(FORTUNE Magazine) – DROP BY DROP, the Vietnamese bureaucracy was bleeding Daimler-Benz of small change--and most important, thwarting a high-priority project. The German automaker had been trying for a year to get permission to build a car and light-truck plant in Ho Chi Minh City because, like thousands of other manufacturers, the maker of the Mercedes believes that much of its growth in coming years will be in the developing nations of Asia. Vietnamese officials had happily collected Daimler-Benz's application fees--always in cash, always in U.S. bills of small denomination. Still, they would not grant the company a business license.

Frustrated, Daimler-Benz turned to Singapore --not to build its factory there but for a surprising new kind of government-to-business aid. At Daimler's invitation a pair of Singapore state entities bought a 22% stake in the proposed Vietnam project. Then Lee Kuan Yew, 72, who more than anyone else created modern Singapore and remains a very influential senior minister, visited Hanoi last spring and pressed Daimler's case. Within two weeks the applications were approved, and it now looks as though the deal will go ahead. The company plans to invest about $80 million in Vietnam over the next five years and turn out 11,000 vehicles a year by 2005.

Score another victory for Singapore Inc. That, of course, is the label local government and business leaders candidly use to describe the way private corporations and public officials work together to advance the economy of this prosperous island nation. What's new is that the players who make up Singapore Inc. are parlaying their potent alliance into an unprecedented, ambitious, and potentially lucrative international enterprise.

Here's how it works. Foreigners doing business in Asia have long relied on middlemen--compradors, as they are known in the region--to cut through red tape, hook up with the right people, get deals done, and occasionally take a small piece of the action. But these have typically been well-connected individuals. Enter the Singapore Connection--a whole nation willing to act as a comprador for Western companies expanding across Asia. In the most ambitious part of its new role, Singapore is creating what are in effect mini-Singapores. These are enclaves, generally industrial parks, that this tiny country is erecting inside its big neighbors--China, India, Indonesia, and Vietnam so far. Most of these projects are clusters of factories, roads, and power plants, but in Suzhou, China, an entire Singapore-style township is taking shape as well.

Inside those enclaves, multinational corporations can operate pretty much as they do in Singapore, a country they trust more than any other in Asia. That's because it provides a business environment free from graft, with transparent and consistent regulations. Though only in the early stages, the enclaves have already attracted more than $2.5 billion worth of investments from nearly 200 leading companies, including Advanced Micro Devices of the U.S., L'Oreal of France, and British Oxygen. The U.S.-based disk-drive maker Seagate Technology has set up a $30 million plant in Wuxi, China. The German electronics giant Siemens is putting factories into every Asian frontier that Singapore opens, to make devices ranging from hearing aids to semiconductors. "We're comfortable wherever they sell the Singaporean way of doing business," says Harmut Lueck, managing director of Siemens Components in Singapore.

Note that comfortable is not the same thing as completely secure. No one can guarantee the stability of China, for example, as it adjusts to a free-market economy and the new leadership installed by Deng Xiaoping, now 91. A Singaporean who is chief executive of the Suzhou industrial park developer in China likens a company entering the People's Republic to a traveler on a jetliner that cannot avoid bumpy weather. "In the first-class section, you still will feel more comfortable," says Chan Soo Sen, 39. With Singapore, in other words, you can at least be sure of top accommodations and experienced flight attendants.

What Singapore gets out of its role as middleman is an opportunity to keep its economy expanding at a time when growth might otherwise slow. Singapore is one of the great successes of the post-World War II era, a former British colony that has transformed itself into an efficient island nation in which 3,000 multinationals make computer chips, TV sets, and aircraft parts. It is also a thriving financial and convention center. Singaporeans earn a per capita income of over $25,000 a year, making them richer on average than the people of Britain. As a result, labor is expensive, and prosperity has put such a squeeze on scarce real estate--the nation covers less territory than the five boroughs of New York City--that manufacturers have no place to spread out.

So about five years ago the government and state-backed corporations consciously concocted a strategy to take their act abroad. Some benefits are obvious. Local construction and management companies help build and operate the industrial parks. Moreover, the cash-rich government has set aside nearly $1 billion to invest directly in offshore manufacturing projects and share in their returns, as it did in buying a stake in Daimler-Benz's operation in Vietnam.

The final and less obvious benefit, though, is that by cloning itself overseas, Singapore intends to forestall any large-scale exodus among those 3,000 multinationals now there. Its hope: As their overall Asian business grows, foreign corporations will maintain and perhaps expand their regional headquarters in Singapore--and even keep open existing factories, if only to train managers and workers bound for the new plants abroad. The aim, as Prime Minister Goh Chok Tong puts it, is to "expand the economic space of Singapore."

That pitch seems to be working. Becton Dickinson, an American maker of hypodermic syringes and other health care products, uses its Singapore plant to supply managers and train workers for a new factory being set up in the Suzhou outpost. Says Eugenio Naschold, president of the company's Asia-Pacific medical division: "Having Singapore managers who speak Chinese is our best means for crossing the culture gap." Indeed, with a multiracial population of three million Chinese, Indians, and Malays, most of whom have mastered Western ways, including the English language, Singapore seems well positioned to serve as a bridge between the corporations of the West and the major frontier economies of the East. Singapore has the additional advantage of being so small that it isn't viewed by its neighbors as a military threat. "We don't pretend to have the power to push anyone around," says Lim Swee Say, managing director of the Economic Development Board, "but simply offer advice based on our own experience."

And that's just what the nations in which Singapore plants its enclaves want. They benefit because they get jobs for their work forces and learn how to prosper the Singapore way. For the most part their problems are the mirror image of Singapore's--plenty of land, cheap labor, and low credibility among foreign corporations. Five years ago that was the plight of the Indonesian isle of Batam, just 12.4 miles southeast of Singapore but a world away. The nationalistic Indonesians had attempted fruitlessly for years to lure manufacturers. Spotting an opportunity, Singapore government leaders offered to help, provided that they could remove bureaucratic barriers as well as tons of earth. They convinced Jakarta to exempt Batam from an Indonesian ban on 100% foreign ownership and relieved international investors from the usual long paper chases for countless permits, a system that reeks of corruption.

Eager to show results before the Indonesians changed their minds, government-backed Singapore Technologies then worked around the clock to build the Batam park and get at least a few factories running in a mere 11 months. Singapore Inc. also made sure that Batam had its own utilities and international phone links, services that companies often find erratic in other parts of Indonesia. Since 1990, Singapore has filled the Batamindo Industrial Estate, as the park is officially known, with 79 manufacturers--including AT&T, Seagate, Thomson of France, and Sumitomo Electric of Japan. The Batam project has worked out so well that Singapore is extending its development work to two neighboring Indonesian islands. On one of them, Bintan, Singapore companies are building resorts, including a Club Med and another sprawling hotel pictured at the end of this article.

Batam has become a model for the Singapore Inc. technique of insulating multinationals from meddlesome bureaucrats. Investors at each outpost deal with a single organization--run by Singaporeans as well as local officials--that breaks through bottlenecks. Siemens, for instance, simply wrote two letters, and the Batamindo park administration promptly took care of everything the company needed to set up a computer chip plant on Batam. Singapore officials say the trick is to plug into the power structure of host countries and keep political leaders involved in assuring that a pro-business environment exists in those special enclaves.

TO REPLICATE itself in India, Singapore relied heavily on those personal relationships that feature so prominently in the Asian way of doing business. Philip Yeo, chairman of the Economic Development Board, contacted his old friend, Ratan Tata, chairman of the Tata Group, a leading Indian conglomerate. Tata quickly agreed to join forces with Singapore Inc.--and brought along two blue-chip tenants, IBM and AT&T. It took Yeo just 48 hours to sell the idea to the Karnataka state government, a minority investor in what is now called the Bangalore Information Technology park. Built to Singapore standards, the initial phase of the $480 million complex for software companies is scheduled to open next year. A consortium of six Singapore companies backing the park has won a deal, along with Tata and Raytheon of the U.S., to build a $535 million international airport in Bangalore.

Singapore's most ambitious undertaking by far is its project in the Chinese city of Suzhou. China's Supreme Leader Deng, who once visited Singapore, paved the way by suggesting that the People's Republic could learn a lot from the island republic. As Deng put it in 1992, "Singapore enjoys good social order and is well managed. We could tap on their expertise and learn how to manage better than them." Taking those remarks as an invitation, Singapore's leaders offered to bring their know-how into China--if they could get a free hand to demonstrate it. Suzhou is the model.

The place is a 90-minute drive on the expressway from the international airport of booming Shanghai. Suzhou lies in the Yangtze Delta, much of which looks like a moonscape of chaotic construction, pocked with far more luxury homes and office buildings, often of shoddy quality, than the market can absorb. In contrast, the Singapore-Suzhou township-in-the-making, which covers 27 square miles, is an island of sanity and relative calm that has already drawn $1.8 billion of investment commitments from 56 manufacturers.

At one site Korean construction supervisors keep watchful eyes on Chinese workmen as they bolt together the steel frame of Samsung Electronics' semiconductor factory. Trying to do anything fast in China is usually an exercise in frustration, but Samsung hopes to complete this plant by July, just a year after breaking ground. Says Lee Dong Sup, Samsung's construction manager in Suzhou: "NEC of Japan took almost two years to build a semiconductor factory in Beijing. Everything is much easier here." Other workmen are assembling a prefabricated factory from Australia so that RJR Nabisco can begin making Ritz crackers this fall. Eli Lilly is putting up a $28 million plant to make for the Chinese, among other things, the antidepressant Prozac. (In China, as elsewhere, modernization has its price.)

China, humiliated by the Western powers in the 19th century and by Japan in the 20th, is understandably sensitive about any foreign presence that would recall its painful past, including the "concessions" that it was forced to make to outsiders. For nearly a century up until World War II, the colonial powers, including the U.S., ran sectors of Shanghai by their own rules and for their own pleasure and profit. Singapore Inc. deals diplomatically with that delicate issue by making it clear that China writes the rules. PRC officials, 60 of them so far, go to Singapore for a few months to work in various government departments and learn the Singapore way. The Chinese return home to reflect on the lessons and then go back to Singapore once again to draft the regulations for Suzhou.

It was Suzhou Mayor Zhang Xin Sheng, 47, an exceptionally pro-business PRC official, who persuaded Singapore to clone itself in his city. Zhang, an engineer by training, also studied business administration at Colorado State and Harvard and has run a premier tourist hotel in Nanjing. Says he, in fluent English: "What's lacking in China is a management system." Brainy but unpretentious, Zhang readily acknowledges that Suzhou is borrowing Singapore's credibility with multinationals, its capital, and its management skills "so that a latecomer can catch up." Over a long dinner refreshingly free from official ideology, Zhang comes across as a pragmatist eager to make his city of one million part of the global economy. Speaking symbolically about making Western business people feel at home in Suzhou, Zhang remarks, "It's not necessary to use chopsticks. A knife and fork are okay."

That engaging metaphor makes Suzhou sound somewhat more comfortable and familiar than it is, however. Consider the savings in labor costs that should be one of the major attractions. A factory worker in Suzhou costs about $71 a month, one-tenth of what a Singapore worker costs. Still, Clifton Hong, 35, general manager in Suzhou of Rexton Hearing Systems, a Siemens subsidiary, was appalled at first by the poor productivity of the Chinese workers, who he says "thought this was like a state corporation that would pay them no matter how many pieces were made." Rexton solved that problem by adding incentive pay, which swiftly boosted output close to levels in a similar Singapore plant.

Chinese officials can also demand money under regulations that no outsider can see posted anywhere. So the Singaporeans polled companies to discover what fees they were being charged, compiled a catalogue that listed hundreds of them, and submitted it to Suzhou authorities. After long discussions about the need for a pro-business environment, the voluminous list was pared to a mere 28. Among the charges dropped is a so-called termite fee--for protection against an infestation not found in steel buildings.

BY AND LARGE, Chinese bureaucrats involved in the Suzhou project seem willing to go to extraordinary lengths to help international investors. A U.S. high-tech manufacturer, which Singapore officials decline to identify, began having cold feet about establishing a plant in Suzhou because of a sudden change in PRC trade policy. This year Beijing is phasing out a tax break for foreign manufacturers--duty-free imports on their capital equipment. So the provincial governor traveled to the headquarters of the nervous American company and worked out a grace period that will avoid most of that new tax bite. Interpreting the rules to encourage foreign investors "shows a fundamental change in the Chinese attitude," remarks Chan, the Singaporean who is CEO of the industrial park.

While helping companies tap China's market is the big prize, the toughest challenge facing Chan and his cohorts may lie in Burma, a reclusive land that Wong Kok Siew, vice chairman of Singapore Technologies Industrial Corp., describes as "the last frontier of Southeast Asia." Still, even though Burma's brutal military regime is a pariah in the West and unpopular at home, Wong's company has already established a hotel in the capital, Rangoon, and is building a $350 million airport in the northern city of Mandalay. Now it's negotiating to put up yet another industrial park. Risky? Of course. But for the aspiring middlemen of Singapore Inc., turning uncertainty into opportunity--for themselves, their foreign clients, and their capital-starved neighbors--is increasingly all in a day's work.

REPORTER ASSOCIATE Wilton Woods