Microeconomics And Competitiveness

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UNIVERSITATEA:

ACADEMIA DE STUDII ECONOMICE

BUCUREȘTI

FACULTATEA DE RELAȚII ECONOMICE INTERNAȚIOINALE

SPECIALIZAREA:MASTER-MANAGEMENT OF INTERNATIONAL BUSINESS

INSTITUTE FOR STRATEGY & COMPETITIVENESS

MOC [anonimizat] on Country & Cluster Competitiveness

Coordonator științific,

Prof. univ. dr. Prenume Cojanu

Masteranzi,

Prenume Nume 1

Prenume Nume 2

Prenume Nume 3

Prenume Nume 4

București,

2017

UNIVERSITATEA:

ACADEMIA DE STUDII ECONOMICE

BUCUREȘTI

FACULTATEA DE RELAȚII ECONOMICE INTERNAȚIOINALE

SPECIALIZAREA:MASTER-MANAGEMENT OF INTERNATIONAL BUSINESS

MOC [anonimizat] on Country & Cluster Competitiveness

Titlu:´´Leather industry in Florence´´

Coordonator științific,

Prof. univ. dr. Prenume Cojanu

Masteranzi,

Prenume Nume 1

Prenume Nume 2

Prenume Nume 3

Prenume Nume 4

București,

2017

Pagina de gardă

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LEATHER INDUSTRY CLUSTER IN FLORENCE

PROFESSOR:…………….Cojanu

STUDENT: NAME SURNAME1,2,3,4

THE BUCHAREST UNIVERSITY OF ECONOMIC STUDIES

2017

Table of contents

§ CHAPTER I. INTRODUCTORY CONSIDERATIONS ABOUT THE CLUSTER..6

1.1.Cluster theory…………………………………………………………………….…….6

1.2.The competition…………………………………………………………………….….7

1.2.1. The location………………………………………………………………………….9

1.2.2. Competitive Advantage…………………………………………………………….10

1.2.3.Productivity and Performance……………………………………………………….11

1.3. The strategy…………………………………………………..……………………….13

1.3.1. Inovations……………………………………………………………………….…..15

1.3.2. The Cluster and new business………………………………………………….…16

§ CHAPTER II. SOCIOECONOMY OF THE CLUSTER……………………….…..18

2.1. Location-potential for economic factor………………………………….……..…..18

2.2. Exporting industries………………………………………………………………….19

2.3. Internal trade and investment……………………………………………………….21

2.4. The location paradox in globalisation era……………………………………….….25

§ CHAPTER III. EVOLUTION OF THE CLUSTER…………………………..….…25

3.1. Cluster development………………………………………………………….….….25

3.2. Role of Government Policy…………………………………………………….……27

§CONCLUSIONS………………………………..………………………………….…..28
§REFERENCES……………………………………………………………………..….29

Leather industry cluster in Florence

§ CHAPTER I. INTRODUCTORY CONSIDERATIONS ABOUT THE CLUSTER

1.1.Cluster theory

Methods of hierarchical Cluster analysis follow a prescribed set of steps, the main ones being: (1) collect a data matrix whose columns stand for the objects to be duster-analyzed and whose rows are the attributes that describe the objects; (2) optionally standardize the data matrix; (3) using the data matrix or the standardized data matrix, compute the values of a resemblance coefficient to measure the similarities among all pairs of objects; (4) use a clustering method to process the values of the resemblance coefficient., which results in a diagram called a tree, or dendrogram, that shows the hierarchy of similarities among all pairs of objects, From the tree the clusters can be read off.Cluster analysis is a generic name for a variety of mathematical methods, numbering in the hundreds, that can be used to find out which objects in a set arc similar. For example, if we gathered a set of pebbles from a stream shore, noted their attributes of size, shape, and color, and sorted similar pebbles into the same piles, we would be physically performing a duster analysis. Each pile of similar pebbles would be a cluster ( Romesburg, 2004). A cluster is a system of interconnected firms and institutions the whole of which is greater than the sum of the parts. Clusters represent a new and complementary way of understanding an economy, organizing economic development, and setting public policy. Clusters play an important role in competition, and these raise important implications for companies, governments, universities, and other institutions in an economy.

Whatever the type of cluster, the phenomena of industrial clustering are evidence of the pervasive influence of inlerdependently increasing returns. Increasing returns obtain when such interaction generates positive externalities for the economic agents belonging to the cluster. Typical of clusters is the existence of one or several forms of direct and/or indirect interaction between economic agents. In New Urban Economics, for example, an urban region is identified by deriving increasing commuting costs from increasing distance to the city centre, which hosts the majority of all workplaces. The success of these policies has varied substantially but cluster policies seem to have become an integral part of the political thinking on industrial and regional policies. International organizations, such as the OECD, have conducted major cluster studies to support the development of duster policies. The study of dusters and clustering and related subjects is now an integral part of many undergraduate and postgraduate studies in business administration, economics, economic geography and urban and regional planning. At the policy level governments at central, regional and local levels in most developed countries have conducted cluster studies and introduced policies aiming at supporting existing clusters as well as stimulating the emergence of’ new clusters. A functional (urban) region is characterized by its agglomeration of activities and by its intraregional transport infrastructure, facilitating a large mobility of people, products and inputs within its interaction borders. The border of a labour market region is a good approximation of the borders of a functional region. The idea of the functional region has a place in most models of urban economies. The basic characteristic of a functional region is the integrated labour market, in which intraregional commuting as well as intraregional job search and search for labour is much more intensive than the interregional counterparts. Many industrial clusters are unique and the result of specific historical circumstances. Cluster models give little guidance for the development of such clusters, since they arc the result of specific circumstances, which arc more or less impossible to imitate. The three cluster notions above may coexist since local markets, local transaction links and local social networks can be integrated in various combinations into functional regions. Thus, even if it is possible to distinguish analytically three 'pure' cluster models, it is important to realize that industrial clusters in reality often exhibit rich but complicated and integrated features, many of which may be dillicult to create or influence by policy measures(Karlsson, 2008).

1.2.The competition

We were talking before about the ease of purchasing the materials and the speed of production, a factor pursued by the big beneficiaries. Here we have to point out that Florence is not a single skin processing center. Italy has leather in general in the southern area of Pisa, Piedmont, Sardinia, but we chose Florence for study just for cultural value and high tourist potential, equivalent to a wide and varied clientele. (Beyries, 2001).

Figure 1. Italy’s centers for leather production

It is also supposed that a cultural center may be conducive to the gradual development of a cluster, also, according Cooke´´such is the perceived success of many small and medium-sized firms interacting profitably in confined geographical locations that many seek to emulate them´´(Cooke, 1999). The latter case does not appear to have been extensively analyzed yet, although tlhe start of a relationship with a leader is likely to have profound effects on the ID. Garofoli (2003) argues that the relationship between a large firm and an industrial district is likely to have negative effects on the district, in terms of its autonomous capacity to develop, because the large firm tends to dominate the relationships. Bellandi (2001) provides a classification of the potential finks between large firms and local economies. He argues that the effects of the relationship on the local economy depend on the degree of embeddedness of the large firm. He puts forward the hypothesis that involvement in knowledge exchange and institutional building (developmental embeddedness) is more probable when the local factors are neither too weak nor loo strong. The internationalization of SMEs has been the subject of many studies in recent years. The exporting propensity and intensity of SMEs has been analyzed, generally showing that although exporting trends of SMEs have been growing, few SMEs export. The internationalization strategies of SMEs have been shown to depend on their competencies. The issue of the difference between isolated SMEs and SMEs inserted in dusters is a relevant one, especially for a country like Italy where a significant pari of production is realized in industrial districts (ID), Overall, it appears that Italian ID follow either of two internationalization strategies: a district firm affirms as a leader and specializes in the functions of marketing and distribution to international markets; or the ID establishes relationships with one or more large firms that have worldwide distribution channels(Belussi and Sammarra, 2012).

1.2.1. The location

Florence can also be considered a epicenter of the luxury textile industry, with a tradition of the 15th century, thus defeating world leaders such as China and Japan, occupying an honorable place in the world, only exports. Leather articles made for luxury brands such as Bulgari, Tiffany, Dior, Givency, Prada have added more than 3000 jobs from 2,500 companies in 2015 only. Interesting to follow is the waste recycling strategy leather and pursuit of sustainability to prevent future losses such as the Pelle brand( Pieraccini, 2015). In a niche industry, such as Florence, for the production of luxury leather products, there is also a place for retail outlets where customers with fewer opportunities can be attracted. This reserve on the market maintains in balance the competition between producers. The emergence of economic regions in the framework of respective location theories showc that Florence started out with an empirical investigation of the organization and location of industries and inquired into the causes of industrial agglomeration, making use of the Marshallian analysis of external economies. Regional problems have an important part in the discussion of economic integration plans, too. Herbert Giersch was the first to present the view that economic integration would weaken the tendency toward agglomeration along national lines but would, at the same time, intensify regional agglomeration tendencies. François Ferreux lays great stress on the proposition that economic integration. Among the antecedents of regional analysis in economics, the Weber-Losch location theory, Florences work on industrial agglomeration, and Perroux’s discussion of the poles of development deserve attention. Although of recent origin, Perroux’s discussion of the poles of development and their effect on regional economic growth is also mentioned here, partly because of its independence from developments elsewhere, partly because of its profound effect on regional analysis in Continental Europe, Finally, credit for the latest developments in the theoretical analysis of regional problems should be given to E. M. Hoover, Walter Isard, and other American economists(Balassa, 2011).

1.2.2. The competitive advantage

An measure of competitiveness examined – although this is also insufficient when viewed alone – was the unit value of exports: the ratio of value in thousands of dollars to volume in thousands of square feet of light leather, or million pairs of shoes(Liu and Vannicola, 2015). Over the 1980-87 period, the unit value of both light bovine leather exports and leather footwear exports increased in seven out of 12 countries examined, while that of light ovine leather increased in six out of the 12. For leather footwear, the increases and decreases are about even among the same countries. Another measure of competitiveness examined – although this is also insufficient when viewed alone – was the unit value of exports: the ratio of value in thousands of dollars to volume in thousands of square feet of light leather, or million pairs of shoes (Food and Agriculture Organisation of United Nations, 1991). In the last years, given the importance of Italy’s Leather industry, lack of enforcement of CITES regulations led to the unregulated import of reptile skins. The Italian problem with CITES was widely known in the relevant NGO community (especially in TRAFFIC’S office in Italy, and that community helped the Secretariat obtain the evidence that publicized problems of compliance in Italy. The Secretariat spent a great deal of time and energy trying to improve Italian compliance, but it met with little response. Finally, the Secretariat informed Italy that it was prepared to contact the Standing Committee. The document outlining the course of this dialogue pointed out that the Secretariat had contacted numerous officials in Italy’s public administration as well as Commission officials—all to no avail (Weiss and Jacobson, 2000). Since the early 1970s, industrial employment in these towns has grown by leaps and bounds, and the cultural products of the region have successfully penetrated international markets thanks to their superior quality and style based on a legacy of skilled craftsmanship dedicated to serving a traditionally discerning. Woollen textiles from Prato, knitwear from Carpi, ceramics from Sassuolo, highfashion shoes from Porto Sant’Flpidio, furniture from Pesaro, lace from Como, and leather goods from Florence, are just a few of the products that have driven much of the remarkable recent economic growth of the third Italy, Another set of examples might be adduced by reference to tourist resorts, each with its complex of interlocking production and service functions, and each luring consumers on the basis of some unique collective asset (physical or social) that is then made accessible and continually reimaged as the local production system does its work of commercialization. The significance and potency of these relationships can be exemplified in many different ways. In addition, a number of major metropolitan regions possess multiple clusters of cultural-products industries such as book and magazine publishing, art and design endeavors of all varieties, theatrical and musical production, radio and television broadcasting, and advertising, together with craft industries like clothing and jewelry, that thrive on the urbane climate of the great international metropolis. The synergistic relation regarding styles, sensibilities, and thematic associations is due both to the circumstance that these sectors often transact intensively with one another and participate in shared labor markets, and to their exploitation of design cultures and images drawn from the local urban context, representing a generalized externality or competitive advantage for all. The traditional craft industries in the towns of the Third Italy represent one dramatic illustration(Scott, 2000).

1.2.3. Productivity and Performance

The supply chain that influences the production of Florence's luxury brands depends on the nature of finished materials and products. A leather article may also involve synthetic content and then China is the preferred supplier of raw material and sometimes prefabricated elements. There are exceptions. We take for example the 1921 Gucci brand from Florence, they collaborated in 2009 with no more than 278 franchises in the world: North America, Europe, Asia Pacific and Africa. Primary raw materials and adjacent resources from the local market, Tuscany, are preferred to satisfy the desire of authenticity of the luxury customer industry (Song, Perego and Mangiaracina, 2014). To analyze how the leather market determines price, we must compare the desires of Consumers (demand) with the desires of producers (supply). In a free market, price and quantity are determined by the intersection of the supply and demand curves. On a supply-demand diagram, the supply curve would then shift inward, as in Figure 2. This phenomena occur in most industries, and sometimes the effect goes the other way. For example, suppose that the price of beef goes up, which increases the quantity of leather supplied. That, in turn, will raise the number of cowhides supplied even if the price of leather does not change. Thus, a rise in the price of beef will lead to a rightward shift in the supply curve of leather(Baumol and Blinder, 2016) However, nations do not always let markets operate freely. Sometimes they intervene with quotas that limit imports or with tariffs that make imports more expensive. Although both tariffs and quotas restrict supplies coming from abroad and drive up prices, they operate slightly differently. A tariff works by raising prices, which in turn reduces the quantity of imports demanded. The sequence associated with a quota is just the reverse—a restriction in supply forces prices to rise (Baumol and Blinder, 2006).

Figure 2

Source:(Baumol and Blinder, 2016)

Income time scries data available through Angus Maddison's database provides us with important information on income levels for this dialogue and consequently clarifies the close links between income level and labour productivity.The second dialogue refers to a present-day context, once again in Florence, between a tourist in Lhe city of the Medici and a Florentine craftsman with technologically advanced tools and equipment. This situation shows that as time has passed and technology has advanced, labour productivity has increased approximately eight to ten limes compared with the end of the nineteenth century. This also shows that labour productivity is simply the amount of goods produced by a worker in one day or in one working hour. It crucially depends on the technological progress and amount of capital and tools available in a certain period actually used by the worker. In 1800, the lack of capital and advanced tools and low level of technological progress kept productivity levels very low and consequently, levels of income were also low. Today, a significant advance in technological progress, which increased considerably, especially in the period immediately after the Second World War, results in much higher labour productivity, a much higher production level and, consequently, a much higher level of income However, labour productivity contributes greatly to economic growth To understand fully the concept of labour productivity, which at first glance appears to be so abstract and distant, the best definition can be given by two dialogues collected over a long period of time, between a traveller and a craftsman, which took place just over a century apart. This also refers to a context that is still pre-industrial, in the laborious and rich city of Florence, between a famous passer-by, a nineteenth-century traveller and prime minister of an important European nation, visiting the new recently created capital of Italy and a Florentine craftsman with very lew tools that would now be defined as archaic(Tridico, 2017).

1.3. The strategy

Prestige goods are those which are consumed mostly by the rich section of the society. Demand for such goods arises only beyond a certain level of consumer's income. Price elasticity of demand depends also on the nature of a commodity. Commodities can be grouped broadly as luxuries, comforts and necessities, on the basis of their nature. Demand for luxury goods is more elastic than the demand for other kinds of goods because consumption of luxury goods can be postponed when their price rises (Fortis, Carminati and Corradini, 2015).On the other hand, consumption of necessities, cannot be postponed and hence their demand is inelastic. Demand for comforts is generally more elastic than that for necessities and less elastic than the demand for luxuries. Commodities may also be classified as durable goods and non-durable goods. Demand for durable goods is more elastic than that for non-durable goods, because when the price of the former increases, people either get the old one repaired instead of replacing it or buy a 'second-hand'. Apart from price of a product and its substitutes, another important determinant of demand for a product is consumer's income As noted earlier, the relationship between demand for normal and luxury goods and consumer's income is of positive nature, unlike the negative price-demand relationship. In simple words, the demand for normal goods and sere ices increases with increase in consumer's income. The responsiveness of demand to the change in consumer's income is known as income-elasticity of demand (Belloc, 1967). Returning to the case studied in Florence, an increased demand is re-routed in July, as well as open markets for leather products all year round, San Lorezo, for example. There is an offer for a wide range of consumers: from branded products to big brands outfits. Pisa is particularly economically linked by Florence through the alternative to supplying raw materials, accounting for 30% of the necessary (Bella Toscana, 2017). The production process is divided between a targe number of small and highly specialized sub-eon tractors. In Arzignano, 70 percent of the production is upholstery leather. Classic high quality leather is manufactured at a larger scale and in a more industrial (as opposed to artisan) manner than in Santa Croce, In both places, but more so in Arzignano than Santa Croce, a major competitive advantage lies in the ability to manufacture fashionable leather from medium to low-quality hides. The splitis made to look like full grain leather. The same is done to low quality grain is a chemical innovation used to correct the grain of furniture leather, Santa Croce, as already implied, is better known than Arzignano for creativity and fashion. Both districts are characterized by a gradual move upmarket towards higher quality products and a gradual change to being more and more involved (Jenkins and Barton, 2004).

The Italians as a nation are among the most sophisticated customers in the world of fashion. As such they provide a demanding and critical marketplace for Benetton’s designs, if you can survive as a fashion retailer in Italy you are likely to have a product that will survive in other international markets. Within a nation, demand conditions are affected by its government’s macroeconomic policy; the nature of competition by its antitrust (antimonopoly) and trade policies; the level and type of skills by the country’s education system; and the attitudes of managers, workers and customers by its national culture. Clusters are about linkages and complementarities across industries and institutions that are most important to competition as in the Italian fashion, leather, textile and design cluster already discussed. Related and supporting industries with leather industry build in Italy a national ‘cluster’ of very strong industries both in the fashion industry itself, with its numerous designer labels, fashion houses and high priests of the Milan fashion shows, but also in many related industries such as leather goods, shoes, handbags, belts, luggage, and furniture. All these industries share common factors such as high design skills and knowledge of materials. There is also a strong network of largely family-owned intermediate supporting industries to provide an efficient infra structure for the fashion industry. Some industries take successful root in some places and some in others. He sees these productive clusters of excellence in terms of nations. Those with few or no national rivals are unlikely to be as efficient or as responsive to customer requirements. They may nevertheless survive and prosper within a relatively protected domestic marketplace, but are unlikely to perform strongly internationally, Benetton is located in an overcrowded domestic fashion market, from whose competitive rigors it has benefited as an international firm, Firm strategy, structure and rivalry Items for consideration in this pad of the diamond are the five forces industry analysis issues, Here the point Porter wishes to make is that firms located in very competitive industries with high levels of national rivalry are the ones most likely to do well in international markets(Segal-Horn, Faulkner, 2010).

1.3.1. Inovations

In order to identify the most innovative regitms in Italy, we have focused our attention on the incidence of innovative networks opejfitina on the national and international scale. The choice lo use the presence of such networks as a proxy for regional innovative activity is strictly related to the conviction that this kind of network is functional to the maintenance of local innovative strength and competitive advantages over Lime. Consistent findings, the areas of Turin and Milan continue to represent the most oulslandini: Islands of Inn ovation m Italy, followed by Jcilugiia, Reggio Lmilu and Naples-CjserLa, and further hv Verona, Triesic, Florence-Prato, Rome and Rari, the lack of information on skilled workforce exchanges in Italian regions, we have adopted data concerning tiro registration and cancellation of gradual residence as proxy of those fluxes. The first includes two North-West regions, namely Piedmont and Lombardy, which arc characterised by strong international innovative activity in mechanical engineering, design and textiles. The second is made up of Emilia Romagna and Campania, winch appear to be characterised by lower number of international itinomalive networks in mechanical engineering. tCT and green energy. 'The third incorporates Veneto, Friuli. Tuscany, Lutinin and Apulia, regions that have very limiled innovative networks) With regards to such networks, our source of information has been a recent publication of the Italian Production Association (AIK 2008), which contains an extensive catalogue and a complete description of each network. Even though this book does not offer an exhaustive description of all national experience, if certainly includes the most important canes. Drawing on A IP data, we have divided Italian regions into four groups (Hilpert, Smith, 2013).

Figure 3. International innovation networks in Italian regions

1.3.2. The Cluster and new business

Italy imposed taxes more expensive than France in 2017 for companies by introducing a sector-specific tax. At the same time, as we see bellow, Italy increased the health insurance contributions paid by the employer. On a global scale, Italy is ranked 126 in the ranking of 190 savings on ease of tax payments. The economy has a score of 6.3 based on the minority investor protection index, with a higher score indicating stronger protections. Globally, Italy ranks 42 in the ranking of 190 economies on the basis of the minority investor protection index. According to data collected by Doing Business, starting a business requires 6.0 procedures, takes 6.5 days, costs 13.9% of per capita income for men and requires 6.0 procedures, takes 6.5 days, costs 13 , 9% of the per capita income for women. A minimum paid capital requirement of 0.0% of per capita income. Italy has made it easier to start a business by strengthening an online registration system. The border savings distance is reflected on a scale from 0 to 100, where 0 represents the smallest performance and 100 represents the border. For example, a score of 75 in 2016 means that an economy was 25 percentage points of the border built of the best performances in all economies and over time. A score of 80 in 2017 would indicate that the economy is improving(Doing Business database, 2017).

Figure 4. 2017 business condition in Italy

Source: http://www.doingbusiness.org/

§ CHAPTER II. SOCIOECONOMY OF THE CLUSTER

2.1. Location-potential for economic factor

Florence, the capital of Tuscany, has been recognized since the Renaissance to be a remarkable cultural and commercial center. High-end tourism has allowed the region to grow by increasing local taxes. Today, the economy is constantly developing due to the production of mainly handicraft, leather goods, and luxury perfumes (About Florence, 2017). Banking systems in Genoa and Florence was similarly developed, but Florence was particularly distinguished by the fact that, at the beginning of the Renaissance, the region's finances were concentrated in the hands of wealthy people. Fundamentally, science and art are financed, with the handicrafts of leather processing occupying a second place as receipts. (Foster Hoggson, 1926). Based on the principle that the major shopping centers are located on the outskirts of the regions, Florence has retained its tradition of shopping center and outlet until the 20th century. In general, local production and import resources are counting, as the Florence region is one of the few shopping centers that have retained their status in the era of globalization. (Dei Otati, 2017). Even though the region's economic indexes are slightly lowered over recent years due to local Asian exports due to Tuscany's flexibility in materials and suppliers, this area is highly appreciated by great fashion designers such as Gucci. According to the 2011 European Council statistics (Vietor, 2005) '' Italy is the most important destination among all EU countries, for finished leather produced in Europe. '' (Euroleather report, 2017).

Crisis resilience of small firms in Florence has been proven by the good response to the Marshall Plan reorganization after the Second World War. (Mucelli, Micozzi, Rubens and Jackson, 2015). Florence-Pistoia-Prato are recognized under the pseudonym "Little Italy". With the advantage of having a history, which few industrial centers have, the region enjoys the influence of luxury investors, both in technology, such as the "Vespa" automobile company, especially in the fashion industry and products luxury, thanks to its diverse clientele. (The Florentine, 2017).

Table 1. The european leather industry in 2011

Each of Florence’s fifteen gates had a distinct character The Porta di San Gallo to the north was the first sight noted hy Francesco Bocchi in his 1591 guidebook. The Beauties of the City of Flore nee (Le Rellezze della Cittd di Firenze),since this is where most visitors arrive when they come from Venice, France, and Germany For those heading south, the voyage to Rome begins at the Porta di San Pier Gattolini, which is thus called the Porta Romana ’ The Porta di San Gallo and the Porta Romana were both prestigious entries to the city, frequently used by visiting dignitaries. By contrast, the southwestern Porta di San Frediano (which Bocchi fails to mention) was situated in a grim industrial wasteland that was going back to nature with the contraction of the wool and leather industries. Least attractive of all was the Porta alia Croce or ‘Gate of the C ross’ to the northeast The outlying ground was the dreaded site of public executions and those arriving from La Verna or the Romagna’1 skirted an infamous cluster of scaffolds, gallows, and gibbets, often featuring the dangling remains of the dead. The Porta al Prato to the northwest, 'used by those who travel to or from Genoa, Lucca, Prato, and Pistoia,’ had the most cheerful associations for the Florentines, Every June on the Feast of Saint John the Baptist, Patron of Florence(Goldberg, 2014).

2.2. Exporting industries

In Florence we are not just talking about the big manufacturers that dominate the market. A multitude of limited liability or joint stock companies that have as their business the sale of leather products can be remarked. (Europages Searches, 2017). We present as a observation in our research an interesting evolution of the trademark Guccy, specially in provider domain. Even if today entire process of production has its place in Italy, with almost a century ago, Mauricio Gucci opened a small workshop behind the store where he could make his own leather goods to supplement the imported products and also started an active repair business that quickly became profitable. He hired local craftsmen and built up a reputation for offering service in addition to reliable goods. Several years later. The Oltrarno area south of the Arno had become home to many small workshops, which harnessed the rivers water to power machinery that treated and wove wool, silks, and brocades. The wide avenues bordering the river and the smaller streets leading south in this working-class neighborhood ring with sounds of hammering and sawing wood, washing and heating wool, and cutting, stitching, and polishing leather. Antiques dealers, framers, and other craftsmen also settled here. Just across the river, the area around Piazza della Repubblica had become the commercial and financial heart of Florence, daring back to the Middle Ages when it was the headquarters of the powerful trade guilds that regulated the city’s thriving craftsmanship. (Setchi, Howlett, Liu and Theobald, 2016). Guccio acquired a larger workshop across Michelangelo’s Santa Trinita Bridge on the opposite bank of the Amo along the avenue Lungamo Guicciardini. Guccio ordered his sixty craftsmen to work kite into the ni ght if necessary to fill the rising number of Orders. At first, Guccio bought high-quality leather1 products from Tuscan manufacturers as well as from Germany and England to self to the tourists who Hocked to Florence then, as they do today. Guccio selected sturdy, well-made bags and luggage at reasonable prices. If he didn't find tilings he liked, he commissioned special pieces. He aspired to elegance himself and was always impeccably dressed in fine shirts and crisply pressed suits. “He was a man of great taste, which we all inherited,” recalled his son Aldo. ''I lis imprint was on every item he sold."(Forden, 2012)In the period 1977 to 1996, Italy’s share of global production of both heavy and light leather increased (FAO, 1994, 1998), Both in terms of heavy and light leather production. Italy already far outstripped production in Germany in 1977-1999. The two countries’ share of global production offiides and skins, however, are identical in 1997. Regarding exports, the share of heavy and light leather has increased from 13.6 percent to 26.1 percent and from 12.9 percent to 15.9 percent respectively, Italy's share of world exports of light leather had a downturn to only 7.8 percent in 1992 with a gradual increase thereafter. Italy has the largest share of bovine leather production in the world, closely followed by South Korea (FAO. 19%). During the last 30 years, production has increased by 400 percent. Italy's share of the global output of bovine leather increased from 4 percent in the mid-1960s to 10 percent in 1996 (figures obtained from branch organization in Italy; Gjerclaker, 1998). The 1970s saw the most expansive period of the Italian leather industry, with a large increase in the number of production units and employment. This was linked to the growth of the Italian footwear industry (Sankar, 2001). Actually, in the period 1981 to 1991, there was a slight decrease in the number of production units and employment in Arz.ignano.Fashionahle and artisan type products, differentiation, small batches of each product anti relatively high prices are characteristic of Santa Croce. Santa Croce and Arzignano are the main centres of bovine leather tanning in Italy; 70 percent of the leather production in Santa Croce is for the shoe industry.

2.3. Internal trade and investment

Italy, as most of the European countries were influenced by the political and social factor in its economic development. From the ancient age, in the empire phase, to the status of today's third European economy, were succeed several important moments such as rebirth, industrialization, post-belligean times, fascism, economic recession. For reasons of time and prioritise the main subject of the paper , we will mention a few words about the most important periods of industrialization, the recession and the comparative present evolution. Over the l880´s, two major external developments impinged on the Italian economy. One was obviously the rising ride of British foreign investment, which lifted the Italian boar as it did others, the increase in the supply of foreign capital loosened financial constraints, stimulated investment, raised the equilibrium real exchange rate; it generated a current-account deficit and a net inflow of resources, and tended to raise wages and consumption(Coispeau, 2017). ´´Italy was among the very first countries to boast a complete set of historical national accounts, from Unification (1981) on.´´(Fenoaltea, 2003) . Unification of Italy meant industry, although not totally absent from the settle, was none the less of marginal importance: crafts, on the other hand, existed in proportion to Local demand, and therefore to the different levels of income produced by the diverse forms of agriculture. Fifty years later, all the modem industries were present in Italy, some more some less advanced’ from the metallurgical industry to the energy industry, from the production of tyres to that of cars, from chemical fertilizers to sugar An industrial census was conducted at the end of this period in order ro ascertain to what extent industrialization had been accomplished- it is not without its defects (there are no figures for the value of production, for example), but the data available for rhe intermediate stages of Italian industrialization are even more incomplete(DaFrancesco, 1847).

In fact, the Statistics Department of the Ministry of Agriculture, Industry, and Trade (MAIC—Minister» di Agricoltura, Industria, e Commercio) insisted for a more time destinated on asking local prefects, councils, and chambers of commerce for the relevant information, rather than organizing direct surveys and/or proper censuses. The first attempt to conduct a survey of Italian industry goes back to 1862, but the only result it gave was the publication of two reports concerning the towns of Hergamo and Parma, together with a collection of figures from the silk-processing and mining industries(Patriarca, 1996). A second, more ambitious attempt was launched ort 7 September 1865, but again this was eventually limited to an examination of the ef facts of free trade 011 industrial enterprises, Lary means of the distribution of questionnaires (about 7,000 were given out, and 1,227 were returned), followed by a direct investigation by a specially appointed commission Some sources sustains that 'for the first time ever, political leaders were able to gain first-hand knowledge of businesses and their problems, and thus reconsider their own preconceived ideas, based for the best parr on academic study, concerning the nature of Italian industry—and in doing so, they could acknowledge the complex series of obstacles(Zamagni, 2003).

Figure 5

Source: VITALI, O. (2002)

Source: VITALI, O. (2002)

Source: VITALI, O. (2002)

Table 2: Italy- limits of GDP

Source: (Banca Centrale di Italia, 2017)

Indeed, due the observation of the study, between the years 1861-2011, the incidence of public debt is 60% supply in 112 years. No other country shows the same dates , only France and United Kingdom, follows the Spain with 45%(Catalano, 1969).

Table 3. Number of years in which GDP exceeds more than 60% till 90% from 1861 to 2011

Source: EUROSTAT 2011

We could consider the encrease date of 90% in the last century for Italiy, always followed by the United Kingdom and France. Beside this fact , the GDP ratio has always fluctuated note B. One of the most common values ​​was found in 1861 with 39.42%, injected only in 1947 with 24.21%;, excluding 1920 in which the addition of 159.72%, lost caused by First World War (Ruscello, 2010) ‚’’In the aftermath of the 2016, the top five European economies (France, Germany, Italy, Spain, and the United Kingdom) announced actions to improve information sharing in order to fight tax evasion and money laundering’’(World development group, 2017). European Comission recomandation for 2016, in Italy contains the following:´´ When taking policy action, consideration should be given to achieving a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the sustainability of Italy’s public finances. ´´ (European Commission, 2017).

2.4. The location paradox in globalisation era

Paradoxically, then, the most enduring competitive advantages in a global economy will often be local.Understanding the state of clusters in a location provides important insights into the productive potential of its economy and the constraints on its future development.(Porter, 2008). It seems that the 500 Florence's representative centers for the skin processing cluster, are the only ones to increase compared to clusters localizated in the rest of Italy, for example, where unexpected losses have been recorded since 1995 and are not a single case in the branch , Italian leather clusters are confronting with a period of reorganization. The homogeneity of comercial zones is one of the secrets of cluster success, although its evolution may be unexpected, the doctrine in the field being unable to provide a successful formula, precisely because of the variations in practice. There are 11 clusters in the marketing and production of skin in Florence, including Ferno-Ascollo and Gucci (Randelli and Lombardi, 2013).

§ CHAPTER III. EVOLUTION OF THE CLUSTER

3.1. Cluster development

We are in one of the three beating hearts of the Italian leather industry, Down south, near Naples, is Solofra, Up north near Venice is Arzignano, its leathermaking history going back to the 15th century, its big tanneries turning out leather for upholstery and car interiors. Here, in between, on the dusty Tuscan plain between Pisa and Florence, is Santa Croce, home to perhaps 500 mostly smaller tanneries (Katsioloudes and Hadjidakis, 2007).

This is Tuscany, yes, but not the Tuscany of the tourists, who are more apt to be found admiring Brunelleschi's Dome in Florence or slogging their way across Pisa to the Leaning Tower; tew stop at the tiny San Miniato station where, after taking the Florence-bound local from Pisa, past ragged residential districts anti irrigation canals, stopping at little towns every few minutes, you get off to visit leather country. In Santa Croce itself leathermaking mostly means chrome. But across the Arno and down the road a few miles is Ponte a Egola, the hub within a hub ofltalian veg-tanning. The great wooden drums revolve just as they do for the chrome tanners across the road or outside town. Conveyors silently lift finished hides through second-floor drying rooms. But as we saw many chapters earlier, and as the Consorzio rakes pains to highlight, veg-tanning makes for a not-so- subtly different leather. On a map of Italy the Santa Croce area covers no more than a dot- 100 square miles, a tenth the size of Rhode Island, But within this area, more than 15,000 people work in leather. Tanneries signs for conceria, tannery, leather, areon every corner. No sprawling complexes here; these are mostly small operations, maybe a dozen employees each, none more than a minute or twos drive from its neighbors; the midday traffic-a double rush hour in siesta-hungry Italy—is crowded with tannery workers(Kanigel, 2007). Competitive advantages come from the creation of an "irresistible force for innovation” in a concentrated geographical region, structured around "clusters of concentrated groups of rivals". The Italian footwear market is based on sophisticated demand, world-class suppliers, a deep personal commitment to the footwear industry and intense domestic rivalry. For the Italian footwear industry to face present growing competition and maintain its national advantages many argue that Italian firms need greater scale to compete and the possibility of "rightsizing", increasing size through mergers, has been suggested.The strength of the Italian leather industry stems from its productive excellence in fashiondominated markets and the traditional close cooperation between small units. G.Maria Dalla Colletta objects to this option on the bases that internal merging could eliminate effective competition and suggests three alternatives: to find a new form of supply chain; to improve research infrastructure for the national industry through contracts between associations, universities and institutes and promote mergers and acquisitions abroad. The footwear industry in Florence has demonstrated how a 'traditional' industry can be transformed and how competitive advantages can be upgraded. Footwear success cannot be restricted to style and design according to G. Maria Dalla Colletta In most cases, style has been accompanied by aggressive investment in advance technology manufacturing equipment to improve product lines within the limits of competitive costs. The latter, argues the author, would promote strong domestic rivalry among firms who compete globally and would create a powerful and sustainable competitive advantage(USA International Business Publications, 2009). Stricter environmental regulations and a growing demand for high quality soft leathers in garments and upholstery are accelerating the pace of technological change. In turn, technological modernisation is encouraging relocation to designated areas where facilities for effluent treatment can be shared with other industries; it also promotes integration with slaughterhouses. On the other hand, the need for securing stable supplies of top quality hides promotes integration with sheep or cattle raising. Leather manufacturing follows a different set of guidelines. It is, in general, much more capital-intensive than the manufacturing of footwear and leather goods — and increasingly so as environmental pressure and other factors lead to a greater use of new technologies. As a result, decisions to relocate tend to be prompted by considerations regarding access to stable, good and relatively cheap supplies of raw materials, favourable access to end-use markets, and cost of capital, rather than labour cost. Environmental regulations and associated costs of effluent treatment have proved to be an insufficient and inadequate criterion for relocation – contrary to what some leathermakers and observers believed until recently (International Labor Organisation, 2012).

3.2. Role of Government Policy

While the typical manufacturer in high-wage countries is attempting as far as possible to escape cost competition, the bulk of footwear and leather goods manufacturing continues to relocate and subcontract according to cost competitiveness, which is largely determined by the costs of labour and leather (MacLean, 1923). Both these components account for at least one-third of total production costs in average European conditions, but in Although this methodology does not sort out all possible categories of successful performance, it does none the less identify the best performers among the rest. Those countries which had rising export volumes with rising unit export values were: Germany (Federal Republic), India, Japan, Italy in light leather; and China, Germany (Federal Republic), Indonesia, Italy and Spain in leather footwear; but Italy drops out of this category if its export volumes are averaged for the 1983-89 period instead of the 1980-87 period (Austin, 2014). However, successful export performance can be found among countries which have had a trade-off – as a result of a strategy in some cases – between volume and unit value of exports: France, Portugal, Brazil and the United States in both light leather and footwear, as well as Mexico and the United Kingdom in light leather. Germany (Federal Republic) and France labour is at least 55 per cent of the total.Since raw material accounts for 50 to 70 per cent of production costs, the growth performance of the leather industry will continue to depend mainly on uncertain trends in prices of hides and skins, which are partly determined by the markets of beef and lamb. The future structure and relocation patterns of the leather industry are thus more difficult to predict than those of the footwear industry. In developed countries, the surviving tanners are likely to become more vertically integrated than in the past. Producing the same athletic shoe, using the same technology, would cost a manufacturer in Italy about twice as much.

§CONCLUSIONS

Florence has retained its image of the most appreciated area of ​​the skin industry during the Renaissance until now. It is an area with rare economic potential. At first glance, due to its tourist attraction and cultural reputation, it seems an unlimited resource for those who want to develop a business. Through this study, however, we have proven that appearances can deceive. Competition between manufacturers is cranked, even if the buyer's resource is varied and diversified, from medium to limited, to the luxury customers. This cluster was analyzed by the SWOT technique and presented its political influences and resistance to the globalization factor. This area remains an elitist cluster following our research, which respects the authenticity desired by our clients. Imports are limited only to keep the region's theme in raw materials. Even if it feels weak, due to possible insecurity in its own production, the strategy is maintained for centuries. We chose this theme to look at whether the myth of the leather industry cluster in Florence may have weaknesses or controversy over the losses suffered as a result of a failure in the management strategy. We have come to the conclusion that the big manufacturers, who can compete globally, are so evolved that they allow occasional mistakes that will not bring observable losses.

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