Italy's good lesson for Ukrainian economy

Author : Bohdan Danylyshyn

14:30, 6 July 2016

Italy's good lesson for Ukrainian economy

Author : Bohdan Danylyshyn

American economist Michael Porter in his book "International Competition" wrote that after World War II, the Italians failed to attract investment to modernize the industry. Therefore, their economic development was rather innovational. Today Ukraine should take a benefit from this example.

14:30, 6 July 2016

Read the original text at NV.UA.


Italy in the postwar period has refocused from the factors of production to the innovation. The rapid growth of salaries and canceling the lira devaluation played a catalytic role in rising competitiveness for many Italian companies. By the early 1980s, Italy's economy entered the stage of innovation. Unlike Japanese and Korean economies, it did not pass through the stage of investment; it directly evolved to the stage of innovation.

Economic sectors that were insensitive to price changes and that did not require high capital investment enabled the success of the Italian economy. Big industry investments did not have success in Italy, due to the absence of domestic competition. Ukraine should realize that the investments are not the guarantee of the economic development.

Italian companies could participate in the global competition due to implementing the innovations in the domestic area. Much of the international success of Italy (as well as England and the United States) was based on serving the needs of the foreign buyers from the own country ("pulling effect"). But in order to maintain competitive advantage in global industries, companies have to sell their goods to markets of the strong countries with the demanding customers.

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Growing of the competitiveness in many sectors contributed to their differentiation and the emergence of the new segments. Traditionally, Italian economy is associated with fashion, style, and design. Some trends in these sectors automatically become stronger, extending to the other economic fields.

For example, a cluster of ceramic tiles in Sassuolo. A pool of skilled workers has formed around Sassuolo, who constantly exchange information with each other. Italian companies receive innovative equipment at least a year earlier than the foreign ones. No wonder that Italian manufacturers have the widest range of ceramic tiles in the world.

It is also important that the geographical proximity of firms led to sharp competition and rapid replication. Italian firms are extremely practical; they can deftly bypass all the obstacles and go easy on adaptation and improvisation.

What ultimately led to the diversification of the goods:
1. large firms can “economize” on the scale of production
2. small design firms have high prices
3. rippers (especially those who copy the designer tiles) have low prices
All these strategies bring success.

The model of Italy’s small-scale industrialization might be a good example of industrial development for Ukraine. In light of the severe turbulence and uncertainty of the modern world of industrial development, the most optimal form of industrial cooperation would be network structures that share the benefits of both small companies and large ones.

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Therefore, I can say that the foundation of the Italian postwar success was based on three main mileposts:
1. No inferiority complex to foreign industrial firms.
2. Improving production skills and technology improvement ("know how").
3. Paying attention to the national features when adopting intensive practices of successful industrial management.

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Ukrainians also should benefit from the experience of Italy, as we have faced troubles with attracting industrial investments. Ukraine should find creative use of the existing qualitative engineering competencies.

And the most important thing we need to learn based on the Italian experience and current Ukrainian realities, the investments of the domestic companies should be replaced with the innovations. There is no other way.

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