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WEB CS4 INDUSTRIAL DISTRICTS IN

ITALY: THE CASE OF SASSUOLO

GIOVANNA VERTOVA,
UNIVERSITY OF BERGAMO

INTRODUCTION

The European Union (EU) has made most progress in the attempt to create a
single market environment with the removal of barriers to trade and the
creation of mutually agreed rules governing business activities. Integration of
national markets increases the competitive environment and forces firms to
seek new strategies to create and maintain competitive advantage. Location in
areas where institutional frameworks and networks enhance the effectiveness
of the economic activities of firms will help in the competitive battles that
increased market integration is likely to encourage. Some business activities are
geographically concentrated in clusters or industrial districts and manage to
achieve international competitiveness. Yet the importance of geography for
economic activities has been acknowledged only quite recently. In the ortho-
doxy tradition, the national economy has generally been seen spaceless and
economists have paid little attention to the role of geography in influencing
economic activities. Yet, in the last decade economists have given a greater
emphasis to the nature and performance of local economies within nations
(Krugman, 1991, 1995). Economic geographers have pointed out the impor-
tance of place in the organisation of economic activities (Dicken, 1998), and
how economic activities tend to concentrate in some particular locations
(Porter, 1990). Those economists who acknowledge the importance of geo-
graphical factors have often focussed on the gains in efficiency and flexibility
that can arise from the geographical concentration and proximity of firms and
which can, in turn, lead to international competitiveness. Moreover, the new
institutional economic states that firms which locate in areas where institu-
tional framework are conducive to the effective operation of markets will reap
even more advantages (North, 1990). This case study sets out to analyse the
phenomenon of industrial districts and to assess their importance in the con-
text of the Italian economy. The Italian industrial district for ceramic tiles in
Sassuolo is used to illustrate the importance of geographical concentration
within a national economy.
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Industrial Districts in Italy: The Case of Sassuolo 33

MARSHALLIAN INDUSTRIAL DISTRICTS

The theoretical background for the analysis of industrial districts was set up by
Alfred Marshall in 1890 in his Principles of Economics. Despite the impossibility
for Marshall to use the term ‘industrial district’, which was coined more recently,
the author spoke about the concentration of specialised industries in a particu-
lar location and was interested in analysing geographical agglomeration of small
business. What Marshall recognised was that some businesses tended to con-
centrate in some geographical areas. By looking at England of the last century,
he noted that pottery was concentrated in Staffordshire, straw plaiting in
Bedfordshire, cutlery in Sheffield and Wycombe chair making in Buckinghamshire.
He also noted that these geographical concentrations were formed by small,
highly-specialised firms. The most important characteristics of what has been
termed the ‘Marshallian industrial district’ are:

• the presence of small, highly-specialised firms, generally locally owned;

• a substantial trade between buyers and suppliers within the district;
• a high degree of cooperation among firms within the district;
• negligible economic activities between firms within the districts
and outsiders;
• the sharing of sources of finance, technical expertise and business service
among all firms within the district; and
• a highly flexible labour market.

Within the Marshallian theoretical background, particular importance was

given to the existence of external economies of scale in order to explain the eco-
nomic performance of the Marshallian industrial district. Economies of scale are
formed by all factors that cause the average costs of production to fall as output
rises. They can be divided into two categories:

1 Internal economies of scale: accrue to the individual firm regardless the size of
the industry. They generally result from technological factors. For example, if
there are high fixed costs in plants, the larger its production, the lower the
costs per unit of the fixed input. Another example is that large firms can often
get discounts from their suppliers when they buy inputs in bulk, thus reducing
their production costs. It is therefore evident that internal economies of scale
are more likely to appear within large firms.
2 External economies of scale: arise because the development of an industry can
lead to the development of ancillary services that benefit all firms within the
industry. They are therefore strictly related to the size of the industry, but not
to the size of a single firm. Some examples can be a labour force skilled in the
crafts of the industry, a components industry equipped to supply precisely the
right parts or a trade magazine in which all firms can advertise cheaply. This
second type of economies of scale can more easily be exploited by small
firms when they are geographically concentrated and highly specialised in the
same industry, broadly defined.
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34 European Business and Marketing

Within the Marshallian industrial district, small firms have the possibility to
reduce their costs for the simple reason of being geographically concentrated in the
same industry. Marshall spoke about external economies of scale which ‘can often
be secured by the concentration of many small business of a similar character in
particular localities’ (Marshall, 1890, p. 221). Other authors refer to ‘economies of
agglomeration’ to explain all the advantage firms can gain by the simple geo-
graphical concentration in the same area (Weber, 1929). In Marshall’s point of view,
these external economies of scale are represented by a specialised set of services tai-
lored to the unique production of the district, such as technical expertise, services
for maintenance and repair for machinery, loans from local financial institutions, etc.

THE MODERN LITERATURE ABOUT INDUSTRIAL DISTRICTS

New attention was dedicated to the phenomenon of industrial districts in the

middle of the 1980s because of the outstanding performance of some of them.
While in the 1970s and 1980s the economies of all over the world set into reces-
sion and stagnation, a few localities stood out as exhibiting a remarkable
resilience and even growth. This new literature concentrated on the Italian expe-
rience because it has provided the clearest and strongest example of industrial
districts. Pyke and Sengenberger state that ‘whilst the validity of other areas in
other countries to be called districts might sometimes be contested, the eligibil-
ity of localities in Italy is undisputed.” (Pyke and Sengenberger, 1990, p. 1). The
outstanding performance of some Italian industrial districts was particularly evi-
dent in international markets. The rate of export of some Italian industrial dis-
tricts was higher that the national average. Bologna is a district for packaging
machinery and a nation-wide Italian newspaper reports that 85% of its produc-
tion is exported (La Repubblica, 11th January 1998).
From this new literature, a new concept of industrial district emerges and it is
based on the well-known definition by Becattini. Becattini defines an industrial
district as ‘a socio-territorial entity which is characterised by the active presence
of both a community of people and a population of firms in one naturally and
historically bounded area.’ (Becattini, 1990, p. 38). The main difference between
Marshall and the modern theory on industrial district is the importance of indi-
viduals and institutions given by Becattini and his followers. In the Becattini’s
notion of industrial district, there are two different sets of features that define
the district, economic and sociological. The economic characteristics are more or
less the same identified by Marshall and are the following:

• the presence of small firms specialised in just one or few phases of the pro-
duction process, which is similar to the Marshallian notion of highly spe-
cialised firms;
• the belonging of all firms to the same branch which is widely defined, which
is similar to the Marshallian notion of main and auxiliary industry;
• a constant reallocation of human resources, which is similar to the
Marshallian notion of highly flexible market;
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Industrial Districts in Italy: The Case of Sassuolo 35

• identification of the district through a ‘representative commodity’ so that

each particular district can be distinguishable from other districts and from
similar commodities by some special characteristics of its own (i.e. leather in
Florence, ceramic tiles in Sassuolo, packaging machinery in Bologna, etc.);
• a strong presence of the local bank which helps the creation of new business
(i.e. theory of the local bank).

Together with these economic characteristics, Becattini speaks also about

important sociological characteristics. They are:

• the existence of a ‘local community’ which shares a homogeneous system of

values and views embedded in a system of institutions (i.e. market, firm, fam-
ily, church, school, local authorities, local political parties and trade unions, etc.);
• the importance of personal relationship, due to the interaction between the
local community and the production process;
• the presence of an ‘industrial atmosphere’ where information and knowledge
is partially transmitted through canonical channels (i.e. technical schools and
factoring training) but mainly through ‘face to face’ relationships;
• the fundamental importance of trust.

All these sociological characteristics create a sense of belonging to the local

industrial community. Therefore, it becomes more important who you know and
to know the right people that what you know within the industrial district. With
this new notion of industrial districts, the importance of the Marshallian exter-
nal economies of scale is enhanced by the strong and trustworthy relationship
among all agents (economic and not) of the districts.

INDUSTRIAL DISTRICTS IN ITALY

The great number of industrial districts in Italy can be found in the North-
Central and North-Eastern regions, broadly corresponding to the so-called
‘Third Italy’, as opposed to the highly industrialised North-Western part of the
country and the backward South. In the Third Italy the patterns of industrial
development have shown very different paths from those of the North-Western,
which was the traditional core of the industrial and innovative activities of the
country with regions such as Piedmont and Lombardy. Due to this dual way of
industrial development, the Italian economic system has been defined as
dicothom (Iammarino et al., 1996; Malerba, 1993). The North-Western regions
are characterised by firms larger than the national average (i.e. FIAT and
Olivetti), associated to a high propensity to generate new technology through
in-house R&D laboratories. On the contrary, the North-East and -Central regions
are characterised by small firms, generally in traditional sectors, which generate
innovation through a process of improvement of existing production processes.
Despite this generalisation about the dichotomy of Italy, none of the Italian
industrial districts is strictly equal to another, as also demonstrated by the
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36 European Business and Marketing

variety of product specialisation, degree of complexity of organisations and

networks, different cultural and social background. Yet, the literature
(Goodman, Bamford, Saynor, 1989; Pyke, Becattini, Sengenberger, 1990) has
found some stylised facts, which can help describing the Italian experience in
broad terms. All Italian industrial districts show the following characteristics:

• a strong tendency to specialised in traditional sectors, because they histori-

cally derived from the crafts and artisan production;
• the development of a flexible system of production as opposed to the Fordist
mass production, which enables firms to reorganise the production quickly in
order to meet the new demand of consumers;
• small urban dimension because they develop around a small city or even vil-
lage and this helps the development of interpersonal relationship and
enhances trust among individuals;
• important role played by family ties and trust due to the merge between the
economic production and the social environment of the districts with partic-
ular importance given to personal relationships supporting the transmission
of skills and knowledge;
• high social mobility due to a very flexible labour market, which enables the
possibility to develop a continuum of work positions, from home-based work
to part-time to wage work to self-employment to entrepreneur;
• political homogeneity based on political sub-cultures which dates back at the
beginning of the century (i.e. the Socialist orientation of the Central regions
and the Catholic one of the North-East).

Yet, as emphasised by empirical findings (Paniccia, 1997), these characteristics

can be stronger or weaker according to the historical development of each
industrial district.

SASSUOLO AND THE CERAMIC TILE INDUSTRY

The Italian province of Modena corresponds to the Level III of the European
NUTS Classification and it is located in the Italian region Emilia-Romagna. The
province is over 2,690 square kilometres and, in 1996, the population was
613,625. Industrial districts in the Emilia-Romagna region have developed on
the basis of flexible specialisation, which has led to the acknowledgement of the
‘Emilia model’ of economic organisation (Goodman, Bamford, and Sayor, 1989).
According to Capecchi (1990), the main characteristic of this model is the blend-
ing of economic with social development. The socialist tradition in the region
encouraged the development of co-operative solutions to problems and local
government authorities play an important role in helping firms to operate effec-
tively. The University of Bologna together with the universita’ popolari (socialist
teaching centres for the working classes) provided strong support for training
labour and for helping with problems with technology. The presence of many
entrepreneurs, who have a strong tradition of high quality artisan production,
lead to the growth of a large number of small firms that are innovative, adven-
turous and produce high quality products. The transmission of technological
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Industrial Districts in Italy: The Case of Sassuolo 37

knowledge is helped by the existence of technical schools that are committed to

disseminating new ideas within their community. These factors helped to create
and develop industrial districts in the province. Carpi is highly specialised in the
knitwear industry, while Sassuolo is involved in the ceramic tile industry. Both
of these districts are acknowledged to be part of the 61 Italian industrial districts
that have been identified by Sforzi (1990).
Historically, the ceramic tile industry in Sassuolo grew out of other related
industries, such as earthenware and crockery, which can be both traced back to
the Middle Age, when ceramic tiles were used as a useful architectural decora-
tion of walls and floors in religious and public buildings. At the time, tiles were
mostly hand decorated majolica. The Italian artisan borrowed from the hexago-
nal terracotta tiles prevalent in the late Roman Empire and from other decora-
tive tiles. Italian majolica handcrafts developed new styles, adopted from the
Islamic and Moresque tile, to fit the changing modes and patterns of interior
decoration. One of the first ceramic tile floors designed by a known artist was in
the Chapel of S. Petronio in Bologna in 1487. It was designed by Pietro Andrea
from Faenza. Afterwards, tile usage became widespread rapidly in religious build-
ing, palaces and villas throughout Italy. Thus, the development of industrial dis-
tricts in Italy has always had long historical origins. After the break up of the
Roman Empire, Italy was a country made up of city-states that were almost self-
contained. Within these city-states, the artigiano, the master craftsman, was the
predominant figure in the business life together with his/her family and the
family ties and was generally the starter of some kind of craft specialisation
(Goodman, 1989). Moreover, Italy became a unified nation-state only in 1861
where, anyway, regional autonomy is quite strong and where regional economic
and social differences persist, thus maintaining the different regional patterns of
specialisation.
In the immediate post-war period, there were only a handful of ceramic tiles
manufacturers in the area of Sassuolo. Yet, demand boosted after the Second
World War and important breakthroughs in the tile production technology were
made, including the first continuous production process and the commerciali-
sation of the single-firing technique. The high demand for ceramic tiles was due
to the nation’s Mediterranean climate. Ceramic tiles were cool in warm weather.
Moreover, wood was scarce and tiles gave a price/performance advantage over
wooden floor. Finally, Italian building was generally made of concrete, which
made laying tiles relatively easy. Sassuolo was in a relative better position than
other Italian localities for the production of ceramic tiles. Besides the advantages
of a history in related industries, Sassuolo could benefit from a pool of mechan-
ical trained workers. The presence of companies such as Ferrari, Maserati and
Lamborghini and other firms with long tradition in technical sophistication
helped the development of this industry. The geographical concentration of
firms around Sassuolo encourages the development of infrastructures for the
whole industry. The proximity of suppliers enables the creation of maintenance
and services to the firms around Sassuolo, together with services for other
related inputs such as moulds, glazes, packaging materials and transportation.
Assopiastrelle, the ceramic tile industry association with membership concentrated
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38 European Business and Marketing

in the Sassuolo area, gradually began to offer services in areas of common interest,
including bulk purchasing, foreign market research, consulting on fiscal and
legal matters. In 1976, a consortium of the University of Bologna and various
ceramic tile industry associations founded the Centro Ceramico of Bologna,
whose functions included research on ceramic raw materials, production
processes, and chemical and mechanical analysis of finished products.
The specific technology to produce ceramic tile enables to explain the possibil-
ity of the development of highly specialised small firms in this particular industry.
The process of the production of ceramic tiles is a two-stage process. The first stage
is the preparation of the mixture by grinding the clay into a fine powder, which is
then moistened and pressed into tile shape. These tiles are then fired to produce
what has been called ‘biscuit’, which is then glazed and fired again in order to give
the final product. This process of production is called double firing. In principle,
this process can be easily split up after the grinding operation, the first firing, the
biscuits selection, and the second firing. Therefore, technical opportunities can be
gained from horizontal integration and small firms can become highly specialised
in a single part of the production process. An alternative process is the single-
firing on which tiles are glazed directly after the pressing operation and then fired
only once. This process is conceived as an integrated production line from the
pressing to the firing operation, and thus the only possible breaks in the whole
production process are after the grinding operation and after the firing.
Table 1 below shows the main features of the Sassuolo industrial districts
when compared with Italy as a whole. All data refers to 1991 and are calcu-
lated from the latest available Census of Industry and Commerce by ISTAT.
The Sassuolo area is very small, with only 158,966 inhabitants in 1991. Yet,
from 1981 to 1991 a very high variation in the resident population occurred,
especially if compared with the national one. This may be an indicator of the
good economic performance of the area and how, therefore, the area became
very attractive for resident in other locations. This hypothesis is also con-
firmed by the data about activities and business attitudes, which shows a
higher percentage of economically active population in industry than the
national average; a lower rate of unemployment among youngest than the
national average and a lower overall rate of unemployment of the area than
the national average.
In 1991, the Sassuolo district was characterised by manufactured production
with 430 small firms and 20,565 employees operating in the ceramic tile indus-
try. This data confirms the fact that firms within the districts are quite small
with an average of employees of less than 50 per firm. Yet, the rate of speciali-
sation of the firms in the ceramic tile industry is not very high. This might be
related to the fact that the percentage of manufacturing firms over all firms is
not very high, although higher than the national average, thus showing that the
430 firms in the ceramic tile industry are just a few numbers of all firms in the
Sassuolo area, which are mainly non-manufacturing. Yet, the rate of specialisa-
tion of employees is quite high, thus indicating how the key industry encom-
passes the whole district and its employees. The ceramic tile industry in the
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Industrial Districts in Italy: The Case of Sassuolo 39

TABLE 1. Main features of the Sassuolo district, 1991.

Sassuolo
area Italy

Demographic ratios 158,966

resident population 56,778,031
% variation resident population 1981-91 6.6 0.4

Activities and business attitudes

% population economically active in industry 50.0 23.0

% young people seeking a job over economically active population 2.6 10.9
% rate of unemployment 5.7 17.8

Industrial structure of the key industry (i.e. ceramic tile)

% manufacturing firms over all firms 22.4 16.3

number of firms in the key industry 430.0
number of employees in the key industry 20,565.0
rate of specialisation by firms (% firms in the key industry over all
firms in manufacturing) 14.3
rate of specialisation by employees (% employees in the key industry over all
employees in manufacturing) 47.2
% of employers and professional workers 5.4 5.1
% of managers workers 2.0 n.a
% of self-employed workers 18.8 13.9
% of employees (low level clerks) 27.8 17.5
% of workers in industry 64.2 61.6

Education ratios

% population with bachelor degree (Laurea) over population of aged 6 and more 1.9 3.8
% population with senior secondary school degree (Diploma) over population of
aged 6 and more 18.1 18.6
% population with junior secondary school certificate (Licenzia Media) over
population of aged 6 and more 30.3 30.7
% population with primary school certificate (Licenza Elementare) over population
of aged 6 and more 36.6 32.5
% literate population without qualification over population of aged 6 and more 12.3 12.2
% illiterate population over population of aged 6 and more 0.9 2.1

Index of distrust

rate of business distrust by number of bills (number of protested bills over

number of firms) 5.3 6.6

International competitiveness

national export share in the key industry (% export in the key industry over
total national export in the same industry) 7.2
% variation export in the key industry, 1981-1991 41.2

Source: Based on Paniccia 1997

Sassuolo districts is mainly formed by self-employed workers, low level clerks

and workers. The lack of professional and managers shows how this district is
mainly based on people who started their own business after having worked in
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40 European Business and Marketing

the specialised firms of the district and, therefore, after having acquired the
necessary economic and business knowledge. Moreover, the workforce is char-
acterised by a low level of education with almost 67% of the entire population
with only a junior secondary school certificate or a primary school certificate.
This data seems to confirm the hypothesis that the knowledge about the indus-
try is not transmitted through formal channels (vocational qualification and/or
higher education) but through a process of ‘learning by doing’ (Rosenberg,
1972). The knowledge about the industry and the business is not learnt at school
but with more personal contacts and various forms of training (i.e. apprentice-
ship). The importance of trustworthy face-to-face relationship and networks
among all agents within the districts is shown by the index of distrust, which is
lower in the Sassuolo area than the national average. Finally, the outstanding
economic performance of the Sassuolo district is witnessed by the fact that 7.2%
of the total Italian export in the ceramic tile industry comes from this small area.
This data shows that the small firms in the Sassuolo area manage to reap
economies of scale that enable them to become competitive on international
markets. Moreover, from 1981 to 1991, the export of ceramic tile from the
Sassuolo area increased at a rate of 41.2%, thus showing the improvement in its
international economic performance.

CONCLUSIONS

The theoretical framework of the case study suggests that the development of
industrial districts is constrained by particular geographical factors, past historical
events and specific institutional framework and therefore they are path-dependent.
The experience of industrial districts cannot be transplanted from one area to
another. Regional economic integration will require firms to adopt new strategies
to enhance competitiveness. Firms must find and develop strategies to boost their
competitiveness otherwise they will lose market share and this chapter has shown
that small firms can gain competitiveness when they geographically concentrate
in one area. Geographical and institutional factors are important sources of com-
petitive advantages in the new environment that emerges from successful regional
economic integration. The formation and development of industrial districts can
provide a means of gaining such competitive edge in those industries that can reap
external economies of scale. Those firms located within industrial districts are
likely to face significant benefits from geographical concentration for those indus-
tries where agglomeration economies are important.
To sum up, the main conclusion is that economic geography is a central part
of the process by which a national economic prosperity is achieved and main-
tained. The importance of regional industrial concentration and specialisation is
such that economic geography should be accepted as a major sub-discipline
within economics.
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Industrial Districts in Italy: The Case of Sassuolo 41

QUESTIONS FOR DISCUSSION

1 What are the main features of the typical Marshallian industrial district?
2 Which are the differences between internal and external economies of scale?
Which of the two are crucial for the good economic performance of an
industrial district?
3 What are the main differences between the Marshallian industrial districts
and the typical Italian ones?
4 What are the main factors influencing the development of the ceramic tile in
the Sassuolo district?
5 By looking at the data for the Sassuolo district, which of the stylised factors
of the typical Italian industrial district can be found?

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