(*) Università degli Studi di Bari (**) Università degli Studi di Bergamo

1. Istat - Stat-Fin Joint Workshop Productivity and Competitivenessin the New Information Economy Rome, June 26th and 27th, 2003 Inside the ‘Magic Box’: Internet and the Growthof Small and Medium-Sized EnterprisesSome Evidence from ItalybyGiovanni Ferri (*), Marzio Galeotti (**), and Ottavio Ricchi (***) (*) Università degli Studi di Bari (**) Università degli Studi di Bergamo (***) Ministero dell’ Economia e delle Finanze

2. Presentation outlay • The focus is on the relationship between internet and (Italian) SMEs operating in non-ICT sectors. • There are three main sections: 1 - Short review of the new economy literature that looks at the impact of ICT/internet on aggregated growth and, more specifically, on SMEs growth. 2 - Analysis of the impact of the new economy on a productive system specialized in the “old economy”; what does the theory predicts? Is there something special with Italy? A sample survey of 450 Italian SMEs is described 3 - Empirical analysis, • We argue that: a) we can not find evidence of internet affecting directly companies’ growth; b) however internet does seem to loosen some of the constraints that usually inhibits SMEs growth; c) this mechanism works irrespectively of the sector in which the firms operate

3. “New Economy”, Aggregate Economic Growth and the Growth of Small Firms • the debate on the impact of the new economy on macroeconomic performance can – very shortly – be summarized • Unlike most of the OECD members, US and other economies “strong” on ICT (other Anglo-Saxon and northern Europe countries) in the 90’s grew faster than in the 80’s • The acceleration was accompanied by a boost in productivity related to TFP increase in ICT sectors and to capital deepening in non ICT sectors. • Whether or not the acceleration in productivity growth can be attributed to a technological revolution brought about by ICT is still under discussion. The implication on employment, business cycle and other relevant aspects are also being debated. (Gordon (2000), Oliner and Sichel (2000), and Jorgenson and Stiroh (2000). More recently, Stiroh, 2001; Baily and Lawrence, 2001.

4. Effects of ICT on enterprises’ productivity are: • Efficiency gains and organizational changes related to network aspects of the new economy (Mariotti, 1997) • Reduction of management costs, increased possibility of delegation and more intense use of idiosyncratic knowledge (Schivardi and Trento, 2000) • This benefits should be ripped everywhere, however it is difficult to find a direct impact of ICT investment on productivity outside US. The difficulty is probably increased by poor data. Ref. Bassanini, Scarpetta e Visco (2000); Daveri (2000). • Two more facts are relevant. There is a lag (with respect to the US) in the diffusion of ICT investment; therefore the benefits might still be “on the way”. In continental Europe the ICT sector is relatively smaller; therefore most of the benefits should - in any case - arise from capital deepening. . • SMI accounts for 95% of enterprises and for 60% to 70% of employment; therefore perspective impact of New economy on them is very important

5. SMEs are generally more flexible and innovative than larger firms (Brok and Evans, 1989; Acs, 1996; Sutton, 1997). We lay down the role that the new economy can play • We focus on determinants of SMEs growth and on constraints that inhibit it; internet • However they confront a number of problems: financial constraints, difficulty in accessing and exploiting technology, regulatory burdens… labor constraints • The new economy, and in particular internet, discloses a number of opportunities for SME’s, giving rise to: • Possibility to exploit at the same time the advantages of small scale and the economies of scale through networking amongst firms and with other institutions • Increased chances to expand product market and consumer base and to bypass entry barrier in foreign markets • Enhanced capability to overcome infrastructure and structural obstacles • Opportunities for venture capital to operate (whit a positive feedback of further development of the ICT sector)

6. The New economy in a productive system specialized in the Old economy, the Italian case • Relevant facts about Italy (Schivardi and Trento, 2000) • Most of the Italian companies operate in non-ICT sector • Specialization in quality consumer goods depends on specialized labor; this might pose specific requirement for ICT applications • Productive system based on SMEs clustered in industrial districts • Small size of companies may limit ICT adoption; at the same time it might lower incentives to vertical integration • Possible implications and issues to look at empirically • relationship between internet and firm size, performance • How does ICT interacts with constraint faced by SMEs • enhanced competitiveness of industrial districts • relationship between ICT, human capital and, more in general, labor

7. Survey design In the summer of 2000, we interviewed 450 Italian SMEs having size comprised between 5 and 50 employees. In addition, our sample has the following characteristics • Half of the firms have less than 16 employees while the other half have more than 15 employees. • Half of the firms in the sample are incorporated as limited liability companies (SRL) while the other half are joint stock companies (SPA). • 80 percent of the firms belong to the manufacturing sector, while the rest is in the service sector. • The sample shares are very close for the four geographic areas in which Italy may be subdivided (Northwest, Northeast, Center, South-Islands).

8. Main statistics • Average growth of sales over the three-year period (1997-99) is 17.4 percent. • As a ratio to sales our firms export a significant share (19.2 percent) and spend non-negligible amounts in R&D (5.4 percent). • 18.9 percent of our firms have education agreements with schools and/or universities; • 29.1 percent belong to industrial districts and 24.4 percent participate in a “Consorzio fidi”, • 76.9 percent of the cases managers are also members of the controlling family • 60 percent of the companies own a website

9. SMEs were asked which are the constraints to firm growth they perceived as most binding. • labor market issues 30.5% • labor cost is too high 5.8% • insufficient supply of skilled workers 9.8% • inadequate flexibility of the labor market 14.9% • the tax system 28.8% • relationship with Public Administrations 20.4% • Access/cost of external financial resources 19.6% • Competition & adverse market conditions 17.4% • infrastructure quality 6.0% • Lack of state support 8.2% • Other 17.3%

10. Descriptive evidence A few distinctive features of high-growth and low-growth SMEs

11. Firms’ Features as to Internet and E-Commerce

12. Some very preliminary and “rudimental usage of” cluster analysis. NOT INCLUDED IN THE PAPER

15. Conclusions, • it is difficult to identify a direct impact of Internet on firms’ sales growth; • generally, our indirect constraints indicator appear to limit company growth; • constraints to SME growth are affected by ICT, some (but not all) of the constraints are weaker for those firms that are active on Internet

16. Open issues and possible extensions, • Is the analysis vulnerable to the new economy bubble burst? NOT SO MUCH • Survey design issues • We only use sales growth as a performance indicator …but also investment and export (both as a proportion of sales growth) could be perceived as such • Relationship between internet and • firm size • usage at sector level • Industrial districts has not yet been fully analyzed