Presentation on theme: "Entrepreneurship and Network Organizations in the Italian Industrial Cluster: the Gucci Case Study Lorenzo Zanni (University of Siena) Università degli."— Presentation transcript:
Entrepreneurship and Network Organizations in the Italian Industrial Cluster: the Gucci Case Study Lorenzo Zanni (University of Siena) Università degli Studi di Siena Facoltà di Economia Richard M. Goodwin
THREE GENERAL QUESTIONS 1) Is it possible to compete with a small scale in the international markets? What is the future for Small and Medium sized firms (SME) in a global economy? 2) In terms of organizational structures and competitive strategies what can we learn from the Italian experience? Is it possible to underline some original glocal (global and local) solutions analysing the Italian experience? 3) Considering fashion business, what are the main strategic changes in the competitive scenario? Is it possible to focus the attention on some case studies which can explain the recent evolution?
THE OBJECT OF ANALYSIS 1)THE MAIN CHARACTERS OF THE ITALIAN INDUSTRIAL SYSTEM The role of SME The industry specialization Industry location and the role of Clusters 2) THE COMPETITIVE ADVANTAGE OF ITALY IN THE FASHION BUSINESS Peculiarities of Fashion Business The competitive advantage of Italy in the fashion business: the new scenario 3) ENTREPRENEURSHIP AND ORGANIZATION STRUCTURE: THE NETWORK APPROACH Definition of Network Organizations Characteristics of Network Different types of Networks 4) THE GUCCI CASE STUDY The emergence of a large global player: Gucci Group The impact on the SMEs sub-contractors (the network)
I) THE MAIN CHARACTERS OF THE ITALIAN INDUSTRIAL SYSTEM (Onida 2004) 1) THE PREDOMINANCE OF SMALL FIRMS IN COMPARISON WITH OTHER EUROPEAN COUNTRIES Recent data confirm the high number of firms in Italy (entrepreneurial attitude) The predominance of micro-firms (less of 10 employees) The average dimension of the Italian manufacturing firms is lower then in the other UE countries In the last decades the importance of micro-firms has reduced only a little The success of the Made in Italy during the 80s and 90s in the international markets is mainly based on SMEs
2) THE ITALIAN INDUSTRIAL SPECIALIZATION IN MATURE OR TRADITIONAL INDUSTRIES The Italian market share in the UE are strong in light industries characterized by firms with small dimension (mechanics, textile, clothing, furniture, shoe and food industry) (Tab. 1) The Italian industry is traditionally export oriented: Italy is the eight country in the world in terms of export (Tab. 2-4) Italy is still the ninth more industrialized country in the world in terms of GNP (2013: IMF data). But in the last few years Italy is loosing part of its competitive advantage in the international markets in terms of market shares Italy is now facing the concurrence of less industrialized countries. It is interesting to describe how some Italian firms are defending and sometimes even enlarging their market shares
Tab. 2: The main actors of the Italian export (source Istat-ICE 2004) Industry specialization Type of firmNumber of exportersExport (in value) Small (less 50 employees)92,5%30% Medium (50-250)6,3%27% Large (+ 250)1,2%43%
The capability to compete in foreign markets
The impact of the crisis Italian GNP 2009: -5% (Source Istat) Italian Export 2009: -17,5% (Source Ice) The difficult situation in the domestic market, but strong export capability Italian GNP 2010: + 1,7% (Source Istat) Italian GNP 2011: + 0,4% (Source Istat) Italian GNP 2012: - 2,4% (Source Istat) Italian GNP 2013: - 1,8% (Source Istat - estimate) Italian Export 2010: + 11,4% (Source Ice) Italian Export 2011: + 5,9% (Source Ice) Italian Export 2012: + 2,3% (Source Ice)
3) THE INDUSTRIAL SPECIALIZATION INFLUENCES THE TERRITORIAL DISLOCATION OF THE ITALIAN FIRMS At geographical level the process of industrialization in Italy has not been homogeneous: in emerges a Leopard-skin Italian process of development with three main geographical areas (Picture 1) North of Italy: large firms predominance, the company-town model South of Italy: the failed effects of the State action (Intervento Straordinario nel Mezzogiorno) the creation of cathedrals in the desert they did not create other industries around their activities, neither they generated a spin-off effect of entrepreneurship Third Italy (Central and North-East of Italy): predominance of small firms localized in industrial districts Definition of industrial district: social-territorial entities characterized by the active presence in a concentrated area of a community of people and a group of industrial firms (Becattini 1989) industry specialization and productive decentralization external economies linked to the cultural heritage (A. Marshall) in these regions there are more network organizations
Picture1 manufacturing labor local systems in Italy (Source: elab. Edison Foundation on Istat 2001 data)
THE ROLE OF CLUSTERS Clusters are geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productivity with which companies can compete (Porter 2001). Instead of examining firms as isolated actors, the cluster-based analysis emphasizes the linkages among companies and supporting institutions and the synergies related both to cooperative and to competitive behaviors of belonging enterprises Porter (2003) claims that clusters have the potential to affect competition in three ways: by increasing the productivity of the companies in the cluster (efficient access to specific inputs, employees, services, information and public goods; facilitate coordination and transactions among companies; good diffusion of best practices) by driving innovation in the field (enhanced ability to perceive opportunities; share of knowledge creation processes; exploitation of local resources) by stimulating new businesses in the field (high visibility of business opportunity; commercialization of new and complementary products; starting of new companies) Their relevant importance of industrial district in Italy (Istat 2012) : Around 200 in all Italy 45% of workers in manufacturing industries 43,5% of total export (years ) of whom 13,5% are textile-leather-clothing
II) THE COMPETITIVE ADVANTAGE OF ITALY IN THE FASHION BUSINESS (Porter 1990; Saviolo-Testa 2000) The importance of Italian clusters in the fashion industry: a national system of value which allows to control different stages in the whole filiera (see Picture 2) Creativity combined with functionality High quality in small scale production (craftsman) Flexibility (division of labor and specialization) Demand pull innovation (Italian clients are very exigent) Original market segmentation (houte couture, prèt à porter, diffusion, bridge and mass) The emergences of a new scenario for the Italian fashion business: –Market changes and new factors affecting the Made in Italy –Difficulties in the export capabilities of fashion industry –Italian clusters are good incubators of new entrepreneurship but they do not help the dimensional growth of the firms
Equipment producers/ suppliers Service suppliers (trend forecasters, fashion press, consultants, etc.) Fibres Industry (natural and man-made) Greige goods yarn mills Textile mills Converters Selling/buying agents Wholesalers Apparel manufacturers End users Retailers R&D, raw materials supplying, fibers processing, fibers marketing Finishing treatments: bleaching, shearing, brushing, embossing, dyeing, glazing, crinkling, printing, etc. Fabric construction: weaving, knitting, embroidering, or processing solutions (e.g., films, foam) or directly fibers (e.g., felt, nonwoven fabrics) Yarn spinning (spun yarns and filament yarns) Supplier/buyer intermediation, communication Cutting, trimming, spreading, bundling, sewing, sticking, pressing, packing Time and space transformation, communication, services Evaluating, purchasing, innovating, communicating Picture 2: The Fibres-textile-apparel filiére
The Italian Diamond: the old and the new scenario Diamond factors (Porter 1990) The Old Scenario (80-90) The New Challenges Firm Strategy, Structure and Rivalry Autonomous SME Cluster innovations Cluster networks Craftsman (production) Large global player New comers (imitation) De-localization Brand and Distribution Demand Conditions Hedonism Fashion victims (passive) High demand in few countries New consuming habits No logo; less brand loyalty Globalization Related Supporting Industries Mechanics Hard infrastructure Small independent retailers Specialized services Soft infrastructure Distribution chains Factor Conditions Devaluation (cost leadership) Local labor markets Family business Introduction Euro currency Cognitive gap Family succession
III) ENTREPRENEURSHIP AND ORGANIZATIONS STRUCTURE: THE NETWORK APPROACH (Lorenzoni, 1990) 1. Different definitions of Network in the managerial literature The totality of all the units connected by a certain type of relationships (Aldrich and Whetten) An aggregate of relations existing among individuals (or units or members or nodes) (Kaneko and Imai) Our point of view: an heterogeneous aggregate of firms, linked by multi-faceted and cooperative relations, organized around a focal firm and instrumental in achieving at least partially common objectives - The predominance of external growth processes (alliances vs. internal growth) - Different entrepreneurial profiles: general and serial entrepreneur (Mc Millan) vs. limited and diffused entrepreneurship
2. Main Characteristics of Network - Advantages for leading firm: quality; innovation; more flexible production and shorter production runs; not necessarily a dimensional growth - External firms: a semiautonomous position (dependent for certain parameters); independently owned and not exclusively dependent on the focal firm for business - Different links among the partners of the network: strong relationships: the focal firm can influence the external firms with a non-hierarchical power (non conventional mechanism of coordination, equity or non equity) using: trust among partners; reciprocity; mutual adjustment; multiple line relationships (horizontal, vertical, lateral) weak relationships: among external firms (without intermediation of the focal firm) - The process of innovation in a network organization: interplay among different partners (see Japanese literature); even small firms can innovate; some obstacles for innovation in Italy (difficult access to funds and to information)
3. Different types of networks (see Picture 3) Different stages of evolution from informal relationships to planned networks. During this evolution it emerges: a higher level of systematic activities; changes in memberships; a more deliberate consciousness in the patterns of the inter-company relationships; At the beginning: strong influence of the focal firm Later: mutual relationships; less coordination functions and more strategic crossroad of the information flows
a) Simple and informal constellation b) Planned and formal constellation Picture 3: Different types of networks – a possible evolution
In brief, NETWORK ORGANIZATION: 1) ALLOW TO REACH SOME PECULIAR ADVANTAGES - Time savings - Quality improvements - Innovation - More flexible production - Reduction of costs (external growth) 2) IS CHARACTERIZED BY DIFFERENT RELATIONSHIPS AMONG THE PARTNERS - Equity - Non-equity 3) HAS A WIDE APPLICATION VERSATILITY - Research & Development - Marketing and distribution - Financial - Coupling different networks
III) THE CASE HISTORY: GUCCI AND THE LEATHER TUSCAN NETWORK (Bacci 2004) Different actors in the leather Tuscan cluster The Gucci case history The network organization and the main changes in the SME cluster
1) THE ACTORS (leading firms and SMEs) 1.Large global player (as Gucci, Prada, Ferragamo) New model of corporate governance: the role of the international finance; luxury groups; New strategies: multi-business activities (brand extension in different related industries as cosmetics, glasses, shoes, watches, etc.); multi-brand groups; New organizational formula: decentralization of production; national production platform; transnational network New sources of competitive advantage: have a craftsmen production organized at an industrial level; the role of brand; the importance of communication; direct control of distribution channels (flagship stores; franchising network) 2. Medium local leader (small groups) Decentralization of production Different market segmentation but similar marketing strategies (the importance of design, communication and direct control of distribution) 3.The micro and small business (the distrectual firm) Simple sub-contractors (they produce part or components) Specialized sub-contractors (they produce products) Partner supplier (they have designer capabilities) Mixed producer (in part sub-contractor and in part autonomous) Autonomous small firms (they sell with their own brand)
2) Gucci: a brief case history 1921founded by Guccio Gucci in Florence, the son of a leather craftsman with a cosmopolitan culture. It was a small luggage and saddlery company where he sold exclusive leather goods created and produced by the best craftsmen he could hire. 1938Within a few years, the small Florence shop grew and attracted a wide clientele base. A branch was opened in Rome Creation of the "bamboo handle handbag", which later became one of the company's icon products. Introduction of the sons in the business (second generation in the family business) Death of the founder. The 4 sons have the control of the company. Company growth and commercial internationalisation (stores in London, Paris, New York, Palm Beach, Hong Kong). Linkages with Hollywood actress and other important testimonials (Jackie O shoulder bag) In 1982 Gucci became a s.p.a.: the third generation has the control of the company; difficulties in managerial strategies. In 1989 the Anglo-Arab Investorcorp acquired the 50% of shares. In 1993 all the shares are acquired by Investorcorp Begins a turnaround strategy managed by Domenico De Sole (Chief executive officer of Gucci Group) and by Tom Ford (design and style manager): repositioning of the brand in the luxury market; focalisation of the business in leather, accessories and apparel industry In 1995 Gucci Group was launched as became a publicly traded company, listing on the New York and Amsterdam stock exchanges. It issued further shares in Decentralization of production in the local system (mainly in Tuscany): internal activities specialised in design, marketing and logistics. High investment in communication. Direct control of distribution and new openings (174 monobrand shops at the end of 2002).
The firm was named "European Company of the Year 1998" by the European Business Press Federation for its economic and financial performance, strategic vision as well as management quality In 1999 it launched a "strategic alliance" with the French group Pinault-Printemp-Redoute (PPR). At the beginning. PPR owns 68% of the group Growth strategy (brand extension and takeovers at international level). Actually Gucci Group had whole or partial interests in 3 main business area and in the following companies or brands: Fashion: Gucci (100% share of ownership, also watches 100%); Yves Saint Laurent (100%, also perfume brand 100% and watches brand 100%); Sergio Rossi (70%); Bottega Veneta (78.5%); Alexander McQueen (51%, also perfume brand 100%); Stella McCartney (50%, also perfume brand 100%); Balenciaga (91%) Perfume: Roger & Gallet; Boucheron (also jewellery and watches); Ermenegildo Zegna; Oscar del la Renta; Van Cleef & Arpels; Fendi Watches: Bedat & Co (85%) Since the turnaround of the mid-1990s Gucci has continued to prosper (4.000 employees) and a highly profitable business operation. The Gucci brand is considered one of the most frequently mentioned brands (in 2003 n.53 in the world in the Interbrand global ranking). 2004PPR owns the total control of Gucci: a new CEO (Robert Polet) and 4 new young style directors. New partnership with unions and retailers for reaching the Social Accountability SA 8000 and (ethical label)
In 2005 Mark Lee is CEO Gucci Division Roger Polet is Chairman and CEO Gucci Group, the worlds third largest luxury group. Coming from Unilever, bringing considerable global management experience and in- depth knowledge of the development of consumer brands in a multicultural environment In 2007 the Groups business grew by 15% in terms of sales and by 40% in terms of EBITA. Frida Giannini is Creative Director of Gucci Division The Group balance a well defined portfolio brands with 8 clearly identified brands: 3 are the engine of the growth (Gucci, Bottega Veneta, YSL), Boucheron offers complementary expertise in few segments (jewellery, watches), 4 cutting-edge brands with high potential for long-term growth (Balenciaga, Stella McCartney, Alexander Mc Queen, Sergio Rossi) Controlled development of an integrated distribution network: the Group directly operates 560 stores in major markets throughout the world and wholesales products through franchise stores, duty-free boutiques and leading department and specialty stores Strategic partnership with Soeind Group (Swiss group, luxury watches) YSL Beauté is sold to lOreal (but remains a partnership); Bedat & Co is sold In 2008 Gucci generates 2,206 million Euro in revenues (+4,2%) and 625 million Euro in operating profits (-3,4%). The incidence of leather goods on total sales was the 55,3%, followed by shoes (15%) and clothing (14,3%).
2009 In 2009 Patrizio di Marco is the new CEO Gucci Division: his main goal is to balance the unique tradition and the historical exclusive values of the brand in perfect equilibrium with fashion and trend soul In 2009 Gucci generates million Euro in revenues (+2,7%) Gucci has more than employees and other work in the regional induced activity. Gucci manufactures all products in Italy and licenses the production and distribution of eyewear and perfumes. Through Gucci Group Watches, located in Cortaillod (Switzerland), the company also assembled and distribute in all the world Gucci brand timepieces, combining outstanding Swiss craftsmanship with modern design aesthetics 2010 February 18th: Alexander Mc Queen died. Gucci Group confirmed its commitment to continue with the brand and has provided all logistical, financial and human support to the Alexander McQueen team. In March 2010 Sarah Burton has been appointed Creative Director of the brand (supervision of the creative direction and development of all collections) In 2010 Gucci turnover was million Euro (+17%) with a significant profit growth (+22,9%). Gucci recorded further strong growth in emerging markets; Asia-Pacific is becoming the main market area for the brand. The Gucci brands retail network comprised 284 stores (92 in emerging countries).
Gucci main values: exclusivity, quality, made in Italy, Italian craftsmanship, design leadership in the world of fashion. Strategic positioning: perfect balance of modernity and tradition, innovation and craftsmanship, trendsetting and sophistication. Craftsmanship and Made in Italy: strong linkages with the territory; 100% Made in Italy; workers in all Italy; the project artisan corner in the shops; the project made to measure Support in the creation of 3 Network contracts: Gucci has sponsored the birth of 3 networks contracts to improve innovation, efficiency in the value chain, economy of scale, facilitate credit access: 1) P.re.Gi. Network (7 firms, leather goods artisan; 11 mil. Euro turnover); 2) Almax Network (8 firms, bags producer, 20 mil. Euro turnover, 300 employees); 3) F.a.i.r. network (9 firms, accessories and leather; 45 mil. Euro turnover, 200 employees) Eco-friendly initiative for the environmental impact reduction of the firm activities Innovation: Launch of the new collection in the kids market all made in Italy. Opening of the Gucci Museum (Icon Store, Library and Gift Shop, Coffee and Restaurant) Selective Retail strategy: 317 shops worldwide (they realized the 73% of the Gucci turnover, the other 27% distributed in selected retail stores) Economic Performance: In 2011 Gucci turnover was million Euro (+17,7%) with a profit growth at group level (+26,4%). In 2012 Gucci turnover was million Euro. The network of subcontractors: 750 direct supplier, 1500 subcontractor, employees
Growth of the local network (see table 1): small and high qualified firms (luxury supplier) while firms specialized in mass markets are increasingly reducing Higher selection of local supplier: acquisition of some supplier (see table 2) and opening the relationships outside the local system Differentiation of supplier and of local network relationships (see picture 4): in the case of Gucci we can find around 9 partner supplier (co-development partnerships); 13 sub-contractor (integrated relationships); 30 simple supplier (market relationships) Not simple predator strategy: in some case the relationships imply a transfer of knowledge above all in the partner supplier (see table 3). Weakening the autonomy of SMEs: network hierarchization (less market knowledge, less projectual role) (see table 4). 3) The influence of leading actors on the SMEs sub-contractors (the network)
Table 1: Changes in number of employees in the local unit in the period (in %) (Source: Istat)
Table 2: Acquisition of small-medium firms in the fashion industry in Florence by leading firms BuyerFirm acquired (comune)Year of acquisition Celine (LVMH)Marcus (Impruneta – FI) 1994 DiorMardi (Scandicci) Nd Gruppo DolciGherardini (Scandicci) 2000 Mariella BuraniBraccialini (Pontassieve) 2000 LVMH,Pucci (Firenze) 2000 LVMHFendi (Bagno a Ripoli - FI) 2001 GucciConceria Caravel (Fucecchio) 2001 GucciCalzaturificio Tiger (Monsummano Terme-PT) 2002 GucciCalzaturificio Creazioni Bartoli (Monsummano T.-PT) 2002 GucciCalzaturificio Paoletti (Pistoia) 2002 Gruppo DolciPelletteria Only Leather (Scandicci) 2003 Gruppo DolciNuova FGF- minuterie metalliche (S: Piero a Sieve) 2003 TrussardiPelletteria Zetati (Bagno a Ripoli) 2003 GucciConceria Blutonic (S. Miniato) (51%) 2004
IRPET Istituto Regionale Programmazione Economica Toscana Picture 4: Network structure: relationships between SME and leading actors in Florence-Arezzo leather cluster
Table 3: leather/shoes firms in Florence and Arezzo which have increased the following factors (%) Total a) Product portfolio58 b) Plant dimension51 c) Number of employees46 d) Employees competences76 e) Total revenues71 f) Earnings margin53 g) Number of supplier32 h) Number of clients19 Table 4: changes in leather/shoes firms due to cooperation with leading firms (%) Type of changeTotal (%) a) I have changed product13 b) I do not use my own brand any more24 c) No more design17 d) I have introduced new technologies50 e) I used new materials36 f) Outsourcing of some phase of production52
The impact of the recent crisis on SME (2010 Unioncamere data) Different performances in the 3 main industries, in 2009 high reduction of turnover, but at the beginning not too bad consequences in terms of reduction of employees (fig. 1.2) Reduction in the number of firms, stronger for micro artisans by comparison to industrial firm (fig 1.3) Despite the crisis the importance of the 3 main industrial district in the local economy remain high in terms of: number of firms (45%), employees (53,4%) and export (52,8%).
CONCLUSIONS SME companies continue to play an important role in the international business, but the new competitive scenario obliged them to change their strategies and firm structures Network organizations are only a small piece of the Italian puzzle, but they are important to understand the process of entrepreneurial development in certain area of the country In the industrial district is quite common to find network organizations, but it is not easy to replicate this model of development in other regions. At the moment the Italian fashion cluster are facing new competitive challenges that will probably change some of their original characters (it becomes strategic the role played by leading firms; increasing role played by advanced services) More researches are needed to understand better the nature and the evolution of network organizations (key variables, stages of evolution, competition, etc.). Only the future will tell us if network organizations will continue to be important or will move into some new consolidated forms (medium or large firms, small transnational groups) The Gucci case history is a good example of leading firm that was able to overcome family succession problems and to develop a glocal strategy. Its local network shows high capability to support the crisis, but future challenges are approaching (in 2009 De Marco said: at 1 billion Euro its easy to remain Made in Italy, at more than 2 billion its much more difficult!
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