The Secret Economic Revolution That Made Singapore Rich - Jochen Wirtz

Professor Jochen Wirtz serves as Vice Dean of MBA Programmes and Professor of Marketing at the National University of Singapore (NUS) Business School.

He holds several prestigious international appointments, including as an international fellow of the Service Research Center at Karlstad University in Sweden, an Academic Scholar at the Cornell Institute for Healthy Futures at Cornell University, and a Global Faculty member of the Center for Services Leadership at Arizona State University.

In our conversation today, we

TIMESTAMPS:
00:00 Trailer
00:48 Introduction to Professor Wirtz
01:20 What the Re-Industrialization Hype Misses
03:01 Growth Sectors in Services
03:40 Why is the Service Economy so Important for Wealth Creation?
04:20 Which B2C Service Sectors are Still Growing?
07:13 How B2B Services Make an Economy Efficient
08:10 Why and How Protecting Industries Hurts an Economy
09:16 What Makes an Economy an Efficient Service Hub?
10:10 What Did Singapore Get Right in Developing Its Service Sectors?
15:50 What Makes an Excellent Service Company?
17:27 Why are Shared Services so Critical for Service Excellence?
20:56 How Did Singapore Airlines (SIA) Become One of World’s Best Airlines?
28:50 SIA’s Cabin Crew “Thinks on Their Feet”!
31:50 How SIA Cuts Waste and Drives Productivity
39:00 What are the Key Technological Disruptions in Service Industries?
39:36 There Will be a Massive Changes in the Service Sectors!
47:14 Physical AI will Disrupt F2F Services
47:30 GenAI Meets Service Robots
48:02 Two Types of Service Robots
48:36 LLMs, LBMs & Agentic AI
51:57 No-Code Programming & Fleet Learning
54:22 How far are We Away from this Future?
01:02:10 Do We Need to Worry about Jobs?
01:06:47 Advice For Graduating Students

This is the 59th episode Of The Front Row Podcast

Today I'm joined by Professor Jochen Wirtz. Professor Wirtz is one of the leading experts in the world on the services industry. He's also concurrently the Vice Dean of the MBA program at the National University of Singapore and a professor of marketing. I consider him to be one of the foremost experts you have to listen to if you want to understand the service economy that powers Singapore's economic miracle.

So with that, Professor Wirtz, thank you for coming on.

Prof Wirtz 00:01:18

Keith, it's an absolute pleasure to be here with you.

Keith 00:01:23

There's a lot of talk about re-industrialization and manufacturing across the globe. But from my point of view, not enough people are paying attention to the services economy, which serves as the backbone to many advanced economies.

Prof Wirtz 00:01:36

The manufacturing sector is more and more commoditized, meaning making gadgets gives you very little GDP, jobs, and profits. If you look at manufacturing companies like Foxconn and all of the contract manufacturers, they're really in manufacturing and their margins are razor thin. It's Apple that has the margin, and they don't manufacture.

You can see this all over the world. Even the manufacturing sector, those who just stay in manufacturing, that's becoming less and less profitable. Look at the big, very high-tech companies like Rolls-Royce aircraft engines. Eighty percent of their engines are today power by the hour, which means they don't even sell or lease engines anymore. They're running them on the aircraft of their customers. They're operating them. They take the full risk and they charge by operating time.

It's an interesting business because they have to be at the cutting edge of manufacturing and R&D of the hardware. But more and more of the money is actually on the servicing part. If you run power by the hour, it means you have a lifetime revenue stream for repair, maintenance, spare parts, and so on.

You can see that in virtually all advanced economies now, the service sector is 70% and up. That's both for GDP generated as well as for jobs created, and that's growing. Actually, the really big differentiator between a developed economy and developing economy is often not even the manufacturing sector. The less developed countries have a higher agricultural sector, which is very unproductive. If you have subsistence farmers, they can barely feed themselves and their families.

So globally, what we see is more and more of the value is in service and not in manufacturing. That's where jobs, profits, and GDP are.

Keith 00:03:55

Many people talk about the role of the industrial revolution in advancing innovation and technological progress in the world we live in today. But there is very little emphasis on the role of the services revolution, that transition into services. We're not referring to just restaurant service, but services in the way we think of software as a service today.

Help me understand what's the role of services in unlocking innovation and growth in the modern economy?

Prof Wirtz 00:04:24

Excellent question. You're absolutely right. Most people get it completely wrong. They think service is going out for food, dinners, movies, holidays, and these kinds of services. We call this B2C, business to consumer.

I don't know globally, but we've done the research in the US. For the last 30 years, there was zero growth in consumer services. On B2C, there are really only three sectors globally that are still growing.

The biggest one is healthcare. Aging population. If you have money, the first thing you spend on is healthcare for your loved ones, for your parents, for your children. In a rich country, people get older and they want to be beautiful for longer. There's a never-ending need for healthcare services. So that's growing everywhere.

The second biggest growth sector is education. In a poor economy, everyone knows the only way out of poverty is if I manage somehow to get my kids an education. In rich economies, it's lifelong learning. That's what Singapore is emphasizing. So education is growing.

The third one that's growing is hospitality and leisure. We travel more, we go into experiences.

But what's very interesting is every job created in these three sectors, there are other sectors in B2C that shrink badly. All of the call centers are being automated away with AI, bots, and apps. Retailing, all the retail assistants. It's e-commerce number one. We don't go to the shop, we buy online. But even in shops, we used to have a lot more staff on the ground. Today, if you're in a shop considering buying a screen for your home office, do you ask a shop assistant or do you ask Mr. Google?

Most people get their insights online. Other jobs that are shrinking really fast are financial services, telco, and insurance. All of these are getting automated, more scalable, and that means a lot of jobs are being cut.

So why is a high service sector so good for an economy? It's not really the B2C. B2C is important. It's our quality of life. The two most important sectors for the quality of our life and well-being of our people are healthcare and education. These are critical.

But the real power of the service sector is that if you have a very advanced and specialized service sector, it makes your entire economy so much more competitive.

Look at Silicon Valley. If you have an idea and money, then all you need to own is the brand and the customer base. Everything else you can buy from a competitive market. Your service, your marketing, your call center, your fulfillment. You don't own anything.

So if you have very efficient telco, logistics, supply chain, insurance, financial sector, R&D, outsourcing of call centers, buying software as a service, if you're able to buy all of them at a competitive price, you're so much more efficient as a company and as an economy than in a market that is locked up with a lot of barriers and trade entry barriers.

If you somehow regulate or overregulate your financial sector and protect local banks from international competition, who pays? Everyone. If consumers pay, it means they have less money to go on holiday. Their standard of living suffers a bit. But if your businesses pay, that means they're at a competitive disadvantage to companies that operate in a more open economy.

Having a highly developed, specialized, open, competitive B2B services sector immediately drives the competitiveness of your economy. To me, this was always the big advantage of Silicon Valley.

Keith 00:09:13

I'm glad you raised Silicon Valley because there's a parallel I wanted to draw. The Singapore economic miracle cannot be explained without understanding our transition into services. Seventy percent of our GDP right now is basically concentrated in services.

So what are the elements or ingredients that make a successful service hub like Singapore?

Prof Wirtz 00:09:34

Services have a history of being highly regulated. You think about telco, banking, transportation, education. They're all highly regulated.

I think Singapore has been pretty open to allow competition in all of these markets. I'm in education and I still remember the days when NUS was sort of half a monopoly. Thankfully, the government opened up the whole market to competition. We have a lot of foreign schools in Singapore. If you just look at MBA programs, if you Google MBA program in Singapore, you get over 100 offers here. It's a hyper-competitive market.

What does that mean for someone like NUS? We better treat our customers, students, really well. Our alumni really well. Our staff really well. The competition is not just for students, it's also for your good staff. Overall, a more competitive market makes everyone better and sharper, and everyone benefits. This is true whether you're in a telco market or in a financial industry or any market.

Singapore as an economy has always been reasonably open, and market forces can work.

Keith 00:11:08

What else do you think people are missing in order to make that transition? If you're a less developed economy where Singapore was, you needed to make the transition upstream, up the value chain as some might put it. What are the other ingredients necessary to really build out that high-value services hub?

Prof Wirtz 00:11:28

Singapore has gotten many things right. As a foreigner in Singapore who has worked and lived in a number of countries, I'm really impressed when people say Singapore is run like Singapore Inc., like a company. It's almost like an economist's dream. There are the right incentives and the right guidance in ushering key organizations into the right direction.

In most economies, the private sector is run a lot better than the public sector. But I find in Singapore, actually the public sector is extremely well-run. It's many times at the forefront. I travel, I come from Europe, and there are queues, there are old MRI machines, there are old machines at airports. You come back to Singapore and it's wow. The airport here is a monopoly, but it is run in a way that is very stakeholder-oriented.

That's true whether you talk about ICA, CPF, immigration, any of these public sector services here. They are lean, they are designed with design thinking and a customer journey or citizen journey perspective, which I think is critical. You have an onboarding experience and then a usage experience thereafter. These things are designed to be very frictionless and what I call customer error tolerant, meaning I don't have to learn how to use these apps. Think about SingPass or any of the websites from ICA to CPF. This kind of user centricity, citizen centricity, customer centricity is key.

Singapore has always been pushing technology. I still remember when I did my PhD some decades ago, EDI and the TradeNet here in Singapore was used as a case study as being so advanced. If you look at today, the technology that's used everywhere is very impressive. In a way, the public sector is almost ahead of at least small and mid-sized companies.

The big companies like DBS and STEL, the really big ones, they were not so customer-centric 30 years ago. But today, many of them are quite world-class. DBS won best bank, best digital bank. I must say I'm very impressed. They are a legacy company with old systems that has moved into the electronic online banking world and offers today a reasonably frictionless banking experience.

The government has been leading and incentivizing. The other is a long-term approach to things. I'm in education. I'm very impressed by the amount of money the Singapore government pumps into lifelong learning. The latest focus on AI, GenAI, and technology is getting basically the workforce more digitally savvy, but also citizens. It takes two to do that. Citizens have to be able to make best use out of all of the technology that's being offered here. Overall, that is very impressive, and I think a lot of countries could learn from Singapore.

Keith 00:15:24

The constant theme we will revisit through this conversation is the fact that Singapore is a services hub and 70% of GDP is in services. If we want to understand how Singapore can survive disruptions, understanding that core element of what makes our economy vibrant and how we adapt is very crucial.

You spoke about a few elements in which the government was crucial in understanding or adopting some of the best practices. You've been studying businesses, and in particular service businesses that have become exceptional. I wanted to get your insights on what makes a good service company. What are the core ingredients if one was to essentialize and distill the characteristics?

Prof Wirtz 00:16:08

Intense customer centricity. That's critical, and that's a big difference between manufacturing firms. I always keep joking, we have Oktoberfest in Munich. If the BMW workers go to Oktoberfest, they may have a hangover the next day. As long as they fix your tires properly, you couldn't care less. You don't interact with factory workers in Bavaria. If their IT and their HR is not very customer-centric, it doesn't affect you either because it's only geared towards turning out cars. There's no customer touch.

Whereas in a service business, it's so different. If your doctor or somebody who serves you is not feeling well, is unhappy, is demotivated, you as a customer will feel it.

Customer centricity is critical. You need to pay attention to customer journey, frontline staff. They need to be the right staff, they need to be motivated, incentivized, and they need to care.

What many businesses forget, and I would argue actually a lot of service organizations in Singapore are not fantastic here, is if you want to have an outstanding moment of truth, the customer touchpoints, you have to have back office shared service operations that are customer-centric.

I worked a lot with very large service organizations, including in Singapore. What I saw is the complaints that come in for customer service, virtually none of the causes are in the service staff. What are the causes? A mucked-up marketing campaign with small print that annoys customers. Finance that put in compliance and requirements that make life for frontline and customer difficult. Product design that has features, functions, and journeys of products that just don't work. It is inflexible.

If your legal, if your risk management, if your finance, if your IT, if your HR are not customer-centric, you put your frontline in a very difficult spot, not being able to satisfy and deliver excellence to their customers.

Excellent companies need to have a culture that is customer-centric where the whole organization is focused on what happens at the frontline. The only way to get that is if you have a top management that is customer-centric. A CEO that really says, "This is the customer interface. This is the lifeline of our business, and it is everyone's job in the organization to make sure that our frontline is successful."

Keith 00:19:33

I think most people when they think about being customer-centric, they often think about it in silos. It's only the people who are dealing with the customers that matter, not necessarily me in the back office.

Prof Wirtz 00:19:38

I have a little joke here. I get approached by so many companies. "Can you help us to improve service?" You can guess who approaches me in the companies. It's always HR. It's their talent and learning or their training, the people in charge of training. Then who do they want me to train? Their call center staff and their branch staff.

Then I do a bit of an audit. I do mystery shopping. I look at the problems that are there. Invariably, it is products, processes, pricing schedules that are the problem. They have nothing to do with the frontline.

So I tell them, if you are serious about improving your customer service, don't start with the frontline. You have to talk to your IT, HR, finance, risk management. They have to learn how they have to change so that they can support frontline and customers.

You're absolutely right. You think about customer service, "Oh, let me train my call center, my frontline staff," which is a useless approach actually most of the time if the back office and infrastructure doesn't support that.

Keith 00:20:54

An example that might be useful to illuminate the point. I know you've done extensive research on SIA, one of Singapore's leading star companies. The airline industry is fascinating as well because you're in a very competitive market. The margins are low. The product is almost at the point of commoditization to a certain extent. In order to be good or to make good money, you really have to be exceptional.

Help me understand a bit about what goes on behind the doors in SIA that allows it to be exceptional in the industry.

Prof Wirtz 00:21:24

Singapore Airlines is a beautiful case study. I've written two books, one Harvard Business Review article on Singapore Airlines. I last year interviewed the CEO. I've been working with Singapore Airlines for a long time, and I'm so impressed by them.

To me, there's one thing that stands out: the discipline. Discipline in what? It's two things. I think of Singapore Airlines as having a dual culture.

Dual culture means anything that touches the customer has to ooze SIA quality. If it doesn't feel right, if it doesn't look right, if they can't deliver it as they need to, they don't do it. The touch and the feel has to be SIA quality. That's the external customer focus.

But the dual culture, the internal focus, is really anything that doesn't touch the customer: cut cost, cut cost, cut cost. That's why I say so much discipline on it.

As you correctly said, the aviation industry is the only industry I personally know that hasn't earned a return on its capital since its inception. The airline industry globally has not earned enough money to pay for its capital. It's actually been losing money. Very few airlines have actually been consistently making money. There are a few low-cost carriers like Southwest Airlines, and Singapore Airlines is one of the very, very few companies that has been earning a return. It's precisely this dual focus that allowed them to do this.

I keep joking here. Who are Singapore Airlines' customers? It's people who do not pay for their own ticket. It's either people who fly on business, and with this I mean not just business class. If you fly economy class on business and you book late, you need flexibility. You pay a lot more than if you book way in advance, a leisure ticket. So it's business travel. The other is people who just don't care about money so much. If you're very rich and you fly first class or Suites class and you fly business class on your personal pocket.

The name of the game in any fixed capacity business is not just capacity utilization, it is the mix of business you have. You can fill the whole aircraft with German backpackers. They don't pay you a lot, so you're full but you don't make money. It's the mix of the business.

The name of the game is to get people who fly on business to fly Singapore Airlines. Then your average yield, we call this revenue per available seat mile or seat kilometer, how much money do you make per seat per kilometer you're flying? That is really a combination of occupancy or load factor times average revenue per mile.

You can easily see if 90% of my passengers are German budget backpack tourists versus if I have let's say only 30% who are very price-sensitive tourists and I can fill 40, 50% of my aircraft, especially in economy class, with people on business, it's the mix.

Those people have a choice. If I'm on business, I can choose, do I fly this or that airline? For me personally, I keep joking, I always fly Singapore Airlines if someone else pays. That's why service excellence is so important to Singapore Airlines. Are you the preferred airline for the discerning business travelers?

Cost effectiveness is equally important because even if you have high revenues, if you're not disciplined on the costing side, you're not going to make any money.

My heart goes out to Malaysian Airlines. When I moved to Asia 30 years ago, when I came, Malaysian Airlines in terms of quality, the inflight quality was very similar to Singapore Airlines, but they never made money. Because they didn't have the discipline on the expense side.

This dual culture, on one hand excellence, on the other hand to be really disciplined. What is it we don't do? What is it we don't spend money on? How do we keep lean? How can we cut non-value-adding activity? How can I keep overhead low? This is a discipline Singapore Airlines put to a very high level.

There are other companies that are similar, like Amazon. Jeff Bezos was famous for if there was a complaint, he would hunt down on what caused the complaint, how to fix that problem. So on one hand, intense customer centricity. On the other hand, people say Amazon is the stingiest company in Silicon Valley. Even senior people only fly economy class.

The message here is every cent, every dollar we save, we can give better value to our customers. So they squeeze out as much as they can from supply chain and operations to be the cost leader in their markets. There are many other companies that run similar strategies.

Singapore Airlines perfected something which I think the whole civil service sector has. You're always hunting for, yes, we have to deliver great service to our citizens, but at the same time, we are a small country, we don't have the budgets. So actually the Singapore public sector service is very lean.

Keith 00:28:03

Thanks for sharing that. When you went into that example, it really showcased the DNA of what makes a great service company. When you talk about oozing SIA quality, when someone thinks about SIA, immediately they think about the quality of service. I don't mean just the food you get or maybe the quality of the inflight service, but even your safety videos, for example. That's a service they provide, and every time you take a SIA flight, most people will watch the inflight video.

I wanted to ask you, can you give me more examples of the idea of what does it mean to actually ooze that kind of SIA quality, the customer obsession that you've pointed out? What are some of these examples that you think more people should know about?

Prof Wirtz 00:28:56

SIA cabin crew really steps up when things go wrong. For many airlines, things just break down. I don't want to mention any other airlines here, but I got stranded with a European carrier in Miami. An A380, the plumbing of the toilets was broken.

I think the departure was at 4:00 p.m. I was early in the queue in business class. I only got my hotel voucher at 10 p.m. It took them six hours to get me a hotel and a bus. Then they gave me a 1-800 number to rebook my flight.

I go to the hotel and I tried to rebook. First I hit a call center in India. They had no idea what happened in Miami, couldn't help. Then I hit a call center in the Philippines, same story. I couldn't fix it. At 1:00 a.m. in the morning, I still didn't have a flight for the next day. There's no choice. I have to go to the airport tomorrow morning. Eight o'clock is the departure in the morning.

I went there. I met the station manager. She was a lady who actually helped me. She says, "Don't worry, yesterday's A380 is fixed and today's A380 is here. So we have enough seats for everyone."

What she didn't do was, I had an interconnect flight from Europe to Singapore, and they put me onto the second A380, meaning I missed my interconnect to Singapore, which means I spent another night in a European capital city. This, and I was business class and I'm a gold card customer on that airline too.

This would never happen at Singapore Airlines. If you are a Solitaire or PPS or gold card customer here, they really take care of the loyal customers. They would have rebooked you. They would have rebooked you in a way that you don't miss your interconnect.

You see these stories where somebody loses their favorite pen or glasses or something goes wrong or you travel with small kids. You will see that cabin crew is proactive, with a smile, and offers help and will help you if you like.

This whole idea of think on your feet, reading passengers, how to make their flight more comfortable and help and to step up when there's something that allows them to step up is just beautiful. That leaves an impression that, "Oh, I feel safe and comfortable once I'm on board of an SIA aircraft." You find many people living in Singapore say, "Oh, once I sit on an SIA aircraft, I can relax."

Keith 00:31:53

There's this other part you talk about, the dual culture. We talk about cutting costs and being disciplined. When most people think about airlines, people think of it as a symbol of national pride. They think about it as, if your country has one, it's a symbol of luxury or excellence, but they don't really associate with it as a symbol of discipline.

I wanted you to maybe help me understand a bit more about what it actually means for an organization like SIA to be disciplined in making sure they cut costs. Not to be stingy, to be clear, but to be very realistic in the way they manage their costs.

Prof Wirtz 00:32:32

For example, food. There's a lot of wastage. What you can do or what SIA did, they look at the trays at what was eaten and what wasn't eaten. So they know what to cut.

In business class, some people eat butter, some people eat margarine, some people eat nothing. Some people eat honey, some eat marmalade, some eat jam. Do you put this on everyone's tray? It means you waste two out of three things. Same with the rolls. Is it full corn or is it white or is it, I don't know, there are tons of options.

What they've done, very smart, they give you a tray. They work with a tray and you pick what you want. It's number one, great service because you get exactly what you want. You get oil or you get butter, you can pick what you like. Number two, you cut wastage.

Book the Chef allows you to online book the food you like at a much bigger selection than what's in the menu on board. You can order your steak, you can order your lobster. That is great service on one hand. On the other hand, it actually cuts costs. Although you get lobster, it's cheaper. Why? Because I reduce my prediction error, my degrees of freedom for what I have to upload.

If I have the whole business class and I've got, let's say, three main courses, I don't want to run out of your favorite dish. That means I have to overstock and then I throw a lot away. But if half the people in the cabin already ordered the food they want, I only have to predict for the other half, and the wastage is much, much less. These are very smart ways of thinking about how to cut costs.

Let me give another example without giving too much detail. I observed Singapore Airlines when the A380 was launched, and then Emirates launched the A380, I think it was two or three years later. Emirates put a shower into their Suites class. Look, if you want to be the world's best airline and your competitor has a shower, why don't you have a shower? Isn't that a tangible disadvantage you have?

This is the discipline that goes through here. The logic is something like this. What does it cost to put a shower on board? Have a guess, is it cheap or expensive?

Keith 00:35:04

Expensive.

Prof Wirtz 00:35:05

It is incredibly expensive. Why? I have to rip out two or three business class seats, which means Singapore to London, I can sell that for $4,000 a pop. So it's $12,000 opportunity cost in revenue.

Water. Every shower is 100 liters. So that is per shower 100 kilos. Do you know what one kilo air freight is? It's $10, $15, $18 per kilo. With the water, I have to fly up and down. So it's incredibly expensive.

Then what about the wow? The people who fly in Suites, what hotels do they stay in? All Suites, reference hotels where the bathroom is bigger than other people's flats. It's all beautiful marble and brass and glass. So what do you think a shower on an aircraft will be like? Space is expensive. Marble and glass is heavy. So it's going to be a lot of plastics. The touch and feel and the space, then the water, how long can you shower? I can give you 100 liters, but you can't shower if you're used to a half-hour hot shower. It's not going to work.

Then the worst comes. You fly Singapore to London, you leave at night here. When do you want your shower? In the morning. Who wants the shower? In the morning, everyone. And you have one shower. So you have the CEO and the president and the sultan and the high net worth individual fighting for the shower, and the German already hung his towel on it to reserve.

Someone with great discipline, Singapore Airlines analyzed it and said the cost-benefit, yes bragging rights fine, but the cost-benefit is not really there. They took that money to pump it into an all-Suites lounge at Changi Airport. If you are in the first-class lounge, there's another door that goes to the Suites lounge where there's vintage champagne, butler service, there's food quality, beverage quality that is just unbelievable.

You can see this is what I mean by discipline. You don't just do things because other people do it. You really think about the cost-benefit analysis.

Innovation at Singapore Airlines always means the next inflight product needs to be much better than what we have today, and it needs to be lighter. Airlines hate weight. Engineering costs need to be lower. It needs to last longer without breaking down. And it needs to be cheaper.

Keith 00:38:11

What I found to be the most interesting was that these two cultures actually synergize with each other. The more cost-effective you are, the better you can focus on customer satisfaction.

There's a tangent I wanted to explore. When you look at such industries, they are also primed to be disrupted in a sense of technological disruption. I wanted to ask you, when you look at services industries, what are some of the technological disruptions that you've seen that have upended industries? I know there are two, the rise of automation and artificial intelligence, but maybe point to me concretely, how has this services industry been disrupted in those ways?

Prof Wirtz 00:39:00

That is happening right now. I differentiate between intangible virtual services, anything that can be delivered via the phone, by talking to someone on an app, on a website. Services where I don't have to touch anything. That is in full swing.

The other is what I call physical AI, meaning where I have to make you a cup of coffee or I have to bring you room service. That's physical AI that is coming now in very fast speed.

Let me go to the first one. What I predict is a massive consolidation of the service sector globally. Let me ask you, we have over 25,000 banks in the world. That's a lot. Now think about it, how many Google Maps do we need in this world?

Keith 00:40:02

If you think about just the way the world is headed towards, you have one, maybe in China the main ones like the Baidu Maps, Google in the West, and then maybe one or two others.

Prof Wirtz 00:40:15

Absolutely. Maybe there are some others that run on top of existing maps to offer value-added services. You need a handful, that is it, not thousands.

You look at financial services and telco also. I'm a big fan of Wise and Revolut simply because I have royalties and speaker fees and consulting fees from all over the world. I used to do this with an online bank in Germany. They charged me €19.95 for every non-euro transaction, and then they give you a poor exchange rate on top.

Now, Wise is a Singapore licensed bank too. With your SingPass, you can open a Wise account or a Revolut account. Within 45 seconds, you have an account. What that account gives me is a local US dollar account, a local Aussie dollar account, a local UK account, British pound, a euro account. That means if you're in Australia and you want to send me money or I want to send you money, we can do this through my Australian dollar account. You don't pay anything. I don't pay anything.

Only if I take my Aussie dollars and convert them back into, let's say, Singapore dollars or euros, then there is a small exchange fee. But that is between, I think, 0.2% to 0.5% and a wholesale exchange rate. So no more margin on top. It's a very fair and great deal.

I have complicated needs. I have to pay money, I have a web developer in India, I don't know what, conference fees in Europe. I've been using Wise now for three or four years. Guess how many times I spoke, emailed, or chatted with a Wise employee? Zero.

How many times do we all use Gmail, Google search, Google Scholar, Google Maps? Wise, these are companies that are end-to-end automated, fully scalable, and there's no more labor involved. The whole thing is designed to be frictionless in terms of onboarding and usage.

You think about this, the cost of providing these services is going down, down, down. The incremental cost of another transaction or serving another customer is close to zero. If you live in reasonably competitive market economies, prices will approach cost. That means these services will be either very cheap or will be free and advertising funded.

That means a lot of these services, including healthcare by the way, and I believe education is really ripe for massive disruption. There will be many, many services that will face the music here, including telco.

My telco provider is an app now. I've got two apps, one for Singapore and one for global. I have two SIM cards. They're on my phone. I switch when I travel. I don't call any telco company anymore. Everything is on this app.

This service is very much like any app you download on Google Apps or Apple Apps. You download it, you specify. Let's say travel insurance. There could be a very simple travel insurance app, global provider, where you just go in there and you click single trip to a country, annual for the world excluding America or including America. What are the typical drop-down menus or options you have? This is very simple, very cheap, no humans involved, if you will.

I compare this a little bit to the Industrial Revolution. For standard of living to increase, you have to offer what people consume at a lower price, which means you have to take labor out. Otherwise, it doesn't work. We had the agricultural revolution, we had the Industrial Revolution, and we could not support these 8.5 billion people we have in this world if we hadn't had these two revolutions.

The price of all of these things has come down, down, down, down. Not with inflation, but economists look at this. How many minutes or hours or days do I have to work to buy something? What does a kilo of butter cost me 200 years ago, 100 years ago, 30 years ago, and today? Buy a shirt, buy a pair of shoes, buy a chair, buy a TV. You can see the affordability in terms of how much you have to work to buy this has come down, down. This is how our standard of living increases.

I keep joking, when I moved to London to study, a one-minute call to my parents was £2.30. So a 10-minute call is £23. Can you imagine how many pints that was at that time? I didn't call home a lot.

Today, we have three children. We all travel a lot. We have a one-hour video call on WhatsApp a week. What does it cost me? Nothing. You look at many of the services we use, whether it's video calling, calling, search, Google Maps. I mean, Google Maps, how I came to the studio here is Google Maps. I didn't pay anything for it.

We will get the same in the service sector now as we have had in manufacturing. The agricultural revolution killed millions and millions of smaller and bigger businesses. All the craftsmen, the shoemakers, the dressmakers, the furniture makers, they're all gone. Now we have Foxconn, you've got IKEA.

The same is going to happen in the service sector. We will get a massive consolidation on a global level. Of course, individual countries can throw in protectionist barriers, but as we discussed earlier, all it does is prevent your businesses from buying the more competitive, better quality, lower cost, globally available telco, banking, insurance services.

That's the information processing type services or the intangible services. That is going to happen, and this will accelerate. Call centers and all of these things will become very minor, focused on very high-value and very complex activities only. The standard stuff will go.

Now physical AI is very interesting because that has been disappointing so far. I predicted 10 years ago that you would have autonomous cars by now. Didn't happen. But I think there is a step function now in technology development because what happens now is Gen AI allows us to do things including reading emotions, responding with emotions. That Gen AI is now being integrated into physical AI.

Let me explain. There are two types of robots. There's the general purpose robot: your Optimus, your Atlas 2. The other is the specific purpose robotics that does very focused tasks.

But what happens is now these robots get integrated with large language models, which means they can understand you and respond to you. They get powered now by something called large behavioral models, similar to large language models. What is the next token?

I can teach a robot to pick up a glass of wine, let's say, and serve it in a restaurant. So I train the robot to do this. I show a few times. But then for a robot, if they train this physically or in the metaverse, there's no difference. All bits and bytes. I can feed a robot a million different ways of carrying a glass of wine or water, any type of beverage. They will learn from each time they spill or break the glass or drop the glass.

That means in the real world, it's a bit like large language models. They see a glass and they have their model, the million examples they have to know how to do this. You've got large behavioral models.

The other thing is more agentic AI. Agentic AI means you can be goal-directed independently as a technology. The simplest for people to understand is probably autonomous vehicles. They are already driving in various cities in the US. We are piloting soon here in Singapore.

What it does is you call the car on your app like an Uber. The car goes and finds you, identifies you, opens the door, interacts with you on temperature, music, preferred whatever, fast or scenic. There's this whole conversation between you and the robot. Then the robot, based on all the road conditions and objectives, will drive you where you want to go. If there's a jam, if there's an accident, if there's flooding, god knows what, they will work around it. This is agentic AI. It gets you to the goal and knows what to do next.

Agentic AI can use different systems. If let's say your Genie or Alexa on your phone is agentic, it has access to your credit card, to your calendar, to your email, to your Uber app or to your Grab app. If you say, "Hey Alexa, I need a car in 10 minutes from this studio to NUS, please book that for me," then agentic AI means it goes into all of the apps from ComfortDelGro to Grab to whatever is available, checks what's available, what is the cheapest, books it for me on my behalf, messages me that the car is here. It makes the payment, it makes the interaction. If there's something, let's say the driver cancels, it then goes back in. This is the kind of future.

The physical technology will have the same thing as the virtual technology right now. Then the multimodal input, meaning language, video, all of this is there.

Another very interesting feature is what we call no-code programming. That means if you're in a McDonald's or in a sushi restaurant in the kitchen and you're working with a robot and the robot does something you don't like, then you ask the robot, "Hey, let's say Sam, hey Sam, why did you do it this way?" Then Sam explains it to you. You say, "Sam, this is not the best way. How we would like to do this, look, this is another way of doing it. So if this and this and this condition is like that, then please do it this way." That means you retrained the robot.

We call this, your frontline staff becomes a citizen developer. By talking and asking and giving feedback to the robot, it trains the robot.

The interesting thing is this technology has something we call fleet learning. Of course, you have to put guardrails in there. Not every frontline teacher should go system-wide immediately. If it's a small thing, maybe you allow that automatically gets scaled in that restaurant. But then let's say if you're McDonald's, you have, I don't know, 45,000 restaurants around the world. Then maybe there's a human in the loop who says, "Oh, that's an interesting idea. That's okay. Let us scale this in the country, then in the region, and then globally."

There are different levels of how to do this. But you can see that then this technology makes even big service organizations a lot more agile. That means theoretically, in a few days, I can change how we do something in the kitchen globally. It's a very exciting future.

Keith 00:53:31

You've pointed out the different ways that automation and artificial intelligence can create disruption. But the biggest one is that the labor share of the economic value generated is going to increasingly go down. So obviously that creates a problem. How do we stay world-class? How do we stay competitive as an economy?

It's a double-barrel question, but bear with me. One is, how far are we away from that future? And second, in that future, how does a country like Singapore stay competitive?

Prof Wirtz 00:54:34

Very good questions. How far away from the future? None of the examples I mentioned are not yet already operating in university research centers and corporate labs. The use cases all are already there and are working, including autonomous cars.

How far are we away? Actually, what you will see is if you look at the value proposition of OpenAI, ChatGPT, you tell me any good advertising agency today that does not operate with large language models and Gen AI. They all do.

What you will find is there's no corner in this world economy where there's not somebody thinking, "How can I use AI to improve quality, to cut costs?" There are so many entrepreneurs, there's so much technology. Whether you look at things like kitchen, sushi, pizza, fast food, McDonald's, restaurants, you look at anything to do with telco, with insurance, there's really no part of the economy where people are not thinking, "What can I do?"

To me, the information processing type services, there's a bit of regulation that slows it down in sectors such as healthcare, education, banking, telco. But where there's no regulation, look, if there is a new hot app, the whole world downloads that within weeks.

Even healthcare, COVID was a catalyst. Telehealth and health apps, there's so much going on in healthcare now. I don't know about you, but in my family, if somebody is ill, we look at Mayo Clinic website, UK government healthcare website. The scary thing is you find five different diseases you have. They're all terrible.

There are apps now on your smartphone. With a camera, you can look at your skin, at your eyes, at your nose, at your tongue. You can measure oxygen level. You can measure pulse. There's a microphone on it. There's an app you can cough in, and that tells you you have COVID or you have TB.

Because it's Gen AI powered, it can guide you with questions. Let's say the AI says within a 99% probability it's one of these five different things. Then it asks you to rule out. It can even tell you, "Please poke yourself in your belly here. What do you feel? Is it a sharp pain? Is it a dull pain?"

These things are all already there and are worked on in all the labs, and they will come faster than we think. I'd be very surprised if in 10 years the majority of trucks, buses, and public transport cars is not done by autonomous vehicles.

It may not be the way we think today. Maybe there's a camera inside the car and you have humans in the loop. Meaning if a car or passenger sends an alert signal, someone from a control center can come in and can take over the control of the car. So it doesn't mean there's no human there, but one human, maybe if the technology is mature enough, maybe one human can look at 100 cars or oversee 100 cars or 1,000 cars or 5,000 cars. But it's not 5,000 drivers anymore.

The intangible thing, my prediction is that call centers, the general high-volume, low-value, low-quality call centers all of us loathe so much, will be gone simply because we're going to have Gen AI powered genies, chatbots, avatars, you name it, that will be in every single app on every single website.

We even talk about something called AI concierge, meaning it's your concierge that knows you, has access to your account, and guides you through processes. So if you get stuck somewhere, it can tell you, "Oh, you have to show your passport."

You're right in a sense that the physical AI is slower, but I promise you, I was sitting on a panel with one of the senior people of McDonald's, and their biggest problem is talent, hiring people. It's so hard in Singapore to recruit staff for McDonald's restaurants.

Already today, when you go to a restaurant in most countries in this world for McDonald's, you order on a screen, you pay, you get a QR code or you get a ticket. You wait, a number shows, and the only touchpoint with a human is where you pick up the food. But that could be a safe deposit box where you scan your QR code and then it opens and you take out the food inside the restaurant.

Do you think you could build a robot that knows how to fry fries or do a burger? You now can have a special purpose robot that only does fries, only does the burger, only pulls the ice cream. Then you throw in an Optimus or an Atlas 2, a general purpose robot that roams around the kitchen and can do things such as top up fries for the frying machine or top up water or go what. Maybe you have another of these general purpose robots outside the restaurant in McDonald's uniform, interacting with guests.

Again, same thing. There may be no human anymore operating in this, but you're going to have a control center, maybe three people staffed there. They simultaneously supervise, I don't know what, three, five, 10 restaurants. If something goes wrong, you go into one of these general purpose robots like an avatar and control it. Or if there's really something which needs a real human to come, you dispatch the human staff.

That's the future. My thing is, we always overestimate what we can do in 12 months and we completely underestimate how much things will change over 10 years.

Keith 01:01:10

It's crazy because if you think about ChatGPT, 10 years ago, no one would imagine that could happen. That wasn't even in anyone's lexicon, large language models for the most part.

How do we then stay competitive in that new economy? How does Singapore remain world-class or at the cutting edge?

Prof Wirtz 01:01:27

I'm tongue-in-cheek here. Singapore has no problem because Singapore can just export unemployment, meaning you give less work permits, less employment passes. In Singapore, in every crisis you've had, the local population here didn't suffer too much in terms of unemployment.

In Singapore, I don't worry so much simply because Singapore is a hub. There's an unlimited amount of jobs for people who can work, and there's a very high proportion of foreign labor, which, as maybe heartless as it may sound, you could simply stop giving passes.

The other thing is I'm in two different streams of research here, and both are so worried about the future. One stream is my AI and robotics colleagues. "Oh my gosh, technology is going to do all of the work. What will we do? What jobs will we have? How do we earn a living?"

The other stream I'm working on is I work on healthy aging. They say, "Oh my gosh, we're all aging. Nobody's going to work anymore. Who's going to do all of the work?"

To me, look at these two streams. There's actually a very nice match here that one stream almost addresses the problem of the other stream. Singapore is aging rapidly. That means fewer people working, more people needing healthcare. I don't worry too much about jobs, number one.

Number two, in our book we have two chapters, optimistic and pessimistic. The optimistic, which most economists believe, is that every revolution so far created more jobs than it killed.

For example, I spend €2,000 to €3,000 less a year now on financial services in Germany because I use Wise. So I don't save these €2,000 to €3,000. What I do with them? I go on a Banyan Tree holiday. All it does is shift the money. My standard of living increased now because actually I'm getting the same value now for my financial services than before, but I don't spend the money on it anymore. I now spend the money on something I like more.

The optimistic view is you save money, and what do you do with this money? You spend it on other things. We are becoming more and more of an experience economy. If I look at my kids, they don't have a lot of things anymore. Everything that's important is on the phone and the laptop. No books, no records, no movies. Everything is virtual on the phone almost. Even cars. They use ride sharing and car rental rather than owning cars. So it's a lot more sharing economy, and the physical parts become less and we go for more experience.

I'm not too worried about it. The pessimistic view is this time is different, and there are a few high-level experts who think that we will run out of work. So there will be less work.

Then of course, my co-author Pascal Bouneff, he is French. He says, "Don't worry. Look, during the pre-Industrial Revolution, people did not identify themselves over their jobs. It was much more important on what happens in the opera tomorrow, what was with the polo game yesterday." The personal relationships. People spend a lot more time with family, children, parents, friends. With human contact that really matters.

Today we have a lot of human touch we don't need. You don't need a human touch from a bank teller or in a fast food restaurant. These are meaningless interactions. Whereas the interactions that really matter to us are our loved ones, our friends, and people we learn from and admire in other ways. Where human connection really matters.

Of course, the question then is if there are many people who don't work, how do they live? This is when, if you really look far into the future, maybe universal basic income will be one option to make sure, because by right, a lot of services get cheaper. Remember the base stuff like food, clothing, a lot of the entertainment and online and communications, all this, virtually free. The only things that in the past didn't come down so much are healthcare and education. That will be revolutionized too. I'm quite certain about this.

Then the biggest point is rental for housing. Singapore managed that beautifully with HDB, that every citizen has a house virtually. For other countries, it might mean, look, you can't, if you don't have the income, you can't stay in the capital city of the country. You have to move to the countryside. Given we have aging population and populations are shrinking in most, at least developed economies, that means housing should not be so, I'm optimistic at heart.

Keith 01:06:41

It makes sense to be optimistic, and at the same time, at least in Singapore, there's no real, we don't need to be existentially worried.

My final question for you would then be, if you were to give a piece of advice to a graduating student, which I'm sure you already do, what would that one piece of advice be?

Prof Wirtz 01:06:59

Don't take a job simply because it pays you well. Look at, does this job give you development, opportunity, learning, mentoring, exposure?

The other is, I think no one can afford to really stop learning. You have to constantly upskill and learn. You have to be curious. Do you subscribe to the latest ChatGPT, for example? Do you use other tools? I don't say everyone has to become a programmer. I myself, I'm not very good with technology. I don't know how to program, but I'm curious enough to try out the latest things that are already industrialized, if you will, and enjoy them and play with them.

The other thing is, it's people who are excellent in something who will always be needed. So if you are average or low-level, technology will be able to do this. Look at things where really it matters to be human and where your heart is in what you do. Then you combine this with a learning and growth outlook and approach. I think you will be fine.

For young people, don't forget society is aging. Most businesses can't hire the people they want to hire. I wouldn't be so pessimistic. Yes, there are ups and downs in the labor market, but the long-term trajectory for anyone who is curious and smart and proactive, there's always a role.

Keith 01:08:27

With that, Professor Wirtz, thank you.