APPENDIX 3
Memorandum by Rolls-Royce
CONTENTS
1. SINGAPORE
2. MALAYSIA
3. INDONESIA
4. THAILAND
ROLLS-ROYCE ACTIVITIES IN SINGAPORE
1. INTRODUCTION
(i) Rolls-Royce is in the process of establishing
Singapore as a base for its activity in the Asia region.
(ii) Rolls-Royce is committed to the long-term
development of its presence in Singapore and has chosen Singapore
as a strategic partner for many aspects of its business activity.
(iii) Much of this activity is based on a
strategy to engage in technology and business partnerships beyond
day-to-day business. This strategy is focused on mutual benefit
from partnerships with Singapore, and its world class human and
technology resources, as it moves to establish a knowledge-based
economy.
DOING BUSINESS IN SINGAPORE
2. BACKGROUND
(i) Singapore has an open and transparent
business culture with a strong Public-Private Partnership structure.
Many of Rolls-Royce's customers are Temasek-Linked-Companies (TLCs).
These are defined as public listed companies in which Temasek
(the Singapore government's domestic currency surplus investment
arm) owns a majority stake of c65%.
(ii) Singapore Airlines, Singapore Technologies
and Keppel Corp, are examples of TLCs that are Rolls-Royce customers
representing all the main focus sectors of Civil Aerospace, Defence
Aerospace, Marine and Energy.
(iii) This Public-Private Partnership extends
to decisions on the long-term strategy for the economy of Singapore
and it is important for business to understand this strategy.
(iv) Singapore's economy has traditionally
been based on value-added income from products and services in
certain focus sectors. Singapore itself has no natural resources.
These focus sectors include aerospace and marine activity in addition
to financial services, IT and biomedical—all with a strong
technology facet. Rolls-Royce actively maps Singapore's strategy
against its own in order to best match decisions on local-to-home
base activity.
(v) Without natural resources or agriculture,
Singapore must continuously drive the level of technology at which
it offers value-added in order to compete regionally and globally.
There has been a recent change in approach that has led to a shift
to value-creation and the establishment of a Knowledge Based Economy.
This has been coupled with an increased effort to establish world
class activity in the after-market sector, especially in aerospace
which currently accounts for about £1.4 billion annual revenue.
(vi) This lifting of the value-added in coordination
with increasing value-creation (R&D) and involvement in through-life
product activity has had the effect of broadening and driving
the value chain into higher yield territory. Singapore can now
harvest yield from blue-sky research until the end of product
life in an ever more valuable, and hard to emulate, activity environment.
Rolls-Royce is well placed to enter partnerships across the spectrum
of this value chain.
(vii) Singapore both understands and actively
pursues the benefits of using the highest technology available.
They approach the cost-base equation, at which they are at the
higher end in the region, with a technology-based productivity
strategy. Singapore can and does afford itself the best technology
if this can be seen to lead to a reduction in total cost.
(viii) SIA is
a classic example of this, the average age of its aircraft being
about seven years. Their defence procurement strategy also reflects
this technology bias. To be seen as the leader in any given field
of technology is a distinct advantage when attempting to partner
Singapore in these sectors.
(ix) Singapore's investments and procurement
decisions often influence other regional and global decisions,
as can be seen from the original Trent purchase in 1995.
3. SINGAPORE'S
PARTNERSHIP APPROACH
(i) Singapore has long abandoned the use
of official offset in capital goods acquisition and now evaluates
strategic partnerships, both current and potential, as part of
the decision-making process.
Paragraphs (ii) and (iii) omitted as commercially
confidential.
(iv) Having taken the decision to consider
Singapore as a strategic partner through the SIA JVs, Rolls-Royce
expanded this approach to include the marine and energy sectors.
(v) In early 2000 Rolls-Royce began a process
of mapping Singapore's industrial strategy on to its own. A structured
review was launched to identify which aspects of the two strategies
overlapped and where potential gaps in both expertise and resource
could be mutually beneficially addressed. This has led directly
to a Fuel Cell and Technology Centre activity noted below.
(vi) There is now a continuous process of
strategy-mapping carried out by Rolls-Royce in Singapore to identify
areas of potentially mutually beneficial partnership. This activity
has built a trust-oriented relationship at all levels allowing
both parties to quickly understand and make decisions on potential
collaborative activity.
4. POLITICAL
AND LEGAL
FRAMEWORK
(i) The political and legal framework in
Singapore, from a business perspective, is structured to allow
efficient and transparent dealings in both the private and public
sectors.
(ii) The political approach to business and
the economy is targeted at driving growth in certain focus sectors
through simplifying and enabling the approach to doing business
in Singapore.
(iii) This can be seen from the Trade and
Industry Ministry's Economic Development Board (EDB) structured
programmes to catalyse business start-ups and incentives which
target sectors through tax, grant and other initiatives.
(iv) People with expertise in areas where
Singapore cannot fill demand domestically are encouraged to Singapore
and employment passes are both un-bureaucratic and readily available
where appropriate. 25% (~l million) of people living in Singapore
were not born there.
(v) Singapore's strategy to globalise has
led to the establishment of a world class infrastructure in focus
sectors such as aerospace, biomedical, IT, financial services
and technology research. Globalisation externally has taken the
form of strategic investments in international enterprises, especially
where this represents an entry to new markets.
(vi) Singapore's approach to bilateral trade
agreements, most recently with the United States of America, is
described as "tariff reduction-plus". Beyond the obvious
tariff elimination targets, Singapore endeavours to accelerate
trade liberalisation in the context of ASEAN as a backdrop to
closer geo-political integration. This is to enhance the WTO's
activity with a pragmatic and manageable approach.
(vii) The US-Singapore FTA, ratified earlier
this year, is reported to lower the cost of trade between the
two countries by approximately US$300 million per annum. Singapore
is seeking assistance from trade partners, both governmental and
private sector, to initiate a round of EU-Singapore bilateral
FTA framework discussions.
5. OPPORTUNITIES
FOR GROWTH
(i) Much of Rolls Royce's business is linked
to GDP growth and Singapore's strong market position in the civil
aero sector. Our partnership creates the opportunity to grow with
one of the world's leading airlines.
Paragraphs (ii) and (iii) omitted as commercially
confidential.
(iv) Rolls-Royce's Marine and Energy sectors
are cyclic and partially driven by oil and gas exploration and
transmission activity. RR Marine in Singapore is the Asian headquarters
for the Offshore sector (Oil and Gas) and has established a vessel
design office to cater for regional operating conditions. These
designs have been sold regionally and are in the process of being
built by third party ship-builders for various Singapore-based
owners.
(v) This activity is one of the fastest growing
areas of Rolls-Royce's Asia-based Marine business. The Energy
sector for Asia is also covered from a Singapore-based HQ within
which RR has set up a base for Long Term Service Agreements (LTSA).
These LTSAs target the conversion of existing traditional parts
and service provision to a more TCA-like arrangement. This business
has increased four-fold over the last three years and continued
growth is expected.
(vi) To compliment the largely UK-based production
and service activity targeted at Singapore customers Rolls-Royce
continues to seek partnerships that will enhance both our partnerships
and technology base. The establishment of the Rolls-Royce Technology
Centre and the Fuel Cell business are both important aspects of
this approach which will see substantial growth for the next decade
and beyond.
6. ROLLS-ROYCE
OPERATIONS IN
SINGAPORE
(i) Rolls-Royce's presence in Singapore dates
to the mid 1950s. Since being awarded the Trent 800 contract for
B777 in November 1995, employee numbers have grown from around
10 people to approaching 600, including Joint Ventures. Singapore
is Rolls-Royce's largest base in Asia in terms of direct employment
and investment.
(ii) Rolls-Royce's total annual revenues
in Singapore are approximately £330 million.
Sections 7 to 11 omitted as commercially
confidential.
ROLLS-ROYCE IN MALAYSIA
12. INTRODUCTION
(i) Malaysia offers significant opportunities over the
next few years. The Malaysian government is keen to develop the
maritime and aerospace industries and the oil and gas sector remains
strong.
(ii) Investment decisions tend to be confined
within the auspices of an "inner circle" with the government
controlling major corporations through government linked corporations.
Purchases will require increasing elements of offset in accordance
with recent government guidelines.
(iii) Rolls-Royce aims to advance its presence
in Malaysia by further initiatives in both public and government
relations and by developing aftermarket and contractual support
through local partners as encouraged by the government.
(iv) Rolls-Royce has made some progress
in this latter respect. Rolls-Royce also aims to understand and
meet customer needs specifically in offset requirements and establish
the most appropriate means to provide adequate lobby and channels
to market.
(v) It is essential to develop more personalised relationships
with senior government and major industry figures in lobbying
and gaining influence for favourable decisions. The mechanisms
and behavioural approach in concluding business are generally
well understood as indeed are relationships at a lower level.
DOING BUSINESS IN MALAYSIA
13. BACKGROUND
(i) Overall relationships with the UK are
good mainly due to educational links, which have helped to lessen
language barriers. The importance of building long-term sustainable
relationships is key to developing successful business opportunities.
Trust is a key factor in this respect and no business is conducted
without this being present. Recognition of status is important
as is the fact that decisions, whilst built on consensus, will
not occur without senior approval, even for what may be considered
minor issues.
(ii) Rolls-Royce has made a significant effort
to develop public relations in-country. We have continued our
presence at the Langkawi International Maritime and Aerospace
Exhibition, often the only engine manufacturer to be present.
This past year we were present at both the aerospace. and maritime
exhibitions.
(iii) We have also reinforced our presence
on many boards and groups including British Malaysia Chamber of
Commerce, EU-Malaysia Chamber of Commerce and Industry as well
as the Malaysia Industry Government Group for High Technology,
University of Nottingham Malaysia and British Malaysia Institute.
We have also raised public awareness through assisting in a number
of community programmes
(iv) Rolls-Royce are developing training
initiatives as a vehicle for strengthening relationships. These
include such activities such as BOND, the Chevening programme
as well as more specific training initiatives with both Petronas
and Malaysia Airlines.
14. OPPORTUNITIES
FOR GROWTH
(i) A policy to build strategic industrial
participation and secure additional manufacturing sourcing and
IT development is key. R&D activity is becoming more important
as Malaysia desires to move up the value chain and seeks further
technology transfer.
(ii) Rolls-Royce is working with government
bodies to better understand the strategic direction being taken
and how to adapt to meet these aspirations. As most large corporations
are government owned it is important to understand government
procurement mechanisms.
(iii) To further develop in-country relationships
with key decision makers and meet the aspirations of the country,
Rolls-Royce is considering training and development initiatives
as well as opportunities for cooperative research and development.
Sections 15 to 18 omitted as commercially
confidential.
ROLLS-ROYCE IN INDONESIA
19. INTRODUCTION
(i) Indonesia has a population of 220 million
consisting of multiple cultures living on 17,000 islands in an
area of 5,000 km by 2,000 km. It has a coastline of 84,000 km,
second only to Canada and controls four of the major seaways.
(ii) After Japan, the UK is the largest investor
in Indonesia, which offers a substantial market for British products
and services in aerospace, marine, defence, power generation and
oil and gas.
(iii) Rolls-Royce is a representative office
but is considering a PMA "Trading" entity. Other offices
exist in Jakarta, Bandung, Madiun, Pekanbaru, Pontianak and Samarinda.
Rolls-Royce is pursuing a policy of replacing expatriates by recruiting
and training local Indonesians. Current staff complement is 22
(eight expatriates).
(iv) Rolls-Royce's focus has been the richer
provinces of East Kalimantan, Batam, Riau and South Sulawesi.
Our products fit the market needs and business is growing ($117
million in 2003).
(v) Rolls-Royce has long-standing and future
commitment to Indonesia and has been the leading aero engine supplier
for over 45 years (c1,000 engines) for all airlines and defence,
in particular A330-300 Trent 700 for Garuda.
(vi) Historically, Rolls-Royce has supported
the development of technology capability specifically PT Dirgantara
Indonesia (IPTN) and its subsidiary NTP (UMC) plus GMF. These
are now overhauling Dart, Tay, M250 and A501 plus Spey for Indonesian
and overseas customers.
(vii) Rolls-Royce supports self-sustaining
development through technical training, master's degrees (Chevening),
universities (ITS etc), primary schools (Tanjung Bath, Samarinda
in East Kalimantan), special needs schools (SLB Angkasa) and development
of youth sport.
DOING BUSINESS IN INDONESIA
20. BACKGROUND
(i) The political situation is currently
in transition with Indonesia's first direct election of the President
and inauguration in October 2004. The first round of the presidential
election was on 5 July.
(ii) Both the macro economy and business
confidence has improved and is likely to strengthen. The IMF programme
came to an end in December 2003. Indonesia's debt has reduced
to $70 billion, (45% of GDP). Earlier in the year, the Rupiah/$
stabilised at Rp8,500 and the stock market strengthened 97% to
770 in 12 months. Interest rates are lower (8%) and inflation
is <7%. Whilst foreign investor confidence has yet to return,
everyone is awaiting the outcome of the election. There is a strong
possibility that investment will gather pace in 2005, driven by
consumer demand.
(iii) In 2000, Indonesia commenced devolution
of power to the regencies and provinces. Business is no longer
controlled from Jakarta. Positioning in the provinces is essential
to meet local objectives for maximising local content.
Sections 21 to 23 omitted as commercially
confidential.
ROLLS-ROYCE ACTIVITIES IN THAILAND
24. INTRODUCTION
(i) Rolls-Royce has had a presence in Thailand
since 1990. Rolls-Royce (Thailand) Limited was formed in 2001,
under Board of Investment approval, to formalise our presence
in the Kingdom. This enables Rolls-Royce to provide services and
trade in-country.
(ii) The focus of Rolls-Royce's operation
is to sell equipment or services into Thailand, primarily from
the UK. Average total annual revenues in Thailand are approximately
£100 million and growing. Of these Civil Aerospace is by
far the largest. New contracts last year amounted to approximately
£250 million. A majority of this is sourced from the UK via
the airframe manufacturers (Boeing, Airbus and Embraer) or our
regional engine overhaul centres in Hong Kong and Singapore.
(iii) Rolls-Royce currently has no manufacturing
or procurement activity in Thailand.
(iv) The Thai economy continues to demonstrate
strong growth and is therefore a growing market for our four business
sectors of civil aerospace, marine, energy and defence.
25. DOING BUSINESS
IN THAILAND
(i) The Thai Rak Thai (TRT) party have strong
leadership and influence of the TRT is felt to some degree in
most areas of business.
(ii) In general the economy has done well
under their guidance, with the passing on 24 June of the first
balanced budget since 1997. Despite SARS, Iraq and Bird Flu the
increase in GDP last year (6.5%) shows no signs of slowing. Focus
is moving from consumer driven to investment driven growth.
(iii) TRT is likely to will be re-elected
in January 2005 to serve a second term, providing confidence for
major sale of large capital equipment for the next five years
Although, inward investment may be affected by doubts cast over
investor protection in cases such as Thai Petrochemical Industries.
26. OPPORTUNITIES
IN THAILAND
(i) Last year 10 million tourists visited
Thailand and this number will continue to grow. This, coupled
with the new airport, gives rise to the rapid increase in the
number of airlines operating and traffic growth providing further
opportunities.
(ii) Rolls-Royce are engaged on a number
of power generation and gas pumping projects. The switch from
coal to gas, and the widening of the gas distribution network,
greatly expands the market for clean, distributed power.
Sections 27 to 30 omitted as commercially
confidential.
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