How to survive, compete and thrive: small firms' business models in the Italian Textile Industry

International competition has severely hit the Italian textile industry, causing reductions in the number of firms, revenues, value added, export and employment. Small firms, even those located in historical and well established districts like Prato and Biella, have suffered the most, going out of business at an unprecedented rate. This trend has prompted a crowd of scholars, practitioners and policy makers to conclude that small firms are doomed to death in global mature industries like textiles and industrial districts will disappear. But a closer and more rigorous look at the data and facts behind this general picture reveals a more articulated situation with wide variation in small firms’ performance and significant differences in the strategies that they have come up with to survive, and, in some cases, to thrive. Using data from the Italian Ministry of the Economy annual industry revenue survey (Studi di Settore), we apply multiple correspondence analysis and cluster analysis to a sample of almost 6,000 small Italian textile firms to map the variation of small firms’ performance onto the business models they have adopted. Using the measures included in the survey, we identify 9 business models that we classify into three categories: “successful”, “sustainable” and “declining”. The firms belonging to the “successful” business models’ clusters outperform the industry in terms of productivity and innovation and are characterized by internationalization, investment in technology and skills and move up scale in the market. Instead, the survival of firms adopting more traditional business models is at risk, either in the short term – firms belonging to the “declining” business models’ clusters - or in the medium term - firms belonging to the “sustainable” business models’ clusters. The findings and methodology of this study offer original insights to practitioners and policy makers who believe that small manufacturing firms in mature industries can still play an important role in the economy and wish to support them as they strive to compete globally.