From the Financial times "The real value of made in Italy"
In Palazzo Strozzi, a Renaissance palace overlooking Florence’s Arno River, Ferruccio Ferragamo, scion of luxury shoe brand Salvatore Ferragamo, is explaining why his shoes are “Made in Italy”.
Mr Ferruccio’s father, Salvatore, put handmade shoes on the feet of Marilyn Monroe and Sophia Loren, Lauren Bacall and Judy Garland. But his son is supposed to be living in different times, where rising Chinese and Indian manufacturing power has put Italians out of business.
When Mr Ferruccio meets the Financial Times in December, he has another problem on his mind. He is having to ask Ferragamo’s workers, dotted in villages and factories around Florence, to keep working right up until Christmas day, almost a week longer than usual.
The industrial clusters around which Italian excellence had developed for centuries – cashmere in Biella, sunglasses in Belluno, handbags in Prato, ceramics in Grottaglie – no longer provided the support and synergies to sustain themselves.
Except that, 10 years on, reports of the demise of “Made in Italy” have proved to be greatly exaggerated. In 2010, the country’s exports are estimated to have grown 12.5 per cent, far outpacing the 4.4 per cent rise in global gross domestic product. They are forecast to rise a further 8 per cent in 2011 and 7 per cent in 2012, returning to pre-crisis levels in 2013, according to trade group SACE.
The surge is down to the attraction of “Made in Italy” goods to the middle classes of rapidly growing economies, including Brazil and China. And whether it is sending furniture to Russia, textiles to Egypt, rubber and plastic products to Turkey or winemaking equipment to Chile, emerging markets are proving increasingly important for Italy’s entrepreneurs. The country also held on to its position as the fourth-biggest exporter of mechanical engineering products throughout the crisis.
“It was a short-term view needing to get out of Italy. In the longer term we saw that it was much better to stay,” Mr Ferragamo says, displaying the almost beatific smile that comes from someone who knows they have made the right decision against the odds.
The reasons for Italian success are often contradictory. Italy still lacks basic infrastructure. Broadband is unreliable in many parts of the country. Productivity per unit of labour has fallen about 20 per cent compared with Germany since 2000.
Almost constant political instability, most recently surrounding Prime minister Silvio Berlusconi, means companies frequently complain of not getting the same support from government that their peers do in France or the UK.
Strong labour unions, seemingly boundless bureaucracy, organised crime and endemic tax evasion have given Italy 80th place in the World Bank’s “Ease of doing business” survey, down four places from 2010.
But the creativity and business acumen among Italian entrepreneurs to make “Made in Italy” a premium brand is helping them to manoeuvre through and out of the crisis – and in some cases out of Italy as well.
“The experts in Italian manufacturing made strong reductions in terms of volume but not in terms of value,” says Victor Massiah, chief executive of UBI Banca, a regional lender in Italy’s northern industrial heartlands. “They repositioned themselves at a higher level because there was no point in competing with China in terms of low-priced goods.”
As Mr Ferragamo and other luxury goods executives have noted, the attention to provenance paid by Chinese consumers – by some estimates, the world’s biggest luxury market – has helped the industry support price rises of some 10 per cent in the past 12 months.
Other sectors of the economy – even the most unexpected – are seeking to benefit. During the men’s fashion shows in Milan this week, Monte dei Paschidi Siena, Italy’s third-largest bank and the world’s oldest continually operating lender, launched a fashion and wine label called 1492 after the year that it was founded.
Shifting focus on to the high-end has been mirrored beyond the luxury sector.
Thirty years ago, Giuseppe Corrado, founded a midsized manufacturing business near Vicenza, in north-east Italy, to produce metal chains for the mass market. Since then, the 71-year-old whose two sons are now taking over the business, has cut staff by two-thirds and shifted his focus to manufacturing for the mid-market. He says he “generally produces less but of higher quality”.
Throughout the crisis, Italy has remained Europe’s second-largest export economy, after Germany. It is a position helped by Italian companies also piggybacking on German finished goods. Italian executives like to say that 40 per cent of an Audi vehicle is made up of Italian goods.
In the period from January to November 2010, exports rose 15.2 per cent compared with the same period in 2009, with strong growth to countries outside the EU, up 16.5 per cent, compared with exports within the EU that were up 14.3 per cent.
There are also the intangible qualities of Italian businesses that have enabled it to defy the doomsayers. According to the chief executive of one European multinational, Italian entrepreneurs exhibit “an exceptional raw creativity and passion” and a fierce competitiveness.
Members of Milan’s business community compare the success of Italian entrepreneurs, the small and medium enterprises that are the “fabric” of the economy, to a beetle. Cumbersome and awkward, it seems destined to be land-bound. And yet, defying expectations, it is able to fly.
Remaining in Italy, however good the brand may be, is not an option for many companies if they want to flourish. Italy’s economy has grown on average around 1 per cent a year for the past decade. Foreign direct investment flows are far below the European average because of the same litany of difficulties that mean Italian companies must be flexible and adapt in order to survive.
Since the crisis, and without structural reforms needed to make the economy grow, bankers report an acceleration among the small and medium-sized enterprises that make up 80 per cent of the Italian economy trying to extend exports to or open up branches in Asia and the Americas – but which are still trading on their credentials as Italian entrepreneurs to get there.
Diego Della Valle, the entrepreneur behind the Tod’s and Fay brands and a core shareholder in Saks, the US luxury department store, argues that more needs to be done to defend “Made in Italy” as a means for the country’s small and medium-sized businesses to defend themselves against globalisation.
“‘Made in Italy’ is a strength that we must protect. Most people want a piece of Italy, that is not something that we defend enough,” Mr Della Valle says.
He has suggested, for instance, getting private money to protect the Colosseum because its preservation is as important to Italian businessmen whose business is based on the idea of the “Made in Italy” brand as it to tour guides.
Italians, a recent coffee table book covered in Tod’s signature camel colour, conjured up that dream of Italian living that has proved irresistible to many consumers. It shows wealthy Italians, such as Lucio Tasca D’Almerita, scion of the Sicilian aristocratic family that makes Tasca D’Almerita wines, relaxing in the mountains and by the sea.
As Mr Della Valle told a conference in Milan: “Many people want to live like us, they want to be us, they want to dress like us, and they are willing to spend money to do it.”
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