International sourcing in small island states and their impacts on employment : the case of the Maltese Islands

Abstract

At each stage of the Global Value Chains, an enterprise may opt to source domestically or internationally, and source core or supporting business functions to affiliated or non-affiliated organizations. How a multinational enterprise opts to enter an investing country affects labour expertise demands. The extent of skilled and unskilled labour demands as a result of international sourcing are diverse, impacting wage rates and henceforth Gross Domestic Product. Despite this, there is a paucity of data; particularly more pronounced for small island states, including Malta. The Global Value Chains and International Sourcing (GVCIS) survey for the period between 2018 and 2020 was utilized to determine the effects of international sourcing on Malta-based enterprises. The concurrent international sourcing to Malta was analyzed via the micro linking of various statistical databases produced by the Maltese National Statistics Office and data from the GVCIS Survey. International outsourcing to Malta was assessed indirectly by utilizing information gathered from the second module of the GVCIS Survey. It was concluded that despite the prima facie impression that international insourcing via Foreign Direct Investment (FDI) is beneficial to the Maltese economy, the limited research present limits the inferences and extrapolations that can be done. Thorough research needs to be done to better assess the optimal model for attracting investment; either by using the FDI framework or by attracting niche supporting activities using the international outsourcing model. Lack of specialized knowledge and technologies was listed as an important barrier to that can not only decrease Malta’s attractiveness to international sourcing but is also an important motivator for Malta-based enterprises to source internationally, thereby leading to domestic employment loss. Producing a ‘skills priority list’ and an ‘apprenticeship national skill needs list’ could be a potentially effective action to challenge present and future lack of specialised knowledge in the domestic economy. Until further research is performed, deciding between affiliated investment and attracting opportunities from third party non-affiliated investment is not simple. Improving the current skills of local workers should be prioritised to optimise Malta’s potential with respect to international sourcing.