Industrial Districts.

#2626ECONOMIC GEOGRAPHYVOL. 82 NO.
182102-Dunford
Economic Geography 82(1): 2759, 2006. 2006 Clark University. http://www.clarku.edu/econgeography
Industrial Districts, Magic Circles, and the Restructuring of the Italian Textiles and Clothing Chain
Michael Dunford
School of Social Sciences and Cultural Studies, University of Sussex, Falmer, Brighton BN1 9QN, United Kingdom m.f.dunford@sussex.ac.uk
Abstract: This article identifies the way in which a firm-centered, value-chain approach to studying the distinctive structure and evolution of the geography of the Italian textile and clothing industries (TCI) offers important insights that qualify the results of district-centered and commodity/value-chain research. Analyses of the functional profiles of textile and clothing companies and of the roles of design, distribution, and services help explain recent trends in industrial concentration and in the national and international fragmentation of value chains. These analyses also give rise to a view of districts as parts of an interdependent geographic division of labor that includes magic circles and delocalized zones of dependent manufacturing. An appreciation of these features of the system is vital for understanding recent trends in the performance of the TCI and the Made in Italy industries more generally. Key words: textile and clothing industries, industrial districts, value chains, upgrading, delocalization, offshoring, retailing and distribution, Italy.
In recent years, there have been few academic analyses of Italys textile and clothing industries (TCI). Of these studies, most have dealt with the recent delocalization of economic activities to Central and East European countries (CEECs) (Balcet and Vitali 2001; Graziani 1998; 2001). Conversely, ever since the publication of the initial studies of Becattini and his colleagues (Becattini, Bellandi, Dei Ottati, and Sforzi 2003) and of Brusco (1982), a vast academic literature has dealt with textiles, clothing, and other industrial districts. Industrial districts are dense concentrations of interdependent small- and mediumsized enterprises (SMEs) in a single sector and in auxiliary industries and services. The literature on these districts tends to fall into two strands that are identifiable in the initial ideas of Marshall (1890). Marshall
argued that districts are driven economically by three mechanisms: (1) scale economies, which result from a high degree of specialization and division of labor; (2) external economies, which arise from the existence of shared infrastructures, services, and information; and (3) the availability of special skills and the pooling of the workforce, which, for example, allow individual enterprises to adjust their size and composition rapidly without jeopardizing employment and the reproduction of skills at a system level, as long as cyclical movements in demand and employment in different subsectors are not in phase with one another. Marshall also argued, however, that districts are not simply an economic phenomenon; they have an industrial atmosphere that itself involves the interaction of the economic and social system.
This article was derived from a four-country research project, entitled Regional Economic Performance, Governance, and Cohesion in an Enlarged Europe (L213252028), funded by the U.K. Economic and Social Research Council. Ray Hudson, Brian Haywood, and, in its final stages, Lidia Greco participated in the Italian part of this project.
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#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford

28 ECONOMIC GEOGRAPHY JANUARY 2006 The first of Marshalls arguments generated an initial wave of research on external economies and vertical disintegration and productive decentralization (Brusco 1982; Garofoli 1991; Piore and Sabel 1984; Scott 1988; Storper 1995). Other research emphasized the role of economies of scope (Coriat 1991). In industries such as textiles, clothing, knitwear, and shoes, fashion/seasonal factors are a stimulus to rapid changes in products: development cycles are short, prototyping is rapid, batches of products are small, the variety of products is great, and costs are spread across a wide range of goods. A Banca dItalia study (Signorini 2000) gave support to these ideas by showing that enterprises that are located in districts have higher rates of return on investment and on equity than do comparable enterprises that are not located in districts. These differences were attributed to higher productivity (value added per worker) and lower capital and wage costs. A further dimension was added with the claim that districts are places in which spillovers of local knowledge are important drivers of learning, innovation, and creativity (Maskell and Malmberg 1999), although this claim has been contested (Breschi and Lissoni 2001; Cani ls and Romijn 2005). More critical economic research has emphasized limits to the model and its consequent restructuring. This research has examined four main issues: (1) the rise of diseconomies (Whitford 2001); (2) the concentration of ownership, the emergence of groups of companies, and the growing influence of lead firms (Harrison 1994; Brioschi, Brioschi, and Cainelli 2002); (3) the delocalization through foreign direct investment/joint venture/strategic supplier/subcontract arrangements of wagesensitive activities to North Africa, the CEECs, and South East European Countries (SEECs) (Schiattarella 1999; Crestanello and Dalla Libera 2003; Garofoli 2003); and (4) the dependence of the model on social legislation that encouraged the growth of microenterprises and on economic conditions that provided for relatively low wages and the depreciation of Italy s currency (Dunford and Greco 2006). Marshalls second argument was further developed by Becattini (1979), who contended that districts are communities of firms and people and that their emergence requires a change in the unit of analysis from the firm and the industry to the district. The first of Becattinis ideas opened the way to a large literature dealing with the social, cultural, political, and institutional foundations of the district model. This literature included analyses of social norms and values, political subcultures, associationalism, good governance, institutional density and performance, conventions, trust, social capital, and entrepreneurship (see Whitford 2001), as well as research noting the more recent inability of districts to reproduce requisite social conditions as, for example, when new generations prefer not to follow in the footsteps of their entrepreneur or worker parents. Becattinis second argument that districts should constitute the object of analysis was related to the first. The reason why was that its justification rested on the view that districts are systems whose structure and development depend on norms, values, institutions, modes of governance, and social and cultural factors. As the influence of this argument grew, studies of industries and firms declined in importance. This approach did not go unchallenged, however. In 1993, Ferrucci and Varaldo (cited in Whitford 2001) argued that changing external conditions, the superior performance of lead firms, and difficulty providing collective producer services were indicative of the need for a firmcentered approach. Few attempts were made to take up this challenge. This article adopts such a firm- and sectorcentered approach to the study of the Italian TCI. At the root of this choice is the view that studies of industrial change should recognize that enterprises are the most important actors and that their strategies and the factors that shape them are the main drivers. Of these factors, the most important is the quest for profits. Although profitability depends on costs and innovation, which have been considered in the recent literature on districts, there have been few explicit

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 29 analyses of profitability, revenues, and scale. The strategies of enterprises also depend, however, on the context in which they unfold. This context includes the sector or the commodity or value chain in which they operate. A number of authors have used the concept of a commodity chain to examine the TCI (Gereffi 1999; Bair and Gereffi 2003; Webber and Weller 2001). Others have examined the ways in which industrial districts are inserted in global value chains and the ways in which districts upgrade (Humphrey and Schmitz 2002), while some geographers have considered the ways in which regional economies create, enhance, and appropriate value in global production networks (Coe et al. 2004). Although the approach used in this article shares elements of each of these approaches, it is distinctive in its emphasis on the importance of profit (cost reduction, commercially relevant product development, and functional upgrading) strategies of individual enterprises and their economic, political, and cultural environment/context (of which the chain is a part). The adoption of this perspective is also significant in that it identifies the importance of two underexamined aspects of value-chain ideas and offers important new insights into the structure and trajectory of the Italian TCI. The first is the connection between much-studied delocalization and the functional upgrading and reprofiling of surviving TCI enterprises. The second is an identification of the ways in which the TCI is shaped by a range of services (which have received virtually no attention in the commodity and value-chain literatures) and the structure of the distribution system (whose national variations and internal differentiation are seldom examined). At the same time, the adoption of a sectoral, as opposed to a district, approach results in a revised interpretation of districts themselves. What is most striking is that districts emerge as just one part of an interdependent division of labor and an interdependent territorial system. As is the case in the existing literature, this article shows that districts are parts of an interdependent, interregional, and international division of labor in the sector and are profoundly shaped by their articulation with the distribution system. It also shows that individual Italian TCI districts are part of a geographic system that I call a magic circle, which is centered on the service capital of Milan. These arguments are developed in a series of stages. In the next section, I outline the changing profile of the Italian TCI as a way of identifying phenomena that economic geographers should seek to explain. In the third section, I consider ways of conceptualizing and theorizing the structure and evolution of the industry. Two ideas are advanced. The first concerns the importance of considering the entire value chain, including the articulation of production, distribution, and (in contrast to the existing literature) a range of supporting services. The second involves identifying the nature of enterprises (their size and the functions they perform) and the characteristics of their profit and upgrading strategies that unfold in the context of the chain and the wider economic and political environment. In the four subsequent sections, these theoretical ideas are developed and combined with data from a survey and interviews to make a number of new points and to reinforce a number of emerging ones about the development of the TCI and TCI districts. These sections draw on empirical data that were derived from reports and semistructured interviews that I conducted (sometimes with project collaborators) in Italy, Belgium, and the United Kingdom. The first of these four sections deals with the role of large groups and of productupgrading and market-segmentation strategies, with a particular emphasis on the rise and decline of Gruppo Finanziario Tessile (GFT). The second concerns the impact of the distinctiveness of the Italian distributive system and of recent changes in distribution. The third deals with the need to recognize that districts are part of an interdependent geographic system or magic circle that is due to the vital role of material and immaterial services that are largely concentrated in

30 ECONOMIC GEOGRAPHY
EU15 1,646 65 100
JANUARY 2006
1,560,879 (1,841,837) 42,412 (50,046) 27,345 (32,267) Wearing apparel Manufacturing Textiles 220,604 (260,313) 14,696 (17,341) 9,443 (11,143) 253,790 (299,472) 5,865 (6,921) 4,031 (4,757) Value Added in 2000 (in millions of at current exchange ratesb) 423,220 236,865 103,232 18,317 44,127 (499,400) (279,501) (121,814) (21,614) (52,070) 5,690 5,034 3,232 1,681 1,919 (6,714) (5,940) (3,814) (1,984) (2,264) 3,120 3,731 2,578 1,568 369 (3,682) (4,403) (3,042) (1,850) (435) 12,650 (14,927) 661 (780) 1,298 (1,532) 248,074 (292,727) 3,634 (4,288) 1,206 (1,423)
Milan. The fourth emphasizes the nature of the interdependence that results from successive waves of offshoring.
A Geographic and Industrial Profile of the Italian and EU15 TCI

An economic geography of the TCI must seek to describe and explain the main geographic characteristics of these industries. This section identifies a number of these characteristics, starting with the relative size of the Italian TCI and the EU15 TCI of which they are a part. Although the TCI are the first to develop in emerging economies, the EU15 and, within it, Italy remain particularly important actors. In 1998, the EU15 produced 29 percent of the worlds textiles and 26 percent of the worlds clothing, although it lay well behind Asia, which accounted for 39 percent and 45 percent, respectively (OETH 2000; Stengg 2001). In 2000 nearly half of the EU15 TCI companies were in Italy (see Table 1). The 78,000 Italian companies accounted for 34.7 percent of EU15 value added and 32.3 percent of EU15 employment. As the most important EU15 manufacturer, Italy was a major international player. In 2001, it accounted for 8.2 percent of the worlds textile and 7.2 percent of the world s clothing exports, making it the worlds third-largest exporter of textiles after China and the United States and the secondmost-important exporter of clothing after China. At the same time, Italys manufacturing sector was particularly dependent on its TCI. In 2000, the TCI accounted for 10.9 percent of Italian manufacturing value added, compared with just 4.5 percent in the EU15 and 3.9 percent, 3.7 percent, and 2.1 percent in the United Kingdom, France, and Germany, respectively (Table 1 lists the corresponding absolute values). Other high shares were recorded in the economically weaker Mediterranean economies of Greece (15.5 percent) and Portugal (16.3 percent).
Rest Belgium Greece
A Profile of the Italian and EU15 TCI
Germany United Kingdom Italy Country
Manufacturing Textiles Wearing apparel
561 30 48
157 5 5
232 5 6
Number of Enterprises in 2000 (in thousands) 219 161 77 5 7 5 10 12 10
Table 1
France
Spain
Portugal
38 2 1
25 1 2
177 6 6
Table 1 (Continued)
Germany 8,098 145 85 Employment in 2000 (in thousands) 3,797 2,901 989 115 129 114 101 161 163 651 42 11 602 42 94 3,716 80 49 France Spain Portugal Belgium Greece Rest EU15 30,155 1,226 1,133
VOL. 82 NO. 1
Country 4,240 148 129
Italy
United Kingdom
Manufacturing Textiles Wearing apparel
5,160 412 340
Manufacturing
Textiles
Wearing apparel
Apparent Productivity in 2000 (value added per person employed in thousands of at current exchange ratesc) 43 60 52 62 36 19 68 21 (51) (71) (61) (73) (43) (22) (80) (25) 36 40 39 44 25 15 46 16 (43) (47) (46) (52) (30) (18) (54) (19) 28 31 37 37 16 10 32 14 (33) (37) (44) (44) (19) (12) (38) (17)
67 (79) 45 (53) 25 (30)
52 (61) 35 (41) 24 (28)
Manufacturing
Textiles
ITALIAN TEXTILES AND CLOTHING CHAIN
Clothing
117,736 (138,929) 6,593 (7,780) 6,854 (8,088)
115,629 (136,442) 2,338 (2,759) 1,332 (1,572)
285,137 (336,462) 7,111 (8,391) 2,527 (2,982)
Extra-EU exports in 2002 (in millions of b) 124,399 33,574 4,964 (146,791) (39,617) (5,858) 3,073 1,310 532 (3,636) (1,546) (628) 2,372 820 269 (2,799) (968) (317)
59,181 (69,834) 1,912 (2,256) 222 (262)
4,894 (5,775) 223 (263) 379 (447)
188,724 (222,694) 3,770 (4,449) 1,410 (1,664)
934,238 (1,102,401) 26,862 (31,697) 16,185 (19,098)
Manufacturing
Textiles
Clothing
103,987 (122,705) 3,690 (4,354) 5,711 (6,739)
161,978 (191,134) 3,071 (3,624) 10,906 (12,869)
220,251 (259,896) 4,409 (5,203) 13,873 (16,370)
Extra-EU imports in 2002 (in millions of b) 111,345 49,468 7,849 (131,387) (58,372) (9,262) 1,770 1,243 386 (2,089) (1,467) (456) 6,837 2,278 70 (8,068) (2,688) (83)
56,154 (66,262) 1,394 (1,645) 2,749 (3,244)
14,659 (17,298) 396 (467) 189 (223)
191,037 (225,424) 2,563 (3,024) 7,672 (9,053)
916,728 (1,081,739) 18,922 (22,328) 50,285 (59,336)
31
Source: Elaborated from OECD (2003a, 2003b) and CEC (2003a, 2003b, 2003c). Value added and employment estimates were obtained or derived from OECD (2003a, 2003b). Estimates of the number of enterprises were derived from OECD (2003b). Trade data were obtained from CEC (2003c). b Conversions in parentheses are $ millions, at a rate of 1 equals $1.18. c Conversions in parentheses are $ thousands, at a rate of 1 equals $1.18.

32 ECONOMIC GEOGRAPHY JANUARY 2006 This situation is partly a reflection of Italy s distinctive trajectory. Figure 1 plots indices of real value added in four EU15 Member States from 1970 to 2002, while Table 2 records more detailed EURATEX TCI production indices from 1990 to 2003. Manufacturing value added increased more strongly in Italy than in any of the other four countries, with the United Kingdom achieving weak manufacturing output growth. In Denmark, TCI value added increased at first, but declined from the mid-1980s. In West Germany, TCI value added declined from the early 1970s, while in the United Kingdom (for which the TCI series starts in 1980), value added also declined. In short, in Germany, Denmark, and the United Kingdomand indeed in most other EU15 countries there was a strong movement out of domestic production. In Italy, conversely, TCI output increased. Only in the late 1990s did a sharp decline set in, in the face of slower market growth, the intensification of international competition, and an erosion of Italy s sources of competitive advantage. In contrast to most other EU15 countries, Italy successfully specialized in a traditional sector that was subject to strong competition from low-wage countries. Although employment was generally in decline, Italy s employment record was equally distinct (see Table 3). In 1970, TCI employment in Italy and West Germany were similar. In 2000, TCI employment stood at 69 percent of its 1970 level in Italy, whereas, in unified Germany, it
Figure 1. Trends in TCI value added, 19702002 (Index numbers, 1970 = 100). Source: Elaborated from OECD (2003a).

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN Table 2 Trends in Textile and Clothing Production, 19902003 (Index Numbers, 1990 = 100)
1990 1991 Textiles Italy Belgium Portugal Spain France Germany United Kingdom Clothing Italy Portugal Spain United Kingdom Germany France 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 89.7
33
100.0 99.6 100.3 100.0 88.3 93.9 100.0 104.5 98.2 100.0 93.4 87.0 100.0 93.4 92.8 100.0 99.1 89.9 100.0 90.4 89.9
98.2 105.5 106.6 101.1 108.8 106.0 104.7 109.1 107.0 100.1 84.3 85.3 83.3 84.1 89.7 89.8 88.7 94.5 91.4 92.6 86.1 89.7 89.2 93.9 93.2 89.4 87.0 83.1 83.3 80.6 78.3 87.3 88.9 84.2 89.1 90.0 81.6 81.8 79.7 77.9 85.2 89.7 87.3 82.5 84.7 84.5 80.0 77.6 74.0 68.8 79.8 76.6 72.8 68.8 68.4 68.7 64.4 65.5 63.9 59.9 89.5 91.3 87.3 85.6 86.3 80.4 76.3 72.0 61.7 58.5
100.0 99.9 100.0 100.9 100.0 95.1 100.0 90.3 100.0 100.0 98.4 97.2
98.5 98.6 84.4 92.4 85.3 88.1
94.4 88.8 74.4 92.5 75.2 80.5
99.9 109.1 109.7 108.9 110.9 101.5 79.0 85.9 97.5 92.4 99.3 93.4 84.6 82.2 78.7 80.3 82.4 78.9 96.7 93.9 91.6 86.0 79.5 69.8 64.5 79.9 58.7 74.2 54.0 60.7 50.3 55.6 48.0 51.2 41.6 43.7
99.3 103.5 88.1 90.6 76.6 73.0 68.1 58.8 38.2 36.6 35.5 32.1
98.4 84.7 56.8 52.6 30.0 25.6
90.3
Source: Elaborated from EURATEX (2003b) and for 2003, ISTAT (2004a).
Table 3 TCI Employment in the EU15 and the United States, 19702001 (in Thousands)
Country Italy Spain United Kingdoma Portugal Germany Western Germany France Greece Belgium and Luxembourg Austria Netherlands Finland Denmark Sweden Ireland EU15 EU15 United States 1970 1,097 . . . . 1,013 . . . . . . . . 1980 1,073 431 694 355 . 648 573 . 116 104 61 66 37 38 1990 920 315 456 337 536b 448 372 . 89 71 45 34 28 24 21 3,160c 14 1,786 1995 819 255 355 289 314 . 279 148 66 49 37 18 21 15 19 2,684 15 1,647 1999 751 294 294 277 242 . 232 136 56 39 32 18 14 13 12 2,410 15 1,294 2000 752 290 263 251 230 . 216 135 54 37 31 17 14 14 12 2,315 15 1,201 2001 746 285 238 . 223 . 206 132 52 36 29 16 13 . . 1,976d 12 1,063 2002 712 . . . . . . . 49 35 . 16
2 2,374
12 2,157
Source: Elaborated from OECD (2003a, 2003b). a Estimated number of employees, which differs from the employment estimates in Table 1. b 1991. c Excluding Greece. d Excluding Ireland, Portugal, and Sweden.

34 ECONOMIC GEOGRAPHY JANUARY 2006 stood at just 22 percent of the 1970 figure for West Germany alone. In the 1990s, employment declined the least in Spain, Greece, Italy, and Portugal. The Italian TCI is characterized by the predominance of a remarkably large share of SMEs and, indeed, of microenterprises. In 2000, the average Italian TCI company employed just 10 people, compared with an EU15 average of 15 and 21 in manufacturing as a whole (CEC 2003b, 2224). Table 4 provides a more detailed recording of the size distribution of Italian TCI firms in 1981 and 2001. Nationally, 37 percent of the firms employed just one person in 2001, and another 33 percent employed five or fewer people. These microenterprises accounted for 16 percent of the jobs. In the case of wearing apparel and the dressing and dyeing of fur, the share of small firms was slightly greater in the south than in the north, although in Apulia, there was a relatively large share of middle-sized enterprises. Conversely, large firms were confined to the northern parts of the country, although there were important regional variations, with large firms most strikingly present in Piedmont (where one firm with 138 establishments accounted for 19.2 percent of the employment in the regional apparel industry). Also striking are a number of geographic characteristics of the Italian TCI. The first is their concentration in a series of industrial districts or district groups, the most important of which are listed in Table 5. The second is their concentration in the CenterNorth. Of these district groups, five are in Lombardy which accounted for 27.1 percent of TCI employment in 2001 (with 5.1 percent in Milan, 4.6 percent in Bergamo, 4.5 percent in Varese, 3.9 percent in Como, and 3.6 percent in Brescia). Another 15.6 percent was in the neighboring Veneto (including 4.4 percent in Vicenza and 3.7 percent in Trevisio), 13.1 percent was in Tuscany (with 6.1 percent in Prato), 9.5 percent was in Piedmont (with 3.9 percent in Biella), and 8.3 percent was in Emilia Romagna. A number of other smaller concentrations along the Adriatic coast, near Naples, and in Apulia accounted for relatively small shares of national employment.
Table 4 The Size Distribution of Italian TCI Firms in 19812001

Number of Firms 1981 Size of firms 001 002 0035 0069 01015 01619 02049 05099 100199 200249 250499 500999 1,000 and over Total 72,190 20,084 17,157 9,647 8,614 2,894 4,862 1,521 720 131 213 79 23 138,135 1991 34,770 16,074 18,702 11,202 8,818 3,764 5,648 1,233 498 89 157 36 12 101,003 2001 27,272 10,928 13,000 7,778 6,180 2,542 4,010 1,021 391 59 114 39 10 73,344 2001(%) 37 15 18 11 8 3 5 1 1 0 0 0 0 100 1981 72,190 40,168 64,446 70,527 104,576 49,938 142,444 104,707 100,180 29,013 71,806 53,559 49,241 952,795 Number Employed 1991 34,770 32,148 70,802 82,324 108,070 65,304 158,627 84,221 67,501 19,761 52,990 23,897 25,590 826,005 2001 27,272 21,856 48,983 56,637 75,527 44,041 115,979 69,591 52,773 13,265 38,344 26,349 19,012 609,629 2001(%) 4 4 8 9 12 7 19 11 9 2 6 4 3 100
Source: Elaborated from ISTAT (2004b).
Table 5 Italys Main TCI Districts
VOL. 82 NO. 1
District and Main Centers Sector 3,600 (4,248) 2,700 (3,186) 58 24 2,104 2,570 30,400 32,515 40 3,900 36,360 40 1,300 25,000 144 (170) 74 (87) Employment
Province
Region
Turnover in Millions ($ millions) Enterprises/ Establishments
Exports as a Share of Turnover (%)
Turnover per Worker in Thousands ($ thousands)
Employment per Establishment 19
Biella
Biella-VercelliNovara
Piemonte
Varese
Lombardia
Como-Lecco Textiles, clothing, buttons . 3,431 (4,049) 24 . 4,901 1,920
Lombardia
Textiles (wool), textile machines Textiles (cotton), clothing Textiles (silk) 2,850 (3,363) 4,191 (4,945)
12 15
Bergamo
Lombardia
94 (111) 129 (152)
Asse del Sempione (1, 2) Como-Lecco (3) Bergamo (Val Seriana, Grumello del Monte) Milano 37,640 20,740
Milano
Lombardia
. 165 (195)
8 11
Brescia (Palazzolo sullOglio) 51 30 27 36 55 30
Brescia
Lombardia
Mantova
Lombardia
280 2,081 3,821 2,000 9,079 521
6,600 36,400 38,457 11,000 50,396 6,210
24 17 10 5 6 12
Vicenza
Veneto
Castelgoffredo (17) Vicenza (Valdagno) Trevisio Textiles
Treviso
Veneto
Textiles, clothing Textiles, knitwear, hosiery, clothing Textiles, hosiery Textiles, clothing Clothing
Carpi
Modena
Prato
Empoli
Prato-PistoiaFirenze Firenze
EmiliaRomagna Toscana Textiles, clothing Clothing
Toscana
1,150 (1,357) 5,863 (6,918) 4,957 (5,849) 1,100 (1,298) 5,165 (6,095) 570 (673)
174 (205) 161 (190) 129 (152) 100 (118) 102 (120) 92 (109)
35
(Continued on next page)

36
Employment per Establishment
ECONOMIC GEOGRAPHY
JANUARY 2006
Source: Elaborated from Sistema Moda Italia (2003), Club dei Distretti (2003), and Viesti (2000).
Bari-Taranto
Province
Frosinone
Teramo
Napoli
The cluster of northern TCI activities and districts has been construed as a magic circle.1 The magic circle is a term used to describe the innovative fashion system that is centered in the fashion capital of Milan. The activities that it embraces include the manufacture of textiles, textile machinery, and clothing, along with shoes, machines for making shoes, leather goods, eyewear, cosmetics, perfumes, jewelry, a wide range of accessories, and related material and immaterial service activities (including research, design, showrooms, catwalks, magazine publishing, and trade fairs) that add and/or appropriate value. As far as its geography is concerned, Figure 2 provides a possible geographic representation. The figure plots travel-to-work areas in northern Italy that ISTAT designated as TCI districts. If these individual districts are grouped (and Milan itself must be seen as a district), it is possible to arrive at the district groups that are identified in Table 4. The map can be interpreted as a district of districts or district groups (a magic circle) comprised of Milan and the districts or district groups that surround it, including Biella (wool), Como (silk), Castelgoffredo (womens stockings), Vicenza (wool), Palazzolo sullOglio (cotton, buttons, and button-making machines), Treviso (knitwear and the Benetton system), Carpi (knitwear), Prato (wool), Empoli and Florence (leatherwear), and Milan (design and services). The domestic geography of the Italian TCI has undergone and continues to undergo significant processes of change. To identify the geographic changes, Figure 3 plots changes in provincial employment from 1971 to 2001. In 19711981 (see Figure 3a), there were dramatic declines in employment in the provinces of Milan ( 25,044) and Turin ( 13,939). These declines corresponded to small decreases in the number
1 This term was used by Vittorio Giulini, president of the Associazione Italiana Industriali Abbigliamento e Maglieria (National Association of Clothing and Knitwear Manufacturers) (Sistema Moda Industria), interview data, July 2001.
15
10
3 10,000 3,000 . Campania
Turnover per Worker in Thousands ($ thousands)
52 (61) 65 (77) . 6,000 2,000 400 194 38 310 (366) 130 (153) . Clothing Abruzzo Clothing Val Vibrata Lazio 20
Employment
Enterprises/ Establishments
Exports as a Share of Turnover (%)
(Continued)
Table 5
Turnover in Millions ($ millions)
Sector
Region
Valle del LiriSora San Giuseppe Vesuviano Putignano, Martina Franca
District and Main Centers
Puglia
Textiles, clothing Clothing
335 (395)
745
8,000
42 (50)
11

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 37
100 km
Figure 2. TCI districts in northern Italy. Source: Elaborated from MAP and IPI (2002).
of establishments, since the establishments were large employers. Employment increased in Brescia, Mantua, and Cremona in Lombardy; the Veneto; Tuscany; Emilia Romagna; Marche; Abruzzo; Campania; and parts of Apulia. At the root of these trends were processes of productive decentralization of work from large enterprises to SMEs and microenterprises: in Varese, Biella, and Bergamo, the number of establishments
grew by 42 percent to 60 percent, yet employment declined. In other central and northern provinces, such as Florence, Brescia, Reggio Emilia, and Vicenza, sizable increases in the number of establishments (48 percent to 102 percent) saw far smaller percentage increases in employment (13 percent to 35 percent). In 1981 to 1991 (see Figure 3b), a strikingly different pattern prevailed. Job losses in Piedmont,
38 ECONOMIC GEOGRAPHY
(a)
(c)
JANUARY 2006
(b)
Figure 3a, b, c. TCI employment change by province, 19712001. Source: Elaborated from data from ISTAT (2004b).

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 39 Lombardy, Emilia Romagna, Tuscany, Lazio, and Campania coincided with increases in Mantua, the Veneto (with the exception of Vicenza), Abruzzo, and the southern tip of Apulia, reflecting the differential fortunes of the northern districts and the delocalization of employment to the south. In 1991 to 2001 (see Figure 3c), the decline in employment was ubiquitous, partly because the international relocation of work and employment accelerated. Most affected were the core areas in Lombardy (66,713 jobs) and the Veneto (41,107). All these features of the structure and trajectory of the Italian TCI require a deeper analysis and explanation. The next section suggests an appropriate conceptual framework. 4 shows, the commodity chain is made up of a wide range of activities, occupations, and roles that extend from the production of raw materials to the sale of finished goods and that depend on a set of ancillary industries and services. At each stage, value is added and a part of the final value is appropriated. In the case of clothing, for example, most value is appropriated at the end of the chain in retailing (50 percent). A second way of viewing the chain involves identifying the tasks that are involved in the design, manufacturing, distribution, and sale of products. Consider the case of clothing (see Figure 5). The first step is product development and the planning of collections. At this stage, market research is conducted, and advice/knowledge is sought, with a view to adapting product lines to market demand. Criteria of profitability are applied in light of estimates of product life cycles and the steps that would be involved in continuing to make, modify, or replace products. The second step is the design and prototyping of new models. Stylists sketch a new model. Designers create models of the different parts (collars, sleeves, cuffs, and the like) of the clothing item. A production design department determines how each part is to be made, establishes standards of quality for each part, determines how the product is to be assembled, and costs the item. A prototyping department makes the item, which the stylists compare with their initial concept. As soon as the costs of production are known, the commercial judgments of the product development staff come into play. Each step incurs costs, which employers seek to contain and to recoup through the sale of products, licenses, designs, and models. Often, these costs are a nonnegligible share of the final cost of the product. At this point, it is important to note that the structure and geography of the TCI are profoundly shaped by a fundamental problem that the TCI has had to confront, especially after the rise of ready-to-wear clothing in the 1960s (interview data, June 2001; AMT 1999). The problem is that large
Conceptualizing and Theorizing the Development of the TCI: Enterprise Strategies, Value Chains, and Industrial Structure
At the center of changes in the size, structure, and trajectories of enterprises and the geography of economic activities are corporate profit/upgrading strategies and their context. The context comprises not simply the local milieu, but a value chain and a wider institutional environment, while corporate profit strategies involve a combination of (1) cost-reduction strategies, (2) the development of new or improved commercially relevant products or entry into new markets, (3) changes in the relative weight of different functional roles within a chain, and (4) disinvestment and movement into another chain (Dunford and Greco 2006). The choice and impacts of these actions depend on their context and on the structure and functions of enterprises. As far as the context is concerned, in this article I concentrate on that of the value and commodity chains (Gereffi, Korzeniewicz, and Korzeniewicz 1994). The TCI commodity and value chains can be conceived in a number of ways. As Figure

40 ECONOMIC GEOGRAPHY JANUARY 2006
Figure 4. The TCI commodity and value chain.

Figure 5. Steps in the clothing product development and value chain. Source: Adapted from Lane and Probert (2004).
volumes of diversified products with short life cycles must be produced in the absence of a contract with the final consumer. To manage the resulting risks, a set of conventions have been put in place. The aim of these conventions is to match the supply of clothing with consumer choices in a situation in which the social validation of productive decisions occurs after consumers purchase the clothing that retailers have decided to stock. (This problem of ex-post social validation is a fundamental feature of market economies but is more acute where products have short life cycles.) In upstream parts of the chain for fashion, as opposed to standardized clothing, these conventions create a situation in which manufacturers of clothing, fabrics, and yarns produce only what has already been ordered and therefore sold. The way this outcome is achieved is through conventions that permit a preliminary commercial assessment and selection of projects that are materialized in samples, prototypes, and collections.
This process of selection starts some two years before retailers order stock. It involves the participation of manufacturers and a large group of specialized services (stylists, market researchers) in the exchange of prototypes and samples, trade fairs, showrooms, and catwalks and results in a dramatic reduction of the range of products (at the six-monthly Premi re Vision fair, some 60,000 fabrics each, with on average 10 color varieties, are presented) to a smaller and more coherent set. At the same time, newspapers, magazines, and other mass media help shape consumers preferences, aligning them with the industrial choices that the sector makes. Once the range is narrowed down, retailers decide on the size and composition of their orders, and production starts with lead times of a few weeks at each successive point in the chain. After the receipt of the orders, the next stage is the manufacture and assembly of the selected products. This stage involves a sepa-

42 ECONOMIC GEOGRAPHY JANUARY 2006 rate set of decisions by manufacturers concerning investments in plant and equipment; the organization of work; the recruitment, training, and control of the workforce; and relations with suppliers. The next steps are the marketing, distribution, and retailing of clothing. These steps involve a range of decisions as to what stock to order and hold in different retail outlets and what distribution/logistic systems to put in place to supply them. Trade fairs, advertising, publicity, publishing, shop layout services, and the design and use of sophisticated computer-controlled order tracking, inventory control, and logistic systems all play a part in these marketing and distribution activities, which exercise an increasingly pervasive influence over the evolution of the TCI. Especially in the past, the retail sector played an important role in managing the risks that the TCI has had to deal with of producing products with a short life cycle in the absence of a contract with the final consumer. As I indicated earlier, these risks are reduced by conventions that narrow down the range of products that are produced. At the end of the day, however, a significant part of the risk is taken by retailers, who traditionally purchase stock in advance of sales. To reduce these risks, retailers apply high margins. If they are left with unsold stock, the costs of these mistakes for which they have to pay are partially defrayed by the disposal of some unsold stock in seasonal sales. (In Italy, sales account for some 18 percent of the total sales of clothing.) As the years have passed, a feedback loop has been put in place from sales to production. The associated short distribution/rapid response systems result in the production of fabric and/or clothing items in the light of trends in sales; the continuous, as opposed to seasonal, design and development of products; a greater degree of integration of the chain; and the changing profile of TCI enterprises. The development of this feedback loop has profound implications for the structure and geography of the TCI, for relations of power, and for the distribution of value added. Traditional analyses of the structural characteristics of the TCI have concentrated on a set of market and technological factors that explain the predominance of SMEs (Piore and Sabel 1984; Coriat 1991) and the concentration of enterprises in districts (see the first section). As far as the size of firms is concerned, emphasis is placed on several facts. The first is that, especially in clothing, demand grows relatively slowly and changes rapidly. Second, the share of clothing in household budgets is declining. Third, the range of products is limited. Fourth, products are subject to rapid obsolescence and strong seasonal or fashion-related fluctuations. Each range is made up of clothes for men, women, children, sports, and so on, each with different sizes and colors, and with most ranges of products traditionally changing every six months. In market conditions of this kind, enterprises must have the capacity to adapt their product mix and product range constantly. Economies of scope (associated with the production of a sequence of different products with the same equipment) often exceed economies of scale, although, as I indicated earlier, specialization in a district context yields scale advantages, as does mass production in those market segments where it prevails. At the same time, the scope for strong dynamic learning and experience curve effects is limited, as are some of the economies that are realizable through process-product iterations (Coriat 1991). This predominance of economies of scope gives manufacturing and capital valorization advantages to strategies of flexible specialization (Piore and Sabel 1984; Coriat 1991). Enterprises are small and adaptable, with small market shares, flexible equipment that is suited to the production of changing ranges of goods, and a flexible workforce. Adaptability can be passive or active. Active adaptability, for example, involves the firm taking the initiative in a quest for niche markets and rapid obsolescence by regularly launching products with new and distinctive features and seeking to substitute them for older ones. The most dynamic enterprises can therefore develop by constantly innovating (upgrading through product development)

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 43 and constantly recreating (small) monopolistic rents. At the same time, the predominance of SMEs in clothing manufacture generates further self-reinforcing mechanisms. Most important is the fact that the small average size of firms limits investment in research and development, financial resources, and access to financial markets. Constraints on growth are therefore additional reasons for the predominance of SMEs. As Figures 4 and 5 show, however, a TCI chain involves not just manufacturers, but also a complex range of services. Of these services, design, distribution, and marketing are subject to strong potential economies of scale (spreading design and advertising costs over a larger volume of sales) and of simultaneous, as opposed to sequential, economies of scope (spreading the costs of advertising and marketing across a range of fashion products, such as clothes, shoes, and eyewear). These economies of scale and scope confer significant advantages on large groups whose role often receives too little attention. The existence of the steps of designing, cutting and assembling, marketing, distributing, and retailing clothing also has an important impact on the organization of the clothing sector. Essentially, organization depends on the extent to which these activities are integrated within individual enterprises and on where they are located. (Also important is the integration into the catalogs and assets of clothing companies of nonclothing items, such as eyewear, jewelry, perfume, cosmetics, leather goods, and footwear, and the closeness of relationships with these other fashion and apparel sectors.) Some companies, for example, act as principals, purchasing fabric and designing and marketing products, but entrust the manufacturing of the products to subcontractors. Increasingly, the relationship to marketing is a critical variable, with some distributors establishing subcontract relationships with producers and some industrial companies moving into distribution. Schematically, three main types of clothing enterprise can be identified (Dunford 2004). The first type consists of principal enterprises that design collections, develop prototypes and samples, and market and distribute the clothing that other enterprises manufacture for them. At the design end, these enterprises employ a relatively small number of technical staff, pay relatively high wages, and achieve a high turnover per person employed. At the distribution end, the mastery of complex order tracking, inventory control, and logistical systems is involved (Lane and Probert 2004). The second type is comprised of manufacturers, usually small and highly specialized, that are engaged in what is generally called CMT (cut-make-trim). These manufacturers are either subcontractors, where a principal supplies the design and the fabric and pays for manufacturing time, or co-contractors, where a principal supplies the design but the manufacturer acquires the fabric and sells a finished product. The third type is made up of vertically integrated own-account enterprises that design, make, and sell clothing perhaps through their own distribution networks. Among the third and first groups are companies that design and perhaps make and market clothing that carries well-known labels/brand names. Of these companies, some are rooted in high fashion, top-end ready-to-wear, and lingerie, where the aim is usually to concentrate on the immaterial determinants of competitiveness (design, creativity, innovation, and information) and where frequently aggressive strategies of international expansion are adopted. A number of emerging types of enterprises can also be identified. First, there are companies, often of the first kind, that integrate horizontally into related fashion sectors (shoes, leather goods, jewelry, and eyewear, for example). Second, there are retail companies that integrate backward into design and the coordination of the supply chain (Lane and Probert 2004). Each of these developments is an example of value chain upgrading. Analyses that recognize that there are different types of enterprises in the TCI with different roles and that examine the profit strategies of these different types of enterprises offer the possibility of a richer account

44 ECONOMIC GEOGRAPHY JANUARY 2006 of the structure and evolution of the TCI than currently exists, as I demonstrate in the next four sections. companies, reflecting the high degree of involvement of clothing companies in international outsourcing (upgrading through the transfer of certain operations to areas where wage costs are lower) and the high degree of concentration in distribution. Of the larger countries, the degree of concentration of national turnover in clothing was particularly marked in Germany, Spain, and France. In some smaller countries, the share of turnover of a few large companies was particularly high, reflecting the strong degree of internationalization of the companies concerned. In Finland, the turnover in textiles exceeded the national turnover. A substantial number of these large companies are Italian. In 2000 to 2001, five Italian clothing companies had annual turnovers of 1 to 2 billion ($1.2 to $2.4 billion, in 2005 U.S. dollars) and accounted for some 16.5 percent of the national turnover. A number of these groups played a leading role in the strategies of product design and development that were one of the successful features of the Italian clothingsector model. At the center of this upgrading path was the capacity of producers to modify their product mix; to experiment with new fibers, treatments, and fabrics; to specialize in higher-price, higher-quality, fashion, style, and design-intensive niche markets; and to position themselves in relation to changing market structures, at the expense of costly investments in research, advertising, marketing, and export promotion. Corollaries of this pathway were the manufacture of relatively small ranges, increases in the frequency with which the range of goods that were offered was renewed, attention to the management of stocks, and a quick response to the evolution of sales.2
2 Time is a key issue in managing sales and stocks. There are, however, different temporalities: collections of low-risk basic goods are generally developed well in advance and can be manufactured in Asia, whereas short-term or pronta moda products are designed at the last minute, manufactured in smaller volumes, and restocked on short notice if they sell well.
The Structure of the TCI: Mergers, Takeovers, and the Size Distribution of Firms
The reasons for the size distribution of firms include the general market and technological factors that were identified in the previous section. A number of factors that are specific to Italy (Dunford and Greco 2006) explain why Italian firms are smaller than other European firms. Most important are two factors. The first is the special status (special role of craft enterprises identified in the Italian Constitution) and special advantages of artisans and SMEs (such as the exemption of firms with fewer than 15 employees from the application of the Statuto dei Lavoratori of 1970), along with the political influence of the associations that represent their interests. The consequence is a generous regime of incentives and protection that played a major role in the wave of productive decentralization in the 1970s, when economic activities were transferred from large firms in traditional industrial areas to microenterprises in areas of new industrial growth (see Figure 3a). The second was the regular depreciation of the Italian lira that helped make Italian SMEs and craft enterprises that undertook little research competitive on export markets. This picture is a partial one, however. In spite of the predominance of SMEs, a small number of large enterprises account for a large percentage of turnover (see EURATEX 2003a). The degree of concentration varies considerably from one country to another and is generally smaller in Italy than in most other EU15 countries. Table 6 identifies the largest EU15 TCI companies and shows that a small number of large companies account for relatively high shares of national turnover. In most countries, the top clothing companies accounted for a larger share of the turnover in 2001 than did the equivalent number of top textile
Table 6 Top 20 EU15 Textile and Clothing Groups in 2001

Clothing
VOL. 82 NO. 1
Textiles
Company TD
Activity
Country
Share of National World Turnover Turnovera Rank Companyb Activity Country
Share of National World Turnover Turnovera Rank
C C TO
TO C
TD TD D D D D D D D D
D D
Benetton Gruppo Gruppo Marzotto SpA Coats Viyella Chargeurs Textile Daun & Cie Hartmann Gruppe Somfy International (Damart) Gamma Holding Text Freudenberg Nonwovens Gruppo Tessile Miroglio Albany International Oy Ermengildo Zegna Holdit Ahlstrom Fibre Composites KAP Beteilungs AG Porcher Textile Balta Groupe Sit Fin Kansas Odense Gruppo Bonazzi SCA Hygiene Products D
Italy Italy UK France Germany Germany France Netherlands Germany Italy Finland Italy Finland Germany France Belgium Italy Denmark Italy Sweden
1,980 1,722 1,464 1,229 1,180 1,150 974 906 884 842 837 686 665 623 579 548 540 520 505 490
5 5 11 8 8 8 6 28 6 2 123c 2 98 4 4 8 1 44 1 44
11 13 23 27 29 34 43 48 51 53 55 64 66 69 76 80 83 85 88 92
LVMH-Gruppe Clothing Zara-Industria de Diseo Textil Adidas Salomon AG Benetton Clothing Marzotto-Abblgliamento Armani Giorgio SpA Groupe Etam Boss Hugo-World Max Mara Fashions Fila Holding Vivarte-Groupe Andr Esprit de Corp-Europe Escada-Konzern Cortefiel S.A Burberrys Group Clothing Punto Fa-Mango Prada SpA Dewhirst Group PLC S. Oliver Gruppe Diesel SpA
France Spain Germany Italy Italy Italy France Germany Italy Italy France Germany Germany Spain UK Spain Italy UK Germany Italy
3,610 3,250 2,200 2,098 1,410 1,272 1,099 1,095 1,087 977 862 862 846 790 778 672 662 654 614 562
34 55 24 5 3 3 10 12 3 2 8 10 9 13 10 11 2 9 7 1
6 7 12 13 24 28 32 33 35 37 40 41 42 44 45 55 58 59 64 71
Source: Elaborated from EURATEX (2003a) and CEC (2003b). Notes: TO = textile activities only, C = companies that are also active in the clothing or making-up sector, T = companies that have also excluded textile interests, and D = companies that also have distribution interests. a Turnover estimates are for 2002, not 2001. b Levi-Strauss-Europe (Belgium), with a 2001 turnover of 822 million ($971 million), was excluded because its parent company is American. c Company turnover, which includes export sales, exceeds national turnover.
45

46 ECONOMIC GEOGRAPHY JANUARY 2006 A striking example of this type of strategy was a long-established Piedmont company, Gruppo Finanziario Tessile (GFT). GFT was a part of the Holding di Partecipazioni (HdP), which was at the top of the EURATEX top 20 in 2000. The rise of GFT was closely related to its market-positioning strategy (see Figure 6). Figure 6 identifies the structure of the market for clothing by quality/price/label on the vertical axis and by lifestyle on the horizontal axis in the 1970s (top), 1980s (middle), and 1990 to 2005 (bottom). In clothing, the 1970s market was divided into three segments: a high end, made up of handmade clothes; a middle range; and a low end, with low-quality pricesensitive products. This structure changed in the 1980s with the segmentation of the
Model 1: 1970s Top end by label, quality, and price High
Market segment
Medium
Bottom end by label, quality, and price
Low
Model 2: 1980s Market segment High Medium Low Lifestyle Classic Contemporary
Model 3 and its current polarization trend: 1990-2005
Lifestyle Market segment Basic Valentino, Chanel, Christian Dior sold through exclusive boutiques Armani GFT, concessions Classic Updated Contemporary Classic Updated
Haute couture
Designer Diffusion Bridge Better
Figure 6. Market structures and market strategies. Source: Interview data, Giancarlo Fubini, September 2002.

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 47 market according to lifestyle. At this stage, companies at the low end that made basic commodity products (such as socks and knitted underwear) virtually disappeared from the Italian scene. In the 1990s, the structure of the market was further differentiated. At the top remained custom-made haute couture, which was sold through exclusive boutiques, while the market for readyto-wear clothing was differentiated into designer, diffusion, and better market segments to which was later added the bridge segment of designer-produced, higher-priced, ready-to-wear clothing. As these changes occurred, Italian companies that were seeking to compete in the medium, basic fashion segments (such as dress shirts, trousers, and sports knitwear) started to delocalize production. Italian production was concentrated on the better segment (moderately priced clothing), on the diffusion and designer (expensive, highquality ready-to-wear) segments, and on custom-made haute couture. In these higher-end segments in particular, designers wanted a Made in Italy image. GFTs strategy was centered on the diffusion market. GFT acquired licenses to use the names of designers (Valentino and Armani), who themselves sold through exclusive boutiques/designer shops. Aiming to expand sales of products carrying designer labels into a larger market, GFT grew remarkably. In 1996, it employed 6,000 staff in 14 plants worldwide, produced 15 million garments per year, owned 31 subsidiaries, and had a turnover of 775 million ($915 million). In the 1990s, however, GFT embarked on a wave of acquisitions, rather than the development of own-brand products and product concepts, and the development of its own distribution network. The designers subsequently invented a new bridge market in which they sold third lines or lines of jeans and casual wear using designer names. As for GFT, it lost Armani, which represented a large share of its turnover, putting it in a difficult financial position. Armani had realized that to drive the global market, it had to control the entire value chain (production, advertising, and marketing) directly. To create more accessible designer labels, designers were seeking to extend ready-to-wear in the designer area and to pull out of the diffusion market by canceling diffusion lines, concentrating on their main and new bridge lines (see Figure 6). The current consequence is a polarization of the market and of corporate performance, with the strong getting stronger, for the most part, and the weak getting weaker. In 2000, HdP was the largest Italian (and European) group with a turnover of 3,310.6 million ($3,910.2 million) (EURATEX 2002). HdP was owned by Cesare Romiti (a former chief executive of FIAT). It controlled a number of clothing companies, including GFT and Valentino, in addition to its media interests, including the newspaper Corriere della Sera. In 2002, Romiti decided to concentrate on the press segment of the group and started to sell the clothing/textile section. Marzotto was the company that was the most interested, since, in 2004, it expected to lose the license to sell the Gianfranco Ferr brand. Other activities were sold to Armani and Facis. GFT, on the other hand, collapsed, with employment dropping from 6,000 workers in 1996 to 336 at the end of 2002. According to the textile trade unions, the crisis of GFT was due to HdP and its disastrous financial incursion in the clothing/textile sector, although, as was indicated earlier, GFT was also weakened by its failure to develop its own brand and retail outlets, where profitability was more assured. As this example suggests, an important determinant of the emergence and restructuring of large TCI groups is the unprecedented recent growth in mergers and acquisitions. From 1998 to 2002, there was a fivefold increase in mergers and acquisitions involving EU15 or U.S. companies acquiring TCI companies (see Table 7). At the root of these trends was a desire to expand in order to compete successfully in global markets. Greater scale offered companies the opportunity to amass greater financial resources to invest in product development, advertising, improved services

48 ECONOMIC GEOGRAPHY Table 7 Mergers and Acquisitions Involving EU15 and U.S. Companies Acquiring TCI Companies, 19972000
Acquirer Finance Clothing 1997 1998 1999 2000 2001 2002 Total 008 025 028 019 029 041 150 Underwear, Hosiery 02 03 03 06 05 06 25 Textiles 07 04 06 17 12 18 64 Holding Companya 00 06 13 23 17 16 75 Merchant Bank 03 04 04 03 05 15 34 Distribution 01 00 04 00 02 04 11 Otherb 00 02 04 10 07 05 28 Total 021 044 062 078 077 105 387
JANUARY 2006
Source: EURATEX Bulletin (2003a). a These holdings are generally active in the TCI. b Stylists, sports products.
(customer advice, returns, and repairs), distribution, and sales outlets. Offering a larger volume of sales, it also facilitated the amortization of the costs of operating in a global market. Market expansion was slow, however, and the space for competitively increasing market share was limited. As a result, acquisitions were a preferred means of expansion. Three main types of expansion were involved. The most common type were acquisitions in the same sector, with clothing more affected than textiles and knitting. Acquisitions to increase capacity and/or market share in the same sector/market segment were partly designed to increase the volume of sales and financial resources (although acquisitions could themselves prove costly and problematic) and returns on investments in brands and distribution networks. At the same time, the takeover of designer companies (in 2001, Gucci took over Ballenciaga and Stella McCartney, for example) was attractive because of the potential gains from license-related revenues and the advantages of holding diversified portfolios of well-known brands (a switch from a monobrand to a multibrand strategy). The second type of expansion was for luxury goods groups to diversify horizontally
into accessories or other fashion subsectors. In 2002, for example, Armani acquired hosiery interests from Miss Seana and shoemaker Guardi. These acquisitions offered the prospects of spreading marketing and distribution costs across a wider range of products (a switch from a single to a multiproduct strategy). The third type of expansion involved acquisitions along the chain. The acquisition of downstream service interests in ecommerce and distributive trades, for example, offered a way to expand sales perhaps through the development of a more dense network of shops and greater visibility. Integration upstream was pursued to monitor and control supply. Movements in the opposite direction permitted some groups that were confronting adjustment difficulties to downsize so as to concentrate on core competences or to dispose of unprofitable activities and contain debt. The final type of expansion was for financial groups to make acquisitions owing to the high potential profitability of the fashion sector. The net effect was an accelerated and irreversible global modification in the structure of the TCI. At the center of a number of these developments were Italian groups that

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 49 are sometimes overlooked because of the emphasis on SMEs and districts. have been put in place to permit the survival of independent retailers. Specialized chain stores offer a wide range of ready-to-wear products, update their stocks regularly, and carefully follow tastes and trends in sales through efficient systems of stock management. Third, there are large hypermarket and supermarket chains. Finally, there are mail-order organizations. Alongside these established distributive actors, new modes of distribution are taking shape, including factory shops, sometimes located in city centers; telesales; other distance multimedia sales; and shops that are equipped with computers to sell made-to-measure clothes. As Table 8 shows, in most countries, the market share of independent retailers is declining. From 1993 to 2000, this decline corresponded with an increase in the role of chain stores. This restructuring of the distribution sector has profoundly changed the relationships between the production and retail sectors. The decline of small independent retailers has reduced the role of traditional relationships. In this older order, power relations worked in favor of producers, who set the rhythm for the design of collections and their presentation to several intermediaries and set prices. As the importance of specialized chain stores and hyper- and supermarkets increases, power is increasingly being transferred to the distri-
Changes in Distribution: From Producer- to Buyer-Driven Value Chains

In the past, TCI products were sold by a relatively powerful industry to a distribution sector that was composed mainly of wholesalers and small- and medium-sized retailers. Today, distribution is increasingly controlled by a small number of big players, who are in a position to put the upstream part of the chain under considerable pressure. Overall, the system has changed from one that was producer driven to one that is customer driven, in which the customers are large distributors that are close to the affluent, rich country consumers whose spending power shapes the TCI. In the current distributive order for clothing, there are a number of different types of actors. First, there are the traditional independent retailers, whose role is diminishing. Second, there are large department stores and specialized chain stores that are gaining ground. Included in this group are companies with a large number of own-brand branch stores, franchise operations, and purchasing associations that
Table 8 Clothing Distribution, by Channel

Share of Retail Sales (Percentage) Channel Independent retailers Specialized chains Department and variety stores Hypermarkets and supermarkets Mail order Street vendors Other Total EU15 1988 1993 48 44 18 21 12 12 5 6 7 8 10 100 9 100 France 1999 1993 2000 32.5 30 22 25 22 41 15.2 7 6 8 19 15 7.7 13 8 11.6 100 9 100 8 100 Germany United Kingdom Italy 1993 2000 66 56 12 19 8 8 1 3 1 0 14 9a 12 5 100 100
1993 1999 1993 2000 41 37 16 13 24 24 31 32 12 12 27 27 3 4 2 4 13 15 8 9 7 100 8 100 16 100 15 100
Source: Elaborated from OETH (1995, 1998, 2000) and IFM-CTCOE (2001). a 1998.

50 ECONOMIC GEOGRAPHY JANUARY 2006 bution sector. Consumers also have become more price conscious. In the late 1980s and early 1990s, in at least some EU15 countries, chain stores forced down prices, as did hyper- and supermarkets, relative to independent retailers and department stores. These differences in relative price reductions help explain the rapid relative growth of chain stores. Through the downward pressure they have exerted on prices, distributors have assumed ever more control of the TCI and organized the whole value-added chain in ways that are designed to guarantee their profitability. In doing so, they have shifted the distribution of value added decisively in their favor. As Table 8 also suggests, there are striking differences within the EU15 in the ways in which clothing is sold and in the speed at which the share of different distribution channels is changing. In 1993, independent retailers, which included independent boutiques and specialist shops, accounted for 66 percent of the Italian clothing marketfar ahead of specialized chains and street vendors, who came in second with 14 percent. By 2000, the share of independent retailers had declined to 56 percent. In 1997, there were 70,000 outlets of this kind, compared with 120,000 in 1984. According to Federabbigliamento forecasts (OETH 1995), only 40,000 will be left by 2005. Nevertheless, compared with other countries, such as the United Kingdom and France, the share of independent retailers remains high, and, until the early 1990s, the speed at which these retailers lost ground was slow, even though these independents are less well organized than are their counterparts in other countries. In Germany and the Netherlands, a large share of independent retailers belong to purchasing cooperatives. These cooperatives enable them to take advantage of economies of scale and greater purchasing power vis- -vis large manufacturers and help them with the layout of shops, marketing, logistics, information systems, consultancy, administration, and finance. In Italy, only a small share of independent retailers are members of such cooperatives. Several other factors permitted the survival of independent retailers in Italy. The first was the existence of a rigid legal and administrative code that regulated the evolution of commerce and restricted the opening of supermarkets and hypermarkets. A law that was introduced in 1998 abolished the requirement for small retailers to acquire trading licenses to open shops and eased the system for the relocation and expansion of small-sized retail outlets. The implementation of the reform was however devolved to regional and municipal authorities, while commercial activities remain subject to regional and local planning regulations. These reforms advantaged popular shops and chains with a floor space of less than 1,500 square meters and permitted the growth of suburban commercial centers. Most of these centers are comprised of supermarkets and small shops, although others are made up of multiplex cinemas and chain stores with a presence of Italian franchise operations, such as Benetton, Stefanel, Caledonia, Intimissimi, Motivi, Chicco, and Prnatal, and groups like Miroglio (although Italian chain stores are more similar to boutiques than are their counterparts in northern Europe). Authorization for medium and large outlets is not easily obtained and takes time, so that entry into the Italian market remains difficult, foreign chains make little progress, and city-center boutiques retain a strong foothold. The second survival factor was the fact that specialized multiples that grew in importance were not positioned in low price brackets: the average sale prices were similar to those of independents and were consistently higher than those of department stores and large sales-area multiples that grew less quickly. The third survival factor is related to the behavior of consumers; in a situation in which the vitality of city centers has suffered less from the challenge of suburban centers, Italian consumers have proved less price conscious (Italian prices are some 15 percent higher than elsewhere in the EU15), more concerned with personal service, and more loyal than are their counterparts in most other EU15 countries. An important conse-

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 51 quence is that in the Italian domestic market, the TCI chain remained more producer driven than did the chains in a number of other EU15 Member States. To give just one example from the wider fashion sector, a manufacturer of lenses and filters for sunglasses and ophthalmic lenses in Varese indicated that the predominance of independent retailers, rather than retail chains, offered significant advantages of selling to the Italian rather than other European markets. Although the Italian system raises costs in that it generates a large number of separate orders, requires a large number of staff to answer calls from clients, and requires a strong distribution system to deliver small volumes several times per day, manufacturers margins are higher because large chains that make large purchases can dictate prices, discounts, and products. Also credit risks and the risks of losing clients are less (interview data, April 2002). to 4 percent of the costs, while fabric accounts for 10 percent, of which onethird is related to the costs of product development, including samples, advice from style bureaus, trade fairs, and advertising (see Figure 4). The district model underplays the interdependence of districts with the areas in which these services are found (and with each other). In the Italian case, Milan is at the center of the TCI system. Milan is important for several reasons. First, it occupies a dominant position in international networks. Second, it has a major concentration of services that are connected with the immaterial/knowledge-related aspects of the fashion system. Third, it has a high share of headquarters. As a result, it also has a high share of the higher-paid jobs. Milan provides the greatest concentration in Italy of designers and stylists who are not employed directly by TCI companies; is the most important center for fashion-related trade fairs in Europe alongside Paris, Dsseldorf, and Frankfurt; and is Italys center of fashion-related publishing. These services can be classified according to their content (represented by the diagonal arrows in Figure 7) and their degree of specificity (represented by the shading). Contentwise, there are (1) creative and technical services that relate to product development, (2) consultancy services, (3) media and communications services, and (4) trade-related activities. Some of these services are specific to the fashion sector, whereas others are used intensively by the fashion sector, and the rest are related to economic life in general. Most important, these activities that are related to style, design, international marketing, sales, and the management and service activities that support the distribution channel are core competences that account for increasing shares of value added. The reason why is that these services have the capacity to convert textile, clothing, and related products into fashion items. A recognition of this role of Milan and of the interdependence of the TCI capital with the districts that surround it (and, indeed, the more distant areas of delocalized manufacturing) suggests that the
The TCI Chain: Districts, Magic Circles, and Spatial Interdependence

In the previous two sections, emphasis was placed on the importance of large groups, industrial concentration, and distribution in shaping the profile and geography of the TCI. In this section and the next, I identify two ways in which a valuechain approach suggests that the district model should be transcended by recognizing that districts are simply a part of wider interdependent industrial systems in two distinct ways. The first issue relates to the role of services that are not counted as part of the TCI if they are provided by specialized service companies, rather than as internal services of TCI enterprises. Some of these services reduce the risks of the ex-post social validation of production decisions. In addition to playing a vital practical role, these services account for part of the costs of the TCI and value added of the TCI chain. Typically, for example, 10 percent to 15 percent of clothing costs are the costs of unsold stock. Fiber accounts for 3 percent

52
PLANNING GENERAL SERVICES Analysis of cultural trends Market research Materials research Style bureaus and design agencies Production design Trade press
ECONOMIC GEOGRAPHY
JANUARY 2006
PUBLISHING AND COMMUNICATIONS
Television, radio and telecommunications
Womens magazines Model agencies Advertising agencies Photographic agencies Store location Visual design agencies
Show rooms
Trade fairs SPECIALIZED SERVICES Accountants and lawyers Accommodation and travel SERVICES INTENSELY USED BY FASHION SECTOR Transport and Employment logistics agencies
Management consultancy
PROFESSIONAL SERVICES
TRADE
Figure 7. Services and the fashion system. Source: Elaborated from AMT (1999).
concept of a magic circle and of an associated spatial/territorial division of labor are more appropriate spatial concepts for analyzing Italys TCI.
The TCI Chain: Delocalization/Offshoring and an Interdependent Territorial Division of Labor

Alongside the interdependence of districts that is due to their shared use of services provided by Italys TCI capital is substantial interdependence at the level of production as a result of the development of an interregional division of labor. In the second
section, I pointed to the distinct trajectory of Italian TCI output, while Figure 3 indicated the geographic impact of the transfer of work to a number of internal peripheries: the productive decentralization of the 1970s and northern companies delocalization in the 1970s and 1980s of the most labor-intensive phases of clothing production to the Adriatic Coast and the South. Whereas German companies transferred work overseas, Italian companies initially reorganized at a national scale. As in the German case, the aim was to reduce costs, although the quality of work in areas with traditional craft competences and skills was also a consideration.

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 53 A large share of southern clothing activity accordingly involves, directly or indirectly, subcontract work for external buyerslarge distribution chains, famous fashion designers, or large northern firmsalthough part of a firms output is sometimes sold in street markets or small supermarkets. These subcontractors are usually classified as quality or cost-based producers (Greco 2002). Quality producers work directly for the buyers, who usually supply the fabric and the design, request small batches, and impose tight quality control. Cost-based producers are mainly smaller, often family, units. Sometimes, these producers have a direct relationship with external buyers. More frequently, they sell to a trader or to other companies. Typically, they are phase subcontractors, specializing in a single production operation (such as ironing), rather than in producing the whole product. The existence of a cascading chain of subcontractors plays a significant role in putting downward pressure on costs. One reason why is that the buyer sets the price of products. Another is the reductions in costs that are made possible by subsidies and, until they were scrapped, special social security provisions for less developed areas. Still another is that the avoidance of taxes and the employment of high shares of clandestine/undeclared labor (including family members, undeclared nationals, and illegal immigrants) permit cost-based producers to implement labor-intensive phases of production at a low price. At the end of the 1990s, FILTA-CISL estimates put the clandestine workforce at 30 percent to 90 percent of the southern total, depending on the district (cited in Aniello 2001, 52021). The national governments tolerance of the employment of clandestine labor is an instrument of its support for the sector.3
3 A study by Mercer Management Consulting (1994, 39) suggested that in the EU15, the value of foregone social charges exceeded by far the value of other support measures for the clothing sector, including sector-specific vocational training.
A striking example was recounted in an interview in Naples (interview data, June 2002). A British clothing manufacturer went to Naples to meet a supplier of denim after seeing an advertisement in the trade press offering denim goods at prices the likes of which he had never seen before. On his arrival in Naples, instead of being taken to visit a clothing plant, his Italian contacts took him to a tomato-canning factory. After spending some time visiting the tomatocanning operation and talking to his hosts, the British manufacturer explained that what he had seen was impressive and of great interest, but that what he really wanted to see was the denim operation. At that point, he was taken out across some fields. In the distance, there were some greenhouses. His contacts led him to the greenhouses, and he was taken inside, where there were cut tomato plants. Among the cut plants there were tables. On the tables, in the heat, there were sewing machines. And working at the sewing machines were Chinese workers. More recently, delocalization has given way to an acceleration of the offshoring of cost-sensitive parts of the production system or of the sourcing of inputs, creating an interdependent international as opposed to national division of labor. This path may also entail a change in functional specialization involving the hollowing out of manufacturing and the retention of direct control over knowledge-intensive design activities and distribution, marketing, and sales, which are considered to be the core competences/ strategic parts of the value chain. An important cause of this shift was the changing external environment. One important change was the implementation of the Agreement on Textiles and Clothing (ATC), which provided for the progressive lifting of Multi Fibre Arrangement quotas and tariff reductions. Another was the earlier development of Outward Processing Traffic (OPT) and the post-1995 establishment of strategic and geopolitically motivated preferential regional trade agreements, which permitted the export of materials, fabric, cuttings, or semifinished garments to neighboring low-cost countries where low-paid, labor-intensive, and low-skilled operations

54 ECONOMIC GEOGRAPHY JANUARY 2006 make them up into finished garments prior to their reimport and sale. It was not until the 1990s that Italy took significant advantage of OPT arrangements. More recently, however, the rapidly changing trade regime combined with the loss of exchange rate flexibility have led to a further acceleration of offshoring. A striking example is provided by Cotonella SpA (ICE 2003). Cotonella, which was established in Sonico (Brescia) in 1972, produces mens and womens underwear under its own Cotonella and lAltra Cotonella brands. In 2001, turnover stood at 29 million ($34 million), and 88 percent of the sales were in Italy, largely through large-scale distributors. In Italy, Cotonella employs just 115 people, who are spread across administration and research in its Sonico headquarters, its Edolo distribution center, its Malonno cutting and raw material quality-control facility, and its commercial and marketing department in Milan. Employment rises to over 1,000 if the people who are employed in its offshore factories are included. Cotonella is an example of a firm that has pursued a vigorous delocalization strategy involving agreements and direct investments. At first, this strategy involved the use of a large number of craft workshops in the Val Camonica in Lombardy. In the 1990s, Cotonella decided to transfer spinning, weaving, and sewing to low-wage countries because of the intensification of price competition and the high price elasticity of demand for its products. The only manufacturing phase that was retained in Italy was cutting. In the textile phases, Cotonella purchases yarn overseas and seeks weavers in the countries of origin of the yarn, such as Turkey, India, and Kazakhstan. In 1995, sewing was started up in a northern Albanian plant (Cipra Tricot) in Scutari. Chosen for its labor costs, its clothing tradition, its proximity to Italy, and the knowledge of Italian, the plant at first employed 140 staff and local managers. To expand output, work was subsequently transferred to a larger plant that employs 480. Growth continued, however, necessitating further increases in productive capacity. To reduce the risk of using only one country, Cotonella decided to open a new plant in Romania. Opened in 1998, the Romanian plant employs nearly 500 and competes with the Albanian facility. Today a new Serbian project is envisaged to produce and distribute the Cotonella brands throughout the CEECs and SEECs. The relocation of manufacturing occurred more slowly in the textiles sector, where capital intensity afforded some protection against low-wage competition and delocalization is less easy to implement. At the start of the 1990s, spinning and weaving did, however, start to move offshore to cut costs. As the clothing sector moved, there was subsequently a tendency to relocate to be near clothing production for cost reasons and just-in-time purposes, although such investments are constrained by the wide geographic dispersal of the apparel industry. One example is the Miroglio Group, comprised of 36 companies, 7,000 staff, and a turnover of 750 million ($886 million). After a wave of acquisitions in the EU15 dating from 1987, it moved into Bulgaria in 1998. At present, Miroglio Group has four plants: a greenfield dyeing and printing plant in Elin Pelin (Sofia region); the former Slitex AD plant in Sliven for spinning, weaving, dyeing, and finishing of wool and wool blends; a viscose and polyester weaving plant in Sliven; and a spinning and twisting plant in Nova Zagora. Another example is the MarioBoselli Group, which established synthetic yarn production in Slovakia in 1999 (interview data, June 2002). At first a Garbagnate (Lecco) silk spinning operation, the MarioBoselli Group moved, at each crisis, into a more diverse range of yarns, more diverse end uses (apparel, upholstery, and industrial uses), and subsequently into the manufacture of knitted fabrics and jersey garments. (Growth generated advantages of size, which gave cost advantages of about 15 percent over other companies in the region.) The MarioBoselli Group started the Slovakian joint venture (Twista Sro) with Nylstar in a part of the former Chemlon combinate in Humenn just 40 kilometers

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 55 (about 25 miles) from the Ukrainian border.4 The decision to move was made after the 1994 recession. A circle was placed around Milan containing North Africa and Ireland. A decision was made to exclude Turkey for cultural reasons and to opt for the CEECs, visiting first the nearest countries and finally Slovakia. The group preferred a plant that already existed because it did not have sufficient resources to train personnel and could not devote much management time to startup. The aims were to increase capacity, to enter new markets as an insider, and to cut costs: in Slovakia, labor costs are one-fifth to one-eighth of what they are in Italy, while energy costs are one-half to one-third. The move had repercussions in Italy. First, Italian labor costs either fell or did not increase. Second, there was an increase in flexibility.
Trade unions are more flexible when you have a plant in another country. It is not a kind of blackmail. It is a fact. It is because of the existence of alternatives, .|.|. [of] the possibility to make choices. As a result, we have results in the last 18 months that two years ago would have been impossible. There is much greater labor flexibility. Women work nights. Night working had been requested [prior to the move to Slovakia] but had not been achieved. In one plant, we increased annual hours and increased flexibility, including Sunday and night working, with no increase in the wage bill.5 (Interview data, MarioBoselli Group, June 2001)
4 The complex was initially acquired by Rh ne Poulenc. Nylstar is a joint venture involving Rhne Poulencs parent and SNIA. The MarioBoselli Group owns 75 percent of the equity; Nylstar, 13 percent; and an Italian development finance agency, SIMEST, the rest. The Multilateral Investment Guarantee Agency issued a $713,000 guarantee to MarioBoselli Yarns to cover the investment against the risks of transfer restriction and expropriation. 5 An interview in July 2000 with a trade union representative, Enrico Zanzottera, of Federazione Italiana Lavoratori Tessili e Abbigliamento, indicated that in the face of delocalization, a large number of agreements had been signed to enable machines to run day and night and on Sundays (helping to accelerate depreciation).
The move was accompanied by a generational change in management:

A war effort was involved in relocation. One Italian factory was closed.|.|.|. Equipment was sent to Slovakia. Closure was easier than in the past. Generous redundancy pay helped. There were some problems in the changeover. There were, however, only 16 hours of strike action in a factory with 70 staff. Fifteen employees moved to other factories. To help meet production targets some work was subcontracted to small companies who work on commission for the MarioBoselli Group. (Interview data, MarioBoselli Group, June 2001)
The move also had implications for the survival of the European industry in the face of Asian competition. Before the Slovakian investment came on stream, the MarioBoselli Group was quitting the container/full truck market and concentrating on orders for small quantities or with short delivery times. Today, it can meet these orders from Slovakia because wages are just two and onehalf times those in Shanghai ($250 per month compared with $100), whereas the delivery time is three days by truck instead of 40 days by sea. Moving to Slovakia, rather than to Asia, was also advantageous because it reduced the costs of managing distance and decreased scheduling problems, especially if materials are supplied and processed goods are received back. The combination of proximity and a similar cultural context makes it easier to send technicians. Without the delocalisation of large parts of the EU15 TCI chain to the CEECs, it will disappear, and in a desert nothing grows. What was vital, however, was that strategic and financial control have remained in Italy and in the west, in general, not the least as plants are markets (interview data, MarioBoselli Group, June 2001).
Conclusions and Further Remarks

From the 1970s to the 1990s, Italian enterprises and districts were remarkably successful in competing in industries that were subject to strong cost competition from

56 ECONOMIC GEOGRAPHY JANUARY 2006 low-wage countries. Costs were contained as a result of a weak exchange rate; district modes of organization of a large number of SMEs and artisanal enterprises; and the delocalization of cost-sensitive activities first to internal peripheries, including areas on the Adriatic and in the South (where clandestine labor plays a particularly important role), and in the 1990s to peripheral European and Mediterranean countries. At the same time market research, product development, production organization, marketing, and distribution, as well as capacity capable of responding quickly to small runs and emergency orders or of producing high-end products requiring specific types of expertise, are at present retained in core areas. As these activities account for a high share of value added, much of the wealth created in the TCI continues for the moment to accrue to companies in core areas. In this article I have argued that delocalization involved the emergence of a national and international division of labor that cuts across districts. I have also argued that system organization connecting the districts with the services provided by Italys fashion capital, the survival of a producer-driven chain due to the dominance of independent retailers in the home market, and the emergence of large hub companies that invested in design and fashion played important, yet seldom acknowledged, roles in shaping the trajectory of the sector. At present, the situation is different (see especially IFM 2004). The competitiveness of the Italian and European TCI is in a decline vis- -vis extra-EU imports of finished and semifinished products, while both output and employment are falling. Several factors explain these trends. The first is the growing concentration of retailing, the increasing purchasing power of distributors, the movement of distributors into design, and the shift from producerto buyer-driven value chains. To respond, enterprises are seeking to increase their margins and power resources through cheaper sourcing to reduce costs, a greater reliance on brands, and advertising to secure monopoly rents and integration forward into retailing. (In Italy, in particular, the decline of independent and multibrand retailers and the arrival of chain stores from other European countries have prompted designers/manufacturers to develop their own networks of stores by means of franchises or branches.) The second is that many competitors (including South Korea, Japan, Hong Kong, and Taiwan) are upgrading the whole of their TCI chains. What is involved are investments in design and other high-value functions, the development of nonapparel textile ranges, and reductions in costs through outsourcing (mainly to China). Although a large number of Italian companies and regional economies have established a competitive advantage on the basis of creativity, product differentiation, flexibility, and innovation, many are insufficiently differentiated from producers in low-cost countries and are insufficiently oriented toward export markets with growth potential. As a result, many enterprises and regional economies are under threat. The removal of quotas will have negative effects especially on the clothing sector, although the decline in clothing production will reduce the demand for textiles, including exports for OPT-type activities in neighboring countries. Geographically and across enterprises the negative impact will be the greatest for those areas or enterprises that are the least able to create nonindustrial (design, marketing, and sourcing) TCI jobs. Core areas and core enterprises integrate or externalize and localize or delocalize activities, depending on their contribution to profitability. An inevitable consequence is that they will shed domestic industrial jobs. At the same time, their creative, innovative, and technological capabilities; commercial drive; ability to create direct retail networks; financial resources; and more advanced training and research infrastructures will permit a degree of upskilling and functional upgrading to defend corporate income and jobs in design, management, and purchasing. More peripheral areas or enterprises will suffer because of their lack

VOL. 82 NO. 1 ITALIAN TEXTILES AND CLOTHING CHAIN 57 of market knowledge, the erosion of their relative cost advantages, and the absence of a sufficient scale of operation, volume of internal financial resources, and management time or capacity to diversify into knowledge-intensive design and distribution-related activities.
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#2626ECONOMIC GEOGRAPHYVOL. 82 NO.

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#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford

#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford

A Geographic and Industrial Profile of the Italian and EU15 TCI

Rest Belgium Greece

A Profile of the Italian and EU15 TCI

Germany United Kingdom Italy Country

Manufacturing Textiles Wearing apparel

Number of Enterprises in 2000 (in thousands) 219 161 77 5 7 5 10 12 10

Country 4,240 148 129

Manufacturing Textiles Wearing apparel

5,160 412 340

67 (79) 45 (53) 25 (30)

52 (61) 35 (41) 24 (28)

ITALIAN TEXTILES AND CLOTHING CHAIN

117,736 (138,929) 6,593 (7,780) 6,854 (8,088)

115,629 (136,442) 2,338 (2,759) 1,332 (1,572)

285,137 (336,462) 7,111 (8,391) 2,527 (2,982)

59,181 (69,834) 1,912 (2,256) 222 (262)

4,894 (5,775) 223 (263) 379 (447)

188,724 (222,694) 3,770 (4,449) 1,410 (1,664)

934,238 (1,102,401) 26,862 (31,697) 16,185 (19,098)

103,987 (122,705) 3,690 (4,354) 5,711 (6,739)

161,978 (191,134) 3,071 (3,624) 10,906 (12,869)

220,251 (259,896) 4,409 (5,203) 13,873 (16,370)

56,154 (66,262) 1,394 (1,645) 2,749 (3,244)

14,659 (17,298) 396 (467) 189 (223)

191,037 (225,424) 2,563 (3,024) 7,672 (9,053)

916,728 (1,081,739) 18,922 (22,328) 50,285 (59,336)

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98.5 98.6 84.4 92.4 85.3 88.1

94.4 88.8 74.4 92.5 75.2 80.5

98.4 84.7 56.8 52.6 30.0 25.6

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Table 4 The Size Distribution of Italian TCI Firms in 19812001

Source: Elaborated from ISTAT (2004b).

Table 5 Italys Main TCI Districts

Turnover in Millions ($ millions) Enterprises/ Establishments

Exports as a Share of Turnover (%)

Turnover per Worker in Thousands ($ thousands)

Employment per Establishment 19

Como-Lecco Textiles, clothing, buttons . 3,431 (4,049) 24 . 4,901 1,920

94 (111) 129 (152)

Brescia (Palazzolo sullOglio) 51 30 27 36 55 30

ITALIAN TEXTILES AND CLOTHING CHAIN

280 2,081 3,821 2,000 9,079 521

6,600 36,400 38,457 11,000 50,396 6,210

Castelgoffredo (17) Vicenza (Valdagno) Trevisio Textiles

#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford

EmiliaRomagna Toscana Textiles, clothing Clothing

#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford

3 10,000 3,000 . Campania

Turnover per Worker in Thousands ($ thousands)

Exports as a Share of Turnover (%)

Turnover in Millions ($ millions)

Valle del LiriSora San Giuseppe Vesuviano Putignano, Martina Franca

District and Main Centers

Textiles, clothing Clothing

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#2626ECONOMIC GEOGRAPHYVOL. 82 NO. 182102-Dunford