4 - 10 October 2001

Competitiveness and prosperity

The Chamber of Commerce is organising a one-day conference tomorrow entitled “National Competitiveness – the way to prosperity”. One of the main speakers, Melfort Campbell spoke to The Malta Business Weekly on how Malta can enhance its competitiveness

How can a country improve its competitiveness?
A country can only enhance its competitiveness through the competitiveness of its indigenous businesses, and thus through the encouragement of individuals and local businesses.
What a country needs is a commercial base that is in the forefront of investing in the development of new products and services that meet new and emerging needs. To achieve this you have to accept that government can do very little directly, and has to do what I call “three deep thinking”. That is indirect actions and creation of an environment that is encouraging for this entrepreneurial activity. Thus not handing out grants and other direct actions, but looking at how the tax system encourages individuals, who are attuned to evolving market needs. Encourage them to rest in, and invest from, a stable rewarding base.
Some government priming can be done not least by attracting inward investment. Less focused on the creation of employment, but the genuine introduction of value adding activities such as R&D.
The two most important actions are, ensuring the market is aligned to relevant international regulation, so local business is not made uncompetitive through having to comply with unique, irrelevant local requirements. Second is the tax regime focused on encouraging and then rewarding people who invest in developing products, services and markets. Government procurement is one tool that can be underestimated. Quality of demand dictates the quality of supply. If government procurement is used to develop the quality of the supply base, as the US does, the benefits accrue to the whole economy.
A recommendation I would make is to study the US SBIR, or Small Business Innovation Research scheme. This has, inadvertently, helped the creation of the “clusters” in the US by funding research challenges in the market. It is an example of where smart funding, not least indirect, has had a huge impact on developing innovative investment and thus competitiveness.
Thus the “three deep thinking”. Don’t play at the edges; create an environment where entrepreneurial behaviour and investment is inherent and rewarded.

What leads a country to be considered competitive?
A country is competitive when its businesses cannot only dominate competitively at home but also win abroad. For me national competitiveness is best illustrated when foreign subsidiaries of local companies compete where they choose. It is less important what they do, let the market shape that. What is important is to be the best in any chosen area.
Being locally competitive but internationally irrelevant must be recognised as being potentially damaging particularly in areas key to the economy.

What markets should Malta tap?
The first markets that Malta should tap are the ones it knows and is familiar with. What special needs do you have to be good at meeting in Malta? Where else are they relevant?
Expanding that domestic market place beyond this is not easy and has to be done with care. Falsely introducing a good demanding market can be done but has been tried a great deal more than it has succeeded.
Thus the pragmatic way is expanding on the peripherals. If competitiveness is based on reacting to markets well, what markets does Malta have ready access to that can be taken as a stimulus?
To my mind it is back to the “three level thinking”.
California leads the way in environmental technologies. In the 1980s they set very strict emission requirements for vehicles that led the world, but did not out run it. They then made funding available to develop the technologies needed to meet these regulations, all planned well in advance. On a very basic level, about 90 per cent of the world market for the composite fuel tanks for low emission vehicles, for the containment of LPG or hydrogen, are made in California.
It is challenging to invent new areas like this but it can be done. It is easier when it is peripheral or additional to existing activities.

Can a small isolated country like Malta be competitive not least with exorbitant travel and telecom costs?
Singapore is not only competitive in south east Asia, but also sells goods and services competitively throughout the world. There are many excuses for being marginalised, particularly if geographically disadvantaged. But are they all disadvantages? Is your glass half empty? It is all a matter of attitude and determination.
On telecom and travel costs, the principal role of government is to not introduce new, and to remove existing, inhibitors to competitiveness. If protective regulation means that these industries are isolated from the world market, are they investing this additional income and developing so as to become world-beaters? If not, then not only are they highly inefficient and internationally irrelevant, they are also effectively marginalising the whole economy. This is not an argument for nationalisation, but for having internationally relevant regulation and free competition in the market.

Malta has quite a strong manufacturing base but with increasing costs, should it diversify into
services?
Again it is a matter of finding markets you are relevant to. If the threat to the manufacturing base is that your competitive advantage comes solely from the base costs, is the battle lost? You need to find markets you can invest in new products and services and go and compete. This is not done by nations or governments but by individuals, and the government’s role is to encourage and stimulate, as well as reward, those individuals. So Malta should do little on the first level, but understand in depth the causes and effects of developing in a market and encourage businesses that can expand, develop and grow. Governments and nations do not see opportunities, it is individuals that do that. How to encourage the individuals?

Malta produces a large number of graduates, but still suffers skills gaps. Should the State focus on vocational skills and training?
The easiest way to tackle this is to look at the structure of education and training and what is needed to deliver. Looking at this as a market place does not meet universal approval. However, schools, colleges and universities have customers; pupils. They themselves have customers; employers, who themselves have customers in the market place. For the education and training system to have little or no understanding of this layered concept means that their products are not fashioned to be relevant to the needs. Joined up thinking is required. This is not to say that education is solely training for employment, but it has to be a vital element. Thus, link the educationalists with those that understand the developing market to set out the needs for skills, and charge the educationalists with delivering. The focus will then be on delivering what the economy needs. Equally post training by companies should be encouraged, as it is by definition relevant to needs.

Will EU membership help or hinder Malta’s competitiveness?
If I argue that the State only has an indirect role in achieving competitiveness, it is hard to argue that the EU level will help. Maltese industry will have to adopt EU standards. Norway has had to adopt more than 3,000 EU standards with no representation to influence the development of those standards. So defensively yes membership will be positive.
Proactively, while I do not see Europe forming the genuine and fully effective single market equivalent to the US, it is about the formation of a market between the level of national market and global market. The EU is not an extension of the home market for non-mainland members, but for Malta, as for Scotland, it is an extended market to which we have access without customs and border controls
Beyond this, the EU is now a truly merging economy. There is some way to go, but Malta will be impacted by the performance of the EU economy, and I suggest that can only be done from within.

What impact does globalisation have on small States?
If you are competitive and relevant, it is extremely positive. Smaller nations will suffer badly if they don’t rise to the challenge. The smaller States do have advantages, and they need to identify these and act on them.You cannot escape the global economy, so you have to thrive in it.

What advice should be given to small entrepreneurs in the light of globalisation and possible EU membership?
My advice would be to seek out markets you know and understand, be inquisitive as to how those markets are going to develop. Keep close to them personally. Get involved so you can influence how those markets evolve. Keep developing and changing yourself and invest in constantly updating your products and services. Never copy others, make them copy you, and move sufficiently fast so that when others think they are copying you they find you have moved on.
Find the place that provides the best and most supportive environment from which you can do all this. Employ the best people and challenge them in both what you do and how you do it. Select your customers with care and then never make them want to go elsewhere.
I would argue that this is what is required to succeed; the fact that this is now on a global context simply means you do not have any falsely sustained local niches.

Should undergraduates be given a dose of hands-on entrepreneurship as part of their academic education?
Simply yes. Preferably from the age of five. I have been involved in the founding of two University Schools of Entrepreneurship, and both are excellent. However they are full of students who want to run their own businesses but don’t know what that business will do. This shows a marked lack of understanding of what entrepreneurship is about. Everyone would like the freedom of owning and running their own business, but that is not the issue.
People start their own entrepreneurial business not because they want to work for themselves, but because they know of a hole in the market, have identified an unmet need or opportunity, which they feel obliged to go and fill. Money and risk are not the drivers; it is a determination to fill this gap. The total lack of understanding that this is what commerce is about is certainly one reason why, to my mind, the UK trails so in productivity and international competitiveness.
The education system has a role in educating the young that commerce is not about jobs and wages, but about challenge and achievement in meeting needs, and leading a life that is the more fulfilling for it.