A way forward for Maltese businesses
The Malta Business Bureau (MBB) carried out a research study among various members of the local business community to gain deeper insight into the experience of Maltese SMEs and micro-enterprises operating in the European single market. Mark Seychell examines the general business attitude towards the adaptations, challenges and opportunities experienced when operating within the EU’s internal market.
A study commissioned by the MBB aimed at finding out more about the experience of Maltese SMEs and micro-enterprises within the European single market has revealed that forming part of this massive market presented increased opportunities for them to diversify their business and to tap into new niche markets.
The possibility of outsourcing activities to businesses in foreign countries was quoted as another advantage of Malta’s full access to the single market. Nonetheless, as the study reveals, Malta’s natural peripheral geographical location, the country’s limited capacity and resources, and high transportation costs still remain the main concerns for local businesses.
The study focused on identifying the key issues that are central to business operations as well as general opinions of Maltese businesses on the impact of the single market on their operations. Participants gave their views on the differences in their modus operandi both pre- and post-accession to the EU and thus the single market. The study also provides an insight into the perceived obstacles to penetrating the single market and reaping its benefits, and concrete proposals were made by Maltese businesses for the facilitation of market accessibility.
The research was carried out with the support of MISCO International. A number of focus groups were conducted in August covering the four main business sectors: services, importation and distribution, manufacturing and exportation, hospitality and tourism services.
All sectors agreed that Malta’s natural peripheral geographical location, as well as its insularity, are factors that limit local business operations within the single market. While the single market has intensified foreign competition by larger companies in Malta, the same could not be said about local operators wishing to conduct cross-border business in Europe, as these find it harder to compete due to limited capacity and resources. A key issue in this respect is that Maltese businesses have to factor in the costs of importing raw materials and exporting their manufactured products, resulting in added double costs of sea and air transportation freight, thus negatively affecting business competitiveness.
However, the single market has certainly increased opportunities for product diversification within niche areas and for networking. Moreover, the ease of transferring factors of production, such as workers, capital and goods has given local companies a huge boost, although, as discussed, transportation costs remain a problem. In order to be more competitive, some companies have considered the option of outsourcing activities to other companies abroad, which proved viable, thanks to opportunities offered by the single market. The single market has also provided greater investment in Malta which catered for improvement in procurement practices and infrastructural development, as well as supporting business to upgrade their operations.
Local business strategy has altered with Malta’s accession to the EU. Due to the increase in competition, businesses now have two options, which present both challenges and opportunities: businesses can focus on price reduction, to keep up with larger foreign companies, but this would come at the expense of reducing profitability margins. Or, businesses can focus on quality, better marketing and branding, and niche market exploitation, the latter being potentially highly profitable.
All of the business sectors agreed that some form of market access was already available pre-EU accession, although it was limited by quotas. In fact, participants noted that imports and exports have not increased in quantity, but have been diversified further into other products and services. Yet, the single market enhanced the reputation of Maltese businesses within the international sphere, adding trust and credibility whilst also decidedly putting them on the map.
Though the single market provides opportunities for economies of scale, to date most of the local SMEs and micro-enterprises can only leverage enough capacity and resources to operate in the local market. This reduces the bargaining and negotiating power needed when ordering in bulk, as local businesses face a situation whereby the volumes imported are considered to be minimal in comparison to foreign trade.
Manufacturers have also listed their specific concerns. They accept that since the local market gets saturated very easily, export is a necessity. However, due to fierce competition in the single market, margins for profit have decreased proportionally. Importers and exporters showed concern that at times there is still an element of national protectionism that takes precedence over EU interests. Although there should be no barriers to trade within the single market, there are cases whereby countries impose trade barriers in an attempt to protect their own markets. In this respect, increased market surveillance for businesses could help eliminate unfair practices at both the micro and macro levels, such as insufficient labelling and production which do not tie up with European standards.
From a hospitality industry perspective, the single market has offered a boost in terms of the credibility and sustainability of Malta as a tourism destination. Despite this, EU accession has only accounted for a marginal change in operations since pre-accession days. Prior to Malta’s EU accession in 2004, tour operators were already able to bring tourists to Malta, given that the relevant local regulatory framework was already in line with EU regulations; however this has been facilitated further when the country joined the Schengen area.
With regard to European Commission initiatives which seek to raise awareness on the single market, participants generally concurred that information is generally easily available. They agreed that this is imperative if they are to compete successfully within the bloc. They also agreed that more needs to be done by national governments and constituted bodies to allow the business community to be fully aware of the changes in EU legislation and procedures as these often prove to be a stumbling block for the business community. The setting up of a national single market office could offer a solution to help businesses overcome this grey area and to avoid the overlapping of competences within Government ministries and departments. Such an office could help identify best practice market access solutions and also opportunities for product identification, grants and EU funds. The filtering of information relevant to particular business sectors could be provided through training as well as information seminars and workshops. This would also help to overcome burdensome irregularities in the bureaucracy of national administrations.
The Single Currency and the European Single Market
Among the different focus groups, the euro currency was generally considered as a positive element of the single market, described as a means to facilitate trade, particularly within the confines of the EU internal market. Some reservations however were noted that operations sometimes encountered obstacles due to the fact that the United Kingdom, a key trading partner of Maltese businesses, still retains the sterling; which is particularly problematic when there are fluctuations between the euro and the sterling. The financial crisis has also brought about fluctuations in the value of the euro, which cause significant volatility when negotiating with businesses based in third countries.
The Digital Agenda
All participants claimed to have a website, some even in multiple languages. This has increased opportunities not only within business-to-consumer relations, but also for business-to-business relations. It is interesting to note that manufacturers and distributors regarded the internet as nothing more than a networking and marketing tool. However, the services and tourism sectors believe that there remains a highly untapped potential for their sector in the digital market, due to the numerous possibilities it offers in e-commerce and networking, which could all contribute towards offsetting, at least to some extent, the natural geographical accessibility challenges faced by Maltese economic operators.
View the full edition of the latest Business Agenda here: http://www.mbb.org.mt/Articles/Article.aspx?Section=policies&ArticleId=3056&Article=BUSINESS+AGENDA+Issue+12+(October+-+December+2012)&Redir=