Micro-enterprises dominate Italian economy despite productivity challenges

While 94.8% of Italian companies are micro-enterprises with fewer than 10 employees, the nation's unique industrial cluster structure allows medium and large firms to achieve per capita productivity exceeding 90,000 euros.

The bubbling sound of a Moka Pot, created in 1933, symbolizes daily life in Italy. The maker of this tool, Bialetti, is a representative Italian family business founded in 1919. Developed by founder Alfonso Bialetti, who drew inspiration from his wife's laundry methods, this innovative tool serves as a symbolic example of Italian craftsmanship and technical skill.

The background of Bialetti's creation is intriguing. Alfonso Bialetti, who had mastered aluminum casting techniques, wanted to enjoy espresso at home that was otherwise expensive to drink in cafes. He took hints from a "receiver"—an aluminum container his wife used for laundry—and its chimney-shaped device. He applied the principle of heating soapy water so that steam travels through a tube to spray water to the process of coffee extraction. This innovative tool was first developed in 1933, and later, his son Renato Bialetti utilized exceptional marketing skills to establish it as a national brand in Italy. The Bialetti character is still engraved on products today, and the items are reportedly so durable that they can be passed down through generations.

However, the case of Bialetti compactly illustrates the structural limitations facing the Italian economy. Bialetti faced a crisis in the early 2000s coinciding with the rapid growth of the capsule coffee market. Attempts to diversify by developing proprietary capsule machines and other products failed to yield results, eventually leading the company to the brink of bankruptcy. The traditional method of maintaining management rights through generations as a "family business" clashed with the changing global market environment, eventually forcing the company to seek external capital. Ultimately, Bialetti was sold last year to NUO Capital, a Hong Kong-based private equity firm. NUO Capital is an investment company involving descendants of a Hong Kong shipping family and the Hermès family; it is currently reviving the company by establishing new leadership through collaborations with global brands such as Dolce & Gabbana and Squid Game.

Eo Ye-jin, director of the Haedam Economic Research Institute, analyzed on Understanding: All the Knowledge in the World that the core of the Italian economy is a "collection of small but strong companies." As of 2023, 94.8%—approximately 95%—of Italian companies are micro-enterprises with fewer than 10 employees. Large companies with 250 or more employees account for only 0.1%, estimated at about 4,500. Family businesses account for 85% of all companies in Italy, and even among medium-sized companies with annual sales of at least 20 million euros (approximately 30 billion won), 66% maintain a family management system. These businesses are responsible for more than half of Italy's national employment. In fact, according to 2024 statistics, the employment share of small businesses with fewer than 20 employees exceeds 52%, a figure overwhelmingly higher than Germany (28%), France (34%), or the EU average (less than 40%).

Small in scale but overwhelming in productivity, competitiveness created by "clusters"

This structure in Italy appears to be a hindrance to economic growth at first glance. Indeed, at the stage of small businesses with fewer than 20 employees, Italy's labor productivity per capita is in the 40,000 euro range, which is lower than in Germany, France, and even the EU average. However, there is a reversal. When the company size is expanded to medium or large enterprises with 50 or more employees, Italy's per capita productivity exceeds 90,000 euros, ranking first and surpassing both Germany and France.

This is due to Italy's unique "industrial cluster" structure. Italy possesses a structure where small companies with skilled expertise in specific industrial sectors—such as textiles, leather, furniture, and machinery—gather in regional units to cooperate horizontally. While the government in the past directly fostered large-scale industries like steel, energy, and shipbuilding, private family businesses grew by focusing on specialized technology and high-value-added products. As a result of the accumulation of handicraft traditions dating back to the Middle Ages and commercial development centered on city-states, individual companies remain small, but entire towns form a massive industrial ecosystem that provides strong competitiveness to the global market. This is a point of differentiation from the SME structure in Korea, which has developed a vertical subcontracting structure centered on large corporations.

The trap of "family management" and labor structure hindering growth

The problem is that this "small but strong" structure hinders sustainable growth. To maintain management rights, family businesses are extremely reluctant to attract external capital or conduct initial public offerings (IPOs). Rather than growing into large corporations, they choose to maintain current profits and preserve family control. This becomes a factor that slows down entry into new industries and innovation.

Structural institutions also tend to induce companies not to increase in size. In Italy, provisions that make it difficult to dismiss workers primarily apply to businesses with 15 or more employees. This causes companies to prefer maintaining small forms of fewer than 10 or fewer than 15 employees to reap "lucrative profits," rather than expanding in size and bearing the burden of employment. In other words, even if companies want to grow more, a tendency appears to avoid regulations by splitting their size to remain small. Consequently, the Italian economy is caught in a dilemma where it possesses the ability to make world-class products but shows limitations in growing them into global large corporations.

Youth unemployment and brain drain, future challenges for the Italian economy

The family-centered, small-scale economic structure also leads to social problems. As companies focus on maintaining their size and stop growing, labor productivity stagnation and youth unemployment are intensifying. The phenomenon of talented personnel leaking overseas continues as they are unable to flow into innovative new industries. The core dilemma of the Italian economy is that while it has excellent ability to make world-class products, it has limitations in growing them into world-class large corporations.

Ultimately, the future task of the Italian economy depends on how to expand the scale of companies by accepting external capital and innovative technology while maintaining traditional craftsmanship and the values of family management. The way Bialetti is seeking a new breakthrough through collaborations with global brands after being sold to a private equity firm suggests the necessity of change that Italian companies must face for survival.

Source: original video (YouTube)