THE services industry is making up a bigger share of the economy and gaining importance as an engine of growth.
Multinationals - including those in manufacturing - are realigning their operations to focus on delivering services, a trend which has been called "servicisation".
In its April 2014 Macroeconomic Review released on Tuesday, the Monetary Authority of Singapore (MAS) said that in the Singapore economy, services has grown in the past decade, with the sector accounting for more than two-thirds of total output last year.
"The shift in the Singapore economy towards services-oriented activities is also evident in trade. A decomposition of Singapore's trade data shows that over the past decade, services exports nearly quadrupled, buoyed by demand for financial services, business services and tourism," it added.
A comparison with regional competitors showed that Singapore's comparative advantage in the past decade has been in the provision of "modern services", which encompasses financial, telecoms, computer and information and other business services.
The acceleration of net investment commitments and foreign direct investment in Singapore's services sector further signals the rising importance of these activities here.
The Review said that between 2007 and last year, investment commitments in services surged 28 per cent per annum on average.
Among the regional economies, Singapore is one of the most orientated towards global demand for financial and business services. The Republic is ranked first, going by its share of global exports of financial services, and fourth for business services.
The Review said: "Singapore's competitiveness in business services stems largely from its attractiveness as a location for regional headquarters, while the financial services sector is anchored by many globally competitive clusters, including the fund management industry."
Multinational companies are realigning their business operations to focus on delivering services that complement the goods they produce.
"In fact, the shift towards a more services-based manufacturing sector is likely to accelerate in the coming years, due to the higher profit potential of such activities," said the Review.
The Global Service and Parts Management Benchmark Survey by Deloitte Research, which polled more than 120 global manufacturers across the world, found that services accounted for almost half their profits, despite accounting for only a quarter of total revenues.
The global trend of servicisation has made an impact on manufacturing companies located in Singapore, especially IT-related producers.
"A breakdown of global revenues by the largest electronics firms in Singapore reveals that the share of total revenues accounted for by services-related activities rose from 48 per cent in 2007 to 55 per cent in 2013."