The Italian Experience of Industrial Districts

LATIN ITALIAN
INTRODUCTION INDIA DOCUMENTS TRAINING
AMERICA EXPERIENCE
Features of SME Cluster
The Third Italy The Real Service Centres
Development in Italy

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The Third Italy

The international interest in SME clusters has been fueled particularly by the experience
of what has come to be called the Third Italy. The concept of the Third Italy started to
be used in the late 1970s. At that time, it became apparent that while little economic
progress was in sight in the poor South (Second Italy), the traditionally rich Northwest
(First Italy) was facing a deep crisis. In contrast, the Northeast and centre of Italy
showed fast growth which attracted the attention of social scientists. In a number of
sectors where small firms predominated, groups of firms clustered together in specific
regions seemed to be able to grow rapidly, develop niches in export markets and offer
new employment opportunities. In-depth evidence is available for selected SME clusters
operating in the following industrial sectors:

Textile (Carpi , Prato)

Leather (Arzignano)
Ceramic tiles (Sassuolo)
Furniture (Manzano).

The rapid growth of the Third Italy, and in particular the rapid growth of SME-based
industries, was associated with the concentration of firms in particular sectors and
localities. Such clusters were able to establish a strong position in world markets in a
number of so-called traditional products - shoes, leather handbags, knitwear, furniture,
tiles, musical instruments, food processing - and also in the industries which supply
machinery to these sectors. In a traditional industry, such as shoes, clusters of SMEs
were able to expand production and exports in the 1970s and 1980s at a time when large
enterprises in Britain and Germany were in decline. Perhaps most important, such
clusters seemed to have the capacity to innovate their production.

The apparent vitality of SME clusters in Italy led to a considerable interest in the bases
of their success. The concept of industrial districts was used to capture the success of
agglomerations of small firms in these areas of this country. This Italian experience gave
impetus to research on industrial districts in a number of advanced country regions.
From this international debate the following have emerged as the main attributes of
industrial districts:
 geographical proximity of SMEs,
sectoral specialisation,
predominance of small and medium sized firms,
close inter-firm collaboration,
inter-firm competition based on innovation,
a socio-cultural identity which facilitates trust,
active self-help organizations, and
supportive regional and municipal government.

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Features of SME cluster development in Italy

The analysis of the Italian experience indicates that there are many types of SME
clusters. However, there are some common denominators in the most dynamic SME
systems, and it is these factors that should be emphasized in policy considerations. These
are outlined in the following remarks:

The development of a cluster of SMEs is a long-term process. It is determined

by positive market perspectives and favourable local conditions (technical know-
how, social cohesion, flexible labour force, etc.).
SME clusters are characterised by static competitiveness, which is rooted in
productive efficiency. This ensures the realization of different products at
relatively low costs, thanks to the wide presence of subcontractors and
component suppliers. The division of the production process among many SMEs
allows firms to be highly specialized in complementary phases of production. It
also helps keep entrance barriers at a minimum and therefore facilitates the entry
of new actors. However, there may be several firms dedicated to the same
production phase. Among these firms competition is strong. The presence of
many final firms helps avoid too much concentration and too much hierarchy as
it is the access to final markets that places certain firms in a privileged position
with respect to others.
SME clusters are however also characterised by dynamic competitiveness,
which is linked to technical know-how accumulation. The cluster determines a
strong concentration of firms, human resources, training institutions, physical
and research infrastructure, all specialized in the activities of the cluster, or in
related ones. This concentration implies a lot of relationships and interaction,
favouring spontaneous mechanisms of specialization, incremental innovation and
enterprise creation, that make the companies and the SME clusters increasingly
competitive in terms of quality.
The promotion and diffusion of innovation occurs through enterprise
relationships and interaction especially if a leader firm or a group of leader firms
exists. The example of the individual success of a leading firm can be a powerful
stimulant for innovation.
The institutional configuration is also flexible. In the more mature SME
systems, it is clear that intermediate governance structures play a vital role. They
 act as key reference points for the firms within the system and for the systems
external relationships. Their central role is achieved through the high degree of
co-participation of firms in common initiatives. It is through these structures that
firms have a sense of participation in the larger SME system and this may
eventually lead to the pooling of resources to meet the specific needs of the
sectors firms.

A reference to the various policies favouring Italian SMEs as well as a list of the major
Italian industrial district is available in the paper "The Italian SME Experience and
Possible Lessons for Emerging Countries". (PDF/98KB/39pages)

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The Real Service Centres

A feature of the Italian industrial districts that has attracted a great deal of attention is the
tendency of public support to focus on the supply of business development services that
are highly customised to the specific industrial tradition of each area (also known as real
services in the literature). Over 130 real service centres were identified in 56 industrial
district. Such centres offer a wide array of services including:

credit guarantee,
export insurance and/or promotion,
organisation of fairs,
access to information on the evolution of markets/technology,
client rating,
consultancy,
training,
waste management,
pollution control,
quality certification and award of trademarks,
product promotion,
support to innovation,
bulk purchase of inputs, and
product testing.

These centre are invariably publicly-owned (by producers associations, local

government, SME support agencies or partnerships among them). On the basis of a
comparison of various case studies, it can be concluded that successful service centres
display four features, which are highly inter-dependent and characterised by a
progression, which links the first to the last.

An effective platform

The success of an initiative whose aim is to catalyse the collaboration among

 actors from various constituencies (entrepreneurs, policy makers, civil servants,
technicians, etc.) depends upon the identification of a platform that balances
long-term developmental objectives with the realistic prospect to impact upon the
profitability of the cluster producers. The platform is neither an all-
comprehensive plan for action nor a clear description of the rights and duties of
the participants to the initiative, but it rather provides the opportunity to initiate a
dialogue within the district and to set its tone. From the start, such platform
enshrines all the crucial elements of the SME support initiative:

o it identifies an area for intervention (thus putting forward a vision for the
future of the district as well as a strategy to realise it),
o it discloses the opportunity for the district producers to strengthen the
viability of their own businesses,
o it lists the priorities for public support, and
o it sets an agenda for a public-private dialogue.
Customer-orientation

The definition of a platform does not indicate a top-down (i.e. supply-led)

approach to the delivery of business development services. Quite on the contrary,
the value of such a starting point resides in the opportunity to set an agenda
within the district and thus to frame the requests of the various local actors. The
lesson, which emerges most clearly from various case studies, is that ample
scope needs is left to the district entrepreneurs to allow an adequate
customisation of the business development services. At such level, there
appears no substitute to the in-depth knowledge of the market as well as of the
production process, which is held by the district entrepreneurs. Rarely is however
the supply of real services the consequence of a univocal demand from the local
producers. In spite of their spatial proximity, the district producers habitually
operate on a highly individualistic basis. At the same time, however, the
knowledge dispersed within the district can only be grasped as a result of the
willing participation of the local producers. As a result, the SME support
initiative should be neither predominantly supply-based nor uniquely demand-
led but they should rather present a careful mix of the two. Customisation
involves three interdependent tasks for the (will-be) managers of the real service
centre, namely:

ouncovering the latent needs of the cluster SMEs,

ore-interpreting such needs in light of the original platform and
orallying a consensus within the district about the opportunity to tackle
them through a collective initiative.
Embedded autonomy

This term refers to the capacity of a public institution to successfully balance

o the need to retain a developmental character (thus being able to hold a

vision encompassing wide-ranging structural changes) and
 o the need to maintain a dialogue with its private counterparts (who are the
beneficiaries of the initiative but also the main actors behind its
implementation).

Within the context of the industrial districts, embedded autonomy is the basis for
the real service centres to trigger a radical redefinition of the internal structure of
the local SMEs. Indeed, the managers of the real service centres rarely prove able
to "force" their decisions upon the district entrepreneurs. Quite on the contrary
the autonomy of the real service centre (in terms of the capacity of its managers
to identify the challenges faced by the district and to put forward proposals to
address them) is systematically balanced by its embeddedness within the local
economy (a feature that tames the most far reaching projects but that certainly
contributes to the disclosure of the otherwise tacit knowledge dispersed within
the district).

Enhancing governance potential

The embedded autonomy of the real service centre contributes to the effective
supply of business development services and thus to the competitiveness of the
district producers. In the medium term, it also contributes to strengthen the
capacity of the district to act as a coherent entity with respect to the challenges
faced by its entrepreneurs, and thus to favour an enhancement of the governance
potential of the local economy. The management board of a real service centre
provides in many ways an ideal opportunity to facilitate the emergence of a
consensus among the various district players, because:

o most of such players are represented on such a body and these meetings
are often the only opportunity to look beyond immediate needs,
o the autonomy gained by the managers of the centre allows the latter to put
forward proposals as impartial referees who can credibly claim to act in
the interest of the district,
o it provides the opportunity to reward the actors who are most likely to be
negatively affected in anticipation of their welfare losses (for example
granting privileged access to the services provided by the centre).

Further evidence on this topic, as well as a range of in-depth description of selected

Italian real service centers, is available in the paper " Real Service Centres in Italian
Industrial Districts Lessons Learned from a Comparative Analysis"
(PDF/68KB/24pages).

A set of case studies on services centres in selected Italian industrial districts

Centre Type of service Cluster Sector PDF

document
 CITER Info centre Carpi Knitwear and Download the
textile document
(52KB/17pages)

ENEA R&D support to Prato and Knitwear and Download the

SMEs Carpi textile document
(54KB/20pages)

Promosedia Marketing Manzano Furniture Download the

support document
(40KB/15pages)

FIT - CADA Effluent Nove and Leather and Download the

Treatment Plants Arzignano ceramics document
(49KB/16pages)

Quality Branding Foodstuff Download the

Consortia Quality document
Certification (47KB/16pages)

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Contact: Fabio RUSSO Document #331114, expires Monday, May 13, 2002