4 July 2001

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Helping small businesses to move forward in a changing economy

Small businesses are widely recognised as making up the backbone of Malta’s commercial activity. But are they adapting to changing national and international markets and if not, should the government be doing more to help them? Parliamentary Secretary in the Economic Services Ministry, Edwin Vassallo, gives MIRIAM DUNN his views

Historically, Malta has been characterised by small businesses. Is this pattern sustainable in a modern economy?

I think Maltese businesses have already started proving that they can adapt successfully when necessary, although there is no doubt that changes had to be made.
It is not just about ensuring our businesses survive, but that they move forward successfully at a time when we are witnessing great changes in the way business is being done, partly because of globalisation and partly because of the restructuring we have to put into effect.
Businessmen nowadays have to calculate more extensively before taking a step, be a bit more cautious and do their homework well. Planning has become a vital part of doing business. Entrepreneurs also have to accept the fact that there is no guarantee they will retire in the same line of business they started out in.
But let me stress that businessmen are making the necessary readjustments, more so than we sometimes give them credit for. They are changing their work practices.
And even though the current era we are in undoubtedly means it is a challenging time to be in business, I also believe is a very exciting time and others are also realising this.

What are the main changes you are noticing to work practices during your tours of small businesses?
One of main changes I have noticed is the way businessmen have wised up about taking payments. They are looking for cash on delivery, or at least paying much more attention to credit terms.
Until recently there was a lot of over-trading, but now people are thinking more carefully about the amount they need to import or distribute to retail outlets that might later have trouble paying.
We are also now witnessing wholesalers opening retail outlets, while retailers are, at the same time, eliminating the wholesalers because they are importing themselves.
I have also noticed that some of the people who switched their line of business from manufacturing to importing are thinking again because they have realised there is no value added, because there is no exclusivity.
In line with this, I have seen a trend for some entrepreneurs to go back to manufacturing, albeit in a different way. Not clothing necessarily, but manufacturing in certain value added products undoubtedly has great potential, as some people are discovering.

You mentioned the fact that businessmen are getting smart about payment terms. Is this partly because of the cash flow problems that so many people are complaining about?
Yes, many entrepreneurs have now realised that their own businesses have ended up with cash flow problems.
To an extent I blame the accountants themselves over the advice they have given out on money management. There has been a trend to advise entrepreneurs to pay later and do business with someone else’s money, while also benefiting from the interest on their money in the bank.
But now, many people in business are noticing that these kinds of work practices aren’t producing a sustainable or profitable business, so they are thinking more carefully, for example, about the quantities of products they are importing or distributing.
The problems in the supermarket sector are an example of this. The way some businesses set themselves up, sometimes without paying for anything in their shops at the beginning, produced a scenario whereby importers were almost subsidising the opening of the venture.
I am pleased to see that the importers have taken action over this problem and formed an association dealing with the problem of credit management. This is an example of how entrepreneurs are facing the challenge of restructuring their work practices on their own initiative.

Are you satisfied with the way businesses are coping with the dismantling of levies?
Yes I am. In fact, I can cite the carpentry sector as an example. When I held a public meeting for carpenters a year and a half ago here, I will admit there was concern and even complaints. Today, the grumbling is much, much less.
The small concerns who were very afraid the abolition of protection would see them crushed by the importation of foreign furniture have realised this won’t happen. They have made the discovery that they will not be replaced, they are working and, most importantly, have developed their own structure to work within.
But we still need to help many businesses change their mentality. The Institute for the Promotion of Small Enterprises had tried to encourage sectors facing restructuring to work together, but unfortunately the mentality is still to see fellow businessmen as rivals. Changing this outlook has to be the starting point.
But I believe the biggest problem we faced and still face is not the dismantling of levies or the European Union, it is helping these businessmen deal with fear of the unknown. And we are not being helped, in this respect, by those who scaremonger.
Another challenge we are facing is to encourage businessmen to look at expanding outwards rather than inwards, that is, towards international markets.
Perhaps until now, we have been happy to work in our own environment, which is relatively easygoing and small. But to grow we have to look elsewhere and I think new markets can be both profitable and accessible in this respect.
Globalisation is helping to make this kind of expansion easier by breaking down frontiers. I know for a fact that Maltese entrepreneurs are being encouraged to invest abroad, in the same way we are seeking to bring investment to Malta. This is a new platform for Maltese businessmen to consider.

Do you think it is inevitable that some businessmen are scared of the word globalisation?
Many of the innovations around us are the result of globalisation and we all enjoy or make use of them without even thinking about it, including people who protest against the concept.
But more importantly, globalisation is not something that we can decide whether to accept or not. It is inevitable.
There are some things that cannot be stopped, they are part of change, and this applies to aspects of business as well. The need to restructure to weather the storm, if you like, cannot be over-emphasised.
I also prefer to say that with the dismantling of levies we have not so much removed protection, rather we have changed the support we are offering. Preparing ourselves for European Union membership is another means of protecting our business.
If we compare ourselves to other countries – our neighbours – that used to be inferior to us economically, they have been stepping up the way they protect their business, be it Free Trade or otherwise.
There is no doubt in my mind that the best way for us to protect our business environment is by joining what could be viewed as one of the most highly regarded international franchises - the EU. This will enable our businesses to put a brand name on their service rather than remaining unknown, out in the wilderness.
Granted, there will be rules and standards, but many of the changes we are thinking of implementing to put us on an equal footing with our counterparts in the EU are changes that the business community has been urging governments over the years to do. Two examples come to mind - the elimination of the practice of offering better incentives to foreigners than to Malta businessmen, and that of organisations acting as both suppliers and regulators.
The fact that we are having to take these issues in hand is producing a better business environment. And we shouldn’t paint too negative a picture; a lot of small shops in Malta, in Valletta near the market, for example, are already changing into franchises and adopting the work practices they might not have been accustomed to, but which they are now absorbing successfully.

Does your own background in business help you identify with the entrepreneur’s problems?
Yes, I believe it does. Not only do people talk to me about their problems, but I also live through the changes and difficulties facing the sector. I might be administrating, but I also know exactly what it means to be on the other side of the counter.
It helps undoubtedly; sometimes I wonder if it is for the best, because I can become involved emotionally, but I think weighing everything up, there are more benefits from understanding exactly what entrepreneurs are going through.

What can we expect to see in the new trading licence laws?
The legislation covering the new trading licence is now imminent. The constituted bodies already have copies of it, and I will be discussing the legislation with other business representatives over the next few days.
We are at a consultation stage at the moment, listening to the business community’s feedback, which I firmly believe will help the political debate. I hope that if the debates in Parliament are timed well, they might take place before the summer recess.
There are some interesting changes that will be put forward, such as the plan to abolish the present system whereby business licences are issued by the police and instead issued by a new authority falling within the commerce division.
In fact, we hope to have a new system in place by January that will see each department issuing its own licences, with its own legislation to adhere to.
By doing this, we will be developing a one-stop shop system and reducing the red tape and time spent traipsing round various departments to get a licence.
The various ministers will also be setting the perimeters for business licences falling under their ministries which will help in the upgrading of the business community.
The minister responsible for commerce will also be looking at the issue of the registration of entrepreneurs in the service sector who are not licensed because they are not working in the business premises. I believe eventually this will lead to further legislation which will enable us to enforce not just at point of entry into business, but also at point of sale, helping in the upgrading of commercial activity further down the line.
This is yet another example of how even the government is changing its way of governing and its own structures in today’s world of doing business.
It is, admittedly, one of the toughest times to govern, but also one of the most exciting and interesting.

The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt