The Greek public in general and the government in particular were jolted last week, following the announcement of Swiss-German company Schiesser Pallas of its decision to close down its factory in Greece and lay off some 500 employees, as well as the likely sale of a majority stake in major local tobacco company Papastratos to the Dutch subsidiary of Philip Morris International. These events highlight both the importance of international competitiveness and the effects of globalization. Unfortunately, many policymakers and business leaders have failed to grasp their importance, still thinking of Greece as a small, closed economy. This will have onerous implications for a number of Greek sectors in the years to come and therefore the Greek government, political parties, industrialists and labor unions have no option but to take notice of the new reality, bite the bullet and proceed with new strategies based on comparative advantage. The notion that a relatively small firm, by international standards, cannot fight the sheer power of the six giant firms in the tobacco industry played an important role, perhaps the most important, according to Dimitris Gertsos, one of the major shareholders in the well-known local firm. Gertsos’s thinking is not unique in the sense that others have gone down the same road. The Eureko Group acquired a majority stake in leading Greek insurance firm Interamerican from its main shareholder a couple of years ago and went ahead with a successful public offering. «I believe the Greek firms which offer value, have a respectable size and are leaders in their sectors will be bought by foreign firms in the next few years,» says Thanos Tsotsoros, head of investment banking at Proton Investment Bank. What about the other small, medium-sized and large Greek firms? Will they survive? According to analysts and business executives who know the Greek corporate landscape, the answer is not simple. A number of firms, especially labor-intensive ones, will simply vanish or will be forced to stop production in Greece and set up units in neighboring low-cost Balkan countries. It may have gone unnoticed but thousands of Greek small manufacturing firms producing apparel under license have either closed down or moved to these countries in the last 10 years or so. Economists like Alpha Bank’s Dimitris Maroulis say this may explain why Greek exports grew by 40 percent, much less than world trade that is, which doubled in the 1990s. Exports of apparel constituted a small but important share in total merchandise exports while protected but got hurt once barriers came down and subsidies evaporated after the mid-1990s. But Maroulis points out that new more competitive sectors have emerged, such as food and chemicals. «Today’s Greek exports are competitive whereas those were not. They were subsidized,» he says, adding that this is indicative of the changes the Greek production base has undergone over the years. Other analysts also refer to efforts by some listed Greek groups, for example in the food industry, to transfer the production of some of their low profit-margin products to neighboring countries in order to shore up their margins, and consequently their earnings, and to boost their shares on the Athens bourse. These companies have kept their main production facilities and headquarters in Greece but seek to extend their reach abroad. «Many companies will have their headquarters in Greece but their production facilities abroad in a few years,» says Tsotsoros, implying a surge of unemployment in these sectors and perhaps the loss of some exports. Nothing shows the state of Greek international competitiveness better than the current account deficit, which amounted to 9.120 billion euros in 2002, accounting for 6.5 percent of gross domestic product. It is one of the highest in the EU. Non-oil merchandise exports retreated 5.9 percent year-on-year whereas non-oil merchandise imports stayed flat. Although this large current account deficit does not constitute a constraint on exercising economic policy, it demonstrates the erosion of Greek international competitiveness. Greek central bank figures also show that the real effective exchange rate, measured by the unit labor costs in manufacturing, rose 1.8 percent in 2002 versus a decline of 0.2 percent the previous year, supporting the case for the erosion of competitiveness in 2002. Moreover, some economists, such as EFG Eurobank’s Plato Monokroussos, while stressing that Greek exports are losing a significant share in traditional labor-intensive branches (though gaining ground in capital- and technology-intensive branches characterized by economies of scale and high added-value products such as energy and chemicals) point out something else. They warn that Greek exports of capital-intensive goods, many of which cannot compete successfully in other EU markets, may lose market share in central and eastern European countries in the years to come because consumers in these countries are likely to both increase demand for capital-intensive products and demand better quality therefore turning to other EU countries. Of course, this is not to signal that there is no hope and the Greek economy has no future. After all, there are Greek firms which compete very effectively in developed and emerging markets and are doing very well, as shown by their financial results. But there is no doubt that more prominent Greek companies will be bought out and become subsidiaries of multinational corporations. It is of the utmost importance, then, that the competitive Greek firms are provided with the right incentives, given the right infrastructure and flexibility to operate and prosper. It is their responsibility to forge the right strategies in a more competitive world, where ad hoc currency devaluation has been ruled out as a competitive toll, and the State’s responsibility to provide them with a competitive business environment.