Premise

In addition to giving an outline of the dimensional aspect of the Italian industrial system, this article wants to illustrate how, especially in certain industrial sectors, a serious process of consolidation can be decisive.

The ultimate aim of this analysis is to highlight that while “becoming large” (or at least medium-sized) undoubtedly brings advantages, in some selected sectors of Made in Italy, small size offers some distinctive advantages that can make small artisan companies competitive even at international level.

Italian SME sectors

Let’s start with some Italian industrial system data

  • In Italy the number of Small and Medium Enterprises (SMEs) is equal to 3,544,509. Of these: 3,363,739 (94.9%) are micro (0-9 employees), 159,503 (4.5%) are small (10-19 employees), 17,723 (0.5%) are medium (50-249 employees).
  • Large companies (over 250 employees) in Italy are 3,611 (0.1%) and this number profoundly differs from other European productive powers such as, for example, France where there is a greater concentration of large companies.
  •  Italian SMEs:
    – Employ approximately 76% of the country’s workforce
    – Generate 63.4% of the total added value (outside the financial sector), a figure well above    the European average, which is equal to 56.4%.

Medium is better

Unfortunately, the sore points come from productivity.

Especially in the manufacturing sector, Italy suffers from a productivity gap compared to France and Germany with a delta of 17.9%. However, this figure is particularly relevant for micro (-26.1%) and small (-2.9%) companies. On the other hand, mid-range companies do better than their European peers (+21.5%).

Therefore, in Italy nominal productivity – especially in the manufacturing sector – grows as size increases.

Looking at the various crises that have hit the Italian and world economy in recent years (e.g. Lehman, the sovereign debt crisis and COVID) it must be noted that the highest rate of resilience was precisely that recorded by the medium enterprise. The turnover of medium-sized enterprises, apart from three years (2009, 2012 and 2020), has grown in the period 1996 -2020 (+109%).

Reasons to grow

In addition to greater than average resilience, there are further reasons as to why size effect is strategic.

Italian SMEs pay the highest energy prices in Europe, 33.5% more than the EU average. The situation is worse for small entrepreneurs, who suffer electricity costs 4 times higher than medium-sized enterprises due to the “less you consume, the more you pay” mechanism. Recent increases in energy prices have made the situation even more difficult for small and micro businesses.

Medium-sized enterprises have also shown a high propensity to invest in Industry 4.0 (76% of medium-sized enterprises have made investments in 4.0 technology in the last 5 years).

Last but not least, in a phase also characterized by a growing and structural shortage of candidates, medium-sized enterprises – thanks also to increased competitiveness and investments in technology – still remain very interested in attracting new “talents”.

Family businesses

There is no doubt that the SME sector in Italy is often characterized by a “family” governance. Family governance characterizes micro, small, and medium-size enterprises.

Often, family governance has precise repercussions on the dimensional growth of the company. Another theme to underline in family businesses is the management of the generational handover.

While medium-sized companies, in many cases, have faced and resolved the generational shift (47.2%), the small and micro sector has largely not faced this turning point, ending up investing less in change to increase their competitiveness. Therefore, in terms of skills, the result is less managerial training, less process and organizational innovation and less product and marketing innovation.

Elements that will, in any case, push for a change in the future are:

  • the need to introduce new managerial skills;
  • changes in size through acquisitions and mergers;
  • opening of capital to financial or industrial partners;
  • acceleration of generational change because the older generation is too old to manage the company.

Some exceptions to the rule

In conclusion, we can state that the Italian industrial system, negatively influenced by labour law choices (ex-art. 18 of workers) that are not always correct, needs dimensional growth to make it more competitive and more resilient.

A process of consolidation through M&A involving very small and small companies is therefore essential.

However, there are some exceptions such as companies engaged in the production of high-end gourmet food, in the production of high-end bicycles, in precision mechanics, etc., which, even if small, still remain competitive, above all, in international markets. Indeed, there has been a recent extension of national and international institutional investor interest towards them.

These companies are characterized by a strong brand, craftsmanship, careful selection of raw materials, an exclusive and recognizable product, and are waving the Made in Italy flag.

These companies must be defended in order to remain Italian, as they represent a common heritage of all Italians!

Giuseppe di Stefano

Business Partner