Royal Holloway School of ManagementUniversity of London

How  to Create a Culture of Market Diversification, Economic Integration, Effectiveness  and Competitiveness among the Maltese Enterprises?

By Ailson De Moraes

             

St. Martin'sInstitute of Higher Education

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Contents

• Introduction: The Great Crisis of 2008 and Today

• An Overview of Globalization – Past, Present and Future

• The diamond approach to the competitiveness of industries: Michael Porter

• Why Nations Fail?

• Effectiveness  and Competitiveness among Enterprises

• Conditions for Competitiveness

• Small and Medium Sized Enterprises – SMEs

• Ansoff’s Product-Market Expansion Grid

• New Opportunities

• Smart Ways to Compete and be Successful

• Export – or – Perish

• Small is Beautiful

• Conclusion and Final Thoughts

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The Great Crisis of 2008

• The Great Crisis of 2008 has forced us to reexamine our beliefs about markets and globalization.

• These are challenging times. The challenges we face are real. Finance is in tumult.

• The global order seems more uncertain. • Prosperity and Power are shifting to new places and peoples. • Old political doctrines and divisions no longer seem viable. • Technology and media are changing before our eyes. • And even the natural environment itself is changing.

• That’s not all. The problem isn’t just with our current situation, but with our responses to it!

• Are markets bad and government good? Or are both bad? Or are both good, and we do not know how to deal with them?!

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Today’s challenge

• According to Professor Pankaj Ghemawat in his last book, World 3.0 Global Prosperity and How to Achieve It, 2011.

“Today’s challenges call for a new way of looking at the world.”

• What he calls World 3.0 – clear implications for governments, businesses, and individuals.

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Four Worldviews

Source: Adapted from Pankaj Ghemawat, World 3.0 Global Prosperity and How to Achieve It, 2011, pp. 18.

World 1.0

World 0.0

World 2.0

World 3.0

Market IntegrationMarket Regulation No

Yes

No

Yes

GovernmentsBusinessesindividuals

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World 3.0

• The idea of the world 3.0 is about how to improve the people themselves – or rather, ourselves. How to rethink our own relationship with the rest of the world.

• In the word of former British Prime Minister Tony Blair,

“Educating people to be open to the other person – I think that’s the challenge of the twenty-first century.”

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The diamond approach to the competitiveness of industries: Michael Porter

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Source: No Night Lights in North Korea, http://farandwise.com/night-lights/

Why Nations Fail?

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North Korea vs South Korea

• North Korea = stagnate economically

• South Korea = Politicians invested in education, achieving high rates of literacy and schooling. South Korean companies were quick to take advantage of the relatively educated population, the policies encouraging investment and industrialization, exports, and the transfer of technology. South Korea quickly became one of the East Asian’s “Miracle Economies”, one of the most rapidly growing nations in the world.

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Engines of Prosperity - State

• South Korea has a state that supports economic activity. In South Korea individuals are free to open any business they like. In North Korea individuals are not, and this creates a black markets.

• The state is thus inexorably intertwined with economic institutions, as the enforcer of law and order, private property, and contracts, and often as a key provider of public services. Inclusive economic institutions need and use the state.

• Inclusive economic institutions also pave the way for two other engines of prosperity: technology and education.

• It is the education and skills of the workforce that generate the scientific knowledge upon which our progress is built and that enable the adaptation and adoption of these technologies in diverse line of business.

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Extractive and Inclusive Political Institutions

• Politics is the process by which a society chooses the rules that will govern it.

• The political institutions of a society are a key determinant of the outcome of the growth of a nation.

• Political institutions determine who has the power in society

and to what ends that power can be used.

• There is strong synergy between economic and political institutions.

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Why Not Always Choose Prosperity?

• Political and economic institutions, which are ultimately the choice of society, can be inclusive and encourage economic growth. Or they can be extractive and become impediments to economic growth.

• Growth thus moves forward only if not blocked by the economic losers who anticipate that their economic privileges will be lost and by the political losers who fear that their political power will be eroded.

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The new path to prosperity

Henceforth, the most important issue of all for Competitiveness lies in the pressure that these factors exert on firms to invest and innovate.

Prosperity

Competitiveness (Productivity)

Innovation

— Factor conditions, such as the availability of Skilled Labour and Infrastructure;

— Demand conditions for the Goods and Services of the Industry;

— Related and supporting Industries, including the presence of Competitive Suppliers; and

— Firm Strategy, Structure and Rivalry

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Lessons on Effectiveness  and Competitiveness among Enterprises

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CONDITIONS FOR COMPETITIVENESS

According to Michael Porter (1990) there are four interdependent, mutually reinforcing attributes of a nation that determine whether or not it provides an environment which enables Firms in a particular Industry to compete successfully:

— Factor conditions, such as the availability of Skilled Labour and Infrastructure;

— Demand conditions for the Goods and Services of the Industry;

— Related and supporting Industries, including the presence of Competitive Suppliers; and

— Firm Strategy, Structure and Rivalry

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Small and Medium Sized Enterprises - SMEs

• SMEs are known to contribute dynamically to economic growth and to the creation of sustainable employment.

• It is commonly understood that SMEs have general capacity for flexibility and innovation, responding quickly to structural changes and to adapt rapidly to changing consumer taste and demand .

• In the case of small island territories, SMEs play even a more distinct role since the typical average firm size is even smaller than elsewhere – in most cases (Granovetter, 1984, within Baldacchino, 2005).

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Small and Medium-sized Enterprises and the UK economy

• In 2012, there were 4.8 million businesses in the UK.

• • Over 99% of these businesses were small or medium sized businesses, employing less than 250 people.

• • 4.6 million or 96% of all businesses were micro-businesses – employing

0-9 people.

Source: Standard Note: SN/EP/6078 ,19 December 2012, Chris Rhodes, Economic Policy and Statistics

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Small and medium-sized enterprises (SMEs)Fact and figures about the EU´s Small and Medium Enterprise (SME)

• Following the daily news, it is easy to get the impression that the European economy is dominated by large, multinational enterprises. Their multi-billion Euro takeovers, global expansion plans or -more recently- risks of mega bankruptcies dominate the headlines.

• What usually gets lost is that more than 99% of all European businesses are, in fact, SMEs.

• What is even more intriguing is that nine out of ten SMEs are actually micro enterprises with less than 10 employees. Hence, the mainstays of Europe's economy are micro firms, each providing work for two persons, in average. This is probably one of the EU's best kept secrets!

• The SME Performance Review (SPR) is the key instrument employed by the European Commission to document the important role of SMEs and to study the further development of this sector. It has two components: a European annual report and a set of country fact sheets.

Source: Enterprise and Industry, http://ec.europa.eu/enterprise/policies/sme/facts-figures-analysis/ - Downloaded on 03/04/2013.

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Ansoff’s Product-Market Expansion Grid

Source: http://www.mba-tutorials.com/marketing/117-intensive-growth-strategies-ansoffs-product-market-expansion-grid.html

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New Opportunities

• According to McKinsey Global Institute, over the next ten years, nearly 450 million newcomers will join the middle class in China and India alone (2006).

• TODAY is the TIME to invest in China and India. Maltese enterprises (established and new ones) cannot miss this opportunity!

• However, its not only China and India – BRAZIL is one of the main emerging economies today – in the last 5 years, over 40 million people moved from low to middle class.

• Major American companies are scrambling to keep up with the rising economic clout of Brazil, China, India and Russia (BRIC).

• So, the Maltese enterprises cannot be outside of the them game – How?

• “ENTREPRENEURIAL INNOVATION SKILLS – by identifying what they can do best, which is PROMOTE QUALITY (Often branded) products and services for selective niche up-markets.

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Compete by Seeing What Others Don’t

• GET SMART

• Connect the dots: opportunities lurk in neglected fields everywhere, especially in places where people take dysfunction as the expected way of life. Finding the opportunities is part science and part art.

• Think Global• Keep checking your intuition • Pay Attention to Service.

“You can’t expect your knowledge of yesterday to carry you through tomorrow.”

• Don’t stop thinking about tomorrow.

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Compete By Thinking Outside the Bubble

• Why do some people easily spot opportunities where others see only obstacles, if they see anything?

• The answer: Humans like to leave in a bubble – its comfortable and safe!

“Open yourself to seeing the bigger picture so you can assess what others are doing that will actually work in your industry and your company. “

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Compete By Thinking Outside the Bubble

• GET SMART

• Make friends: your main goal is to outsmart your competitors! HOWEVER, in some occasions is better to be part of the solution not a head-to-head competitor.

“You will make friends more easily if you offer services that not only benefit your customers and your company, but also address the ills of your entire industry.”

• Redefine the culture of your company.

“And if you don’t trust your people to adapt, you have the wrong people in place. People change the way they think when one changes what they do.“

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Compete by Simplifying Complexity

• Three-word strategy: KEEP IT SIMPLE (But doing always the BEST to your Customers)

• Follow Peter Drucker’s simple advice to:

1. know where you are?

2. Where you want to be?

3. And How to get there?

“Outsmarting the competition requires more than intelligence, experience, and business sense; you also have to be quick, flexible, and ready to adapt to the transforming world.”

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Export – or –

Perish04/09/23 25

Export – or - Perish

• A small island economy quickly imposes an off-island orientation to any local entrepreneur (Baldacchino, 2005:29).

• The Export-or-Perish syndrome is a very powerful one on small island territories and may somehow compensate for the absence of ‘domestic firm rivalry’ that elsewhere pushes firms into higher quality products and processes, in turn creating competitive advantage (Briguglio and Buttigierg, 2003: 7; Porter, 1990:92 within Baldacchino, 2005:29).

• The small island must strategically connect with the global economy, identifying and cultivating markets, networks and clients, somehow following and keeping a tab on innovationary trends, often doing so by maintaining a vibrant traffic of people and ideas with the rest of the world. “The influence of outsider-generated knowledge resources” (Chrisman, 1999) is crucial in the instance. In small islands, these knowledge resources may include the very entrepreneur (Baldacchino, 2005).

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Small is Beautiful

• “I was brought up on the theory that in order to be prosperous a country had to be big – the bigger the better.”

• “...and if we make a list of the most prosperous countries in the world, we find that most of them are very small.”

Source: Schumacher, 1973:52, Small is beautiful, A Study of Economics As If People Mattered, Abacus, Edition 1990.

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Conclusion and Final Thoughts

• Globalization is not a threat for the Maltese firms, on the contrary, it is a worldwide process of opportunities – remember it is a U$ 65 trillion world economy.

• The 2008 worldwide Crisis, and the present EU Crisis it is an opportunity to reexamine our beliefs about markets and globalization.

• Focus on Value NOT on Volume. Identify what you can do BEST, and promote quality products for selective overseas upmarkets (emerging economies!)

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Conclusion and Final Thoughts, Cont.

• Small is Beautiful - Maltese Firms can be beautiful worldwide (all depends on the internal and external implementation of the right strategies).

• Entrepreneurial Innovation – new skills, training, education and professional development. Not only postgraduate education, but new initiatives to develop young entrepreneurs in secondary schools.

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Conclusion and Final Thoughts, cont.

• Fostering networks through cooperative competition with local firms – join forces with your local competitors so your products and services can become well-known globally. However, don’t forget to foster networks also with outsiders – perhaps with other firms from emerging economies.

• Attract Maltese entrepreneurs who are established in other countries – offer some incentives to relocate their firms, or deploy their knowledge capital and extensive overseas networks in order to support local economic growth (Baldacchino, 2005).

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Conclusion and Final Thoughts.

• Attract immigrant innovator can be a key strategy to adequate glocality – The influence of outsider-generated knowledge resources (Chrisman, 1999).

• Quality of life – Maltese government can attract entrepreneurs from other regions of the world offering what Malta has the best – excellent quality of life.

• Investment in tourism is never enough! Tourism facilitates exports. Tourists are the best ‘word of mouth marketing’.

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....and please do remember....

‘Small is Beautiful.’

Malta is a Beautiful Small Country.

Maltese Enterprises can be part of this Beauty Globally.

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