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Advertisers MFSC - Malta Financial Services Centre Maltese-American Chamber of Commerce METCO - Malta External Trade Corporation Ltd.
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From fortress economy to open market, foreign companies have made Malta their home
From fortress economy to an open market
During the thousands of years of “occupation,” Malta had a fortress economy, explained Francis Vassallo, chairman of the Malta Development Corporation (MDC). In the 1960s more than 25,000 people were employed by the British military services, which meant that independence and an eventual loss of these jobs would create massive social and economic problems. The MDC was set up to convert the country from a military to an industrial base and to create incentives to attract foreign direct investment (FDI).
In the 1970s, Malta began to actively court international investors, especially in the manufacturing and tourism sectors. Though technical knowledge was lacking, labor costs were low; people were well educated, adaptable and flexible; and incentives were high. The government used tax holidays and grants to attract a variety of companies. Since then, Malta has undergone an Industrial Revolution, a process that took 150 years in America and the United Kingdom but only 30 in Malta, boasts Andy Gatesy, chairman of Tolly Products, which has its international headquarters in Malta.
In the last two decades, more than 300 foreign companies employing tens of thousands of people have set up shop in Malta, while numerous Maltese companies also operate in the industrial parks managed by MDC. The newest park, the Malta Technological Park, is the country’s most modern one yet.
International companies such as Baxter Limited, Methode Electronics, VF, Playmobil and Tolly all came to Malta to set up operations during the 1960s and 1970s. While each company has been exceedingly successful and has seen its operations expand to record numbers, each has used a slightly different formula to achieve this success. However, all the companies’ managers credit the initial tax incentives as well as Malta’s small size, which allowed for quick and easy contact to government officials, as reasons for entering the market. None regrets its decision and, in fact, the success of each has outpaced its goals.
The challenges ahead
However, many things have changed since the 1970s, the most important being that the cost of labor, which at one point was about one-tenth’s of Germany’s, is increasing substantially. The wage freeze by the socialist government during the 1970s and 1980s attracted textile companies, which at one point made up 65 percent of the manufacturing base, said Vassallo. With the increase in labor and operating costs, certain manufacturing companies, especially those in the textile industry that made their investment based on labor costs, were forced to re-evaluate their investment decision. Many left. Those companies that stayed, however, realized that they needed to adapt to the changing conditions, specifically by modernizing, automating and investing in new technology. Both Tolly and Playmobil cite their decision to invest in advanced technology as a main reason for their success today.
When the socialist government was voted out in 1987, the new nationalist government set about creating a more modern incentive package and passing the Industrial Development Act (which is managed by MDC). However, a decade later Malta faces many challenges as it liberalizes its markets and prepares for possible entry into the European Union. To become a member of this club, Malta can no longer shelter most of its industries. With the end of the protection they have had for so many decades, many people wonder how local companies will be able to exist after 2003, the year membership may become a reality. Ellul believes that back in the 1970s, the government should have played a better role in preparing these companies for an inevitable globalized economy.
When Baxter set up shop in Malta in 1988, it knew that the future meant taking advantage of Malta’s strategic location. Today, the company exports from its Malta offices to France, Italy, Spain, Belgium, Scandinavia, Austria and even Switzerland. It has even set up its own research and development facilities in Malta to be closer to their European customers.
As competition toughens and companies located in Malta must compete with countries that have reduced labor costs and keep and attract customers who expect high-quality items at low prices and shorter lead times, managers are realizing that they need to once again re-think their strategies. Keys to remaining competitive are high performance and productivity rates. Ellul and other managers realize that a human resources focus is important, constantly training employees so that they will feel ownership in the company’s success and to be prepared for the new challenges that face them.
A new style of education is also being instituted. The University of Malta is already adapting its courses to reflect the changing demands of industry and has added a very popular information technology department. The university is known for producing highly skilled engineers, many of whom have gone to work in subsidiaries in the United States and Europe. The Maritime Law Institute is actually part of the International Maritime Organization and is very highly respected. However, to be properly prepared for this globalized world where information changes hands in seconds, Malta is currently creating an Institute of Technology.
The secrets of success
All companies cite the attraction of an English-speaking people, a familiar culture and an Anglo-Saxon business mentality as other reasons they came to Malta. All executives also note that Malta is just a nice place to live, with a high standard of living that includes sun, sea and friendly people. The successful businesses also had a long-term vision and planned to stay in Malta, not leave once labor costs changed.
While most of the successful international companies began with “ex-patriates” at the head of the important divisions in their business, locals or those who have been in Malta a long time now run most companies. However, according to Ellul, there is no one method for success. “A Maltese can run the company or an expatriate can be in charge. It depends on personal relations with the head office,” she said.
Baxter and Methode are both practically 100 percent Maltese-run, while Playmobil has a mere five foreign employees. Tolly, which has taken the still unusual step of setting up its headquarters in Malta, is directed by the British founder’s son, who has since set up his life in Malta; the rest of the employees are nationals.
AmCham and government agencies help investors
Malta has created a variety of agencies to help international companies decide whether and how to invest in Malta. The Malta Financial Services Centre is dedicated to making Malta an international finance center. The MDC is usually the first point of contact for companies seeking to invest in Malta. The Malta External Trade Corp. helps link local businesses with foreign partners. All organizations promote that Malta can be used as a springboard into a market of 450 million people, which includes the European Union, North Africa, the Middle East, Southern Europe and the rest of the Mediterranean, a fact which is often stressed by James Sartoriano, the Maltese American Chamber of Commerce’s president, who believes that in the long-term even Libya will once again be an interesting market for American companies.
American companies will find a revitalized Maltese-American Chamber of Commerce (AmCham) ready to help them navigate the bureaucracy and deal with the Maltese culture that, although using an Anglo- Saxon work ethic, is still unique. AmCham has worked closely with the American Embassy in Malta to promote economic links between the two countries. The organization is also establishing links with the U.S. Department of Commerce to orient itself even more toward exploration of commercial opportunities. Furthermore, it is promoting the establishment of a mixed contact group to raise awareness of Malta. With Malta such a little known entity, it is important to raise people’s consciousness of the island, even before promoting all the strategic opportunities.
The success of the American Embassy’s Reverse Trade Missions, which brings Maltese business entrepreneurs to the United States, is a great example of the myriad of opportunities that exist. The 1999 trade mission brought in more than $150 million in memorandums of understanding. AmCham played a vital role in the mission. The numerous meetings at the state and local government levels produced a number of valuable databases for promoting members’ interests. Economic opportunities were also targeted. AmCham is currently working on its website to be better able to serves its members’ needs and to assist American companies looking to enter the Maltese marketplace.
No one thing is key to being successful in Malta. However, all successful business entrepreneurs agree that international investors should have a long-term plan and should make sure that the decision to enter Malta is not just a monetary one. Companies need to plan to invest in both advanced technology and their employees, at almost all levels.
As more American companies begin to discover all that Malta has to offer, they will find many interesting opportunities for doing business and many organizations willing to lend a hand to help them develop their business and their employees to the benefit of all concerned.
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Table of Contents Building bridges and embracing the future |
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Strategically located in the middle of the Mediterranean Sea and blessed with natural harbors, Malta has been coveted by most of the world’s great empires. Sitting in the middle of the Mediterranean, which itself was viewed as the middle of the world for centuries, Malta was considered to be a vital acquisition for any and all up-and-coming powers. In order to dominate the Mediterranean region, kings and rulers wanted to control Malta, from where they could command vital shipping lanes. Malta spent thousands of years catering to the needs of these powers and became an economy that focused on providing services to those who ruled. Not until Malta declared independence in 1964 did it begin to re-evaluate its future and to determine a new course for economic and social development.
The cost of production is another major challenge to doing business in Malta. Since the island has virtually no raw materials, companies must import their basic materials, produce the product and then ship it back out. Fortunately for today’s investors the shipping industry has greatly advanced. Ellul explained that products used to take two weeks to reach Germany; today it takes four days. With the improvements at the Malta Maritime Authority and the success of the Malta Freeport, shipping is still an important cost concern, but not a decisive factor in whether companies will choose to do business in Malta.
Local companies such as Farsons Cisk and Magro Brothers have already discovered that to continue to develop their markets they must export, which means competing with the “big boys.” Magro is a worldwide supplier for McDonald’s ketchup. The company’s competitors are major companies in Spain, Germany and the United Kingdom. John Magro, managing director, finds that working with a large, international firm such as McDonald’s, which has helped Magro become more quality oriented, benefits the company’s long-term success.