Forum on Cross-Border Integration

The production systems’ internationalisation

(Main Conclusions) iCON: Competitiveness of SMEs through Innovation and Collaborative Entrepreneurship Corrado Campobasso [email protected]

Gorizia/Gorica, 30.11.2010

The production systems’ internationalisation

General 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’ internationalisation

What 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’ internationalisation

Firm size’s & Internationalised activities EU-27 Micro (A) Small Medium (B) A/B SMEs

Import Export Subcontractor Contractor Technological cooperation Foreign Investment

At least one activity

Source: EIM/GDCC survey, Informest calculations 28% 24% 7% 7% 7% 2 %

43%

39% 38% 11% 12% 12% 6%

58%

55% 53% 17% 16% 22% 16%

73%

2,0% 2,2% 2,4% 2,3% 3,1% 8%

-

29% 26% 8% 7% 7% 2%

44%

The production systems’ internationalisation

Member States & Internationalised activities LMS NC Benelux CE BR

Import Export Subcontractor Contractor Technological cooperation Foreign Investment 24% 23% 6% 6% 6% 2% Source: EIM/GDCC survey, Informest calculations 34% 32% 19% 23% 17% 4% 38% 33% 10% 11% 13% 5% 33% 28% 12% 11%

10% 1%

43% 19% 17% 11% 15% 2%

The production systems’ internationalisation

Member States & geographical areas Main Export areas

Other EU Other Europe Italy LSM NC Benelux CE BR

EU-15 EU-12

Total Italy LSM NC Benelux CE BR

UE-15 UE-12

Total 83% 76% 83% 78% 91% 73%

76% 83%

76% Other SouthCentral America 11% 12% 4% 6% 0% 1%

12% 3%

10% 34% 28% 21% 27% 25% 17%

30% 20%

27% Other BRIC 13% 9% 9% 8% 2% 2%

10% 1%

9% Source: EIM/GDCC survey, Informest calculations North Africa 29% 16% 2% 14% 0% 3%

19% 1%

14% Japan 10% 6% 5% 11% 0% 1%

8% 1%

7% Russia 14% 10% 13% 9% 3% 4%

12% 7%

10% Australia/New Zealand 10% 9% 9% 7% 0% 1%

10% 0%

8% Middle East 16% 15% 6% 14% 1% 14%

17% 3%

14% Other Asia 10% 8% 12% 8% 2% 0%

9% 2%

8% North America 29% 19% 16% 16% 1% 10%

21% 3%

17% Other Africa 13% 11% 7% 14% 0% 1%

14% 1%

11%

The production systems’ internationalisation

Member States & geographical areas

Main Import areas EU Other Europe North Africa Italy LSM NC Benelux CE BR

UE-15 UE-12

Total Italy LSM NC Benelux CE BR

UE-15 UE-12

Total 90% 82% 86% 72% 92% 91%

84% 93%

86% Other SouthCentral America 3% 6% 2% 4% 0% 2%

5% 2%

4% 11% 17% 18% 15% 14% 11%

14% 13%

14% Other BRIC 53% 15% 17% 13% 8% 6%

16% 6%

14% Japan Source: EIM/GDCC survey, Informest calculations 5% 5% 2% 2% 0% 0%

4% 1%

3% 3% 8% 10% 8% 1% 3%

7% 2%

7% Russia 4% 2% 3% 2% 4% 5%

2% 13%

2% Aust ralia/New Zealand 1% 3% 5% 3% 0% 1%

2% 1%

2% Middle East 5% 4% 7% 3% 1% 4%

5% 2%

5% Other Asia 11% 10% 10% 13% 6% 11%

9% 8%

9% North America 215 20% 25% 22% 7% 13%

21% 12%

19% Other Africa 4% 5% 3% 6% 0% 0%

5% 1%

4%

The production systems’ internationalisation

Member States & Internal Barriers to Internationalisation

(important and very important)

Italy LMS Nordic Countries Benelux Central Europe Rumania & Bulgaria Total

PPS 32%

29% 40% 37%

31% 40%

32% Source: EIM/GDCC survey, Informest calculations

HCIP 24%

26% 24% 21%

33%

34% 28%

QPS

18% 24% 42% 40% 25%

38%

28%

LQP

23% 22% 25% 33% 16% 36% 26%

SPS

17% 22% 42% 34% 25% 37% 25%

LB

14% 17% 31% 28% 12% 20% 20%

The production systems’ internationalisation

Member States & External Barriers to Internationalisation in EU/EFTA

(important in the relationship)

Italy LM S Nordic Countries Benelux Central Europe Rumania & Bulgaria Total Italy LM S Nordic Countries Benelux Central Europe Rumania & Bulgaria Total LCF

60%

52% 41% 27%

63%

54% 54% TTB in FM 26% 26% 23% 19% 13% 29% 26% Source: EIM/GDCC survey, Informest calculations CD 24% 20% 27% 27% 16% 18% 23% LAPS

56%

45% 28% 21%

45%

33% 47% LAI

55%

42% 31% 33%

23%

42% 44% TTB in HM 18% 20% 17% 16% 14% 29% 23% PWT 36% 35% 29% 28% 20% 28% 36% Other 23% 17% 18% 13% 11% 19% 20% LR in FM 22% 33% 32% 31% 18% 29% 30% None 8% 9% 6% 13% 11% 25% 9%

The production systems’ internationalisation

Member States & External Barriers to Internationalisation extra EU/EFTA

(important in the relationship)

Italy LMS NC Benelux CE BR

Total

Italy LMS NC Benelux CE BR

Total

LAI

56%

42% 37% 28% 25% 31%

44%

TTB in FM 40% 34% 31% 19% 22% 25%

35%

LCF 53% 43% 31% 17% 19% 37%

44%

TTB in HM 28% 28% 19% 15% 11% 22%

29%

Source: EIM/GDCC survey, Informest calculations LAPS 51% 38% 25% 20% 25% 15%

40%

CD 29% 27% 32% 27% 11% 16%

28%

PWT 41% 39% 36% 17% 22% 25%

39%

Other 21% 17% 15% 10% 9% 15%

18%

LR in FM 33% 38% 36% 28% 18% 26%

36%

None 12% 13% 8% 30% 27% 38%

14%

The production systems’ internationalisation

Slovenia: a small Country with small firms? (Ciszewska-Mlinarič; Mlilnarič (2010))

Number

UE – 27 Slovenia Italy

Added Value

UE – 27 Slovenia Italy

Micro

91,8% 92,7% 96,0%

Micro

21,0% 19,9% 29,3%

Small

6,9%

5,7%

3,2%

Small

18,9% 18,6% 18,7%

Medium

1,1%

1,3%

0,7%

Medium

18,0%

21,3%

14,6%

Large

0,2%

0,3%

0,1%

Large

42,1% 40,2% 37,4% SBA Fact Sheet 2009, based on Eurostat Structural Business Statistics

T

he production systems’ internationalisation

Internationalisation is a 2-way process… but there are strong differences between inward/ outward FDIs both in Italy and Slovenia

UE Italy Slovenia UE Italy Slovenia 1990

11,3 5,3 ..

10,6% 5,3% ..

1995

14,5 9,4 3,5 12,5% 5,8% 12,6%

2000

41,4 16,4 4,5 27,5% 11,0% 17,0%

2005

41,9 16,5 9,2 34,1% 12,6% 20,2%

2009

55,0 27,4 XVIII/L 18,0 XX/T 45,5% 18,6% 31,4% Source: UNCTAD FDI/TNC (www.unctad.org/fdistatistics)

The production systems internationalisation

The most stringent constraint in the period March-September 2010

Lack of Demand Competition pressure Financing Production & Labor Costs

Micro Small Medium SMEs Micro Small Medium SMEs Source: ECB/EC 31% 24% 27%

28% Availability of skilled workers & experienced managers

9% 15% 17%

13%

15% 15% 18%

15% Regulation Issues

7% 6% 6%

7%

17% 16% 11%

15% Other

8% 8% 8%

8%

10% 13% 12%

11% Don’t know / No aswer

3% 3% 3%

3%

The production systems’ internationalisation

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

2,4% 2,2%

1,0%

1,7%

Source: ECB/EC

The production systems’ internationalisation

Main Conclusions/Scenario • Crisis is not over for Fvg. The 2 nd quarter: export is still contracting in Daniele districts.

Manzano district and Inox valley (Pordenone); recovery in Livenza, Maniago and San • 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 internationalisation

Main 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 Internationalisation

Main Conclusions/Recommendation

Spreading the culture of cooperation

SMEs 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 goals

Good 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 Internationalisation

Main 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 internationalisation

Main 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 Internationalisation

A 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

.. consequence of activi- ties in foreign markets .. consequence of competition of foreign companies on home market … to access new markets in other countries 63% 19% 32% 30% 58% 23% 34% 30% 62% 33% 33% 27% 41% 13%

37%

25% 6% 20%

60%

30 % 61% 22 % 35 % 32 % Legenda: LMS=Large Member State; NC=Nordic Countries; CE= Central – Eastern EU with. Poland; BR= Bulgaria and Romania

The production systems’ Internationalisation

A single Agency for innovation and internationalisation?

Main Conclusions/Recommendation

SMEs planning to become Internationally active will introduce new prod./serv.

… to access new markets in other countries .. consequence of activi- ties in foreign markets

X 56%

21%

M

54% 38%

FDI 65%

51%

Tech.

Coop.

48% 35%

Sub Contr.

38% 20%

Contr.

46% 29% … consequence of com- petition foreign companies on home

market

43%

60%

Source: EIM/GDCC survey, Informest calculations 52%

53% 48%

44%

The production systems’ internationalisation

Main Conclusions/Recommendation

Promoting Internationalisation Awareness and Knowledge

MT attitude towards internationalisation Ext.& int. Barriers Perception MT internationalisation knowledge Procedures; tech. Aspects; organisational routines Level of SME internationalisation Prior international experience .....

MT: Manager or Management Team

The production systems’ internationalisation

Promoting Internationalisation Awareness and Knowledge

An example of good practice The Government program to promote the enterprises internationalization for the period 2010 – 2014 2010 — 2014) includes

: (Program Vlade RS za spodbujanje internacionalizacije podjetij za obdobje

•

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 internationalization"  "First access to market / first

The production systems’ Internationalisation

Promoting Supporting Programme Awareness

(awareness of PSP that could be used by enterprise)

Yes

Micro Small Medium

SMEs

15% 20% 28%

16%

Italy LSM NC Benelux CE BR Totale

Yes

13% 15% 13% 35% 11% 15% 16% Source: Survey 2009, Internationalisation on European SMEs EIM/GDCC

No

84% 80% 71%

84% No

87% 85% 87% 65% 88% 85% 84%

Do not know / no answer

0% 1% 2%

0% Do not know / no answer

0% 0% 0% 0% 0% 0%

The production systems’ internationalisation

Supporting programmes use

The picture presents light and shade effects… …

SMEs Financial Public Support Non-financial Public Support

Slovenia Italy UE 4% (14-th position) 9% (6-th position) 9% (47%-1%) 23% (1-st position) 11% (6-th position) 7% (23%-0%)

But the “net effect” on Internationalisation is too low

Would not have go without international support

Slovenia Italy UE 2% (av. CEE whitout Poland) 3% 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 Campobasso [email protected]

Tel: +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