Abstract
The aim of this paper is to analyze the internationalization of Italian firms in Romania, operating in the sectors of footwear, furniture and industrial refrigeration. After describing and quantifying the internationalization process between Veneto and Romania, we discuss for each of the sectors, the changes that occurred in the organisation of the production processes within the firms, and particularly how such processes have been fragmented. This article draws on numerous case studies, posits different models of value chain governance, and discusses their implications for regional development and sustainability.
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Notes
According to Brusco (1975, p. 106), small firms can also enjoy the economies of scale coming from the fragmentation of the production process, as long as the segments have an optimal minimum size. Efficiency is measured with respect to the production segment, and not to the firm’s production.
These characteristics are typical of manufacturing operations performed within most labour-intensive sectors, where production is generally standardised and employs traditional technologies; by contrast, operations like design and marketing require very specific skills.
This paper is based mainly on “A study of the penetration of Italian firms in Romania and on the effects of delocalisation on the sport-system district of Montebelluna, the wood and furniture district of Treviso province, and the air conditioning and refrigeration district of Veneto region”), by Florentina Constantin and Giovanna De Giusti, supervised by Prof. Giuseppe Tattara.
Within the footwear industry, net wages in Romania amount to one tenth of those in Italy and the proportions are similar within both the wood and furniture industry and the light-mechanic industry. According to a number of Italian chief-executives, “the ratio between the salaries” is around one-third, but it is most likely that they meant to refer to the ratio between the overall labour costs, differences in productivity and transport costs included. These estimates have changed in the course of the last 2 years because of the high rise in wages (since 2005 wages in the footwear sector have more than doubled), the alleged shortage of workers, and the increase in the unit costs of production due to the appreciation of the Romanian currency with respect to the Euro. For Romanian wage increases, see: Eurostat. Monthly cost of labour.
Sports shoes (like tennis shoes, basketball and football shoes/trainers, etc.) that require a higher use of textile materials, are nowadays almost exclusively manufactured in Asia.
According to OSEM, hemming a cycling shoe cost only 2.5 € in Romania compared to 6 € in Italy. Production unit costs in Romania were therefore 40% of the production unit costs in Italy (OSEM 2002, p. 4).
A difficult estimate when only uppers are outsourced abroad, since their value will depend on the transfer prices computed by the Italian parent firm.
During those years the footwear industry within the province of Treviso employed around 4,000 people.
The processing trade (in Romanian lohn) is an international contract through which the producer commits to produce a good following the technical specifications of the contractor, and charges a fee as remuneration for its activity. Italian firms have been taking advantage of this duty system since the early 1990s (Graziani 1998; World Bank 2005).
This is a common sentiment expressed by several Italian entrepreneurs during the interviews.
Agri Prod SRL in Oradea is the supplier of cutting dies for the firms in our study. The Romanian firm started its activity in 1997.
Standard International Trade Classification, revision number 3, United Nations.
Kaminsky and Ng analyse the connections between the strong expansion of Romanian exports since 2000 and the upgrading of production processes performed within the country, drawing optimistic conclusions about the capacity of the country to internalise the benefits coming from openness to trade (Kaminski and Ng 2001, 2005; see also World Bank 2005). For a theoretical discussion on the role played by FDI in the upgrade of national production see Markusen and Venables 1999.
The firms belonging to this district are mainly specialised in the production of modern furniture.
Under explicit request by the director of this firm, the names of the companies belonging to the group are not mentioned.
According to the chief-executive of another Italian firm, the reduction in costs compared to the situation in which the raw material is imported and entirely processed in Italy, amounts to at least 50%.
In the form of raw material, semi-finished products, and coating materials.
According to the Romanian director, carrying out the entire task of varnishing within the Romanian plant enabled the firm to hire six to ten additional workers, employing the whole workforce for three shifts per day.
The Romanian directors of ValenEst have made significant efforts to reduce the dependence of the firm on imports of materials from the Italian parent firm, investigating the opportunities offered by the local market and creating linkages with Romanian suppliers, thus contributing to the development of local networks.
Within this scenario, foreign workers represent a major resource for the firms belonging to the district. The limits to the number of immigrants allowed to access Italy imposed by the Law Bossi-Fini, were judged negatively by some of the entrepreneurs, as they strongly limited the possibility to source workers outside the national boundaries.
See http://www.distrettidelveneto.it and CCIIA 2003.
Carrier expanded into the European market by a policy of acquisitions: in 2004 it acquired the refrigeration division of its main European competitor, the German company Linde A.G., and in 1999 the one of the Italian Group Electrolux (http://www.referenceforbusiness.com/industries/Machinery-Computer-Equipment/Refrigeration-Heating-Equipment.html).
The attempt to penetrate the Polish market failed because, from the onset, the Italian company underestimated the strength of local competitors. Polish firms are currently important competitors, not only on the national market but also on the Czech and German markets.
The group cooperates with local universities, international research centres, and independent certification laboratories.
On the relative improvement of the comparative advantage of the country within this sector see also Hanz Weiß, 2004.
The case of Bonis is particularly interesting: at the time of our interview, the Italian manager was planning to open a plant in China for the production of shoes for its main client, Tommy Hilfiger, exclusively directed to the US market, where consumers pay attention firstly to the price of the product. On the contrary—the manager added—European consumers require primarily high quality standards, especially regarding materials, and seem still to distrust products made in China. Two years later, by the end of 2008, in a second interview, the manager told us that a large quota of production was now outsourced in East Asia (Vietnam and Cambodia) and the capacity utilization of the Romania plants had been drastically curtailed. At the same time he no longer showed the alleged dislike of Europeans for Asian products.
The manager of Legnox, a district firm producing bathroom furniture, explained to us that the various components assembled in the final products (i.e. taps, ceramics ware, and bathroom steel accessories) were designed in Italy where the prototypes of the bathroom components were manufactured. The prototypes were then sent to Asia via a couple of intermediaries for further processing and the products were subsequently re-imported and assembled by the Italian firm.
At the border of the Livenza district, several firms manufactured metal and plastic components, as a result of the abilities acquired during the 1960 s and 70 s, producing for the Zanussi group. During that time, in fact, the outsourcing of stainless steel manufacturing and of plastic moulding by the Group promoted the generation of supply networks of moulder producers that played a major role in the development of the furniture district (Tattara 2001).
The strategy of Veneta Cucine, one of the major manufacturers of kitchen furniture in the Livenza district, of stipulating a joint-venture with a Chinese partner to produce for the local market, lead to a comparison with the experience of other firms from the district which conversely relocated to Romania. Veneta Cucine could rely on China’s existing, well-developed network of local suppliers and therefore sent only the design and the industrial schedule to its Chinese partner, while all components were provided locally.
None of the firms that delocalized their production process to Romania was interested in selling to the local market: for the firms of the district of Livenza, specializing in modern furniture, the Romanian market was not attractive due to the low average income, and to the general preference towards classic furniture.
As for downstream operations along the value chain, the group relied on various channels for the distribution of its products, and the choice of the channel depended on the typology of the client. When retailing involved large firms that operated internationally (Billa, Metro, and Carrefour) negotiation was centralised, and the big retailer dealt directly with the Italian head company. In all other cases, retailing occurred through local agents and these were generally local retailers with a well-established activity and a well-defined market. In contrast with Carrier, which employed its own agents, Arneg preferred to stipulate joint-ventures with local companies, such as Unicomp. The latter was a medium-size retailer with a number of offices in Romania and an exclusive trader of refrigeration systems for Arneg Group. According to the chief executive of Arneg, such a form of organization was more profitable than direct distribution. Unicomp provided transport services (employing Romanian carriers), assembly, maintenance, and after-sale services. The relationship with the Italian group was hierarchical: the Romanian retailing company did not enjoy any degree of autonomy and the producer was not obliged to inform the retailer about changes in its production or distribution strategies.
At the time of the interviews, some firms had started to shift some of these operations to Romania: Geox started to move one part of its model-making activity, though the firm was still managing the distribution of all the finished products from Italy; for Bonis model-making was still exclusively performed in Italy, while the finished shoes were partially distributed from Romania, though the logistics are centralised in Italy.
Of the firms observed, the Romanian Banatim, Filty and Acellum sold a small part of their products within the local market, though this market was in 2005 rather narrow and the firms attached little importance to it; domestic sales were inferior to 10 percent of the total production. Schmitz (1999), and Bazan and Navas-Alemán (2004), analyse the upgrading of the footwear district of Sinos, Brazil. Navas-Alemán and Bazan highlight how local firms understood the importance of selling their product into the national market within a strategy of risk diversification and functional upgrading (in marketing, designing and branding).
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Constantin, F., de Giusti, G. & Tattara, G. Strategies of Italian Firms in Romania: Evidence from Selected Case Studies. Transit Stud Rev 16, 829–847 (2010). https://doi.org/10.1007/s11300-009-0124-8
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DOI: https://doi.org/10.1007/s11300-009-0124-8