September 15, 2012

Italian SME decline

The EU SME Fact Sheet is a must read to understand the world of Italian SME and the current crisis.
In few words what is happening is that SME are being strangled by a combination of factors, most notably:

  • Very high cost of energy
  • Lack of infrastructure
  • Massive bureaucracy
  • Dysfunctional Civil justice system
  • Public administration delayed payment of bills
  • High pressure from criminal organizations
  • Lack of financing
  • Very complex and contradictory laws
  • High level of corruption 
  • Lack of competitiveness on global markets
  • Low productivity
The backbone of the Italian economy is disappearing fast and it is not being replaced, if no rapid changes will take place in 1-2 years the Italian industrial panorama will not be dissimilar from that of Detroit.

SMEs in Italy – A Brief Fact Check

There are approximately 65 SMEs per 1000 inhabitants in Italy, which is substantially above the EU27 average of ca 40. In line with this, the relative importance of SMEs for the Italian economy exceeds by far the EU average, as illustrated by a considerably above-EU-average share of persons employed and value added accounted for by SMEs. It should be noted, that this elevated importance is mainly due to the micro enterprises, while medium enterprises are, in fact, underrepresented vis-à-vis the EU average.

Italy SMEs

Italy SMEs vs. EU

  • 94.6% of Italian businesses are "Micro Businesses" vs. EU Average of 91.8%
  • 47.1% of Italian employment is by "Micro Businesses" vs. EU Average of 29.6%
Unemployment Rate in Italy

A loss of 200,000 jobs would raise Italy's Unemployment Rate by about .9 percentage points, from 10.7% to 11.6%.

Italy's Insane Labor Rules

Wall Street Journal published a report Employment, Italian Style which helps explain Europe's economic crisis. Here are a few key passages:
Imagine you're an ambitious Italian entrepreneur, trying to make a go of a new business. You know you will have to pay at least two-thirds of your employees' social security costs. You also know you're going to run into problems once you hire your 16th employee, since that will trigger provisions making it either impossible or very expensive to dismiss a staffer.

But there's so much more. Once you hire employee 11, you must submit an annual self-assessment to the national authorities outlining every possible health and safety hazard to which your employees might be subject. These include stress that is work-related or caused by age, gender and racial differences. You must also note all precautionary and individual measures to prevent risks, procedures to carry them out, the names of employees in charge of safety, as well as the physician whose presence is required for the assessment.

Now say you decide to scale up. Beware again: Once you hire your 16th employee, national unions can set up shop. As your company grows, so does the number of required employee representatives, each of whom is entitled to eight hours of paid leave monthly to fulfill union or works-council duties. Management must consult these worker reps on everything from gender equality to the introduction of new technology.

Hire No. 16 also means that your next recruit must qualify as disabled. By the time your firm hires its 51st worker, 7% of the payroll must be handicapped in some way, or else your company owes fees in-kind.

Once you hire your 101st employee, you must submit a report every two years on the gender dynamics within the company. This must include a tabulation of the men and women employed in each production unit, their functions and level within the company, details of compensation and benefits, and dates and reasons for recruitments, promotions and transfers, as well as the estimated revenue impact.

Businesses with no more than 250 employees may also still be enjoying their three-year profit-tax holiday, which was granted in 2010 for small and medium-sized firms that reinvest their profits in forging "networks" for "innovation" with other small businesses nearby.

All of these protections and assurances, along with the bureaucracies that oversee them, subtract 47.6% from the average Italian wage, according to the OECD. Two-thirds of that bite comes before payroll, meaning many Italian workers are unaware of their gross cost to employers.

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