ICT and SMEs: Experiences in Italy and China

1. ICT Cluster Meeting • Istituto Tecnológico y de Estudios Superiores de Monterrey • Mexico – May 4th, 2005 ICT and SMEs: Experiences in Italy and China Carlo Figà Talamanca Innova S.p.A.

2. CONTENTS 1 THE CHANGING BUSINESS ENVIRONMENT 2 THE ITALIAN INDUSTRIAL DISTRICTS 3 THE CHINESE EXPERIENCES 4 CONSCLUSIONS

3. THE CHANGING BUSINESS ENVIRONMENT 1

4. FINANCIALSERVICESPROVIDER TELECOMCARRIERS INSURANCESERVICESPROVIDER SECURITYSERVICESPROVIDER DIGITALCONTENTSPROVIDER DIGITALSERVICESPROVIDER HEALTHCARE LOCATIONSERVICESPROVIDERS PUBLICADMINISTRATIONS Business Environment • A new business environment is emerging: • The virtual and extended enterprise is made up of a networks of customers, suppliers, distributors, partners, service providers…worldwide. • ICT IS THE NEW PLATFORM FOR COLLABORATION AND COMPETITION

5. Business Environment • The creation of production networks is based on co-operation, trust and mutual awareness. • The “digital knowledge” contributes to overcome the physical and temporal boundaries due to “geographical” factors. • Up-stream supply chains: large international companies pretend advanced IT sophistication of suppliers and sub-suppliers. • Down stream supply chains - selling chains: competitive value propositions to customers in terms of costs and services. • Although supply arrangements are still cost-driven, large distributors are seeking suppliers who can meet quality, cost and delivery constraints.

6. THE ITALIAN INDUSTRIAL DISTRICTS 2

7. Industrial Districts «A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities.» Porter, 1998 «An industrial districts is a socio-territorial entity composed by a community of persons and a group of companies (mostly small companies) which interact in a certain territorial and historical context.» Becattini 1991

8. Sector specialization and geographical concentration Competition and cooperation between companies High number of SMEs Strong role of local governments TRUST Role of intermediate institutions Local banks INDUSTRIAL DISTRICTS Dialogue between companies, local institutions and workers Sharing of flexible work and outsourcing Strong specialization of work and services “Industrial atmosphere”: collective knowledge Entrepreneurial culture Job mobility Main characteristics of the Italian industrial districts

9. SOME EXAMPLES • “Chair District” – Manzano: 44 million chairs per year; 80% of the Italian production; 50% of European production; 30% of world production; 250 companies producing finished goods with 4.000 employees; 4.400 companies considering the whole industry with 14.000 employees; 64% micro enterprises; 1,6% over 50 employees; “Ceramic District” – Sassuololo:200 companies; 90% of Italian production; 30.799 workers; production 605 million m2; turnover: €5.318 million; export 437 millions m2 for €3.868 million. Food Paper Plastic and rubber Mechanic Jewels, music instr, toys Leather and shoes Ceramic and furniture Textile and clothing • Sources ISTAT

10. Some figures About 200 districts in Italy with over 2.200.000 workers Sources: Oecd, Eurostat, Onida 2004

11. BUT TODAY… • Loss of market shares. • Decrease of profitability. • Phenomenon of deindustrialization. WHY…? • Industrial sectors where labor cost is an important factor. • The small size becomes a problem for foreign investments. • Not enough investments in R&D and especially in ICT.

12. There is a need to restructure the industrial districts • New business models for the district in order to gain back competitiveness. • ICT infrastructures enabling the new business models and permitting integration with the world market. HOW…? • Sharing of administration? • Collaborative management of processes and distribution? • Extended management of production?

13. Inter-Enterprise Business Processes BUSINESS PROCESS ANALYSIS AND DEFINITION KNOWLEDGE AND CHANGE MANAGEMENT SUPPLY CHAIN MANAGEMENT SCHEDULING AND SEQUENCING ALGORITHM PERFORMANCE INDICATORS å d 1 5 % ³ a 6b c @ ¹ ¸ A business solution – Some keywords

14. Inter-Enterprise Business Processes Inter-Enterprise Business Intelligence DISTRIBUTED (INTER-ENTERPRISE) WORKFLOW DATA REAL-TIME ANALYSIS EXTRANET - WORLD WIDE WEB FRONT-ENDS Inter-Enterprise Universal Access A technological solution – Some keywords

15. THE DISTRICT BECOMES A COMPETITIVE ENTITY Assessing the performances of the new organization MAXIMIZE Added Value (t) Performance (t)= MAKE AGILE Costs (t) Adapted from Hamel, Prahalad OPTIMIZE

16. Assessing the performance of the new ICT infrastructure Reduction of fluctuations Supply 35% – 45% Logistics 20% – 20% Reduction of inventories Production 40% – 40% Reduction of costs Capacity saturation 15% - 15% Quality of service 15% - 50% Increase of income Source: MANUGISTICS Source: ATKerney

17. DISTRICT DISTRICT Suppliers Buyer Virtual Community Virtual Supply Chain New districts • Horizontal e-marketplace • External e-marketplace • M1 and services e-mktplace • B2B-B2C district portal • Know-how • Partnerships • Suppliers

18. Impact of proposed solution SWOT Scheme for the single SME • Strengths • Visibility of production cycle. • Reinforcement of links and partnerships. • Management efficiency. • Low operational costs. • Weaknesses • Still limited interest in sector collaboration • Potential limitations of flexibility • High start-up costs Internal • Opportunities • Competitive advantage in SCM processes. • Increased customer retention. • Financial incentives. • Threats • Larger companies impose their technological standards. • Cultural barriers • Time of adoption in medium-long terms. External

19. OTHER CLUSTERS • Mexico: “Maquiladoras” – US-Mexico Border – electronic equipment, clothing, plastics, furniture, appliances and auto parts. • China: “Specialized Towns” – Guandong Province – lamp and lantern town of Gulong, the garment town of Humen, the furniture town of Houjie… • Germany: “Networked Enterprises as Regional Subsystems” – e.g. Aachen region – the whole region acts as a vast cluster with strong networking; high technological clusters enterprises-universities.

20. 3 THE CHINESE EXPERIENCE

21. Customers Suppliers Raw materialssupplier Resellers Distributioncentres Partssuppliers Manufacturers Bottom-up analysis of the Chinese supply-chains Manufacturer: Large industrial groups (Chinese; International) Part suppliers: SMEs (Chinese; some International) Raw material suppliers: SMEs and micro (Chinese) Logistic providers, retailers and customers are similar as in western countries.

22. The “disruption” in the ICT infrastructures of the large industrial groups Already analysing the ICT infrastructures of the large industrial groups you can “guess” what is the ICT implementation in the Chinese SMEs. • E-MARKETPLACES • B2Bi, BPM • B2C • CRM • … • E-MARKETPLACES • E-PROCUREMENT • E-SOURCING LARGE INDUSTRIAL GROUPS EDI WORLDWIDE CUSTOMERS LOCAL SUPPLIERS ICT

23. ICT REQUIREMENTS Infrastructural reasons Strategic reasons Proportional ICT spending* by employment size * PCs, workstations, servers, storage devices, software applications, wireless devices, services and consulting, software application development services, mainframe / large scale computers.

24. REQUIREMENTS AT ORGANIZATIONAL LEVEL Most Chinese SMEs depend on external relationships with their buyers. Competition based on: LOW COSTS ICT – R&D – FUNDS- TRAINING QUALITY AGGREGATION INTERNATIONAL MARKETS SERVICES

25. 4 CONCLUSIONS

26. Conclusions /1.:POWER • Large Companies impose technologies to suppliers and gain power over upstream-supply chain. • Digital procurement may lead to standardised products that reduce differentiation. • SMEs follow changes imposed by market leaders - can they later free themselves?

27. Conclusions /2: NEW SOLUTIONS • Technology is a great opportunity and enables the implementation of complex organizational models. • The adoption of extended and virtual enterprise models opens financially viable new markets generating short-term returns. • But the digital SME still has to overtake barriers (Cultural barriers, risk perception, high start-up cost).

28. Conclusions /3 : NETWORKS • Training should build awareness of evolving appropriate networking relationships. • Policies tend to focus on SMEs as separate entities, not as a network. • A new approach: SMEs networking across a range of activities that span out of national boundaries, building on the emerging trends of electronic commerce.

29. Conclusions /4 : IMPACT • Co-operation depends on SMEs awareness of the opportunities of working together for mutual benefit. • Incentives should be given to enhance international networking and to support on-line networks. • ICT MAKES SMEs BIG

30. “ESMALGLASS” CERAMIC DISTRICT OF SASSUOLO “KERABEN” TILES MANUFACTURER “DEMOVAVE” KITCHEN MANUFACTURER “FEBAL” FORNITURE DISTRICT OF PESARO “KERABEN TIENDAS” SELLING POINT NETWORK A REAL CASE: ECOSELL PROJECT • Extended Collaborative Selling Chain • Definition of new business and collaboration models. • Development of 5 new ICT tools to coordinate different SC. • 2 Pilot tests involving 8 companies from 4 European countries.

31. For more information… Carlo Figà Talamanca c.talamanca@innova-eu.net INNOVA S.p.A. Technology Transfer & Valorisation Via della Scrofa, 11700186 Rome - Italy Phone: +39 06 68803253 / 11Fax: +39 06 68806997 http://www.innova-eu.net THANK YOU