Industry & Manufacturing
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The power of niche positioning

Switching from mass-production to high-end manufacturing has proven a successful move for Malta, whose skilled factory workers offer a vital source of innovation and competitiveness.

 

An island at the centre of the Mediterranean Sea is not the first place one would expect global investors to build state-of-the art manufacturing plants. But the quest for cost-competitive and high-quality production has drawn manufacturers’ attention to the Maltese Islands for many decades. World-leading companies from the US, Germany, UK, France, Italy, Spain and India have set up operations on the island. While the number of manufacturing jobs has diminished over the years, coinciding with the emergence of other sectors; what defines Maltese manufacturing more than anything else is its attitude to change. Over the past years, the sector has undergone a strategic transformation from large-scale production for mass markets to exclusiveness, added value and a focus on well-targeted niche markets. 

Today, the island offers a prime location for companies specialising in high-technology products in areas such as electronics or precision engineering, as well as capital-intensive activities such as life sciences and aircraft maintenance. There is no question that the sector is moving forward as new and established companies are preparing to invest millions of euro in facilities on the island. However, the future of manufacturing could completely reinvent paradigms for cost and profitability and require Malta to reposition itself as a management hub of an industry that is increasingly influenced by material sciences, as well as technological breakthroughs in robotics, sensors and high-performance computing. The challenge is to attract sufficient talent to fill these novel and demanding job positions that are opening up in the sector.

 

 

Mathias Ridal, Customer Service Director, International Currency, of Crane Currency

 

Manufacturing Evolution

Malta’s manufacturing sector offers a fine case study of systematic change. In its early days most of the activity was locally oriented and primarily revolved around the food, beverage and furniture sectors. Immediately after gaining independence from Britain, Malta sold itself as a low-cost manufacturing base for foreign firms with easy access to export markets. Cheap labour and tax incentives attracted international investors. German toy manufacturer Playmobil and UK packaging specialist Toly were among the first companies to open plants on the island. Textile, leather, plastic and tobacco producers followed, and together over the subsequent three decades they employed thousands of people. While the 1990s saw electronic and engineering companies expanding their operations into Malta, it became slowly apparent that the challenges of globalisation and the rise of lower-cost locations in Asia required a complete rethink of the island’s manufacturing industry. In order to maintain its competitive edge, Malta moved away from labour-intensive industries and encouraged companies to focus on high-value-added activities.

 

US-company Methode Electronics opened its operations on the island in 1966. In Malta, the company manufactures electronic equipment for a number of sectors, including sports vehicles and advanced machinery, and employs more than 1,200 people. 


A New Reality 

The shifted manufacturing focus has allowed Malta’s manufacturing workers to ‘trade up’ to more challenging and better-paying work, while Maltese goods increasingly compete with sophisticated products in international markets. The island has attracted businesses from higher-value-added and knowledge-based industries that include pharmaceuticals, mechanical engineering, electronics, maritime products, biomedical equipment, as well as packaging and security systems. Malta’s manufacturing sector contributes some 10% to the country’s GDP, and it employs approximately 24,000 people – around 15% of the island’s labour force. The two strongest segments of the manufacturing sector are electronics and the food and beverage industry, followed by activities such as precision engineering and pharmaceuticals – the latter, in particular, has blossomed in recent years. Companies are mainly producing generics and taking advantage of the Bolar Exemption that allows development work of pharmaceuticals before patent expiry.

 

International Investors

There are some 3,000 manufacturing and distribution companies in Malta, most of them small and medium-sized enterprises (SMEs). The sector predominantly consists of locally owned firms operating alongside a small number of relatively large foreign-owned export-oriented subsidiaries of multinationals. Many small manufacturers also work as sub-contractors and produce parts and components for the island’s larger players. The French-Italian multinational electronics and semiconductor producer ST Microelectronics is the country’s largest manufacturer. Other important players include the engineering group Trelleborg, packaging specialists Toly Products and toy manufacturer Playmobil. Generics manufacturer Actavis and the Medichem Group are some of the key names in the pharma sector. Aircraft maintenance is headed by Lufthansa Technik and SR Technics, which have established operations on the island. Indigenous companies producing for local and export markets are mainly found in the food and beverage industry, where the largest enterprises are Magro Brothers, Farsons and Foster Clark.

 

Expansion Mode

There is widespread agreement that Malta’s manufacturing industry will continue to play a significant role in the economy, and it is encouraging to see that new companies are setting up. The latest addition to Malta’s manufacturing industry is Crane Currency, a banknote printing company from the US, that has chosen Malta for its latest US$100 million investment in a new plant that will create up to 300 jobs. De La Rue, another currency printing company that has been based in Malta for some 40 years, had announced in December 2015 that it was to reduce its workforce by 300 over a period of three years, however the firm revoked its decision and will continue operating from its Malta base.

Toy-maker Playmobil is to invest a further €30 million in its Malta plant and add 200 people to its workforce of 1,000. Methode Electronics, a leading developer of custom-engineered and application-specific products and solutions, is investing €5 million to expand its factory in Mriehel with an addition 1,250 square metres of space, while Lufthansa Technik has signed a five-year deal with easyJet for the servicing of more than 100 of its planes in Malta.

 

Established in Malta since 1974, Playmobil Malta employs more than 1,000 people and has an annual production capacity of 100 million figures. 


Package of Incentives

Manufacturing is seen as critical to the island’s ability to build a balanced economy. The government has introduced business-friendly policies and invested heavily in infrastructure to support the high-performance industries locating to Malta. A full package of incentives, ranging from fiscal benefits to the provision of custom-built specialised factory space, is offered by Malta Enterprise, the agency responsible for attracting foreign investment. The government has also intervened repeatedly to help the sector weather economic difficulties. Rapid and non-bureaucratic assistance for struggling companies during the last recession helped to avoid worker lay-offs and paved the way for fresh investment after the crisis. Malta’s credentials as a manufacturing base have been further strengthened by the island’s excellent transport and logistics links. Parts manufactured in other, cheaper locations can easily be imported, assembled or processed in Malta and then exported to the nearby markets of Europe and Africa.

 

Addressing the Image Problem

To target investment from niche market leaders and high-tech specialist producers, Malta has consistently invested in education. Top quality manpower is today the hard currency of its modern, streamlined, manufacturing industry. The University of Malta offers degree programmes through the faculties of science, engineering and medicine, and the island’s vocational college MCAST offers training in electrical and electronic engineering, among other courses.  While the wage bill has been rising in recent years, salaries in Malta are still below the EU average. Investors also cite productivity, dependability and the ability to innovate and assimilate new skills as the island’s most valuable asset.

However, companies report that finding qualified workers is becoming increasingly difficult, as Malta’s economy has approached nearly full employment. Today’s smart factories need skilled labour, and the number of ‘upskilled’ workers is not keeping pace with demand. Manufacturing has an image problem, suffering from the stereotypical perception of dirty jobs that require little skill and offer little opportunity for career advancement. To address this issue, Malta’s companies are increasingly showcasing their products and plants. As manufacturing has become more technology-driven, its share of managers and professionals, as well as middle skill positions, has risen, offering Malta’s young a host of interesting career choices.

 

The facility of Trelleborg Sealing Solutions in Malta. Trelleborg frst opened its doors in Malta in 1961, and at the time it was known as Malta Rubber. Today, the company produces approximately one billion O-rings every year. 

 

Growing Pains

Malta’s manufacturing companies benefit greatly from being part of a manufacturing cluster. Most manufacturing plants are located in Malta’s 10 industrial parks, which are administered by Malta Industrial Parks (MIP), Malta Enterprise’s right arm responsible for the allocation of factories for new economic investment projects, as well as the management of all government-owned industrial estates in Malta and Gozo. The country has also constructed a €35-million biotechnology park aimed at attracting life sciences companies. A cluster development dedicated to the aviation industry, the Safi Aviation Park, hosts several companies involved in the maintenance, repair and overhaul of aircraft, engines and components. However, companies say that industrial space is limited and that there is very little room for expansion. In addition, plans for high-rise buildings and regeneration efforts in some areas might require the country to rethink the location of its industrial zones. Logistics is the buzzword here given that companies do not only require manufacturing space, but also warehousing and transportation facilities. As companies are starting to favour a ‘build-it-here, sell-it-here’ model that enables them to respond with speed and agility to customers’ increasing demands for customised products and streamlined finish, logistics facilities are becoming all the more important.

 

Management Hub

One of the factors that has traditionally compensated Malta’s geographical disadvantage is the island’s competitive cost base. Malta offers lower costs than continental Europe, but an equally skilled and educated workforce; and it does not only compete with Asia, but increasingly also with manufacturing bases in Eastern Europe. However, the success of Malta’s economy has seen the country lose its European Union objective 1 status. This has had a knock-on effect on providing manufacturing companies with tax credits, which within Malta’s industrial base are viewed as a key component in the economics of manufacturing on the island given its logistical challenges. Government, industry and agencies are currently looking to establish solutions to this issue.

On the positive side, Malta has also identified new areas of opportunity to strengthen the sector’s competitiveness. The island’s authorities believe in the potential to form new clusters in high-tech and clean-tech industries. The main sectors are energy efficiency, renewable energy and water treatment, as well as waste and recycling. There are also opportunities in the related fields of life sciences and materials sciences. Plant managers envision Malta as developing into a management and support centre that would bring new products and services to the market. In this scenario, companies would locate mature production lines to lower cost countries, while building capabilities in managing processes and new technologies in Malta. 

 

A Focus on Innovation

The long-term goal is to reinforce and widen Malta’s high-value manufacturing cluster by developing an international standing, not only as a production base, but also as a test-bed for innovation. To achieve this, the government is encouraging research, development and innovation activities, while ensuring that the right skills are in place to keep up with the breakneck pace of change in the development of global manufacturing processes and technologies. By marrying a still relatively inexpensive and business-friendly environment with close proximity to major European and North African markets and a skilled workforce, Malta is luring foreign companies with a unique set of advantages.

 

 Joseph E. Khoury, Vice President Europe of Methode Electronics



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