Analysis: Italian firms innovate to fight recession

Bioplastics group Mossi & Ghisolfi has hired 50 people a year for the last five years - not bad when Italy's unemployment has risen steadily to a 13-year high above 11 percent.

Now a world leader in its field, the Piedmont-based firm is so specialized that, to meet booming demand, it is even wooing home talented emigrants ready to take jobs at much lower pay than they could earn in Germany or the United States.

"Our business is all about technology and research. Italy is trying to compete with Vietnam on costs. That won't work. But Italy is the Vietnam of research. Our researchers are cheap, and that's the way forward," says group CEO Guido Ghisolfi.

The $3 billion-sales multinational, which boasts among its customers Coca-Cola, Danone, Nestle and Cadbury Schweppes, is an example of one of Italy's hidden strengths - companies that thrive by focusing on technology, innovation and exports.

Italy's next government must nurture such firms in a shrinking economy where domestic consumption is depressed by tax hikes and spending cuts aimed at reducing the budget deficit.

Caught in its longest recession for two decades, Italy's industrial production is around 25 percent below 2008 levels.

According to chamber of commerce association Unioncamere, around 1,000 Italian firms a day closed in 2012. Some fear that a weak government after this weekend's elections will shy away from the difficult reforms needed to make Italy competitive.


But if the headline data makes dismal reading it doesn't tell the whole story.

Clusters of medium-sized firms in engineering, packaging, fashion, food and ceramics are a reminder that Italy is still Europe's second-largest manufacturer - though few of these are located in the country's chronically depressed south.

According to the Trade Performance Index drawn up by UNCTAD/WTO on the basis of indicators such as net exports, world export share and product diversification, Italy is the most competitive exporter after Germany at the world level.

It had a trade surplus for manufactured goods of 94 billion euros in 2012.

"It's not true Italy is not competitive," says Marco Fortis, who teaches industrial economics at Milan Cattolica University, noting that its feeble growth is due largely to a 20-year process of deleveraging in public finances and rising taxes.

"The Chinese can do the simple stuff better but 'Made in Italy' is flourishing on high value-added products. Success lies in tailor-fitting production to client needs, not mass production," he says.

For companies in the buoyant fashion and machinery sectors it is factors like brand strength, market presence and post-sales service that are telling, not prices.

Bologna-based IMA , world leader in machines that package pharmaceuticals and make tea-bags for companies like Twinings, has seen its sales grow in recent years as it uses its technological know-how to branch out into new sectors.

"Moving forward we intend to use our innovative DNA to pay more attention to non-pharmaceutical business such as food," CEO and Chairman Alberto Vacchi said.


IMA, like the world's biggest airport retailer Autogrill , has placed private bonds in the United States - proof that despite chaotic politics and corruption scandals investors are not completely shunning the euro zone's No. 3 economy.

Some companies are scouting the world for innovation.

Biomedical group Sorin , a world leader in cardiovascular disease that makes cutting-edge technology for open-heart surgery, is combing world markets for start-ups that will complement its product portfolio.

"We are snapping up ideas and technologies worldwide by buying into start-ups," Sorin chairman Rosario Bifulco said.

Fiamm, Italy's biggest battery maker with factories across the world, is reopening its historical site in north Italy and hiring more workers after developing a new sodium nickel battery which it said opened up a new client base.

Fiamm, like most of Italy's success stories, exports some 75 percent of its production to offset flaccid domestic demand.

Interpump , whose high-pressure water pumps can cut through steel, currently exports 87 percent of output.

"Internationalisation is a must. Our domestic orders portfolio has been halved as clients start to feel the pressure of the crisis and liquidity," CEO Fulvio Montipo said.

(Additional reporting by Lisa Jucca; Editing by Gavin Jones and Roger Atwood)