, Venice declined and eventually fell to the Austrians in 1797.

The Theory of Hubs

Malacca and Venice are both examples of hubs in that first flourished and then declined as trade routes and technologies changed. Simply defined, hubs are the exceptionally well-linked nodes in a network. Malacca and Venice exploited their commanding positions in the main trade networks of their times. They consolidated their hub positions by astute diplomacy, openness to talent from elsewhere, and broadening the range of their activities beyond just trade.

Throughout history, hubs have been the main engines of economic growth and development. Network theory provides us with insights to explain why hubs acquire wealth more easily than other nodes in a network. Today, as in the past, the world?s economic geography remains dominated by hubs which are the focal points of opportunity, growth and innovation. Firms locate where skills, capabilities and markets cluster.

A recent study identified the existence of 40 mega-regions worldwide. They are defined as places that claim large populations, large markets, significant economic capacity, substantial innovative activity, and highly skilled talent. Many of these 40 mega-regions are formed by hub cities growing outward and into one another. Singapore is one of these hubs.

Today, of course, air transport plays a critical role in establishing hubs. Air hubs make previously unlinked cities accessible to one another in just one or two links. Singapore is classified as a ?connector? hub ? it is a hub within the East Asian/Southeast Asian region, with a high number of links to cities in other regions. So in 2007, while Changi Airport was ranked 19th by the Airports Council International in terms of passenger numbers, it was ranked 6th if only international passengers are considered.

If Singapore is a central node connecting different regions, what might undermine this position? Challenges could come from two directions. The first is competitors in the region, such as Kuala Lumpur, Bangkok and Hong Kong, as well as those from other regions, such as Dubai. Dubai is the largest aviation hub in the Middle East and is a fierce competitor for the Australia-Europe traffic. Another challenge is from long-haul flights. The same technology that allows Singapore Airlines to bypass Tokyo on flights to Los Angeles could one day allow Emirates to fly non-stop from Dubai to Sydney, and Qantas or British Airways to fly non-stop along the ?kangaroo route? from London to Sydney.

The more cities move away from the hub-and-spoke model of air transportation to point-to-point transportation, the more difficult it will be for Singapore to retain its status as an aviation hub. This is conceptually no different from Venice losing its hub status because alternative and more direct trade routes were found between markets in Europe and spice producers in the East.

This threat underlines the importance of constantly re-inventing Singapore as a hub. It would be fatal to assume that the density of connections that we have today and the centrality that we enjoy in today?s networks ? whether in air transportation, maritime, or other networks ? are permanent. New technologies might create new networks with their own hubs and connectors. Whether we will continue to be a hub in the networks that emerge will depend on our capabilities, on our ability to seize early mover advantages, and on how quickly the new networks emerge.

I think it is possible to distil five factors that determine the success and sustainability of hubs like Singapore.

Establish your role early. Singapore built the first container port in the region. This gave us first-mover advantage. We exploited it, and Singapore was propelled to the front rank of global container ports.
Ensure open access and maximum connectivity. Singapore under the British thrived because of its status as a free port. In contrast places like Jakarta languished under the Dutch policy of controlling and taxing trade. Being well-connected and plugged into dense networks confer far more advantage than efforts to monopolise production or to control access to resources.
Capitalise on and exploit small initial advantages. The research on networks suggests that the economic development process is highly path-dependent: the choices we face today are largely shaped by the choices we made in the past and the capabilities that we have already built up. Singapore was able to become a leading petrochemicals hub because we were able to build on our early success in attracting oil refinery activities.
Constantly re-invent and diversify the hub?s value proposition. In Singapore?s context, our status as a maritime hub gives us the opportunity to develop strengths in new areas that go beyond our traditional role as a port. These include ship financing, ship insurance and various ancillary activities that the shipping industry depends on. This diversification will also give us greater resilience in the face of uncertainties and rapid changes in the maritime industry.
We need a strong sense of belonging. If people only see Singapore as ?Hotel Singapore?, then when there is an economic downturn or other problems, they will move to where the opportunities are greater. The challenge is to maintain a core that will sustain the hub through economic cycles.

Singapore?s continued success as a hub depends both on its connections to the world, as well as connections to its citizens wherever they may now live. Our strategic response to the limitations of our physical size must be to strengthen our hub position by boosting not only its physical connections to networks, but also in other domains ? an R&D hub, an intellectual hub, and even a cultural and entertainment hub.

To avoid the fate of Malacca or Venice, we must re-invent and re-position ourselves and stay ahead of the competition. This is the imperative that will determine our future as a city-state, as both a place and a nation.

Peter Ho is Senior Advisor to Singapore's Centre for Strategic Futures. Before retirement, he was the Head of Civil Service in the Singapore Government.

Photo by Storm Crypt