Deloitte Singapore’s Richard Loi: People, technology, and processes are connected across a digital supply network

Richard highlighted the importance of ESG targets and the need for technology adoption amidst the dynamic business landscape.

With Southeast Asia's manufacturing sector rapidly evolving with growth opportunities and increased government support, businesses have to keep pace by confronting challenges like rising costs, complex supply chains, and the need for advanced technologies and robust cybersecurity.

Offering valuable insights is Richard Loi, Audit & Assurance Partner at Deloitte Singapore, a distinguished professional with over 30 years of experience in public accounting. He has led complex global engagements and advised on IPOs, significantly contributing to the growth of businesses across diverse industries.

At Deloitte, Richard has served as the Singapore and Southeast Asia Leader for Deloitte Private, where he supported high-net-worth individuals, family businesses, private enterprises, family offices, private equity, and fast-growing companies. He also led the Consumer industry sector within Deloitte Singapore’s Audit practice, overseeing audits for major local and international manufacturers.

As a judge at the Manufacturing Asia Awards and Asian Export Awards, Richard discussed the challenges companies face, including rising costs and supply chain complexities, the need for technology adoption, and the importance of ESG targets amidst the dynamic business landscape. 

Having provided audit and advisory services for some of the largest manufacturing companies in the region over the course of your career, how would you evaluate the industries’ evolution in the past few years?

In 2022, the manufacturing sector accounted for more than 20% of ASEAN GDP. Whilst there was some contraction in the sector earlier in the year, we have seen the sector expand and rebound in several countries such as Singapore, Malaysia, and Vietnam over the last quarter. The low cost of production, tax incentives, and fiscal benefits that are available for the manufacturing sector in Southeast Asia would continue to attract businesses as they maximise the opportunities in the region. To support this growth, there has been increasing government engagement to support industrial automation and increase productivity. 

In parallel, companies are looking to overcome increasing supply chain complexities caused by inflation, geopolitical uncertainties, and major weather events by diversifying their supply chains and production to ensure more resilience and agility in their businesses. Amidst these shifts, there is potential for the Southeast Asian region to position itself as a pivotal hub for manufacturing activities by offering alternative manufacturing sites. 

As with all sectors, sustainability considerations remain paramount as stakeholders demand more transparency around ESG practices.

Can you share with us what your experience has been like advising companies on their IPOs and leading special investigation and system audits? How do you ensure these companies realise their full potential?

Given the uncertainty of the global business environment over the past few years, it is important for companies to be prepared for their IPO journey even before it even begins, as the window of opportunity to launch an IPO can open and close very quickly and they need to be prepared to seize the opportunity when it arises. 

Companies should also be prepared to function and operate as a listed company before they embark on their IPO journey. They should also start to market themselves early so that investors and the public will be familiar with their brand, which would aid in the eventual pricing and valuation of the company.

With the growing need for adoption of smart technologies in the operations of manufacturing and export companies, what do you think are some challenges that prevent them from implementing such advancements?

Firstly, rising costs and rapidly evolving regulatory requirements may lead to the deprioritisation of the adoption of new technology. This would have an impact on the efficiency, competitiveness, and viability of businesses in the long term. To illustrate, the capital expenditure on both new asset formation and modifications to existing assets has grown by only 1.3% over the past decade. Manufacturing companies often lag behind in this aspect due to their extended production cycles and the large amount of investments needed to redesign their processes.

Secondly, the adoption of new technologies often means utilising new materials. In some cases, this requires new bilateral deals for raw materials not previously used before, which would require time to establish. The adoption of such new strategies may also mean forging and navigating new supply chains, which would require a large amount of investment in resources and effort.

Finally, attracting the right technical talent and investing in talent retention is another challenge that companies are facing. Amidst an ongoing shortage of skilled labour, companies need to embed a culture of innovation to attract talent and provide the necessary learning and development opportunities to train and retain them.

How important will ESG targets become in the near future for the manufacturing and export industries amidst clamour for more sustainable operations?

The adoption of ESG will continue to be integral. Several countries in ASEAN have already committed to achieving net zero emissions and are investing in the energy transition. For example, Singapore has implemented new tax credit initiatives that support innovation in sustainability and the green transition and has established a future energy fund to drive the transition to cleaner energy sources. Vietnam has launched a framework to finance the transition to clean energy, and the Philippine central bank has relaxed its rules to encourage green lending.

In addition, the Carbon Border Adjustment Mechanism being implemented in the European Union is a significant regulatory measure that will impact manufacturers exporting to the region. It imposes a carbon price on imported goods based on their carbon emissions, and manufacturers need to be cognisant of the carbon footprint of their products and work to reduce them.

What are some trends and phenomena that you believe can shape the future of the manufacturing and export industries? How can companies prepare for these?

There has been an upswing towards going "smart." Manufacturers are weaving technologies such as data analytics and cloud computing into their processes. They are also utilising digital twins and the industrial metaverse to enhance visibility and collaboration across the supply chain. According to an Industrial Metaverse Study conducted by Deloitte and the Manufacturing Leadership Council, 92% of manufacturers surveyed were already experimenting with or have implemented at least one metaverse-related use case in their operations. With connectivity to data-rich 3D immersive environments from virtually any location, the industrial metaverse provides manufacturers with real-time insights and end-to-end visibility and bridges the communication between functions.

To embrace such technologies, businesses can re-imagine how people, technology, and processes are connected across a digital supply network. From there, they can develop transformation roadmaps, conduct assessments, and/or generate step-function improvements in manufacturing outcomes. They can then identify and prioritise key business outcomes and drive the implementation of such tech that can deliver these outcomes.

Whilst digital transformation offers a myriad of benefits, the increased digital footprint also exposes businesses to cybersecurity risks. The abundance of valuable data such as suppliers’ details, trade secrets, and confidential contracts also makes manufacturing businesses prime targets for these cyberattacks. The manufacturing sector has been identified as the most targeted for cyberattacks. A World Economic Forum article highlighted that cyberattacks on manufacturing companies now account for 25.7% of attacks, with 71% of these involving ransomware. A cyberattack on a manufacturer can have significant knock-on effects beyond the industry or sector, as it is intertwined with other sectors such as critical minerals, energy, and transportation.

Businesses therefore need to consider not just their own preparedness but also that of their suppliers against cyber threats. They should assess their current capabilities to withstand a cyberattack and understand the trustworthiness of the suppliers within their supply chain. Companies should also consider if cyber security could be outsourced or managed in an “as a service” function. Finally, they should engage in scenario planning so that they know how to respond in the event of a cyberattack.

As part of the distinguished panel of judges for the Manufacturing Asia Awards and Asian Export Awards, what specific qualities or innovations are you going to look for in the entries for this year?

I will consider how these initiatives drive improvements in customer satisfaction, product quality, output efficiency, and profit margins. ESG considerations should also be integrated into these initiatives and drive sustainability outcomes in areas related to, but not limited to, waste reduction and energy efficiency. 

Overall, the impact of these initiatives should go beyond just commercial outcomes; they should not only help to grow companies’ profit margins; they should also shape the manufacturing ecosystem and uplift capability within the business and across the industry.