Supply chains in the new megatrends: the case of the Veneto Region

The competitive capacity of manufacturing has long been inextricably linked to the globalisation of supply chains, sometimes demonstrating fragility during global crises. What are the main trajectories conditioning industrial evolution for those regions with a strong manufacturing vocation?

Globalisation has not only been an era of market liberalisation and increased international trade, but also a period of change in the forms of competition and production strategies of companies. The best known and most discussed transformation is the fragmentation of production chains and the internationalisation of supply chains. However, it is not the only one. Somewhat mirroring the globalisation of value chains, an increasing specialisation of manufacturing companies towards a circumscribed and company-specific set of technologies and skills has been observed.

The Veneto region’s economy is known worldwide as a quality manufacturing platform serving important global value chains and as a destination territory for tourist flows that, before the pandemic period, were in constant growth. Precisely these two peculiarities have led the “Veneto platform” to be involved in an evolutionary process that is gradually changing its basic structure.

Small and medium-sized enterprises employ 77.2 per cent of the workforce and account for 99.8 per cent of the companies in industry and services: these numbers make SMEs a salient feature of the Veneto economy and reflect traditions and entrepreneurship that are widespread in the region. Not surprisingly, it is estimated that there is one entrepreneur for every ten inhabitants in Veneto.

A portrait of the composition of companies and recent trends show us how, alongside a few (few) large industrial players once capable of driving networks of local suppliers (with positive effects on the productivity of entire supply chains) and today at the head of diversified multinational groups with production sites and suppliers abroad, there are countless companies of smaller size but leaders in the industrial supply of semi-finished products, machinery and components. Despite their small size, the market recognises interesting levels of added value, which has made them attractive in the eyes of foreign multinational groups and private equity funds attracted by the returns these companies are able to generate. Furthermore, there is the case of mechanical engineering companies operating in the automotive components, plastics technology and industrial machinery sectors in particular, which have developed specific skills and perform R&D functions in their fields of activity. Similar situations can also be found in the food sector where, alongside companies with a prominent role on the national market, there are many small companies specialising in various export products such as wine, pasta, dried pulses, bakery products, edible oils or in industrial chemistry and emerging sectors such as medical and pharmaceutical packaging and, last but not least, the fashion sector which has added innovation and design to the traditional quality of materials and packaging.

An additional characteristic element of Veneto industry has over time become the focus on contract supply roles also in the area of product and process innovations, and this has partly influenced the tendency towards a slowdown in GDP growth rates and productivity that has occurred in recent years. The sectoral dynamics of enterprises also confirms, as in the national context, the trend towards the tertiarisation of production activities. In the last ten years, also in Veneto the manufacturing base has been shrinking, while the relationship activities have grown: even in the industry, new employees have often been placed in in-coming logistics (i.e. in the management of materials and components arriving from suppliers located all over the world) and in out-coming logistics (i.e. in the management of product and service flows to customers located in global value chains also scattered all over the world) rather than in the classic production lines.

To sum up, in Veneto the ability of manufacturing to evolve competitively, as in other European regions, is largely linked to three factors:

1. Rapid repositioning in global markets – both in terms of commercial opportunities and “supply”.
2. The timeliness and quality of investments in technology, automation and digitisation and the consequent speed in reconfiguring processes to make them more efficient and products with an increase in the value offering also related to design.
3. The endowment of technology, even redundant with respect to immediate needs, which becomes a competitive factor. investment in technology reserves, human capital and stock of applied knowledge that enables the company to take action to rapidly reconfigure the business model.

Indeed, in a global, fragmented and interdependent production system, companies tend to specialise in the products they offer, to circumscribe the market segments in which they are present and to delimit the perimeter of the technologies they use. Operating on a narrow technological basis undoubtedly brings advantages in terms of efficiency and control of the evolution of technical progress. On the other hand, however, it reduces the ability of companies to react and adapt to market fluctuations and the ever more frequent crises, whether pandemic, international conflicts and/or climate-related crises.

Moreover, the advent of large digital platforms (both in the production and distribution chains and in consumption) has allowed the most dynamic small and medium-sized enterprises to have access to efficient channels of communication and interaction at a distance, which were once reserved for large multinationals established in several countries. As a result, innovation on the digital and global terrain today is no longer the monopoly of the very large corporations, but sees an increasing presence of start-ups and small businesses devoted to the creative exploration of the unknown.

New business models are taking shape in every sector that capitalise on the trans-territorial experience proposed by the digital revolution. The business models that had been shaped on an experience thickened in the local circuit are changing, because the functions once thickened in the districts are distributed on three levels (different and complementary) that go beyond the local horizon, bringing together:

• The active presence of one or more creative clusters where new ideas take shape and experiments are carried out to be translated into generative knowledge and replicable innovation models;
• Access to the global cognitive network of codified knowledge by mastering the formal languages in which it is expressed (the languages of engineering, computer science, management, accounting, law, communication, etc.);
• Participation in a global supply chain that distributes operational steps and functions among many locations, exploiting their differences in terms of capacity (technical, logistical, innovative, market, etc.) and cost (for labour, energy, taxes, environmental constraints, incentives, etc.).

The focus is again on supply chains, as today business have a supply system for assembling complex components starting with raw materials and ending with technologies and services for use up to circular reuse strategies. The scenario is an obvious win-win situation in that on the one hand, supply relationships are consolidated as supply chains that manage high value-added cognitive catalogues for a wide repertoire of companies, and on the other hand, the companies operating in supply chains are the most innovative, the most open to foreign markets and the most likely to invest in 4.0 technologies[1].

Production systems that rely on platforms connected to advanced digital networks are competing around the world, both within large road systems, for instance by exploiting theories of advanced logistics, and within big data ecosystems that can enable SMEs to leverage both their traditional strengths and the modern-day power of data and digital ecosystems to forge a new competitive strategy[2].

Finally, in a broader perspective, the platform model has proved to be a catalyst that attracts and binds school, university, business, culture, new representation in a common vision of the future.

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[1] “Centro Studi delle Camere di Commercio G. Tagliacarne, L’effetto filiera fa bene alle imprese: il 41% fuori dalla crisi già quest’anno”, 17 agosto 2021. Translation by the authors.

[2] “The Future of Competitive Strategy, Unleashing the Power of Data and Digital Ecosystems”, M. Subramaniam, MIT Press, 2022.