Clusters, Territory and Covid-19

Master’s Degree In Management Accounting And Finance Master’s Thesis CLUSTERS, TERRITORY AND COVID-19 THE EFFECTS OF THE PANDEMIC OUTBREAK ON THE LIVENZA FURNITURE CLUSTER AND THE S3’S NEW DEVELOPMENT TRAJECTORIES FOR A POSSIBLE ECONOMIC REVIVAL OF FRIULI VENEZIA GIULIA’S WOOD AND FURNITURE INDUSTRY. Supervisor Ch. Prof. Giancarlo Corò Graduand Jacopo Gaiarin ID Number: 877638 Academic Year 2019/2020 To Agnese, May your future be the brightest 2 INTRODUCTION 1 CHAPTER 1: THE CONCEPT OF CLUSTER – A COMPREHENSIVE LITERATURE REVIEW 5 1.1 THE CONCEPT OF CLUSTER: FROM MARSHALL TO PORTER – AN EVOLUTIONARY PATH OF THE DEFINITION 5 1.2 KNOWLEDGE CREATION PROCESS AND INNOVATION 13 1.2.1 Knowledge creation process within the cluster 13 1.2.2 Knowledge creation across clusters 22 1.3 TERRITORIAL CAPITAL AS COMPANY’S INTANGIBLE 30 1.4 THE ROLE OF CLUSTERS IN GLOBAL VALUE CHAINS (GVCS) 45 1.5 CLUSTERS AND GOVERNANCE 51 1.6 CLUSTERS AND FINANCING TOOLS 63 1.5.1 Different forms of finance at support of cluster’s firms 71 CHAPTER 2: THE LIVENZA FURNITURE CLUSTER 77 2.1 CLUSTERS IN ITALY: ANALYSIS OF THE EVOLUTION OF THE ITALIAN DISTRICTS AND CLUSTERS FROM WWII UNTIL TODAY 77 2.2 THE LIVENZA FURNITURE CLUSTER 81 2.2.1 Introduction 81 2.2.2 History of the cluster and evolution from simple district to a more sophisticated ecosystem 82 2.2.3 Main players and institutions: leaders of the cluster and their role on the territory 90 2.2.4 Innovation in the Livenza furniture Cluster: Contratto di rete and EMAS registration 94 2.2.5 Foreign markets: analysis of export and its evolution over the years – focus on the nine most important foreign markets 98 2.2.6 Financing forms: banks and regional and European funds – The role of Rilancimpresa 103 2.2.7 Swot analysis 107 2.2.8 METHODOLOGY 113 CHAPTER 3: THE COVID-19 OUTBREAK AND THE EFEFCTS ON THE FUNITURE INDUSTRY 115 3.1 INTRODUCTION 115 3.2 EFFECTS ON THE ITALIAN ECONOMY: HOW COVID-19 HAVE CHANGED IT 116 3.3 INSTRUMENTS ADOPTED BY THE ITALIAN GOVERNMENT TO CONTAIN THE EFFECTS OF THE OUTBREAK AND FAVOR THE RESTART 121 3.4 COVID-19 AND RESHORING 122 3.5 COVID-19 IN THE FURNITURE INDUSTRY: HOW THE INTERNAL AND EXTERNAL DEMAND HAS CHANGED – FOCUS ON THE LIVENZA FURNITURE CLUSTER, PORDENONE’S AREA 123 3.6 OPPORTUNITIES BROUGHT OUT BY THE CRISIS: WHICH ARE THE NEW TRAJECTORIES THAT SHOULD BE FOLLOWED BY COMPANIES AND HOW THE CORONA-CRISIS MAY CHANGE THE FURNITURE INDUSTRY 130 3.7 METHODOLOGY 133 CHAPTER 4: SMART SPECIALIZATION STRATEGY – HOME SYSTEM’S INNOVATIONAL PATH IN THE NEXT SEVEN YEARS 135 4.1 THE SMART SPECIALIZATION STRATEGY 135 4.1.1. From the Lisbon Strategy to S3 135 4.1.2. S3 and innovation 139 4.1.3 Governance in S3 141 4.1.4 Entrepreneurial process of discovery 145 3 4.1.5. Smart Specialization Strategy in practice 150 4.2 SMART SPECIALIZATION STRATEGY IN FVG – FOCUS ON HOME SYSTEM 152 4.2.1 The role of Smart Specialization in FVG 153 4.2.2 Entrepreneurial Process of Discovery in Friuli Venezia Giulia 154 4.2.3. Home System and its development trajectories 158 4.2.4. Financial resources and numerical analysis 163 4.3 ANALYSIS OF THE FUTURE HOME SYSTEM’S CHALLENGES AND THE POTENTIAL DEVELOPMENT TRAJECTORIES FOR 2021-2027 169 4.3.1 The new challenges for the next seven years 169 4.3.2 Development Trajectories for 2021-2027 programming in the Home System 177 CONCLUSION 189 BIBLIOGRAPHY 193 BIBLIOGRAPHICAL REFERENCES 193 WEB REFERENCES 208 ORAL REFERENCES 211 4 INTRODUCTION In the last thirty years the economic world has faced several changes and challenges: new technologies have revolutionized manufacturing activities; globalization has led to new business strategies, such as outsourcing; and the way in which companies interact has revolutionized the flow of information and knowledge along the global value chains. What has evolved most is, for sure, the concept of territory. Over the years, morphological and industrial transformations have changed irreversibly the idea of territory from a simple geographical region limited by boundaries into complex pools of knowledge. Strictly connected to this last view of territory there is the concept of “cluster” which, in the last decades, has drawn attention of national and supra-national institutional bodies. The discovery of this model of economy has to be attributed firstly to Marshall (1890) and Becattini (1979), which detected and described the “district” model, which then evolved into “cluster” thanks to the definition provided by Porter in 1998. He described clusters as “a geographic concentration of interconnected companies, specialized suppliers, service providers, firms in related industries that compete but also cooperate”. In particular, this coexistence of competition and cooperation is the key factor that allows cluster’s firms to be more productive and enhance their competitiveness in the national and global markets. Two fundamental characteristics of a cluster determine its success as business economy. The first is the fact that within a cluster there is a strong horizontal integration. Companies are mostly small and medium enterprises, each of them highly specialized over a single or few passages of the supply chain. This allows to the whole system to reach a high aggregate level of knowledge, since that every step of the production process (fully internal to the cluster) is made by experts. The second success factor is determined by the capability of the system to ease the share of knowledge – especially tacit knowledge –, creating a continuous flow of information and skills from which new wisdom born. What happens is that a constant “buzz” pervades the territory like a white surrounding noise that can be listened by everybody and exploited to produce new ideas and skills (Storper and Venables, 2002) (Bathelt, 2004). This is also eased by geographical proximity, which, on one side, reduces transaction costs and, on the other, increases the possibility to establish human interactions which foster the implementation of a virtuous circle. 1 However, the “buzz” is not simply “something in the air” (Marshall, 1890), but is a precise characteristic of the territory. In fact, according to Pisano (2008), clusters have the capability to produce the so called “industrial commons”. They are a set of knowledge, skills and industrial resources that belong to every economic agent within the cluster and that is embedded to the territory. Moreover, such an interwoven system owes its success to the capability of its inhabitants to establish strong governance structures able to manage the complex network of relationships that takes place in the territory. Many examples of successful clusters can be done, one over all the Silicon Valley. However, Italy as well has a long tradition of similar geographically localized business ecosystems. In fact, according to the last ISTAT’s census, 156 districts and clusters are present in the Italian territory, mostly localized in the north of the country. In this thesis a particular attention has been given to Livenza Furniture Cluster, located in Northern East of Italy between Veneto and Friuli Venezia Giulia region1. This cluster has to be considered one of the most important hotspots for the global furniture production, since in it is possible to find the major supplier of global multinational enterprises, but also some of the most important brands such as Veneta Cucine S.p.A, San Giacomo S.p.A. and Fantoni S.p.A. Together with Monza-Brianza district, Livenza Furniture Cluster is the most important Italian pole for furniture production. Over the years, this cluster has faced a consistent growth rate, especially in terms of exportations and presence of key international players that have decided to exploit its capabilities for their purposes. However, 2008/09 and 2012 crisis, and, last but not least, Covid-19 outbreak have hardly hit the territory, reducing its capability to be competitive in the global value chains. The first purpose of this thesis is to analyze which are the effects caused by the lockdown imposed between March and May in the furniture industry and especially on Livenza Furniture Cluster. Furthermore, the reason will be focused on the new challenges brought out from the actual tough situation, but also on the opportunities that may rise by 1 Nota Bene: since that the Cluster is divided in two regions, I have decided to focus my attention on Friuli Venezia Giulia’s side. This decision has been taken for a matter of data availability and because this thesis has been written with the support of Cluster Arredo FVG, the wood and furniture industry’s consortium and observatory in Friuli Venezia Giulia. From now, every reference to “Livenza Furniture Cluster” has to be intended for Friuli Venezia Giulia’s side, except from when diversely expressed. 2 exploiting new forms of innovation that can allow to Cluster’s companies to invest and get back on their feet again. In order to do so, Smart Specialization Strategy (S3) will be considered as main tool able, first of all, to distribute to companies the necessary funds to invest in innovation and, most importantly, to show them the future long-term innovational paths. In fact, S3 is considered the ex ante condition for accessing to European Regional Development Funds (ERDF). Nevertheless, the actual S3’s programming for 2014-2020 will expire in the next months and, in the days in which this thesis is written, the stakeholders’ meeting aimed at discussing the next seven years plan for 2021-2027 have been reunited. Upon the invitation of Cluster Arredo FVG – the main supporter of this thesis and the institution uncharged to coordinate the meetings – I’ve had the honor to participate to the first two sessions of the Entrepreneurial Process of Discovery for “Home System” specialization area2, the phase that in the next months will give birth to the next seven years plan.

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