Labor

The Italian Job: A Factory Owner Seeks

Market Freedom in Poland
An Italian businessman moves his plant to low-cost Poland overnight

By Lorenzo Totaro

The Italian national flag flies in Turin

Early in August, Fabrizio Pedroni wished his employees a happy summer holiday and
told them to return to work in three weeks. That night, he began dismantling his
electrical component factory in northern Italy and packing its machinery off to Poland.
“Had I told them earlier about any plans to shift the production abroad, they would
have occupied my factory and seized all my stuff,” says Pedroni, owner of his family
company Firem. “The plain truth is that I wanted my business to survive, and there
weren’t the right conditions for me to operate in Italy any longer.”
On Aug. 13, 11 days after Pedroni activated his plan, some of Firem’s 40 workers,
suspicious of the movements around the plant, rushed to its gates just in time to stop
the last of 20 trucks packed with machinery. Firem’s move has become a national
controversy, and the fate of its employees is still unclear.

The loss of the factory, which was started by Pedroni’s grandfather shortly after World
War II, highlights the challenges facing Italy, where industry is beset by stifling labor
rules and antagonism between workers and management. By the World Economic
Forum’s measure of competitiveness, Italy ranks 128th, one place behind Burkina Faso,
compared with 39th for Poland.

Pedroni, 49, says he and his family now live in fear after receiving anonymous threats,
but he won’t change his mind about what he did. Sneaking off “was certainly
disputable and hopelessly harmed relations with his employees and community,” says
Carlo Alberto Carnevale Maffè, professor of business strategy at Milan’s Bocconi
University, “but like many entrepreneurs before him, he abandoned the ship called
Italy because it was the only way to survive. In Italy most businesses like Firem have
been posting losses for at least five years.” Much bigger Italian companies, from Fiat to
refrigerator maker Indesit, are moving production abroad to cut costs.

According to Pedroni, his decision was forced on him by low-cost rivals in Eastern
Europe, uncompetitive labor in Italy, and high taxes. Firem had sales of about
€3 million ($4 million) last year but hasn’t posted a profit since 2008, says Pedroni,
who opened his Polish factory in late August. He didn’t attend an Aug. 20 meeting with
unions and local institutions in the town hall of Formigine, where Firem was located,
to discuss the crisis triggered by the loss of his factory. One proposal under discussion
by local and national officials is to pay Firem’s Italian workers for up to 12 months
using funds from the government’s temporary layoff program.

Firem “implemented a move that I would call clandestine to say the least,” lawmaker
Matteo Richetti, a member of Prime Minister Enrico Letta’s Democratic Party, told
Parliament on Aug. 19. “I am in favor of market freedom, and that means that you can
move your company wherever you want, but this must happen after notifying the staff
and the local community.”

The Italian General Confederation of Labour, Italy’s biggest union, has said it wants
Firem to “find a solution to ensure production” stays in Italy. “The way to emerge from
a crisis cannot be to impoverish our industrial production, competing only in terms of
cost reductions, particularly labor costs,” it said. Pedroni says other solutions would
likely have doomed his company. “I don’t want to make more profit; I just want to start
making profit again,” he says. To show his goodwill, he brought five Italian workers he
trusted to Poland, asking them not to tell others of the plan.
From 2001 to 2011, about 27,000 Italian companies, each with annual sales of more
than €2.5 million, moved production abroad, Italy’s main small business association
says. In 2011, the last year for which data is available, Italians controlled 737 companies
in Poland employing more than 67,000, according to the Italian Foreign Trade
Institute.

Poland’s economy, the only one in the European Union to avoid recession since 2009,
will expand 1.1 percent this year, according to the Polish central bank. Italy’s economy
is projected to shrink 1.8 percent, says a Bloomberg survey of economists. “Many of my
colleagues called me to say I was right and brave to do it,” Pedroni says of his move.
“I’m not the first to go and won’t be the last.”

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