Description
The anomaly of company size in Italian manufacturing has been amply documented by numerous
studies, including, most recently, Traù (1999 and 2002), Guelpa and Trenti (2000), Gambardella
and Varaldo (2001) and Zanetti (2001). The late 1970s marked a watershed, bringing the end of
the post-war decline in small firms’ share of total employment and ushering in a corresponding
reduction in the share attributable to firms with more than 500 workers. This pattern was common
to all the major countries.
CESPRI
Centro di Ricerca sui Processi di Innovazione e Internazionalizzazione
Università Commerciale “Luigi Bocconi”
Via R. Sarfatti, 25 – 20136 Milano
Tel. 02 58363395/7 – fax 02 58363399http://www.cespri.it
Fabrizio Onida*
Growth, competitiveness and firm size:
factors shaping the role of I taly’s productive system
in the world arena**
WP n. 144 July 2003
_________________
* Professor of International Economics, Università Commerciale Bocconi, Milan.
** Published on Review of Economic Conditions in Italy, n°3, 2002.
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ABSTRACT
The well-known anomaly of the size structure of Italian manufacturing industry, in which small and
micro firms have a disproportionately high share of total employment and value added and large
firms a correspondingly low one, has been accentuated in recent years, depressing nominal labour
productivity in the economy as a whole. Hindering the expansion of small firms are obstacles
rooted in structural and behavioural characteristics of the productive system, such as the aversion
to loss of direct ownership and management control of family businesses and the consolidation of
the model of industrial districts, alongside factors external to the firm, such as the nature of Italy’s
banking and financial system and industrial policy measures. The declining trend in Italy’s shares of
the international market in recent years reflects an unfavourable composition of outlet markets and
sectors in terms of their relative growth dynamics, but it also stems largely from problems
connected with the size-imposed limits on international and transnational expansion and the
gradual break-up of once-dominant oligopolistic groups. The risks of a model of development in
industry and services based on poor or mediocre human capital, and thus unable to employ and
exploit the growing supply of graduates entering the labour market, must not be underestimated.
JEL Classification: F02
Keywords : Trade, Competitiveness, Size of firms, ItalyDirect Investment, Employment,
Productivity
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1. Introduction
This article does not break new analytical ground but simply presents a reasoned review of the
data and findings of recent work on the different issues grouped into two clusters, namely the
Italian economy’s loss of international competitiveness and the difficulty encountered by Italian
companies in scaling up. Its overall assessment of the Italian economy’s “fitness” in international
competition is not unduly and superficially pessimistic, for the productive system still has abundant
entrepreneurial, managerial and labour resources at its command. However, along the way it
underscores risks and chronic weaknesses with which the nation’s (legitimate) expectations for
prosperity and economic and social development will have to reckon.
Section 2 presents some striking anomalies in the size structure of manufacturing firms in Italy
compared with the other major European countries. Section 3 compares indicators of labour
productivity and the return on capital employed in industry according to firm size in the 1990s and
then discusses some plausible explanations for the persistent constraint on the growth of
companies. Section 4 describes the slippage in Italy’s export shares in recent years and discusses
the weaknesses of our model of specialization. Section 5 examines the decline of large companies
and the country’s associated lag in spending on research and development. Section 6 looks at
Italy’s weak position as both an originator and a recipient of investment by multinational
corporations. Section 7 summarizes and concludes.
2. The structural anomaly of size in Italian industry and services
The anomaly of company size in Italian manufacturing has been amply documented by numerous
studies, including, most recently, Traù (1999 and 2002), Guelpa and Trenti (2000), Gambardella
and Varaldo (2001) and Zanetti (2001). The late 1970s marked a watershed, bringing the end of
the post-war decline in small firms’ share of total employment and ushering in a corresponding
reduction in the share attributable to firms with more than 500 workers. This pattern was common
to all the major countries. The following are to be cited among the principal factors explaining the
reversal in trend: a) an acceleration in the conversion to a service economy, given the greater
relative importance of small and tiny firms in many branches of personal and business services,
from retail distribution to professional consulting; b) the spread of the new information
technologies, reducing the importance of classic economies of scale in factories;
c) the gradual shift of consumption towards specialties producible by smaller firms; d) the passage
of legislation favouring small and medium-sized enterprises as engines of job-creation at a time of
virtually universal downsizing by large firms, with the production of materials and components
being outsourced to flexible and competitive suppliers; e) privatizations, which broke up the large
publicly-owned groups. An additional factor was the indirect effects of the oil shocks, which
stimulated energy-saving technological innovation everywhere and led business away from the
energy-intensive products typically associated with bigness.
These trends were particularly pronounced in the Italian case: the proportion of workers in firms
with fewer than 100 employees rose rapidly from an already high base to reach 70 per cent,
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compared with between 20 and 30 per cent in the other countries (Figure 1).
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In particular, at
the start of the 1990s firms with fewer than 20 workers accounted for 39.0 per cent of total
manufacturing employment in Italy, against 13.1 per cent in France, 14.0 per cent in Germany and
18.0 per cent in the United Kingdom; the proportion in Italy was also far higher than that of 23.0
per cent recorded in Japan, a country considered very similar to Italy in many respects owing to
the importance of small and tiny firms in the productive fabric (Filippi and Zanetti, 2001, pp. 629-
630). Meanwhile, the low share of jobs in firms with more than 500 employees fell further;
according to the latest available census data, in the 1990s the proportion was just over 15 per
cent in Italy, against 42 per cent in France, 52 per cent in the United Kingdom, 56 per cent in
Germany and 64 per cent in the United States (Figure 2). In thirty years the average size of firms
in industry and services shrank more markedly in Italy than in the other main countries and is now
equal to about 60 per cent of the average for the other EU countries (Fazio, 2002, p. 19).
Italy’s situation also appears anomalous when it is compared with that of the less advanced
countries, where large firms’ share of output either has fallen less sharply in the past decades (as in
Spain, Portugal and Greece) or has actually continued to grow (as in Brazil, Mexico, South
Africa, India and Taiwan).
The large number of micro firms (1-9 employees), their share in total employment and the
importance within the category of sole proprietorships are reflected in the smaller percentage
contribution of earnings from salaried employment to income in Italy than in the leading countries.
In the 1990s this contribution contracted more rapidly than elsewhere, falling from 46 to 42 per
cent. In seven other countries the figures ranged from a low of 47 per cent (Austria) to a high of
57 per cent (the US and Sweden) (BIS, 2001, p. 20).
Indirectly related to the distinctive fragmentation of the Italian productive structure was the
relative size of the underground economy, which probably increased further in the 1990s. The
National Institute for Statistics (Istat) estimates that irregular labour units accounted for 15.1 per
cent of total labour input in 1999, up from 14.5 per cent in 1995, with extremely high levels in the
southern regions, e.g. Calabria (27.8 per cent), Campania (25.9 per cent) and Sicily (24.1 per
cent) (Istat, 2002, p. 171). This is at least a secondary explanation of the well-known anomaly of
Italy’s low employment rate (i.e. percentage of the population aged 15-64 in work), which is
around 10 percentage points lower than the EU average (52 against 62 per cent) and far below
the rate in the United States (74 per cent). Moreover, the average employment rate in Italy
conceals a dramatic gap between the Centre and North (60 per cent) and the South (42 per
cent).
3. Small firms and drags on productivity and output growth
3.1 Productivity and the relative performance of SMEs. Examining the structure of the
productive system and corporate organization, Istat remarks that as firms grow the resulting gains
in nominal labour productivity (value added per employee) significantly outweigh the attendant
rise in labour costs, with positive effects on profitability (Istat, 2002, p. XVII). Labour
productivity in firms with fewer than 10 employees is scarcely 44.3 per cent of that in firms with at
least 250 employees, while the corresponding figures for profitability and labour costs are 55.4
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and 52.0 per cent. The differential in labour productivity between small companies and larger ones
represents an incentive for growth, but its force is partly blunted by the fact that the differentials in
labour costs enable small firms to achieve appreciable profitability without having to invest in
organizational, technological and market innovations.
According to the Bank of Italy (2002), between the end of the 1980s and the middle of the
1990s the average annual growth in productivity in large firms was nearly double that in small firms
(3.9 against 2.3 per cent). Medium-sized and large firms also invested more heavily in information
and communication technology, stimulating smaller companies to follow suit.
A study by Guelpa (1999) of the annual accounts of 4,497 private-sector manufacturing firms
for the period 1985-1996, broken down into five size classes ranging from micro firms (up to 10
workers) to medium-sized and large companies (more than 100 workers), confirms the trends
described above: as firm size increases so does the stock of fixed capital per employee, boosting
labour productivity, while the role of outside financing, the burden of financial charges and the ratio
of bank debt to total debt all decrease. Overall, small firms appear relatively “undercapitalized”
with respect to the size of their investments and their volume of business, although Guelpa also
warns us to treat these results with some caution on account of the frequent commingling of
corporate with personal assets and liabilities in these enterprises.
A wide-ranging study using national accounts statistics and manufacturing firms’ annual accounts
at the European level (BACH database) analyzes the profitability indicators of small, medium-
sized and large companies, grouped and broken down by major sector (Caprio and Inzerillo,
2002). It shows that Italian firms’ return on investment and, especially, their return on equity are
lower than those of their European counterparts, not to mention those of similar firms in the United
States. This gap widened in 1997-99, when the lira recovered after depreciating sharply in 1993-
95. Return on investment is analyzed in its two components: profits over value added (which is
high) and value added over capital employed (which is sharply lower). This low capital
productivity reflects an “overcapitalization”, i.e. an excess of tangible fixed assets starting as early
as the end of the 1980s. Corroboration comes from the high ratio of capital stock (net revalued
tangible fixed assets) per worker and the higher ratio of depreciation and amortization to value
added, as shown by OECD national accounts data. The overcapitalization of Italian manufacturing
companies probably reflects a widespread strategy of labour saving, encouraged in part by
industrial legislation that until recently provided incentives for fixed capital investment rather than
for employment, research and human capital development. The comparatively low average return
on equity of Italian manufacturing firms reflects, in turn, an array of factors including a high
incidence of elements such as taxes on profits, financial expense and net losses on extraordinary
items.
However, within this general framework, medium-sized companies – defined as those with
annual sales of between €7 million and
€40 million, which might better be called “small and medium-sized” – appear more profitable. A
comparison of return on investment according to firm size and sector confirms the higher
profitability of medium-sized companies with respect to large ones, especially in electronics,
transport equipment and consumer durables. The disadvantage of large firms diminishes in sectors
such as machinery, basic metals and non-durable consumer goods. In textiles and clothing Italian
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companies as a whole are in the same league as those in other European countries, and large
Italian firms actually outperform their European competitors by a wide margin.
In brief, Italian manufacturing firms overall are smaller, less profitable, more heavily capitalized
but also less inclined to grow than their counterparts in other countries. Within the sector, large
firms are penalized by low profitability, even if they do benefit from higher labour productivity.
Both of these phenomena may be traced back to the lack of the organizational-entrepreneurial
factor, to which Fuà (1980) assigns a pivotal role in the analysis of late-developing countries.
However, let us not overlook the positive signs that have appeared in the last two decades with
the rise of a vibrant, robust mittelstand of groups, most of them family-controlled, strongly
focused on their core business and committed to international and multinational integration. It has
been rightly remarked that Italy’s productive structure can no longer be described as a simple
dichotomy between small and large firms (Balconi et al., 1989). If this new entrepreneurial reality
is to grow, it will have to avoid obstacles and strategic errors (the cautionary examples include the
cases of Fochi, Mandelli, Zanussi and Elfi-Ocean). This said, however, the fact remains that Italian
industry has rarely been able to position itself in the typically high-tech sectors.
3.2 Some reasons for the constraints on growth of SMEs. The “dwarfishness” of Italian
production units is compounded of at least four historical, political and cultural ingredients that we
can only touch on here. They are: aversion to the loss of direct family control, the model of
industrial districts, a banking and financial system not inclined to finance equity capital and late in
providing adequate support for firm’s international expansion, and, lastly, industrial policy that
tends to ignore the mittelstand. The first two ingredients relate to industrial structure and
governance, the last two to the environmental and institutional context.
To begin with, the traditional aversion (not just in Italy) to losing control of one’s family business
is certainly a factor of strength during a company’s take-off, when reinvested profits and bank
credit play a crucial role, but later on it becomes a curb on external growth, when the company
examines the opportunities for a large step-up in its international activity (Barca, 1994). In Italy,
reluctance to see a dilution of ownership control is accentuated by the underdevelopment of the
stock market, to which we shall return shortly.
On the second point, the quantitative and qualitative importance of industrial districts in Italy is
beyond doubt. According to Istat estimates, in 1998 Italy’s 199 industrial districts accounted for
43.3 per cent of manufacturing exports, with shares exceeding 60 per cent in sectors such as
knitwear and clothing, leather products and footwear, ceramic tiles, furniture, jewellery, musical
instruments and farm machinery (Istat, 1999, pp. 109-116). Nonetheless, the large external
economies or “district economies of scale” found by many qualitative studies do not in themselves
prove that district firms’ operating efficiency is superior to that of non-district firms belonging to
the same sector. An estimate of comparative technical efficiency (Istat, 1999, pp. 174-5) suggests
that the district effect is positive and substantial only in leather working and footwear and in
textiles, and then only for medium-sized companies. By contrast, districts do not appear to play a
positive role in several very important export industries, such as wood products and furniture and
industrial machinery. In recent years industrial districts have also been springing up in the South
(Viesti, 2000).
Still, the constraints on scaling up have not prevented medium-sized and even large firms
endowed with a truly managerial organizational structure and important multinational connections
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from emerging as leaders in many districts: Zegna and Loro Piana in the Biella wool district,
Marazzi in the Sassuolo ceramic tiles district, GD in Bologna’s “packaging valley”, Merloni in
Fabriano, Della Valle in the footwear district of the Marche, SCM in the wood products and
woodworking machinery hub of Rimini, Tecnica in the athletic shoes and footwear district of
Montebelluna, Luxottica, De Rigo, Marcolin and Safilo in the Friuli eyewear district, Gucci and
Ferragamo in the leather goods and shoe industry around Florence, Uno-a-Erre in the goldwork
district of Arezzo, LineaPiù in the Prato textiles industry, Natuzzi in Murgia upholstered furniture
district in Puglia, and so on.
Traditionally, districts are viewed as an instance of a Marshallian external economy (see, among
many others, Garofoli, 1999, and Varaldo and Ferruci, 1997), a network of small independent
firms sharing a large fund of “social capital” and network services. However, some studies analyze
them as structures breeding internal “hierarchies” (Brioschi et al., 2001, Balloni and Iacobucci,
2001).
Alongside these elements of productive structure and governance, at least two environmental
factors help to explain the constraint on growth. The first relates to the structural characteristics of
the banking and financial system on which companies’ external financing depends. In Italy, the
strong local roots of savings banks and commercial banks no doubt played a key role in
accompanying the early development of industrial districts and SMEs, a role that included support
for the growth of groups through mergers, spin-offs, ownership transfers and retooling. However,
the banking system was, and in part still is, less equipped to accompany and support companies in
their progressive internationalization, in which the traditional credit function must increasingly be
integrated with financial consulting, evaluation of market and customer risk, assistance in raising
equity capital and disbursement of medium-term export credit, functions all of which presuppose a
culture of merchant and investment banking rather than pure commercial banking. Italy’s
underdeveloped private equity and venture capital markets also deserve to be mentioned. A large,
efficient market in both these forms of equity financing is important for fostering the growth of
enterprise, and particularly of innovative enterprise, which is essential in order to create new
competitive advantages alongside those inherited from the past.
To be sure, the stock exchange flotation of up-and-coming small companies is not indispensable
to sustainable industrial growth, and its importance must be interpreted in the light of the actual
behaviour of a country’s markets and financial institutions. On this count the recent history of
Italian industry – from chemicals to electronics, from telecommunications to food processing –
unhappily is replete with discouraging examples of mismanaged listed companies, whose
technological and human capital was severely compromised or even destroyed. Yet, we cannot
ignore the ways in which stock exchange listing can generate new and potent stimuli to value-
creation and growth. Suffice it for us to consider the following: a) availability of copious financial
resources in order to seize opportunities for rapid external growth and expanded market shares,
including acquisitions abroad; b) pressure for change exerted by independent shareholders
(institutional investors) not afflicted by short-termism and interested in seeing the company take
advantage of the openings offered by technology and by competitive conditions in the different
markets;
c) encouragement of greater transparency in financial reporting, to the benefit of the controlling
family and creditors alike, given their shared interest in ensuring the financial soundness of the
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company; d) more effective marketing of the company’s image; e) maximum facilitation of
generational transfer, thanks to the effective distinction between ownership and management.
A related issue, newly topical following recent measures in the field of company and labour law,
is that of the role of the legal and juridical context in generating incentives and disincentives for
firms to grow and, in particular, to go public. I cannot develop this point at length here. However,
in passing we can note that the recent revision of the legislation on false accounting does not
address the problem of the lengthiness of penal and civil justice proceedings (in particular, those of
bankruptcy and composition with creditors) and could further discourage the raising of equity
capital through the stock market. The new provisions reinforce the distinction between listed and
unlisted companies, making the crime of false accounting prosecutable for the latter only if a
complaint is filed by a shareholder; the presumption, in the absence of a complaint, is that unlisted
companies do not injure third parties in the market.
The nature of industrial policy is the second environmental factor. Since the 1970s industrial
policy measures in Italy have mainly involved bail-outs for large companies or limited incentives for
SMEs. The problems of medium-sized groups expanding abroad have received scant attention.
The measures giving financial support to troubled medium-sized and large groups include Law
675/1977 (industrial conversion), 787/1978 (financial adjustment of large firms), 95/1979 (the so-
called Prodi Law for medium-to-large distressed firms), 184/1971 (establishing GEPI, the State
Industrial Management and Holding Company), 784/1980 (for SIR S.p.A.), and 63/1982 (on
Rel). On the other hand, we have demand-side action taken mainly to assist SMEs. Among the
relevant measures, we have Laws 1329/1965 (the Sabatini Law for supported loans to companies
selling or buying machine tools), 696/1983 (capital grants for purchases of high-tech machinery),
and 227/1977 (support for exports). By contrast, there are few examples of industrial incentives
specifically designed to help medium-sized firms to scale up their operations. Some legislation has
sought to stimulate technological innovation, but these measures, however useful, have not been
able to foster the creation of a critical mass of innovative investment in an advanced oligopolistic
setting. Examples include Laws 46/1982 on the Revolving Fund for Technological Innovation and
1089/1968 on the IMI Fund for Applied Research (on the entire question, see Momigliano, 1986,
and CERS-IRS, 1986, Chapter 3). Naturally, the size thresholds that are a feature of nearly all the
industrial incentives may well act as a brake rather than a stimulus to company growth. See, for
example, the perceptive analysis by Scanagatta (1999) of the Mediocredito Centrale sample for
the period 1992-94.
4. Weaknesses in Italian industry’s international position
4.1 Declining market shares and the real exchange rate. The starting point from which to
survey the current weaknesses in Italy’s international position is the erosion of Italy’s share of
world exports since the end of the weak lira, i.e. following the double devaluation of 1992 and
1995.
In 2001 there was a slight recovery, helped by the weakness of the euro against the dollar, but
partial data for 2002 not only do not point to a clear reversal of trend but, if anything, suggest a
further decline in export shares particularly in EU markets, which alone take more than half of
8
Italy’s sales abroad (Figures 3-5 and Table 1), in many key sectors. Compared with the peak
reached in 1995-96, Italy’s share of world exports at current prices fell by around 1 percentage
point, more than losing the ground that had been gained in the preceding 15 years. Furthermore,
the losses in market shares in the five years 1996-2000 were not solely to the benefit of new
Asian and East European competitors, a situation common to many industrial countries, from
Europe to Japan; Italy also lost shares to industrial countries of Europe and North America. A
chart in the Bank of Italy’s Annual Report for 2001 (Banca d’Italia, 2002, Fig. B26, p. 163)
clearly shows that the trend in Italy’s share of the exports of the industrial countries at constant
prices in the 1990s was specular to that of France and Germany: an increase of half a percentage
point between 1991 and 1995 (when France lost a point and Germany a point and a half),
followed by a decline of around one point in 1996-2000 (when France recouped half a point and
Germany rose back above its initial level of 1991). Although convincing econometric
demonstrations are still lacking, all this can be readily interpreted as reflecting the end of the period
of the weak lira. After 1995 the lira first appreciated considerably and then stabilized within the
euro, albeit with what remains a substantial weakening of the real exchange rate from the levels of
1990-92. That deterioration ranges from 10 to more than 20 per cent vis-à-vis the major
industrial countries, depending on whether it is measured by the GDP deflator or industrial prices
or unit labour costs (CSC, 2002, p. 53; EC Commission, 1999, p. 49).
To quote from Governor Fazio’s Concluding Remarks to the Bank of Italy’s Annual General
Meeting of 31 May 2002, “The volume of Italian exports increased by 25 per cent between 1995
and 2001. Over the same period world trade grew by 45 per cent and the exports of the other
eleven euro-area countries by 55 per cent. Italy’s share of world trade in goods, at constant
prices, fell from 4.6 per cent in 1995 to 3.7 per cent in 2001” (Banca d’Italia, 2002, “The
Governor’s Concluding Remarks”, p. 14).
Whereas a decade or so ago Italy had overtaken the United Kingdom to rank sixth in world
exports and fifth in exports of manufactures, today it ranks eighth (sixth in services, thanks to the
large contribution of tourism), having been surpassed by China (permanently) and Canada
(perhaps only temporarily, depending on the cycle of domestic demand in the United States)
(Tables 3 and 4).
Of course, we must not forget that 1993 marked a turning-point for Italy’s balance of payments
on current account owing to the devaluation of the lira and the sharp economic downturn. Since
then Italy’s net external financial position has improved and remains in surplus even though the
external current account did not show a surplus in 2000 and 2001 (Figure 6).
The contraction in Italian exports in the 1990s was partly the product of a cyclically
unfavourable composition of outlet markets (low share in the fast-growing US market and high
share in the much less dynamic EU market), together with a persistently unfavourable composition
of the sectors of competitive advantage (low shares in high-growth sectors of world demand, such
as information technology, telecommunications, chemicals and transport equipment, and high
shares in the relatively sluggish sectors of traditional consumer goods and capital equipment)
(Figures 7 and 8). Combining the two dimensions of value added per employee and demand
growth, as suggested by Bianchi et. al. (1998) and taken up by Caprio and Inzerillo (2002), there
emerges a model of Italian specialization centred on: a) sectors with medium-to-high growth but
low value added (clothing, leather products and footwear, furniture, rubber and plastic products,
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metal products, electrical goods); and b) sectors with average value added but slower-than-
average growth (food processing, industrial machinery, marble, tiles and glass). In nearly all the
high-growth, high-value-added sectors, such as chemicals, pharmaceuticals, transport equipment,
information technology, consumer electronics and precision instruments, Italy is not specialized
and is actually moving in the opposite direction of the other major industrial countries in the last
two decades.
But even taking account of these “structural effects”, a simple constant-market-share analysis of
Italian exports in 21 markets and more than 1000 sectors and branches corresponding to the 4-
digit Harmonized System shows that more than half of the loss in share in that period was
attributable to lesser competitiveness (Table 2). The calculation of export performance
contained in the OECD’s half-yearly report for 2002 indirectly confirms this. A country’s export
performance is measured as the positive or negative difference between the growth rate of its
volume of exports and the average of the growth rates of the volume of imports of its outlet
markets, weighted on the basis of the geographical composition of the same outlet markets in
1995. In this calculation Italy presents a striking sequence of negative differentials between 1995
and 2000, with further losses predicted for 2002 following a slight recovery in 2001 (OECD,
2002,
p. 274). Nearly all the other main European countries, not to mention China and the emerging
countries of East Asia, outperformed Italy by a wide margin. It is small consolation to recall that
Japan has ranked last in performance for many years.
The recovery in cost competitiveness in 1999 and 2000 deriving from the appreciation of the
dollar against the euro was not enough to reverse the trend, nor could it boost Italy’s export
performance in the rest of the euro area and in the world markets where Italian products vie with
those of other euro-area countries. There is thus good reason to fear a further appreciation of the
euro against the dollar, which is likely to occur when the markets, losing confidence in the dollar as
a store of value, become less inclined to finance the massive, persistent current account deficit of
the United States, now the world’s largest debtor.
In addition, the gain in competitiveness stemming from the deterioration in the real exchange rate
of the lira appears less impressive, and also more tenuous, in the light of two facts: a) the
persistent, albeit limited, differential in domestic inflation, as measured by the GDP deflator, with
respect to Italy’s major European competitors; b) the large depreciation against the dollar suffered
by the currencies of many emerging countries after 1997-98, with a high likelihood that the
weakest currencies will follow the dollar in the latter’s impending depreciation. As the EC
Commission observed (1999, p. 50), between the middle of 1997 and the end of 1998 the real
exchange rate of the lira calculated on consumer prices vis-à-vis the currencies of 43 countries,
including those of Central and Eastern Europe and Eastern Asia, recorded an appreciation
(indicating a loss of competitiveness) of 6 per cent.
The declines in Italian export shares in recent years have been largest in the major markets of
Western Europe, which alone make up 60 per cent of Italy’s outlet markets (Figure 9 and
Tables 5 and 6) and for many sectors of non-durable consumer goods (Figure 10 and Table 7),
even though the latter continue to show a sizable surplus, offsetting structural deficits (agricultural
and non-agricultural raw materials) and other deficits due principally to the scant presence of
Italian capital in the fastest-growing high-tech sectors (Figure 11). For example, between 1997
10
and the first five months of 2002, Italy’s share of Germany’s imports fell from 16.7 to 12.8 per
cent in the textiles and knitwear sector, from 26.7 to 20.6 per cent in leather goods and footwear,
from 19.4 to 13.4 per cent in furniture, and from 21.4 to 14.0 per cent in glass and ceramic tiles
(Table 8). In the same period Italy’s share of French imports declined by 3 percentage points in
textiles and knitwear (from 18.7 to 15.7 per cent), by 4 points in footwear (from 26.8 to 22.7 per
cent), and by more than 5 points in gold and jewellery (from 22.2 to 16.8 per cent) (Table 9).
These losses have been only partly offset by a strong showing by other sectors, such as electric
home appliances, and, at least since 1999, in other markets, such as Russia, Eastern Europe and
the Mediterranean countries.
4.2 Fragility of Italy’s model of international specialization. Italy’s model of specialization is
particularly vulnerable at the extremes. At the top, the other advanced industrial countries seem
better equipped to compete in the sectors typified by large economies of scale and those that are
R&D-intensive: motor vehicles, chemicals and pharmaceuticals, aerospace, power generating
equipment, information technology, telecommunications, and so forth. At the bottom, several
emerging countries with sharply lower costs and enormous production and distribution potential
are eroding Italy’s share of the rich countries’ imports in market segments that are initially of low
quality but which can be rapidly upgraded with the application of imported technology, including
the pre-eminently exportable forms of technology developed in Italy.
Classifications of goods based on different measures of factor intensity and econometric
exercises that seek statistical correlations between indices of specialization (revealed comparative
advantage) and structural characteristics of the economy’s sectors must certainly be treated with
caution. This said, a number of recent studies find that Italy’s model of specialization is clearly
moving counter to that of the other industrial countries, including some, such as Spain and Ireland,
with substantially lower per capita income. I am not just referring to the well-known weakness of
Italian industry’s presence in the high-tech sectors (see Section 5), but to the even more
worrisome fact that Italy is specialized in sectors with large inputs of unskilled labour and
despecialized in sectors that make intensive use of skilled labour. The contrast with the others
holds even vis-à-vis Spain (Figure 12).
A note of interpretative caution is necessary regarding these comparisons based on labour skills.
The statistics commonly used to attribute characteristics of labour skills to the various sectors
generally refer to the distinction between managers and clerical workers on the one hand and
manual workers on the other, thereby defining all manual workers as unskilled. Now, this
definition plainly fails to capture the important difference between specialized and general
production workers. It makes little sense, for example, to treat specialized workers employed in
complex facilities (e.g. chemical or petrochemical plants) or assigned to sophisticated machinery in
flexible production units as belonging in a single group with the (increasingly immigrant) population
of workers in the tanneries, sheet-metal factories, and the like.
Nonetheless, the results undeniably show that Italy risks being penalized in the longer run
inasmuch as it is: a) more exposed to competition from the countries with abundant unskilled, low-
wage labour; b) less able to exploit the stimuli of “endogenous growth” resulting from dynamic
economies of scale, technological learning and innovation connected with human capital; c) less
prepared to act as supplier to prospectively high-growth market segments. Given this model of
11
specialization, the income-elasticity of world demand by sectors and products is unfavourable to
the relative performance of Italian exports. Even so, a world of increasing product specialization
necessarily offers a country like Italy opportunities to specialize in relatively more dynamic market
segments and products even within the more mature sectors – opportunities some of which have
been exploited.
The last-mentioned aspect has been explored by a number of econometric studies on Italy’s
intra-industrial specialization (by product and by variety within the same categories of goods)
as opposed to the more classical issue of inter-industrial specialization across different sectors.
In all countries the volume of intra-industrial trade in relation to total exports has tended to rise
strongly in recent decades, albeit with the unavoidable cyclical ups and downs. This remains true
even when the disaggregation of products according to “sectors” is pushed to the 3- and 4-digit
standard customs classification in order to achieve a better approximation of the notion of product
and product group. In the 1990s Italy diverged from the average, displaying indices of intra-
industrial specialization (à la Grubel-Lloyd) even lower than those of Spain and no longer trending
upwards, in contrast with Spain, among others (Figure 13).
To present a true and fair view, we must add that by some estimates Italy’s index of intra-
industrial specialization, at least in the traditional consumer goods sectors, is based on exports of
medium and high quality (measured by an average unit value well above the average for the
sector), together with imports of goods of predominantly low-to-medium quality. In other words,
Italy’s intra-industry specializations is “vertical positive”. This is very clear in the findings of De
Nardis and Traù (1999) for a virtually complete spectrum of manufacturing exports to the OECD
countries and those of Annicchiarico and Quintieri (1999) for textiles, clothing and footwear for
the years 1980, 1990 and 1996. Unsurprisingly, the latter study finds a relatively high proportion
of quality imports from the transition countries of Central and Eastern Europe, with which Italy
vigorously promoted the development of outward processing in the 1990s. This flow necessarily
involves a significant increase in value added between the temporary exports supplied by Italy and
the reimported intermediate or semi-final products, to be finished and upgraded with branding by
Italian firms. The picture is less positive for specialized machinery, Italy’s other major area of
intra-industrial strength.
This contrasts with the conclusions reached by the CEPII (1998,
pp. 115-117) in a study based on 1996 data at the highest level of statistical disaggregation (some
ten thousand items of the harmonized 8-digit code for 14 reporting countries with 74 trading
partners). Italy was found generally to maintain comparative advantages in the low-to-medium
range of products, along with other countries of Southern Europe, such as Spain, Portugal and
Greece.
Similar results, equally unfavourable for Italy, are put forward by Bugamelli (2001). Based on
data for 108 product groups and an indicator of skill intensity proxied by the ranking of gross per
capita wages and salaries, between 1988 and 1997 Italy and Spain were far more specialized in
unskilled-labour-intensive sectors than the rest of the euro-area countries on average. During the
period Italy was less dynamic than Spain, whose model of specialization evolved rapidly towards
higher-skill sectors. The study by Cipollone (1999) of the normalized balances of 108 sectors
from the start of the 1980s to the mid-1990s also indicates that Italy’s specialization declined in
12
the sectors employing more skilled labour (proxied by relative wages) relative to almost all the
other countries considered.
An analysis of Italian data from 1988 to 1996 (Chiarlone, 2001) based on all the 5-digit items of
the SITC for 16 Italian trading partners shows a clear, though diminishing, prevalence of “vertical”
intra-industrial trade (defined by deviations of 15 per cent in average unit values on either side of
the mean) over “horizontal” trade. However, like the CEPII study, Chiarlone’s inquiry also finds
that the component unfavourable for Italy (low-quality exports, high-quality imports) is dominant in
the field of vertical trade; high-quality vertical trade prevails only in a few traditional export
sectors.
While Italian firms are striving to reposition themselves upscale in quality and design, they are
under pressure from competitors both near (Spain, Portugal, the Central and Eastern European
countries) and far (China first and foremost, followed by other countries of Eastern Asia, Mexico
and Brazil). A close-up of the trade penetration of these new competitors in the European and,
especially, the non-European markets (CSC, 2002) reveals unexpectedly large and dynamic
market shares. For example, in textiles and knitwear China was far and away the world’s leading
exporter in 2001 with a share triple that of Italy, its closest competitor (19.2 against 6.0 per cent).
In North America, China and the countries of Eastern Asia accounted for 48 per cent of imports,
against Italy’s 4.5 per cent. The figures for clothing are even more striking: China is the world’s
leading exporter with 26.7 per cent, followed by Italy. In North America, which takes a quarter of
world imports, China and Eastern Asia have a 61.0 per cent share, compared with 6.4 per cent
for Italy. The figures are of a similar order of magnitude in leather goods and footwear. Even in the
wood, furniture and furnishings sector China surpasses Canada to rank first in world exports,
while China and Eastern Asia together supply 10.5 per cent of the imports of Western Europe
(Italy, 12.4 per cent), 27 per cent of the imports of the Mediterranean and Middle East (Italy,
18.7 per cent), and 22.5 per cent of those North America (against 3.9 per cent for Italy). Asian
export penetration is now also substantial in less traditional sectors, even outside consumer
electronics. For example, in 2001 China ranked third in exports worldwide (and first in North
America) in rubber and plastics, fifth in machinery and electrical apparatus (just ahead of Italy),
and fourth in precision instruments (including optical and photographic equipment and watches and
clocks).
The pressure exerted “from below” by China and the emerging Asian economies reflects a
potent mixture of competitive factors: low wages, cheap energy in many cases, lower
environmental standards, and rapid gains in productivity and quality, accompanied by a marked
ability to imitate designs and models (and to make counterfeit copies, taking advantage of the
difficulty of legal recourse), rapid technological and organizational learning, and robust, widely
ramified sales and distribution networks backed by the powerful Japanese and Korean trading
companies.
Italy is well-equipped to meet this challenge in terms of production, with continuous process,
product and design innovation, but it is weaker in the downstream phases of the value chain
(marketing and communications, distribution, trade finance, customer assistance). This, again,
reflects the country’s fragmented structure of production, which can be very efficient in the
production function but is less able to compete where organizational and financial economies of
13
scale count (Onida, 1999, pp. 609-611; Lorenzoni, 1997; Mariotti, 2002; Conti and
Menghinello, 1996).
A similar picture emerges from the IMD’s World Competitiveness Scoreboard (IMD, 2002).
Though far from scientific, this indicator of a sample of observers’ perceptions of competitiveness
factors is symptomatic of a broad consensus among economic agents. In 2002 Italy ranked only
32nd out of 49 countries overall, having slipped slightly in three years to the benefit of European
and Asian countries. “Productivity” was the only criterion under which Italy made a respectable
showing, ranking 9th, whereas the country scored low under all the criteria of governmental
efficiency, basic infrastructure, the labour market and managerial practices. These findings are
corroborated by the World Economic Forum’s annual ratings of competitiveness (or, better, of
attractiveness for locating production). As reported by Il Sole-24 Ore of 13 November 2002, on
this scale Italy slid from 26th place all the way to 39th, below countries such as Israel, Chile,
South Korea, Estonia, Thailand, South Africa, Lithuania, and even Trinidad and Tobago.
A final observation concerning the signs of fragility in the model of specialization based on small
specialized firms: compared with the other EU countries, Italy is much less open to inward
processing trade, in which specialized European firms temporarily import semi-processed goods
and re-export finished products and components (mainly in the chemical, mechanical engineering
and transport equipment sectors) to non-EU industrial customers located mainly in the United
States and, to a lesser extent, in Japan and Eastern Asia (Tajoli, 2002; Baldone, Sdogati and
Tajoli, 2002). The explanation probably lies in the excessive smallness of Italian component
suppliers compared with those in Germany, France, the United Kingdom, Belgium, the
Netherlands and Ireland, as well as in Italian industry’s underdeveloped presence in the high-tech
sectors most amenable to the fragmentation of the production cycle (e.g. fine chemicals,
aerospace, precision instruments, the nuclear industry, etc.). A further factor is the country’s
unattractiveness as a location for foreign direct investment (see Section 6).
5. The decline of large companies and the lag in R&D investment
5.1 The decline of large private and public-sector companies. Italy’s persistent comparative
disadvantages in almost all the scale-intensive sectors and its deteriorating position in the high-tech
sectors are hardly surprising in light of the relative rarity of Italian groups among the dominant
world players and the growing gap between Italy and its European and world partners in R&D
spending. The Fortune list of the 500 largest world groups in 2002 included eight Italian
companies with total 2001 sales of $252.3 billion. Italy not only trailed the United States, Japan,
Germany, the United Kingdom and France, but also came in behind Switzerland, the Netherlands,
South Korea and China in terms of total revenues (Table 10). The only Italian industrial groups
among the Fortune 500 were Fiat and ENI, the latter active mainly in fossil-fuel extraction and
industrial services. The others were a trio of utilities (Olivetti, i.e. Telecom Italia, ENEL and
Edison) and three banking and insurance groups, namely Assicurazioni Generali, IntesaBCI and
Unicredito Italiano (Table 11) (Filippi and Zanetti, 2001).
After the war, during the 1950s and 1960s, public and private-sector firms had helped to
redesign the country’s competitive advantages, putting forth world players such as IRI, ENI, Fiat,
14
Alfa Romeo, Olivetti, Montedison and Pirelli and securing market shares in sectors marked by
economies of scale and rapid technological innovation with Italtel (telecommunications), Ansaldo
and Franco Tosi (power generating equipment), Farmitalia-Carlo Erba (pharmaceuticals), SNIA
(fibres), SIV (glass), Italsider and Falck (steel), Selenia (missile systems), and others. In the
1970s progress began to give way to retrenchment and decline owing to deteriorating political and
macroeconomic conditions, labour unrest and, above all, the inability of the corporate governance
system of the major public and private-sector groups to meet the new challenges in Europe and
beyond. The operational control and growth strategies of many public-sector groups were brought
under a spoils system that destroyed assets wholesale (as in the cases of Ansaldo, Breda and
SME). The chemical industry saw the failure of grandiose projects for public-private partnership,
spawned by equally ambitious programmes of industrial incentives for the South (Enimont, SIR
and Liquichimica). Public spending on civil and military engineering, a classic means of providing
strategic support for competitive innovation in other advanced countries, was used mainly to
divide up and protect shares of the domestic market for Italian suppliers sheltered from
competition (the Defence Ministry, ENEL, Italian State Railways, the state-owned telephone
company SIP, the Post Office, the state-owned motorways, and so on).
The real protagonists of the transition towards innovative competition in the last two decades
were smaller enterprises, observes Gros-Pietro (2001, p. 713): “Some belonged to large groups,
as in the case of SNIA of the Fiat group, or Esaote, which was spun off by Ansaldo. But the
majority were independent and thus precluded from raising large amounts of capital in a country
whose stock market was basically ineffective. Their strategies of innovation necessarily had to
incorporate low technological risk, offer short-run returns and be based on known skills. Hence a
species of innovation mainly involving design, process and organization, individually or in
combination. ”
With a handful of exceptions – such as STMicroelectronics (originally, a product of state
industry) in microchips, Pirelli in tyres, Riva, Lucchini and the Italo-Argentine company Techint in
steel, Italmobiliare in cement – large Italian firms are increasingly spectators of the struggle for
industrial leadership in the scale-economy sectors worldwide. We know from the foremost
literature on national systems of innovation (Nelson, 1993; Rosenberg et al., 1992; Malerba,
2002) that such leadership is fostered by and in turn encourages the accumulation and diffusion of
basic technological knowledge, the construction of networks of formal and informal partnerships
for process and product innovation (bringing together users, suppliers, government, universities
and research centres, and financial institutions), and the creation of a favourable institutional
environment in terms of rules, standards and regulations.
Without a vital core of large companies, banks and financial institutions, the system is finding it
hard to generate a top-flight managerial class committed to operating in the international markets,
to create high-value-added jobs for the growing ranks of high-school and university graduates, to
encourage high-tech spin-offs; in a word, to invest massively and effectively in “human capital”, the
only true source of the nation’s wealth. Dependent on a family-based capitalism that is struggling
to become family-managerial capitalism, and on a State that acts as a protector rather than a
stimulator of Schumpeterian innovation, the system is tending to turn inwards and to relegate itself
to a marginal role in world competition, inevitably more vulnerable to external shocks.
15
One can only be alarmed by the findings of recent studies on the Italian productive system’s
human capital endowment (Guelpa and Trenti, 2000; Gambarella and Varaldo, 2001). The ten
years from 1985 to 1995 saw Italy’s relative position worsen in terms of the percentage of the
labour force with a high-school or university education. In 1995 fully 56 per cent of the labour
force aged 25-64 had not gone beyond a primary school degree, compared with an average of 35
per cent in the OECD, 25 per cent in France and 12 per cent in Germany. By contrast, only 11
per cent of the same labour force in Italy had a university degree, compared with an average of 25
per cent in the OECD, 21 per cent in France and 26 per cent in Germany (Guelpa and Trenti,
2000). At the end of the 1990s Italy surpassed only Greece and Portugal in the percentage of the
adult population with a high-school or university education (Antonelli and Montresor, 2002). And
though the percentage of skilled employees (specialized production workers, technicians,
researchers and managers) in the traditional sectors of Italian export is higher than the average for
the G-6, the opposite is true in the technologically innovative sectors. Managers account for under
5 per cent of total employment in firms with fewer than 20 workers, 10 per cent in those with
between 20 and 50 employees, and over 20 per cent in those with more than 100 employees
(Traù, 1999a). While this pattern is readily understandable in the logic of small, family-run
businesses, it militates against the formation of a solid layer of middle management, which is vital
for the development of the organizational-entrepreneurial factor.
5.2 Low propensity to invest in research and development. The dearth of large firms,
comparative disadvantages in scale-economy and R&D-intensive sectors, and low spending on
R&D are obviously interrelated.
The proportion of high-tech products in total exports has been stable for some time and at 8 per
cent is markedly lower than in other countries. Between 1991 and 2000 the corresponding figures
rose from 12 to 15 per cent in Germany, from 20 to 25 per cent in France, and from 26 to 30 per
cent in the United States (Banca d’Italia, 2002, The Governor’s Concluding Remarks).
After slumping in the first half of the 1990s and then turning slightly upwards, the ratio of R&D
expendtiure to GDP is less than 1.1 per cent, one of lowest in Europe, compared with figures of
between 1.9 and 2.3 per cent in France, Germany, the United Kingdom, the Netherlands and
Denmark and exceeding 3.5 per cent in Sweden. Italy ranks seventh in the world in absolute
amount of R&D spending, behind even South Korea, and twentieth in R&D expenditure relative
to GDP. The low level of the latter ratio is explained only to a small extent by the particular
sectoral composition of industry, which highlights the relative importance of traditional sectors
where formalized R&D is typically low (and not just in Italy); as it happens, Italian companies’
R&D investment lags behind that of their competitors even within the same sectors. A more
general explanation again lies in the smallness of Italian firms. Nearly everywhere, R&D
expenditure tends to grow with firm size, while in smaller firms many instances of incremental and
applied innovations that constitute genuinely important process and product innovation are not
reported as research. This widespread, informal activity of technological innovation is
corroborated by the Istat surveys on technological innovation (Istat, 1988 and 1995) and by many
studies over the years (Onida and Malerba, 1990; Garofoli, 2002).
By international standards, Italy has a low ratio of R&D spending to industrial value added (0.73
per cent in 1999, against 1.53 per cent on average in the EU and 1.85 per cent in the OECD) and
16
a low share of government-funded corporate R&D (4.4 per cent, against 9.3 per cent in the EU
and 9.5 per cent in the OECD. Moreover, multinational companies contribute fully one fifth of the
Italian total (Quadrio Curzio et al., 2002, p. 39; Istat, 1999, p. 179).
In the periodic surveys on scientific and technological research one is also struck by the marginal
role of universities and research institutes as channels for the introduction of business innovation.
Companies estimate that these research centres account for only 1 per cent of innovation, while
they attribute 24.9 per cent to channels such as “trade shows” and 19 per cent to consulting firms
(Istat, 1999, p. 184ff.).
Italy is somewhat closer to the leading countries in rankings based on the cumulative number of
patents, thanks to the considerable number of patents held by specialized suppliers in sectors
where Italy enjoys competitive advantages, above all industrial machinery and components. In this
regard, it is interesting to note that there appears to be a significant causal relationship running from
patenting (indices of revealed technological advantage) to international specialization (indices of
revealed comparative advantage) precisely in the specialized machinery sector (Bertamino, 2000).
In the 1980s and 1990s patenting activity intensified, and Italy rose to sixth place in the world in
1993-96 with 5.63 per cent, far behind Germany (23.86 per cent) but nearly on a par with
France and Switzerland (6.38 and 5.66 per cent, respectively) (ENEA, Cespri and Politecnico di
Milano, 2001). However, in the high-tech sectors Italy remained a laggard in both R&D and
patents (ENEA, Cespri and Politecnico di Milano, 1999).
The productive system pays no small price for this low propensity to engage in industrial
research and develop patents. The price includes less capacity to absorb young high-school and
university graduates in skilled jobs, fewer opportunities for firms to steal a march on competitors in
product innovation, and a weaker hand for firms to play in seeking to negotiate strategic alliances.
6. Backwardness of Italian multinational firms
Despite the collapse of cross-border mergers and acquisitions in 2001-2002 that accompanied
the bursting of the speculative bubble in ICT, over the longer run foreign direct investment in
production and marketing operations in industry and services continues to expand faster than
world trade (UNCTAD, 2002 and updates).
Italy ranks lower in the international standings of foreign direct investment than in international
trade in goods and services. As an investor Italy placed eleventh in terms of FDI stocks at the end
of 2000 and fifteenth in FDI flows in 1995-2000 (down from twelfth in 1989-94), behind such
smaller countries as Belgium, the Netherlands, Denmark, Spain and Finland. As a beneficiary of
worldwide FDI, Italy ranked twelfth in stocks at the end of 2000 (down from fifteenth in 1990)
and nineteenth in flows in 1995-2000 (compared with thirteenth in the previous five years), behind
Ireland, Denmark, Mexico and Brazil, among others (Tables 12 and 13). In 2001 Italy regained a
little ground, since it was less involved in the collapse of cross-border M&As, but the basic
picture did not changed.
Despite a recent surge in Italian outward direct investment in Eastern Europe and the
Mediterranean by some traditional industries, such as leather, footwear and clothing, Italy remains
a relatively minor player. Naturally, the reasons for this situation no longer have to do with
17
exchange controls, which acted as a brake on capital outflows until the early 1980s; they are
basically to be found, yet again, in the structural characteristics of the system. Other things being
equal, smaller firms are less equipped to cope with the financial and organizational costs of
locating abroad and prefer to serve their domestic markets, even if this sharply limits their scope
for growth. Furthermore, owing to the features of the market, sectors such as mechanical
engineering and component production scarcely lend themselves to the typical multinational
organization of production; at the most, they require investments in distribution and post-sales-
assistance networks, which the leading companies in these sectors do not in fact hesitate to make.
Finally, as long as they were within the public orbit, state-owned industries (now privatized with
rare exceptions such as AGIP, Saipem and Snam Progetti of the ENI Group) lacked the
incentives and opportunities to expand abroad; their dominant “mission” was to create jobs in
Italy, particularly in the South.
From the opposite perspective of the ability to attract investment from abroad, Italy continues to
suffer from well-known disadvantages (attested to, inter alia, by the above-mentioned periodic
surveys of managers of multinational firms) compared with other European countries where per
capita income and costs are not higher than in Italy, e.g. Spain, Ireland, Finland and Turkey.
Italy’s major weaknesses concern its slow and opaque bureaucracy, taxation, shortage of
infrastructure, labour market rigidities, disconnection between research and business, and public
order in certain parts of the South.
The implications of the relative backwardness of Italy’s multinational development are still
misunderstood by a national culture, expressed by the country’s political, business and trade-union
leaders, whose vision is often reductive and sometimes tinged by fear of “capital flight” in the case
of outward FDI and “colonization” in connection with inward investment. Yet, a copious
theoretical and empirical literature on internationalization shows that investment abroad boosts a
country’s ability to compete when it is already well integrated into world trade. The positive
effects include stronger roots in the market with better control of the distribution and customer-
assistance network, new sales outlets in markets near and linked to the country where the
investment is made, availability of new component suppliers, acquisition of expertise in adapting
products and expanding the product range, and training of managerial and supervisory personnel.
Moreover, in the case of so-called vertical FDI, or outsourcing of production, the company
making the investment lowers its production costs and reorganizes its international logistics, with
positive effects on the competitiveness of the firm as a whole. This is often a defensive strategy; in
its absence domestic employment would probably fall even further, given the competition of low-
wage countries on the open markets.
The bulk of econometric studies aimed at testing whether outward FDI is primarily a substitute
for or a complement to the investor country’s exports support the latter hypothesis. Although there
is some substitution for domestic production, the transfer of technology and production abroad
leads to new outlet markets in the country receiving the investment and neighbouring areas. Even
cost-saving transfers of production abroad often involve additional exports of products
complementary to those to be produced in the local plant, as well as exports of machinery and
services for the facility (Onida, 2002).
For the beneficiary of FDI, the effects differ depending on whether the foreign company has
made a greenfield investment or acquired an existing plant. In the first case the beneficiary
18
country’s production will naturally increase, as will its imports and, often, its exports (to the
country of the parent company or others). But even for mergers and acquisitions, there is no lack
of examples of domestic production being boosted, technology updated and export strategies
reconfigured after an initial phase of restructuring in which cutbacks in jobs and product lines are
likely.
In the 1950s and 1960s Italy was one of the countries that recorded the sharpest increment in its
“degree of inward internationalization”. In their investments in Italy foreign multinational companies
nearly always bet on sectors where Italian industry offered good opportunities for sales and profits
but also more comparative disadvantages than advantages in the European and world context.
Suffice it to cite the examples of power generating equipment (Siemens, Philips, ABB, Alsthom
and General Electric), information technology (IBM, Hewlett Packward, Texas Instruments,
Honeywell and Bull), telecommunications (Siemens, Alcatel and Ericcson), chemicals and
pharmaceuticals (Bayer, Basf, Hoechst, Dow, Monsanto, Dupont, Merck, Schering, Ciba,
Sandoz, Glaxo and Boehringer), and food products (Nestlé, Unilever and Danone). In the last
thirty years, but especially in the past decade, Italy has become less attractive for US, European
and Japanese multinationals and as an FDI target has been overtaken by other countries of
Western Europe (Spain, France, the Netherlands, Germany, Ireland, Denmark, even Sweden and
Finland), by the “new Europe” of the EU accession countries and by Asia as well. In contrast with
the Italian case, a larger share of FDI in these other countries tends to flow to sectors and
branches offering competitive advantages for export as well as opportunities to exploit the local
market: for instance, information technology in Ireland and France, cars in France, Germany and
Spain, and chemicals and pharmaceuticals in these three plus the Netherlands. Of course, the aim
of tapping the local market is more important, the larger the economy of the recipient country. In
the case of China, inward FDI amounted to $47 billion in 2001 and is estimated to have topped
$50 billion in 2002 (UNCTAD, 2002).
7. Conclusion
Firm size in Italian manufacturing increasingly diverges from the European standards, with the
share attributable to small and micro companies more than double that found elsewhere and a
correspondingly smaller proportion of large firms. This reduces the national average level of labour
productivity, which, by a stylized fact common to all countries, increases with firm size. In the
1990s, moreover, Italy’s large firms recorded lower rates of return on capital invested than
medium-sized companies (defined here as those with annual sales of between €7 million and €40
million). A dearth of the so-called organizational-entrepreneurial factor, a distant cousin of X-
efficiency, is probably responsible both for the difficulties small and medium-sized firms encounter
in expanding and for the sub-par profitability of large enterprise.
The obstacles to firms’ scaling up are plausibly explained by structural and behavioural
characteristics of the productive system, such as founder-families’ well-known aversion to losing
ownership and management control and the particular model of industrial-district economies of
scale. However, factors shaping the business environment also come into play, namely: a) banking
and financial institutions late to move up from traditional deposit-taking and short-term lending to
19
the more sophisticated functions of consulting and corporate finance for firms seeking to be global
players; b) an industrial policy tool-kit designed to provide financial support to ailing large firms
and to defend small and medium-sized enterprises more than to encourage them to scale up and
internationalize their production.
Since 1996 the signs of weakness in Italy’s competitive position have increased. Despite recent
improvements the picture remains one of very substantial losses in market shares, not all of them
due to the slower-than-average growth of demand in Italy’s outlet markets and sectors of
specialization. The losses are concentrated in the EU markets, where Italian exports are no longer
buoyed by a weak lira, and particularly in the non-durable consumer goods sectors that are Italy’s
traditional strengths. In the latter, generally characterized by the use of less skilled labour, a
growing number of low-wage new competitors have made large inroads “from below” in Europe
and elsewhere; this erosion has been only partly offset by the gradual upgrading of the quality,
style, design and technological content of Italian products. Meanwhile, in the sectors marked by
economies of organizational scale, oligopolistic markets and major investment in R&D, Italian
firms are being pressed “from above” by countries more determined than Italy to cultivate
competitive advantages.
This increasing weakness of large industry in Italy, where the reins of privatized companies with
important technological and commercial assets have not been taken by energetic managers
possessing entrepreneurial vision, poses a multi-pronged threat to the country’s economic growth:
a) less capacity to provide dynamic, rewarding employment to young high-school and university
graduates, especially those with technical and scientific degrees, even though the number of such
graduates does not satisfy the desiderata for a technologically advanced country; b) less formation
and training of new managerial and supervisory cadres; c) weaker impulse for the generation and
diffusion of industrial technological innovation, with repercussions on the already scant interaction
between research institutions and business; d) difficulty in overcoming the lag accumulated in the
1990s in multinational expansion. Many medium-sized groups are growing in this latter respect,
but, as a whole, Italy suffers from this under-representation of large firms active in the international
arena, not least in terms of inward investment and transnational strategic alliances within dynamic
oligopolistic markets.
The current slowdown of the European and world economy, the laborious reduction of the
public debt built up in years of fiscal laxness and some major corporate crises are not auspicious
circumstances for recouping lost ground and injecting new dynamism into industry and services.
Yet, latent energies are still to be found in abundance in industry (a particularly lively, enterprising
and internationally-oriented mittelstand), in the rapidly evolving banking system, among non-bank
financial intermediaries developing new products, and even in several public institutions, now more
attentive than before to the development of production potential and human capital. These
energies need to be harnessed to ensure that the turnaround from protracted decline is within
reach.
20
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463
Appendix
Growth, competitiveness and firm size:
factors shaping the role of Italy’s productive system in the world arena
464
Fabrizio Onida
Table 1 - Market shares of world exports by area
Table 2 - Constant-market-shares analysis of Italian exports
Constant prices; indices, 1995=100; percentages
1992 1996 2000 2001
Advanced economies (a) 79.8 77.1 75.8 75.3
European Union 40.6 38.9 38.9 40.2
France 5.8 5.4 5.7 5.8
Germany 11.6 10.1 10.3 10.7
Ireland 0.7 0.9 1.3 1.3
Italy 4.2 4.4 3.8 3.9
United Kingdom 4.8 4.8 4.3 4.5
Spain 1.5 1.9 2.0 2.1
Japan 10.6 8.3 7.4 6.7
United States 11.5 11.8 11.5 11.0
NIEs (b) 9.5 10.6 10.7 10.2
Developing countries (c) 15.8 17.6 18.7 19.3
Asia 6.7 8.2 9.7 10.0
Latin America 4.2 4.7 4.8 5.0
(a) European Union, Australia, Canada, Japan, Iceland, New Zealand, Norway, Switzerland and the United States.
(b) Hong Kong, Singapore, South Korea and Taiwan
(c) Africa, Asia, China, India, Latin America and the Middle East.
Source: Istituto nazionale per il Commercio Estero (ICE).
1996 1997 1998 1999 2000 2001 1996-2001
Italy’s market share 4.43 4.08 4.26 3.89 3.43 3.45
Absolute change -0.36 0.18 -0.37 -0.46 0.02 -0.98
Competitiveness effect -0.22 0.02 -0.15 -0.09 -0.07 -0.51
Structure effect -0.13 0.17 -0.22 -0.37 0.10 -0.45
Source: ICE calculations based on Global Trade Information data.
465
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 3 - Leading world exporters of goods
(billions of dollars)
Rank Country Value Value % share % share
(1991) (2001) 1991 2001 1991 2001
1 1 United States 422 731 12.0 11.9
2 2 Germany 403 570 11.5 9.2
3 3 Japan 315 405 9.0 6.6
12 4 China (1) 72 370 2.1 6.0
104 1.7
4 5 France 217 320 6.2 5.2
5 6 United Kingdom 185 274 5.3 4.4
8 7 Canada 127 262 3.6 4.3
6 8 ITALY 170 241 4.8 3.9
7 9 Netherlands 134 230 3.8 3.7
9 10 Belgium 118 180 3.4 2.9
20 11 Mexico 43 159 1.2 2.6
13 12 South Korea 72 151 2.0 2.4
11 13 Taiwan 76 123 2.2 2.0
16 14 Singapore (2) 59 122 1.7 2.0
15 15 Spain 59 111 1.7 1.8
19 16 Russia (3) 47 103 1.4 1.7
24 17 Malaysia 34 89 1.0 1.4
10 18 Hong Kong (4) 99 87 2.8 1.4
29 19 Ireland 24 83 0.7 1.4
14 20 Switzerland 62 82 1.8 1.3
Total - 20 countries 2,738 4,794 78.2 76.1
World 3,506 6,162 100.0 100.0
(1) Includes Hong Kong’s re-exports of Chinese goods. (2) Includes re-exports. (3) USSR for 1991. (4) Excludes re-
exports of Chinese goods.
Source: ICE calculations based on WTC data.
466
Fabrizio Onida
Table 4 - Leading world importers of foods
(billions of dollars)
Rank Value Value % share % share
(1991)(2001) 1991 2001 1991 2001
1 1 United States 509 1,181 14.1 18.3
2 2 Germany 389 493 10.8 7.7
3 3 Japan 237 350 6.6 5.4
5 4 United Kingdom 209 333 5.8 5.2
4 5 France 231 323 6.4 5.0
15 6 China 64 244 1.8 3.8
6 7 ITALY 183 234 5.1 3.6
8 8 Canada 125 228 3.5 3.5
7 9 Netherlands 126 208 3.5 3.2
10 10 Hong Kong (1) 100 202 2.8 3.1
19 11 Mexico 48 176 1.3 2.7
9 12 Belgium 120 169 3.3 2.6
11 13 Spain 94 145 2.6 2.2
12 14 South Korea 82 141 2.3 2.2
14 15 Singapore (1) 66 116 1.8 1.8
16 16 Taiwan 63 107 1.7 1.7
13 17 Switzerland 67 84 1.8 1.3
23 18 Malaysia 37 74 1.0 1.2
17 19 Austria 51 74 1.4 1.1
21 20 Australia 42 64 1.2 1.0
Total – 20 countries 2,843 4,945 78.8 76.8
World 3,610 6,439 100.0 100.0
(1) Includes temporary imports.
Source: ICE calculations based on WTC data.
467
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 5 - Twenty leading markets for Italian exports
Rank Millions Percentage Percentage Cumulative
Country of euros change share percentage
2000 2001 2000-01 2000 2001 2001
1 Germany 1 39,220 -0.9 15.1 14.5 14.5
2 France 2 33,007 -0.6 12.7 12.2 26.8
3 United States 3 26,212 -1.7 10.4 9.7 36.5
4 United Kingdom 4 18,085 0.3 6.9 6.7 43.2
5 Spain 5 16,549 1.2 6.3 6.1 49.3
6 Switzerland 6 9,841 14.1 3.4 3.6 53.0
7 Belgium 7 8,163 13.3 2.7 3.0 56.0
8 Netherlands 8 7,143 2.6 2.7 2.6 58.7
9 Austria 9 5,795 -0.2 2.2 2.1 60.8
10 Greece 10 5,240 -3.2 2.0 1.9 62.8
11 Japan 12 4,704 8.4 1.7 1.7 64.5
12 Poland 13 4,243 10.4 1.5 1.6 66.1
13 Turkey 11 3,923 -15.6 1.8 1.5 67.5
14 Portugal 14 3,558 -1.5 1.4 1.3 68.8
15 Russia 18 3,539 40.4 1.0 1.3 70.2
16 Romania 16 3,354 25.5 1.0 1.2 71.4
17 Hong Kong 15 3,277 0.2 1.3 1.2 72.6
18 China 21 3,272 37.5 0.9 1.2 73.8
19 Hungary 20 2,988 22.9 0.9 1.1 74.9
20 Brazil 19 2,616 6.3 1.0 1.0 75.9
WORLD 269,701 3.6 100.0 100.0 100.0
Source: ICE calculations based on Istat data.
468
Fabrizio Onida
Table 6 - Twenty leading exporters to Italy
Rank Millions Percentage Percentage Cumulative
Country of euros change share percentage
2000 2001 2000-01 2000 2001 2001
1 Germany 1 46,171 1.5 17.5 17.7 17.7
2 France 2 29,019 -2.2 11.4 11.2 28.9
3 Netherlands 3 16,047 4.2 5.9 6.2 35.0
4 United Kingdom 4 13,205 -6.9 5.4 5.1 40.1
5 United States 5 12,778 -5.5 5.3 4.9 45.0
6 Belgium 7 11,338 8.4 4.0 4.4 49.4
7 Spain 6 10,914 1.4 4.1 4.2 53.6
8 Switzerland 8 9,602 13.7 3.3 3.7 57.3
9 Russia 9 8,534 2.4 3.3 3.3 60.5
10 China 10 7,481 6.4 2.7 2.9 63.4
11 Austria 13 6,297 4.1 2.3 2.4 65.8
12 Japan 11 6,277 -2.2 2.5 2.4 68.2
13 Libya 12 5,466 -14.4 2.5 2.1 70.3
14 Algeria 14 5,342 -5.1 2.2 2.1 72.4
15 Ireland 16 3,511 0.1 1.4 1.3 73.7
16 Sweden 15 3,451 -9.6 1.5 1.3 75.1
17 Romania 18 3,371 31.5 1.0 1.3 76.4
18 Turkey 23 3,028 37.0 0.9 1.2 77.5
19 Iran 20 2,360 -3.4 1.0 0.9 78.4
20 South Korea 22 2,359 4.9 0.9 0.9 79.3
WORLD 260,179 0.7 100.0 100.0 100.0
Source: ICE calculations based on Istat data.
469
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 7 - Italy’s sectoral market shares of world demand (percentages)
Sector 1991-1995 1996-1998 1999 2000 2001 (a)
Mining and quarrying products 0.2 0.2 0.2 0.1 0.1
Food products and beverages 3.6 3.7 3.9 3.8 3.8
Textiles and knitwear 8.7 8.1 7.4 6.9 7.3
Clothing 8.2 8.5 7.5 7.1 7.9
Leather products and footwear 16.7 16.2 15.0 15.3 16.1
Wood, furniture and furnishings 8.7 8.6 7.9 7.6 7.7
Paper, paper products and publishing 3.6 3.9 3.7 3.7 3.8
Refined energy products 3.1 2.1 2.0 2.2 2.3
Chemicals and chemical products 3.6 3.7 3.7 3.7 3.8
Rubber and plastic products 6.4 6.1 5.8 5.5 5.7
Glass and ceramics 12.2 11.7 11.1 10.3 10.6
Basic construction materials 23.1 20.6 20.6 21.0 20.5
Basic metal products 4.0 3.6 3.4 3.4 3.7
Fabricated metal products 8.3 8.3 7.8 7.2 7.5
Electrical and non-electrical
machinery and equipment 9.4 9.8 9.5 8.9 8.9
Industrial machinery and equipment 9.7 9.8 9.5 8.5 9.1
Electronic products 2.1 1.5 1.3 1.2 1.4
Electric generating machinery 3.8 3.4 3.0 2.8 3.0
Precision instruments 3.0 2.9 2.6 2.4 2.6
Other transport equipment 3.8 3.9 3.5 3.4 3.4
Motor vehicles 3.3 3.5 3.3 3.7 3.2
(a) September
Sources: Statistics Canada (World Trade Analyzer), 1980-1999; ICE (GTI data), 2000-2001.
470
Fabrizio Onida
Table 8 - Italy’s sectoral market shares of German imports of manufactures
(constant prices; percentages)
Jan-Apr Jan-Apr
Sector
1997 1999 2000 2001 2001 2002
Food products, beverages
and tobacco products 8.6 9.0 8.4 8.7 8.8 8.9
Textile products and clothing 12.7 12.4 11.6 11.1 10.8 10.0
Textiles and knitwear 16.7 15.9 14.9 14.3 13.9 12.8
Clothing 7.7 7.4 6.7 6.6 6.6 6.3
Leather footwear and products 26.7 24.5 22.1 21.9 23.1 20.6
Footwear 28.2 26.0 23.1 22.9 24.3 20.7
Wood and cork products (except furniture) 3.3 4.0 4.0 4.3 5.1 3.9
Paper, paper products and publishing 6.8 6.1 5.5 5.6 5.7 5.9
Refined petroleum products 0.7 0.2 0.2 0.3 0.4 0.4
Chemical and pharmaceutical products 5.8 4.8 5.0 4.7 4.8 5.0
Rubber and plastic products 10.2 10.5 10.1 9.8 10.2 9.9
Glass, ceramics and non-metallic
materials for construction 21.4 20.1 16.5 15.2 16.0 14.0
Basic metals and fabricated metal products
(excluding machinery and equipment) 7.6 7.9 7.2 7.0 7.1 7.0
Basic metals 6.0 6.4 6.0 5.8 5.9 5.8
Final metal products 11.2 10.9 9.9 9.7 10.1 9.7
Machinery and equipment 13.6 12.9 11.9 10.7 10.8 11.0
Industrial machinery for general use 13.1 12.3 11.0 9.7 10.0 9.5
Specialized industrial machinery 9.6 10.3 9.7 8.7 8.5 9.8
Home appliances 25.6 25.1 24.2 22.3 24.2 21.6
ICT products, electrical
and optical equipment 4.0 3.4 2.5 2.6 2.7 2.5
Office machinery, computers
and information systems 2.0 2.8 1.8 1.6 1.8 1.6
Electrical machinery and equipment 5.9 6.1 5.3 5.1 5.6 4.8
Electronic and telecom products 2.9 1.7 1.1 1.6 1.4 1.2
Medical equipment and precision
instruments 3.8 3.5 3.0 2.6 2.7 3.2
Transport equipment 6.0 6.0 6.0 5.7 5.0 5.7
Motor vehicles 5.1 5.7 5.9 5.5 4.9 6.2
Motor vehicle parts 10.8 10.7 11.3 10.6 10.8 10.5
Other manufactures 14.0 13.0 11.0 9.6 10.3 9.5
Furniture 19.4 17.8 15.3 13.8 14.4 13.4
Gold and other jewellery 16.1 14.5 13.3 10.7 10.8 10.9
TOTAL 8.5 7.5 6.7 6.4 6.4 6.4
Source: ICE GTI
471
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 9 - Italy’s sectoral market shares of French imports of manufactures
(percentages)
Jan-Apr Jan-Apr
Sector
1997 1999 2000 2001 2001 2002
Food products, beverages
and tobacco products 7.8 8.2 8.0 7.9 8.1 8.2
Textile products and clothing 15.0 14.5 13.6 13.3 13.3 12.3
Textiles and knitwear 18.7 17.9 16.7 16.8 16.7 15.7
Clothing 8.9 8.7 8.3 7.8 7.9 7.2
Leather footwear and products 26.1 25.2 22.8 23.2 23.5 22.7
Footwear 26.8 25.6 22.5 22.0 22.8 22.7
Wood and cork products (except furniture) 5.6 5.0 5.0 5.6 5.2 5.0
Paper, paper products and publishing 10.4 9.3 9.1 9.7 9.5 9.7
Refined petroleum products 5.6 3.9 2.8 6.5 6.8 4.5
Chemical and pharmaceutical products 6.6 6.1 5.7 5.6 6.0 5.3
Rubber and plastic products 16.8 16.2 15.4 15.3 15.6 15.3
Glass, ceramics and non-metallic
materials for construction 21.8 21.2 20.1 20.2 20.6 20.7
Basic metals and fabricated metal products
(excluding machinery and equipment) 12.2 12.8 12.3 12.5 12.3 12.6
Basic metals 9.0 9.7 9.5 9.7 9.4 9.6
Final metal products 19.0 19.3 19.0 18.8 19.0 18.6
Machinery and equipment 17.5 17.2 16.3 17.0 17.2 17.9
Industrial machinery for general use 16.0 15.6 15.0 15.6 14.9 15.9
Specialized industrial machinery 15.9 15.2 14.1 14.5 15.3 16.4
Home appliances 28.5 28.1 27.4 30.0 30.3 29.2
ICT products, electrical
and optical equipment 7.7 6.0 5.2 5.2 5.6 5.3
Office machinery, computers
and information systems 6.5 3.7 3.2 2.6 3.1 1.5
Electrical machinery and equipment 12.3 11.0 10.0 10.3 10.1 10.4
Electronic and telecom products 5.6 5.4 4.3 4.5 5.0 5.0
Medical equipment
and precision instruments 5.7 4.8 4.6 5.0 5.3 5.3
Transport equipment 8.7 8.5 10.4 7.9 7.4 7.3
Motor vehicles 9.5 9.1 9.0 7.9 8.2 6.7
Motor vehicle parts 14.5 14.9 14.1 13.5 13.5 12.5
Other manufactures 17.8 17.9 15.4 15.9 17.7 17.2
Furniture 26.8 25.3 23.0 23.4 24.4 24.2
Gold and other jewellery 22.2 22.5 17.0 17.3 18.6 16.8
TOTAL 10.9 10.1 9.8 9.5 9.5 9.4
Fonte: ICE, GTI
472
Fabrizio Onida
Table 10 - Fortune 500: number and sales of groups of the main countries
Table 11 - The eight Italian groups included in the worldwide Fortune 500
Rank in the Fortune 500 2001 sales (in billions of dollars)
FIAT 49 51.9
Assicurazioni Generali 50 51.4
ENI 71 44.6
Olivetti 145 28.7
ENEL 169 25.7
Intesa BCI 242 19.9
Unicredito 321 15.8
Edison 353 14.1
Source: Fortune 500, 22 July 2002.
Country
Number of groups 2001 sales
(billions of dollars)
United States 197 5885.6
Japan 88 2457.3
Germany 35 1210.0
France 37 996.4
United Kingdom 33 861.6
Switzerland 11 323.3
Netherlands 9 312.3
South Korea 12 270.3
China 11 260.5
Italy 8 252.3
Canada 15 216.0
Spain 5 135.1
Sweden 5 82.0
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 12 - Outward direct investment: leading countries
(percentage shares of world total)
RANK COUNTRY
FLOWS STOCKS
Average Average 1990 2000
1989-1994 1995-2000
1 United States 21.5 16.8 23.0 20.8
2 United Kingdom 10.6 17.6 13.4 15.1
3 France 9.0 10.4 7.0 8.3
4 Germany 8.5 9.3 8.6 7.4
5 Hong Kong 4.0 4.3 0.7 6.4
6 Belgium & Luxembourg 2.7 6.4 2.4 5.7
7 Netherlands 5.9 6.1 6.0 5.5
8 Japan 13.0 3.7 11.7 4.7
9 Switzerland 3.4 3.4 3.8 3.9
10 Canada 2.6 3.5 4.9 3.4
11 ITALY 2.5 1.4 3.3 2.9
12 Spain 1.4 3.4 2.9 1.9
13 Sweden 3.0 2.8 0.3 1.9
14 Australia 1.1 0.6 1.8 1.4
15 Finland 0.8 1.4 0.7 0.9
16 Taiwan 1.6 0.7 0.8 0.8
17 Denmark 1.0 1.8 0.4 0.8
18 Norway 0.5 0.6 0.6 0.7
19 Chile 0.1 0.4 0.0 0.3
20 Portugal 0.1 0.4 0.1 0.3
Total – 20 countries 82.5 77.4 79.0 78.1
Source: ICE calculations based on UNCTAD data.
474
Fabrizio Onida
Table 13 - Inward direct investment: leading countries
(percentage shares of world total)
RANK COUNTRY
FLOWS STOCKS
Average Average 1990 2000
1989-1994 1995-2000
1 United States 18.6 23.6 20.9 19.6
2 United Kingdom 8.4 8.5 10.8 7.6
3 Hong Kong 1.8 3.1 8.6 7.4
4 Germany 1.5 6.8 6.3 7.3
5 Belgium & Luxembourg 4.0 6.3 3.1 5.9
6 China 6.1 5.8 1.3 5.5
7 France 5.4 4.5 5.3 4.2
8 Netherlands 3.2 4.1 3.5 3.9
9 Brazil 0.7 3.0 2.0 3.1
10 Canada 2.5 3.3 6.0 3.1
11 Spain 4.9 2.1 3.5 2.3
12 ITALY 1.5 0.8 3.1 1.8
13 Australia 2.5 1.2 3.9 1.8
14 Mexico 2.9 1.7 1.2 1.4
15 Sweden 1.5 3.1 0.7 1.2
16 Argentina 1.2 1.5 0.5 1.2
17 Ireland 0.4 1.2 0.3 0.9
18 Denmark 0.8 1.0 0.5 0.8
19 South Korea 0.4 0.8 0.3 0.7
20 Poland 0.3 0.5 0.0 0.6
Total – 20 countries 68.6 82.9 81.7 80.5
Source: ICE calculations based on UNCTAD data.
475
•
Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 1 - Share of employment in firms with fewer than 100 workers:
manufacturing industry
Germany Italy France United Kingdom United States
70
60
50
40
30
20
10
0 ------
(a) The first class includes artisans.
(b) The first class excludes artisans.
(c) Excludes codes 353 and 354, includes codes 23 and 29.
Source: Centro Studi Confindustria, La competitività dell’Italia, 2002
’62
a
’77
a
’77
b
’90
b
’61
’71
’62
’77
’94
’63
’77
’94
’63
’72
’82
’92
’81
’91
’96
Figure 2 - Share of employment in firms with more than 500 workers:
manufacturing industry
Germany Italy France United Kingdom United States
80
70
60
50
40
30
20
10
0 ------
Source: Centro Studi Confindustria, La competitività dell’Italia, 2002.
’62
a
’77
a
’77
b
’90
b
’61
’71
’62
’77
’94
’63
’77
’94
’63
’72
’82
’92
’81
’91
’96
476
Fabrizio Onida
Figure 3 - Manufactures: rate of growth in world demand
and Italy’s market share (current prices)
80 82 84 86 88 90 92 94 96 98 00
20
15
10
5
0
-5
-10 -------------
Source: Confindustria, Tendenze dell’industria italiana – I settori di attività economica nel 2001, June 2002.
5.5
5.0
4.5
4.0
3.5
3.0
Figure 4 - Italy: competitiveness and world export market shares
1995 1996 1997 1998 1999 2000 2001
5.0
4.6
4.2
3.8
3.4
3.0
110
105
100
95
90
85
80 ---------
Source: ICE 2002.
Value share (percentage of world exports, base year 1995, left-hand scale)
Volume share (percentage of world exports, left-hand scale)
Competitiveness (reciprocal of the real exchange rate based on producer prices, 1993=100, right-hand scale)
World demand (left-hand scale)
Italy’s share (right-hand scale)
477
•
Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 6 - Italy’s external current account balance and international investment position
(as a percentage of GDP)
4
3
2
1
0
-1
-2
-3
10
5
0
-5
-10
-15
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
Sources: ICE calculations based on Bank of Italy and Istat data.
Current account balance (left-hand scale)
International investment position (right-hand scale)
Figure 5 - Main countries’ world export market shares
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
16
14
12
10
8
6
4
2
0 -----------
Source: ICE calculations based on IMF-DOTS data (at current prices).
USA
Germany
Japan
China
France
Italy
478
Fabrizio Onida
Figure 7 - Italy’s market shares by region
0 1 2 3 4 5 6 7 8 9 10
A
v
e
r
a
g
e
c
h
a
n
g
e
i
n
w
o
r
l
d
i
m
p
o
r
t
s
,
1
9
9
8
-
2
0
0
1
12
10
8
6
4
2
0 -----------
Italy’s average share, 1996-2001
Eastern Asia
North
America
Central Asia
Central and South
America
Sub-Saharan Africa
World average
Middle East and
North Africa
Central and
Eastern Europe
European Union
The size of the circle reflects the region’s average share in world imports, 1998-2001
5,5
3,8
Figure 8 - Italy’s market shares by sector
0 1 2 3 4 5 6 7 8 9 10
A
v
e
r
a
g
e
c
h
a
n
g
e
i
n
w
o
r
l
d
i
m
p
o
r
t
s
,
1
9
9
8
-
2
0
0
1
12
10
8
6
4
2
0 -----------
Italy’s average share, 1996-2001
ICT products
Chemical and pharmaceutical
products
Precision
instruments
Motor vehicles
Other transport
equipment
Electrical material
and electrical home appliances
Wood and furniture
Agricultural
and industrial machinery
Textiles and clothing
Construction
materials, glass and
ceramics
Leather
and footwear
Agricultural products
Food products
The size of the circle reflects the region’s average share in world imports, 1998-2001
5.5
3,8
479
•
Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 9 - Italy: market shares by region
(percentages of the value of world trade)
North Africa North America Eastern Asia Middle East Transition countries European Union
12
10
8
6
4
2
0 -------
Source: ICE calculations based on IMF-DOTS data.
1996
2001
Figure 10 - Italy: market shares by sector
(percentages of the value of world trade)
Leather
and footwear
Furniture Non-electrical
machinery and
equipment
Clothing Food
products
Chemical
products
Electrical equipt.
and footwear
and precision
instruments
18
16
14
12
10
8
6
4
2
0 --------
Source: ICE calculations based on GTI data.
1996
2001
480
Fabrizio Onida
Figure 11 - Italy: sectoral balances (in millions of euros)
Mining and
quarrying
products
Food and
agricultural
products
Fashion
products
Agricultural
and industrial
machinery
Chemical and
pharmaceutical
products
ICT products Transport
equipment
30,000
20,000
10,000
0
-10,000
-20,000
-30,000
-40,000 --------
Source: ICE calculations based on Istat data.
1996
2001
2000
Figure 12 - Revealed advantages and disadvantages by factoral intensity
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
R
e
v
e
a
l
e
d
c
o
m
p
a
r
a
t
i
v
e
a
d
v
a
n
t
a
g
e
ITALY
FRANCE
GERMANY
UNITED KINGDOM
SPAIN
R
e
v
e
a
l
e
d
c
o
m
p
a
r
a
t
i
v
e
a
d
v
a
n
t
a
g
e
Unskilled labour Skilled labour Physical capital
Source: European Commission, 5, 1999, p. 53.
-----------
481
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 13 - Grubel-Lloyd indices of horizontal trade
Italy France Germany Spain United Kingdom
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0 ------
Source: European Commission, 5, 1999, p. 55.
1991 1997
doc_352847332.pdf
The anomaly of company size in Italian manufacturing has been amply documented by numerous
studies, including, most recently, Traù (1999 and 2002), Guelpa and Trenti (2000), Gambardella
and Varaldo (2001) and Zanetti (2001). The late 1970s marked a watershed, bringing the end of
the post-war decline in small firms’ share of total employment and ushering in a corresponding
reduction in the share attributable to firms with more than 500 workers. This pattern was common
to all the major countries.
CESPRI
Centro di Ricerca sui Processi di Innovazione e Internazionalizzazione
Università Commerciale “Luigi Bocconi”
Via R. Sarfatti, 25 – 20136 Milano
Tel. 02 58363395/7 – fax 02 58363399http://www.cespri.it
Fabrizio Onida*
Growth, competitiveness and firm size:
factors shaping the role of I taly’s productive system
in the world arena**
WP n. 144 July 2003
_________________
* Professor of International Economics, Università Commerciale Bocconi, Milan.
** Published on Review of Economic Conditions in Italy, n°3, 2002.
1
ABSTRACT
The well-known anomaly of the size structure of Italian manufacturing industry, in which small and
micro firms have a disproportionately high share of total employment and value added and large
firms a correspondingly low one, has been accentuated in recent years, depressing nominal labour
productivity in the economy as a whole. Hindering the expansion of small firms are obstacles
rooted in structural and behavioural characteristics of the productive system, such as the aversion
to loss of direct ownership and management control of family businesses and the consolidation of
the model of industrial districts, alongside factors external to the firm, such as the nature of Italy’s
banking and financial system and industrial policy measures. The declining trend in Italy’s shares of
the international market in recent years reflects an unfavourable composition of outlet markets and
sectors in terms of their relative growth dynamics, but it also stems largely from problems
connected with the size-imposed limits on international and transnational expansion and the
gradual break-up of once-dominant oligopolistic groups. The risks of a model of development in
industry and services based on poor or mediocre human capital, and thus unable to employ and
exploit the growing supply of graduates entering the labour market, must not be underestimated.
JEL Classification: F02
Keywords : Trade, Competitiveness, Size of firms, ItalyDirect Investment, Employment,
Productivity
2
1. Introduction
This article does not break new analytical ground but simply presents a reasoned review of the
data and findings of recent work on the different issues grouped into two clusters, namely the
Italian economy’s loss of international competitiveness and the difficulty encountered by Italian
companies in scaling up. Its overall assessment of the Italian economy’s “fitness” in international
competition is not unduly and superficially pessimistic, for the productive system still has abundant
entrepreneurial, managerial and labour resources at its command. However, along the way it
underscores risks and chronic weaknesses with which the nation’s (legitimate) expectations for
prosperity and economic and social development will have to reckon.
Section 2 presents some striking anomalies in the size structure of manufacturing firms in Italy
compared with the other major European countries. Section 3 compares indicators of labour
productivity and the return on capital employed in industry according to firm size in the 1990s and
then discusses some plausible explanations for the persistent constraint on the growth of
companies. Section 4 describes the slippage in Italy’s export shares in recent years and discusses
the weaknesses of our model of specialization. Section 5 examines the decline of large companies
and the country’s associated lag in spending on research and development. Section 6 looks at
Italy’s weak position as both an originator and a recipient of investment by multinational
corporations. Section 7 summarizes and concludes.
2. The structural anomaly of size in Italian industry and services
The anomaly of company size in Italian manufacturing has been amply documented by numerous
studies, including, most recently, Traù (1999 and 2002), Guelpa and Trenti (2000), Gambardella
and Varaldo (2001) and Zanetti (2001). The late 1970s marked a watershed, bringing the end of
the post-war decline in small firms’ share of total employment and ushering in a corresponding
reduction in the share attributable to firms with more than 500 workers. This pattern was common
to all the major countries. The following are to be cited among the principal factors explaining the
reversal in trend: a) an acceleration in the conversion to a service economy, given the greater
relative importance of small and tiny firms in many branches of personal and business services,
from retail distribution to professional consulting; b) the spread of the new information
technologies, reducing the importance of classic economies of scale in factories;
c) the gradual shift of consumption towards specialties producible by smaller firms; d) the passage
of legislation favouring small and medium-sized enterprises as engines of job-creation at a time of
virtually universal downsizing by large firms, with the production of materials and components
being outsourced to flexible and competitive suppliers; e) privatizations, which broke up the large
publicly-owned groups. An additional factor was the indirect effects of the oil shocks, which
stimulated energy-saving technological innovation everywhere and led business away from the
energy-intensive products typically associated with bigness.
These trends were particularly pronounced in the Italian case: the proportion of workers in firms
with fewer than 100 employees rose rapidly from an already high base to reach 70 per cent,
3
compared with between 20 and 30 per cent in the other countries (Figure 1).
1
In particular, at
the start of the 1990s firms with fewer than 20 workers accounted for 39.0 per cent of total
manufacturing employment in Italy, against 13.1 per cent in France, 14.0 per cent in Germany and
18.0 per cent in the United Kingdom; the proportion in Italy was also far higher than that of 23.0
per cent recorded in Japan, a country considered very similar to Italy in many respects owing to
the importance of small and tiny firms in the productive fabric (Filippi and Zanetti, 2001, pp. 629-
630). Meanwhile, the low share of jobs in firms with more than 500 employees fell further;
according to the latest available census data, in the 1990s the proportion was just over 15 per
cent in Italy, against 42 per cent in France, 52 per cent in the United Kingdom, 56 per cent in
Germany and 64 per cent in the United States (Figure 2). In thirty years the average size of firms
in industry and services shrank more markedly in Italy than in the other main countries and is now
equal to about 60 per cent of the average for the other EU countries (Fazio, 2002, p. 19).
Italy’s situation also appears anomalous when it is compared with that of the less advanced
countries, where large firms’ share of output either has fallen less sharply in the past decades (as in
Spain, Portugal and Greece) or has actually continued to grow (as in Brazil, Mexico, South
Africa, India and Taiwan).
The large number of micro firms (1-9 employees), their share in total employment and the
importance within the category of sole proprietorships are reflected in the smaller percentage
contribution of earnings from salaried employment to income in Italy than in the leading countries.
In the 1990s this contribution contracted more rapidly than elsewhere, falling from 46 to 42 per
cent. In seven other countries the figures ranged from a low of 47 per cent (Austria) to a high of
57 per cent (the US and Sweden) (BIS, 2001, p. 20).
Indirectly related to the distinctive fragmentation of the Italian productive structure was the
relative size of the underground economy, which probably increased further in the 1990s. The
National Institute for Statistics (Istat) estimates that irregular labour units accounted for 15.1 per
cent of total labour input in 1999, up from 14.5 per cent in 1995, with extremely high levels in the
southern regions, e.g. Calabria (27.8 per cent), Campania (25.9 per cent) and Sicily (24.1 per
cent) (Istat, 2002, p. 171). This is at least a secondary explanation of the well-known anomaly of
Italy’s low employment rate (i.e. percentage of the population aged 15-64 in work), which is
around 10 percentage points lower than the EU average (52 against 62 per cent) and far below
the rate in the United States (74 per cent). Moreover, the average employment rate in Italy
conceals a dramatic gap between the Centre and North (60 per cent) and the South (42 per
cent).
3. Small firms and drags on productivity and output growth
3.1 Productivity and the relative performance of SMEs. Examining the structure of the
productive system and corporate organization, Istat remarks that as firms grow the resulting gains
in nominal labour productivity (value added per employee) significantly outweigh the attendant
rise in labour costs, with positive effects on profitability (Istat, 2002, p. XVII). Labour
productivity in firms with fewer than 10 employees is scarcely 44.3 per cent of that in firms with at
least 250 employees, while the corresponding figures for profitability and labour costs are 55.4
4
and 52.0 per cent. The differential in labour productivity between small companies and larger ones
represents an incentive for growth, but its force is partly blunted by the fact that the differentials in
labour costs enable small firms to achieve appreciable profitability without having to invest in
organizational, technological and market innovations.
According to the Bank of Italy (2002), between the end of the 1980s and the middle of the
1990s the average annual growth in productivity in large firms was nearly double that in small firms
(3.9 against 2.3 per cent). Medium-sized and large firms also invested more heavily in information
and communication technology, stimulating smaller companies to follow suit.
A study by Guelpa (1999) of the annual accounts of 4,497 private-sector manufacturing firms
for the period 1985-1996, broken down into five size classes ranging from micro firms (up to 10
workers) to medium-sized and large companies (more than 100 workers), confirms the trends
described above: as firm size increases so does the stock of fixed capital per employee, boosting
labour productivity, while the role of outside financing, the burden of financial charges and the ratio
of bank debt to total debt all decrease. Overall, small firms appear relatively “undercapitalized”
with respect to the size of their investments and their volume of business, although Guelpa also
warns us to treat these results with some caution on account of the frequent commingling of
corporate with personal assets and liabilities in these enterprises.
A wide-ranging study using national accounts statistics and manufacturing firms’ annual accounts
at the European level (BACH database) analyzes the profitability indicators of small, medium-
sized and large companies, grouped and broken down by major sector (Caprio and Inzerillo,
2002). It shows that Italian firms’ return on investment and, especially, their return on equity are
lower than those of their European counterparts, not to mention those of similar firms in the United
States. This gap widened in 1997-99, when the lira recovered after depreciating sharply in 1993-
95. Return on investment is analyzed in its two components: profits over value added (which is
high) and value added over capital employed (which is sharply lower). This low capital
productivity reflects an “overcapitalization”, i.e. an excess of tangible fixed assets starting as early
as the end of the 1980s. Corroboration comes from the high ratio of capital stock (net revalued
tangible fixed assets) per worker and the higher ratio of depreciation and amortization to value
added, as shown by OECD national accounts data. The overcapitalization of Italian manufacturing
companies probably reflects a widespread strategy of labour saving, encouraged in part by
industrial legislation that until recently provided incentives for fixed capital investment rather than
for employment, research and human capital development. The comparatively low average return
on equity of Italian manufacturing firms reflects, in turn, an array of factors including a high
incidence of elements such as taxes on profits, financial expense and net losses on extraordinary
items.
However, within this general framework, medium-sized companies – defined as those with
annual sales of between €7 million and
€40 million, which might better be called “small and medium-sized” – appear more profitable. A
comparison of return on investment according to firm size and sector confirms the higher
profitability of medium-sized companies with respect to large ones, especially in electronics,
transport equipment and consumer durables. The disadvantage of large firms diminishes in sectors
such as machinery, basic metals and non-durable consumer goods. In textiles and clothing Italian
5
companies as a whole are in the same league as those in other European countries, and large
Italian firms actually outperform their European competitors by a wide margin.
In brief, Italian manufacturing firms overall are smaller, less profitable, more heavily capitalized
but also less inclined to grow than their counterparts in other countries. Within the sector, large
firms are penalized by low profitability, even if they do benefit from higher labour productivity.
Both of these phenomena may be traced back to the lack of the organizational-entrepreneurial
factor, to which Fuà (1980) assigns a pivotal role in the analysis of late-developing countries.
However, let us not overlook the positive signs that have appeared in the last two decades with
the rise of a vibrant, robust mittelstand of groups, most of them family-controlled, strongly
focused on their core business and committed to international and multinational integration. It has
been rightly remarked that Italy’s productive structure can no longer be described as a simple
dichotomy between small and large firms (Balconi et al., 1989). If this new entrepreneurial reality
is to grow, it will have to avoid obstacles and strategic errors (the cautionary examples include the
cases of Fochi, Mandelli, Zanussi and Elfi-Ocean). This said, however, the fact remains that Italian
industry has rarely been able to position itself in the typically high-tech sectors.
3.2 Some reasons for the constraints on growth of SMEs. The “dwarfishness” of Italian
production units is compounded of at least four historical, political and cultural ingredients that we
can only touch on here. They are: aversion to the loss of direct family control, the model of
industrial districts, a banking and financial system not inclined to finance equity capital and late in
providing adequate support for firm’s international expansion, and, lastly, industrial policy that
tends to ignore the mittelstand. The first two ingredients relate to industrial structure and
governance, the last two to the environmental and institutional context.
To begin with, the traditional aversion (not just in Italy) to losing control of one’s family business
is certainly a factor of strength during a company’s take-off, when reinvested profits and bank
credit play a crucial role, but later on it becomes a curb on external growth, when the company
examines the opportunities for a large step-up in its international activity (Barca, 1994). In Italy,
reluctance to see a dilution of ownership control is accentuated by the underdevelopment of the
stock market, to which we shall return shortly.
On the second point, the quantitative and qualitative importance of industrial districts in Italy is
beyond doubt. According to Istat estimates, in 1998 Italy’s 199 industrial districts accounted for
43.3 per cent of manufacturing exports, with shares exceeding 60 per cent in sectors such as
knitwear and clothing, leather products and footwear, ceramic tiles, furniture, jewellery, musical
instruments and farm machinery (Istat, 1999, pp. 109-116). Nonetheless, the large external
economies or “district economies of scale” found by many qualitative studies do not in themselves
prove that district firms’ operating efficiency is superior to that of non-district firms belonging to
the same sector. An estimate of comparative technical efficiency (Istat, 1999, pp. 174-5) suggests
that the district effect is positive and substantial only in leather working and footwear and in
textiles, and then only for medium-sized companies. By contrast, districts do not appear to play a
positive role in several very important export industries, such as wood products and furniture and
industrial machinery. In recent years industrial districts have also been springing up in the South
(Viesti, 2000).
Still, the constraints on scaling up have not prevented medium-sized and even large firms
endowed with a truly managerial organizational structure and important multinational connections
6
from emerging as leaders in many districts: Zegna and Loro Piana in the Biella wool district,
Marazzi in the Sassuolo ceramic tiles district, GD in Bologna’s “packaging valley”, Merloni in
Fabriano, Della Valle in the footwear district of the Marche, SCM in the wood products and
woodworking machinery hub of Rimini, Tecnica in the athletic shoes and footwear district of
Montebelluna, Luxottica, De Rigo, Marcolin and Safilo in the Friuli eyewear district, Gucci and
Ferragamo in the leather goods and shoe industry around Florence, Uno-a-Erre in the goldwork
district of Arezzo, LineaPiù in the Prato textiles industry, Natuzzi in Murgia upholstered furniture
district in Puglia, and so on.
Traditionally, districts are viewed as an instance of a Marshallian external economy (see, among
many others, Garofoli, 1999, and Varaldo and Ferruci, 1997), a network of small independent
firms sharing a large fund of “social capital” and network services. However, some studies analyze
them as structures breeding internal “hierarchies” (Brioschi et al., 2001, Balloni and Iacobucci,
2001).
Alongside these elements of productive structure and governance, at least two environmental
factors help to explain the constraint on growth. The first relates to the structural characteristics of
the banking and financial system on which companies’ external financing depends. In Italy, the
strong local roots of savings banks and commercial banks no doubt played a key role in
accompanying the early development of industrial districts and SMEs, a role that included support
for the growth of groups through mergers, spin-offs, ownership transfers and retooling. However,
the banking system was, and in part still is, less equipped to accompany and support companies in
their progressive internationalization, in which the traditional credit function must increasingly be
integrated with financial consulting, evaluation of market and customer risk, assistance in raising
equity capital and disbursement of medium-term export credit, functions all of which presuppose a
culture of merchant and investment banking rather than pure commercial banking. Italy’s
underdeveloped private equity and venture capital markets also deserve to be mentioned. A large,
efficient market in both these forms of equity financing is important for fostering the growth of
enterprise, and particularly of innovative enterprise, which is essential in order to create new
competitive advantages alongside those inherited from the past.
To be sure, the stock exchange flotation of up-and-coming small companies is not indispensable
to sustainable industrial growth, and its importance must be interpreted in the light of the actual
behaviour of a country’s markets and financial institutions. On this count the recent history of
Italian industry – from chemicals to electronics, from telecommunications to food processing –
unhappily is replete with discouraging examples of mismanaged listed companies, whose
technological and human capital was severely compromised or even destroyed. Yet, we cannot
ignore the ways in which stock exchange listing can generate new and potent stimuli to value-
creation and growth. Suffice it for us to consider the following: a) availability of copious financial
resources in order to seize opportunities for rapid external growth and expanded market shares,
including acquisitions abroad; b) pressure for change exerted by independent shareholders
(institutional investors) not afflicted by short-termism and interested in seeing the company take
advantage of the openings offered by technology and by competitive conditions in the different
markets;
c) encouragement of greater transparency in financial reporting, to the benefit of the controlling
family and creditors alike, given their shared interest in ensuring the financial soundness of the
7
company; d) more effective marketing of the company’s image; e) maximum facilitation of
generational transfer, thanks to the effective distinction between ownership and management.
A related issue, newly topical following recent measures in the field of company and labour law,
is that of the role of the legal and juridical context in generating incentives and disincentives for
firms to grow and, in particular, to go public. I cannot develop this point at length here. However,
in passing we can note that the recent revision of the legislation on false accounting does not
address the problem of the lengthiness of penal and civil justice proceedings (in particular, those of
bankruptcy and composition with creditors) and could further discourage the raising of equity
capital through the stock market. The new provisions reinforce the distinction between listed and
unlisted companies, making the crime of false accounting prosecutable for the latter only if a
complaint is filed by a shareholder; the presumption, in the absence of a complaint, is that unlisted
companies do not injure third parties in the market.
The nature of industrial policy is the second environmental factor. Since the 1970s industrial
policy measures in Italy have mainly involved bail-outs for large companies or limited incentives for
SMEs. The problems of medium-sized groups expanding abroad have received scant attention.
The measures giving financial support to troubled medium-sized and large groups include Law
675/1977 (industrial conversion), 787/1978 (financial adjustment of large firms), 95/1979 (the so-
called Prodi Law for medium-to-large distressed firms), 184/1971 (establishing GEPI, the State
Industrial Management and Holding Company), 784/1980 (for SIR S.p.A.), and 63/1982 (on
Rel). On the other hand, we have demand-side action taken mainly to assist SMEs. Among the
relevant measures, we have Laws 1329/1965 (the Sabatini Law for supported loans to companies
selling or buying machine tools), 696/1983 (capital grants for purchases of high-tech machinery),
and 227/1977 (support for exports). By contrast, there are few examples of industrial incentives
specifically designed to help medium-sized firms to scale up their operations. Some legislation has
sought to stimulate technological innovation, but these measures, however useful, have not been
able to foster the creation of a critical mass of innovative investment in an advanced oligopolistic
setting. Examples include Laws 46/1982 on the Revolving Fund for Technological Innovation and
1089/1968 on the IMI Fund for Applied Research (on the entire question, see Momigliano, 1986,
and CERS-IRS, 1986, Chapter 3). Naturally, the size thresholds that are a feature of nearly all the
industrial incentives may well act as a brake rather than a stimulus to company growth. See, for
example, the perceptive analysis by Scanagatta (1999) of the Mediocredito Centrale sample for
the period 1992-94.
4. Weaknesses in Italian industry’s international position
4.1 Declining market shares and the real exchange rate. The starting point from which to
survey the current weaknesses in Italy’s international position is the erosion of Italy’s share of
world exports since the end of the weak lira, i.e. following the double devaluation of 1992 and
1995.
In 2001 there was a slight recovery, helped by the weakness of the euro against the dollar, but
partial data for 2002 not only do not point to a clear reversal of trend but, if anything, suggest a
further decline in export shares particularly in EU markets, which alone take more than half of
8
Italy’s sales abroad (Figures 3-5 and Table 1), in many key sectors. Compared with the peak
reached in 1995-96, Italy’s share of world exports at current prices fell by around 1 percentage
point, more than losing the ground that had been gained in the preceding 15 years. Furthermore,
the losses in market shares in the five years 1996-2000 were not solely to the benefit of new
Asian and East European competitors, a situation common to many industrial countries, from
Europe to Japan; Italy also lost shares to industrial countries of Europe and North America. A
chart in the Bank of Italy’s Annual Report for 2001 (Banca d’Italia, 2002, Fig. B26, p. 163)
clearly shows that the trend in Italy’s share of the exports of the industrial countries at constant
prices in the 1990s was specular to that of France and Germany: an increase of half a percentage
point between 1991 and 1995 (when France lost a point and Germany a point and a half),
followed by a decline of around one point in 1996-2000 (when France recouped half a point and
Germany rose back above its initial level of 1991). Although convincing econometric
demonstrations are still lacking, all this can be readily interpreted as reflecting the end of the period
of the weak lira. After 1995 the lira first appreciated considerably and then stabilized within the
euro, albeit with what remains a substantial weakening of the real exchange rate from the levels of
1990-92. That deterioration ranges from 10 to more than 20 per cent vis-à-vis the major
industrial countries, depending on whether it is measured by the GDP deflator or industrial prices
or unit labour costs (CSC, 2002, p. 53; EC Commission, 1999, p. 49).
To quote from Governor Fazio’s Concluding Remarks to the Bank of Italy’s Annual General
Meeting of 31 May 2002, “The volume of Italian exports increased by 25 per cent between 1995
and 2001. Over the same period world trade grew by 45 per cent and the exports of the other
eleven euro-area countries by 55 per cent. Italy’s share of world trade in goods, at constant
prices, fell from 4.6 per cent in 1995 to 3.7 per cent in 2001” (Banca d’Italia, 2002, “The
Governor’s Concluding Remarks”, p. 14).
Whereas a decade or so ago Italy had overtaken the United Kingdom to rank sixth in world
exports and fifth in exports of manufactures, today it ranks eighth (sixth in services, thanks to the
large contribution of tourism), having been surpassed by China (permanently) and Canada
(perhaps only temporarily, depending on the cycle of domestic demand in the United States)
(Tables 3 and 4).
Of course, we must not forget that 1993 marked a turning-point for Italy’s balance of payments
on current account owing to the devaluation of the lira and the sharp economic downturn. Since
then Italy’s net external financial position has improved and remains in surplus even though the
external current account did not show a surplus in 2000 and 2001 (Figure 6).
The contraction in Italian exports in the 1990s was partly the product of a cyclically
unfavourable composition of outlet markets (low share in the fast-growing US market and high
share in the much less dynamic EU market), together with a persistently unfavourable composition
of the sectors of competitive advantage (low shares in high-growth sectors of world demand, such
as information technology, telecommunications, chemicals and transport equipment, and high
shares in the relatively sluggish sectors of traditional consumer goods and capital equipment)
(Figures 7 and 8). Combining the two dimensions of value added per employee and demand
growth, as suggested by Bianchi et. al. (1998) and taken up by Caprio and Inzerillo (2002), there
emerges a model of Italian specialization centred on: a) sectors with medium-to-high growth but
low value added (clothing, leather products and footwear, furniture, rubber and plastic products,
9
metal products, electrical goods); and b) sectors with average value added but slower-than-
average growth (food processing, industrial machinery, marble, tiles and glass). In nearly all the
high-growth, high-value-added sectors, such as chemicals, pharmaceuticals, transport equipment,
information technology, consumer electronics and precision instruments, Italy is not specialized
and is actually moving in the opposite direction of the other major industrial countries in the last
two decades.
But even taking account of these “structural effects”, a simple constant-market-share analysis of
Italian exports in 21 markets and more than 1000 sectors and branches corresponding to the 4-
digit Harmonized System shows that more than half of the loss in share in that period was
attributable to lesser competitiveness (Table 2). The calculation of export performance
contained in the OECD’s half-yearly report for 2002 indirectly confirms this. A country’s export
performance is measured as the positive or negative difference between the growth rate of its
volume of exports and the average of the growth rates of the volume of imports of its outlet
markets, weighted on the basis of the geographical composition of the same outlet markets in
1995. In this calculation Italy presents a striking sequence of negative differentials between 1995
and 2000, with further losses predicted for 2002 following a slight recovery in 2001 (OECD,
2002,
p. 274). Nearly all the other main European countries, not to mention China and the emerging
countries of East Asia, outperformed Italy by a wide margin. It is small consolation to recall that
Japan has ranked last in performance for many years.
The recovery in cost competitiveness in 1999 and 2000 deriving from the appreciation of the
dollar against the euro was not enough to reverse the trend, nor could it boost Italy’s export
performance in the rest of the euro area and in the world markets where Italian products vie with
those of other euro-area countries. There is thus good reason to fear a further appreciation of the
euro against the dollar, which is likely to occur when the markets, losing confidence in the dollar as
a store of value, become less inclined to finance the massive, persistent current account deficit of
the United States, now the world’s largest debtor.
In addition, the gain in competitiveness stemming from the deterioration in the real exchange rate
of the lira appears less impressive, and also more tenuous, in the light of two facts: a) the
persistent, albeit limited, differential in domestic inflation, as measured by the GDP deflator, with
respect to Italy’s major European competitors; b) the large depreciation against the dollar suffered
by the currencies of many emerging countries after 1997-98, with a high likelihood that the
weakest currencies will follow the dollar in the latter’s impending depreciation. As the EC
Commission observed (1999, p. 50), between the middle of 1997 and the end of 1998 the real
exchange rate of the lira calculated on consumer prices vis-à-vis the currencies of 43 countries,
including those of Central and Eastern Europe and Eastern Asia, recorded an appreciation
(indicating a loss of competitiveness) of 6 per cent.
The declines in Italian export shares in recent years have been largest in the major markets of
Western Europe, which alone make up 60 per cent of Italy’s outlet markets (Figure 9 and
Tables 5 and 6) and for many sectors of non-durable consumer goods (Figure 10 and Table 7),
even though the latter continue to show a sizable surplus, offsetting structural deficits (agricultural
and non-agricultural raw materials) and other deficits due principally to the scant presence of
Italian capital in the fastest-growing high-tech sectors (Figure 11). For example, between 1997
10
and the first five months of 2002, Italy’s share of Germany’s imports fell from 16.7 to 12.8 per
cent in the textiles and knitwear sector, from 26.7 to 20.6 per cent in leather goods and footwear,
from 19.4 to 13.4 per cent in furniture, and from 21.4 to 14.0 per cent in glass and ceramic tiles
(Table 8). In the same period Italy’s share of French imports declined by 3 percentage points in
textiles and knitwear (from 18.7 to 15.7 per cent), by 4 points in footwear (from 26.8 to 22.7 per
cent), and by more than 5 points in gold and jewellery (from 22.2 to 16.8 per cent) (Table 9).
These losses have been only partly offset by a strong showing by other sectors, such as electric
home appliances, and, at least since 1999, in other markets, such as Russia, Eastern Europe and
the Mediterranean countries.
4.2 Fragility of Italy’s model of international specialization. Italy’s model of specialization is
particularly vulnerable at the extremes. At the top, the other advanced industrial countries seem
better equipped to compete in the sectors typified by large economies of scale and those that are
R&D-intensive: motor vehicles, chemicals and pharmaceuticals, aerospace, power generating
equipment, information technology, telecommunications, and so forth. At the bottom, several
emerging countries with sharply lower costs and enormous production and distribution potential
are eroding Italy’s share of the rich countries’ imports in market segments that are initially of low
quality but which can be rapidly upgraded with the application of imported technology, including
the pre-eminently exportable forms of technology developed in Italy.
Classifications of goods based on different measures of factor intensity and econometric
exercises that seek statistical correlations between indices of specialization (revealed comparative
advantage) and structural characteristics of the economy’s sectors must certainly be treated with
caution. This said, a number of recent studies find that Italy’s model of specialization is clearly
moving counter to that of the other industrial countries, including some, such as Spain and Ireland,
with substantially lower per capita income. I am not just referring to the well-known weakness of
Italian industry’s presence in the high-tech sectors (see Section 5), but to the even more
worrisome fact that Italy is specialized in sectors with large inputs of unskilled labour and
despecialized in sectors that make intensive use of skilled labour. The contrast with the others
holds even vis-à-vis Spain (Figure 12).
A note of interpretative caution is necessary regarding these comparisons based on labour skills.
The statistics commonly used to attribute characteristics of labour skills to the various sectors
generally refer to the distinction between managers and clerical workers on the one hand and
manual workers on the other, thereby defining all manual workers as unskilled. Now, this
definition plainly fails to capture the important difference between specialized and general
production workers. It makes little sense, for example, to treat specialized workers employed in
complex facilities (e.g. chemical or petrochemical plants) or assigned to sophisticated machinery in
flexible production units as belonging in a single group with the (increasingly immigrant) population
of workers in the tanneries, sheet-metal factories, and the like.
Nonetheless, the results undeniably show that Italy risks being penalized in the longer run
inasmuch as it is: a) more exposed to competition from the countries with abundant unskilled, low-
wage labour; b) less able to exploit the stimuli of “endogenous growth” resulting from dynamic
economies of scale, technological learning and innovation connected with human capital; c) less
prepared to act as supplier to prospectively high-growth market segments. Given this model of
11
specialization, the income-elasticity of world demand by sectors and products is unfavourable to
the relative performance of Italian exports. Even so, a world of increasing product specialization
necessarily offers a country like Italy opportunities to specialize in relatively more dynamic market
segments and products even within the more mature sectors – opportunities some of which have
been exploited.
The last-mentioned aspect has been explored by a number of econometric studies on Italy’s
intra-industrial specialization (by product and by variety within the same categories of goods)
as opposed to the more classical issue of inter-industrial specialization across different sectors.
In all countries the volume of intra-industrial trade in relation to total exports has tended to rise
strongly in recent decades, albeit with the unavoidable cyclical ups and downs. This remains true
even when the disaggregation of products according to “sectors” is pushed to the 3- and 4-digit
standard customs classification in order to achieve a better approximation of the notion of product
and product group. In the 1990s Italy diverged from the average, displaying indices of intra-
industrial specialization (à la Grubel-Lloyd) even lower than those of Spain and no longer trending
upwards, in contrast with Spain, among others (Figure 13).
To present a true and fair view, we must add that by some estimates Italy’s index of intra-
industrial specialization, at least in the traditional consumer goods sectors, is based on exports of
medium and high quality (measured by an average unit value well above the average for the
sector), together with imports of goods of predominantly low-to-medium quality. In other words,
Italy’s intra-industry specializations is “vertical positive”. This is very clear in the findings of De
Nardis and Traù (1999) for a virtually complete spectrum of manufacturing exports to the OECD
countries and those of Annicchiarico and Quintieri (1999) for textiles, clothing and footwear for
the years 1980, 1990 and 1996. Unsurprisingly, the latter study finds a relatively high proportion
of quality imports from the transition countries of Central and Eastern Europe, with which Italy
vigorously promoted the development of outward processing in the 1990s. This flow necessarily
involves a significant increase in value added between the temporary exports supplied by Italy and
the reimported intermediate or semi-final products, to be finished and upgraded with branding by
Italian firms. The picture is less positive for specialized machinery, Italy’s other major area of
intra-industrial strength.
This contrasts with the conclusions reached by the CEPII (1998,
pp. 115-117) in a study based on 1996 data at the highest level of statistical disaggregation (some
ten thousand items of the harmonized 8-digit code for 14 reporting countries with 74 trading
partners). Italy was found generally to maintain comparative advantages in the low-to-medium
range of products, along with other countries of Southern Europe, such as Spain, Portugal and
Greece.
Similar results, equally unfavourable for Italy, are put forward by Bugamelli (2001). Based on
data for 108 product groups and an indicator of skill intensity proxied by the ranking of gross per
capita wages and salaries, between 1988 and 1997 Italy and Spain were far more specialized in
unskilled-labour-intensive sectors than the rest of the euro-area countries on average. During the
period Italy was less dynamic than Spain, whose model of specialization evolved rapidly towards
higher-skill sectors. The study by Cipollone (1999) of the normalized balances of 108 sectors
from the start of the 1980s to the mid-1990s also indicates that Italy’s specialization declined in
12
the sectors employing more skilled labour (proxied by relative wages) relative to almost all the
other countries considered.
An analysis of Italian data from 1988 to 1996 (Chiarlone, 2001) based on all the 5-digit items of
the SITC for 16 Italian trading partners shows a clear, though diminishing, prevalence of “vertical”
intra-industrial trade (defined by deviations of 15 per cent in average unit values on either side of
the mean) over “horizontal” trade. However, like the CEPII study, Chiarlone’s inquiry also finds
that the component unfavourable for Italy (low-quality exports, high-quality imports) is dominant in
the field of vertical trade; high-quality vertical trade prevails only in a few traditional export
sectors.
While Italian firms are striving to reposition themselves upscale in quality and design, they are
under pressure from competitors both near (Spain, Portugal, the Central and Eastern European
countries) and far (China first and foremost, followed by other countries of Eastern Asia, Mexico
and Brazil). A close-up of the trade penetration of these new competitors in the European and,
especially, the non-European markets (CSC, 2002) reveals unexpectedly large and dynamic
market shares. For example, in textiles and knitwear China was far and away the world’s leading
exporter in 2001 with a share triple that of Italy, its closest competitor (19.2 against 6.0 per cent).
In North America, China and the countries of Eastern Asia accounted for 48 per cent of imports,
against Italy’s 4.5 per cent. The figures for clothing are even more striking: China is the world’s
leading exporter with 26.7 per cent, followed by Italy. In North America, which takes a quarter of
world imports, China and Eastern Asia have a 61.0 per cent share, compared with 6.4 per cent
for Italy. The figures are of a similar order of magnitude in leather goods and footwear. Even in the
wood, furniture and furnishings sector China surpasses Canada to rank first in world exports,
while China and Eastern Asia together supply 10.5 per cent of the imports of Western Europe
(Italy, 12.4 per cent), 27 per cent of the imports of the Mediterranean and Middle East (Italy,
18.7 per cent), and 22.5 per cent of those North America (against 3.9 per cent for Italy). Asian
export penetration is now also substantial in less traditional sectors, even outside consumer
electronics. For example, in 2001 China ranked third in exports worldwide (and first in North
America) in rubber and plastics, fifth in machinery and electrical apparatus (just ahead of Italy),
and fourth in precision instruments (including optical and photographic equipment and watches and
clocks).
The pressure exerted “from below” by China and the emerging Asian economies reflects a
potent mixture of competitive factors: low wages, cheap energy in many cases, lower
environmental standards, and rapid gains in productivity and quality, accompanied by a marked
ability to imitate designs and models (and to make counterfeit copies, taking advantage of the
difficulty of legal recourse), rapid technological and organizational learning, and robust, widely
ramified sales and distribution networks backed by the powerful Japanese and Korean trading
companies.
Italy is well-equipped to meet this challenge in terms of production, with continuous process,
product and design innovation, but it is weaker in the downstream phases of the value chain
(marketing and communications, distribution, trade finance, customer assistance). This, again,
reflects the country’s fragmented structure of production, which can be very efficient in the
production function but is less able to compete where organizational and financial economies of
13
scale count (Onida, 1999, pp. 609-611; Lorenzoni, 1997; Mariotti, 2002; Conti and
Menghinello, 1996).
A similar picture emerges from the IMD’s World Competitiveness Scoreboard (IMD, 2002).
Though far from scientific, this indicator of a sample of observers’ perceptions of competitiveness
factors is symptomatic of a broad consensus among economic agents. In 2002 Italy ranked only
32nd out of 49 countries overall, having slipped slightly in three years to the benefit of European
and Asian countries. “Productivity” was the only criterion under which Italy made a respectable
showing, ranking 9th, whereas the country scored low under all the criteria of governmental
efficiency, basic infrastructure, the labour market and managerial practices. These findings are
corroborated by the World Economic Forum’s annual ratings of competitiveness (or, better, of
attractiveness for locating production). As reported by Il Sole-24 Ore of 13 November 2002, on
this scale Italy slid from 26th place all the way to 39th, below countries such as Israel, Chile,
South Korea, Estonia, Thailand, South Africa, Lithuania, and even Trinidad and Tobago.
A final observation concerning the signs of fragility in the model of specialization based on small
specialized firms: compared with the other EU countries, Italy is much less open to inward
processing trade, in which specialized European firms temporarily import semi-processed goods
and re-export finished products and components (mainly in the chemical, mechanical engineering
and transport equipment sectors) to non-EU industrial customers located mainly in the United
States and, to a lesser extent, in Japan and Eastern Asia (Tajoli, 2002; Baldone, Sdogati and
Tajoli, 2002). The explanation probably lies in the excessive smallness of Italian component
suppliers compared with those in Germany, France, the United Kingdom, Belgium, the
Netherlands and Ireland, as well as in Italian industry’s underdeveloped presence in the high-tech
sectors most amenable to the fragmentation of the production cycle (e.g. fine chemicals,
aerospace, precision instruments, the nuclear industry, etc.). A further factor is the country’s
unattractiveness as a location for foreign direct investment (see Section 6).
5. The decline of large companies and the lag in R&D investment
5.1 The decline of large private and public-sector companies. Italy’s persistent comparative
disadvantages in almost all the scale-intensive sectors and its deteriorating position in the high-tech
sectors are hardly surprising in light of the relative rarity of Italian groups among the dominant
world players and the growing gap between Italy and its European and world partners in R&D
spending. The Fortune list of the 500 largest world groups in 2002 included eight Italian
companies with total 2001 sales of $252.3 billion. Italy not only trailed the United States, Japan,
Germany, the United Kingdom and France, but also came in behind Switzerland, the Netherlands,
South Korea and China in terms of total revenues (Table 10). The only Italian industrial groups
among the Fortune 500 were Fiat and ENI, the latter active mainly in fossil-fuel extraction and
industrial services. The others were a trio of utilities (Olivetti, i.e. Telecom Italia, ENEL and
Edison) and three banking and insurance groups, namely Assicurazioni Generali, IntesaBCI and
Unicredito Italiano (Table 11) (Filippi and Zanetti, 2001).
After the war, during the 1950s and 1960s, public and private-sector firms had helped to
redesign the country’s competitive advantages, putting forth world players such as IRI, ENI, Fiat,
14
Alfa Romeo, Olivetti, Montedison and Pirelli and securing market shares in sectors marked by
economies of scale and rapid technological innovation with Italtel (telecommunications), Ansaldo
and Franco Tosi (power generating equipment), Farmitalia-Carlo Erba (pharmaceuticals), SNIA
(fibres), SIV (glass), Italsider and Falck (steel), Selenia (missile systems), and others. In the
1970s progress began to give way to retrenchment and decline owing to deteriorating political and
macroeconomic conditions, labour unrest and, above all, the inability of the corporate governance
system of the major public and private-sector groups to meet the new challenges in Europe and
beyond. The operational control and growth strategies of many public-sector groups were brought
under a spoils system that destroyed assets wholesale (as in the cases of Ansaldo, Breda and
SME). The chemical industry saw the failure of grandiose projects for public-private partnership,
spawned by equally ambitious programmes of industrial incentives for the South (Enimont, SIR
and Liquichimica). Public spending on civil and military engineering, a classic means of providing
strategic support for competitive innovation in other advanced countries, was used mainly to
divide up and protect shares of the domestic market for Italian suppliers sheltered from
competition (the Defence Ministry, ENEL, Italian State Railways, the state-owned telephone
company SIP, the Post Office, the state-owned motorways, and so on).
The real protagonists of the transition towards innovative competition in the last two decades
were smaller enterprises, observes Gros-Pietro (2001, p. 713): “Some belonged to large groups,
as in the case of SNIA of the Fiat group, or Esaote, which was spun off by Ansaldo. But the
majority were independent and thus precluded from raising large amounts of capital in a country
whose stock market was basically ineffective. Their strategies of innovation necessarily had to
incorporate low technological risk, offer short-run returns and be based on known skills. Hence a
species of innovation mainly involving design, process and organization, individually or in
combination. ”
With a handful of exceptions – such as STMicroelectronics (originally, a product of state
industry) in microchips, Pirelli in tyres, Riva, Lucchini and the Italo-Argentine company Techint in
steel, Italmobiliare in cement – large Italian firms are increasingly spectators of the struggle for
industrial leadership in the scale-economy sectors worldwide. We know from the foremost
literature on national systems of innovation (Nelson, 1993; Rosenberg et al., 1992; Malerba,
2002) that such leadership is fostered by and in turn encourages the accumulation and diffusion of
basic technological knowledge, the construction of networks of formal and informal partnerships
for process and product innovation (bringing together users, suppliers, government, universities
and research centres, and financial institutions), and the creation of a favourable institutional
environment in terms of rules, standards and regulations.
Without a vital core of large companies, banks and financial institutions, the system is finding it
hard to generate a top-flight managerial class committed to operating in the international markets,
to create high-value-added jobs for the growing ranks of high-school and university graduates, to
encourage high-tech spin-offs; in a word, to invest massively and effectively in “human capital”, the
only true source of the nation’s wealth. Dependent on a family-based capitalism that is struggling
to become family-managerial capitalism, and on a State that acts as a protector rather than a
stimulator of Schumpeterian innovation, the system is tending to turn inwards and to relegate itself
to a marginal role in world competition, inevitably more vulnerable to external shocks.
15
One can only be alarmed by the findings of recent studies on the Italian productive system’s
human capital endowment (Guelpa and Trenti, 2000; Gambarella and Varaldo, 2001). The ten
years from 1985 to 1995 saw Italy’s relative position worsen in terms of the percentage of the
labour force with a high-school or university education. In 1995 fully 56 per cent of the labour
force aged 25-64 had not gone beyond a primary school degree, compared with an average of 35
per cent in the OECD, 25 per cent in France and 12 per cent in Germany. By contrast, only 11
per cent of the same labour force in Italy had a university degree, compared with an average of 25
per cent in the OECD, 21 per cent in France and 26 per cent in Germany (Guelpa and Trenti,
2000). At the end of the 1990s Italy surpassed only Greece and Portugal in the percentage of the
adult population with a high-school or university education (Antonelli and Montresor, 2002). And
though the percentage of skilled employees (specialized production workers, technicians,
researchers and managers) in the traditional sectors of Italian export is higher than the average for
the G-6, the opposite is true in the technologically innovative sectors. Managers account for under
5 per cent of total employment in firms with fewer than 20 workers, 10 per cent in those with
between 20 and 50 employees, and over 20 per cent in those with more than 100 employees
(Traù, 1999a). While this pattern is readily understandable in the logic of small, family-run
businesses, it militates against the formation of a solid layer of middle management, which is vital
for the development of the organizational-entrepreneurial factor.
5.2 Low propensity to invest in research and development. The dearth of large firms,
comparative disadvantages in scale-economy and R&D-intensive sectors, and low spending on
R&D are obviously interrelated.
The proportion of high-tech products in total exports has been stable for some time and at 8 per
cent is markedly lower than in other countries. Between 1991 and 2000 the corresponding figures
rose from 12 to 15 per cent in Germany, from 20 to 25 per cent in France, and from 26 to 30 per
cent in the United States (Banca d’Italia, 2002, The Governor’s Concluding Remarks).
After slumping in the first half of the 1990s and then turning slightly upwards, the ratio of R&D
expendtiure to GDP is less than 1.1 per cent, one of lowest in Europe, compared with figures of
between 1.9 and 2.3 per cent in France, Germany, the United Kingdom, the Netherlands and
Denmark and exceeding 3.5 per cent in Sweden. Italy ranks seventh in the world in absolute
amount of R&D spending, behind even South Korea, and twentieth in R&D expenditure relative
to GDP. The low level of the latter ratio is explained only to a small extent by the particular
sectoral composition of industry, which highlights the relative importance of traditional sectors
where formalized R&D is typically low (and not just in Italy); as it happens, Italian companies’
R&D investment lags behind that of their competitors even within the same sectors. A more
general explanation again lies in the smallness of Italian firms. Nearly everywhere, R&D
expenditure tends to grow with firm size, while in smaller firms many instances of incremental and
applied innovations that constitute genuinely important process and product innovation are not
reported as research. This widespread, informal activity of technological innovation is
corroborated by the Istat surveys on technological innovation (Istat, 1988 and 1995) and by many
studies over the years (Onida and Malerba, 1990; Garofoli, 2002).
By international standards, Italy has a low ratio of R&D spending to industrial value added (0.73
per cent in 1999, against 1.53 per cent on average in the EU and 1.85 per cent in the OECD) and
16
a low share of government-funded corporate R&D (4.4 per cent, against 9.3 per cent in the EU
and 9.5 per cent in the OECD. Moreover, multinational companies contribute fully one fifth of the
Italian total (Quadrio Curzio et al., 2002, p. 39; Istat, 1999, p. 179).
In the periodic surveys on scientific and technological research one is also struck by the marginal
role of universities and research institutes as channels for the introduction of business innovation.
Companies estimate that these research centres account for only 1 per cent of innovation, while
they attribute 24.9 per cent to channels such as “trade shows” and 19 per cent to consulting firms
(Istat, 1999, p. 184ff.).
Italy is somewhat closer to the leading countries in rankings based on the cumulative number of
patents, thanks to the considerable number of patents held by specialized suppliers in sectors
where Italy enjoys competitive advantages, above all industrial machinery and components. In this
regard, it is interesting to note that there appears to be a significant causal relationship running from
patenting (indices of revealed technological advantage) to international specialization (indices of
revealed comparative advantage) precisely in the specialized machinery sector (Bertamino, 2000).
In the 1980s and 1990s patenting activity intensified, and Italy rose to sixth place in the world in
1993-96 with 5.63 per cent, far behind Germany (23.86 per cent) but nearly on a par with
France and Switzerland (6.38 and 5.66 per cent, respectively) (ENEA, Cespri and Politecnico di
Milano, 2001). However, in the high-tech sectors Italy remained a laggard in both R&D and
patents (ENEA, Cespri and Politecnico di Milano, 1999).
The productive system pays no small price for this low propensity to engage in industrial
research and develop patents. The price includes less capacity to absorb young high-school and
university graduates in skilled jobs, fewer opportunities for firms to steal a march on competitors in
product innovation, and a weaker hand for firms to play in seeking to negotiate strategic alliances.
6. Backwardness of Italian multinational firms
Despite the collapse of cross-border mergers and acquisitions in 2001-2002 that accompanied
the bursting of the speculative bubble in ICT, over the longer run foreign direct investment in
production and marketing operations in industry and services continues to expand faster than
world trade (UNCTAD, 2002 and updates).
Italy ranks lower in the international standings of foreign direct investment than in international
trade in goods and services. As an investor Italy placed eleventh in terms of FDI stocks at the end
of 2000 and fifteenth in FDI flows in 1995-2000 (down from twelfth in 1989-94), behind such
smaller countries as Belgium, the Netherlands, Denmark, Spain and Finland. As a beneficiary of
worldwide FDI, Italy ranked twelfth in stocks at the end of 2000 (down from fifteenth in 1990)
and nineteenth in flows in 1995-2000 (compared with thirteenth in the previous five years), behind
Ireland, Denmark, Mexico and Brazil, among others (Tables 12 and 13). In 2001 Italy regained a
little ground, since it was less involved in the collapse of cross-border M&As, but the basic
picture did not changed.
Despite a recent surge in Italian outward direct investment in Eastern Europe and the
Mediterranean by some traditional industries, such as leather, footwear and clothing, Italy remains
a relatively minor player. Naturally, the reasons for this situation no longer have to do with
17
exchange controls, which acted as a brake on capital outflows until the early 1980s; they are
basically to be found, yet again, in the structural characteristics of the system. Other things being
equal, smaller firms are less equipped to cope with the financial and organizational costs of
locating abroad and prefer to serve their domestic markets, even if this sharply limits their scope
for growth. Furthermore, owing to the features of the market, sectors such as mechanical
engineering and component production scarcely lend themselves to the typical multinational
organization of production; at the most, they require investments in distribution and post-sales-
assistance networks, which the leading companies in these sectors do not in fact hesitate to make.
Finally, as long as they were within the public orbit, state-owned industries (now privatized with
rare exceptions such as AGIP, Saipem and Snam Progetti of the ENI Group) lacked the
incentives and opportunities to expand abroad; their dominant “mission” was to create jobs in
Italy, particularly in the South.
From the opposite perspective of the ability to attract investment from abroad, Italy continues to
suffer from well-known disadvantages (attested to, inter alia, by the above-mentioned periodic
surveys of managers of multinational firms) compared with other European countries where per
capita income and costs are not higher than in Italy, e.g. Spain, Ireland, Finland and Turkey.
Italy’s major weaknesses concern its slow and opaque bureaucracy, taxation, shortage of
infrastructure, labour market rigidities, disconnection between research and business, and public
order in certain parts of the South.
The implications of the relative backwardness of Italy’s multinational development are still
misunderstood by a national culture, expressed by the country’s political, business and trade-union
leaders, whose vision is often reductive and sometimes tinged by fear of “capital flight” in the case
of outward FDI and “colonization” in connection with inward investment. Yet, a copious
theoretical and empirical literature on internationalization shows that investment abroad boosts a
country’s ability to compete when it is already well integrated into world trade. The positive
effects include stronger roots in the market with better control of the distribution and customer-
assistance network, new sales outlets in markets near and linked to the country where the
investment is made, availability of new component suppliers, acquisition of expertise in adapting
products and expanding the product range, and training of managerial and supervisory personnel.
Moreover, in the case of so-called vertical FDI, or outsourcing of production, the company
making the investment lowers its production costs and reorganizes its international logistics, with
positive effects on the competitiveness of the firm as a whole. This is often a defensive strategy; in
its absence domestic employment would probably fall even further, given the competition of low-
wage countries on the open markets.
The bulk of econometric studies aimed at testing whether outward FDI is primarily a substitute
for or a complement to the investor country’s exports support the latter hypothesis. Although there
is some substitution for domestic production, the transfer of technology and production abroad
leads to new outlet markets in the country receiving the investment and neighbouring areas. Even
cost-saving transfers of production abroad often involve additional exports of products
complementary to those to be produced in the local plant, as well as exports of machinery and
services for the facility (Onida, 2002).
For the beneficiary of FDI, the effects differ depending on whether the foreign company has
made a greenfield investment or acquired an existing plant. In the first case the beneficiary
18
country’s production will naturally increase, as will its imports and, often, its exports (to the
country of the parent company or others). But even for mergers and acquisitions, there is no lack
of examples of domestic production being boosted, technology updated and export strategies
reconfigured after an initial phase of restructuring in which cutbacks in jobs and product lines are
likely.
In the 1950s and 1960s Italy was one of the countries that recorded the sharpest increment in its
“degree of inward internationalization”. In their investments in Italy foreign multinational companies
nearly always bet on sectors where Italian industry offered good opportunities for sales and profits
but also more comparative disadvantages than advantages in the European and world context.
Suffice it to cite the examples of power generating equipment (Siemens, Philips, ABB, Alsthom
and General Electric), information technology (IBM, Hewlett Packward, Texas Instruments,
Honeywell and Bull), telecommunications (Siemens, Alcatel and Ericcson), chemicals and
pharmaceuticals (Bayer, Basf, Hoechst, Dow, Monsanto, Dupont, Merck, Schering, Ciba,
Sandoz, Glaxo and Boehringer), and food products (Nestlé, Unilever and Danone). In the last
thirty years, but especially in the past decade, Italy has become less attractive for US, European
and Japanese multinationals and as an FDI target has been overtaken by other countries of
Western Europe (Spain, France, the Netherlands, Germany, Ireland, Denmark, even Sweden and
Finland), by the “new Europe” of the EU accession countries and by Asia as well. In contrast with
the Italian case, a larger share of FDI in these other countries tends to flow to sectors and
branches offering competitive advantages for export as well as opportunities to exploit the local
market: for instance, information technology in Ireland and France, cars in France, Germany and
Spain, and chemicals and pharmaceuticals in these three plus the Netherlands. Of course, the aim
of tapping the local market is more important, the larger the economy of the recipient country. In
the case of China, inward FDI amounted to $47 billion in 2001 and is estimated to have topped
$50 billion in 2002 (UNCTAD, 2002).
7. Conclusion
Firm size in Italian manufacturing increasingly diverges from the European standards, with the
share attributable to small and micro companies more than double that found elsewhere and a
correspondingly smaller proportion of large firms. This reduces the national average level of labour
productivity, which, by a stylized fact common to all countries, increases with firm size. In the
1990s, moreover, Italy’s large firms recorded lower rates of return on capital invested than
medium-sized companies (defined here as those with annual sales of between €7 million and €40
million). A dearth of the so-called organizational-entrepreneurial factor, a distant cousin of X-
efficiency, is probably responsible both for the difficulties small and medium-sized firms encounter
in expanding and for the sub-par profitability of large enterprise.
The obstacles to firms’ scaling up are plausibly explained by structural and behavioural
characteristics of the productive system, such as founder-families’ well-known aversion to losing
ownership and management control and the particular model of industrial-district economies of
scale. However, factors shaping the business environment also come into play, namely: a) banking
and financial institutions late to move up from traditional deposit-taking and short-term lending to
19
the more sophisticated functions of consulting and corporate finance for firms seeking to be global
players; b) an industrial policy tool-kit designed to provide financial support to ailing large firms
and to defend small and medium-sized enterprises more than to encourage them to scale up and
internationalize their production.
Since 1996 the signs of weakness in Italy’s competitive position have increased. Despite recent
improvements the picture remains one of very substantial losses in market shares, not all of them
due to the slower-than-average growth of demand in Italy’s outlet markets and sectors of
specialization. The losses are concentrated in the EU markets, where Italian exports are no longer
buoyed by a weak lira, and particularly in the non-durable consumer goods sectors that are Italy’s
traditional strengths. In the latter, generally characterized by the use of less skilled labour, a
growing number of low-wage new competitors have made large inroads “from below” in Europe
and elsewhere; this erosion has been only partly offset by the gradual upgrading of the quality,
style, design and technological content of Italian products. Meanwhile, in the sectors marked by
economies of organizational scale, oligopolistic markets and major investment in R&D, Italian
firms are being pressed “from above” by countries more determined than Italy to cultivate
competitive advantages.
This increasing weakness of large industry in Italy, where the reins of privatized companies with
important technological and commercial assets have not been taken by energetic managers
possessing entrepreneurial vision, poses a multi-pronged threat to the country’s economic growth:
a) less capacity to provide dynamic, rewarding employment to young high-school and university
graduates, especially those with technical and scientific degrees, even though the number of such
graduates does not satisfy the desiderata for a technologically advanced country; b) less formation
and training of new managerial and supervisory cadres; c) weaker impulse for the generation and
diffusion of industrial technological innovation, with repercussions on the already scant interaction
between research institutions and business; d) difficulty in overcoming the lag accumulated in the
1990s in multinational expansion. Many medium-sized groups are growing in this latter respect,
but, as a whole, Italy suffers from this under-representation of large firms active in the international
arena, not least in terms of inward investment and transnational strategic alliances within dynamic
oligopolistic markets.
The current slowdown of the European and world economy, the laborious reduction of the
public debt built up in years of fiscal laxness and some major corporate crises are not auspicious
circumstances for recouping lost ground and injecting new dynamism into industry and services.
Yet, latent energies are still to be found in abundance in industry (a particularly lively, enterprising
and internationally-oriented mittelstand), in the rapidly evolving banking system, among non-bank
financial intermediaries developing new products, and even in several public institutions, now more
attentive than before to the development of production potential and human capital. These
energies need to be harnessed to ensure that the turnaround from protracted decline is within
reach.
20
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463
Appendix
Growth, competitiveness and firm size:
factors shaping the role of Italy’s productive system in the world arena
464
Fabrizio Onida
Table 1 - Market shares of world exports by area
Table 2 - Constant-market-shares analysis of Italian exports
Constant prices; indices, 1995=100; percentages
1992 1996 2000 2001
Advanced economies (a) 79.8 77.1 75.8 75.3
European Union 40.6 38.9 38.9 40.2
France 5.8 5.4 5.7 5.8
Germany 11.6 10.1 10.3 10.7
Ireland 0.7 0.9 1.3 1.3
Italy 4.2 4.4 3.8 3.9
United Kingdom 4.8 4.8 4.3 4.5
Spain 1.5 1.9 2.0 2.1
Japan 10.6 8.3 7.4 6.7
United States 11.5 11.8 11.5 11.0
NIEs (b) 9.5 10.6 10.7 10.2
Developing countries (c) 15.8 17.6 18.7 19.3
Asia 6.7 8.2 9.7 10.0
Latin America 4.2 4.7 4.8 5.0
(a) European Union, Australia, Canada, Japan, Iceland, New Zealand, Norway, Switzerland and the United States.
(b) Hong Kong, Singapore, South Korea and Taiwan
(c) Africa, Asia, China, India, Latin America and the Middle East.
Source: Istituto nazionale per il Commercio Estero (ICE).
1996 1997 1998 1999 2000 2001 1996-2001
Italy’s market share 4.43 4.08 4.26 3.89 3.43 3.45
Absolute change -0.36 0.18 -0.37 -0.46 0.02 -0.98
Competitiveness effect -0.22 0.02 -0.15 -0.09 -0.07 -0.51
Structure effect -0.13 0.17 -0.22 -0.37 0.10 -0.45
Source: ICE calculations based on Global Trade Information data.
465
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 3 - Leading world exporters of goods
(billions of dollars)
Rank Country Value Value % share % share
(1991) (2001) 1991 2001 1991 2001
1 1 United States 422 731 12.0 11.9
2 2 Germany 403 570 11.5 9.2
3 3 Japan 315 405 9.0 6.6
12 4 China (1) 72 370 2.1 6.0
104 1.7
4 5 France 217 320 6.2 5.2
5 6 United Kingdom 185 274 5.3 4.4
8 7 Canada 127 262 3.6 4.3
6 8 ITALY 170 241 4.8 3.9
7 9 Netherlands 134 230 3.8 3.7
9 10 Belgium 118 180 3.4 2.9
20 11 Mexico 43 159 1.2 2.6
13 12 South Korea 72 151 2.0 2.4
11 13 Taiwan 76 123 2.2 2.0
16 14 Singapore (2) 59 122 1.7 2.0
15 15 Spain 59 111 1.7 1.8
19 16 Russia (3) 47 103 1.4 1.7
24 17 Malaysia 34 89 1.0 1.4
10 18 Hong Kong (4) 99 87 2.8 1.4
29 19 Ireland 24 83 0.7 1.4
14 20 Switzerland 62 82 1.8 1.3
Total - 20 countries 2,738 4,794 78.2 76.1
World 3,506 6,162 100.0 100.0
(1) Includes Hong Kong’s re-exports of Chinese goods. (2) Includes re-exports. (3) USSR for 1991. (4) Excludes re-
exports of Chinese goods.
Source: ICE calculations based on WTC data.
466
Fabrizio Onida
Table 4 - Leading world importers of foods
(billions of dollars)
Rank Value Value % share % share
(1991)(2001) 1991 2001 1991 2001
1 1 United States 509 1,181 14.1 18.3
2 2 Germany 389 493 10.8 7.7
3 3 Japan 237 350 6.6 5.4
5 4 United Kingdom 209 333 5.8 5.2
4 5 France 231 323 6.4 5.0
15 6 China 64 244 1.8 3.8
6 7 ITALY 183 234 5.1 3.6
8 8 Canada 125 228 3.5 3.5
7 9 Netherlands 126 208 3.5 3.2
10 10 Hong Kong (1) 100 202 2.8 3.1
19 11 Mexico 48 176 1.3 2.7
9 12 Belgium 120 169 3.3 2.6
11 13 Spain 94 145 2.6 2.2
12 14 South Korea 82 141 2.3 2.2
14 15 Singapore (1) 66 116 1.8 1.8
16 16 Taiwan 63 107 1.7 1.7
13 17 Switzerland 67 84 1.8 1.3
23 18 Malaysia 37 74 1.0 1.2
17 19 Austria 51 74 1.4 1.1
21 20 Australia 42 64 1.2 1.0
Total – 20 countries 2,843 4,945 78.8 76.8
World 3,610 6,439 100.0 100.0
(1) Includes temporary imports.
Source: ICE calculations based on WTC data.
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 5 - Twenty leading markets for Italian exports
Rank Millions Percentage Percentage Cumulative
Country of euros change share percentage
2000 2001 2000-01 2000 2001 2001
1 Germany 1 39,220 -0.9 15.1 14.5 14.5
2 France 2 33,007 -0.6 12.7 12.2 26.8
3 United States 3 26,212 -1.7 10.4 9.7 36.5
4 United Kingdom 4 18,085 0.3 6.9 6.7 43.2
5 Spain 5 16,549 1.2 6.3 6.1 49.3
6 Switzerland 6 9,841 14.1 3.4 3.6 53.0
7 Belgium 7 8,163 13.3 2.7 3.0 56.0
8 Netherlands 8 7,143 2.6 2.7 2.6 58.7
9 Austria 9 5,795 -0.2 2.2 2.1 60.8
10 Greece 10 5,240 -3.2 2.0 1.9 62.8
11 Japan 12 4,704 8.4 1.7 1.7 64.5
12 Poland 13 4,243 10.4 1.5 1.6 66.1
13 Turkey 11 3,923 -15.6 1.8 1.5 67.5
14 Portugal 14 3,558 -1.5 1.4 1.3 68.8
15 Russia 18 3,539 40.4 1.0 1.3 70.2
16 Romania 16 3,354 25.5 1.0 1.2 71.4
17 Hong Kong 15 3,277 0.2 1.3 1.2 72.6
18 China 21 3,272 37.5 0.9 1.2 73.8
19 Hungary 20 2,988 22.9 0.9 1.1 74.9
20 Brazil 19 2,616 6.3 1.0 1.0 75.9
WORLD 269,701 3.6 100.0 100.0 100.0
Source: ICE calculations based on Istat data.
468
Fabrizio Onida
Table 6 - Twenty leading exporters to Italy
Rank Millions Percentage Percentage Cumulative
Country of euros change share percentage
2000 2001 2000-01 2000 2001 2001
1 Germany 1 46,171 1.5 17.5 17.7 17.7
2 France 2 29,019 -2.2 11.4 11.2 28.9
3 Netherlands 3 16,047 4.2 5.9 6.2 35.0
4 United Kingdom 4 13,205 -6.9 5.4 5.1 40.1
5 United States 5 12,778 -5.5 5.3 4.9 45.0
6 Belgium 7 11,338 8.4 4.0 4.4 49.4
7 Spain 6 10,914 1.4 4.1 4.2 53.6
8 Switzerland 8 9,602 13.7 3.3 3.7 57.3
9 Russia 9 8,534 2.4 3.3 3.3 60.5
10 China 10 7,481 6.4 2.7 2.9 63.4
11 Austria 13 6,297 4.1 2.3 2.4 65.8
12 Japan 11 6,277 -2.2 2.5 2.4 68.2
13 Libya 12 5,466 -14.4 2.5 2.1 70.3
14 Algeria 14 5,342 -5.1 2.2 2.1 72.4
15 Ireland 16 3,511 0.1 1.4 1.3 73.7
16 Sweden 15 3,451 -9.6 1.5 1.3 75.1
17 Romania 18 3,371 31.5 1.0 1.3 76.4
18 Turkey 23 3,028 37.0 0.9 1.2 77.5
19 Iran 20 2,360 -3.4 1.0 0.9 78.4
20 South Korea 22 2,359 4.9 0.9 0.9 79.3
WORLD 260,179 0.7 100.0 100.0 100.0
Source: ICE calculations based on Istat data.
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Table 7 - Italy’s sectoral market shares of world demand (percentages)
Sector 1991-1995 1996-1998 1999 2000 2001 (a)
Mining and quarrying products 0.2 0.2 0.2 0.1 0.1
Food products and beverages 3.6 3.7 3.9 3.8 3.8
Textiles and knitwear 8.7 8.1 7.4 6.9 7.3
Clothing 8.2 8.5 7.5 7.1 7.9
Leather products and footwear 16.7 16.2 15.0 15.3 16.1
Wood, furniture and furnishings 8.7 8.6 7.9 7.6 7.7
Paper, paper products and publishing 3.6 3.9 3.7 3.7 3.8
Refined energy products 3.1 2.1 2.0 2.2 2.3
Chemicals and chemical products 3.6 3.7 3.7 3.7 3.8
Rubber and plastic products 6.4 6.1 5.8 5.5 5.7
Glass and ceramics 12.2 11.7 11.1 10.3 10.6
Basic construction materials 23.1 20.6 20.6 21.0 20.5
Basic metal products 4.0 3.6 3.4 3.4 3.7
Fabricated metal products 8.3 8.3 7.8 7.2 7.5
Electrical and non-electrical
machinery and equipment 9.4 9.8 9.5 8.9 8.9
Industrial machinery and equipment 9.7 9.8 9.5 8.5 9.1
Electronic products 2.1 1.5 1.3 1.2 1.4
Electric generating machinery 3.8 3.4 3.0 2.8 3.0
Precision instruments 3.0 2.9 2.6 2.4 2.6
Other transport equipment 3.8 3.9 3.5 3.4 3.4
Motor vehicles 3.3 3.5 3.3 3.7 3.2
(a) September
Sources: Statistics Canada (World Trade Analyzer), 1980-1999; ICE (GTI data), 2000-2001.
470
Fabrizio Onida
Table 8 - Italy’s sectoral market shares of German imports of manufactures
(constant prices; percentages)
Jan-Apr Jan-Apr
Sector
1997 1999 2000 2001 2001 2002
Food products, beverages
and tobacco products 8.6 9.0 8.4 8.7 8.8 8.9
Textile products and clothing 12.7 12.4 11.6 11.1 10.8 10.0
Textiles and knitwear 16.7 15.9 14.9 14.3 13.9 12.8
Clothing 7.7 7.4 6.7 6.6 6.6 6.3
Leather footwear and products 26.7 24.5 22.1 21.9 23.1 20.6
Footwear 28.2 26.0 23.1 22.9 24.3 20.7
Wood and cork products (except furniture) 3.3 4.0 4.0 4.3 5.1 3.9
Paper, paper products and publishing 6.8 6.1 5.5 5.6 5.7 5.9
Refined petroleum products 0.7 0.2 0.2 0.3 0.4 0.4
Chemical and pharmaceutical products 5.8 4.8 5.0 4.7 4.8 5.0
Rubber and plastic products 10.2 10.5 10.1 9.8 10.2 9.9
Glass, ceramics and non-metallic
materials for construction 21.4 20.1 16.5 15.2 16.0 14.0
Basic metals and fabricated metal products
(excluding machinery and equipment) 7.6 7.9 7.2 7.0 7.1 7.0
Basic metals 6.0 6.4 6.0 5.8 5.9 5.8
Final metal products 11.2 10.9 9.9 9.7 10.1 9.7
Machinery and equipment 13.6 12.9 11.9 10.7 10.8 11.0
Industrial machinery for general use 13.1 12.3 11.0 9.7 10.0 9.5
Specialized industrial machinery 9.6 10.3 9.7 8.7 8.5 9.8
Home appliances 25.6 25.1 24.2 22.3 24.2 21.6
ICT products, electrical
and optical equipment 4.0 3.4 2.5 2.6 2.7 2.5
Office machinery, computers
and information systems 2.0 2.8 1.8 1.6 1.8 1.6
Electrical machinery and equipment 5.9 6.1 5.3 5.1 5.6 4.8
Electronic and telecom products 2.9 1.7 1.1 1.6 1.4 1.2
Medical equipment and precision
instruments 3.8 3.5 3.0 2.6 2.7 3.2
Transport equipment 6.0 6.0 6.0 5.7 5.0 5.7
Motor vehicles 5.1 5.7 5.9 5.5 4.9 6.2
Motor vehicle parts 10.8 10.7 11.3 10.6 10.8 10.5
Other manufactures 14.0 13.0 11.0 9.6 10.3 9.5
Furniture 19.4 17.8 15.3 13.8 14.4 13.4
Gold and other jewellery 16.1 14.5 13.3 10.7 10.8 10.9
TOTAL 8.5 7.5 6.7 6.4 6.4 6.4
Source: ICE GTI
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Table 9 - Italy’s sectoral market shares of French imports of manufactures
(percentages)
Jan-Apr Jan-Apr
Sector
1997 1999 2000 2001 2001 2002
Food products, beverages
and tobacco products 7.8 8.2 8.0 7.9 8.1 8.2
Textile products and clothing 15.0 14.5 13.6 13.3 13.3 12.3
Textiles and knitwear 18.7 17.9 16.7 16.8 16.7 15.7
Clothing 8.9 8.7 8.3 7.8 7.9 7.2
Leather footwear and products 26.1 25.2 22.8 23.2 23.5 22.7
Footwear 26.8 25.6 22.5 22.0 22.8 22.7
Wood and cork products (except furniture) 5.6 5.0 5.0 5.6 5.2 5.0
Paper, paper products and publishing 10.4 9.3 9.1 9.7 9.5 9.7
Refined petroleum products 5.6 3.9 2.8 6.5 6.8 4.5
Chemical and pharmaceutical products 6.6 6.1 5.7 5.6 6.0 5.3
Rubber and plastic products 16.8 16.2 15.4 15.3 15.6 15.3
Glass, ceramics and non-metallic
materials for construction 21.8 21.2 20.1 20.2 20.6 20.7
Basic metals and fabricated metal products
(excluding machinery and equipment) 12.2 12.8 12.3 12.5 12.3 12.6
Basic metals 9.0 9.7 9.5 9.7 9.4 9.6
Final metal products 19.0 19.3 19.0 18.8 19.0 18.6
Machinery and equipment 17.5 17.2 16.3 17.0 17.2 17.9
Industrial machinery for general use 16.0 15.6 15.0 15.6 14.9 15.9
Specialized industrial machinery 15.9 15.2 14.1 14.5 15.3 16.4
Home appliances 28.5 28.1 27.4 30.0 30.3 29.2
ICT products, electrical
and optical equipment 7.7 6.0 5.2 5.2 5.6 5.3
Office machinery, computers
and information systems 6.5 3.7 3.2 2.6 3.1 1.5
Electrical machinery and equipment 12.3 11.0 10.0 10.3 10.1 10.4
Electronic and telecom products 5.6 5.4 4.3 4.5 5.0 5.0
Medical equipment
and precision instruments 5.7 4.8 4.6 5.0 5.3 5.3
Transport equipment 8.7 8.5 10.4 7.9 7.4 7.3
Motor vehicles 9.5 9.1 9.0 7.9 8.2 6.7
Motor vehicle parts 14.5 14.9 14.1 13.5 13.5 12.5
Other manufactures 17.8 17.9 15.4 15.9 17.7 17.2
Furniture 26.8 25.3 23.0 23.4 24.4 24.2
Gold and other jewellery 22.2 22.5 17.0 17.3 18.6 16.8
TOTAL 10.9 10.1 9.8 9.5 9.5 9.4
Fonte: ICE, GTI
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Fabrizio Onida
Table 10 - Fortune 500: number and sales of groups of the main countries
Table 11 - The eight Italian groups included in the worldwide Fortune 500
Rank in the Fortune 500 2001 sales (in billions of dollars)
FIAT 49 51.9
Assicurazioni Generali 50 51.4
ENI 71 44.6
Olivetti 145 28.7
ENEL 169 25.7
Intesa BCI 242 19.9
Unicredito 321 15.8
Edison 353 14.1
Source: Fortune 500, 22 July 2002.
Country
Number of groups 2001 sales
(billions of dollars)
United States 197 5885.6
Japan 88 2457.3
Germany 35 1210.0
France 37 996.4
United Kingdom 33 861.6
Switzerland 11 323.3
Netherlands 9 312.3
South Korea 12 270.3
China 11 260.5
Italy 8 252.3
Canada 15 216.0
Spain 5 135.1
Sweden 5 82.0
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Table 12 - Outward direct investment: leading countries
(percentage shares of world total)
RANK COUNTRY
FLOWS STOCKS
Average Average 1990 2000
1989-1994 1995-2000
1 United States 21.5 16.8 23.0 20.8
2 United Kingdom 10.6 17.6 13.4 15.1
3 France 9.0 10.4 7.0 8.3
4 Germany 8.5 9.3 8.6 7.4
5 Hong Kong 4.0 4.3 0.7 6.4
6 Belgium & Luxembourg 2.7 6.4 2.4 5.7
7 Netherlands 5.9 6.1 6.0 5.5
8 Japan 13.0 3.7 11.7 4.7
9 Switzerland 3.4 3.4 3.8 3.9
10 Canada 2.6 3.5 4.9 3.4
11 ITALY 2.5 1.4 3.3 2.9
12 Spain 1.4 3.4 2.9 1.9
13 Sweden 3.0 2.8 0.3 1.9
14 Australia 1.1 0.6 1.8 1.4
15 Finland 0.8 1.4 0.7 0.9
16 Taiwan 1.6 0.7 0.8 0.8
17 Denmark 1.0 1.8 0.4 0.8
18 Norway 0.5 0.6 0.6 0.7
19 Chile 0.1 0.4 0.0 0.3
20 Portugal 0.1 0.4 0.1 0.3
Total – 20 countries 82.5 77.4 79.0 78.1
Source: ICE calculations based on UNCTAD data.
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Fabrizio Onida
Table 13 - Inward direct investment: leading countries
(percentage shares of world total)
RANK COUNTRY
FLOWS STOCKS
Average Average 1990 2000
1989-1994 1995-2000
1 United States 18.6 23.6 20.9 19.6
2 United Kingdom 8.4 8.5 10.8 7.6
3 Hong Kong 1.8 3.1 8.6 7.4
4 Germany 1.5 6.8 6.3 7.3
5 Belgium & Luxembourg 4.0 6.3 3.1 5.9
6 China 6.1 5.8 1.3 5.5
7 France 5.4 4.5 5.3 4.2
8 Netherlands 3.2 4.1 3.5 3.9
9 Brazil 0.7 3.0 2.0 3.1
10 Canada 2.5 3.3 6.0 3.1
11 Spain 4.9 2.1 3.5 2.3
12 ITALY 1.5 0.8 3.1 1.8
13 Australia 2.5 1.2 3.9 1.8
14 Mexico 2.9 1.7 1.2 1.4
15 Sweden 1.5 3.1 0.7 1.2
16 Argentina 1.2 1.5 0.5 1.2
17 Ireland 0.4 1.2 0.3 0.9
18 Denmark 0.8 1.0 0.5 0.8
19 South Korea 0.4 0.8 0.3 0.7
20 Poland 0.3 0.5 0.0 0.6
Total – 20 countries 68.6 82.9 81.7 80.5
Source: ICE calculations based on UNCTAD data.
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 1 - Share of employment in firms with fewer than 100 workers:
manufacturing industry
Germany Italy France United Kingdom United States
70
60
50
40
30
20
10
0 ------
(a) The first class includes artisans.
(b) The first class excludes artisans.
(c) Excludes codes 353 and 354, includes codes 23 and 29.
Source: Centro Studi Confindustria, La competitività dell’Italia, 2002
’62
a
’77
a
’77
b
’90
b
’61
’71
’62
’77
’94
’63
’77
’94
’63
’72
’82
’92
’81
’91
’96
Figure 2 - Share of employment in firms with more than 500 workers:
manufacturing industry
Germany Italy France United Kingdom United States
80
70
60
50
40
30
20
10
0 ------
Source: Centro Studi Confindustria, La competitività dell’Italia, 2002.
’62
a
’77
a
’77
b
’90
b
’61
’71
’62
’77
’94
’63
’77
’94
’63
’72
’82
’92
’81
’91
’96
476
Fabrizio Onida
Figure 3 - Manufactures: rate of growth in world demand
and Italy’s market share (current prices)
80 82 84 86 88 90 92 94 96 98 00
20
15
10
5
0
-5
-10 -------------
Source: Confindustria, Tendenze dell’industria italiana – I settori di attività economica nel 2001, June 2002.
5.5
5.0
4.5
4.0
3.5
3.0
Figure 4 - Italy: competitiveness and world export market shares
1995 1996 1997 1998 1999 2000 2001
5.0
4.6
4.2
3.8
3.4
3.0
110
105
100
95
90
85
80 ---------
Source: ICE 2002.
Value share (percentage of world exports, base year 1995, left-hand scale)
Volume share (percentage of world exports, left-hand scale)
Competitiveness (reciprocal of the real exchange rate based on producer prices, 1993=100, right-hand scale)
World demand (left-hand scale)
Italy’s share (right-hand scale)
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•
Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 6 - Italy’s external current account balance and international investment position
(as a percentage of GDP)
4
3
2
1
0
-1
-2
-3
10
5
0
-5
-10
-15
1
9
8
0
1
9
8
1
1
9
8
2
1
9
8
3
1
9
8
4
1
9
8
5
1
9
8
6
1
9
8
7
1
9
8
8
1
9
8
9
1
9
9
0
1
9
9
1
1
9
9
2
1
9
9
3
1
9
9
4
1
9
9
5
1
9
9
6
1
9
9
7
1
9
9
8
1
9
9
9
2
0
0
0
2
0
0
1
Sources: ICE calculations based on Bank of Italy and Istat data.
Current account balance (left-hand scale)
International investment position (right-hand scale)
Figure 5 - Main countries’ world export market shares
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
16
14
12
10
8
6
4
2
0 -----------
Source: ICE calculations based on IMF-DOTS data (at current prices).
USA
Germany
Japan
China
France
Italy
478
Fabrizio Onida
Figure 7 - Italy’s market shares by region
0 1 2 3 4 5 6 7 8 9 10
A
v
e
r
a
g
e
c
h
a
n
g
e
i
n
w
o
r
l
d
i
m
p
o
r
t
s
,
1
9
9
8
-
2
0
0
1
12
10
8
6
4
2
0 -----------
Italy’s average share, 1996-2001
Eastern Asia
North
America
Central Asia
Central and South
America
Sub-Saharan Africa
World average
Middle East and
North Africa
Central and
Eastern Europe
European Union
The size of the circle reflects the region’s average share in world imports, 1998-2001
5,5
3,8
Figure 8 - Italy’s market shares by sector
0 1 2 3 4 5 6 7 8 9 10
A
v
e
r
a
g
e
c
h
a
n
g
e
i
n
w
o
r
l
d
i
m
p
o
r
t
s
,
1
9
9
8
-
2
0
0
1
12
10
8
6
4
2
0 -----------
Italy’s average share, 1996-2001
ICT products
Chemical and pharmaceutical
products
Precision
instruments
Motor vehicles
Other transport
equipment
Electrical material
and electrical home appliances
Wood and furniture
Agricultural
and industrial machinery
Textiles and clothing
Construction
materials, glass and
ceramics
Leather
and footwear
Agricultural products
Food products
The size of the circle reflects the region’s average share in world imports, 1998-2001
5.5
3,8
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 9 - Italy: market shares by region
(percentages of the value of world trade)
North Africa North America Eastern Asia Middle East Transition countries European Union
12
10
8
6
4
2
0 -------
Source: ICE calculations based on IMF-DOTS data.
1996
2001
Figure 10 - Italy: market shares by sector
(percentages of the value of world trade)
Leather
and footwear
Furniture Non-electrical
machinery and
equipment
Clothing Food
products
Chemical
products
Electrical equipt.
and footwear
and precision
instruments
18
16
14
12
10
8
6
4
2
0 --------
Source: ICE calculations based on GTI data.
1996
2001
480
Fabrizio Onida
Figure 11 - Italy: sectoral balances (in millions of euros)
Mining and
quarrying
products
Food and
agricultural
products
Fashion
products
Agricultural
and industrial
machinery
Chemical and
pharmaceutical
products
ICT products Transport
equipment
30,000
20,000
10,000
0
-10,000
-20,000
-30,000
-40,000 --------
Source: ICE calculations based on Istat data.
1996
2001
2000
Figure 12 - Revealed advantages and disadvantages by factoral intensity
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
R
e
v
e
a
l
e
d
c
o
m
p
a
r
a
t
i
v
e
a
d
v
a
n
t
a
g
e
ITALY
FRANCE
GERMANY
UNITED KINGDOM
SPAIN
R
e
v
e
a
l
e
d
c
o
m
p
a
r
a
t
i
v
e
a
d
v
a
n
t
a
g
e
Unskilled labour Skilled labour Physical capital
Source: European Commission, 5, 1999, p. 53.
-----------
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Growth, competitiveness and firm size: factors shaping the role of Italy’s productive system in the world arena
Figure 13 - Grubel-Lloyd indices of horizontal trade
Italy France Germany Spain United Kingdom
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0 ------
Source: European Commission, 5, 1999, p. 55.
1991 1997
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