Monday, July 28, 2014

Luce In Veneto - clusters in the Third Italy

The role of clusters in the rise of the Third Italy – Luce In Veneto 

by Klára Gurzó

When we talk about clusters and the forces that created them Silicon Valley is used as the most obvious example. The role of newly established networks and social capital are emphasized in the process of cluster creation. However, the very similar forms of firm cooperation and economic activity can evolve through the networks of traditional families and industries. The industrial districts (distretti industriali) of Northeast Italy are very good examples of the latter type of connections.

The traditional economic center of Italy is the Northwest regions of the country (region of Lombardy, Piemont, Ligune, etc). While the other parts of the country struggled in the 1960’s, the Central and Northeast regions started to use their advantages. The region has high market potential because it is close to the developed part of Europe and Italy, and it is close to the sea that supports lower transportation costs. The rapid industrialization process started that time made the “Third Italy” (Tuscany, Umbria, Marche, Emilia-Romagna, Veneto, Friuli, and Trentino-Alto Adige/Südtirol) the most prosperous part of the country. Agglomeration processes supported the growth of the region through the connection and cooperation of the densely located small and medium sized companies and the knowledge accumulation based on the universities in the region. The industrial districts clustered by labor intensive, manufacturing industries.  These districts are territorial agglomeration of firms, specialized by product type and interpersonal links which circulates information and facilitate diffusion of innovation. The covered small firms could respond flexibly to the changes of economic environment and specialize on certain parts of the production process. The economic development of small companies was not independent entirely. From 1965 the Sabatini Law financed companies to buy machines, tools and other equipments. The object of the law was individual companies.

Veneto region has the third highest total GDP among Italian regions. It is one of the two regions where the most industrial districts can be found. The population of the region is around 4.8 million people and almost 10 percent of them are immigrants. Today, the percent of immigrants is one of the highest in the country while before the World War II high out-migration characterized it. The city’s population is still increasing today due to the large number of immigrants. The economy was largely based upon farming. In the 1960’s and 1970’s rapid industrialization started and since the mid 1980’s the labor market is characterized by almost full employment and a positive rate of job creation. The districts cover the traditional economic sectors such as food products, wood and furniture, leather and footwear, textiles and clothing, gold jewelry, but also chemistry, metal-mechanics and electronics.
The government realized the economic power of districts therefore they decided to support the launch and operation of them. For the first time, in 1989 country level rule helped the local clusters, especially export-oriented ones. After this one many other policies were introduced to support clusters locally. However, Veneto emphasized the role of interregional connections therefore they launched a regional level policy that financed project based cooperation between firms.

These policies drove the emergence of numerous forms of tight cooperation across firms for example the LUCE IN VENETO SCARL Consortium. The region involves 500 companies that operate in the lightening industry and they have 5000 employees. The Consortium involves 50 companies that have close to 700 workers. This is a typical production cluster that integrates the participant firms vertically. The Consortium has one or two larger member but most of the firms are small, family owned firms. These are typically handcraft firms that design and produce special, individual lights. The main aim of the consortium is to help firms to compete with multinational, low priced products. There are three main common activity of the consortium. They use common transportation and sales channels and packaging technology to decline their transport costs. Moreover, they cooperate with universities (for example with Padova University) and make common research and development activities. The design of the lightening, the safety packaging and the strong and impact resistance glass are all essential parts of the competitiveness of these firms. Therefore technological innovation is gradually determines the success of the firms. Finally, they organize training sessions  to inform the members from the latest rules and technology, fashions and so on.

The rise of Third Italy is very good example of the forces of New Economic Geography because the location, distribution and spatial organization of economic activities determined the economic development of the territory basically. We saw that clusters of traditional, family owned small firms can be the basic of agglomeration. However, recent times it seems that the order of agglomeration forces (high wages vs high productivity) tends to change places and high wages cause serious problems in the region. Some actors outsourced their production to low wages countries already. If the production labor intensive industries tend to leave the region, other activities have to be strengthened locally. 


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