The complications of clustering
P A R M A

Northern Italy is studded with thriving clusters of manufacturing businesses. Why are they so vigorous?

BEAUTIFULLY made goods from northern Italy are a part of la dolce vita from Hollywood to Hong Kong. Silk from Como, wool from Biella and gold from Vicenza adorn the fashionable, while on their noses perch glasses shaped and polished in the Dolomites. Ferrari, Ducati and Alfa Romeo are northern Italian names to quicken a motorist’s heart. Tiles from Modena grace the grandest kitchens, and in those kitchens the famous cheese of Parma is grated on pasta prepared in the city’s factories.

These glamorous consumer industries are sustained by a second, less visible layer of activity. It consists of the firms that make the machines that make the famous products. Italy’s group of machine-tool manufacturers, the bottom layer of the manufacturing pyramid, is the fourth-largest in the world after Japan’s, Germany’s and America’s, with sales of $3.45 billion in 1997. Individual Italian machine makers tend to be small. The average size of the workforce in Italy’s 450 machine-tool firms is 70, compared with 200 in Germany’s 320 firms. According to Mario Fochi, of Sperotto Rimar, which makes textile-finishing machines, machinery makers spring up around the manufacturing firms like mushrooms amid the roots of big trees.

Such delicacies are much sought-after among business theorists these days. Excited by the crackling commercial energy of Silicon Valley in California, governments around the world have tried to create their own Silicon Glens, Fens and Parks, Bio Valleys and Villes. They offer cheap buildings, infrastructure and tax breaks as a lure to entrepreneurs. The aim is to boost the productivity and creativity of everyone in the cluster by fostering opportunities for collaboration and the exchange of information, and a critical mass of expertise.

Something in the air

Northern Italy’s long-standing clusters are proof of the value of collaboration. Elena Ferraro of IECO, which makes machines for melting and electroforming gold, underlines the importance of exchanging information with her customers. Of the firm’s sales, 60% are within Italy. Most of those are of customised machines, rather than the off-the-shelf models and complete turn-key factories that IECO sells abroad. The need to keep up with the demands of the more sophisticated Italian goldsmiths has enabled Italian suppliers such as IECO, and nearby Sisma, to dominate their business, supplying about 80% of the total world market for machinery for making gold jewellery.

Yet northern Italian clusters also contain a more surprising ingredient: the collaborators increasingly compete as well. Easier communications and trade mean that both manufacturers and machinery suppliers can more easily deal with each other’s rivals across the world.

The great fear among Italian industrialists is that this will weaken the country’s clusters. Rather than use machines that might be sold to their competitors, some bigger firms prefer to rely on equipment from in-house workshops. Barilla, the world’s largest pasta maker, has a 100-strong engineering division. Proprietary machines propel every stage of its new lasagne line in Parma, from the floppy curtains of fresh dough dropping on to conveyors to the dealer that stacks the cut, dried sheets like so many playing cards. More important is the computer system the company has designed to control the line. Necessity has been the mother of some of this invention, for Barilla’s dominance of its home market—it has 32%, compared with 4.8% for its nearest rival—means it operates on a larger scale than others, giving it needs that cannot be met with standard equipment.

Other large firms are all too aware that their secrets would be at risk if the machines they use were widely available. Safilo, the second-biggest manufacturer of spectacles in the Veneto, with a turnover of 566 billion lire ($345m) in 1997, also has a research division. Fifty engineers design and build the machines that are humming away in the factory next door. Some of the systems developed within Safilo’s workshop are patented—machinery to construct a particularly flexible hinge, for example. More often, the engineers modify standard machines that Safilo buys from outside. Vittorio Tabacchi, the chairman, laughs at the idea of asking the company’s suppliers to modify the machines they sell him: that would reveal his firm’s secrets and allow them to fall into the hands of competitors.

Smaller firms do not have the luxury of using machines that are not sold to foreign competitors. Sperotto Rimar, Mr Fochi’s firm, sprouted originally because of the sustaining presence in the region of Marzotto and Lanerossi, two textile firms that some 150 years ago found in the steep hills north of Vicenza fast-flowing streams to drive their looms, and sheep to provide wool.

Today these two firms are one, which gets its wool from Australia and its power from the national grid, and its boss chafes at the restrictions a narrow valley places on floor space in his factory. The machinery in that factory comes from suppliers in other countries as well as its neighbours—looms from Switzerland, bobbin-winders from Germany, washing machines from Britain. Equally, 90% of Mr Fochi’s steam presses and shrinking machines go abroad—up from 60% in 1985. Many go to Marzotto’s growing number of rivals in Asia. Nuovo Pignone, a nearby loom maker that also supplies Marzotto, sold 70% of its output in 1997 in Asia (and itself is being bought by a Swiss competitor).

Yet the increasing foreign trade also provides things that are good for clusters. Sisma, the world’s largest producer of machines used to make gold chains, received 80% of its 30 billion lire ($18m) turnover from exports in 1997. “Some Italian jewellery firms are unhappy that we sell machinery to their foreign competitors. But if we didn’t, others would,” reasons Fiorenzo Sbabo, Sisma’s chairman.

In this way, international sales prevent would-be foreign competitors from emerging. At the same time, the threat is a stimulus for innovation and the desire to move constantly upmarket. Italy has an edge in quality even in industries where other countries have obvious advantages. Its tile industry is one example (see following article). Another is cashmere, which comes from China. Firms there have installed numerous Italian looms, as well as developing equipment of their own, but the finest cashmere clothes still come from Biella. The gap is narrowing, but Italy remains ahead.

Similarly, South-East Asia dominates the mass market for spectacles, but Italy retains a lock on the top end of the market (where the profit margins are much greater: cheap glasses cost $4 to make and may sell for $15; designer glasses cost $12 and sell for $150). In gold jewellery, leather and tiles, likewise, Italy has hung on to the most lucrative part of the market, even as others have conquered its lower end.

New technology has permitted the intimacy that used to be possible only within a cluster to take place over long distances. As a result, foreign customers have become a source of feedback in their own right. Flavio Radice, the boss of Pietro Carnaghi, a tool maker in Busto Arsizio, north of Milan, says he and his designers regularly use their video-telephone link to pore over plans with customers for the huge vertical-milling machines his firm makes for turbine builders. Some of these customers are to be found just up the road, part of the dense engineering conglomeration of this most industrious of towns, but others, such as Boeing Aerospace, for which Pietro Carnaghi has built a machine to shape the top of Delta-4 rockets, are in America.

Nonetheless, there is an advantage in being local. Mr Radice’s firm has built a suite of offices complete with a shower alongside its workshop. Customers like to come and spend several weeks consulting with the firm’s engineers as their machines take shape. Being there still matters.

TORTELLINI and Lambrusco pushed aside the usual machines and cutting oil last November when LB Officine Meccaniche celebrated 25 years of building machinery for making ceramic tiles at its factory on the outskirts of Sassuolo. There was every excuse for a blow-out: the firm’s fortunes have risen with those of the Italian tile industry, which produced 572m square metres in 1997, compared with only 200m square metres in 1973. Over the same period exports have risen too, from 30% to 70% of total production. By egging each other on, both the tile makers and the machinery makers such as LB Officine Meccaniche that cluster together in Sassuolo’s “tile valley” have given themselves much to celebrate.

Success has depended on innovation. LB Officine Meccaniche, for example, has developed systems for handling and mixing materials to make porcelain tiles that look like marble and granite, but are lighter and cheaper than the real thing. Tile makers elsewhere are catching up with the Italians. Ten years ago Spain’s production was only one half that of Italy; now it is almost as large. Turkey’s production is growing rapidly, and China’s is already as large as Italy’s. To stay ahead, the Italians must continue to innovate—the pressing concerns today are to reduce fragility and to make elaborate shapes in large quantities—in order to add more value to what is at bottom nothing more than cooked mud.

Whether Italian tile makers can keep innovating is another matter. After the party, the strains of cluster life soon resurface. Angelo Borelli, chairman of Assopiastrelle, the tile makers’ trade association, says that his members and the machinery makers have a love-hate relationship. He complains that machinery makers sell foreign clients expertise that they acquired through their work in Italy. “ would be much better off if the machines were not sold abroad,” he grumbles.

Nearly three-quarters of the machinery makers’ 1997 turnover came from exports, with almost one-third going to Asia. But tile makers are getting their own back: problems in Asia have brought harder times for the machinery makers and, according to Filippo Marazzi, chairman of the Marazzi Group, Italy’s top tile maker, a chance for their customers to buy cheaply by playing off suppliers against each other.

Ivanno Ligabue, one of the founders of LB Officine Meccaniche, is uneasy for the region’s future. He doubts that tile makers are doing enough to create new products and market them. But out of such insecurity the next wave of innovation is born.