Written by Marco Bellandi and Annalisa Caloffi.

A research program begun more than 10 years ago allowed us to look more closely at the relationship between Italy and China. During the course of the 1990s and early 2000s, the two countries competed for first position in world exports of a number of products, including textiles, clothing, shoes, leather goods, ceramics and light mechanical devices.

It seems hard to imagine a direct comparison between the two countries. On the one hand, China is an extremely large country, with a fast growing emerging economy. It is a symbol of large-scale production and home to large companies and headquarters of major multinationals operating in the manufacturing sectors, usually exploiting access to cheap labour and other advantages on factor costs. On the other hand, Italy is a medium sized country with a mature economy characterized by high production costs. Italy is the symbol of the fragmentation of production and flexible organization and is home to micro and small enterprises, often agglomerated in industrial districts, with low rates of inward or outward foreign direct investments. Typical “made in Italy” goods are produced in small series and are highly customized.

Such fundamental diversities notwithstanding, a detailed analysis of several Chinese locations in Guangdong and around ​​Shanghai, allowed us to identify a variety of local development paths that go beyond stereotypes. In addition to the areas strongly characterized by the presence of large state-owned enterprises in transformation, and clusters centred around the presence of one or more branches of foreign multinationals, we found cases of “endogenous” agglomerations of Chinese-owned SMEs, which specialize in the production of a particular product. Such clusters have given a new lease of life to pre-existing local craft traditions, which survived thanks to township and village enterprises. Many are related to specialized markets local to a particular area, selling a single typology of products, and attracting buyers from all over China and abroad. There are similarities with conditions or functions usually found in Italian industrial districts. Furthermore, clusters developing high technology goods have been growing in the surroundings of the main universities of the country. In such clusters, foreign firms are present but are not necessarily dominant, given the strength of local companies, large former state companies as well as small university spin-offs. This type of cluster is similar to many of the innovative clusters that are located around the main centres of research around the world.

Our reflections taught us that the competitive threat brought by China was not restricted to standardised low-to-medium quality goods, but also extended to goods characterised by variety and a certain degree of customisation, i.e. to some parts of the “made in Italy” repertoire. The competitive threat from China to “made in Italy” is significant, but there are also opportunities.

“China is not for everyone” is the title of an Italian book written years ago by a great connoisseur of the two countries, Maria Weber. This book reminded Italian entrepreneurs that China was offering great productive and market opportunities, but, in order to produce and sell in China, large investments were needed and usually they were not within the reach of stand-alone small enterprises moving from Italy. However, in some cases, something that goes beyond the possibilities of the individual small firm may instead be feasible for teams or networks of firms coming from a same industrial district. In this latter context, where productive, innovative and social exchanges are common practice, firms can pool resources to make investments that bring a collective benefit. The history of Italian industrial districts is studded with examples where large-scale investments (e.g. in infrastructures), which would be too expensive for an individual firm, are realized thanks to the joint contribution of several firm, often with the help of public coordination and co-funding. The same holds is for strategies of production and sale in China. Consider for example the need to share part of the investment with local Chinese firms. Appropriate partners have to be found, which implies costly and uncertain scouting, selection and trials. However the presence of forms of industrial development in China resembling the Italian industrial districts has given direction to some experiences of international matching: the extent of diversity among international partners is potentially reduced when they share at least part of the approaches to industrial organization (e.g. importance of small firms and clusters) and to business culture (e.g. role of business networks).

During our previous research we have identified some examples of relationships suggesting opportunities of fruitful internationalization to China for Italian industrial districts and some of their SMEs. One such example was supplied by the Italian tanning district of Santa Croce sull’Arno in Tuscany, which is the main production centre of Italian leather. This district includes around 600 SMEs that produce high quality dressed hide and leather for clothing, shoes and bags, mostly for famous Italian fashion brands. The local firms are grouped in a business association that created a huge centralised purification plant in the late 1970s. The activity of the Association has extended to the development of various other plants and collateral consortia which manage the recycling of tanning by-products. In the 1990s, the Association received some public funding for building relationships with a similar Association operating in a Chinese tannery district in Henan and exploring the opportunity of Chinese-Italian industrial partnerships. Starting from this first experience, the Italian association has continued to build relationships with Chinese institutions in order to sell its expertise in the field of purification and to pave the way for the internationalization process of the district.

Also thanks to the support of the Chinese government for this type of green investments, other projects have been implemented by other Italian districts. An eco Sino-Italian industrial district has been planned in the city of Ningbo, thanks to the collaboration of the sister city Florence. The district will gather companies specializing in the management of solid waste, waste oil disposal, technologies for clean coal.

Another example of strong trans-national relationships is represented by the clusters localized in the twin towns of Prato (Tuscany, Italy) and Wenzhou (Zhejiang, China). The former is home of a famous industrial district specialized in textiles and since some decades it hosts a large cluster of Chinese-owned SMEs specialized in clothing. Prato is very particular on the European scene. It hosts one of the largest Chinese communities in Europe, and the vast majority of immigrants come from the single city of Wenzhou. Unlike what happens in other European cities, the Chinese in Prato have created a large cluster specializing in the apparel industry that produces and exports all over the world. The coexistence of the two business communities (the native Italian and the Chinese) in the same industrial area has facilitated the emergence of a series of conflicts but also numerous collaborative projects. The latter includes those aimed at exporting “made in Italy” products to China or to promoting the production internationalization of Italian district firms. The first Italian-Chinese research centre dedicated to the textile world has been created in Prato, which has been jointly funded by Zhejiang Province and Tuscany. The centre is aimed at developing a series of business relationships between the district of Prato and other Chinese clusters.

Marco Bellandi is Professor of Applied Economics at the University of Florence. Annalisa Caloffi is Assistant Professor at the University of Padova. Image Credit: CC by Samuele Ghilardi/Flickr.