Industrial Districts: A Tale of Death Foretold

The crisis of Italian industrial districts is not a new phenomenon. Scholars, analysts, experts predicted their extinction already a few years ago. The main cause is usually said to be the lack of competitiveness on international markets. But what if the reverse were true, namely if the crisis were caused by the success on foreign markets enjoyed by the major firms that operate within industrial districts?

The analysis of data since the 1970s concerning the birth and mortality rates of firms in the Italian shoe industry displays a significant correlation between the export of machinery for shoe production and the increase in the business mortality of shoe manufacturers. This phenomenon was investigated by a research study titled International Strategies and Declusterization: A Dynamic Theory of Italian Clusters and is ascribable to the distinctive qualities of the industrial district. An industrial district or cluster can be viewed as a unique combination of skills and tangible and intangible resources which have slowly developed through time thanks to the complex economic and social interactions of the firms constituting it. By implementing a resource-based approach, we can then say that the set of skills and affordances necessary for the development and manufacturing of a competitive final product are internal to the district, but external to the individual firms that comprise it. In an industrial district, whose origins can be traced back to craft-based manufacturing, the vertical relation between producer firms (which produce capital goods) and user firms (which manufacture consumption goods) makes the former the receptors and repositories of the know-how of the latter in the development of products. The export of machinery by upstream producers is not only equivalent to the transfer of a material good abroad, but it entails the wholesale transfer of the stock of knowledge accumulated in the industrial cluster of origin by downstream firms. The knowledge transfer determines a decrease in the value of resources and knowledge held by the district, and, ultimately, in the shrinking of competitive advantage. This contraction in competitive advantage first affects downstream firms which now have to compete with foreign firms more often than not located in emerging economies, which now enjoy access to the same machinery, and are thus able to produce identical products at lower prices, due to their markedly lower labor costs. This initial effect is strengthened by a secondary effect that kicks in after a lag. The disappearance of shoe firms interrupts the transfer of knowledge between capital-goods-producing firms and consumption-goods-producing firms. This leads to a weakening of the upstream sector, too, since it can no longer benefit from the continuous innovation of the downstream firms of the district. The analysis highlights the fact that individually rational behavior responding to market incentives is capable of producing negative effects at the collective level of the district. How can this contradiction be solved? Since this is a collective problem, the solution must be sought at the district level, by implementing adequate measures of industrial policy that promote coordination and collaboration between Italian district actors.