Activity-Based Costing in the Electronics Industry: The Singapore Experience

As part of the Singapore Government's effort to maintain and enhance market competitiveness, it has encouraged local enterprises to follow strategies of expansion, both regionally and on a wider global basis, and to be innovative in manufacturing technology. Organizational lag theory, however, suggests that technical innovations perse will not be sufficient without a concomitant improvement in the administrative systems of organizations, of which the management accounting system is a part (1). Recent new developments in management accounting practices, such as Activity-Based Costing (ABC) and strategic management accounting, as a response to the changed technology, have been widely reported in the overseas literature. ABC, in particular, is seen as providing enterprise managers with information for both strategic and operational decisions on product lines, market segments, customer relationships, and to stimulate process improvement (2) all critical f actors about which local managers and entrepreneurs need knowledge in a highly competitive and dynamic environment. There is unfortunately a paucity in the Singapore literature on ABC, although some recent articles in local journals have addressed the conceptual issues and the procedures involved. This paper reports the findings of two recent empirical studies, based on a survey methodology, on the applicability of ABC in the electronics industry in Singapore. Among the principal findings from the studies are the following: 1. Only a small portion of enterprises in the electronics industry is using the system at present.2. There is a general awareness of ABC, and more enterprises are likely to consider adoption of the concept in the near future.3. There are many enterprises which possess the characteristics generally regarded as suitable for the adoption of ABC, but they have not done so, leaving room for significant improvements in accounting systems and the strategic benefits to be derived therefrom. The results of these studies should provide an indication of the general state of development of ABC in Singapore, because the cutting edge of technological change occurs within this industry, as evidenced by overseas research (3). Further, if Singapore enterprises are to obtain competitive advantages and, given that there is an administrative system such as Activity-based Costing which has proven successful in achieving this, then there is a need to perhaps better educate managers and entrepreneurs so that adoption of the concept will become more widespread.