Economics of Made in Italy, Appunti di Economia

Scarica Economics of Made in Italy e più Appunti in PDF di Economia solo su Docsity! 20/03/24 -lecture 10 ITALY’S INDUSTRIAL DISTRICTS MODEL: STRENGHTS AND WEAKNESSES. The industrial districts: Alfred Marshall contribution. Industrial districts composed of numerous small and medium firms characterize the Italian production system. The notion of "industrial district" was coined by Alfred Marshall in 1867, in some of his early writings where he refers to the textile industries of Lancashire and Sheffield. According to Marshall, the districts are an original form of agglomeration of businesses, characterized by strong industrial specialization. Industrial districts (ID) in Italy: The Contribution of Giacomo Beccatini. In Italy, the notion of industrial district was revived by Giacomo Becattini, who, during the sixties and the seventies, applied Marshall’s fundamental insights to the analysis of industrial districts in Italy. In Marshall the district strength was in geographic concentration and specialization. According to Becattini the industrial district is a socio-economic system, where local development forces and territory become crucial. The Italian district, as Becattini describes it is identified by the presence of a community that is essentially a combination of: • history, • unwritten rules, • shared values, which directly affects the productivity and structure of the district itself. According to Becattini, the close relationship established between communities and businesses in the district is the key factor that drives innovation, knowledge and quality. In other words, districts are characterized by a high endowment of social capital (reciprocal trust). Beccatini’s model: factors of success of ID, cooperation and competition. Districts’ success depends on a mix of complex relationships of cooperation and competition between firms. Relationships between firms are competitive but 'non- destructive’. Indeed, it is the correct balance between collaboration and competition that creates the stimulus for continuous renewal, and allows the development of new opportunities for district companies to stimulate innovation. Beccatini’s Industrial Districts are able to generate strong positive External economies (externalities)-> they are positive benefits that have social consequences (social consequences exceed the economic ones). They are results that go beyond the pure economic result. Positive external economies: activities that have social benefits that exceed economic benefits. Cooperate will generate these external economies. Some examples: 1 • learning economies, derive from the on-site presence of highly skilled professionals that are able to improve the local labor market. When the districts open up school to tech students some techniques for handmade products they are benefit all the community that will utilize that knowledge (high-skilled professional able to improve the local labor market). • economics of creativity and innovation, thanks to the proximity of the actors, the sharing of specific skills and experience, and advanced technical-scientific training. When the firms work very closely also in geographical terms, new ideas and mistakes are shared much easier. • external economies of scale from specialization (like for single firm, but at the industry level). When you have specialization you have economies of scale (already identified by Marshall). The importance of the District model in Italy’s productive system. Industrial districts account for about a quarter of the country's production system in terms of  workers (24.5% of the total) are employed in firms in ID and  local production units (24.4% of the total) are part of some district. The Italian manufacturing sector relies heavily on district model.  The manufacturing-industry districts account for more than a third of all Italian manufacturing.  Industrial districts absorb 65.8% of manufacturing industry workers (services and agricultural are the other sectors along with manufacturing).  22% of the Italian population lives within the industrial districts (impact on the living conditions). This is very peculiar of our country. A picture of Italian industrial districts: 2 The mechanical engineering sector has become the driving force of “Made in Italy” manufacturing specializations. Significant increase in the production of: • metal products, • equipment and industrial machinery, • home and electrical appliances, • means of transport other than automobiles (such as luxury yachts, cruise ships, and helicopters), • high-tech products including chemical, pharmaceutical and cosmetics products. The weight of fashion and furniture in the manufacturing surplus declined to about 30% especially in reaction to fast fashion. It is currently composed mainly of higher value- added and luxury items (positive evolution in order to contrast cheap goods from China). We cannot compete with China in producing day to day shoes, but we can compete with China in producing Prada shoes. Italy’s manufacturing success is described by Marco Fortis, The Pillars of the Italian Economy (2016). Fortis shows that the ability to withstand challenge and gain significant success in foreign markets remains a key feature for many district firms. Italy is the second European manufacturer after Germany and in the five top G-20 countries - with China, Germany, Japan and South Korea - in the non-food manufacturing sector. Companies that have been able to innovate and internationalize have overcome the 200’ì’+ - 2010 crisis more easily. “Made in Italy” success derives from extensive diversification of its specializations, creativity, innovation, quality, design, and the ability to build customized products for clients (“industrial craftsmanship”). Most successful sectors are the 4F of “Made in Italy’s sectors: 1. Fashion and cosmetics; 2. Food and wine; 3. Furniture and ceramic tiles; (distretto di Sassuolo). 4. Ferrari ; fabricated metal products, machinery and transport equipment, but also metallurgy, paper, and chemicals-pharmaceuticals. CONCRETE EXAMPLE. A very important publication is the Intesa Sanpaolo report. SOURCE OF INFO FOR ITALY’S INDUSTRIAL DISTRICTS -> Rapporto annuale “Economia e finanza dei distretti industriali” by Intesa Sanpaolo. You can find the actual distribution of the district. Italy’s 159 Industrial districts. Locations and sector distribution (2019-21): 5 Larger districts are in Lombardy and Veneto, pianura Padana in general. Italy’s ID revenues growth by sectors (2008-2021): The most successful sector in terms of growth of revenues is the agro-alimentare (mozzarella, wine, and so on). Italy’s ID profitability (EBITDA) by sectors (2019-2021): 6 Mechanics is one the most profitable sector because value added is greater since there is more technology and innovation. In fashion it is different because the profit comes form the brand. Italy’s ID Export growth by sectors (2022): Firm size and export propensity in ID: You are better at exporting if your firm is bigger. 7 ID and NON-ID firms: Export orientation in different sectors ID firms are more export oriented than NON-ID firms in all major productive sectors. 20 Best Italian districts (growth and profitability)(2021) Among the Top 20 ID: • 8 belong to the Food-agricultural sector (6 in the top 10) 10 • other successful IDs in the sector of Health and Wellness sector; Mechatronics. • only 1 ID in the Fashion sector Geographic distribution: North-Est (12), North-West (5), center (1) South (2) Evaluation measured on the basis of economic-financial indicators, balance sheet strength, international performance. Top 20 Industrial Districts: enterprises’ features. Best enterprises usually have a broad strategic profile • Large presence on foreign markets, with foreign subsidiaries • Significant number of foreign patents • Size is important: medium-large enterprises (442 in total) usually are head of value chains with strong innovative products. • Presence of SMEs (1.270) usually successful niche operators. Exports, brands, foreign subsidiaries and patents are more important in IDs’ most successful firms (champions) compared to other IDs’ firms. The supply chain of the Luxury Fashion sector in Italy. The Luxury Fashion sector in Italy comprises 125 firms, belonging to 9 Italian groups and 2 foreign groups (Gucci, Prada, Ferragamo etc.). The first level suppliers of the Luxury fashion sector include about 1.500 Italian enterprises, with revenues around €25 billion in 2019. These suppliers are evenly distributed between ID and non-ID productive organizations. IDs active in the supply chain of Luxury Fashion sector. 11 21/03/24 – Lecture 11 GLOBAL VALUE CHAINS (GVC) Global Value Chains are grounded on the idea of division of labor and the principles of specialization and innovation. Global value chains: why? Historically, the increase in economic wealth derived from the increasing division of labor, or - better- from the specialization (Adam Smith) and innovation that ensued. Theoretical modeling of GVC. • At the turn of the XXI century manufacturing experienced a significant shift in the international division of labor. • International trade was characterized by an increasing amount of exchanges of functions – rings of the chain - rather than of final goods. • Trade-in-tasks rather than Trade-in-goods dividing the production activity of final goods. Global value chain (GVC)-> The series of stages required to produce a good or service that is sold to consumers, with each stage adding value and with at least two stages conducted in different countries. 12 China has become a larger assembler of product within the global value chain model, US is still important, Germany declined a lot. Another visual of how important GVC are important: Growth rates of world trade and GVC share: Foreign direct investments are very important because if I have to produce some components of my final product abroad, I may want to control the production activity. Since we are very good at producing a component of the chain, we would like to go abroad and produce it, being part of GVCs. The participation in GVC has been growing as well as FDIs. 15 Information technology and the fall in transport costs spurred growth of Global value chains: 16 This graph illustrates also the position of countries within the chain, red countries extract commodities from mining and transform them (beginning of value chain), blue countries (Italy) are responsible for innovative activities (assembly, marketing, branding, evolution and innovation). There exist totally global value chains, but there are also regional value chains. In Europe, regional fragmentation of value chains increased after inclusion of Eastern European countries. Global fragmentation also increased due to the larger European economies links with India, China and rest of Asia. 17 Green component has been growing across years, services are important at the beginning and at the end of the value chain. Difference between Gross and Value-added Trade. The essential thing in exporting, in order to produce wealth and GDP, is the value added of exports. VALUE ADDED -> the increase in value of a product or service as it goes through the stages of being developed and produced. 20 Producing the PEDEGO electric bike in Viet-Nam. (Share of value added for each component) This is an electric bike produced in Vietnam, all the components of this bike are assembled in Vietnam and sold across the world. Here you can see all the value added summed up. The German company provide the engine, the China company the wheels and so on and they contributed to the value added (the profit of the firm). Participation in GVC: Backward or Forward Forward GVC participation (at the beginning, at the early stage), in which a country’s exports are not fully absorbed in the importing country and instead are embodied in the importing country’s exports to third countries. In the bicycle example, if India sends aluminum tubing to Taiwan-China, where it is further used in the production of the bicycle later exported, then India’s GVC participation is considered forward because the exporter is at the early stage of production of the bicycle. Backward GVC participation, in which a country’s exports embody value added previously imported from abroad. For example, if the bicycles exported by Taiwan- 21 China, use imported intermediates, then its GVC participation is considered backward because the intermediates used in exports are from the previous stage. A firm is embodying a lot of value added previously embodied in previous passages of the chain. Benefitting from GVC participation: the role of network centrality Two economists made an analysis. Our aim is to determine if it is just GVC participation what matters -measured with the most commonly used indicators of backward and forward participation- or if the position in the network, as measured by the centrality, is also relevant. Our results suggest that countries’ performance in GVCs is positively correlated with network centrality. Hence, the position of countries in global supply chains, and not just GVC participation, matters. GVC participation: benefits and drawbacks Participation in GVC can deliver a double dividend. First, firms are more likely to specialize in the tasks in which they are most productive. Second, firms are able to gain from connections with foreign firms, which pass on the best managerial and technological practices. As a result, countries enjoy faster income growth and falling poverty. All countries stand to benefit from the increased trade and commerce spurred by the growth of GVCs.  An example of the benefits of GVC participation: the pass-on effect. In the development of Bangladesh’s apparel sector (very simple garments), foreign firms created incentives for local suppliers to improve their quality and productivity. Domestic firms that shared local suppliers with foreign firms gained access to newer and better local inputs. The garments industry in Bangladesh was made of many FDI farms (foreign producers that came in Bangladesh) and they increased over time, increasing also the number of local intermediate suppliers. 22 Types of participation in GVC. You can be part of the chain at the very beginning, extracting commodities; you can move up by transforming these commodities into limited manufacturing products; you can move up by transforming these limited manufacturing products into advanced manufacturing products and services; finally, you can move up the chain at the very innovative activities. Italy moved from advanced to innovative. 25 When countries move from commodities to limited manufacturing, they enjoy a more rapid growth of GDP because they add value. 26 Negative effects of GVCs. Inequalities are important, they create social and political tensions. GVC enhance contagion effects. GVCs have been one of the main transmission mechanisms of the great trade collapse that severely and simultaneously hit all OECD countries in 2009, thus amplifying the national fluctuations in demand for final goods. If we are part of a chain, and our firm produces a part of the chain, if the chain breaks up we are in trouble. This is exactly what happened during covid. 27 Composition effects -> which refer to how tasks are distributed across the globe— have ambiguous effects. Technique effects -> which refer to the environmental cost per unit of production— are positive for the environment. Benefitting from GVC participation: the role of network centrality Our aim is to determine if it is just GVC participation what matters -measured with the most commonly used indicators of backward and forward participation- or if the position in the network, as measured by the centrality, is also relevant. Our results suggest that countries’ performance in GVCs is positively correlated with network centrality. Hence, the position of countries in global supply chains, and not just GVC participation, matters. Richard Baldwin: The Globotics Upheaval: Globalisation, Robotics, and the Future of Work London: Weidenfeld & Nicolson, 2019. Digital technology is allowing talented foreigners to telecommute into our workplaces and compete for service and professional jobs. Services are increasingly evolving towards the GVC production model. Instant machine translation is melting language barriers. The combination of globalization and robotics is creating the globotics upheaval. Richard Baldwin, one of the world's leading globalization experts, argues that the inhuman speed of this transformation threatens to overwhelm our capacity to adapt. Globotics will disrupt the lives of millions of white-collar workers much faster than automation, industrialization, and globalization disrupted the lives of factory workers in previous centuries. In the long run, people will 30 work in more human jobs-activities that require real people to use the uniquely human ability of independent thought-and this will strengthen bonds in local communities. 04/04/24 – lecture 12 Italy’s exports in Global Value Chains. In global value chain we are trading tasks instead of final goods (specialization is the key). Remember that specialization is beneficial for the enterprise and for growth and innovation. Two main types of models: Snake model -> assembly line that runs across the world in which each component of the chain is moving on towards the final destination where the product is prepared and shipped to the world. Spider model -> different components in different locations and then assembled in a single country, from there they move to the marketplace (not necessary in the assembly country). Gross and value-added international trade. We must distinguish the gross international trade volume and value-added international trade volume. Gross trade (exports) -> we think of exports from country A to country B valued 100, then it is shipped to country C with value added (total value 110). The value-added taking place in country B is only 10, the firms that manufacture in country B are adding 10 in value and the total value added in trade will be 110. The gross amount will be 100 + 110. Macroeconomic point of view = looking at the balance of payment of a country we look at the gross amount of exports. If you look just at the gross figure, you may overlook the fact that there is a lot of value added that is produced abroad. What is relevant for an enterprise is the value added (the profitability of an enterprise depends also on it). Another way to look at this concept: 31 The total revenues of an enterprise are the combination of local value added produced and some value added acquired abroad (foreign value added). Precise decomposition of exports value added: 32 Exporting firms are on average larger, they have higher productivity, higher percentage of Research and Development and higher percentage of sales. Exporting firms have a higher percentage of patents, innovate processes and innovative products. Local context indicators: Economists of the Bank of Italy divided data according to provinces. Indicators are the amount of donation of blood, invalsi test, population age, the number of days to complete a civil trial in the courts located in the province (indicator of the efficiency of the judicial system), credit and public sector availability, recycling indicator and so on. Provincial clusters based on human and social capital: Firms located in defective and almost virtuous provinces have a lower propensity to export with respect to virtuous provinces. 35 Provincial clusters based of efficiency of public administration indicators (local context indicators): Efficiency of the judicial system (most interesting): 36 The darker area indicates longer trial length (less efficient judicial system), then participation in global value chain = colors are linked in image 1 and 2. ITALIAN REGIONS IN GLOBAL VALUE CHAINS. Gross export of Italian region in percentage of regional value added (2012): 37 After the introduction of the euro 1999, the demand coming from EU countries has increase significantly in Germany as well as demand from extra EU countries. Italy has not the same effect because the demand after the introduction of the euro from EU and extra EU countries has increased slightly -> euro has helped Germany to integrate better than Italy in the EU economy. Italy and Germany have been facing a greater competition coming from China: With respect to China Italy has had an increase lower than Germany (more capacity to respond to Chinese demand). Value added approach applied to China: 40 Italy, France and Germany are all exporters to China. From every 100 euros of imports from Italy to China 71% comes directly from Italy and 28.8% comes from third countries. Since China is a very important country of destination, we have to be aware that 30% of Italy exports to China travel through other EU economies. ITALY’S POSITION IN GVC. The largest participants in GVC are USA, Germany and China. Italy is not to bad, but is share is relatively small (we are important players, but not the best). 41 This is another way of looking, how important is the value chain type of production within our country’s export? We are among the highest countries. This share is large because other countries such as USA and China have larger amount of exports rather than Italy. For every 100 euros of Italian exports, 15% happen to be within a value chain type of transaction. Participation in GVC by productive sector: Italy is good in GVC participation in manufacturing. We are capable of entering the chain of production of manufacturing good, we are also good in the service sector. Russia in very strong in the value chain, but in the primary sector (oil and oil derivatives); while Germany is the leader in the participation in value chain in the manufacturing. Countries’ positioning in GVC: 42 We attract the same quantity of value added that we export. Italy’s backward and forward participation: Backward ties have been increasing lately for Italy. This is the capacity to attract value added from the world. If we look at the breakdown within the manufacturing sector, this is how different components of the sector are in terms of backward or forward ties: Origin of FVA embodied in Italy’s export (in Mln€ and in % of Italy’s exports): 45 These are Italy’s backward ties by country of origin. We have a strong tie with German economy, with France a Republic of China. They provide us with the inputs that are necessary for us to be part of value chains. Hidden Made in Italy. Italy’s VA in foreign countries’ Exports (In Mln € and in % of Italy’ VA - 2019): Many of our value added arrives to the final destination through exports of third countries. We are exporting made in Italy through Germany, France, Spain and so on. Italy’s VA in German Exports, by sector. (In bln € and in % of Italy’s VA exported to Germany) Transport equipment make up 31 % of Italy’s VA exported to Germany; Machinery 17%; Chemical and pharmaceutical products 10%; metal products 10%; electronics 9%. Different sectors of the Italian economy that ship value added through the German exports: transportation is the most important (German cars sold to China are manufactured in part in Italy). Weight of GVC (final & intermediate) in country’s total trade. In percentage of each country total trade. 46 Italy’s percentage of total trade the non GVC is only 20%. 09/04/24 – Lecture 12 Why is the geo-political dimension relevant for the «Made in Italy» industry. Geopolitics is very important when firms change the environment, the institutional set up. Italy’s major exports destinations: (bln. € and %) Non - EU member countries absorb 48 % of Italy’s exports. These exports travel mostly by sea. The US accounts for almost 10% of Italy’s exports, but there still are trade barriers. An example of geopolitical tension that has affected significantly our international trade: 47 GSCPI: synthetic indicator based on cost of shipping goods and delivery time. Gas price increased significantly after Russia’s invasion of Ukraine. Share of Italy’s import from Russia and Ukraine of the selected products. 50 11/04/24 – Lecture 13 MIMIT Internalization activities Alberto Castronovo, Cabinet Office Ministry of enterprises and made in Italy. In this lecture: - CIMIM (committee of made in Italy) Activity - CAIE (committee for investment attraction) Activity - Other international dossiers CIMIM – Interministerial committee for made in Italy in the world Once a year this committee defines a strategy and introduce it to all the stakeholders of institutions involved in the internationalization process. 51 Italian companies do not have to invest where CIMIM decides, they are free to decide. The other aspect of internationalization regards attraction of foreign investment -> CAIE tries to create a better climate to output investment. Ministry of foreign affairs works for ongoing investments. Technical secretariat has been created (new institution) to support attraction of foreign investment, they try to attract foreign investment (specifically large investment). For example, if amazon need a new location. Investor tutors help firms during investment phases in Italy. 52 This is how the tool will look: you will be able to choose the location or the sector of your company and it will give you all the financial instruments that you will have in that specific province. There is a real information barriers, that is why this instrument is so useful for foreign direct investment. The national made in Italy fund. 55 After Russia and Ukraine we had big problem with gas and Europe understood that we need to be autonomous on critical raw materials. At the moment we are completely dependent form China, today was announced the Critical raw materials act that forces some actions and defined 34 critical raw materials (16 are strategic). In the mining phase each country has to extract 10% of the total need for the country (that is a lot), then you need to transform raw materials (industrial phase). In the industrial phase each country needs to provide 14% of the national need. We really need to invest in this sector because this act is binding. In Italy there is Lithium and we can invest in different ways: Co-investment is another way to attract foreign investments. Business model: 56 How will be the structure of the fund? There will be a strategic board and two companies (real estate fund company and fondo Italiano investimenti for the industrial and recycling phase). Taiwan is the main microchip producer in the world and China wants Taiwan back soon. There will be at least a commercial war between China, USA, and EU with commercial sanctions. Piano Mattei (Mattei Plan). This is another strategic plan wanted by Giorgia Meloni managed by presidential del consiglio. The proposal that they made to President Giorgia: 57 The Italian Startup Act Lars Launched in 2012 (Gov. bill 179/2012), the Italian Startup Act is a comprehensive legislative framework aimed at facilitating. the creation and the growth of new startups and hi-tech companies Innovative startups benefit from a dedicated legislative framework in areas such as: o Administrative simplification © Labor market © Tax concessions o Bankruptey law A large part of these measures are also extended to innovative SMES, small and medium-ized enterprises that operate in the field of technological innovation, regardiess of the date of establishment or corporate purpose. The support measures are designed to help startups throughout their whole life-cycle (first steps, growth, maturity) and to affect the national startup ecosystem as a whole (investors, incubators, universities...) Italian Startup Act results @ 14.264 (sme) 2.459 ED No. of Startups eni Innovative 57 SMEs Certified incubators 23.800 € 2 billions Employees working Value of production from in startups innovative startups going forward. 60 The role of the agency is to be a link to facilitate investments. 16/04/24 – Lecture 14 61