ATTRACTING FOREIGN INVESTMENT IN ITALY: THE COMPETITIVE ADVANTAGES OF THE ICT SECTOR

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1 ATTRACTING FOREIGN INVESTMENT IN ITALY: THE COMPETITIVE ADVANTAGES OF THE ICT SECTOR OVERVIEW Although it began expanding later than in the other European countries, the Italian ICT sector is now growing rapidly, placing at the forefront of developments in Europe in telecommunications (especially mobile telephony) and swiftly gaining ground in information technology. This progress has moved into what the OECD calls the Medium ICT Intensity group of countries, together with, among others,, Japan and the Netherlands and ahead of Germany. A fast growing market The Italian ICT market is estimated to have grown by 12.8% in 2, the fastest pace in Europe after Greece and Spain. In 21, this will place the Italian market in fourth place by size (at a forecast 67.5 billion), trailing the United Kingdom, Germany and. A highly-trained labour force offers a vast pool of young, well-educated workers. In alone, universities are expected to turn out some 5, new professionals in technology sectors. firms investing in. High innovation rate Investment by ICT firms is increasing steadily, as is R&D spending, which according to the OECD accounted for 27% of all R&D Germany spending by Italian firms. ICT market by country 21 (million euro) Spain Netherlands TLC Productivity - Ratio of value added to employment in ICT Sector (thousand of PPP$*) IT Sweden Switzerland Fonte: EITO High productivity With value added of more than $8, per employee, has Europe s highest productivity in the sector after Germany. Low labour costs Korea United States Germany Canada Belgium Japan Australia Netherlands Finland Sweden Fonte : OECD Relatively low labour costs, high flexibility and low turnover rates are major advantages for * PPP: Purchased Power Parity

2 KEY FIGURES Share of GDP 2: 5.5% Per capita ICT expenditure 2: 1,65 The fourth market in Europe ( 67.5 billion forecast for 21), with growth of 12% Trade in ICT hardware 1999: Total imports: Total exports: Trade deficit: billion 4.93 billion 4.87 billion 61,774 firms Total number of sector workers 1999: 441,522 (2.1% of total workers) Second-highest productivity per worker in Europe 1997: value added/employment $8,2 (PPP) Largest number of mobile subscribers in Europe: 42.5 million in 2 A dynamic and consolidating TLC market : IMD Competitiveness indicators range: 1 (highest) - 47 (lowest) Overall Productivity (PPP) : 4 Total gross domestic investment :7 Cellular mobile telephone subscribers: 5 Securing patents abroad: 7 Patents granted to residents: 7 Pupil teacher ratio (prim. education): 2 Pupil teacher ratio (second. education): 9 List of Countries in ICT Intensity Groups High ICT Intensity countries Medium ICT Intensity countries Low ICT Intensity countries Finland Austria* Australia Hungary Canada Belgium Ireland* Denmark* Czech Republic Korea Germany Sweden Greece* New Zeland* United Kingdom Iceland* Poland* United States Portugal Japan Spain* Mexico* Turkey* Netherlands Norway Switzerland* * Not all data items are available Source : OECD, Measuring the ICT Sector, 2. 5 Gross salary per employee in ICT Sector (Thousand USD per year) Fonte : OECD Portugal Finland Sweden Ireland Austria Japan Denmark USA Belgium

3 THE COMPETITIVE ADVANTAGE OF SOUTHERN ITALY IN THE WORDS OF LEADING INVESTORS "...Catania has all the ingredients to become a significant high-tech phenomenon and is developing fast". "...Catania has become the most competitive place in Europe for high-tech investments". "...In India, engineers cost less, but turnover is as much as 25 per cent. Those guys stick thier CV on the internet and "ciao". In California, turnover is about 18 per cent. Here in Catania it now averages 6-7 per cent." Pasquale Pistorio, Managing Director of ST Microelectronics The conditions that make the South such an attractive option are the high level of university education, the high percentage of school-age young people in education and the availability of qualified personnel, which is greater in the South than in the North. Looking back one year after our arrival in Agnano, we would certainly choose Agnano again if we had to. Today, more than 2 young people are working to create solutions that can be exploited at the international level. The expectations set out in our original plans have been met and there is nothing on the horizon that could hinder future programmes. sco Emiliani, Managing Director of Sema Group in Graduates from universities in the South have the same high level of preparation as their counterparts in the North. For Alcatel, the professional skills of its human resources are of strategic importance and we handle the specialised training of our new hires directly. Multinationals are increasingly interested in southern, first and foremost thanks to the ready availability of human resources, who in addition to being well-trained are also very loyal towards their employers. Samy Gattegno, Managing Director of Alcatel Italia.

4 THE ITALIAN MARKET The Italian ICT market is estimated to have grown by 12.8% in 2, the fastest pace in Europe after Greece and Spain. In 21, this will place the Italian market in fourth place by size (at a forecast 67.5 billion), trailing the United Kingdom, Germany and. The vibrancy of the Italian market is also signalled by the strong performance of imports, which are increasing steadily and rapidly, and the consequent deterioration in the sector s trade balance, which registered a deficit of about 4.87 billion in Imports account for 5% of domestic demand, while exports account for 4%of domestic production. 642 ICT per capita expenditure (Euro) 725 ICT firms in In 1999 there were 61,774 ICT firms in, an increase of 6.4% on Most of these (72.6%) operate in the software and services segment of the industry, accounting for the largest share of employment (48.1%). This was followed by firms in hardware and technical assistance (12.6% of firms and 11.9% of workers), indirect operators (12% of firms, 7.1% of workers) and finally telecommunications services and equipment (just 2.7% of firms but fully 32.9% of sector employment). There have been interesting developments in the breakdown of firm numbers by segment. While hardware producers increased in the early 199s before turning downwards in the Source : EITO middle of the decade, telecommunications services and equipment firms recorded a strong acceleration between 1996 and 1997, following the liberalisation of the industry. Software and services firms accelerated in the first half of the 199s before easing to a more linear growth trend. THE LABOUR MARKET In as elsewhere the ICT sector has played a driving role in employment growth in recent years. Employment rose by 4.8% in 1998 and 3.7% in 1999, to stand at 441,522. The largest proportion of workers have jobs with software and services firms, which in 1999 employed nearly 5% of total sector workers, followed by telecommunications services and equipment firms, with 33%. As regards the geographical distribution of sector employment, the 1996 ISTAT census reveals that more than a fourth is located in Lombardy, followed by Lazio with 15% and Piedmont with 1%. It is no coincidence that these regions are home to s three largest economic centres (Milan, Rome and Turin), which account for 7-8% of total ICT employment in each region. The three leading regions are followed by Campania and Abruzzo, which are increasing their specialisation in the sector, as measured by ICT employment as a proportion of total employment. s strong points The availability of appropriately trained professionals is a key factor in competitiveness in the ICT sector. Faster sector growth depends on ensuring an expanding pool of increasingly qualified staff, needed to keep pace with demand. Shortages of specialised skills are an obstacle to development because they raise labour costs and make it more difficult for firms to find the necessary human resources. Compared to other European countries enjoys a clear competitive advantage in this area thanks to its large pool - especially in the South - of young, well-educated, flexible workers with a low turnover rate.

5 THE SOUTH OF ITALY: AN IDEAL LOCATION More and more ICT companies are discovering the South of as one of the most convenient areas in Europe where to invest. In a sector where availability of skilled human resources represent the main constraint, this part of is emerging as a front runner in terms of investment The Italian IT market by geographical areas: growth rates opportunities. Thanks to low labour cost, skilled labour force, low turnover rates, growing 12,3% 11,9% 1,9% involvement of local universities and fiscal incentives such as the new tax credit mechanism clusters of firms are growing in 8,7% Naples, Caserta, Bari, Palermo, Catania and Cagliari. Leading Italian and International that have chosen to locate in these areas are: Alcatel, EDS, Ericsson, Siemens, HP, IBM, Omnitel, Sema, Bull, Philips, Nortel, Getronics, STMicroelectronics, Tiscali, Nokia, Marconi Communications, Telecom Italia, Wind and Infostrada. Source: Assinform/Netconc. North West North East Centre South and Islands Long university graduates by country 1998 (per 1 inhabitants aged 24-3) Belgium Portugal Germany Qualified labour force has one of Europe s highest shares of students in the 24-3 age group who have earned a first-level university diploma. The number of full university degrees awarded has also increased steadily, rising by 4% from 92,539 in 1993 to 129,167 in In particular, there has been a jump in the number of university degrees awarded in the disciplines of greatest interest to ICT firms, i.e. engineering and economics and statistical fields. The share of graduates in engineering rose from 8.3% in 1993 to 11.8% in The share of university students enrolling in the Austria Spain Fonte: OECD 147 full degree courses and 78 diploma courses in technological or scientific fields is also rising, from 15.3% in to 19% in The university system of diploma courses is paralleled by post-secondary school training courses as an alternative to degree programmes. One recent addition is the system of Advanced Technical Education and Training courses (IFTS), which are intended to train intermediate-level staff such as technicians, professional managers and qualified operators who can be quickly integrated into firms in a system that meets European standards. There are already 56 active courses to train experts in telematic and information technology applications, and the number of programmes is set to increase. An IDC study estimates that some 56, technology professionals will be trained in 21-22, nearly twice current levels. Of these, 5, will complete university programmes and the remainder will come from IFTS courses. Corporate investment in IT training is also rising sharply. In 1999, spending increased by 1.2% to more than 557 million. Forecasts indicate that this growth will strengthen further

6 in the coming years, with spending on training expected to rise to nearly 775 million in 22. Low labour costs Relatively low labour costs are another important attraction holds for foreign investors. According to the OECD, in wage and salary levels per employee in the ICT sector are significantly lower than in all other European countries, except. A recent survey also shows that, considering the minimum salary, network engineers and senior programmers cost less in than in every other industrialised country. Flexibility and low turnover An analysis of employment developments over the period between 1991 and 1999 shows that the use of innovative contracts has increased, boosting the flexibility of the labour market. Although the market is becoming more and more dynamic, the propensity of Italian workers to change jobs remains low: between 1993 and 1999 the share of highly-qualified employees working in the same firm for more than 5 years remained at about 62%, while the figure rises to 7% for technicians. This behaviour has a beneficial impact on staff costs, as firms find it easier to retain the people they have trained. Total salaries - 2 (USS$ thousands) Network Engineer Senior programmer minimum salary minimum salary Japan 49 Japan 46 US 44 US 41 Norway 3 Norway Netherlands 29 Netherlands 26 Denmark 25 Denmark 24 Belgium 24 Belgium 22 Germany 23 Germany 22 Ireland Ireland 2 Sweden 21 Sweden 19 Finland 21 Finland Source : OECD, IDC, EITO, Assintel

7 Leading ICT companies operating in Turin Datamat Lucent Technologies Omnitel Telesoft Engineering Marconi Communication Oracle Wind Telecomunicazioni Etnoteam Motorola Philips Gruppo Formula Nortel Networks Sun HP Italia Olivetti Tecnost Tecnosistemi 2 - Milan Albacom Gruppo Formula Nokia Italia Sun Alcatel Italia HP Italia Nortel Networks TC Sistema Bull HN Information System Italia IBM Italia Omnitel Pronto Italia Tecnosistemi Datamat Infostrada Oracle Telecom Italia e.biscom Italtel Philips Telesoft EDS Italia Lucent Technologies Italia Sema Group Wind Telecomunicazioni Engineering Marconi Communication Siemens Informatica Ericsson Telecomunicazioni Motorola Sony Italia Etnoteam NCR Italia St Microeletronics 3 - Padua 4 - Genoa 5 - Bologna Engineering Engineering Datamat HP Italia Gruppo Formula Etnoteam EDS Italia Oracle HP Italia Marconi Communication Engineering Omnitel Pronto Italia Tecnosistemi Ericsson Telecomunicazioni Oracle Etnoteam Sun Gruppo Formula 6 - Rome Albacom Italia Gruppo Formula Motorola Sun Datamat HP Italia Nortel Networks Telecom Italia EDS Italia IBM Italia Omnitel Pronto Italia Telesoft Ericsson Telecomunicazioni Lucent Technologies Oracle TIM - Telecom Italia Mobile Etnoteam Marconi Communication Sema Group Wind Telecomunicazioni 7 - Caserta 8 - Naples Alcatel Italia Etnoteam Marconi Communication Telecom Italia EDS Italia HP Italia Omnitel Pronto Italia Telesoft Marconi Communication IBM Italia Sema Group Wind Telecomunicazioni Siemens Infostrada Siemens Getrnics Solutions Italia IPM Group Tecnosistemi 9 - Avellino 1 - Bari 11 - Cagliari Bull HN Information System HP Italia IBM Italia Datamat IBM Italia Tiscali Italdata Philips Siemens Informatica EDS Italia 12 - Palermo 13 - Catania Engineering Sema Group Alcatel Italia Nokia Italtel Tecnosistemi Canon Omnitel Nortel Networks Getronics Solutions Italia STMicroelectronics