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The three structural gaps that are more dangerous than the crisis

by Marco Magnani

IT
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The challenge that Italian industry is facing is extremely tough. In recent years, industrial production has dropped significantly. The small and medium enterprises, above all, suffered.

But, despite this difficult situation, many businesses -- above all, in advanced manufacturing -- were able to innovat e in time, understanding the world economic trends, conquering new markets, moving on to complex productions and inserting themselves in global supply chains. This allowed them to survive the crisis.

But, if it wants to regain its leadership position in the long-term, Italian industry must close three large structural gaps: in productivity, size and knowledge.

The gap in productivity is not insignificant. With respect to Germany, Italy has approximately 20% higher taxation; 30% more in energy costs, and 20% more in the cost of labor.

Higher credit costs and a great deal of bureaucracy complete the picture. What can be done?

In the short term, increase the flexibility and competitiveness of the markets, starting from that of labor, and supply incentives to companies that invest in research and innovation. In the medium term, invest in “human capital,” a fundamental factor in advanced economies.

The size gap is well-known. The Italian industry is characterized in large part by medium-, small- and micro-businesses, often family managed, whose size, on the one hand, favors creativity, flexibility and the speed of execution, but, on the other, penalizes investments and access to capital markets.

The global market requires economies of scale, organizational and logistical competencies, geo-economic knowledge, investments in R&D, in brands and in commercial networks. The reduced size makes all of this more difficult.

The third gap is cognitive. Even here the size limit of the businesses does not facilitate investments in research and development. Italy invests only 1.25% of its GDP in R&D, with respect to the European objective of 3% within 2020. Denmark, Sweden, and Finland are already over this threshold, Germany is very near it. The Eurozone and the European Union have already exceeded the 2% threshold for the last five years.

But, in addition to the difficulty of generating new ideas, Italian companies sometimes have a hard time transmitting them and utilizing them. Italy has a long and recognized tradition of creativity and of an innovative entrepreneurial thinking, with important effects on world technology (think of Guglielmo Marconi's radio or Federico Faggin's microchip) and a university system among the oldest in the world.

Italy is, however, only in 29th position on the Global Innovation Index 2013. A part of the problem is that the Italian businesses are rich in practical knowledge but have difficulty in transferring it into codified knowledge, that can be reproduced and transferred at a distance.

.. Has the battle, therefore, for Italian manufacturing been lost?

Not necessarily. To innovate and export it is not necessary that the small businesses become big: it is “sufficient” - and indispensable - that they are inserted into a production chain, an ecosystem in which each one is so specialized and innovative that it represents a fundamental and not-easy-to-replace element.

The “horizontal” model of the cluster is one alternative to the “vertical” solution of the supply chain. Not as a simple translation of the industrial district, but in the literal sense of a “bunch,” that incorporates in part the concept of network.

Above all, the grapes in the bunch must not consist only of businesses and warehouses, but must include partnerships and synergies with the other local players: the universities, the secondary schools, the research centers, the entrepreneurial associations, the institutions.

In Italy, the tradition of clusters and territories is strong. The European Cluster Observatory estimates that there are 180 Italian districts.

The Marche region boasts a record with 80% of the total employment and 70% of exportation coming from industrial districts. The district is the starting point for entering into the supply chain and for becoming part of the cluster that can help increase productivity and fill in the size gap. And, in part, also the gap in knowledge. For even ideas, like the businesses, inside of the cluster, can start out small and become big.


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