The Milan Fashion Cluster Industry Clusters and Firm Compeveness (6106) Marta Cusinato 41148 Emelie Lin 22788 Isak Nilson 22732 Jannik Tiedemann 41123 Agenda § Macroeconomic Condi3ons § Microeconomic Compe33veness pp. 3-11 Na2onal Framework – Italy § Diamond Model § Italian Fashion Industry § Cluster Map § Cluster Lifecycle § Compe33on with Other Clusters § 7-Gap Model pp. 12-27 Cluster – Milan Fashion § Government Policies § Cluster Performance § Diamond Model § Business Model § Cluster Relaonship pp. 28-31 Company Level – Prada § Strategy § Naonal Level pp. 32-35 Policy Recommenda2ons § Cluster Level 7 March 2017 The fashion cluster in Milan 2 ATer World War II, Italy went through a period of social and economic stabilizaon, but now faces poli3cal and cons3tu3onal disrup3ons Italy – Country Overview1 Country overview Italy and Milan § Language: Italian (in South Tyrol, German and Italian are official languages) § Locaon in South- § Capital: Rome Western Europe Milan § Populaon: 62 million § Close Proximity to § Area: 294.140 square kilometers Europe’s economic § Poli3cal system: Republic (since 2nd June 1946) powerhouses (e.g. Germany & France) § Currency: Euro (since 1st January 1999) § Favorable access to § Member of the European Union since 1957 (founding member) the Mediterranean § Religion: Chris3anity Sea History and legacy Latest developments § Became a naon-state in 1861 § Persistent problems include: sluggish economic growth, high youth and female § Era of parliamentary government abandoned in early 1920s (establishment of unemployment, North-South differences, organized crime and corrup3on fascist dictatorship); alliance with Germany led to defeat in World War II § The referendum on 4th December 2016 to reform the Italian Cons3tu3on § Democrac republic replaced monarchy in 1946, followed by economic revival resulted in the resignaon of the Prime Minister, thus increasing poli3cal instability2 § Member of NATO and European Economic Community (EEC) § Job insecuri3es and low incomes leading to low birth rates (1.39 children on av.) § Frontrunner of European economic and poli3cal unificaon, joining the § Economic and Monetary Union in 1999 Immigraon: Southern Italian island Lampedusa as main point of entry for refugees arriving by sea, leading to large-scale refugee camps in Southern Italy § Tradi3onal heritage of Italian crasmanship in fashion and design 7 March 2017 The fashion cluster in Milan 3 Italy is characterized by low poli3cal effec3veness, a high degree of corrup3on, and great socio-economic differences between the North and the South Italy – Framework Condi2ons Polical effecveness Standard of living Social development measures § Ranked last in Euro Area in 2015 World Bank poli3cal § Ranked 27th in Human Development Index (0.873)2 § Consistently ranked as most corrupted country in effec3veness ranking (index: 0,4)1 § Life expectancy of 83,1 years (above EU average)2 Eurozone, es3mated to cost 4% of GDP5 § Bad percep3on of public services, civil service § Public expenditure on educaon 4.3% of GDP with § Role of women: despite full legal rights under law, independence from poli3cs, & government credibility average of 16 years of schooling2 women face considerable social discriminaon (on 6 § Inefficient legal framework in segling disputes and § Country divided into two parts:4 average earning 23% less than men) transparency of government policy making (ranked § Complex unemployment benefits system rd 2 o Highly industrialized and developed North, 143 worldwide by World Economic Forum) dominated by private firms, approx. producing (differences in eligibility requirements and treatment § One of the highest number of major tax evaders in 75% of the naons wealth duraon) Europe with tax evasion accoun3ng for 7.5% of GDP3 § Social protec3on system fragmented and skewed o Underdeveloped and subsidized agricultural South towards pensioners, burdening younger generaons7 Technological advancement Environmental awareness Rule oF the law § Bureaucracy and difficult access to funding for start- § One of the largest stores of biodiversity, accoun3ng § Ranked 78th place in terms of Judicial independence; ups have caused the small firms’ innovaon creaon for half the plant species and a third of the animal poli3cal effort to ensure judiciary is not to lag far behind other major European countries species in Europe independent2 8 § Only 51% of all Italians have a broadband subscrip- § 0,9% of world’s Co2 emissions, 5,5 tons per capita § Common prac3ce of irregular payments and bribes on, compared with the European average of 71%2 § Separate collec3on of different waste streams is § 135th place in terms of favori3sm in decisions of § Italian government not geng involved in recognized as essen3al for the effec3ve recycling of government officials2 procurement of advanced technology, limi3ng the the different components of municipal waste § Ranked 132nd in terms of organized crime technological development in the public sector (e.g. § Issues of ineffec3ve and irregular public waste (especially Southern Italy)2 data storage and handling) management, especially in Southern Italy 7 March 2017 The fashion cluster in Milan 4 The Italian economy has been severely hit by the financial crisis and high unemployment rates in the South paralyze economic effec3veness Italy – Macroeconomic Condi2ons GDP per capita and inflaon Unemployment Italian GDP per capita1 in EUR and InflaKon2 in percent (expected figures from 2016-2020)3 Italian unemployment4 and youth unemployment5 in percent (expected figures from 2016-2020)3 32.500 17.200 20,7% 9,5% 40,000 1.6% 50% North South 1.4% 45% 35,000 North South 40% 30,000 1.2% 35% 1.0% 25,000 30% 0.8% 20,000 25% 0.6% 15,000 20% 0.4% 15% 10,000 0.2% 10% 5,000 0.0% 5% 0 -0.2% 0% 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E GDP per capita Inflaon Unemployment Youth unemployment § Italian economic perFormance heavily hit by the financial crisis § Average unemployment rate stable at around 10% § Significant North-South divide in GDP per capita (85% difference) § Unemployment rate much higher in South than in North (> 2x) § Infla2on development within European Central Bank targets (0% - 2%) § Very high youth unemployment (40% in 2015 vs. 18% in EU on average2) 7 March 2017 The fashion cluster in Milan 5 With the highest density of luxury firms in the world, a confusing tax system and unavailability of credit cause Italy to have the lowest ease of doing business compared with compe3ng host countries Italy – Microeconomic Compe22veness (1/3) Overview of the major host countries for luxury firms Ease of doing business for countries hosng fashion firms Home countries of worldwide largest 100 luxury companies as per 2013 revenues1 Ranking of economies on the ease of starKng and operaKng local firms, from 1 (easy) to 190 (uneasy)2 Country Number of firms 140 ∅ 4 29 50 32 31 7 8 120 Hongkong 7 100 France 11 80 60 Italy 29 40 Spain 5 20 Switzerland 11 0 Hongkong France Italy Spain Switzerland UK USA UK 6 Star3ng a business Dealing w/ const. permits Registering property USA 15 Geng credit Paying taxes Trading across borders Enforcing contracts § 84 of largest 100 luxury firms located in 7 countries § Italy lacking behind countries with compe2ng Fashion firms § Italy with the largest share of luxury companies § Very high perceived difficules in contact with public authories, including § Naonal compe22veness has to be compared with the 6 biggest compe2ng paying taxes and enforcing contracts host naons For luxury firms § Limited availability of funding for firms 7 March 2017 The fashion cluster in Milan 6 While Italian educaon is advanced, efficiency in leveraging the available labor force is low Italy – Microeconomic Compe22veness (2/3) Italian compe22veness Labor market efficiency IndicaKon of naKonal compeKKveness, from 1 (non-compeKKve) to 7 (compeKKve)1 Labor market efficiency, from 1 (non-compeKKve) to 7 (compeKKve)1 Instuons 7 ∅ 5,6 4,4 3,5 4,0 5,8 5,3 5,4 Innovaon 6 Infrastructure 5 Business 4 Macroeconomic sophiscaon 3 development 2 1 Health and primary Market size 0 educaon Technological Higher educaon and readiness training Hongkong France Italy Spain Switzerland UK USA Financial market Goods market development efficiency Flexibility Efficient use of talent Labor market efficiency § Advanced educa2on system, especially regarding primary educa2on § Difficules to match labor supply and demand, resulng in low efficiency § Fairly advanced inFrastructure § Parcularly low rang (3,1) for “Efficient use of talent” § Underdeveloped financial markets § Labor oen available, but unused by firms (due to unawareness of availability) 7 March 2017 The fashion cluster in Milan 7 Italian firms are internaonally compe33ve, but miss innovaon opportuni3es as they lack collaboraon with research and fail to apply engineers’ exper3se Italy – Microeconomic Compe22veness (3/3) Business sophiscaon Innovaon Business sophisKcaKon, from 1 (non-compeKKve) to 7 (compeKKve)1 InnovaKon, from 1 (non-compeKKve) to 7 (compeKKve)1 ∅ 5,2 5,1 4,8 4,5 5,8 5,5 5,6 ∅ 4,4 4,9 3,9 3,7 5,8 5,0 5,6 Hongkong France Italy Spain Switzerland UK USA Hongkong France Italy Spain Switzerland UK USA Capacity for innovaon Quality of scien.research inst. Local supplier quan3ty Local supplier quality State of cluster development Company spending on R&D University-industry collaboraon in R&D Nature of comp. advantage Control of int. distribu3on Prod. process sophis3caon Availability of scien3sts and engineers § Fairly high business sophis2ca2on, resul2ng