Between big and small: the role of medium-sized enterprise in Italy and Europe

Fulvio Coltorti

Unione Industriale Torino

Make it in Italy. 24 October2011

2

Why “medium-size” in industry?

3

Revolution in manufacturing…

Japan. 1950s: Toyota introduces lean production systems; Europe and the U.S. discover them30 years later

Italy. 1970s: industrial districts grow up, as socio-territorial entities in which communities ofpeople are embedded into populations of firms specializing in producing selected goods

USA. 1980s: Fordism model starts to decline under the Japanese invasion of US markets,backed by higher productivity levels; downsizing is the new view in the largest manufacturingcorporations

2000-: globalization is at full speed; firms destructure by forming international value chains

4

Down-sizing in Italy

Mediobanca figures for manufacturing companies: value added as % of turnover

30,730.0

29,6

28.7

27,9

26,8

25.2

25.8

24.6

24,3

23,322,8

21,921,4

21,921,6 21,5

20,8 20,6

19,6

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

5

Medium-sized enterprises in Italy

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Manufacturing in provinces: % shares of employees

A story which comes from the territories

51,950,3

39,8

36,0

31,4 31,9

0.60,8 1,2

3,3

6,7 7,2

2,1

8,2

19,3

24,7

41,843,9

1951 1961 1971 1981 1991 1996

PGI PGI bi PDI

Source: Becattini-Coltorti 2004

PGI=Large enterprise provinces; bi=low industrialized; DI = District provinces

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Italian industry value added

Index 1999=100; Istat figures at current prices – in 2010: districts and 4th cap. goods 115. Large enterprise goods

103

95

100

105

110

115

120

125

130

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Large enterprise goods Districts and 4th capitalism goods

8

Value added: MSEs and major groups

Index 1995=100; Mediobanca figures at current prices – in 2010: MSEs 144. Major groups 84

70,0

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

160,0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Major groups MSEs

9

Manufacturing value added by companies in 2007

Estimates based on data from Mediobanca and Unioncamere

The importance of the fourth capitalism sector

Major corporate groups

8.4

Non-Italian LEs 13.0

Medium-to-large enterprises

10.3

Medium-sized enterprises

18.3

Small enterprises50.0

4th capitalism

& allied industries

40-50%

10

Engine of growth: export-import balances

55.80361.700 65.747 63.280 60.337 63.354 62.895

68.70877.951 79.822

62.681 64.52770.785

-20.067 -23.236 -20.937 -21.152 -23.997 -25.809 -24.932 -29.012 -30.994-24.108 -20.061

-31.335 -34.973

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e

Districts and 4th Capitalism Large enterprises

Manufacturing- €m

Based on Istat figures (coke and refineries products excluded)

11

Changing product mix

8.217

6.614

2.829

2.447

1.357

1.276

600

7.827

1.367

1.648

1.784

740

694

196

Mechanical engineering

Personal and household goods

Food

Chemical

Metallurgical

Paper, print and publishing

Other

In 1996 Change 1996-2008

Universe of medium-sized enterprises – Value-added 1996-2008

Made in Italy 62.6% (62.7% in 1996)

Non-Italian sales 36.5% (32.8% in 1996)

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How small is the niche?

Ultraflex. 65 employees: world leader in shipping components,

200,000 items per year

Tesmec. 350 employees: electric lines and digging machinery in

over 100 countries

Albini Group. 1,370 employees: made in Italy. 5,000 new variants

of fabric each season

Elica. 2,800 employees: 17 million extractor fans and engines per

year

Grafica Veneta. 180 employees: 100 million books per year

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MSEs in Europe

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Firm size: classifications to be changed

France Germany Italy Spain UK

Number of firms 218,500 195,438 459,728 191,972 128,467

Micro (0-9) 188,500 119,418 373,932 155,699 96,912

Small (10-49) 23,000 55,131 74,647 30,468 23,275

Medium-sized I tranche (50-249) 5,600 16,720 9,753 4,937 6,699

Medium-sized II tr. + large (>249) 1,400 4,170 1,396 868 1,531

Employees (’000) 2,976 7,103 4,407 2,094 2,581

Micro (0-9) 850 467 1,055 407 277

Small (10-49) 680 1,094 1,405 623 536

Medium-sized I tranche (50-249) 840 1,773 944 485 671

Medium-sized II tr. + large (>249) 600 3,768 1,003 579 1,096

Based on Eurostat figures

Manufacturing– situation at 2008/2009 –French figures for classes of firms are our estimates

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How many are true MSEs?

64%58%

64%

36%42%

36%

Germany Italy Spain

Large enterprise affiliates True MSEs

Turnover €10-250m; 50-499 employees – Source: Confindustria-R&S-Unioncamere. MSEs in Europe (2010)

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Confindustria R&S Unioncamere survey

Germany, Italy and Spain

FY 2006

17

Medium-sized enterprises: a European phenomenon. but concentrated indeveloped areas - % of country totals; 2006

Germany

North Rhine-

Westphalia

Baden-

WürttembergBavaria

Total

West South South

No. of firms 25.7 20.3 17.5 63.5

Employees 26.9 22.9 17.2 67.0

Value-added 28.1 22.9 16.7 67.7

Italy

Lombardy Veneto Emilia-RomagnaTotal

Northwest Northeast Northeast

No. of firms 30.4 18.4 13.8 62.6

Employees 30.0 17.8 14.6 62.4

Value-added 32.5 17.3 15.4 65.2

Spain

Catalonia Valencia Basque CountryTotal

Northeast East North

No. of firms 28.4 13.8 12.3 54.5

Employees 30.2 13.7 13.1 57.0

Value-added 30.4 13.4 14.5 58.3

Medium-sized enterprises: a comparison between Germany, Italy and Spain

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Medium-sized enterprises: the impact of localization

(€’000) Germany Italy Spain

Productivity (net value-added per employee)

Large enterprise areas63.8 52.6 44.8

Industrial district areas- 52.8 45.4

Other areas58.3 53.9 51.0

Labor cost per employee

Large enterprise areas50.4 (79%) 38.8 (74%) 33.9 (76%)

Industrial district areas- 37.9 (72%) 33.3 (73%)

Other areas46.0 (79%) 39.5 (73%) 34.6 (68%)

2006 Survey by Confindustria - R&S Mediobanca - Unioncamere

Medium-sized enterprises: a comparison between Germany, Italy and Spain Section 8

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MSEs grouped by intensity of technology

31,139,9 39,6

26,3

30,2 33,4

33,9

26,0 19,3

8,73.9 7,7

Germany Italy Spain

Low Low-Medium Medium-High High

Based on OECD method - Turnover

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Medium-sized enterprises: productivity by size class

(€’000) Germany Italy Spain

Net value-added per employee 59.6 52.2 47.6

Employeesize classes

50 – 99 72.6 55.2 54.0

100 – 249 61.6 51.4 47.5

250 – 499 58.2 51.0 44.8

500 – 749 57.5 - -

2006 Survey by Confindustria - R&S Mediobanca - Unioncamere

Medium-sized enterprises: a comparison between Germany, Italy and Spain Section 8

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Productivity and wages: €’000 per employee

40,2 38,8

27,6

49,2

3936,9

41,4

33,931

51,2 51,8

40,4

62,5

54,4

47,4

52,3

46,2 46,9

DE IT SP DE IT SP DE IT SP

Wages Net Value Added

Mechanical engineering Personal & households goodsFood & drinks

Value added net of depreciation and amortization

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Medium-sized enterprises: profitability by size class

% Germany Italy Spain

Net operating margin as % of value-added 19.6 23.4 24.2

Employee size classes

50 – 99 29.6 26.3 31.1

100 – 249 21.6 22.2 24.6

250 – 499 18.2 23.0 20.0

500 – 749 17.2 - -

2006 Survey by Confindustria - R&S Mediobanca - Unioncamere

Medium-sized enterprises: a comparison between Germany, Italy and Spain

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MSEs: profits and taxation

Germany Spain ItalyItaly: major

manufacturing groups

NOM as % of value added 19.6% 24.2% 23.4% 9.6%

Germany = 100 100.0 123.5 119.4

ROE % 21.0 11.2 6.8

Germany = 100 100.0 53.1 31.8

Tax rate 25.8% 25.6% 48.3% 21.9%

Italian tax rate in 2010

• MSEs 35%

• Major groups 22%

NOM = net operating margin; ROE = Return on equity

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Composition (as %) of tangible capital invested

-21,1 -22,8 -34,6 -34,6-17,1 -17,5

-22,6 -14,8

-61,8 -59,7-42,8 -50,6

28,651,8

36,3 36,3

49,1

40,450,4 50,4

22,37,8 13,3 13,3

Cash Working capital Net fixed assets Tangible net worth MLT borrowings ST borrowings

Germany Spain Italy Italy2

Italy2 = assuming excess tax for last 7 years vs LE assigned to capital

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Rating

78,5

66,9

49,5

70,8

19

27,1

44,6

27,3

2.56,0 5,9

1.9

Germany Spain Italy Italy2

Investment grade Intermediate Fragile

Based on R&S-Unioncamere scoring model – Italy2 = assuming excess tax for last 7 years vs LE assigned to capital

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Stock market and MSEs

93,099,6 98,2

7,0

0.4 1.8

Germany Italy Spain

Not listed Listed

As % of all MSEs

27

Listed MSEs: yields

6,4

-49,7

-5,4

0,8

-61.5

-14.3

Germany Italy Spain

All listed industrials Listed MSEs

Return between 31/12/04 and 17/10/11

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Italian fourth capitalism:

Shares “system” organization, financial robustness, market leadership and family-

owned structure with German and Spanish firms. Close to large multinationals, mainly

non-Italian ones.

“Life-long project” for those who undertake it (1:5 Italian families), rooted in local

territory and relatively uninterested in financial wizardry. The stock market is the

exception not the rule, but can be useful for overcoming discontinuities in the

owership structure or leveraging acquisition opportunities.

Has taken over the role of main growth driver from large enterprise. Generates

benefits in local communities in which it is rooted, ensures innovation through

continuous flow of “new” men (500 manufacturing companies per week), thus

effectively supporting the production of new national wealth.

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Mediobanca Research Area

Milan – 10, Foro Buonaparte

www.mbres.it