The Italian Construction Industry Must Expand Abroad
The news about the Italian construction industry gets more alarming by the day. As ANCE, the national association of Italian builders, points out, the construction industry accounts for 5% of Gross National Product. For every €1 million of demand from construction, there's a €1.8-million multiplier effect on aggregate investment, while for every 100 jobs directly created by the construction industry, 80 more jobs are added by neighboring sectors.
The criticism that is leveled at all recent governments is not to have accorded sufficient importance to an industry which is crucial for national growth. Without delving into the proximate and remote causes of the current state of the building industry in Italy, it is important to consider certain banal but fundamental aspects which are often overlooked. A new construction gets built, an office gets restructured, a home gets renovated, only if they serve a purpose and the resources are available. In a healthy economy, the real estate industry should not be the driving sector pulling the rest of the economy along, but rather accompany overall economic growth, otherwise the country would step into the pitfalls that, for one, have hobbled the Spanish economy. The opposite is true for public works and infrastructural investment.
As the Anglo-Saxons say, the built environment means space to live, work and play. However, if firms lay off personnel, the spending power of citizens stagnates and thirty-year-olds keep living home with their parents, where will the demand for new offices, malls, and apartments come from? In the current economic climate, characterized by six long years of recession, the government's room for maneuver is limited. Downswings in the business cycles are ineluctable events. But today, there is international decoupling when it comes to growth. Global GDP has resumed its march fast forward, while Europe is still mired in depression. This means that, globally, there's demand for new construction. So the capital sin of our construction firms is one of sloth, namely not to have the adequate size, set of skills, and level of know-how needed to compete worldwide.
The Italian construction industry has lost 500,000 jobs since 2008. It currently employs 1.5 million people. Many of these firms are midgets: 60% of them are one-man businesses, while 37% has less than 10 employees. Only 0.2% of Italian builders employ more than 50 people, and that's considered large.
If we cross these data with those covering the internationalization of Italian construction firms, we can notice that the firms who have chosen to venture beyond national borders have seen their turnover grow at two-digit rates, even in the unforgiving post-2008 landscape.
According to another recent survey by ANCE, if we put at 100 the level of the turnover made by Italian companies building at home in 2004, and at 100 the level of turnover made by building abroad, we can see that in 2013 national sales still stagnate below pre-crisis levels, while foreign sales have trebled beyond the 300 mark.
It is thus clear that, given the right size and ability to compete, when Italian construction firms plan for their internationalization, the outcome is usually favorable. Given the current structure of the industry, it's also evident that internationalization benefits only a tiny elite of firms (the 0.2% above mentioned), while the remaining 99.8% of firms have to fight ever more fiercely for their share of a shrinking pie.