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News : EU Economy Last Updated: Feb 20, 2015 - 9:36 AM

Italy's SMEs poor exporters compared with counterparts in Germany, Spain
By Michael Hennigan, Finfacts founder and editor
Feb 4, 2015 - 5:36 AM

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Alexis Tsipras, Greek prime minister (l), accepts a gift of a tie from Matteo Renzi, Italy's prime minister, at the Palazzo Chigi, Rome, Feb 03, 2015. "I will wear your tie when we solve Greece's debt crisis," Tsipras said.

Italy's SMEs (small and medium size enterprises) are poor exporters compared with counterparts in Germany and Spain according to the a report by an Italian public agency.

Italy is the seventh largest exporting economy in the world in terms of gross exports, and is also the fifth largest manufacturing producer in the world, although over the past 20 years its share has been eroded by the growth of emerging economies, according to the Organisation of Economic Cooperation and Development (OECD).

The size of business firms is often linked with their propensity to export and the business structure in Germany as illustrated in the chart below shows a high percentage of medium and large size firms compared with the EU28 average. The country has a significant presence in capital intensive industries such as motor vehicles, chemicals and machine tools.

The chart shows that the business structure in Spain and Italy is similar but the small Spanish firms do better at exporting.

Germany had an export-to-GDP ratio of 47% in 2007, Spain's was at 31% and Italy was at 29%. In 2013 the ratios were 52%, 37% and 30% while  SACE, Italy's export credit agency, says that in 2017 the gap between Spain and Italy will be even bigger with Spain rising to 41% compared with Italy's 33% and Germany's 58%.

“If Italian small and medium size companies reached a GDP ratio for exports of 44% in 2018 (the average value of the German and Spanish performance in 2013) we could further increase our exports by €40bn annually, equal to +9% GDP and 1.8m new jobs,” said Roberta Marracino, SACE’s director of research and communications, last November at the launch of a SACE study (Italian).

Most Italian SMEs are active in wholesale and retail trade, which account for 86% of all SME employees according to the European Commission. Compared to the EU average, they are also more prevalent in manufacturing, in particular traditional sectors such as food and beverage, clothing, textiles, as well as the manufacturing of metal products, machinery and equipment. This shows how important small businesses are for the Italian economy, but also suggests the persistence of significant bottlenecks and limits to growth for SMEs.

The Commission added that before the crisis, the Italian manufacturing industry was the largest in Europe after that of Germany. Since then, SMEs and large enterprises have seen a strong decline. Between 2008 and 2013, about 50,000 companies were closed, which corresponds to a share of 11% of the total company stock. Consequently, value added decreased by 5% (SMEs) and by 15% (large enterprises), although it bounced back briefly between 2009 and 2011, before declining again. Production fell considerably in one of the pillars of the Italian manufacturing industry: the automotive industry.

However, a closer look at this group of SMEs shows differences in the growth pattern depending on the size of enterprises. Between 2009 and 2013, value added increased in medium-sized enterprises with 50-249 employees, exceeding its pre-crisis level. However, this group of companies cannot counterbalance the negative trend in the rest of the manufacturing sector. The service sector’s performance is more promising. SMEs offering professional services, in particular management consulting, architecture and engineering, developed better than those in most other sectors after the crisis. Value added increased by 21% and employment remained more or less constant between 2009 and 2013. In 2013, more than 384,000 new companies were set up, but around 371,000 others went out of business. This left a positive demographic balance of 13 000 companies, representing a small but encouraging 0.2 % growth in the number of companies since 2012.

According to SACE growing exports in international markets doesn’t have to be in just high-risk markets.

“Half of the extra exports that Italy could generate can come from some small and medium risk selected countries. According to our forecast, China, Poland, Algeria, Turkey and India could generate €13bn of exports, a  further €6bn could come from the Emirates, Saudi Arabia and Kuwait, South America (Mexico and Brazil) and Asia (South Korea, Caucasian Republics, Vietnam) and Tunisia, the only stable Maghreb Country on the opposite shore of Mediterranean sea,” said Marracino.

SACE said that in 2013 the export trend for companies having 10-49 employees was 47% in Germany, 48% in Spain and 29% in Italy. For SMEs in the range 50-249 employees the percentages were,  68% for the Germans, 85% for the Spanish and less than a half, only 49% for Italy.

The Economist says Italian cuisine is popular all over the world, but Italy’s countless small food producers get only a morsel of this huge global market: exports account for a smaller share of the Italian food industry’s output than in either France or Germany.

It adds: "Western Europe’s other big economies have a more consolidated grocery business, and each has at least one giant supermarket chain with extensive branch networks outside its home country, such as Tesco (Britain), Aldi (Germany), Carrefour (France) and Dia (Spain). Small food producers complain that such giants drive a ruthlessly hard bargain, but their scale and reach mean that the manufacturers have to deal with only a limited number of big customers, and those retailers often do the exporting for them, stocking their products in foreign branches.

Italy, in contrast, does not have a globalised food retailer on the same scale, and its domestic market is fragmented: even those chains with national coverage often stock different products in different regions, chosen by different local purchasing managers. Eataly, a fast-growing international chain of delicatessens, is bringing Italian-made foods to a wider global audience; but so far it is relatively small."

On the positive side, Italy’s wine exports have surged 42% since 2008, to €3bn, thanks in part to the growing popularity of its sparkling prosecco. In volume terms, this now outsells France’s champagne worldwide.

The Economist also says that 'rete d’impresa,' or company networks, are helping small firms reach new customers, by letting them pool resources on such things as market research, training and purchasing.

Outside capital would also help as over four-fifths of Italian food manufacturers are family-run and with annual revenues of less than €10m.

Italy’s top food company is Ferrero, the maker of Ferrero Rocher chocolates - an excellent product combined with innovative packaging - which was launched in 1982. The group has revenues of €8bn.

Scotch whisky exports at £3.9bn; Irish whiskey exports at €365m

Europe's Worst Exporter: Poor export performance of Greece

Ireland has 4,000 exporters, Denmark has 30,000

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