Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Competitiveness and restructuring are two terms widely used (and often abused) in all sorts of contexts, but in effect what do they mean and what is their impact on the operations of an enterprise? Whilst literature definitions are important to ensure a level of consistency in policy determination and analysis from a macro-economic perspective, it is often vital to go back to basics are carry out an analysis of the state of affairs at a micro level, that is, at the enterprise level.
From an enterprise perspective, in order to be profitable and ensure survival and growth, it is essential to be able to maintain its presence on the market, which effectively means that it has to be in a position to entice clients to purchase their products on a regular basis. This is in essence what competitiveness may mean at a micro level, and the presentation will aim to outline the aspects which affect this ability to access the market, some of which may be directly attributable to the actions of the individual enterprise, and others caused by the socio-economic environment in which they operate, including geographical opportunities and limitations.
On the other hand, restructuring is often seen as an drastic measure which enterprises should undertake in response to a significant shift in the macro-economic landscape, The process would in general create a significant shift in the operations and will ultimately determine whether the enterprise would survive or not. However, it is also important that enterprises recognise that restructuring should occur on regular basis to meet the regular evolution of the market and hence ensure that the enterprise may maintain their competitiveness.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Trade facilitation includes all processes, barriers and impediments which restrict trade across borders. These can take various forms ranging from tariffs to bureaucratic structures to move goods, services, labour and capital over national borders. Through GATT and WTO, tariffs have over the past fifty years been lowered, however, other forms of protectionism, sometimes very subtle in their form and shape, continue to hamper the smooth operation of international trade. It was in July 2004 that the WTO launched negotiations in the area of trade facilitation. Certain principles guide this agenda such as non-discrimination, simplification and transparency.
Efficient trade border procedures directly impact the competitiveness of a country by making its businesses strive for higher quality and standards in order to be competitive with imported goods. In this manner it instigates businesses to engage in innovative ways to participate in global trade, such actions having spillover effects in the entire national economy.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
This paper is based on the notion that competitiveness has a significant role to play in the development of small states, particularly in the current wave of globalisation. In a globalised free trade context, competitiveness is the means for firms as well as for countries to survive and thrive. This is because the alternative to competitiveness, namely protection from competition, has time and again proved to be futile, as it results in inefficiencies and poor returns. It is only through enhanced competitiveness that living standards can be maintained and upgraded overtime.
The paper is organised as follows:
Section 1 gives some information about Malta
Section 2 introduces the issue of competitiveness in small states
Section 3 argues that competitiveness is of major concern for small states, given that they are highly dependent on international trade
Section 4 presents some brief case studies on experiences of small states.
Section 5 deals with the social aspects of competitiveness
Section 6 outlines the major elements of a competitiveness strategy for small states.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
The presentation explains the methodology that the University of Malta has developed to assess the risk of being negatively affected by external shocks. Economic vulnerability is associated with inherent exposure to external economic shocks and economic resilience with the nurtured ability to withstand or bounce back from such shocks. In this approach, economically vulnerable countries (mostly small states) are considered to be permanently economically vulnerable because of their small size, but they can adopt policy measures to reduce the risk of being adversely affected by such shocks
The presentation presents the economic resilience index, relating to policy measures, which basically measures the extent of good economic governance in countries, assuming that such governance enables a country to withstand economic vulnerability. The resilience index is coupled with the Vulnerability Index, relating to inherent economic features, which was also constructed by the University of Malta. The juxtaposition of these two indices leads to the classification of countries into four categories:
1. Best case: Low vulnerability scores, high resilience scores (mostly well-governed developed countries)
2. Worst case: High vulnerability scores, low resilience scores (mostly small badly governed countries)
3. Self made case: High vulnerability scores, high resilience scores (mostly small well governed countries)
4. Prodigal son case: Low vulnerability scores, low resilience scores (mostly large badly governed developing countries)
The presentation emphasizes that (1) the fact that small states tend to be more economically vulnerable than small states has been amply proven on the various studies on this issue, including those carried out by the University of Malta and the Commonwealth Secretariat (2) that such vulnerability is inherent and permanent and (3) given this reality donor involvement in the sustainable development of small states should focus on resilience building, mostly to enable small states to adopt sound macroeconomic policies and to enhance market efficiency.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
MARK A. PIZZUTO
The Internationalisation Unit at Malta Enterprise (ME) provides local industry with a number of initiatives to Incoming and Outgoing Business delegations, as well as towards local SME participation in selected trade fair/exhibitions held overseas.
A number of support measures are provided to local SMEs in the shape of ME providing for information meetings as held for the participating companies before an overseas event, preparation of market reports and relevant contact lists when necessary, as well as possible logistical and advisory services when required.
An annual programme is prepared to assist SMEs to focus themselves towards possible events being supported by ME particularly in the areas of High value-added industry operations, as well as in Education, ICT, Financial, Tourism and Health services sector.
I am presently from coordinating a project on researching the potentiality of the franchising abroad of Maltese enterprises today. This is actually being jointly coordinated by ME and the
Malta Chamber of Commerce, Enterprise and Industry, where we are working together to further develop this opportunity and potential for local brand names to operate both locally and abroad via the franchising formula.
Furthermore, we have this year launched the Gateway to Export Programme. This is actually a programme built to encourage and assist Micro & Small Enterprises with their exporting efforts through an assessment and skills based programme, as well as assisting them in participating in the drawing up of a Preparation and Implementation Plan for Export.
It is an initiative aimed at encouraging such Enterprises to assess whether or not they are ready to venture into new markets through their exports and by giving them the required know-how and confidence to excel in the international marketplace.
The Internationalisation Unit is also responsible to coordinate the Enterprise Europe Network.
This is a large European network of over 500 organisations offering high quality services in industry, technology and innovation, mainly to the benefit of SMEs, present in the EU27,
European Economic Area [i.e. Norway, Iceland], candidate countries such as Turkey &
Switzerland, as well as other third countries such as Israel and Armenia.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Businesses operating in islands and small states tend to be exposed to a multitude of exogenous and endogenous variables that stem from an environment that is dominated by changes in political, economic, social and technological factors. Changes in the environment therefore increasingly require flexibility in the way organisations work and operate.
Indeed, my consulting experience with small and medium sized enterprises in Malta and abroad increasingly shows that competitiveness is easily eroded unless an organisation is apt to reposition to changes in the environment. Flexibility is therefore the name of the game. Within this framework a sectoral environment that is characterised by a cluster of related businesses and strong B2B relationships offers scope for organisations to out source various elements within the value chain so as to specialise on a specific segment on the value process. This in itself allows for improvement in product/service quality and cost containment.
Therefore, industrial clusters are regional or urban concentrations of firms including manufacturers, suppliers and service providers, in one or more industrial sectors. These firms are supported by an infrastructure made up of universities, research institutes, financing institutions, incubators, business services and advanced telecommunications systems. The concept of industrial clustering i
fits the notion of systems of innovation ii
since both deal with capabilities and relationships.
The idea of industrial clustering has a long history and is well anchored in the study of economic geography.
iii Benefits can accrue to an area from the activities of firms in that area. These benefits typically arise from the fact that a firm cannot capture all the economic benefits from its innovation process (i.e. bringing its products to market). There are spillovers out from the firm that can benefit the community at large if there are suitable structures and receptors in place to take advantage of them. For example, people with expertise leave firms to work for other firms or to set up their own firms. Capturing these spillovers leads to the establishment of new capabilities and more growth in the community.
With globalisation and the shift to a knowledge-based world economy, time-to-market and justin-time delivery become more critical. This encourages the clustering of capabilities in regional/local centres to support the innovation process and thus to minimise the “leakage” of external benefits outside the community. Firms are attracted to communities that can provide the key functions needed to bring their products or services to market rapidly.
Very few regions/localities around the world have industrial clusters with more than 100,000 people working in industry. After some 50 years of development, Silicon Valley, California is such a cluster concentrated in the information technology and related microelectronics area, with
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011 about 1 million people in more than 6,000 firms generating more than $US 200 billion in sales.
At that level the cluster is usually self-sufficient or complete, in that it has in place all the essential technical, business, financial, legal, etc. capabilities needed to sustain industrial activity in the cluster. The more firms and the more people working in industry in the cluster, the more it tends to be self-sufficient, i.e. fewer outside resources (i.e. imports) are needed. The “leakage” outside the cluster increases with fewer and fewer firms and employees in the cluster.
In summary then, the key characteristics of industrial clustering are:
• strong linkages among firms and the supporting technological and business infrastructure in a region stimulate the innovation process and the growth of the cluster;
• geographic proximity of firms, educational and research institutions, financial and other business institutions enhances the effectiveness of the innovation process;
• the larger the cluster (e.g. large number of firms and workers) the higher the level of self-sufficiency; i.e. less need to get key functions (e.g. supplies, financing) supplied from outside; that is there is less “leakage” outside the cluster.
Meanwhile, there is also a strong view from academics in Ireland that as an instrument of industrial policy industrial clustering is not appropriate to a small open economy such as Ireland.
However, this is contradicted by the evidence from Denmark a similarly small open economy that shares, at least superficially, many striking characteristics with Ireland; a similarly small population with a dominant neighbour (Germany); a dominant capital in economic and population terms; a strong agricultural tradition (a key ingredient of entrepreneurship). Denmark is recognised as having a number of industrial clusters particularly in traditional sectors such as agriculture, furniture and wood products etc. Indeed, Porter utilised Denmark as one of the examples of national competitive advantage to be obtained from industrial clustering.
In this respect, the workshop will examine the role of clustering in island and small states and how inter and intra sector linkages could be developed in traditional service and manufacturing industries so as to enhance the competitiveness of businesses operating in the economy.
The interactive workshop will be based on a number of traditional business models such as
PEST, 5 -force model and the resource-based view of the firm will be utilised in order to highlight the importance of clustering in island and small states. i ii
Porter M.E.; The Competitive Advantage of Nations; Free Press N.Y. 1990
Lundvall B-A (ed): National Innovation System; Towards a Theory of Innovation and Interactive Learning; Pinter
Landon (1992) iii
Marshall A: Principles of Economies; 8th Edition, MacMillan London (1964)
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Increasing the innovation capacity of the country has to be first tackled as to what the opportunities are and why they are worth pursuing. The lecture will follow this up with how companies can access such opportunities.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
The presentation will deal with the following topics:
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•
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The importance of the financial services sector in small island economies;
The structure of Malta`s financial services industry and its development;
European Union financial market integration;
The economic impact of enlargement;
Malta and the European Union;
The present competitive challenges that the Maltese financial sector is facing within an enlarged European
Union and Economic and Monetary Union;
• The Single Euro Payments Area Project
And possible competitive niche markets where the financial services sector can further develop within the European
Single Market and beyond.
With regard to the last topic, it is argued that Malta needs to compare its cost structures, strategic factors, and infrastructure and business environment with its competitors such as Ireland, Switzerland, the Channel Islands,
Cyprus and Gibraltar. Malta also needs to further invest in the level of expertise, support structures and capacity building in order to improve our competitive advantage. The paper suggests that the possible growth areas in the financial services industry in Malta are the following:
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The provision of corporate services;
Back office operations;
Trusteeship and trust management;
Fund registration;
Captive insurance services;
And arbitration services.
Marketing of financial products including pension schemes;
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Developing, expanding and modernising the export capabilities of a country is of paramount importance. Many national trade promotion organizations appreciate the need to educate their indigenous traders (both manufacturers and service providers) of the need to go beyond their national borders and explore their export potential.
Venturing into the export trade is definitely a rewarding experience however it is fraught with difficulties if the trader is not professionally prepared to familarize himself with new surroundings, language, trade practices and culture amongst other things. The export scenario requires dedication and significant preparation and research.
The export risks of trade are many and a few are being listed hereunder:
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Exchange Risks e.g. currency fluctuations
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Political/ Country risks e.g. unstable foreign governments and volatile trade policies, expropriation by foreign governments, cancellation of import/export licences
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Transit Risks e.g. marine
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Buyer Risks
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Sellers risks
There are many ways to avoid or at least mitigate such risks through the use of insurance policies, banking instruments, sound legal advice and common sense. Many times, exporters would be swept off their feet by sweet talking salesman and purchasing officers and do not stop and take the necessary precautions in order to avoid financial disaster.
This one-hour lecture will take a practical approach to these issues by enacting a ‘real life’ situation with the participation of the participants themselves together with a discussion on the trade negotiating process, eventual take up and manufacturing of an export order, delivery, payment and finance issues. A significant amount of emphasis will be made on the use of export credit insurance mechanisms as a way of mitigating such risks.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
This lecture seeks to highlight the importance of private sector development particularly in building the economic resilience of small states. It refers to small-sized enterprises stressing that such firms can enhance economic flexibility, an important element in economic resilience, defined as the ability to withstand and rebound from exogenous shocks. The private sector, compared to the public sector, is generally more exposed and therefore more responsive to market realities. As a result, a strong private sector is vital for resilience building, and this is especially so in small states, which tend to be highly exposed to external shocks. The development of the private sector is also an important cornerstone which can drive the competitiveness of the economy. The lecture contends that the development of this sector should be accompanied by appropriate policies to encourage competitiveness and efficiency.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Objectives
The objectives of the Human Resource Development Policy and Strategy for Malta document are to serve as a:
A Strategic Plan for the development of human resources in Malta for which dovetails with the National Development Plan for Malta, as well as the programming period for the European
Social Fund;
guide for Government to establish its priorities and to take the corresponding decisions and actions regarding employment and training in line with the European Employment Strategy;
common framework document to guide all organisations related to workforce development through social dialogue in their planning and delivery of services and to enable co-ordination among the organisations.
Preliminary Considerations
Employment patterns in Malta are changing as a result of international socio-economic trends, and Maltese geo-cultural realities. Elements of traditional Maltese culture such as multiculturalism, flexibility, networking among employers and employees, cultural and institutional resilience, are potential contributors towards the enhancement of human resources.
Recent developments in the Maltese official foreign, economic, environmental, employment, and educational policies facilitate the development of an effective HRD Policy and Strategy.
Employment
Employment is an important contributor to our social identity. Public and private organisations provide active and passive services to meet the demands for employment, to raise employment standards, and to reduce unemployment. The employment services in Malta can be considerably improved. Labour market policies are not adequately developed and coordinated. The existing skill levels do not meet the challenges of organisational restructuring.
Training, Development and Lifelong learning
Current information on HRD practice in Malta is insufficient. Training quality and certification is not always satisfactory. It has been noted that in Malta, the level of funding in vocational education and training is one of the lowest compared to EU candidate countries. Too few students choose technical courses after secondary education in preference to academic courses.
This creates an imbalance which is being addressed. There is scope for greater involvement of the social partners in on-going education and training.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
Vocational Guidance
A reassessment of the Vocational Guidance services is crucial and imperative. The need is felt to upgrade the vocational guidance provision and to take into consideration the new socio-economic and technological advances as well as to cater for the globalisation of the economy and Malta’s EU membership. There are increasing demands upon Vocational Guidance services to widen their outreach while increasing quality and maintaining affordability.
Women in Employment and Training
Female labour participation is still low by European standards, and women’s jobs are often tied up to specific sectors and levels of occupation. There are not enough enabling measures such as regulated, affordable childcare provision, which could considerably enhance women’s employment rate. There is also less participation of women in continuing vocational training. objectives.
Focus on Specific Groups
There is a need to review mechanisms for the inclusion of the following specific groups in the labour market:
Youths; the long-term unemployed (LTUs) and very-long term unemployed (VLTUs); the disadvantaged groups
(ex-substance abusers, ex-correctional facilities inmates, persons with social problems, and persons with disabilities); Mid-career job seekers; Job seekers possessing low literacy skills; Job seekers coming from specific disadvantaged localities. There are some localities that tend to have a high unemployment rate.
Implementation
Eight important challenges were identified through research as relevant to an effective HRD policy and strategy in
Malta.
1. Reintegrating unemployed people into the national workforce
2. Helping people become more employable and promoting gainful employment through the development of their skills
3. Underpinning competitiveness by promoting investment in the skills and knowledge of the workforce
4. Strengthening commitment to lifelong learning/CVT
5. Providing comprehensive guidance and counselling services
6. Promoting Equal Opportunities
7. Assisting SMEs to overcome the skill barriers to development
8. Developing a strong quality assurance
The challenges confronting Maltese society are best viewed as opportunities to be grasped. All sectors of society should strengthen their resolve to mobilise Malta’s key assets – our people – towards the attainment of our common
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
In today’s world wealth is created at the enterprise level. Enterprises, and in particular small ones, do not operate in a vacuum. Their activities are heavily conditioned by the environment in which they operate.
What sort of employees are available on the labour market? Is the public sector sensitive to the special needs of small enterprise? What are the support services available to such enterprises?
Does the country have macroeconomic stability? Does the country have access to international markets? These are few of the considerations that ultimately effect the competitiveness of enterprises.
Historically, over the last four decades or so, many developing countries (and including small states) have sought to help their enterprises to grow by protecting them from imports. This in the belief that such protection would enable these enterprises, many of which were still in their infancy stage, to mature and eventually be able to compete on their own.
Protectionism led to a distortion of market conditions creating a suppliers’ market and generally leading to fragmentation of production. Only in a few cases did enterprises use this advantage to create a surplus that could enable them to leave the comfort of the home market and venture overseas.
The forces of globalisation are inducing many countries to shed off protectionism and liberalise their economies. This represents a formidable challenge as these countries seek to adjust their economic and supporting structures and policies. Restructuring is about managing the change process. There is no blueprint as every country, every enterprise has its own peculiarities and conditions.
Still, the experience of others can impart important lessons as to what needs to be done.
Restructuring by nature is reactionary, trying to catch up with ever-changing market realities.
Successful enterprises need to go beyond restructuring by developing a more proactive approach to change so as to exploit it to their own advantage. This is innovation.
The experience of SMEs in Malta and in other small island economies will be explored with a view of identifying key elements for economic public policymaking.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta

Malta – Commonwealth Third Country Programme
Competitiveness Strategies for Small States
Malta 23- 31 May 2011
This session outlines the prescriptions currently advocated to promote efficiency and effectiveness in the public sector, and examines them critically in the light of the deficiencies revealed by the banking and debt crises in small states such as Iceland and Ireland. It focuses on
Malta's recent experiences, and considers what lessons may be drawn from the country's robust banking sector and steady economic performance.
Workshop Organized by the
Islands and Small States Institute of the University of Malta, in collaboration with the Commonwealth Secretariat and the Ministry of Foreign Affairs, Malta