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Cross cultural issues in trade relations with countries of the Mediterranean Region

Cross cultural issues in trade relations with countries of the Mediterranean Region. Aldo Scardino BANK OF VALLETTA p.l.c. A member of the Mediterranean Banking Network. Preliminary. Bank of Valletta p.l.c.: Is Malta’s largest bank ( by asset size )

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Cross cultural issues in trade relations with countries of the Mediterranean Region

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  1. Cross cultural issues in trade relations with countries of the Mediterranean Region Aldo Scardino BANK OF VALLETTA p.l.c. A member of the Mediterranean Banking Network

  2. Preliminary • Bank of Valletta p.l.c.: • Is Malta’s largest bank (by asset size) • Is listed on and a member of the Malta Stock Exchange • Is a member of the Mediterranean Banking Network • Has representative offices in Italy, Tunisia, Libya, Egypt, Australia and Canada • Malta: • Is a member of the European Union since May 2004 • Adopted the Euro in January 2008 • Has an Area of 316Km2 • Has a total population of 410,290 (2007) • Has a density per Km2 of 1,298 (2007)

  3. Agenda (1) A rough idea of trade relations in the Euor-Mediterranean region. (2) Which type of cross-cultural issues might impact on trade relations. (3) The Mediterranean in relation to the Global picture. (4) Going forward – fostering private initiative. (5) An example of Malta’s contribution towards the development of the Region.

  4. The Euro-Mediterranean Trade relations The EU is the most important trading partner for the Mediterranean countries (MED) accounting for circa 45% of both MED exports and imports. This is equivalent to circa 5% of both the EU’s exports and imports. The most important EU exports to the MED are in machinery and mechanical appliances (15%), electrical equipment (11%) and vehicles (8%). Conversely, EU imports from the MED are dominated by fuels and oils (40%) and to a lesser extent by textiles (11%). EU trade with the MED has increased substantially since 1995. MED exports to the EU have doubled between 1995 and 2004, with the trade deficit with the EU decreasing from 20% in 1995 to less than 10% in 2004. In 2004, the Mediterranean Region had a trade deficit with the EU in goods, whilst having a surplus in trade in services with the EU of circa €3 billion. SOURCE: Khaled Melad (February, 2008), MPRA Paper No. 7085

  5. The Euro-Mediterranean Trade relations The services sector is key to the MED economies. Services account for circa 50% of GDP in Egypt, Morocco and Syria; circa 60% in Tunisia; and 70% in Jordan and Lebanon SOURCE: OECD Policy Brief: “The development dimensions of trade” (October, 2001) The Barcellona Process was based mainly on tariff dismantlement. From 1992 to 2004 most Mediterranean countries have reduced their tariffs markedly. Concomitantly, the issue of agricultural protection in the EU may have been one of the major obstacles to the creation of a coherent Euro-Mediterranean partnership. In practice, the figures portrayed above show a trade situation between the MED and the EU that is highly asymmetric, with the EU contributing circa 50% to the MED foreign trade while the MED contributing only circa 6% to the EU foreign trade.

  6. Analysing cross-cultural issues “Cross-border transfer of organisational knowledge is most effective in terms of both velocity and viscosity when the type of knowledge (i.e. Human, social, or structured) being transferred is simple, explicit, and independent and when such transfers involve similar cultural contexts. In contrast, transfer is least effective when the type of knowledge being transferred is complex, tacit, and systematic and involves dissimilar cultural contexts.” Bhagat et al (2002) Could we use ‘transfer of organisational knowledge’ as a proxy for ‘trade exchanges’? If yes, one could use Bhaget’s (2005) cross-culture multi dimensional model to understand the flourishing or breakdown of trade between nations and within regions. The model takes various cross-culture dimensions and scores preferences across a continuum. Obviously, for knowledge to be transferred, and similarly for trade to flow (according to our assumption), there should be affinity in the preference continuum between parties.

  7. Some cross-culture dimensions Language: Transactions have to be negotiated in our language VERSUS English is the international business language so everyone should use it. Individualism versus Collectivism: Depend on groups or institutions to take decisions and cooperate closely to avoid risks and reduce responsibility VERSUS place a high value on independence leading to a more direct and informal decision making process (cooperation is seen as a sign of weakness). Cooperation: There are always changes in circumstances and contracts can be reasonably modified according to changes (more attention on relationships than contracts) VERSUS contractual safeguards are paramount (the transaction wins over the relationship).

  8. Some more cross-culture dimensions Conflict resolution: Emphasis on personal relationships, with the use of indirect ways to avoid direct and open conflict (authority may be used to suppress conflict and settle things in private) VERSUS Confronting problems directly and bringing things out in the open so as to resolve differences with the use of rational arguments, factual evidence and suggested solutions. Uncertainty Avoidance: An inclination towards uncertainty avoidance leading to a long-term orientation VERSUS higher risk-taking inclination leading to short-term orientation. Motivation systems: Collectivistic cultures that emphasize cooperation, interdependence, and group goals (equality principle) VERSUS value systems that emphasize individual achievement, competition, and the preference for plans that recognise individual contributions. etc.

  9. SomeReference Literature • Herman Aguinis (2002). "The Search for Universals in Cross-Cultural Organisational Behaviour". Organisational Behaviour: The state of the science (2nd Ed) Mahwah, NJ: Lawrence Erlbaum Associates. • John Sosik and Dong Jung (2002). "Work-group characteristics and performance in collectivistic and individualistic cultures". The Journal of Social Psychology. Washington, pages 5-23. • Mark K. Weaver (2000). "Attitudes toward Cooperative Strategies: A Cross-Cultural Analysis of Entrepreneurs", Journal of International Business Studies, 31, Q4 2000: pages 591-609. • S. Ting-Toomey (1985). “Toward a theory of conflict and culture” in W.B. Gudykunst, L.P. Stewart, S. Ting-Toomey (eds). “Communication, Culture and Organizational Processes”. Pages 71-86. Beverly Hills, CA: Sage. • Bhagat, Rabi S., Kedia, Ben L., Harveston, Paula D., Triandis, Harry C. (2002). “Cultural Variations in the crossborder Transfer of Organizational Knowledge”. Academy of Management Review, April 2002, Vol. 27 • http://www.asapm.org/asapmag/articles/GlobalizPM.pdf

  10. Practical results of cross-culture differences Risk-aversion leading to business decisions needed to be taken at the highest levels = entrepreneurial difficulty = government dominates the economy. Non-standardisation of Contracts / Contractual uncertainty / issues with contract enforcement. Lack of transparency / Proper accounting records / Credit Default histories / Net-worth disclosures. etc. A COMMON DENOMINATOR NEEDS TO BE FOUND WITHIN THE REGION SO AS TO FACILITATE MORE SIMILAR ECONOMIC PERFORMANCES.

  11. As long as the cross-cultural gap remains ..... In the world of globalisation, the Mediterranean continues to run the severe risk of being marginalised when it comes to political and economic activity. Economically, the gap (GNP per capita per year) between the two shores of the Mediterranean is the largest in the world between two adjacent regions. The rate of investment from the north towards the south is abnormally low. Only 2.3% of the EU’s foreign direct investment (FDI) is in the southern Mediterranean region (€5.86 billion in 2006). In comparison, 20% of the US’ FDI is directed towards its south, and Japan invests 25% in its south. The unemployment rate in North Africa is three times higher than in the EU. Given the growing population, if the current level of employment in North Africa is to be maintained 40 million additional jobs need to be created by 2020. Environmentally, the Mediterranean will be one of the regions most affected by climate change. SOURCES: Eurostat, 2008 / Ministry of Foreign Affairs, Malta

  12. A way forward A greater engagement by the private sector is crucial. Private enterprise, together with the financial community, can help counter the risks of bureaucracy and other inefficiencies that may lead to initiatives that are not market oriented and ultimately to waste of resources. It is important that energy emanating from the private sector is nurtured and mobilised so as to ensure an investment channel that is permanently open for the benefit of the Euro-Mediterranean region. The importance of such a privately manged investment conduit is better understood if the countries of the Gulf are brought into the picture. With their capital surpluses, they are the natural financiers of growth in the Arab world. It is everybody’s duty, including the EU, to facilitate credible and doable projects, that are market oriented, and that therefore allow such surplus savings to finance the growth of the Mediterranean region and not of other countries, such as the US or Japan.

  13. .... and how does Malta fit in? Malta has a stated ambition of becoming ‘THE’ Financial Services Centre of the Mediterranean Region. Is this realistic? The Global Financial Services Index 2008, published by the City of London ranked Malta in 4th place as the centre most likely to increase in importance in the coming years, and in 5th place as the centre where most organisations are likely to begin new operations in the next 2 to 3 years. Coming out a few months after Malta’s successful euro-adoption in January 2008, the World Economic Forum’s Global Competitiveness Report placed Malta in 20th place out of 131 countries for financial market sophistication – ahead of Switzerland (21st), Belgium (22nd) and France (24th). Therefore, Malta’s aspirations to become a leading regional financial centre appear sound and achievable (albeit with continued very hard work).

  14. Again, a bridge in the Mediterranean One example of how Malta could, as a regional financial centre, ensure that trade and investment within the Euro-Mediterranean region be financed? In 2008 the Malta Financial Services Authority (MFSA) has issued a consultation document on Islamic Finance for the industry to give feedback. The MFSA is targetting to have a Shari`ah-compliant financial infrastructure by next year. After having adopted important Anglo-Saxon structures such as Trust legislation, and becoming one of the most important European domiciles for Captives and Insurance companies, the enactment of a Shari`ah-compliant financial infrastructure will enable Malta to serve as the true bridge that the two shores of the Mediterranean need and deserve. The Barcellona process must be credited for starting a process of cooperation where little or no positive interaction was previously taking place. The Financial community within the Mediterranean now has a role to play in achieving progress.

  15. THANK YOU Aldo Scardino Head, Capital Markets & Institutions Bank of Valletta p.l.c. Tel: +356 22753149 Fax: +356 22751733 E-mail: aldo.scardino@bov.com

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