Some weeks ago I had the opportunity to attend a regional conference on tourism, organised by the Malta Labour Party. The conference discussed the regional plan for Xemxija, St Paul's Bay, Qawra and Bugibba. The plan was formulated through a thorough consultation process with all stakeholders. The conference went well and all speakers seemed to generally approve the plan and stated that this was a step in the right direction. The private sector wanted its implementation as of now.
Tourism is a dynamic sector (like any business sector). Demand and supply change-over time. What was in fashion in the Eighties is not in fashion now. The same thing applies to supply. We all know for example that travellers are making shorter breaks and this should not be news any more. I always smile when newscasters emphasise the fact that tourists are spending fewer nights in Malta. My dear newscaster, this is not news any more and it is happening all over the world.
The fact that tourists are staying fewer nights was totally related to the advent of low-cost airlines. That is why it was a big mistake for the Gonzi administration to drag its feet on allowing low-cost airlines to fly to Malta. Instead of being ahead of time, we are more than four years behind and now we have to recover from this mistake at our cost.
Some people, including Government Ministers (especially the one that knows it all), criticised low-cost airlines. This continues to affirm the lack of knowledge on world economics trends by the current administration and the highly guarded so-called experts.
Lessons
Instead of focusing on market development in a dynamic world, this administration has wasted time, effort and money on developing the Malta Tourism Authority, issuing several reports on the institution rather than our market. The lack of ministerial leadership is expressed by the creation of the Prime Minister's Task Force. Had the minister been doing a great job at his ministerial portfolio, there would not have been the need to set up another white elephant under the leadership of the prime minister. A failure to the power of another failure. Prime Ministers must learn that the sacking of a minister is not a failure. The biggest failure, dear Prime Minister, is in retaining a non-performing minister. The biggest cost is borne by our economy that continues to suffer from lack of focus and leadership in this vital sector for our economy.
Again, the change of chairmen, executive chairmen, CEOs and other top-level officials at the Malta Tourism Authority continues to affirm the pathetic state of affairs. The launching, again and again, of a national tourism plan, strategy, timelines and all other business jargon has become the order of the day. It seems that the Authority is being run by a bunch of graduating students preparing their dissertation. The MTA is responsible for the theory, but on the ground the situation is in total havoc.
The same process applies to the attraction of foreign investment in the sector. Investors are grilled before they are given a licence to operate in Malta. In Costa Rica, Intel was met by the country's President and the same company was greeted by the Prime Minister in Ireland's airport. In Malta, investors are left in the hands of the blue-eyed boys appointed through the friend-of-friend Christian process created by the ex-Prime Minister of Malta, Dr Eddie Fenech Adami, and retained by his hand-made Prime Minister Dr Lawrence Gonzi. This Government is infected by the discrimination virus that has also affected foreign investors.
Whereas the Tecom Group had a direct line and key to Minister Austin Gatt, others were discriminated by being let in the bureaucratic jungle of Malta Enterprise, the Malta Environment and Planning Authority and the Malta Tourism Authority. It is then the Maltese working community that has to suffer these mistakes, based only on political arrogance, non-accountability and government secrecy. The Maltese media remain impotent to these tragic examples of maladministration.
Research
It is a pity that in tourism fora, speakers are still debating what kind of tourists we should target, whether three-star hotels are valid today, whether we need to emphasise culture or the sun, low-cost airlines, etc. Most of these issues cannot be decided on the spur of the moment or through intuition. Malta has to undertake professional market studies in our tourist markets to understand what prospective tourists want when they visit our country. Evarist Bartolo, MP, mentioned that Greece is undertaking focus groups/market studies in Russia with persons that might be prospective tourists to Greece in five years' time. Do we have anything similar going on in the UK, Germany, France, Japan, China and Russia?
Another issue is the way our hotels sell their bed-nights. Malta cannot be compared to other so-called competing countries, such as Tunisia, Egypt, Madagascar, Morocco, etc. Tour operators need to understand that tourists coming to Malta are not buying the room and the hotel swimming pool, but they are buying the whole three Islands. In Malta tourists can roam about as freely as humming birds, and in the other destinations they are locked into their hotels, and fed run-of-the-mill food, produced for the masses. It is true that Malta and Tunisia are both sunny places, but one cannot buy the freedom and safety that Malta can offer. It is not wise to continue to lower our prices and sell a five-star hotel at four-star rates, and four-star properties at three-star rates. This is damaging our potential for earning more revenue and making our hotels profitable.
Pointing fingers
The Prime Minister and ministers get their words into the local and international media. Whatever they say has weight. It is very imprudent and uncanny to have the Prime Minister or any minister and high officials blaming any of the tourism sub-sectors for our downfall in this vital sector. The Prime Minister can be quoted as saying that tourists do not come to Malta because of the taxi drivers, the bus drivers, the time-share touts, etc. Instead of looking into the forest, these speakers look up the tree. And to make it worse they look up the wrong tree. We all need to be proud of what we have, and if we need to correct an individual, we must speak to him directly and not to the whole wide world.
During the Malta Labour Party conference I failed to hear three important words: focus, creativity and innovation. None of the speakers mentioned any of these words and it is a pity that the speakers did not think on these. As I stated above, tourism is a dynamic sector and we can make the turnaround only if we remain focused and on course, if we are creative and have determination to innovate in our leadership, product and marketing.
Diamond model
In recent years, several organisations have initiated studies on the competitiveness of tourism. Economics Professor Michael E. Porter has long been writing on competitiveness, and in one of his highly respected books On Competition he brings out the Diamond Model and goes into detail to explain the Cluster Approach to Competitiveness.
The theory of the diamond model of competitiveness is based on the following factors:
1. National competitiveness
A nation's prosperity depends on its competitiveness, which is based on the productivity with which it makes goods and services. Sound macroeconomic policies and stable political and legal institutions are necessary but not sufficient conditions to ensure a prosperous economy. Competitiveness is rooted in a nation's microeconomic fundamentals - the sophistication of company operations and strategies and the quality of the microeconomic business environment in which companies compete. An understanding of the microeconomic foundations of competitiveness is fundamental to national economic policy.
2. Clusters and cluster development
Clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productivity with which companies can compete. The development and upgrading of clusters is an important agenda for governments, companies and other institutions. Cluster development initiatives are an important new direction in economic policy, building on earlier efforts in macroeconomic stabilisation, privatisation, and market opening, and reducing the costs of doing business.
3. Competitiveness of states and regions
While some determinants of competitiveness are national in scope or the result of national policies, many are regional and local. Such things as the quantity and quality of specialised skills, infrastructure and technology, and the presence of clusters vary markedly across regions. This leads to substantial differences in prosperity among states and regions within a nation. States and cities - and not just nations - need economic strategies.
4. Innovation and innovative capacity
Innovation, in the form of new products, processes and ways of managing, underpins the growth of productivity that is necessary for a rising standard of living. Innovative capacity is especially important for advanced nations if they are to support higher wages than developing economies who can rapidly imitate. Innovative capacity in a nation or region is heavily rooted in its microeconomic environment, in areas such as the intensity of scientists and engineers in the workforce, the degree of protection of intellectual property, and the depth of clusters. Innovation also holds the key to solving many of the world's most pressing social challenges, such as health care and improving the quality of the physical environment.
5. Strategy for cross-national regions
A nation's competitiveness and economic growth can be enhanced by co-ordinating economic policy among neighbouring countries. Traditional views of strategy for cross-national regions have focused on regions as free trade zones. However, new thinking emphasises a regional strategy as a powerful tool to enhance competitiveness in each of the constituent nations. A regional strategy creates gains not only from internal trade and investment but also from policy co-ordination to create mutual benefits to productivity in all countries through specialisation and capturing externalities and spill- over effects across borders. A regional strategy is a powerful lever to speed up the process of economic upgrading at the national level as well as a way to promote interest and investment in the region by the international community.
6. The microeconomic foundations of economic development
These are the operating practices and strategies of firms as well as the business inputs, infrastructure, institutions and policies that constitute the environment in which a nation's firms compete. Recent research suggests that microeconomic differences account for much of the variation across countries in GDP per capita. The microeconomic foundations of economic development are embodied in the diamond: factor conditions, demand conditions, context for firm strategy and rivalry, and related and supporting institutions.
The Tourism Sector Model shows the main stakeholders in the tourism sector and also indicates the supply chain of the business cycle. For best conditions, all these sub-sectors must be able to work together to offer the best product at the most competitive price. It is not the first time that various groups in Malta have come out with conflicting policies and strategies that finally do not help to develop consistent, sustainable tourism plans in any way.
In accordance with Porter's Diamond Model, the Malta Tourism Diamond Model can be seen to be have these characteristics:
a) Company dynamics:
i) Firm strategy, structure and rivalry define the dynamics within the sector.
ii) Related and supporting industries are key factors in the clustering process as they may greatly influence an industry's strength.
b) Industry and regional dynamics:
i) Production factors, in which a distinction is made between 'basic' factors such as the cost of labour, raw material, energy and capital, and 'advanced' factors such as the availability of modern telecom infrastructure, human capital and knowledge infrastructure.
ii) Demand, as a major driver for the sector. The nature of the demand, growth pattern of the demand and interaction with foreign markets deserve specific attention.
Finally, I would like to refer to the cluster model to achieve higher competitiveness within an economic sector. There are various studies of success stories where the cluster model has worked and built a world-renowned product.
One of the most successful stories in this area is the growth of the Australian wine industry, whereby the stakeholders took concrete initiatives to build a real cluster for the wine industry, bringing all the stakeholders into play.
A decade ago, Virginia took the same initiatives and today cluster development is embedded in the state's economic development laws and investment promotion literature.
Both Australia and Virginia, among other countries, are proud that their cluster strategy has been a success story that other institutions analyse and review to learn from this wonderful experience.
Clusters are nothing less than tools for economic policy and have been found to promote:
A new way of thinking about the economy, the nature of competitive advantage and the sources of innovation;
Better alignment with the nature of competition among locations than traditional, focused on individual firms, single industries, or broad sectors such as manufacturing or agriculture;
The capturing of important linkages in terms of technology, skill, information, customer needs and marketing that cut across firms and industries. Such linkages, are fundamental to productivity, and the direction and pace of innovation;
A new way of organising economic development activities;
The recasting of the roles of government, the private sector, trade associations, and educational and research institutions;
The creation of a forum for constructive business-government dialogue;
The bringing together of firms of all sizes;
The revelation of constraints facing the economy that go beyond generic, cross-cutting problems;
A means to identify common opportunities, not just common problems; and
The information of both economic and social policies.
EU membership, and the adoption of the euro, might provide some new opportunities. Finally, Malta and its movers and shakers shall remain responsible for the welfare of our community.
As we have seen up to now, no one will offer us anything on a silver plate and it is the Maltese leadership class who finally must adopt the best strategies to ensure that our economic growth in real terms increases at a higher rate than it has in the past five years. The EU has once again questioned the sustainability of government finances through one-off revenues and there is also a limit on how much this country can continue to borrow. We cannot as an independent state leave our welfare in the hands of outside forces.
The material on the diamond/ cluster model has been adopted from a group paper the author and four other students had presented as part of their group assignment during their participation in the course Microeconomics of Competitiveness (Spring 2004) conducted by Professor Michael E. Porter at the Harvard Business School, during his reading of the MBA at the Robert Kennedy College, Switzerland.