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Reshoring, how industry is being brought back to Italy as the focus switches to quality and expertise

Reshoring – the trend whereby countries with a long-standing manufacturing tradition bring industrial activities back home. The practice first emerged in the USA under Obama and can also be seen in the UK.  Entire industrial sectors were dismantled in Great Britain in the 80s and 90s (starting with the automotive industry) as the focus switched almost entirely to finance and hi tech services.  The phenomenon has also been seen recently among Italian businesses. We’ve covered the subject previously in our business culture blog, but new insights have recently reached us.  The European Research Council (ERC)  recently published a study – in collaboration with Unindustria, the industrial association representing businesses in Roma and Lazio – looking at “How to Attract Development”.

It documents 101 cases of reshoring (data from June 2015), 80% of which were located in northern Italy (primarily the northwest). All were pioneering, competitive organisations, working in key manufacturing sectors: garment industry, electrical equipment, leather (high-calibre tanning plants are resettling in the Arzignano district, now seen as a case study), industrial machinery, and also furniture, chemicals and instruments of measurement and control.

On closer inspection, reshoring is more common in areas in which Italian manufacturing is stronger and more active, i.e. the sectors which generate the majority of Italy’s exports (mechanical engineering first and foremost, followed by clothing, furniture, food and farming and pharmaceuticals). It makes sense: manufacturing is brought back to Italy in areas with skills, experience and a “looks good-made well” business culture, namely those sectors in which the international competitiveness card is played very judiciously, capitalizing on factors (human capital, social capital, the experience of geographical areas with a long-standing and solid tradition of industrialization, a readiness to adapt and embrace process innovation)  which bind tradition to innovation, quality and the intelligent use of hi-tech and medium-tech manufacturing expertise in original ways. All of this takes place in the Industry 4.0 era of digital manufacturing in what are known as “neo-factories”.

It’s a complex thing, reshoring. Definitely to be encouraged. It should be seen as part of Italy’s attempt to make enterprise the cornerstone of the country’s growth. Underpinning this attempt is the desire to attract international investment (which has been rising in recent years, albeit not enough), promote new domestic investment, acquisitions and expand the international reach of Italian businesses. Oh, and reshoring  of course. All converge on the fundamental belief in the value of Italian industry. It could be described as manufacturing activism capable of rising to industrial, European and global challenges.

To handle such a challenge, there are some necessary building blocks. A “light”, transparent and efficient system of government (criminality, widespread corruption and unfair competition by businesses with mafia links hinder investment). A timely and effective justice system.  A streamlined organisation that is not overly complicated or cost-intensive. Superior infrastructure, both tangible and intangible (starting with broadband). A focus on high-quality research and training. In other words, it is important to build an environment that nurtures business, market culture and competition.

The reforms introduced by the Renzi administration, and by some regional executives (not in the south of the country, unfortunately) take steps in this direction. The aim is to do more and do it better.

Milan, a competitive, inclusive smart city (Aldo Bonomi describes it well in “IlSole24Ore” , 8 May), working in a tight-knit, metropolitan relationship with Turin and Bologna,  may serve as the benchmark and example of how to link manufacturing, services, finance, training and research, as well as a social responsibility as a means of furthering sustainable development.  According to Assolombarda, Milan’s position as a steam city  (acronym for science, technology, education, arts and manufacturing) could be the perfect  paradigm to attract multinational organisations, encourage start-ups, and facilitate the kind of reshoring we have been discussing. A virtuous cycle for the Italian economy, driven by sustainable development.