Export led GDP recovery
Italy's economy is one of the seven largest in the world, and like other mature economies, the service sector represents 60 percent of the GDP, while industry contributes 35 percent and farming accounts for 4 percent.
The year 1995 saw a substantial recovery in the GDP, due mostly to the foreign component of demand. Indeed, the great expansion in exports of goods and services that had marked 1994, continued in 1995.
Italy's export propensity, measured as the ratio of exports to the domestic product, is among the highest of all industrialized nations. Moreover, Italian sales abroad enjoyed much success last year, despite a global trend in demand that was not of particular advantage to Italy, whose main customers -- the European countries -- have only begun to emerge from recession a few months ago. Therefore, exports to European Union member countries were relatively less dynamic.
The competitiveness of Italian exports was reinforced by the moderation of the rise in labor costs obtained with the 1992 agreements between labor unions and the government. In particular, 1995 saw considerable growth in ferrous and nonferrous minerals, wood, paper, engineering products such as office machines, and electrical material. Exports continued to pick up momentum, mostly due to chemical products, means of transport and the textile and garment industry.
The export boom has mostly favored the northern and central regions, which have a high export propensity, while the southern regions, although quite dynamic, continue to bear less importance in the Italian export complex as a whole. Indeed, the leading four exporting regions (Lombardy, Piedmont, Veneto and Emilia- Romagna) account for 70 percent of the overall export value.
The export trend reflects the Italian production structure, which is characterized by strong regional differences. The north is a highly-industrialized area, with good infrastructure and a highly-skilled workforce, while southern Italy is marked by comparatively lower levels of industrialization.
Role of the state
Two State holding companies, Ente Nazionale Idrocarburi (ENI) and Istituto per la Ricostruzione Industriale (IRI), have played a major role in the Italian economy, including manufacturing, but this role is being reduced as companies owned or participated in by ENI and IRI are privatized or prepare for privatization.
The largest and most diverse of the state holding companies is Istituto per la Ricostruzione Industriale. It includes major international companies in infrastructure, manufacturing and services grouped in several branches.
Large companies like ANSALDO (energy and transport), ALENIA (electronics and aerospace), AGUSTA, OTO MELARA, GALILEO (defense systems), and ELSAG BAILEY (automation) are grouped in Finmeccanica.
Other sectors include telecommunications and informatics (STET, TELECOM Italia), shipping (FICANTIERI), the national airline (ALITALIA), highways (AUTOSTRADE), and three major banks.
Ente Nazionale Idrocarburi was established in 1953 to take charge of fairly small state holdings in petroleum and natural gas, with a mandate to undertake exploration at home and abroad and to expand into processing and distribution.
It grew into a vast undertaking, dominant on the energy scene in Italy and a force to be reckoned with in the world. The following are the some of the most important energy-related subsidiaries of ENI:
* AGIP: Exploration for and production of oil and gas in Italy and abroad; crude oil supply.
* AGIP PETROLI: Petroleum refining and distribution of oil- related products; services for energy saving.
* SNAM: Purchase, transport and sale of natural gas; also transport of oil and products.
* SNAMPROGETTI: Construction of petrochemical and other industrial plants; construction of oil and gas pipelines, such as the pipeline connecting Algeria and Italy under the Mediterranean Sea, the deepest underwater pipeline in the world.
* SAIPEM: Drilling; laying of pipelines.
* NUOVO PIGNONE: Equipment production for oil, gas and petrochemical industries.
Companies
Through its holding companies, the public sector has played a decisive role in Italy's economic growth. In recent years, economic constraints have been imposing a process of privatization and streamlining of the entire public sector.
Although the most significant privatization activities have taken place in the insurance and banking industries, some large farming, food, steel and engineering industries have gone over to the private sector.
Privatization in the telecommunications and energy industries will go into effect in 1996.
There are relatively few very large private companies in Italy and some are still family-dominated. The largest is Turin-based FIAT. Including its Alfa Romeo and Lancia subsidiary, it is one of Europe's largest car companies, but cars are by no means its only activity. It also produces tractors, earthmoving equipment (Fiatallis), railway rolling stock, steel (Teksid), airplane engines, machine tools and medical equipment. IVECO, its commercial vehicle branch also grouping other European companies, is one of the largest in that sector in Europe.
Other very big companies are OLIVETTI (office computers and telecommunications), PIRELLI (tires and industrial rubber production, cables) and MONTEDISON (chemicals and synthetic fibers). IMPREGILO (a consortium of companies) is one of the largest in construction. All these companies improved their performances during the 1980s and 1990s.
There is one feature of the structure of Italy's exporting industries that stands out: the relatively limited number of large groups or companies involved.
Industrial organization in Italy's individual industries is very often based on a network of factories, each one highly specialized in particular products or manufacturing processes. The system tends to inspire fierce cost competition, flexibility in terms of technology and products available and a rapid response to market changes.
Italian suppliers are responding to increasing globalization of markets and continuously accelerating rates of innovation by looking for more effective ways of cooperating with like-minded firms. Manufacturing consortiums, the formation of holding companies which control several firms and the creation of centers for common initiatives in the research field are just some of the results of this cooperation.
Italy's industrial structure is marked by its unique distribution of corporate size: a clear majority (over 90 percent) of companies have less than 100 employees, while fewer than 1 percent counts more than 500. SMEs are often organized locally as integrated systems, which is an example of the vitality and flexibility of Italy's industrial fabric. One of the determining aspects is the capacity to respond to each clients' specific requirements.
Another aspect of the flexibility of Italian manufacturers is shown by their capacity to form, from time to time, a pool of specialized suppliers around a new product.
Nowadays, the time needed for designing new models and their related components has been drastically shortened in many sectors, especially in the motor vehicle industry and that of electric household appliances. Machine tools' manufacturers are deeply involved in these changes and must help their clients "to engineer" in parallel new models and the relevant production system. For this reason, the capacity of firms to cooperate and present the client with a single, responsible interlocutor has become essential.
Productive districts, at times dedicated to a single industry, can be found throughout Italy, especially in the north, and are often so strongly identified with the area they are located in that they practically amount to a trademark. Examples of this include Biella wool, Prato fabrics, Brianza furniture, Como silks, and shoes from the Marches.
Italian production districts specialize in strongly export- oriented sectors, especially in "traditional" areas (textiles, garments, leather and furniture) and machinery, with a high propensity for internationalization of production and for using more advanced production and organizational techniques, which exist alongside the age-old traditions of the family craft.
Italy's success in overcoming past and recent slowdowns in economic activity in the most industrialized countries owes much to them.