Forum on Cross-Border Integration The production systems’ internationalisation (Main Conclusions)...

Forum on Cross-Border Integration

The production systems’ internationalisation(Main Conclusions)

iCON: Competitiveness of SMEs through Innovation and Collaborative Entrepreneurship

Corrado [email protected]

Gorizia/Gorica, 30.11.2010

The production systems’ internationalisationGeneral outline and Sources •Context of the internationalization of production systems in Europe, with a focus on Italy and Slovenia and their SMEs in the post-crisis scenario.

• Main characteristics and mode (trade, FDIs, sub-contracting agreements, technology cooperation agreements).

•Publications and databases: Eurostat, UNCTAD, DG Enterprise and Industry, EFIGE Project, Reprint-ICE

The production systems’ internationalisationWhat matters most in internationalization?1. Business characteristics: firm size, productivity, skill intensity, ability to innovate (FP7 EFIGE project; ongoing)

2. Industrial structure and size of the domestic market*

3. Policies and Reforms (regional, national and EU)

3 1: Policies and Reforms can modify internal barriers to internationalization. Internationalization – competitiveness - growth link is a “two-way with threshold” process. If it is not reached a sufficient level of resources and capabilities internationalization is not a realistic option.

*If Italy and Spain had the same industrial (sect. Empl.)/size structure of Germany they would register an increase in the export value of +37% and +24%.

The production systems’ internationalisationFirm size’s & Internationalised activities

EU-27 Micro (A)

Small

Medium(B)

A/B SMEs

Import 28% 39% 55% 2,0% 29%

Export 24% 38% 53% 2,2% 26%

Subcontractor 7% 11% 17% 2,4% 8%

Contractor 7% 12% 16% 2,3% 7%

Technological cooperation

7% 12% 22% 3,1% 7%

Foreign Investment 2 % 6% 16% 8% 2%

At least one activity 43% 58% 73% - 44%

Source: EIM/GDCC survey, Informest calculations

The production systems’ internationalisationMember States & Internationalised activities

LMS NC Benelux

CE BR

Import 24% 34% 38% 33% 43%

Export 23% 32% 33% 28% 19%

Subcontractor 6% 19% 10% 12% 17%

Contractor 6% 23% 11% 11% 11%

Technological cooperation

6% 17% 13% 10%

15%

Foreign Investment 2% 4% 5% 1% 2%


The production systems’ internationalisationMember States & geographical areas


Main Export areas Other EU Other Europe

North Africa Russia Middle

East North

America Italy 83% 34% 29% 14% 16% 29% LSM 76% 28% 16% 10% 15% 19% NC 83% 21% 2% 13% 6% 16% Benelux 78% 27% 14% 9% 14% 16% CE 91% 25% 0% 3% 1% 1% BR 73% 17% 3% 4% 14% 10% EU-15 76% 30% 19% 12% 17% 21% EU-12 83% 20% 1% 7% 3% 3% Total 76% 27% 14% 10% 14% 17%

Other

SouthCentral America

Other BRIC Japan Australia/New

Zealand Other Asia

Other Africa

Italy 11% 13% 10% 10% 10% 13% LSM 12% 9% 6% 9% 8% 11% NC 4% 9% 5% 9% 12% 7% Benelux 6% 8% 11% 7% 8% 14% CE 0% 2% 0% 0% 2% 0% BR 1% 2% 1% 1% 0% 1% UE-15 12% 10% 8% 10% 9% 14% UE-12 3% 1% 1% 0% 2% 1% Total 10% 9% 7% 8% 8% 11%

The production systems’ internationalisationMember States & geographical areas


Main Import areas EU Other

Europe North Africa Russia Middle

East North

America

Italy 90% 11% 5% 4% 5% 215 LSM 82% 17% 5% 2% 4% 20% NC 86% 18% 2% 3% 7% 25% Benelux 72% 15% 2% 2% 3% 22% CE 92% 14% 0% 4% 1% 7% BR 91% 11% 0% 5% 4% 13% UE-15 84% 14% 4% 2% 5% 21% UE-12 93% 13% 1% 13% 2% 12% Total 86% 14% 3% 2% 5% 19% Other

SouthCentral America

Other BRIC Japan Australia/New

Zealand Other Asia

Other Africa

Italy 3% 53% 3% 1% 11% 4% LSM 6% 15% 8% 3% 10% 5% NC 2% 17% 10% 5% 10% 3% Benelux 4% 13% 8% 3% 13% 6% CE 0% 8% 1% 0% 6% 0% BR 2% 6% 3% 1% 11% 0% UE-15 5% 16% 7% 2% 9% 5% UE-12 2% 6% 2% 1% 8% 1% Total 4% 14% 7% 2% 9% 4%

The production systems’ internationalisationMember States & Internal Barriers to Internationalisation(important and very important)

PPS HCIP QPS LQP SPS LBItaly 32% 24% 18% 23% 17% 14%LMS 29% 26% 24% 22% 22% 17%Nordic Countries 40% 24% 42% 25% 42% 31%Benelux 37% 21% 40% 33% 34% 28%Central Europe 31% 33% 25% 16% 25% 12%Rumania & Bulgaria 40% 34% 38% 36% 37% 20%Total 32% 28% 28% 26% 25% 20%


The production systems’ internationalisationMember States & External Barriers to Internationalisation in EU/EFTA (important in the relationship)


LCF LAPS LAI PWT LR in FM

Italy 60% 56% 55% 36% 22% LMS 52% 45% 42% 35% 33% Nordic Countries 41% 28% 31% 29% 32% Benelux 27% 21% 33% 28% 31% Central Europe 63% 45% 23% 20% 18% Rumania & Bulgaria 54% 33% 42% 28% 29% Total 54% 47% 44% 36% 30%

TTB in FM CD TTB in HM Other None Italy 26% 24% 18% 23% 8% LMS 26% 20% 20% 17% 9% Nordic Countries 23% 27% 17% 18% 6% Benelux 19% 27% 16% 13% 13% Central Europe 13% 16% 14% 11% 11% Rumania & Bulgaria 29% 18% 29% 19% 25% Total 26% 23% 23% 20% 9%

The production systems’ internationalisationMember States & External Barriers to Internationalisation extra EU/EFTA (important in the relationship)


LAI LCF LAPS PWT LR in FM Italy 56% 53% 51% 41% 33% LMS 42% 43% 38% 39% 38% NC 37% 31% 25% 36% 36% Benelux 28% 17% 20% 17% 28% CE 25% 19% 25% 22% 18% BR 31% 37% 15% 25% 26% Total 44% 44% 40% 39% 36%

TTB in FM TTB in HM CD Other None Italy 40% 28% 29% 21% 12% LMS 34% 28% 27% 17% 13% NC 31% 19% 32% 15% 8% Benelux 19% 15% 27% 10% 30% CE 22% 11% 11% 9% 27% BR 25% 22% 16% 15% 38% Total 35% 29% 28% 18% 14%

The production systems’ internationalisationSlovenia: a small Country with small firms? (Ciszewska-Mlinarič; Mlilnarič (2010))

Number Micro Small Medium Large

UE – 27 91,8% 6,9% 1,1% 0,2%

Slovenia 92,7% 5,7% 1,3% 0,3%

Italy 96,0% 3,2% 0,7% 0,1%

Added Value

Micro Small Medium Large

UE – 27 21,0% 18,9% 18,0% 42,1%

Slovenia 19,9% 18,6% 21,3% 40,2%

Italy 29,3% 18,7% 14,6% 37,4%SBA Fact Sheet 2009, based on Eurostat Structural Business Statistics

The production systems’ internationalisationInternationalisation is a 2-way process… but there are strong differences between inward/ outward FDIs both in Italy and Slovenia

Source: UNCTAD FDI/TNC (www.unctad.org/fdistatistics)

The production systems internationalisationThe most stringent constraint in the period March-September 2010

Lack of Demand

Competitionpressure

FinancingProduction

& Labor Costs

Micro 31% 15% 17% 10%Small 24% 15% 16% 13%Medium 27% 18% 11% 12%SMEs 28% 15% 15% 11%

Availability of skilled workers &

experienced managers

Regulation Issues Other

Don’t know /

No aswerMicro 9% 7% 8% 3%Small 15% 6% 8% 3%Medium 17% 6% 8% 3%SMEs 13% 7% 8% 3%

Source: ECB/EC

The production systems’ internationalisationMain Conclusions/Scenario

Depressed EU demand in 2011-2012 (restrictive fiscal cycle) & selective recovery of exports big and medium firms favored over small and micro more oriented towards the domestic market

Gross Added Value (% year growth)

2009 2010 2011

Big Enterprises -6,5% 1,1% 2,4%Medium Enterprises -6,4% 1,0% 2,2%Small Enterprises -5,7% 0,8% 1,0%Micro Enterprises -4,6% 0,9% 1,7%

Source: ECB/EC

The production systems’ internationalisationMain Conclusions/Scenario

• Crisis is not over for Fvg. The 2nd quarter: export is still contracting in Manzano district and Inox valley (Pordenone); recovery in Livenza, Maniago and San Daniele districts. • Slovenia. Slovenian large companies have reacted positively to the crisis (Splosna Plovba; Kolektor Group; Hidria; Iskra). Internationalization remain a strategic priority: sales promotion by the network of affiliates; defense and / or increase in markets diversification. But crisis also caused MBOs failures, building sector crisis.

The production systems internationalisationMain Conclusions/ Recommendation Single Market Completion •SMEs face the costs of participation in a single market still incomplete, particularly in services, "running out" their chances and resources for internationalization in the European area•Bottlenecks hinder cross-border activities, despite the legal existence of the Single Market, cause of : a) the failure of the interconnection of networks and b) the inconsistency in the rules of the market. Often companies are dealing with 27 different legal systems for the same transaction •While EU companies, especially SMEs, are faced with fragmentation and conflicting rules, the Chinese competitors, U.S. or Japanese use of the advantages conferred by their large domestic markets

The production systems InternationalisationMain Conclusions/Recommendation

Spreading the culture of cooperationSMEs underestimate the benefits of cooperation and overestimate the disadvantages (working together with a competitor). A cooperative attitude is necessary for build a business network internationalization strategy. Trust-building commitment common identity joint products and goalsGood practices: i) the Agreement on internationalisation between Udine Chamber of Commerce and FVG Saving Bank provides for a 15% discount if the internationalisation activities aggregate at least 3 enterprises.ii) the cooperative approach and the networking is supported by GZS (Slovenian Chamber of Commerce and Industry) promoting the creation of Slovenian Houses, meeting point of Slovenian business abroad.

The production systems InternationalisationMain Conclusions/Recommendation

Connection between medium and small / micro businesses

•Financial constraints prevent micro business to get proper information biased perception (barriers); incomplete information (public support; markets opportunities)

• Often medium business “go alone” in foreign markets, also in the Districts, without satellite business

Identification of functions / figures of Connection between medium and small / micro businesses a) sunk-costs sharing; b) internationalization potential stepping up

The production systems internationalisationMain Conclusions/Recommendation A single Agency for innovation and internationalisation? • 47% of internationally active SMEs in 2006-2008 introduced new products or services• 29% of internationally active SMEs in 2006-2008 introduced new products or services by themselves • Innovation is a strategy for SMEs planning for international activities. •In a “crisis time” 21,6% (Fvg enterprises) implemented planned investments and designed new ones, 57,5% implemented planned investments and just 20,9% stopped all investments in innovation. 12,6% enterprises had a R&D unit (5,5%), 19,8% rely on technical personnel skills while just 67,% do not implement R&D activities (Fondazione Nord Est Survey, February 2010)

The production systems InternationalisationA single Agency for innovation and internationalisation?Main Conclusions/Recommendation Internationally active SMEs

LMS NC Benelux

CE BR UE

SMEs introduced new products or services by themselves

63%58%

62% 41% 6% 61%

.. consequence of activities in foreign markets 19%

23%

33% 13% 20% 22 %

.. consequence of competition of foreign companies on home market

32%34%

33% 37%60%

35 %

… to access new markets in other countries

30% 30% 27% 25% 30

% 32 %Legenda: LMS=Large Member State; NC=Nordic Countries; CE= Central – Eastern EU with. Poland; BR= Bulgaria and Romania

The production systems’ InternationalisationA single Agency for innovation and internationalisation?Main Conclusions/RecommendationSMEs planning to become Internationally active will introduce new prod./serv.

X M FDI Tech.Coop.

Sub-Contr

.

Contr.

… to access new markets in other countries

56%54%

65%

48% 38% 46%

.. consequence of activities in foreign markets

21%38%

51% 35% 20% 29%

… consequence of competition foreign companies on home market

43% 60% 52% 53% 48% 44%


The production systems’ internationalisationPromoting Internationalisation Awareness and Knowledge

MT attitudetowards

internationalisation

MT internationalisatio

n knowledge

Level of SME internationalisatio

n

Prior international experience

Ext.& int. Barriers

Perception

Procedures; tech.

Aspects; organisational routines

..... MT: Manager or Management Team

Main Conclusions/Recommendation

The production systems’ internationalisationPromoting Internationalisation Awareness and KnowledgeAn example of good practiceThe Government program to promote the enterprises internationalization for the period 2010 – 2014 (Program Vlade RS za spodbujanje internacionalizacije podjetij za obdobje 2010 — 2014) includes: •Academy of internationalization (internationalization processes’ approaches & trends, strategies and operational tactics in different mkt, different approaches to research and mkt analysis, entry strategies, cultural diversity and corporate communications, selection of marketing strategies)•Individual assistance for specific needs of enterprises• Attraction of new FDI aimed at increasing the added value in specific areas and a decrease in barriers to FDI inflows• Training for international operations "First access to market / first internationalization"

The production systems’ InternationalisationPromoting Supporting Programme Awareness(awareness of PSP that could be used by enterprise)

Yes No Do not know /

no answer Micro 15% 84% 0% Small 20% 80% 1% Medium 28% 71% 2% SMEs 16% 84% 0%

Yes No Do not know /

no answer Italy 13% 87% LSM 15% 85% 0% NC 13% 87% 0% Benelux 35% 65% 0% CE 11% 88% 0% BR 15% 85% 0% Totale 16% 84% 0% Source: Survey 2009, Internationalisation on European SMEs EIM/GDCC

The production systems’ internationalisationSupporting programmes useThe picture presents light and shade effects……

But the “net effect” on Internationalisation is too low

Internationally active SMEs

Financial Public Support

Non-financial Public Support

Slovenia 4% (14-th position)

23% (1-st position)

Italy 9% (6-th position) 11% (6-th position)

UE 9% (47%-1%) 7% (23%-0%)Would not have go without international support

Slovenia 2% (av. CEE whitout Poland)

Italy 3%

UE 11%

Source: Survey 2009, Internationalisation on European SMEs EIM/GDCC

The production systems’ internationalisation

A preliminary step for a potential cross-border extension of production chains:

mapping of actual sectoral synergies

Comparative analysis (inter-regional; inter-sectoral) of the programming of Slovenia, Fvg, Carinthia

Complementary operational priorities joint

development strategies with financial coverage

Cross-border Operational Program (?)

Forum on Cross-Border Integration

Thank you for listening

Contacts: Corrado [email protected]: +039 0481 597 446

Projekt iCON sofinanciran v okviru Programa čezmejnega sodelovanja Slovenija-Italija 2007-2013 iz sredstev Evropskega sklada za regionalni razvoj in nacionalnih sredstev.

Progetto iCON finanziato nell'ambito del Programma per la Cooperazione Transfrontaliera Italia-Slovenia 2007-2013, dal Fondo europeo di sviluppo regionale e dai fondi nazionali.

Ministero dell'Economia e delle Finanze

Forum on Cross-Border Integration The production systems’ internationalisation (Main Conclusions)...

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