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sinergie n. 58/02

NETWORKS AND NEW COMMUNICATIONTECHNOLOGIES IN INDUSTRIAL DISTRICTS OF

NORTHEAST ITALY

Maria Chiarvesio*Stefano Micelli**

Abstract

The paper discusses the evolution of Italian local production systems as well as solutionsand models of the diffusion of information and communication technologies in them. Thearticle is based on an in-depth empirical analysis of a number of industrial districts in thenorthern-east Italy. The goal is twofold: on the one side, to study the diffusion oftechnological innovation among SMEs; on the other side, to consider policies that can

support the diffusion of ICTs in local economic systems.

Key words: industrial districts, information and communication technologies, ICTs

1. Introduction: reasons for an empirical study

No one anymore discusses the fact that new information and communicationtechnologies have revolutionised the economic system and the way firms organisetheir business (Kelly 1998; Tapscott, Lowy, Ticoll 1998). Still less clear are theadvantages that can be exploited by SMEs of industrial districts in order to enhancetheir competitive position.

SMEs have been the matter of study of American literature that since the

beginning of the technological revolution has been focused on the strategic impactof network technologies. But the interest has been mainly addressed to theconsequences produced by the evolution and reorganisation of big corporations: de-verticalization processes, rise of network organisations, outsourcing in search forflexibility increased the strategic role of small and medium enterprises andsupported their proliferation (Malone and Rockart 1991; Brynjolfsson, Malone,Gurbaxani, Kambil 1994; Malone, Laubacher 1997).

Italian scientific literature, on the other hand, has studied the same problemwithin a more general program of research about globalisation and tools that canimprove the competitiveness of small business and local systems (Pyke,

* University of Udine and TeDIS Center - Venice International Universitye-mail: [email protected]

** University of Padova and TeDIS Center - Venice International Universitye-mail: [email protected]

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NETWORKS AND NEW COMMUNICATION TECHNOLOGIES158

Segenberger, Becattini, 1990; Rullani 1995; Cor, Grandinetti 1999).SMEs and industrial districts, to an even greater extent than big firms, can find

advantages in the opportunities offered by new technologies. They help reinforce thebusiness model and the specific organisation of economic relations that are at the

core of the competitiveness of local production systems. Given that, field studies areneeded 1) to clarify the role of small businesses in the new economy, and 2) tounderstand how SMEs and local systems can increase efficiency and open theirboundaries in order to increase the quantity and quality of resources andcompetencies to create value and to develop new kinds of competitive advantagesthat can be applied in a global economic scenario (Chiarvesio, 1998).

The success of industrial districts comes from an organisational and productionmodel based on a network of flexible relationships strictly linked to the localeconomic and social context. The local context, where work and social life overlap,is the place where the collective identity is produced and reproduced, mutual trust isreinforced, and a flexible and effective network of economic and cognitive relations,that supports the knowledge creation and diffusion processes, is strengthened. Theserelational features of industrial districts led to a deep division of labour within localboundaries in favour of the specialisation and qualification of specific localexpertise. At the same time, they allowed enterprises to maintain a high level offlexibility in the market.

The distinctiveness of industrial districts has been undervalued for a long time,perhaps overshadowed by the one best way myth. However, when the marketconditions that allowed the mass production corporation to grow and dominatechanged, local systems demonstrated their strategic value. In a condition ofconsumer evolution and market segmentation, political and economic instability andturbulence, the flexibility and specialisation of SMEs systems (working in a contextof tight interaction and collaboration with the value chain) were the way to success.The best example is the economic success of Northeast Italy; an economic systemcharacterised by a high concentration of industrial districts.

Nevertheless, increasing globalisation and growing competitive pressure areissuing new challenges to industrial districts: they require more efficiency from localsystems and individual firms on one side, and disclose the opportunity ofaugmenting local knowledge and expertise with specialisation and know-howcoming from the global cognitive system, on the other. Therefore, industrial districtsneed to evolve in order to have a more efficient local network and to open thatnetwork to a wider system of knowledge production and exchange.

The transition from local to global competition (Becattini, Rullani 1993), in ouropinion, cannot nowadays be separated from a wide and diffused investment ininformation and communication technologies. On the one hand, networktechnologies allow for the reduction of costs and the improvement of firmsperformance. Erp systems increase effectiveness and quality in the management ofdata and information, for instance; shared Cad systems or knowledge managementtools give the possibility to offer a wider variety of products with higher quality. Onthe other hand, we do not believe that a global network can actually be created

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MARIA CHIARVESIO - STEFANO MICELLI 159

without the support of a technological network. The latter would not only be asolution for challenges that the market is issuing to industrial districts, but also anopportunity to enhance the district model, emphasising local expertise and takingadvantage of the best of global economy.

We think that this is a path, which should be taken by every firm, and localsystem that aims at maintaining competitiveness; nevertheless, solutions and modelsof the diffusion of ICTs in local systems are not clear and should be analysed. Forthis purpose the TeDIS Center1 launched an annual survey to study in-depth thebusiness and organisational model of industrial districts, its evolution (in terms ofoutsourcing, globalisation, types of relations etc.), and the diffusion of ICTs. Thesurvey has three main objectives:

a. to study the consistency between technological and economic variables of theindustrial districts development model,

b. to analyse the diffusion of technological innovation among SMEs,c. to consider policies that can support the diffusion of ICTs in local economic

systems.

This methodology allows for the analysis of the diffusion of ICTs in connectionwith the real needs of SMEs and their strategic position in the value chain. The finalresult will be a system of useful information for the establishment of consistencybetween demand and supply of technologies and the development of an actionpolicy that supports innovation and evolution of SMEs.

2. Main results of the survey

The first edition of the survey focused on the 12 most important industrialdistricts in Northeast Italy, which belong to the main industries of the Italian

economy: home furnishings, machinery, and fashion (fig. 1). In this area tworesearches have already been done, in 1999 and 2000, on the same sample of firmsso as to evaluate the real innovation process going on. This paper will discussevidences coming out from these inquiries, even if the Survey has just extended toother 21 industrial districts from Toscana, Lombardia, Emilia Romagna, Piemonte,Marche, for a total of 1009 firms interviewed.

In the Northeast 315 companies were interviewed out of a total of 544 firms witha turnover higher than 10 billion lire in 1997; 275 answered also to the second run2.

1 TeDIS is the Center for Studies on Technologies in Distributed Intelligence Systems of theVenice International University.

2 The data discussed in the paper refer only to the 275 firms that have participated to boththe editions of the Survey.

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The sample includes all the leader firms3.

Fig. 1: The map of industrial districts studied in Northeast Italy

The sample is composed of typical medium-sized, industrial district firms: themajority of firms have a turnover between 10-50 billion lire (fig. 2) and theiremployees number between 50-199. They produce mostly finished products for the

market (60,7%), finished products for other manufacturers (19,6%), semi-manufactured products and components (18,2%), and a small part works on behalfof other firms.

From the organisational point of view, the main results of our survey confirmthat the business model of industrial districts is based on an exploded value chainco-ordinated by network relations. SMEs reveal a high level of outsourcing ofoperations, but also of other activities, like design or R&D (almost all firmsexternalise at least some of the value chain activities). At the moment the localsystem is still very important as a source of specialisation, but the network isopening up to encompass the rest of Italy and other countries.

3 A leader firm of local system is not necessarily a big firm, but a company characterized bystrong belief in innovation that influences the whole industrial district (Cor, Grandinetti1999; Lorenzoni 1992).

"

"

"

"

"

"

"

"

"

" "

"

""

"

Rovigo

Padova

Venezia

Treviso

Pordenone

Trieste

Gorizia

Udine

Belluno

Verona

Vicenza

Trieste

ChairManzano

FurnitureLivenza

FurnitureQuartier del Piave

Artistic glassMurano

Inox Valley

LeatherArzignano

Sport SystemMontebelluna

GlassesBelluno

TextileSchio-Thiene-

Valdagno

MechanicalSchio-T hiene

ElectromechanicalMontecchio

ShoesBrenta

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Fig. 2: Firms per class of turnover (billions of lire)

Looking at outsourcing processes, we see that 91,3% of firms havesubcontractors, even if only 50% have strategic partnerships with them. The data isinteresting concerning the localisation of the value chain: we can see a cleartendency towards internationalisation, but a large part of the companies in everyindustry says that their strategic subcontractors are still in the local system (fig. 3).

Fig. 3: Firms per localisation of strategic subcontractors

On the other side of the value chain, industrial district SMEs have a strongorientation towards export (only 3,1% of firms do not export and 42,5% of themexport more than 50% of their turnover). In order to reach national and internationalmarkets, they rely on a wide network of sales agents, commercial infrastructure andpartnerships, with increasing attention to types of distribution that allow for a betterand more direct control of information and knowledge of final markets.

In summary, SMEs confirm to have an innovative business model based on

extensive outsourcing of activities, and therefore they arenetworks. If we focus onsales, industrial districts are internationalised; but when we look at the geographic

region12,0%

Italy14,4%

abroad12,0%

industrial

district61,6%

up to 2551,7%

25,1-5021,8%

50,1-1007,6%

more than 1009,1%

no answer9,8%

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distribution of production partners they appear to be still strictly rooted in the localterritory: the local system is still a strategic resource as supplier of specializedknowledge and competencies.

3. The diffusion of Information and Communication Technologies

The survey on the diffusion of ICTs reveals that thesenetworks, that one yearago were scarcely invested by new technologies, are now showing a growinginterest towards tools that can innovate the traditional co-ordination andcommunication model. The data collected show that SMEs only partially use newtechnologies, but in some cases these are substituting meetings or telephone as firstcommunication channel. Especially in the case of the commercial network, at leaste-mail is used almost by every firm, with a clear evolution with respect to the lastyear (fig. 4). Even if the prevailing communication model of industrial district SMEsis still traditional, relying on technologies like telephone, fax and face-to-facemeeting, new technologies are playing an interesting role, not more marginal asbefore.

Fig. 4: Use of e-mail with the commercial network

What about the technological infrastructure of SMEs? The technological

potential of a SME depends on two orders of technologies: 1) the tools that allow abetter management of information (office automation) and 2) the network

highmedium

lownone

2000

1999

14,4

20,5

29,7

35,4

25,6

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0,0

10,0

20,0

30,0

40,0

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infrastructure that connects internal offices, employees and the firm as a whole withexternal partners. The first kind of technology is well diffused among SMEs: morethan 40% of companies have a ratio of PCs/employees higher than 100%; this meansthat every employee has at least one PC and that there are personal computers also

outside of the administrative offices. Local Area Networks are common as well,diffused in almost all the firms.

If we focus on network technologies, we observe extremely different patterns ofdiffusion of new technologies: some tools are part of the technological infrastructureof the SME, but others seem to be still far from the strategic plans of entrepreneurs.

New technologies can be divided into two groups: applications that mainlysupport structured communications (that is, formal communication) based on clearprocedures and standards (ERP Enterprise Resource Planning, EDI ElectronicData Interchange, Corporate Banking applications) and other tools that support moreflexible dialogues, based on natural language (e-mail, videoconferencing, groupwareapplications, Web site).

Applications for structured communications

ERP systems aim at producing maximum efficiency in internal and externalprocesses through an integrated management of all information (administrative,commercial, and productive). They have been adopted by 21,5% of companiesinterviewed, with a higher frequency in the mechanical industry (40,9%). Last yearthe percentage of diffusion was only 9,8%: the opportunity to change theinformation system because of the year 2000 or the Euro could be an explanation ofthis performance, but it is also the expression of a more general trend of upgradingmostly stimulated by big companies clients of SMEs.

TheEDI has been one of the first network technologies used to manage relationsin the value chain in order to gain efficiency in sales transactions. Some projectshave been developed to introduce EDI systems in industrial districts (e.g.: the textiledistrict of Prato and eyeglass producers of Belluno); nevertheless they are notdiffused and their adoption is mainly reserved to networks of subcontractors of bigcorporations. Our data confirm this statement: only 12,4% of firms use an EDIapplication, with predominance in the mechanical industry.

Communications with banks are usually frequent and standardised. They haveproduced a rapid diffusion of tools to make transactions more efficient, even in thesmallest firms. Corporate Banking applications have been adopted by 82,5% ofSMEs interviewed, without visible differences among industries.

Applications for unstructured communicationsElectronic mail is part of the communication infrastructure of industrial districts

SMEs: 97,1% of firms report that they have it and its rapidly diffusing within theorganisation, available to every office in order to improve internal and externalcommunications. Only 9,8% of SMEs have a videoconferencing system, withpredominance in the fashion industry (15,4%). Groupware applications do notattract investors in SMEs either: 15,6% of them have a discussion database or a

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workflow application, with a clear predominance of the latter type of tools. Incontrast, almost every firm has a Web site, at least in the form of a static page. Threeyears ago 24,0% of SMEs in Northeast Italy had a Web site; now 82,5% of medium-sized corporations have an Internet presence.

Electronic commerce is almost totally ignored: only few out of all of the SMEscontacted sell their products through the Web. SMEs of industrial districts havealways revealed a weakness in their ability to control final markets; this weaknessled to the creation of long distribution channels that separated the firm from itsmarkets and customers, reducing the possibility of collecting information andrapidly reacting to changing demand. E-commerce could be a way to at leastpartially avoid this problem. But SMEs do not think that the Web is suitable for thespecificity of their business. The reasons that explain why they refrain frominvesting in e-commerce solutions are not costs or security problems, but the factthat e-commerce solutions are not adequate to the firm product/processcharacteristics (fig. 5). On the one hand, these data could show that SMEs, usuallyhighly innovative in the production area, have a low interest for experimentation inthis field. On the other hand, they reveal a gap between demand and offer oftechnological solutions.

In fact, e-commerce applications vendors offer to SMEs solutions developed forthe big corporation and resized to be adequate to the investment capacity of smallbusinesses; this is the typical Amazon model of e-commerce, a model based onthe existence of standard products sold through a catalogue. This model of on linesales is not consistent with the business model of Italian SMEs. The success ofindustrial districts is related to flexibility and personalisation of products in closecommunication and collaboration with the customer. A product is usually the resultof the interaction between client and supplier aimed at specifying e generic offer orcompetence into a specific good co-designed in order to satisfy the needs of thecustomer. This relational and productive ability is one of the most important sourceof competitive advantage of industrial districts, that allows SMEs to maintain animportant role on the international market in spite of the higher efficiency of bigcorporations. Therefore SMEs will not consider seriously an investment in e-commerce solutions until they will be able to support also collaboration, besides thetransaction of standard goods.

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Main evidences and suggestions for policy action

Fig. 5: Why firms do not invest in electronic commerce?

Our surveys on the diffusion of new technologies in the main industrial districtsof Northeast Italy and the comparison with the business model of SMEs suggest thatsome policy actions should be undertaken in order to create a consistency betweenSMEs and technology evolution.

The main results of the surveys can be summarised in some points. The firstimportant evidence is that the communication infrastructure of industrial districts isstill not adequate to the complexity of business relations developed by localsystems. Nevertheless, the comparison between 1999 and 2000 observations showsthat the interest in new technologies is growing (fig. 6) and is involving theNortheast as a system, without strong differences among industries or differentfirms dimensions.

56,9

9,0

7,1

6,7

3,3

1,9

7,4

8,1

5,2

1,5

20,8

48,5

18,5

0,0 10,0 20,0 30,0 40,0 50,0 60,0

inadequacy to firm

process/products

evaluation of projects

frictions with the

trade network

projects in progress

lack of internal

resources

unsecure

transactions

high costs1999

2000

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Fig. 6: Diffusion of network technologies among main firms of industrial districts ofNortheast Italy

Concerning the model of diffusion, previous analysis and fig. 6 clearly show thatit still remains not homogeneous: a group of technologies is characterised by apercentage of diffusion higher than 80% (e-mail, Web site, corporate banking); theother one by a very low percentage of adoption (groupware, Erp, Edi,videoconferencing), especially when compared with big corporations. Thisbehaviour indicates that SMEs prefer to invest in what could be called commoditytechnologies: simple, cheap, easy-to-use without too much training, flexible and soldin standard packages; for example, e-mail and Internet sites are the most known andused technologies among firms. On the other hand small businesses still show a lowinterest for more innovative but complex solutions, that require clear strategies andprojects, as in the case of Erp, groupware or Edi.

At a first glance this model of diffusion could be interpreted as a kind ofweakness of industrial districts, usually great innovators in production processes butnow not able to understand the potential benefits of new communicationtechnologies. We have also to consider that traditional technologies still enjoy animportant success. Meetings and telephone are flexible and informal tools that allowfor direct contact with business partners and reinforce mutual trust; face-to-facecommunication sustains collaborative relations and contributes to the reliability of

the system without formal agreements. For a long time this has been thecommunication model of industrial districts and their source of flexibility. For this

97,1

82,5

82,5

21,5

15,6

12,4

9,8

0,4

78,8

73,8

9,8

12,4

13,5

10,5

0,4

86,971,1

83,3

0 20 40 60 80 100 120

e-mail

ISDN

Corporate Banking

Web site

Erp

groupware

Edi

videoconferencing

e.commerce 1999

2000

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reason, firms are not totally sure that more formalised communications mediated bynetwork tools would be more effective, and these technologies are sometimes stillseen as dangerous tools that can stiffen extremely flexible relations.

A more in depth analysis reveals that this model of adoption of ICTs could be the

result of a strategy maybe not clearly deliberate, but directed to select technologiesthemost appropriateto the specific business and relational model of SMEs, in orderto enhance the source of competitiveness specific of Italian local systems. From thisperspective, the most suitable technologies are those that allow to reinforce relationsand communications within the value chain; the goal of SMEs is not to structurerelations, but to innovate the interaction with the market through flexiblecommunication tools such as e-mail and the Web site. Particularly the latter will be aplatform for a new kind of relations with the value chain because it is considered asan application aimed at giving new, direct and wider information to final customers,agents, distribution network and at receiving more inputs from the market (feedback,suggestions). Besides, the attention towards the creation of interactive environmentsis rapidly increasing.

Fig. 7 and 8 show that even if today SMEs use the Web site mainly as a staticmedium, they will invest on it overall in order to interact with the customer, obtaininformation from the market and specify the offer of the firm through a moredetailed catalogue. The Web site as a sale tool is perceived as less important.

Fig. 7: Present functions of the Web site

99,1

79,8

48,5

12,3

9,2

0,4

0 10 20 30 40 50 60 70 80 90 100

information about the firm

information about the

product

catalogue

information from

customers

customers support

e.commerce

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Fig. 8: Future functions of the Web site

Now this is noteworthy because, after years of emphasis on the Web as a newmarket for more efficient transactions (Malone, Y ates, Benjamin, 1987), alsobusiness American literature is finding out again the value of ICTs as an open andwide collaborative environment. In this context industrial districts, that traditionallyhave created value through interaction and collaboration, could be a laboratory forinnovative applications of ICTs.

In this context, the new challenge will be to stimulate the actual process ofadoption of new technologies in the local network in order to sustain globalizingprocesses, on one hand. On the other hand, a policy action should be undertaken tocreate conditions favourable to innovation and a pattern for the diffusion and

development of technology consistent with needs and specific features of SMEs interms of business and social relations and knowledge creation processes. It isimportant to develop projects aimed at supporting the technological diffusion, suchas education and training of specialised human resources and services. But it is alsofundamental to invest in order to reduce the gap between needs of SMEs andnetwork solutions offered by the market.

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BRYNJOLFFSON E., MALONE T.W., GURBAXANI V., KAMBIL A., Does Information

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31,3

28,6

21,7

17,6

10,6

3,1

0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0

customers support

information from

customers

e.commerce

catalogue

information aboutproduct

information about the

firm

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