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4 The Italian Industrial Manufacturing System—“Made in Italy” Macro-sectors of Outstanding Products

4 The Italian Industrial Manufacturing System—“Made in Italy” Macro-sectors of Outstanding Products

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3 Development Profiles of the Italian Industrial System …


highest degree of specialization and have characterized Italian excellence the most

since World War II.

“Made in Italy” Specializations: The 4Fs


A particular aspect of the Italian manufacturing industry, which for a long time was

a winning strategy, even if today it is no longer perceived as sufficient for facing

new challenges, is specializing in the so-called traditional sectors (Fashion-textiles,

Footwear-leather, Furniture-wood). These sectors are characterized by a significant

foreign trade surplus. Other sectors were later added like mechanical engineering,

processing of plastics and rubber, and means of transport other than cars.

The historical trend of Italian manufacturing (Fig. 3.1) can be reconstructed with

Istat data available from 1991 and divided in two periods: 1991–2010 and 2011–

2014. It is clearly evident, from the first period, that there were two intermediate

peaks preceding the economic crisis. The first was in 1996 with a foreign trade

surplus of €55 billion after the Italian economy had experienced constant growth for

three years, from 1993 to 1995. The devaluation of the Italian lira noticeably helped

exports. The second peak was in 2008, right before what has revealed to be the

worst worldwide economic and financial crisis since 1929.

The first peak was followed by a period of decreasing trade surplus of Italian

manufactured products in conjunction with the preparatory phase for introducing

the euro. There was a temporary increase in the 2001 trade balance, followed by a













1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fig. 3.1 Italy’s foreign trade balance of manufactured goods: 1991–2014. Source Compiled by

Fondazione Edison using data from Istat (2015a)


M. Fortis and M. Carminati

net contraction between 2002 and 2003. During these two years, Italy partially

suffered the overwhelming impact of asymmetrical competition from China (which

had joined the WTO in 2001). Competition, favored by the Chinese yuan linked to

the USD, allowed China to progressively devalue against the EUR, even though it

already had a phenomenal trade surplus and extensive foreign reserves.

Given significant parallels in production specializations in Italy and China, Italy

was the first large advanced industrialized nation to face the massively aggressive

competition from the Asian giant. It had to face both Chinese production and

multinational competition of “Made in Italy” products, which in many cases had

relocated their production to China to take advantage of the lower local labor costs.

Inevitably, from 2001 onwards—especially 2002–2003—with the overwhelming

new competition from the East, various traditional Italian manufacturing sectors

(textiles-wearing apparel, footwear, jewelry, etc.) lost significant market shares of

less value added products to China. This led many to believe that Italy had begun its

inevitable decline in international trade.

This catastrophic prophecy, however, has been amply refuted by facts. During

the following years, Italy ably resisted and limited its losses in sectors such as

personal and household goods, by shifting, as has already been stated, to those

sectors with greater added value (as can be seen from the growth in the mean unit

value of exports). It quickly shifted its focus to products with a high technological

and innovative content like non-electronic machinery (industrial machinery, pumps,

valves, taps, mechatronics, etc.). Moreover, Italy continued to strengthen its high

quality food and wine and vine industries. This led Italy in 2008 to a new historical

peak in its foreign trade balance of €63 billion. Only the dramatic world economic

crisis, which resulted in an authentic paralysis of international trade, thwarted

Italy’s positive trade balance trend in manufacturing.

Those who observed the Italian trade balance trend of industrial manufactured

goods from 2008 to 2010 might have gotten the impression that Italy was heading

towards an unstoppable decline in its competitiveness. Indeed, it’s foreign trade

balance for manufactured goods at the beginning of the economic crisis plummeted

from €62.7 billion in 2008 to €46.1 billion in 2009, and down even further to €37.8

billion in 2010, thus returning to its 2003 levels.

Many analysts noted this apparent decrease in competitiveness, and provided

multiple “technical” explanations. They suggested the cause included significantly

increased import penetration. In other words, the Italian industry had turned to

increasing its imports of semi processed goods since it was no longer capable of

producing them domestically at competitive prices. This circumstance, in conjunction with the increased prices of imported raw materials, had a significantly

negative impact on the trade surplus.

These hypotheses, however, were not taken into consideration by the Istat (2011)

annual report, nor by the 2010 annual report of Banca d’Italia (2011). These reports

provide information on the extraordinary increase of Italian imports of photovoltaic

panels. This phenomenon was completely independent of the manufacturing sector’s trends, since it was exclusively provoked by state incentives in favor of

3 Development Profiles of the Italian Industrial System …


renewable energy. It did, however, have an ominously negative impact on the

Italian manufacturing trade surplus.8

In the second phase (2011–2014), the positive export trend resoundingly contradicts all hypotheses of a decline in manufacturing. Not only did the sector

weather the economic crisis, but it also began an unequaled positive trend. In 2010

the Italian trade balance was €37.9 billion, it grew to €54.7 billion in 2011, and then

to €92.8 billion in 2012, and even further to €97 billion in 2013. In 2014, the Italian

trade surplus was around €99 billion, a historic peak that had never been reached


Italian manufacturing remains undoubtedly strong. As reminded in Chap. 1,

Italy has the second strongest manufacturing sector in Europe and is sixth worldwide in terms of generated added value. Since 2012, it is part of the restricted group

of five economies worldwide that can claim a foreign trade surplus in manufacturing products (excluding food) greater than $100 billion (Fortis 2013). In fact, in

2014 it reached $134.5 billion.

The protagonists and motors of this success are mainly the four sectors of

outstanding manufacturing excellence in which Italy holds an extremely high

specialization in foreign trade. They have been called “4F” (see Fortis 2005) and


• Fashion and cosmetics (includes wearing apparel, leather, footwear, leather

goods, jewelry, eyewear, cosmetics and perfumes);

• Food and wine (includes products for the food and beverage industry, excluding

those products which require little processing like fresh milk and meats);

• Furniture and ceramic tiles (includes wood products and furniture, ornamental

stones, ceramic tiles and other ceramic items);

• Fabricated metal products, machinery and transport equipment (includes all

means of transport and vehicle parts but not finished vehicles; Ferrari sports cars

are included since they are a “Made in Italy” symbol of excellence;

non-electronic mechanical engineering products like industrial machinery,

mechanical equipment, rubber and plastics).9

It should be noted that Italian imports of “photo sustainable devices and semiconductors included

in photovoltaic cells”, which up to 2006 did not surpass €300 million, increased to €556 million in

2007, €1.2 billion in 2008, €2 billion in 2009 and €8.3 billion in 2010. Imports of photovoltaic

cells began to decrease in 2011 dropping to €6.8 billion, which was still an impressive amount. In

2012, imports decreased by one third of the previous year, dropping to €2.2 billion, to then crash to

€600 million in 2013. It decreased even further to €300 million in 2014, thus returning to 2006

figures, i.e. the same amount before the state photovoltaic incentives policy. This means that two

of the three “worst” years (2010 and 2011) for the Italian trade balance, were distorted by the

significant imports of photovoltaic devices. In 2010, the foreign trade surplus in manufacturing

(€37.9 billion) net of the impact of the renewable energies incentives, would have been €46.2

billion, and in 2011 it would have been €61.3 billion instead of €54.7 billion.


Note that the 4F paradigm evolved over time. The paper-rubber-plastics grouping, which in

Chap. 2 is examined by itself, is here included in “Fabricated metal products, machinery and

transport equipment”.



M. Fortis and M. Carminati



















Total trade balance



Other sectors

Fig. 3.2 The contribution of the “4Fs” to the Italian trade balance: 1991–2014. Source Compiled

by Fondazione Edison using data from Istat (2015a)

The 4Fs flared contribution to the Italian trade balance has been extraordinarily

relevant, especially these last years. As can be seen from Fig. 3.2, the 4Fs foreign

trade balance has always been amply positive, increasing from €35 billion in 1991

to €128 billion in 2014. It reached an intermediate record level of €113 billion in

2007 and 2008. This surplus, for a decade (1993–2003), was significant enough to

consent Italy’s trade balance to close with a surplus. It compensated for the deficit

caused by Italy’s outrageous energy “bill”, and for the negative trend in the

chemical, pharmaceutical, electronic, vehicle, raw agricultural and industrial

material sectors. From 2004, especially due to a significant increase in the negative

impact of energy, Italy again had a trade deficit, notwithstanding the impressive

increase of the 4Fs. In 2005 the foreign trade surplus was €94 billion, in 2006 it was

€101 billion, and in 2007–2008 it reached the already mentioned record level of

€113 billion. However, in 2009 it fell to €91 billion. This latter figure is,

nonetheless, very significant considering the world economic crisis that exploded in

the last trimester of 2008, which is still not completely over. It has been the worst

economic crisis since 1929. Already in 2010 the 4Fs foreign trade surplus increased

to €95 billion; thus compensating, to a large degree, for the energy deficit (€57

billion in 2010), and the general “other sectors” grouping in which Italy is barely

specialized (€68 billion). Between 2011 and 2014, there was a net improvement in

the trade balance. The overall deficit went from −€26 billion in 2011 to a surplus of

+€43 billion in 2014. This was possible also in part due to an improved trend in

“other sectors” (from −€68 billion in 2011 to −€39 billion in 2014) and in energy

3 Development Profiles of the Italian Industrial System …




















Food and wine

Furniture and ceramic tiles

Fashion and cosmetics

Fabricated metal products, machinery and transport equipment

Fig. 3.3 “4Fs” Made in Italy trade surplus: 1991–2014. Source Compiled by Fondazione Edison

using data from Istat (2015a)

(from −€70 billion in 2012 to −€46 billion in 2014). Nonetheless, it must be

stressed that the main thrust behind the improved trade balance was mainly due to

the 4Fs which increased from €107 billion in 2011 to €128 billion in 2014.

The exports share of Fabricated metal products, machinery and transport

equipment (one of the 4Fs) increased from €48 billion in 2003 to €75 billion in

2008. After a slump in the most acute phase of the economic crisis, it again grew to

€84 billion in 2014. This increase more than compensated for the static trade

surplus in Fashion and cosmetics and Furniture and ceramic tiles, which as already

has been stated, had to face increasing competition from emerging markets

(Fig. 3.3). While, in different proportions, the other 4Fs also saw a degree of

improvement in exports from 2010 to 2014.


Italian Mechanical Engineering: Development Trends

from Post-WWII till the Present

In this last section, after having described the evolution of the Italian mechanical

engineering sector from WWII till today, an analysis will be provided of the weight

and importance that this sector has in the Italian industrial system with particular

reference to exports.


M. Fortis and M. Carminati


The Development Trends of Italian Mechanical


Post-world War II and Reconstruction

The Italian mechanical engineering industry, especially after WWII finally experienced its first major growth spurt. Once the reconstruction process was over, Italy

entered a phase of fast paced growth especially in the mechanical engineering and

metal products and vehicles sectors. Large infrastructure works were also undertaken for power grids, phone networks, highways, etc. The industrial economy

shifted from being based prevalently on textiles and traditional products to an

industrial set up increasingly characterized by mechanical engineering, capital

goods and products for mass consumption. In other words, in the two decades

following World War II, Italy shifted from, what has been defined by Rostow

(1960), the phase of “technological maturity” to the stage of “mass consumption”.10

The latter includes an adequate development of mechanical engineering products

and means of transport. This took place specifically during the years of the so-called

“economic miracle” (Fuà 1989b, p. 156 ff.).

Before World War II, Italian mechanical engineering industry’s output was

marginal, especially if compared to its period of sustained growth after 1950. The

Corbellini Commission, set up specifically in 1950 to develop a framework for the

sector, concluded that during the period from immediately before World War II to

1951, the mechanical engineering production index increased from 100 in 1938 to

130 in 1951 (De Rosa 1997). During that lapse of time, twice as many vehicles

were produced in Italy. They increased from 59,000 in 1938 to 118,287 in 1951.

The production of tractors increased from an annual average of 4056 during the

1941–1950 period to 8699 in 1951. Typewriters increased from an annual average

of 90,299 to 150,849 in 1951. Sewing machines went from 197,145 during the

period 1941–1950 to 345,310 in 1951. Calculators increased from 30,125 in the

decade from 1941–1950 to 67,543 in 1951. Olivetti was a key player in the latter

sector and was able to export 60 % of its production, a net increase with respect to

pre-war trends.

Post-World War II saw decisive growth in the transport sector and more

specifically in the automobile industry and the railway system. Large sectors, seen

as the “great victims” due to a lack of public contracts, were the construction sector,

naval shipyards and Aeronautics industries. The latter was stimulated by public

demand for rolling stock due to the impressive thrust of railway construction, one of

the sectors most damaged by the war (De Rosa 1997). The motor vehicle industry

Rostow (1960) identifies and summarizes five stages of development: “traditional society”;

“preconditions for industrial growth”; “growth”; “a shift toward technological maturity”; and

finally “mass consumption”. The last three stages coincide with what can be defined, in a general

sense, as modern economic development based on industrialization and the growth of the tertiary



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