Osipov D.V., Scherbakova M.V.
Astrakhan State University,
Russian
NATIONAL DIAMOND OF ITALY AS A NECESSARY CONDITION FOR
DEVELOPING TOURISM CLUSTER
In economics, the
law of comparative advantage refers to the ability of a party (an individual, a
firm, or a country) to produce a particular good or service at a lower opportunity
cost than another party. It is the ability to produce a product with the
highest relative efficiency given all the other products that could be produced
[2].
Traditionally,
economic theory mentions the following factors for comparative advantage for
regions or countries: land, location, natural resources (minerals, energy),
labor, and local population size. As far as these 5 factors can hardly be
influenced, this fits in a rather passive (inherited) view regarding national
economic opportunity [4].
Porter says that
sustained industrial growth has hardly ever been built on above mentioned basic
inherited factors. Abundance of such factors may actually undermine competitive
advantage! He introduces a concept called "clusters" or groups of interconnected
firms, suppliers, related industries, and institutions, that
arise in certain locations. According to Porter, as a rule competitive
advantage of nations is the outcome of 4 interlinked advanced factors and
activities in and between companies in these clusters: FACTOR CONDITIONS (a
country creates its own important factors such as skilled, resources and
technological base; these factors are upgraded / deployed over time to meet the
demand; local disadvantges force innovations, new
methods and hence comparative advantage), DEMAND CONDITIONS (a more demanding
local market leads to national advantage; a strong trend setting local market
helps local firms anticipate global trends), RELATED AND SUPPORTING INDUSTRIES
(local competition creates innovations and cost effectiveness, this also puts
pressure on local suppliers to lift their game), FIRM STRATEGY, STRUCTURE AND
RIVALRY (local conditions affect firm strategy; local rivalry forces firm to
move beyond basic advantages), THE DIAMOND AS A SYSTEM (the effect of one point
depends on the others; it is a self-reinforcing system [1].
This paper is
devoted to research of the National Diamond of Italy as a necessary condition for developing tourism
cluster
The Italian Republic
or Italy is a southern
European country, comprising a boot-shaped peninsula and two large islands in
the Mediterranean Sea: Sicily and Sardinia. It shares its northern alpine boundary with France, Switzerland,
Austria and Slovenia.
The capital of Italy is Rome.
Its area is 301,318 sq km and population
of 59.13m – mostly Italian, with small populations of German, French and
Slovene Italians in the north and Albanian-Italians and Greek-Italians in the
south. Italy
consists of 15 regions and 5 autonomous regions. The climate in Italy
is highly diverse and can be far from the stereotypical Mediterranean climate
depending on the location.
Parliament of Italy
has a bicameral system composed of a Senate and a Chamber of Deputies. Both are
directly elected and are of equal authority. The Constitution provides for the
election of the Head of State (who is not politically aligned) for a seven-year
term by an electoral college, consisting of the two Houses of Parliament and
delegates from each region. The President can dissolve one or both houses of
Parliament after consultation with the Speakers. Prime Minister is elected for
a 5-year mandate.
At the end of the
century, Italy
joined the single currency of the EU, adopting the euro in 1999. Italy
is Founding member of the North Atlantic Treaty Organisation (NATO) in 1949,
Founding member of the European Community (precursor of the European Union) in
1957. Italy
held the Presidency of the EU from July 2003 to December 2003, Member of United
Nations and the G8.
First of all, it’s
necessary to describe Political, Social and Economic Development. Italy became a nation-state belatedly – in 1861
when the city-states of the peninsula, along with Sardinia and Sicily, were united
under King Victor Emmanuel. An era of parliamentary government came to a close
in the early 1920s when Benito Mussolini established a Fascist dictatorship.
His disastrous alliance with Nazi Germany led to Italy’s defeat in World War II.
Economic reconstruction after World War II was followed by unprecedented
economic growth between 1950 and 1963. Gross domestic product (GDP) rose by an
average of 5.9 percent annually during this time, reaching a peak of 8.3
percent in 1961. The years from 1958 to 1963 were known as Italy’s economic miracle. The
growth in industrial output peaked at over 10 percent per year during this
period, a rate surpassed only by Japan
and West Germany.
The country enjoyed practically full employment, and in 1963 investment reached
27 percent of GDP. From the very beginning, Italy was an enthusiastic proponent
of European integration, which has favoured the Italian manufacturing industry,
which expanded enormously during this period. The economy slowed down after
1963 and took a downturn after the 1973 increase in petroleum prices. By the
late 1980s, however, it was again prospering. The economy entered the mid-1980s
with a healthy growth rate, which it maintained through the end of the century.
Inflation reached nearly 22 percent in 1980. This was principally due to union
strength in wage bargaining throughout the 1970s and a mechanism called the scala mobile. The high degree of job security enjoyed by
the Italian workforce raised production costs, which in turn contributed to
inflation. Beginning with a decree in 1984 that imposed a ceiling on payments,
the scala mobile was gradually dismantled (and
abolished in 1992). This was reflected in a sharp fall in inflation to 12
percent in 1984 and down to 4.2 percent in 1986. However, a three-year contract
signed in 1987 between Confindustria and trade unions
representing all civil servants and some private industrial workers awarded pay
raises over the rate of inflation, and by 1991 inflation was again up to 7
percent—3 percent higher than in Germany or France. In 2000 inflation in Italy
was at 10 percent. Overall, however, the inflation rate was three times smaller
throughout the 1990s than in the 1980s.
The Italian economy
is mixed, and until the beginning of the 1990s the state owned a substantial
number of enterprises. At that time the economy was organized as a pyramid,
with a holding company at the top, a middle layer of financial holding
companies divided according to sector of activity, and below them a mass of
companies operating in diverse sectors, ranging from banking, expressway
construction, media, and telecommunications to manufacturing, engineering, and
shipbuilding. Many of these companies were partly owned by private shareholders
and listed on the stock exchange. By the 1980s moves had already been made to
increase private participation in some companies.
Italy’s public debt grew steadily throughout the 1980s
despite a series of emergency measures designed to reduce public borrowing. By
1991 public debt exceeded GDP, and the cost of servicing it was more than $100
billion, accounting for the entire government budget deficit for the year. At
the turn of the 21st century, Italy’s public debt still exceeded
GDP. During the 1990s the annual GDP growth rates were very modest. In 2000, in response to a
healthy international economy and to steps taken to improve the Italian finance
system—including reduced public spending and increased taxation—the GDP grew 3
percent, its biggest increase since 1988, but it was unclear whether this
recovery would be sustained.
Persistent problems
include illegal immigration, the ravages of organized crime, corruption, high
unemployment, and the low incomes and technical standards of southern Italy
compared with the more prosperous north.
What about economic
performance, Italy is one of the 65 high-income economies of
the world with GDP on purchasing power parity of Italy is $1.801 trillion with percent
change of 2.27 % (2007-2008). On this point Italy is the tenth country in rank. The official exchange
rate of GDP is $2399 billions
with percent change of 10.71 % (2007-2008).
GDP – real growth rate is unfavorable (pic.1).
Italy’s recent growth has been low for European standards,
as the economy is troubled with the persistent problems of illegal immigration,
organized crime, corruption, high unemployment, and the low incomes and technical
standards of southern Italy
compared with the prosperous north. GDP – per capita (PPP) is $31,000 with percent change of 1.88 %
(2007-2008) and Italy is
placed 42 in
GDP – per capita (PPP) countries rank after France, Greece, Germany, Finland
and etc. The average salary of people living in the south is about 75%
of what it is in the north. The gap is even more extreme a regional level, with an average income in Lombardy of
32,000 euros (north) compared to 21,000 euros in Sicily (south).
Fig. 1. GDP Growth Rate [6]
The HDI (The Human Development Index) for Italy is 0.945, which gives the
country a rank of 19th out of 179 countries. According to this Index
that looks beyond GDP to a broader definition of well-being Italy has strong
positions in Life expectancy at birth (10th place, 80.4
years), Adult literacy rate (21th place, 98.8%),
Combined primary, secondary and tertiary gross enrolment ratio (22nd
place, 91.8%).
Labour force of Italy composes 25.09 million according
to World Factbook (2008) and it is approximately 43% of population, and
unemployment is totaled 6.8% (ranked 84 out of 200). Italy is above the European average
for overall indicators in terms of quality of the workforce and labour
productivity. Italian performance is much higher than the EU-27 average, higher
than Sweden and Switzerland, and higher by 20% to Spain’s
average. Employment by branch (1995-2006, % volume) can be
seen in charts below (fig. 2). According to them Italy is a developed country with
growing employment in service sector.
Fig. 2.
Employment by branch
Italy’s export is $ 566.1 billion (2008) and the country is
ranked 6 after Germany, Chine, USA,
Japan and France. It is approximately
30.93% of country’s GDP. Italy’s
import is 566.8 billion (2008) and the country is ranked 7 after USA, Germany,
Chine, France,
Japan and UK. It is approximately 30.97% of
country’s GDP. Main export partners of Italy are Germany 12.9%, France 11.4%,
Spain 7.4%, US 6.8%, UK 5.8% (2007).
Main import partners of Italy
are Germany 16.9%, France 9%, China
5.9%, Netherlands 5.5%, Belgium 4.3%, and Spain 4.2% (2007). Italy is a member of EU and there
are no customs and trade borders within EU and the reason of industry placing
in the country is its efficiency and productivity.
According to ISTAT data, in 2002, there have been
signs of export decline. Italy
and its regional institutions are faced with significant challenges, especially
since the recourses that fuel innovation are among the weakest in OECD
countries, and since many manufacturing activities are moving to countries with
cheaper labour.
Italy’s investments (gross fixed) are 20.5 % of GDP, ranked
103 out of 150.
In accordance with the Financial Development Index
2008 Rankings Italy is placed 22 out of 52 of the world’s leading financial
systems with the score 4.38. The development of financial systems is a key
factor of economic growth. Seven pillars distributed among three categories of
financial development are stable in Italy that provides such good
positioning in ranking. Factors, policies, and institutions are the “inputs” that allow the
development of financial intermediaries, markets, instruments and
services. These inputs are represented
by Institutional environment (26th place, Score 4.66), Business environment (29th place, Score 4.63) and Financial stability (24th place, Score 4.82). Financial intermediation corresponds the
variety, size, depth, and efficiency of the financial intermediaries such as
Banks (16th place, Score
4.41) and Non-banks (14th place, Score 3.35) and Financial markets (15th place, Score 3.83) that provide strong financial
services. Capital
availability and access that gives Italy with its Score 4.97 the 25th
place are the “outputs” of financial intermediation as manifested in the
size and depth of the financial sectors and the availability of, and access to,
financial services.
According to
the Inward FDI Performance Index 2007 Italy is ranked 107, but the Inward
FDI Potential Index places the country on the 31st position. Outward
FDI Performance Index places Italy
on the 28th position. So According to the World Investment Report 2008 Inward FDI flows totaled 40199
and 9.1 % of gross fixed capital formation, and Outward FDI flows totaled 90781
$mln and 20.5 % of gross fixed capital formation.
Italy is placed 33 in
the Enabling Trade Index 2008 Ranking
(with Score 4.70), provided be such sub indexes as Market access, Border
administration, Transport and communications infrastructure and Business
environment.
In Accordance with Business Competitiveness Index
Italy is among the countries where the gap between the expected and the actual
national business environment is highest; their business environments are
significantly worse than expected given the sophistication of their companies
(fig.3). Italy
has registered the weakest medium term dynamism of all high-income countries,
though recent performance has changed the trend.
Among high-income countries, Greece and Italy register the highest overperformance. Both countries are most likely benefiting
from their position in the European Union (EU), which provides market access
and financial transfers. The position of both countries still looks precarious
for the medium-term future.
Industrial north,
dominated by private companies, and a less-developed, welfare-dependent,
agricultural south, with high unemployment. The Italian economy is driven in
large part by the manufacture of high-quality consumer goods produced by small
and medium-sized enterprises. Italy
also has a sizable underground economy, which by some estimates accounts for as
much as 15% of GDP. Italy
has moved slowly on implementing needed structural reforms, such as lightening
the high tax burden and overhauling Italy’s rigid labor market and
over-generous pension system and these conditions will be exacerbated by the
recent global financial crisis. The Italian government is seeking to rein in
government spending, but the leadership faces a severe economic constraint:
Italy’s official debt remains above 100% of GDP 103.7% of GDP World Factbook data 2008, and the fiscal deficit – 1.5% of GDP in 2007 – could
approach 3% in 2009 as political pressure to stimulate the economy and the
costs of servicing Italy’s debt rise. The economy will continue to contract
through 2009 as the global demand for exports drop.
Fig. 3. Business Competitiveness Index [3]
Italy’s economy is dominated by the following
large clusters – production technology, hospitality and tourism, automotive,
metal mining and manufacturing, business services clusters (2005).
Hospitality and tourism was valued at $ 36 076, 91 ml (2005).
At the first sign there is a strong environment for
cluster development and existence in Italy. According to the 2008-2009
Global Competitiveness Report, Italy obtained a ranking of 49 out of 134
countries (Score 4.4 out of 7), and 18 in Continental Europe and 18 in EU. Italy is an innovation-driven
economy. The size of the market (9/5.6), business
sophistication (21/5.0) with state of cluster development of 4, health and
primary education (30/6.0), technological
readiness (31/4.5), higher education and
training (44/4.4) obtain strong marks and create conditions for growth. Italy
has relative good scores on infrastructure (54/3.9), innovations (53/3.4),
goods market efficiency (62/4.2), which provide conditions for growth, but
these indicators should be improved. According to the 2008 Financial
Development Report, Italy
obtained a ranking of 22 out of 52 countries. Pillars in Financial
intermediation and Capital availability and access show good figures and prove
the stability of economy.
Fig. 4. Industry Export Value [3]
However, Italy lags other countries in some
important areas. Efficiency in the labour market (126/3.6) and macroeconomic
stability (100/4.5) are significant constraints for business. In these two pillars
uneven performance is observed. Firing costs (GCR rank: 5) and inflation (GCR
rank: 21) are strong; high and firing practices (GCR rank: 134), flexibility of wage determination (GCR rank: 129),
pay and productivity (GCR rank: 131), government debt (GCR rank: 123) are weak.
It may be explained by ineffective work of government institutions. All these
positions result in misbalance and unequal growth of business.
Quality of education in Italy is good. Italy has a GCR ranking of 45 in terms of quality of
primary education, 69 in
terms of the quality of math and science education. Italian student are
developing their technical skills, but the process is not so effective. More
close collaboration between universities and industries should be achieved to
improve development of students technical and math skills.
Universities in Italy have a very insular role, do
not interact with the public sector, nor do they have
any impact on growth of innovation clusters. The data concerning patents, as
strong indicators of innovation capacity, present an interesting asymmetry
between a weak innovative capacity and high research effectiveness.
In terms of institutions, Italy has poor figures. Italy
operates within a culture of bureaucracy. Public trust of politicians are weak
(GCR rank: 92), regulation of government is burdensome (GCR rank: 130),
government spending are wasteful (GCR rank: 128) and the legal framework is
inefficient (GCR rank: 114).
Italy is perceived as a dangerous place. Organized crime is
high (GCR rank: 124), at the same time reliability of police services (54), and
business costs of crime and violence (73) are good. It may cause some obstacles
of doing business. Rank of organized crime is seriously high but stereotype of
Italian mafia adds some points to this indicator. Despite the high level of
organized crime, corruption in Italy
is relatively low. In accordance with the 2008 CORRUPTION PERCEPTIONS INDEX
the country ranks 55 out of 180.
In
accordance with the Ease of Doing Business rank (2009) (fig.5) Italy is placed 65 out of 181. The main challenges are duration of obtaining
necessary documents (licenses, permits, required notifications); number of
payments (taxes) the entrepreneur must take; duration, cost of lawsuits.
The most problematic factors for doing business shown
in the 2008-2009 Global Competitiveness Report are inefficient government bureaucracy, tax rates, tax
regulations, inadequate supply of infrastructure (fig.6).
Fig. 5. Ease of Doing Business (Italy) [5]
Fig. 6. The most problematic factors for doing business [7]
In 2008 Gender Gap Index Italy ranks 67
out of 130. The gender empowerment measure (GEM) reveals whether women take an active
part in economic and political life. It tracks the share of seats in parliament
held by women; of female legislators, senior officials and managers; and of
female professional and technical workers- and the gender disparity in earned
income. This index reflects economic independence. The GEM exposes inequality
in opportunities in selected areas. Italy ranks 21st out of
108 countries in the GEM, with a value of 0.734.
The GCR ranks Italy 53 in term of innovation. Italy
has strong positions in capacity for innovation (22), utility parents (25),
availability of scientists and engineers (45). It is also proved by
intellectual property protection ranking of 42.
Using the Global
Competitiveness Report [7] the attempt to outline the National Diamond of Italy
(fig.7).
Fig. 7. National Diamond of Italy
Factor conditions. Italy has strong factor conditions in Malaria incidence, Mobile telephone subscribers, Life expectancy,
Infant mortality, Quality of primary education, Available seat kilometers, Business impact of tuberculosis, Tuberculosis incidence,
Telephone lines and others. Such conditions as the absence of malaria incidence
and small number of touberculosis incidence,
beautiful and long coastline create friendly environment for tourist coming in
the region, while infrastructure of roads, air transport and even ports are
lagging. Such strong indicators as life expectancy infant mortality, quality of
primary education prove that Italy
is an advanced country. Besides Italy
has highly developed telecommunications that provides favorable base for doing
business.
However the country is currently lacking in
burden of government regulation, reliability
of police services and judicial independence, these indicators are rather
significant for business growth and development. In spite of high positions in
quality of primary education, the quality
of the educational system, management schools, math and science education, and scientific research institutions, university-industry research collaboration are poor. All
these result in small quantity of highly skilled workers. Ease of access to loans, venture capital
availability and financial market sophistication put the brakes on the economy.
Demand Conditions. This is one of the strongest links in Italy’s
national diamond. Buyer sophistication is high enough in Italy. Buyers demand is a
relatively high standard for product quality and there are strict laws and
regulations to protect a customer’s well being. Fair indicators of domestic and
foreign market size prove advantageous demand conditions. Nevertheless the
government should take more active part in procurement
of advanced tech products.
Context
for Firm Strategy and Rivalry. Italy has improved position of innovation capacity – one of
the main indicators of competitiveness growing. Nature of competitive
advantage, production process sophistication
and breadth of value chain in the country are rather high, although Italy should
create local areas which stimulate competitiveness and intensify local
competition. Minority shareholders’ interests need to be increased
significantly. Italy
also shall develop more efficient forms of labor-employer
cooperation and indicate new ways of staff training. Italian business shall
review its approach to management providing more efficient environment.
Italy is still lagging behind regional benchmarks in terms
of its ease of doing business, with significant gaps in areas such as receiving
construction permits, getting credit, enforcing contracts. As another
regulatory constraint, the tax system has been described as burdensome, and is
also listed as an ― “ease of doing business
constraint.” Favoritism in decisions of government officials, inefficient legal
framework, government bureaucraticy, level of
organized crime inhibit competitiveness and discourages domestic and
foreign direct investment. Italian private sector R&D expenditures is 43% of overall expenditures, in comparison USA
and other EU countries – 66%. Large companies with at least 500 members spend
approximately 80%, but Italian private sector it is for the most part small and
medium size companies. Italian large companies import technologies and receive
subsidy from government.
Related
and Supporting Industries. Italy has been successful in developing a number of vibrant
clusters, in such areas as production technology, apparel, textiles, footwear,
furniture, construction materials. Hospitality and Tourism is still one of Italy’s
largest clusters. Strong figures of local supplier quantity and quality, local
availability of research and training services favour further cluster
development.
Therefore, Italian
industrial districts have innovated successfully without basic R&D,
available capital and strong university – industry relations, but the current
competitive environment suggests the changes ought to take place to minimize
the gap between a well-developed & flexible regional innovation network and
under-developed capital markets and other factors that affects the ability of
firms to grow and to receive R&D investments. Significant cultural and
institutional changes in education, training, labour and financing should be
made to improve conditions for developing tourism cluster.
The list of references:
1.
Michael
E. Porter, The Competitive Advantage of Nations. – New York: Free Press,
1990.
2.
BLS
Information. Glossary. U.S.
Bureau of Labor Statistics Division of Information Services. February 28, 2008.
Retrieved 2009-05-05 [Web resource]. – Access mode:
http://en.wikipedia.org/wiki/Comparative_advantage
3.
Business
Competitiveness Index [Web resource]. – Access mode:
http://www.weforum.org/issues/global-competitiveness
4.
Comparative
advantage [Web resource]. – Access mode: http://www.wto.org/english/res_e/reser_e/cadv_e.htm
5.
Doing
Business in Italy
[Web resource]. – Access mode:
http://www.doingbusiness.org/data/exploreeconomies/italy
6.
GDP
rate of Italy
[Web resourse]. – Access mode: http://www.tradingeconomics.com/
7.
Global
Competitiveness Report 2008-2009. [Web resourse]. –
Access mode: https://members.weforum.org/pdf/GCR08/GCR08.pdf