More co-ordination between enterprises needed – IPSE

By Matthew Vella

The Institute for the Promotion of Small Enterprise yesterday published another of its sectoral analysis reports. The latest analysis deals with the building materials industry.

There was agreement right across the board yesterday at the Ministry for Economic Services, where Minister Josef Bonnici and IPSE executives called for more inter-sector co-operation.

Minister Josef Bonnici said the sector has been primarily geared towards domestic production and that becoming more competitive was of the utmost priority for these firms.

He said the report showed there was not enough coordination between enterprises in the sector and that the establishment of an association for these operations was important.

Prof Bonnici concluded by saying EU membership would be advantageous to this sector since customs tax will be decreased automatically. By 2008, customs tax will be completely removed.

IPSE Chairman George W Borg said IPSE was trying to urge to businesses to join forces in a bid to improve their business opportunities rather than battle each other. This was a mentality that had to be adhered to in order to meet the European challenge, he said.

He cited the recent Malta-Libya furniture consortium as an example as to how the merging of businesses can deliver the best results. Mr Borg said the creation of business associations could facilitate this process and achieve more opportunities.

Chief Executive Officer Joe Vella Bonnici said IPSE hoped such associations would in future provide better quality services for greater projects.

"Projects such as hotel construction make use of different companies to provide its materials. A joint-Maltese effort can be brought about if companies agree to co-operate. The market share that would be lost though the liberalisation of the market an be regained through co-operative support."

The sector analysis reports have been split into the non-metallic building products sector, and the metallic products sector.

The Maltese non-metallic sector is characterised by a prevalence of small firms, typically employing up to 10 persons. This sector comprises of glass products, ceramics and marble, cement, and concrete

With an exceedingly domestically-oriented industry, with exports at 3.9 per cent of total production, IPSE is calling for a more export-oriented production that could successfully meet the EU challenge. 50.5 per cent of respondents look at prospective EU membership with optimism, whilst 36.9 per cent are not optimistic.

Respondents in the industry research survey have quoted competitive prices and production flexibility as main strengths and lack of finance and lack of space as weaknesses. But only a minority of 20 per cent of respondents see export markets as their main opportunities. Imports and competition from larger enterprises are therefore seen as threats.

Only 18 per cent of respondents have an existing export activity, but a further 14 per cent intend to start exporting in the next four to five years.

Benchmarking exercises revealed a much lower level of personnel costs per employee in Malta than those incurred in Europe, in both metallic and non-metallic segments. Such a cost advantage over labour costs is currently being exploited through the use of more labour-intensive processes. This can also attract more orders with custom-requirement and order specifications.

Other low costs, such as those of premises, give Maltese firms a competitive edge over other European countries.

In the metallic products sector, it was revealed that domestic production of metal building products decreased over the period. Consequently, enterprises decreased from 418 in 1995 to 358 in 1998 and domestic production by 19.3 per cent, indicating the industry is in decline.

The products manufactured by the sector include aluminium, iron and sheet metal works. Again, there is little export – only 2.2 per cent for aluminium products and 1.5 pr cent for iron works.

The fear of foreign competition is also very apparent as 64.4 per cent of respondents said they believe they would be adversely affected if foreign firms were allowed to tender for works in Malta.

In the metal section of the building materials sector, it appears that the market is rather fragmented, although competitive, especially within the aluminium segment. Again a lack of space and shortage of premises is apparent in the complaints of respondents in the industry research survey. The survey also revealed few companies had a proper business strategy, possibly due to the extra costs that would be incurred.