Italy- SMEs

Italy is a country of excellence not only concerning the artistic and historical heritage but also its industrial sector. A few data can help to describe the opportunities offered by the country. The current account balance of the manufacturing sector is in the region of 100 billion USD: Italy ranks fifth in the world, behind larger countries such as China, Germany, Japan and South Korea.

Competitiveness is growing: between 2008 and 2018, exports increased from 37% to 48% as a share of the total industrial turnover.

Another feature is that product diversification is much greater in Italy than in its main competitors (for example, it is twice that of Germany). In this respect, Italy can count on greater flexibility and the production of customized goods adapting to changing demand.

The Italian productive system relies on many export-oriented SMEs. Around 50% of Italian exports originate from SMEs (only 16% in Germany). Forecasts are for a further increase in the surplus of current account balance.

Finally, Italy is well known for its “traditional” products (food, fashion, design), but in these sectors the majority of companies do not compete with producers with low labor costs because Italian products are of a much higher quality. Moreover, also in the traditional sectors there is a high technology content, as producers of consumer goods take advantage of strong national machinery industry, among world leaders in the field.

One aspect of the Italian production system that fascinates foreigners is the existence of industrial clusters: small businesses, focused on specific manufacturing activities, which interact in a restricted area. This model started in the ‘70s has evolved into a completely different one in which there are hierarchical relationships between leading companies and subcontractors. The focus of the leaders’ activity is concentrated upstream and downstream of the supply chain (research and marketing) and the area in which it operates has expanded abroad following large scale direct investment. Therefore, these current industrial clusters are radically different from the past. The leading companies – the result of many stories of accelerated growth – have become key because they have invested in the territory and, at the same time, have been able to exploit the know-how of the local economy.

Thanks also to these leading companies, the clusters have become privileged places for the diffusion and adoption of complex behaviors and catalysts of technological, organizational and market innovation. In these specific territories, the percentage of companies with internationally registered brands is higher, the commitment on the innovation front is stronger, exports and the presence of FDI are bigger. Foreign companies that have launched an intense M&A strategy in these territories are well aware of this.

The attractiveness of Italy is shown by foreign direct investment already made also outside industrial districts. Foreign companies operating in Italy make a strong contribution to economic growth. They cover around 14% of total industrial investment and 26% of R&D expenditure. Thanks to these investments, some sectors have been revitalized. Today, for example, the Italian pharmaceutical industry has become the largest producer in Europe.

Looking at the future, Industry 4.0 (digitalization process) and the government’s related plan offer important opportunities. Industry 4.0 technologies work in favor of countries where SMEs are more widespread. In the Italian case, these technologies allow companies to: strengthen their ability to produce in limited series and offer customized products; manage more efficiently the traditional and intense supply chain relations between SMEs; enhance their acknowledged competences in mechatronics and robotics; enhance university system innovation capabilities in the fields of engineering and science.

Industry 4.0 technologies can favor industrial districts in particular, as the geographic proximity with competitors, can be a tool to learn more than elsewhere how to become “4.0” concretely. These results from an imitation process of local businesses and the evolution of the solutions already present in the market. In these cases, the territory’s assets (highly skilled personnel, corporate academy, incubators, start-ups, etc ..) play an increasingly crucial role in terms of competitiveness.

By Gregorio De Felice, Chief Economist Intesa Sanpaolo

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