The Industrial Location and Agglomeration Phenomenas

In

Economic Geography

The Academic Definition 3

The History Of Economic Geography 4

Krugman 6

The Centrifugal And Centripetal Forces 8

The Geographical Factor That Influence The Location 10

The Spacial Division Of Labour 17

Specialization, small enterprise and clusters 19

The Italian Industrial Districts 21

The Veronese Shoemaking Sector 24

FIAT 27

The Blue Banana 29

2

The Academic Definition

Economic Geography is the scientific discipline that is responsible for analysing economic

phenomena according to their distribution in space.

Beginning from the geographic space, economic geography elaborates the “economic space”. This

discipline of study belongs simultaneously to two fields of study, that of geography and that of

political economy. Economic geography analyses all the relations of the economic subjects in a

delimited space, called “territory”, and with a particular scale of analysis (local, national,global).

For this reason this discipline is known even as “science of spatial relations”.

To provide an explanation to the economic relations of a territory, economic geography must

consider:

Natural factors of space:

altitude, climate, natural resources, positions

Political factors of space:

borders, history, religion, policy etc.

Natural and political factors allow to explain the relations between the economical subjects in a

territory.

Unlike the economic theory, the economic geography is a discipline that shows a closer link to

observable reality.

Economic Geography shows us two different types of spatial relations:

Horizontal spatial relations those relations that are established between the economical entities in

space, as economical exchanges, movement of capital, migrations, production plants etc.

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Vertical spatial relations are relations established between economic entities and the

environment/background where they operate. And vice versa. Environment influences economic

decisions that, in turn, modify the environment itself. Environmental factors may be of natural type

(altitude, climate, resources, position etc.) and of political-human type (history, organization,

politics ecc.). Both factors concur to determine the concept of “organized human space”.

The History Of Economic Geographic

It is the systematic study of the spacial organization and location of the economic activity.

The first phase. The first scientist that gave his contribute for the elaboration of this discipline was

J.H. Von Thunen. In the early first half of 19th century he built a model able to consider the location

of the agricultural activity as a function of the transportation costs, which have to be incurred in

order to move products with different physical characteristics towards an urban centre, and be

accountable of the paid incomes on the different types of lands. A new urban economic model, that

describes the use of the land around the city, emerges, whose existence is not explained in any way.

Neither the try by A. Marshall, based on the consideration of the possible effects caused by external

economies succeeds in describing in an adequate way agglomeration phenomena that are on the

base of urban centres' birth, and more in general of the concentration of the productive activity.

The 20th century. The contributes from W. Christaller and A. Losch – elaborated during the 30s

and the 40, in the suburbs-centre theory – describe the efficient properties of a geographical

structure characterized by the presence of a hierarchical partition among the centre and the suburbs.

But again a detailed explanation about the processes that lead to the creation of that hierarchy . It is

only from the second half of the 80s that P.R. Krugman, on the base of his studies about

international trade relations in the presence of the economies of scales, contributes to give again an

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impulse to the economic-geographical studies, giving a full explanation about the agglomeration

process.

The further developments. The New Economic Geography was born, a current of studies in which

links between the imperfect competition, increasing yields, sectorial complementarity and processes

of cumulative causation exist and were proposed by scientists such as Hirschman, Myrdal, Nurske,

Rosennstain Rodan, however without an adequate and formal representation.

The distinctive trait of this current reintroduced by Krugman is the endogenous determination of the

agglomeration process of the productive activity, in particular the manufacturing one. In the most

simple model the existence of a traditional activity (agriculture) is assumed, with constant yields

and competitive markets, and also a modern activity (manufacturing) is assumed, in which the

shape of the market is imperfectly competitive and the yields are are crescent. Both of the activities

use as a unique productive factor the labour that can move from a region/sector to another. Exactly

the mobility of the labour force produces centripetal effects, that push towards a further

agglomeration of the modern activity, and centrifugal effects, that justify on the other hand a

dispersion of it.

The force labour concentration in a region determines indeed links both downstream and upstream,

that tend to self-support and to a greater final demand, due to the fact that the workers are

consumers too. This pushes the enterprises to relocate inside that same region, because it becomes

easier to incur entry fixed costs on a bigger market. In this way the supply of new products rises, a

phenomena which tends to attract new workers. Otherwise, the agglomeration of productive/labour

activity creates some negative externalities too that lead to a dispersion of the activity.

The described model may be used to explain the agglomeration and polarization phenomenas on a

regional or national level, caring the tendencies related to the original concentration and to the

further geographical disintegration of the productive activity happening during the latest phases of

the globalization process.

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Krugman

“If truly we lived in a world as that one the greater part of the economic theory describes (…) there

would be a certain imbalance in the population distribution and a minimum of trade between places

belonging different natural resources, (…) but basically each region could produce all of the

products it needs. But the dramatic spacial inequality of the real economy - the disparities between

highly-populated industrial and rural regions, between congested and desolate cities – is not for sure

the results of natural differences between places, but rather of a combination of cumulative

processes, due to them the geographic concentration is able to self-strengthen.”

The reference theoretic framework is the New Economic Geography. The NEG models give a high

contribute to the comprehension of the developing phenomenas. Remaining on this approach, some

regions have evident advantages, called of “first-nature”, in compare to the others: natural

resources, climate, geographic positions. But the most relevant point according to Krugman is that

there are also “second-nature” advantages: a region attracts new enterprises simply because, beyond

every objective consideration, already hosts a lot of them, and in this way makes the other regions

poorer. The NEG does not postulate the existence of these effects, it demonstrates them analytically:

the concentration of the economic activities is originated by the interrelations between the

economies of scales, transportation costs and factorial mobility. If the transportation costs are

sufficiently low, and the fixed costs of establishment not null, and for any other reason the

productivity rises ( and so the demand) in a specific region, and the enterprises are motivated to

move to there, abandoning the others, together with them the labour force will moves. But little by

little this happens, the production and the demand in that market growth, and the reasons to move

become stronger and stronger. The final result might be catastrophic: a highly-polarized model.

This happens also without factorial mobility, and if we suppose that in the economy there are

transportation costs and two productive costs: one (agriculture) with constant yields and one with

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crescent yields, the latter produces and uses intermediate products. The basic idea is that the

producers of intermediate goods, in a region characterized by a big manufacturing sector, have

advantages represented by the contact with the final producers, while these have advantages by the

presence of the former. Still, the cumulative causations might be originated not by the movement of

the factors, but by their accumulation: bigger markets make investments more favourable and this

makes them big again. The economic geography is like the clay: a priori there is a big flexibility on

the location of the economic activities, but once they reached that form it is quite difficult to edit it.

The importance of these models, beyond their hyper-simplification, is in one point: ,two perfectly

identical regions might become deeply different because of the endogenous forces. Their dynamic is

determined by two factors:

1. the quota of employment in the sectors with a not limited location ( for instance in the

manufacturing). The bigger this quota is, the higher the probability that the economic

activities are concentrated is. If a large part of the population is employed in activities with

a limited location (agriculture) and so less mobile, there are more obstacles for

agglomeration phenomenas: this might explain the reason why, when the weight related to

the activities with not-limited location rises, the agglomeration and spacial disparity

phenomenas become more probable.

2. The level of transportation costs. The smaller this level is, the easier is to satisfy the demand

express by a region through another's production, so the agglomeration process is

facilitated.

Also this conclusion might explain the long-period phenomenas: when the transportation

costs rise (innovation in technic ways of transport, liberalizations and demolition of the

costs) the production will easily concentrate in only few regions.

3. The relevance of the economies of scales. The more important these are, the stronger the

tendencies toward the agglomeration are.

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The agglomeration of the economic activities is not an automatic event but it is really probable; a

minimum change is sufficient, if the transportation costs are low enough, to activate a cumulative

process.

The important point is that the processes tend to self-strengthen: economic forces exist, that are

endogenous in the system, and they strengthen the polarization.

The centrifugal and centripetal forces

The main task of the economists that are studying the spacial concentration phenomenas is to

identify these endogenous force, caring about the possible effects of the factors characterized by an

external nature. It is not at random, indeed, that the models, debated above, try to explain the

agglomeration assuming that the regions have initially identical characteristics (in terms of initial

equipment and other first-nature competitive advantages) and that the economic activity is initially

distributed in an homogeneous way. Having given these hypothesis, these models try to identify the

economic forces which determine a large and permanent change in the spacial distribution of the

productive activities. The concentration degree of the economic activity is the result of the

integration between two opposite forces.

The centripetal forces, called also agglomeration economics, contribute to explain the tendency

towards the spacial concentration of the economic activity. They are types of economics advantages

that the enterprises gain from a concentrated location, close to other activities: economies of scales

and various forms of external economies.

The existence of crescent yields gives the possibility to understand the reason why the regions

without any particular competitive advantage might develop in such a different way.

The concentration process may be so delineated. The crescent yields tend to support the

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concentration of every-good production. When the transportation costs are considered, the

enterprises tend to concentrate in the closest areas to the markets and to the suppliers.

In the end the concentration of the production tends to attract the mobile factors, the workers have

better jobs and a better variety of consumption opportunities in the areas where the production is

concentrated.

This process of migration creates an increase of the goods demand that makes these regions even

more attractive for the producers. Once a region represents a high quota of the total production, the

concentration process tends to self-strengthen. An advantage of second-nature is created, the region

becomes more attractive for the reason why that the other enterprises already work in that area.

Naturally, the process does not continue perpetually because there are centrifugal forces that

contrast the tendency towards the concentration.

Krugman summarizes schematically the main centripetal forces, which support the concentration of

the enterprises, and the centrifugal forces, which do not allow the productive activity to concentrate

in only one point.

Centripetal Forces

• The market dimensions

• A rich labour market

• Positive externalities

Centrifugal Forces

• Static factors

• Land values

• Negative externalities

It is necessary to clarify that the main centripetal force taken in consideration by the NEG to explain

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the agglomeration phenomenas is represented by the market size effect, called also market access

effect.

The centrifugal forces are the static factors such as the land, the natural resources, the workers.

The concentration of the economic activity leads to an always crescent demand of the land and

buildings: the crescent prices tend to push away the enterprises and the workers. In the end the

negative externalities such as the congestion and the pollution are quite relevant.

The geographical factors that influence location

To what extent the companies that form a production system have convenience to locate next to

each other? It is therefore to determine the value of proximity in the companies’ location.

This is a classic theme in economic geography, which is part of a wider theory of agglomeration.

The economical activities - mainly the industrial ones – are not equally distributed all around the

territory but tend to concentrate in some specific locations, giving rise to huge imbalances in the

distribution of economic development.

These precesses of agglomeration and imbalance act in all geographical scales: on a global scale are

distinguished in developed countries and developing countries, on a national scale we find

industrialized areas and backward areas, and even on a regional scale companies tend to privilege –

for example – coasts, the peripheries of urban areas or they may locate next to each other, creating

industrial agglomerations.

Six different variables of geo-economical nature can be found: distance, accessibility, interaction,

diffusion, comparative advantage and the economies of agglomeration. The first four variables are

purely geographical: they depend in fact directly from an action, facilitating or preventing, that

space exerts on the processes. The last two variables are taken from politic economy, and their

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specific geographical content will be highlighted.

Distance can be considered, intuitively, the classic variable in geo-economical analysis. The

interaction between supply and demand (market), that in classic and neoclassic political economy

occurs in a-spatial terms, actually moves inside a real space.

This means that supply and demand are not ubiquitous (or not collocated in the same point), but

they are, and can be collocated in different points of this space. Therefore the price abstractly

formed by the intersection of quantities of supply and demand is not actually the only cost that

demand will have to endure to have benefits from that good. Obviously, the greater the distance

from the consumer to the place of supply, the greater will be the real cost that he will have to endure

in order to procure that good, until the cost of moving will be high enough to cancel the demand.

These simple considerations refer to the distance as a physical distance, but this is not the only

possible meaning. It can be more usefully measured as distance-time (a place physically distant can

be very close, if connected to a system of traffic) or as perceived distance ( a place can be

considered closer or more distant regardless of its physical distance; if, for example, to reach it it is

necessary or not to pass through natural obstacles, or if it is a place characterized by affinity or

familiarity from who perceive the distance). As we know, it is certain that distance, as a factor that

deviates the market in such a recognizable and reputable way compared to its abstract dynamic,

generates recurring and predictable configurations in the geography of economic activities, leading

the actors to similar behaviours.

Accessibility may be considered in some ways a complement of distance, but it is a different quality

of the individual places. Some of them, in fact, as we already noticed, are more easily accessible

than others, even if they are at the same distance. The motivation for that big cities or industries are

usually placed in plain is not distance, but accessibility. We can find them even near the coast (to be

accessible for vectors prohibited by internal locations), or even it is common to see that huge

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concentration of economic activities are built near the joints of the major traffic axes or along their

path. The same typical configuration of urban areas, with the overlap of trading economic activities,

and superior, in the centre (the “central business district” of every American city; one that, due to

space limitations, should then be extended upwards with skyscrapers), obviously obeys to an initial

accessibility criteria (central location is the one which geometrically minimizes the movements and

therefore optimizes transactions), then historically consolidated.

Interaction represents the particular functional relation which is established between two (or more)

different places. These relations can be traced to the existence of a complementarity between supply

and offer. Where it exists (that is where a local demand can be satisfied by the supply of another

place), there will develop mutual relations and flows of movement of goods, information and

people. The intensity and the configuration of these flows will be determined by the presence (or

not) of concurrent opportunities (other places that have a similar offer), and there must logically

exist transferability conditions, that is the distance between the two places is (or is not) perceived as

excessive. The interaction between two places is also a phenomenon that can be appreciated

intuitively. It is natural that large concentrations of population and economic activities are both

large deposits of supply and demand, and that these find preferential channels for expression.

Experimental analysis show that there is a regularity in interaction between places that present

particular characteristics, and Reilly’s law. It is usually directly proportional to the size and

inversely proportional to the distance of centres that interact.

The spread exemplifies the particular ways in which a phenomenon is moving in the geographic

space. They are clearly not casual, and they usually obey to two different logics, epidemiological

and hierarchical. Actually the geographical spread processes of a phenomenon (industrial

revolution, a technology, an ideology, a fashion, an epidemic, an innovation etc.) occur because of

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the work of both logics, but with the prevalence of one or the other. The epidemiological diffusion

assumes, such a disease, physical contact, and so it is closely linked to a territorial dimension (like

wild fire or, in an abstract space, concentric circles spreading on the water are a perfect metaphor).

The hierarchical diffusion (filtering down) works trans-territorially, transferring information

through privileged channels with which the same phenomenon occurs in different and non

contiguous places.

The joint work of distance, accessibility, interaction and diffusion tends to create something that we

might call a geographical factor of second level, or derived: circulation networks. They consist of

connections that are localized by the basis of the logic of diffusion, and the role of the single nodes

will rely on their accessibility, the mutual distance and the intensity of their interaction. Even in this

case it is clear how the historic work of the four factors tends to define a particular circulation

system which is rich of selective effects from the development point of view. However the four

factors discussed (with the partial exception of accessibility) presume the nodes, do not identify

them a priori. To do this, it is necessary to resort to the other two factors, first the comparative

advantage, then the agglomeration economies.

Comparative advantage is a known definition for political economy, and it is due to David Ricardo,

who theorized it. However now it is sufficient to get its basics, even apart from its theoretical and

practical consequences on international trade precisely described by Ricardo’s theory. Economic

activities are are always realized from a basis of factors of production, that is, land, capital, labor

and technology. Each site will obviously have a different combination of these four factors, or at

least of some of them. This site will develop economic activities that will be strongly conditioned

from this combination: it is impossible for it to develop economic activities that require an absent

factor, and will be highly improbable to find economic activities that require a factor or factors

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present in marginal way.

But if a particular mix of factors of production is considerable, it is not sure but probable that a

specific economic activity based on that mix will grow significantly, since production of wealth is

essential to the survival of the community that insist on that site. This will lead that specialized and

localized economic activities to enter in competition with other similar activities of other sites.

The mechanism of competition will bring one (or some) to emerge and consolidate.

Agglomeration economies are the other influent factor in the consolidation process. Clearly the

market competition operates on more levers, and the trajectory of a specialized node is not only

determined by its endogenous characters, that is, linked to resources and internal processes. On the

contrary, even relevant endogenous capacities may appear insufficient in front of esogenous

alterations, and not governable by the node (for example a drastic change in trades geography, or

technologies: the circulation network of the railway and the increasing efficiency of the draining

pumps in the mines drastically reshape the industrial geography of Britain). But there is no doubt

that the processes of local specialization that optimize a particular mix of factors of production

produce income that increases as the concentration. It is what we assumed at the previous point

about external economies or externalities: concentration have many practical and cultural

advantages, which are showed in the external economies of localization (related to the presence of

companies belonging to the same sector) and in the external economies of urbanization (related to

qualitative and quantitative development of urban functions). Both offer specific advantages to

those companies established in particular places, which translate into lower costs and higher

efficiency and therefore they tend to consolidate local specialization.

Agglomeration economies respond to a logic, that of increasing returns, essential in a geo-

economical reading, and highly heterodox compared to a traditional political economy, which

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conceptualizes the market as a source of constant returns, which in turn leads to perfect

competition. In a world of constant returns, the geographical differentiations of development can

hardly be explained, and if they are led back to the working of case, history or the specific

allocation of that factor, market forces will soon lead back to a geographical balance (as the theory

of comparative advantage and derivates precisely prescribes). On the other hand, a world of

increasing retuns, economies of scale (internal and external) and imperfect competition is a world of

a deeply differentiated economy from the geographic point of view. That is the economy as we can

actually observe.

The six factors discussed always operated in pointing out the distinctive geography of economy.

Each factor can be traced in history, and it produced different effects in all the stages in which it

would be possible to analytically decompose the observed periods. But at the same time their

combination is different as time passes. We can see an example of this observing the case of the

distance: from being absolutely primary, its incidence has gradually eroded thanks to the

technological development. The circulation networks that summarize the first four geographical

factors are in fact realized with the technologies available in that time, and the evolution of the

tecniques can dispel (or create from scratch) consolidated advantages of accessibility, or multiply

the filtering down channels of diffusion. Similarly, the importance of the production factors varies

as time passes, and with it even the geography of opportunities linked to particular factors of

production. The same economies of agglomeration are subjected to a temporal gradient: some

advantages that were once closely linked to the geographical presence can now be replicated at

distance. This explains the current, very wide recourse of industries to a geographical relocation,

that is the most sensible geo-economic factor of current globalization. However, none of the

geographical factors that we discussed has become irrelevant: a first general conditioning

modellisation offered by relocation, valid retrospectively as in perspective, can be exemplified as

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follows.

1. Some sites acquire a head start and begin a path of specialization in a specific industrial

activity. This of course happen for many historical factors, but usually it is always linked to

a particular combination of comparative advantage and accessibility, that is when a

particular situation, privileged in terms of allocation of certain factors (with for example the

coming of a new technology) crosses path with a geographical advantage that makes that

site easily accessible and its merchandise easily transferable.

2. If this specialization is successful and does not prematurely deteriorate, the trades system

tends to be structured from its presence and its role. This happens both in a practical sense

(with the creation of new connections), and in a functional sense (intensifying and diverting

flows on particular connections of that productive node than others). The circulation

network basically tends to configure differently, and flows and connections based on that

node will specify in function of distance, interaction and diffusion.

3. This lead to make that local industry more efficient, being the centre of a specialized labour

market (specific skills of the workforce and experience-attitude of doing business), which

will in turn make that territorial system a privileged location for other companies. That is to

say that specific economies of agglomeration are developed, which improve its efficiency.

4. From this point on other locations are disadvantaged, their path will be affected by the

trajectory of the location that has successfully specialized, and these locations will have to

wait for a new “technological leap”, with the arrival of a new socio–economic organization

and a different demand of factors (as quantitative or qualitative workforce characteristics, or

new ways of circulation and transport) to have the real opportunity to change their

disadvantaged position (this obviously does not means that they can really take this

opportunity, but only that the initial advantage of competitors is not, at least in theory,

insurmountable).

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As you can see, the described process combines for the first phase two geographical factors, three

for the second and the last one for the third phase. Even in this case, in fact, it is not entirely correct

to specifically correlate some factors to a single phase, excluding all the others from it. In effect all

of them, in some measure, operate in each phase: agglomeration economies, for example, are

established from the beginning, and even accessibility is a constituent factor of the rising network of

traffics. There is no doubt however that the effects of each factor occur in all stages with different

importance, and are prevailing from time to time, which is a good approximation of reality.

The Spacial Division of Labour

During the 70s and the 80s in the range of economic geography, the attention is not anymore on the

studies about the industrial location, meant as an analysis on the locative choices by the single

companies or factories, but on the 'spacial division of labour'. The analysed theme was the spacial

distribution of the labour, that is the geographic dislocation of the different components of the

productive chain. Should every single block be organized in a unique factory or in a myriad of

separated production unites? Where will the phases of the production chain be located? Which way?

It is possible to identify a classification based on two different alternatives:

I.The first alternative is about the possibility that the single productive units were managed by only

one enterprise or by a myriad of independent enterprises.

II.The second alternative is about the possibility that the productive units were concentrated inside

an only region, or scattered at a global level.

On the base of these variables – integration/autonomy, concentration/dispersion – it is possible to

build a program that allows to classify some types of production systems.

The increase of the dispersion level leads to the increase of the geographic scale – local, regional,

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national – until the system organized on a global level, such as the multinationals: big integrated

enterprises that commercialize several products and have really copious productive units scattered

in different countries.

The multinationals might be characterized by two different level of autonomy or integration. Is it

possible to identify the multinationals and the transnational enterprises: in the multinational the

head society has an hegemonic role in the decisional and strategic process. The branches abroad

have to answer the centre and assume the role of mere executor. In the transnational enterprise the

need of coordination and those that support branches' autonomy intersect. The networks of inter-

enterprises relations (inside only one company) becomes a network between independent firms

oriented to the collaboration and the exchange of knowledge, materials, products and services. The

multinational manages in a centralized way the product portfolio, permitting the units abroad to

make the assembly and the local adaptation. The transnational enterprise integrates in a worldwide

strategy the activities belonging to the core business, while lets the branches have the autonomy to

decide on the critic functions, that vary from country to country, on the more correct marketing

strategies and on how to cooperate with the local institutions.

On the opposite extreme of the multinationals, it is possible to have configurations like a clusters –

or industrial districts – characterized by a big number of small and medium sized enterprises

participating to the same productive process (chain or production system) and all of them are

located on the same territory.

Specialization, small enterprise and clusters

The transition towards a post-fordist economic system and the development of system with flexible

specialization, carries to reconsider the role of the small and medium firms that inside complex

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networks of production can have a remarkable competitive and adaptive skill.

This contrast the traditional vision on the function belonging to the small and the medium firms.

These indeed have always been considered important because they contribute to the creation of

employment and to the widespread production of an income, conducting functions of absorption of

labour. But they are considered little competitive and barely relevant for the economic growth and

the regional development, that can not exclude the presence of of big industrial firms. This lacking

competitiveness would be due to limits connected to the small dimensions:

• the constant under-capitalization due to the limited access to the capital market, distorted in

favour of the big companies;

• a barely productive specialization: they can not use the economies of scales and they do not

have incentives to rise the productivity, they suffer for the structural and technologic

backwardness;

• a barely managerial skill and short-period vision: the dynamics of these small companies end

up to be closely related to entrepreneur's family and personal happenings;

• greater difficulties to find qualified personnel. The small companies have inadequate access

to the humane resource with an adequate formation, that is absorbed by the big companies;

• adverse effects from general economics policies.

The amount of these factors of weakness prevents the small firms from overcoming the obstacles

that do not allow to rise their size and to become competitive. The small and medium enterprises

have in general a short average life. This situation can create dual economies, characterized on one

side by a limited number of high-competitive big companies that produce for the global market, on

the other side a huge number of small companies that produce for a local market, often through

informal or illegal channels, and they can not growth.

At the end of 70s it was found out that these difficulties may be overcome working not in the single

enterprise but on grouping and networks of these, called clusters. Inside the agglomeration of

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companies that participate at the same productive process, the small and medium productive units

are able to gain on a territorial level the same efficiency and specialization of a big enterprise,

together with the advantages of the flexibility and the adaptive skills.

The clusters (or industrial districts) might have different forms, but they are always systems of

enterprises, located on a same territory and that participate at the same productive process. The key

concept is that one of synergy. The advantage of this developing model is that the plurality of the

actors who are in the district, working in a competitive context that is mitigated by the presence of a

sharable and well-established culture, achieve on a systemic level peculiar competitive results

which they could not obtain if they worked individually. In other terms, the spacial aggregation

determines a particular condition of efficiency on a territorial level.

Industrial districts and clusters are defined as 'flexible specialization': the decomposition of the

productive cycle in distinct phases allows them at the same time to be highly specialized, but also to

be more flexible. The labour force becomes more adaptable and flexible. The requested labour is

greatly of a specialized type but less unionised. The collective flexibility gives the rapid answer to

external changes, the production of highly differentiate goods, the development of companies

specialized in input supply, the rapid absorption and the diffusion of new technologies and market

information and the development of a specialized and qualified labour force.

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The Italian Industrial Districts

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The Birth

It is indicative that the industrial districts have been discovered in Italy and, in particular, in the

North-eastern regions, defined at the end of 70s as the Third Italy. These regions remained excluded

from the Fordist industrialization process, that characterized on the other hand the industrial triangle

(Torino-Milano-Genova), and they were until 60s retarded and with a heavy emigration.

During the 60s and the 70s in these regions a process of widespread industrialization started, based

on small and medium enterprises and on productive specializations in traditional sectors with

standardized technologies: food, corsetry, clothing, ceramic, furniture, glasses, etc. Italian districts

are aggregations defined by a long artisanal and manufacturing tradition behind their back. Only

recently their awesome skill to compete on the international markets, their efficiency and skill to

constantly introduce innovative products and to promote a model of development and widespread

wealth on the territory where they are settled emerged and developed. The small size of the

enterprises encourages indeed a better income distribution.

The theoretical debate has mostly highlighted the territorial roots of these local systems and the

importance of the local size. The enterprises who belong to the same community share territorial

and cultural connections. These stimulate and make possible the cooperation and the

competitiveness between the firms. The systemic efficiency is emphasized by the simultaneous

presence of the so called “relational goods”, sociality structures, of a favourable and social context

and by a system characterized by a particularly density of social relations. In this way the

innovation is incentivised.

The integration, the cooperation and the proximity permit to obtain at the territorial level the same

degree of coordination and efficiency that is possible to gain with a big integrated enterprise,

together with the flexibility and specialization. The districts inevitably end up to characterize the

territory where they growth, the territory becomes a factor of production: it follows that these

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systems are more well-established on the territory.

Porter and the clusters

“ Now that the companies can find capital, goods, information and technology all over the world,

through a simple mouse click, some old certainties about how these and countries compete should

be revised. In theory, more opened global markets and faster transport and communication media

should decrease the location role (…) Nevertheless today the economic map of the world is

overawed by clusters: critic masses with competitive success in some particular sector that are

concentrated in a determined place. The clusters are important elements of every national economy,

regional and even metropolitan (…) However all of clusters are different from each other – this is

an evident paradox: the possibility to have robust competitive advantages in a global economic

system always depends on more local factors – knowledge, relations and motivations (…). The

location role has been neglected for a long time, although the clear evidence that innovation and

competitive success are often geographically concentrated – whether it is a cinematographic firm in

Hollywood, finance in Wall Street or electronics in Japan. What happens inside the enterprise is as

important as what happens outside it.” (Porter, 1998)

Clusters and districts analysis led to reconsider the importance of the territorial context where the

industrial production occurs and to rediscover the territory as a strategic factor of development and

competitiveness.

An enterprise is an opened system, a combination of production input, beginning with the labour.

The competitiveness and firms efficiency do not only depend on the internal characteristics but also

on their relations and their locations. Territory – or region – rather than the firm, is the real

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production unit.

theoretics of local development have highlighted that the problem is not to adopt the technology or

the best strategy: the solution has to be found inside each territory, through a specific analysis about

its strengths and historical events. Its development is a process full of complexity influenced by

economics and extra-economics (social, institutional, cultural and political) variables; it is

impossible to capture them without referring to the context. Production systems – flexible or

traditional – are not a collection of firms that takes action basing on criteria of microeconomic

efficiency only, but on networks of interpersonal relations settled on social and cultural structures of

each territory.

The Veronese Shoemaking Sector

The district history

The Veronese district became aware of its maturity and of its important dimensions in the second

half of 90's.

It is obligated to relocate abroad part of its production chain. The relocation of the cutting and

machining phases forced a radical change in the managerial organization transforming the firms

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from producer in tertiary firms, firms that study the collections, that buy materials and services, that

relocate cutting processes. The know-how make shoes becomes a necessary condition but not

sufficient for the firm's survival. Problems became really complex and also in a logic of a global

market where every single firm is a sand grain.

Furthermore needs of formation in all ares exploded, in particular for the firms management and

planning; the need to form 'pattern makers' , international promotion, the support for those firms

that offer high-technologic and scientific services for instance the engineering of the processes.

For the most of the emergent needs the solution could not be given by the single firms because they

were not big enough. Who impeded the solution were the strong individualism and the direct

competitiveness between the firms on the same territory.

So in 1997 a strategic plan was created by some 'illuminated' operators of the production chain. This

plan had three phases.

The first phase

It was the crucial phase of the transition from the conflictual competitiveness to the dialogue.

This strategic aim was faced, being a cultural problem, using a neutral and impartial instrument: the

formation. The Consortium FO.CA.VER was founded, consortium of formation of the Veronese

shoemakers.

In the period 1997-2000 they realized an intensive educational plan specified in the shoemakers

production chain. It was created for the middle managers and for owners' sons with the aims to

establish multiple meeting and and direct confrontation occasions and to overcome the mutual

diffidences.

After an intense work they succeeded in gaining the best results and so they could switch to the

second planned phase.

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The second phase

To create a system the formation was not sufficient. Suitable instruments and legal ones too are

required, that could be sharable by a large group of firms and with the aim to establish a direct

partnership.

The legal form of the consortium was not adequate because every firms did not feel the

responsibility and limited their entrepreneurial.

So the Ciscal S.p.a was founded as an effective instrument to face trough a managerial key the aim

to create a system. The logic and efficiency of their activities as a system are those specific of a

corporation, including the entrepreneurial risk.

The third phase

It was and is actually characterized by concrete actions in order to work on mutual aims and

summon other firms.

The shoemaking district in numbers

The district includes several kinds of firms: shoe factories, direct suppliers of the production chain,

artisan shoemakers and service companies.

• Production: 20/25 millions of pairs of shoes.

• Employees: about 4,500 units

• Agreement-subscribing firms: more than 100 productive firms

• Verona is the fifth province for export in all country.

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FIAT

The Italian enterprise FIAT took in consideration the choice to re-locate few phases of the

production chain.

So starting from the 50s it outlined its own expansive policy oriented to the research of new

markets.

1953 Spain

1954 Yugoslavia

1966 Russia

1968 France

1969 Argentina

1971-1973 Turkey and Brazil

Starting from the 90s it expanded to Centre-Eastern Europe (Poland, Serbia) and to South America.

The globalization process was going to be complete, the enterprise did not wish to get left behind so

through the 178 Project it drew its own global commodity chain, to the conquest of new markets

quotas of the emergent countries that are able to guarantee a constant expansion of the demand of

goods.

Initially Italy hosted the production core (design, R&D) while the production was indeed re-located.

Although the first phase of the project was conceived in Italy, the productive model predicted the

birth of R&D centres in those countries where the FIAT products would have been sold. This was to

support the different needs of the markets where the enterprise was working.

The project predicted also a partial demolition of the vertical integration therefore the suppliers

gained an active role in the design, planning, production phases, making a certain spacial proximity

essential, sometimes a really true process to a cluster process.

It seemed to exist a tendency towards an inverse process of hierarchisation that was totally

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voluntary, in favour of a reconfiguration on a regional base of its own managerial structure, or

rather of another territorialisation.

FIAT's approach seems to be recognized in the territory-based approach, according to this the

economic factor “territory” is effectively identified because of its skill to create specific resources

which by definition are not transportable and of an extremely importance. This theory perfectly

clashes with the agent-based approach which recognizes enterprises' skill to make their strategies

irrespective of the territorial element.

The certainty that the territory-based approach is typical of the FIAT group becomes more solid in

reason of the crescent significance that the concept of proximity, as a acknowledge, teaching and

confidence sources, has inside this particular production chain.

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The Blue Banana

29

The most known and relevant scenery is that one who refers to the so famous “Blue Banana”: a

sufficiently homogeneous area on a socio-economical and functional profile. This area goes from

the south-east of Great Britain until Northern Italy, crossing Netherlands, the Rhine areas of

Germany and Switzerland. This dorsal area, whose shape reminds a banana, has some

characteristics:

1.many medium-big sized towns,

2.the presence of wide urban agglomerations (Ranstad in Holland, Rughegebiet in Germany,

Metropolitan Area in Italy), always been the centre of industrial and tertiary development in Europe,

3.the exclusion of the big capital cities (Rome, Berlin, Paris, Vienna Madrid) with the exception on

London.

The role of the preeminence in the task of the social and economic development, that is own of the

cities settled in this area, has far origins. The heart of the economic and commercial activity during

the Roman-German Emperor consisted in the Mediterranean Sea, but when, starting from the VII

century, the Muslim fleets occupied this lake, familiarly called so by the Romans: “mare nostrum”

(our own sea), the barycentre of the same activities is gradually moved to Central Europe, exactly in

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correspondence to Rhine river that link the North to the South of Europe. The ponds and the streams

have all along represented an important factor for the birth and development of the towns. The

proximity to a river or a sea means, indeed, the possibility of communications and good transport,

means the exploitation of the hydric sources for the irrigation. The extraordinary demographic and

commercial growth of North-Italian towns and of Netherlands around the 10th century is due to the

presence of some streams (Rhine, Po, Mosa, Schelda) which support the establishment of

population in connection to the geo-economical development of the sites. In the same time the

forming route always maintains the outlet both on the North Sea and the Mediterranean Sea where

the control of the main trade routes leads to the conflicts against the Norman and Muslim fleets.

In those years so a chain of cities and some urban agglomerations come to birth and they will

maintain for a long period the predominance on the hole continent. It is mainly a predominance

characterized by a commercial nature born also in correspondence to the formation of a new class:

the middle class. The emergent towns, or villages, see the inflow by the population that do not

belong either to the Church or the aristocracy, but that claim the freedom of action in the trade and

in the handicraft.

So the towns along the Centre-European dorsal are those able to lead to a development of the hole

continent, although some alternative developing models are going to form.

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