Globalization and low-technology industries: the case of Italian eyewear

The Italian industrial system is known worldwide for its focus on low-tech, mature industries, its high level of fragmentation, its organization around geographically coupled supply systems (industrial districts) and the prevalence of small and medium-size enterprises (SMEs), vertically specialized in one or more phases of a supply chain (Piore and Sabel, 1984; Porter, 1990; Becattini et al., 2003). In the past, Italian firms prospered in such ‘protected’, semiclosed environments. They relied on a few main, local customers, and such ‘semi-captive’ demand usually saturated their production capacity and shaped their capabilities. The success of these ‘micro-worlds’ was rooted in manufacturing, built on a heritage of craftsmanship and skilled labour, on incremental innovation, and products characterized by the intrinsic quality of being ‘made in Italy’. Social embeddedness and geographical proximity facilitated the development of relational contracts, knowledge diffusion and mutual learning among buyers, suppliers and even competitors. In recent years, because of globalization and digital technologies, these characteristics have become structural weaknesses. A large number of SMEs in industries like textiles, clothing, footwear, machinery and furniture have experienced declining revenues, many entering a crisis from which they were not to recover. However, some firms have been able to change and adapt. Among these, the larger firms, usually assemblers/buyers located in the downstream sections of supply chains, have changed sourcing policies, reducing their dependence on local suppliers, actively seeking low-cost sources in such emerging areas as Eastern Europe and East Asia and establishing direct access to global markets through autonomous distribution networks and retail structures. The surviving small firms, in contrast, have tried to carve out a new role within global supply chains, diversifying their business, upgrading their products, investing in new technologies and moving from subcontracting to direct business; in so doing they have had to extract themselves from the previously successful symbiosis with local customers (Berger and Locke, 2001). The Italian eyewear industry, which we analyse in this chapter, reflects these tendencies. This industry has developed spectacularly over the last three decades, achieving a world leadership position which has recently been challenged by the Chinese. Large firms like Luxottica and Safilo continue to grow, successfully maintaining their position at the forefront of the industry with international operations and proprietary retail networks. Small firms, even those located in well-established districts like Belluno, have suffered the most, going out of business at an unprecedented rate (Camuffo, 2003). This trend has prompted a host of scholars, practitioners and policy-makers to conclude that industrial districts will disappear and that small firms are 3 doomed in mature global industries like eyewear. But a closer and more rigorous look at the data and facts behind this general picture reveals a more complex situation with wide variation in SMEs’ performance and significant differences in the strategies that they have come up with to survive, and, in some cases, to thrive. In this paper we analyse how some Italian SMEs have remained competitive in the eyewear industry. After describing the industry in Italy, its recent evolution and value drivers, we analyse the impact of competition from low-cost countries on Italian firms. Next, we illustrate how Italian SMEs are transforming their business models and their organization in local clusters to survive in the global arena. We provide both general and anecdotal evidence of these changes, modelling them into the concept of the ‘global district firm’. Finally, we discuss our findings concerning the relationship between globalization and innovation in mature low-tech industries, and draw some business and industrial policy implications with particular focus on the role of local institutions.