Fulvio Coltorti, Fourth capitalism

Fourth capitalism: the real driver
of Italian growth
Fulvio Coltorti, Director Emeritus , Mediobanca Research Area
CUOA, meeting with supporting partners
3 July 2014
European manufacturing: who matters?
Section 1
Manufacturing industry in Europe
Value added for largest manufacturing countries at current prices in 2013
Section 1
Avg. size in 2011 (VA per firm in €’000)
5,000
Germany equal to Italy, France and
Spain added together
4,500
Switzerland
4,000
3,500
3,000
2,500
2,000
1,500
1,000
Germany
Austria
Netherlands
UK
France
Sweden
500
0
50,000
Poland
Spain
ITALY
100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000
Manufacturing value added in 2013 (€m)
Source: compiled from Eurostat data
3
Italy vs European competitors: still at the bottom of the barrel … strong impulse
needed to bounce back
Relative VA indicators calculated based on Eurostat data - VA as % of aggregated European competitors
(France, Germany, UK and Spain)
24.9
24.0
24.2 24.2
25.2
24.4
24.1
23.9 23.9
23.5
23.2
23.1
21.6
21.6
21.6
21.9
21.1 21.1
20.3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
4
2013 2013 2013 2013 2014
Q1 Q2 Q3 Q4 Q1
Geography of future growth …
Real GDP – 2011 index = 100 – Source: IMF
111
109
2014-19
World:
2.5%...3.4% p.a.
Emerging:
4.9%...5.4%
Emerging Asia:
6.4%...6.8%
Sub-Saharan Africa:
5.4%...5.8%
+1.4%
107
+1.5%
105
103
101
+1%
99
97
95
2011
2012
2013
2014
2015
Germany
Italy
5
2016
2017
Eurozone
2018
2019
Italy does not stand out because of its excess of small
businesses, but because of the crisis and the decline of its
large industries
Section 2
Crisis and decline of large enterprise in Italy
Percentage of GDP accounted for by leading Italian companies (based on Mediobanca and Istat data at current prices)
Wrong investments
Lack of research
Financial crises
1.05
First restructuring
Rescues and bailouts
Robots; group organization
0.95
Second restructuring
Rescues and bailouts
Lean production;
relocations
0.85
Technological decline
Loss of market shares
Relocations
0.75
0.65
Value added by LE/Italian GDP
7
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
0.55
Dualism reversed: fewer and fewer large companies
Istat – Manufacturing industry census: firms with 1,000 staff and more
339
324
3,877
3,228
3,631
241
2,503
2,438
223
176
1971
1981
1991
No. of firms
2001
Avg. size (no. of staff)
8
2011
Italy: four capitalisms
1
First large companies (late 1900s)
2
State capitalism (1933)
3
Industrial Districts (1960-70)
4
Medium-sized companies and others (1990s)
9
What has happened in the territories?
Section 3
Manufacturing in the provinces: % shares of staff
LE=Large Enterprise areas; LI=low industrialization areas; ID = districts areas
51.9
50.3
41.8
39.8
43.9
36.0
31.4
31.9
6.7
7.2
1991
1996
24.7
19.3
8.2
2.1
0.8
1.2
1951
1961
1971
0.6
LE
3.3
1981
LE LI
Source: Becattini-Coltorti 2004
11
ID
District areas
Source: Coltorti, Handbook of IDs, 2009
Dark/light green
District areas and medium-sized firms
Red
Large enterprise
Yellow
Tertiary sector
2004
12
Manufacturing: value added in 2011
Mediobanca Research Area estimates based on Mediobanca and Istat data
Medium-large
12.6
Non-Italian LEs
12.4
Medium-sized
15.6
Largest groups
6.1
Fourth capitalism
Medium-large,
medium
and small firms
50-60%
Small
53.3
13
Methods of production change: end of Fordism
Section 4
Lean production: the Apple iPad
Breakdown of value generated by iPad 16GB, cost $499 (2009)
Cost of acquiring
input
25%
Apple margin
25%
Manufacturing: Asia
Plus margin for retail
distribution if sold online or
at own stores
Direct labour costs
for suppliers
10%
US non-Apple
suppliers' margins
2%
Costs of unknown
origin
4%
Japanese suppliers'
margins
2%
Retail distribution
and sale
23%
Taiwanese suppliers'
margins
2%
Korean suppliers'
margins
7%
Source: Linden, Dedrick, Kraemer, Rassweiler (Who captures value in the Apple iPad?; 2011)
15
LG and Samsung
(display and memory chip)
Can one be competitive without being large?
Section 5
District effect: trust, filières, networks, entrepreneurialism
Districts are based on trust
Industry is concentrated in places
Places = communities of people, agglomerations of enterprises
High degree of division of labour enables specialization
Filières (short and long, to produce and acquire knowledge)
Many SMEs compete and co-operate with each other
Competition (= innovation, quality and appropriate production costs)
There are local markets for goods and services
Networks (informal and formal, short and long)
The strengthening of relations and technical/behavioural codes on a local basis facilitates the circulation of
information and reduces barriers to entry
Turnover between entrepreneurs and integrated division of labour
17
How does the fourth capitalism work?
1. Competition engaged in on basis of “systems” of companies
2. Impact of production scale felt at system level (network of relations; external economies leveraged)
3. Reliance on territory which provides and regenerates the resources and on network of social relations
4. Companies specialize
5. Firms create niches in which they have a virtual monopoly, innovating continuously and avoiding the
large multinationals’ practices
External economies and product differentiation
Carel: total sales €169m per annum
18
Fourth capitalism: governance

Competition takes place on product market rather than at level of
ownership structure

Decisions taken by market of consumers, not by financial markets
(institutional investors, banks, advisors, analysts, etc.)

Company survives and prospers to the extent that it remains
efficient

Quest for beauty is fundamental
NICE – Oderzo (Treviso)
19
Medium-sized enterprises in 2012
3,528 medium-sized firms
(3,463 considering groups)
50-499 employees
Annual total sales €15m-€330m
Limited companies
Independently-owned
Source: Centro Studi Unioncamere
20
Size: growth trends
Net changes, 1999-2012. A total of 334 companies was excluded in 2008 following adoption of new parameters
438
333
248
214
169
98
301
271
122
44
-59
-59
-69
-50
-22
250
8
-55
-38
-55
-21
-70
-34
-44
-11
-50
-81
-598
1999
2000
2001
2002
2003
2004
2005
2006
MSEs become large
2007
2008
2009
Small firms become MSEs
21
2010
2011
2012
Medium-sized firms qualify districts
Section 6
More medium-sized companies in Istat districts
% of total staff
14%
1.7
14.3
34%
44%
8%
8.4
11.7
16.1
24.7
30.7
35.9
47.5
40.1
36.6
31.1
36.5
(0-49) > 74.9%
26.8
(0-49) 62.5%-74.9%
21.0
16.9
(0-49) 50%-62.5%
(0-49) < 50%
Categories based on % presence of micro and small firms
Micro 0-9
Small 10-49
Medium-size I 50-249
% breakdown of total staff employed, 2001 – Source: Coltorti (Handbook of IDs, 2009)
23
Medium-size II + LEs >250
More staff in medium-sized firms in district areas
Compiled from M. Bellandi & F. Coltorti, “Distretti industriali e medium-sized companies, tra declino e
traiettorie di sviluppo industriale in Italia”, Artimino report 2012-14, Bologna, Il Mulino (forthcoming);
indexes 2001 = 100 – no. of staff
107.4
100
100
90.6
2001
86.2
2007
Total
2009
Medium-sized businesses
24
94.9
90.7
81.5
2011
District areas between 2001 and 2011
Source: M. Bellandi & F. Coltorti, 2014
District crisis
3%
District growth
3%
District restructuring
22%
MSE consolidation
72%
25
District areas with high concentration of medium-sized companies
Source: M. Bellandi & F. Coltorti, op. cit. 2014 – KIS = Knowledge Intensive Services; LKIS = Low KIS
No. of staff (000)
3000
2500
2000
1500
1000
500
0
2001
2007
Manufacturing staff
Services: KIS
26
2009
Services: LKIS
2011
Changes in value added by medium-sized companies
Value added 1996-2012 – universe of medium-sized companies
Mechanical engineering
Personal and households goods
Chemicals & pharmaceuticals
Food and drinks
8,232
-211
6,592
2,498
2,422
2,859
Paper, printing & Publishing
1,289
Metallurgical
1,357
Other industries
5,804
2,006
577
325
“Made in Italy” turnover 62% (65.8% in 1996)
Exports 40.4% (32.5% in 1996)
614 191
in 1996
Change 1996-2012
27
International orientation
Section 7
Italy
Elsewhere
29
505 medium-sized zero%
504 medium-sized <15%
708 medium-sized 16-40%
432 medium-large firms
628 medium-sized 41-60%
467 medium-sized 61-74%
651 medium-sized >75%
131 medium-sized/large 0-40%
175 medium-sized/large 4174%
126 medium-sized/large >75%
Fourth capitalism: the happy many …
Categories of firms based on % share of exports in 2012; Source: Mediobanca Research Area
3,463 medium-sized companies
Exports: size is NOT a conditio sine qua non
No. of staff
550
500
450
400
350
300
250
200
150
100
50
0
0.0
10.0
20.0
30.0
40.0
50.0
Universe of medium-sized companies 2012: shares of exports and no. of staff
30
60.0
70.0
80.0
90.0
100.0
% Sales abroad
Growth drivers and brakes
Section 8
The two drivers of value added: data by class of good
Index number of value added based on current prices (2000 = 100; Istat database with estimates for 2012-13)
118.9
116.2
111.9
104.7
106.2
107.1 107.3
105.3
103.2
99.3
110.0
111.7
108.2
108.9
103.5
100.0
100.0
117.4
100.0
104.8
103.8
102.3
102.2
103.1
98.9
96.9
96.3
2012
2013
93.1
2000
2001
2002
2003
2004
2005
Goods produced by large enterprise
2006
2007
2008
2009
2010
2011
Goods produced by districts and fourth capitalism
32
The two drivers of value added: data by companies
Index number of value added based on current prices; Mediobanca data for companies with production facilities in Italy
136.7
137.9
136.8
134.2
132.9
125.1
113.0
104.2
106.4
124.9
115.9
108.6
107.2
100.0
100.0
98.2
94.9
94.7
86.1
2000
2001
77.6
2002
85.3
86.6
2003
2004
88.5
83.4
2005
Large groups
83.3
2006
2007
2008
2009
Medium-sized companies
33
2010
2011
85.9
2012
Medium-size enterprise in Europe: a comparison
Section 9
Where?
Medium Sized Enterprises in Europe (2013)
35
Medium-sized companies: size, productivity and CLUP
Size increases left to right (staff); median values based on rolling sets of 200 observations
Net VA per employee
CLUP
Source: Confindustria, R&S, Unioncamere, Medium-Sized Enterprises in Europe, 2013
36
Medium-sized companies: productivity, wages and tax
Germany
Net VA per employee (€'000)
DE index no. = 100
Unit labour cost (€'000)
DE index no. = 100
EBITDA as % of VA
DE index no. = 100
Tax rate*
*
Italy
France
Spain
56.1
51.0
52.1
47.9
100.0
90.9
92.9
85.4
46.7
39.6
43.6
36.8
100.0
84.8
93.4
78.8
14.9
18.6
14.9
19.2
100.0
124.8
100.0
128.9
27.4
38.2
24.5
23.5
Tax rate in Italy in 2012

Medium-sized firms 37.0%

Large groups: 23.5%
FY 2009 - Confindustria – R&S Mediobanca – Unioncamere survey
37
Lots of it net worth, little of it working capital
MSEs in Europe (2013) – Data as at 2009 - tangible net capital includes provisions set aside in medium/long term
17.4
Assets
27.3
25.5
34.6
35,7
38.1
38.8
-12.8
-16.9
-21.3
-19.6
-13.3
33.8
38.4
36.0
44.2
-27.5
Loans
-20.1
-52.4
Itay
Short-term debt
30.2
Medium-term debt
-67.6
-69.8
France
Germany
Tangible net worth
38
Fixed assets
-21.0
-57.7
Working capital
Spain
Financial assets
If tax was less aggressive in Italy?
% of firms by class of financial solidity
Assuming tax rates equivalent to
those for large groups
(last ten years)
78.0
76.3
69.0
68.6
56.6
35.3
26.4
25.0
19.3
4.4
Germany
18.2
France
8.1
6.4
4.6
Spain
Investment grade
3.9
Italy
Intermediate
Source: compiled by R&S based on R&S-Unioncamere scoring model
39
Italy 2
Distressed
What to do to exit the crisis
Section 10
Promote fourth capitalism in district areas
Net flows of exports/imports in Euros by territories classified based on Becattini-Coltorti method (2004ff– UA = Turin/Milan/Rome/Naples)
€ mln
60,000
40,000
20,000
0
-20,000
-40,000
-60,000
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
District areas
Large enterprise areas
41
Urban areas
Remainder
Stimulate investments: Italy vs FR, DE and UK
Gross fixed investments in manufacturing sector, relative values (% of Eurostat national accounting data based on current prices)
120
110
100
90
80
70
60
50
1999
2000
2001
2002
2003
% of France
2004
2005
2006
2007
% of Germany
42
2008
2009
2010
2011
% of UK
2012
2013
Italy vs Germany
Data as at 2012
Italy
Population
Germany
Italy vs
Germany
59.4 m
81.7 m
73%
€86.2bn
€102.9bn
84%
€7.9bn
€203.5bn
4%
Balance of exports-imports:
districts + fourth capitalism/Mittelstand
large groups
Attract investment from large foreign groups /win back those which have fled
43
Keys to success: focus on revenues, not costs
1) Quality of work force (measured via unit wage levels): companies which use low-cost staff are less
productive than those which use a workforce which are more expensive when measured by unit cost but
matched with the stock of capital per staff member and against high-quality production. A work force
which is “worth” salary levels which are €1 higher produces, ceteris paribus, an increase of €1.4 in value
terms in productivity
2) Inverse relationship between size and productivity: a winning strategy involves production
specialization and a commercial policy geared towards creating and exploiting market niches, which are
dominated through skill and innovative ability (confirmed by the data shown in the previous slides)
3) Knowledge Intensive Services (KIS): there is a need for companies which provide high knowledgeintensive services
4) Positive impact of managerial capabilities and infrastructure: the former is a product of training; the
latter tends to differentiate between performance (e.g. deteriorating in Southern Italy)
Source: econometric analysis based on data for medium-sized companies taken from Mediobanca-Unioncamere surveys produced in the last ten years
(F. Coltorti and D.Venanzi, “Produttività, competitività e territori delle medie imprese italiane”; in I nuovi distretti industriali. Rapporto di Artimino
sullo sviluppo locale 2012-13; ed. by M. Bellandi and A. Caloffi, Bologna, Il Mulino (forthcoming).
44
Indicators of attractiveness of fourth capitalism
Compiled by Mediobanca Reearch Area
Normalized average of 7 indexes calculated based on data for medium-sized companies
1.0
Blue indicates territories identified
by Giorgio Fuà in his North-EastCentre model (NEC) - 1981
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
45
Veneto
Lombardia
EmiliaRomagna
Marche
Friuli VG
Umbria
Trentino AA
Piemonte +
VdA
Abruzzo
Toscana
Campania
Liguria
Puglia
Basilicata
Sicilia
Molise
Sardegna
Lazio
Calabria
0.0
Roll up our sleeves …
A proposal to recover use of resources which are currently wasted
46
Most important districtions: selected using KPIs
Source: F. Coltorti & L. Mastromarino, Per un piano strategico a sostegno dei distretti (OND report, 2014)
14.0%
EBITDA/sales, % avg. 2010-12
Q4
Q1
33
13.0%
12.0%
14
11
23
18
9
5
25
37
8
28
Q3
20
11.0%
29
10.0%
26
15
1
6
22
45
13
2
38
21
Chg. in sales, 2010-12
19
3
17 31
24 7
43
27
36
34
40
16
4
41
10
42
32
35
30
12
39
44
6.5%
4.5%
2.5%
47
0.5%
-1.5%
8.0%
7.0%
6.0%
5.0%
4.0%
-3.5%
Q2
8.5%
9.0%
Strategic plan with pivotal companies
Coltorti-Mastromarino methodological proposal: plan stages
ACTIVITIES
RESPONSIBILITY
MAPPING DISTRICTS
UNIONCAMERE
DISTRICTS CLASSIFIED BY KPIs (SALES, EBITDA, VA)
MISE/REGIONAL AUTHORITY/UNIONCAMERE
DISTRICT COMMITTEE SET UP
MISE/REGIONAL AUTHORITY
DISTRICT STRATEGIC PLAN DRAWN UP (DSP)
DISTRICT COMMITTEE AND PIVOTAL COMPANIES
PSD APPROVED
DISTRICT COMMITTEE, PIVOTAL COMPANIES, TRADE
UNIONS, CATEGORY ASSOCIATIONS, LOCAL
ADMINISTRATION
START OF ACTIVITY AND MONITORING
DISTRICT COMMITTEE/ REGIONAL AUTHORITY/MISE
48
Bibliography

R&S and Mediobanca, various publications (www.mbres.it)

Mediobanca-Unioncamere, Le medie imprese industriali italiane (www.mbres.it)

G. Becattini-F. Coltorti, “Aree di grande impresa ed aree distrettuali nello sviluppo post-bellico
dell’Italia” (Rivista Italiana degli Economisti, 2004); “Areas of large enterprise and industrial districts in
the development of post-war Italy: a preliminary study” (European Planning Studies 8, 2006)

F. Coltorti, “Medium-Sized Firms, Groups and Industrial Districts: an Italian Perspective”; in A Handbook
of Industrial Districts, ed. by G. Becattini, M. Bellandi e L. De Propris; Edward Elgar 2009

Confindustria, R&S and Unioncamere, Medium-Sized Enterprises in Europe; 2013 (www.mbres.it)

F. Coltorti-G. Garofoli, “Le medie imprese in Europa” (Economia Italiana 1, 2011); “Medium-Sized
Enterprises in Europe” (Review of Economic Conditions in Italy 1, 2011)

F. Coltorti, R. Resciniti, A. Tunisini, R. Varaldo (eds), Mid-Sized Manufacturing Companies: The New
Driver of Italian Competitiveness; Springer 2013

F. Coltorti, “Italian Industry, Decline or Transformation? A Framework”; (European Planning Studies, 21 ,
2013)

Osservatorio Nazionale Distretti Italiani, 2014 report (www.osservatoriodistretti.org)

M. Bellandi-F. Coltorti, “Distretti industriali e medie imprese, tra declino e traiettorie di sviluppo
industriale in Italia”; F. Coltorti-D. Venanzi, “Produttività, competitività e territori delle medie imprese
italiane”; in I nuovi distretti industriali, ed. by M. Bellandi and A. Caloffi, Il Mulino 2014 (forthcoming)

F. Coltorti-L. Mastromarino, Per un piano strategico a sostegno dei distretti industriali; 2014
(forthcoming)
49
Mediobanca Research Area
www.mbres.it
50

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