Restructuring in SMEs: Italy

Restructurig i SMEs: Italy Click for cotets Wyattville Road, Loughlistow, Dubli 18, Irelad. - Tel: (+353 1) 204 31 00 - Fax: 282 42 09 / 282 64 56 email: iformatio@eurofoud.europa.eu - website: www.eurofoud.europa.eu

Cotets Itroductio Relevace of differet types of restructurig for SMEs Drivers of restructurig Distictive characteristics of restructurig i SMEs Mai challeges ad costraits facig SMEs i restructurig Busiess support from public ad private sources Outcome of restructurig Coclusios ad policy issues Bibliography 1 5 13 15 26 29 31 33 35

Itroductio Small ad medium-sized eterprises are differet from larger eterprises i that they ted to attract less fudig ad therefore ecouter more difficulties i ivestig i techology ad i implemetig iovative techological processes. They also ted to have limited maagerial capacities due to their orgaisatioal ad goverace structure, ad they are characterised by lower productivity. Noetheless, their size also meas that they have greater flexibility compared with their larger couterparts: this implies that SMEs are more able to respod to markets ad customers demads. For these reasos, restructurig i SMEs ca be substatially differet from restructurig i larger compaies. Furthermore, SMEs are, typically, family-ru; i may cases, owership ad maagemet are cocetrated i the same perso. Ofte there is great friedship ad trust betwee the ower ad the employees, as the eterprise is ofte see as a big family. This makes decisios ivolvig job cuts durig restructurig, or eve short-time workig schemes, very hard to make, especially as the etrepreeur ofte views the busiess as a lifetime project where all their time, moey ad life have bee ivested. There is a substatial body of literature o compay restructurig, especially regardig crisis turaroud ad iteratioalisatio. However, there is limited research o restructurig i SMEs, ad most literature about this seems to focus o SMEs iteratioalisatio. Furthermore, i the Italia literature, the defiitio of SMEs does ot always reflect the Europea Commissio s defiitio (eterprises employig fewer tha 250 employees). A umber of studies, for example, refer to medium-sized eterprises as those employig betwee 49 ad 499 people (for example, Mediobaca Uiocamere, 2011). At the same time, much of the Italia Labour Law provisios use 15 employees as a threshold, with medium-sized ad large eterprises beig defied as those employig more tha 15 employees. This implies that observig the effects of support measures by firm size ca be difficult for those eterprises employig fewer tha 15 employees. For these reasos, while SMEs are the backboe of the Italia ecoomy, ad restructurig is a topic of public debate, there is ot ofte explicit referece to SMEs. I particular, ad eve more so i times of recessio, there is quite a aimated debate o what measures ca be used to help firms restructure that have the least effect o employees. Ideed, while there has always bee a public debate o SMEs restructurig ad support i terms of busiess expasio ad iteratioalisatio, the public debate o the kid of restructurig that might egatively affect employmet has bee more promiet sice the ecoomic recessio. This has resulted i the extesio of support measures to SMEs that eable restructurig without impactig o employmet levels. Italia SMEs The Italia ecoomic structure is based almost etirely o micro, small ad medium-sized eterprises (Istat, 2009). I 2009, Italy had over four millio eterprises i idustry 1, services ad costructio, employig almost 17 millio employees, ad with a average size per firm of oly 3.9 employees. I fact, 99.9% of Italia eterprises are micro, medium ad small eterprises employig less tha 250 employees. Micro eterprises (fewer tha te employees) represet 94.8% of all Italia eterprises ad they aloe employ almost half of the total active Italia workforce (47.5%). Micro eterprises have a turover of over 675 millio ad they produce almost oe third of the added value produced by all Italia eterprises. I fact, i order to stress the importace ad icidece of micro eterprises withi the Italia productive system, a umber of studies started to refer to Italia SMEs as micro, small ad medium-sized eterprises, (MSMEs). I Italy there are also 200,000 small eterprises (10 49 employees) employig 3.5 millio employees, producig 617,919 millio i turover ad 141,535 millio i added value. Medium-sized eterprises (50 249 employees) employ over two millio employees, i a total of 21,962 eterprises. They produce a turover of 538,593 millio ad a added value of 102,915 millio. 1 The Italia atioal istitute of statistics ISTAT classifies idustry as ecoomic activities uder miig ad quarryig, maufacturig, utilities. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 1

Restructurig i SMEs: Italy Table 1: Italia eterprises i idustry, services ad costructio, 2009 Number of employees Source: Istat, 2011b. Number of eterprises Employees Average dimesio Turover ( millio) Added value ( millio) 0 9 4,156,913 8,060,699 1.9 675,614 194,288 10 19 144,957 1,899,652 13.1 296,690 69,189 20 49 56,210 1,672,930 29.8 321,229 72,346 50 249 21,962 2,124,303 96.7 538,593 102,915 250+ 3,502 3,202,958 914.6 816,406 191,414 Total 4,383,544 16,960,542 3.9 2,648,532 630,153 Almost all service sector eterprises i Italy are SMEs (there are 3,305,187), employig over 8.5 millio people. Service sector SMEs also employ more people tha SMEs i ay other sector ad produce the largest total turover ( 1,088,257 millio) ad the largest added value ( 249,440 millio). Although the majority of SMEs i costructio are micro eterprises (94.8%), the majority of employees are employed i small eterprises (1,344,635). Large eterprises (250 or more employees) produce the highest turover ( 417,629 millio) ad added value ( 81,014 millio) (Istat, 2011b). Table 2: Italia eterprises per sector of ecoomic activity, 2009 Sector Idustry Costructio Services Number of employees Number of eterprises Employees Turover ( millio) Added value ( millio) 0 9 370,168 1,046,624 100,971 26,517 10 19 48,233 645,125 91,691 23,628 20 49 23,248 699,510 128,928 31,302 50 249 9,936 967,231 259,815 53,082 250+ 1,495 1,109,871 417,629 81,014 Total 453,080 4,468,361 999,035 215,543 0 9 591,475 1,222,707 74,707 28,575 10 19 23,422 302,002 32,244 10,790 20 49 6,861 197,507 28,222 8,007 50 249 1,512 132,012 27,291 7,399 250+ 85 57,129 27,291 4,261 Total 623,355 1,911,357 181,150 59,031 0 9 3,195,270 5,791,368 499,936 139,196 10 19 73,302 952,525 172,755 34,771 20 49 26,101 775,913 164,079 33,037 50 249 10,514 1,025,060 251,487 42,435 250+ 1,922 2,035,958 380,090 106,139 Total 3,307,109 10,580,824 1,468,347 355,579 Source: Istat, 2011b. 2 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy A study o Italia maufacturig SMEs carried out by the Istituto Tagliacare (2011) shows that: 18% of Italia SMEs are ivolved i metal maufacturig; 12.5% are ivolved i food maufacturig; 8.2% are ivolved i clothig maufacturig; 7.9% are ivolved i wood ad woode products maufacturig. Furthermore, SMEs are also domiat i sectors characterised by ecoomy of scale. SMEs represet: 89.3% of the etire pharmaceutical maufacturig; 95.4% of the etire auto-maufacturig; 95.7% of the etire coke productio ad oil refiig; 98.5% of the chemical idustry. I terms of geographical distributio, maufacturig SMEs ted to be more cocetrated i a few regios i the cetre ad orth of Italy, tha i the south. Noetheless, lookig at the specific sizes of SMEs, it ca be observed that, i the south there is a tedecy to establish micro eterprises. For example, i Calabria micro eterprises comprise 93.6% of the total umber of eterprises i the regio, while i Sicily ad i Sardiia these figures are 91.8% ad 91.4%, respectively. However, i orth wester regios, there is a tedecy to establish medium-sized eterprises: while 2.1% of total maufacturig eterprises i Italy are medium-sized eterprises, i orth west regios medium-sized eterprises are 3% or more. I orth easter Italy there is a cocetratio of SMEs ivolved i mechaical maufacturig (37% of the total) ad furiture maufacturig (33.2%). I the south there is a high cocetratio of SMEs ivolved i miig ad quarryig (54%), i food (44.9%) ad beverage maufacturig (45.8%), while i cetral regios there is a high icidece of SMEs ivolved i the maufacture of leather goods (55%) (Miistero dello Sviluppo Ecoomico, 2011). I terms of employmet levels i maufacturig SMEs: the metal products sector employs the most people (17.9%); mechaics (10.5%); food maufacturig (9.7%); clothig (6.7%); o-metallic mierals (5.7%). I terms of geographical distributio, orther regios employ the vast majority of the total workforce employed i maufacturig SMEs. For example, Lombardy employs 25% of the total SME workforce i the coutry. However, it must be uderlied here that souther regios have specialised i activities other tha maufacturig, such as costructio ad particularly services (geerally traditioal). Amog the souther regios, 4.9% of the total maufacturig SME workforce is employed i Calabria ad 4% i Puglia. Noetheless, it is importat to highlight how i souther regios the majority of the regioal workforce is employed i maufacturig SMEs. For example, i Calabria, 97.7% of the total regioal workforce is employed i SMEs. I the orther ad cetral regios, SMEs employ, Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 3

Restructurig i SMEs: Italy i geeral, betwee 60% ad 70% of the total workforce i the regio. This implies that large eterprises have a more importat role i terms of employmet levels i orther ad cetral regios, tha i the souther regios. (Istituto Tagliacare, 2011) Fially, i terms of goverace, a survey coordiated by the Cofidustria s research cetre Cetro Studi (CSC) ad carried out by Demos ad Pi o a sample of 508 maufacturig SMEs associated to the employers orgaisatio Cofidustria shows that: over half the sample (55.1%) are family-ru; owership ad cotrol ted to be cocetrated; decisio makig is more cetralised; goverace teds to stay withi the family eve whe ext geeratios become ivolved i the firm. This survey also showed that: 37.7% of eterprises had fewer tha 20 employees; 32.7% had betwee 21 ad 50 employees; the remaiig 29.6% had more tha 50 employees; over 33% declared a turover of less tha 5 millio i 2010; 14.4% declared less tha 1 millio i turover; 19.9% of SMEs declared a turover of 5 to 10 millio; 27% of SMEs i the sample declared more tha 10 millio i turover (Corò ad Gurisatti, 2011). 4 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Relevace of differet types of restructurig for SMEs Overview Iteral restructurig ca be see as the primary type of restructurig for SMEs as, by doig this, firms ca: reduce costs; apply processes of ratioalisatio; temporarily safeguard employmet levels with the support of the wage guaratee fud (CIG). Durig the crisis, the relevace of iteral restructurig icreased dramatically ad i may cases, whe the procedure did ot reach the set aims, there were mergers ad acquisitios, as well as a rise i bakruptcy ad closures. Not much literature is available o relocatio, as this has always bee see as stadard practice for a firm that wats to reduce costs, although durig the crisis it was observed that a umber of eterprises decided to relocate i order to flee from creditors. Most of the literature o SME restructurig focuses o iteratioalisatio, especially i terms of export ad commercial ad trade agreemets with foreig parters, as strategies aimig at busiess expasio. Also, iteratioal outsourcig is ofte used as a tool for iteratioalisatio either with the aim of expasio i foreig markets or of reducig costs. I order to reduce productio costs, Italia SMEs have also bee quite active i delocalisatio ad offshorig. Fially, a substatial part of the literature available o restructurig i SMEs focuses o eterprise growth, i terms of size ad output via iovatio, access to credit ad growth o foreig markets. Relocatio As briefly discussed above, there is ot a great deal of literature o relocatio, as this strategy has bee ofte regarded as the result of a evet such as a merger or a fusio or a divisio of a eterprise, or simply as ecessary for reducig costs. I the last five years, though, data from the Cerved Group (2010) show that over 70,000 Italia eterprises, of all class sizes, relocated, ad of these the majority were limited liability compaies (58%), followed by idividual compaies/sole traders (24%) ad geeral partership (13%). Furthermore, the data showed that, i the last few years, relocatio has also bee used as a way of escapig creditors. I fact, Cerved s ecoometrical model shows how those eterprises that relocated have a 24% greater chace of goig bakrupt withi a year, tha those that did ot relocate. Moreover, those eterprises that relocated more tha oce withi a year have a 85% greater chace of goig bakrupt tha their couterparts that did ot relocate. Outsourcig Traditioally, outsourcig i Italia SMEs has bee explaied as a strategy to overcome the iheret limits of SMEs size i order to exploit ecoomies of scale. However, this does ot properly represet a restructurig tool. Moreover, there is ot much literature o outsourcig. Results from Cofidustria s Focus Group study carried out by the Cetro Studi Cofidustria CSC (Arrighetti et al, 2011) recorded the experiece of 450 Italia maufacturig SMEs that have implemeted challegig, but successful strategies, highlight that oly 11.1% of SMEs with fewer tha 50 employees, ad 10.6% of SMEs with 50 249 employees have outsourced activities previously doe by the SME. However, it is iterestig to ote that these data show higher figures tha those for larger eterprises i the sample (10.2%). This implies that, i geeral, outsourcig might ot be see as a commo strategy i Italia firms. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 5

Restructurig i SMEs: Italy However, i the cotext of restructurig, outsourcig seems to be quite relevat to Italia SMEs as a tool for iteratioalisatio. Data from the Istituto Tagliacare (2011) o a sample of 602 maufacturig SMEs ivolved i some sort of iteratioalisatio process show that, at the begiig of 2011, almost 30% of Italia maufacturig SMEs said they had implemeted some sort of iteratioal outsourcig process. I this cotext, outsourcig agreemets ca be horizotal (56.7%) whe the SME outsources to its parter compay the distributio of fial goods destied to the ed cosumer. Obviously, these kids of agreemets ca go i the opposite directio (21.3%), whe the foreig eterprise outsources to a Italia parter the distributio of fial goods destied to the ed cosumer. Outsource agreemets are istead called vertical (19.1%) whe the parter compay supplies itermediate goods to be used i the productive chai. I terms of sectors, Meccatroica (Mechaics, Electroics, Trasport) is the oe to have the most outsourcig agreemets (33.2%), compared with 29.8% of SMEs i chemicals ad 25.7% i the Made i Italy sector (clothig, leather goods, textiles, wood ad furiture maufacturig, ad prit). Offshorig/delocalisatio Processes of delocalisatio have bee takig place sice the 1930s, whe FIAT offshored productio of some of its models to Polad ad to the former USSR (the so called Togliattigrad). Piaggio did the same ad still, today, produces its Vespa motor scooters i Idia. Noetheless, these are cases of large multiatioal compaies while the majority of the Italia eterprises are micro, small ad medium-sized. For SMEs, the process of globalisatio has bee implemeted i terms of the iteratioalisatio of their products. This type of strategy rus couter to the traditioal model of placig the factory ext to the cosumer. Istead it looks at efficiecy i logistics ad trasport, fiscal regimes, relevace ad pressure of trade uios, ad the cost of labour. For these reasos, the delocalisatio of Italia firms is low-cost seekig ad cocetrated i those sectors without high added value, ad it is especially used i the textile ad clothig sector. I the 1930s Tusca SMEs started to offshore part of their textile ad leather productio, while i the late 1940s SMEs i the Veeto regio started to offshore productio to Romaia, give they had already experieced iteratioalisatio with its abudat use of Sloveia labour. I both cases, the mai reaso for delocalisatio was to reduce costs. Ideed, SMEs started icreasigly to offshore the simplest ad more labour-itesive phases of their productio to foreig coutries, while the desig, quality cotrol ad trade mark were kept i the Italia uits i order ot to damage the label s public image. I fact, SMEs i Marche ad Tuscay off-shored part of their low ad medium-level productio, while maitaiig their elite productio i Italy. However, SMEs i Veeto off-shored all their productio phases to Romaia. Noetheless, i geeral, it ca be said that 90% of SMEs delocalisatio ivolve labour-itesive, low-ed productive phases (Giusti, 2007). Ayway, due to their small size ad cosequet difficulty i attractig fiacig ad i fidig the ecessary iformatio o legislatio ad bureaucratic processes, Italia SMEs have difficulties i implemetig processes of delocalisatio ad offshorig, ad therefore do ot use these strategies much. This emerges also from the results of the CSC-Demos ad Pi survey (Corò ad Gurisatti, 2011) as 70% of eterprises declared that their trade relatios with foreig markets were limited to the sale of goods, with 25% sayig they buy itermediate goods ad raw materials from foreig markets. Oly 11.8% of the eterprises i the sample said they had created commercial uits abroad, while oly 7.2% said they had created productio uits. I fact oly oe quarter of eterprises i the sample (with more tha 50 employees) said they had a commercial uit abroad, while oly oe sixth had productio uits abroad. Moreover, fewer tha 10% of eterprises said they had implemeted delocalisatio processes ad 70% said they would ot cosider it. Bakruptcy/closure Whe profits start to fall ad eterprises are i difficulty, compaies might be left with o other optio but to close dow or, if uable to repay creditors, to declare bakruptcy. 6 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy Data i the Cerved Group archives (Cerved, 2012) show that, after a declie i the rate of bakruptcies i 2006 ad 2007, due to a reform of the bakruptcy procedures that excluded a sigificat umber of micro eterprises from the provisios of the procedure, the ecoomic crisis resulted i a cotiued ad prologed icrease i the umber of bakruptcies. Betwee 2009 ad 2011 almost 33,000 eterprises, of all class sizes, were declared bakrupt. These eterprises employed over 300,000 workers. Betwee October ad December 2011, there were 3,500 ew applicatios for bakruptcy; 1.9% more tha those recorded i the fourth quarter of 2010. This represets the fifteeth cotiuous quarter i which bakruptcies icreased. I total, i 2011, there were over 12,000 bakruptcies, a icrease of 7.4% compared with the 11,000 bakruptcies recorded i 2010 (that i tur was 19.8% higher tha those bakruptcies recorded i 2009). I 2011 compared with the previous year, bakruptcies have icreased amog all limited liability SMEs. Bakruptcies have icreased by 2.5% i micro eterprises, by 3.5% i small eterprises ad by 6.6% i medium-sized eterprises. Data for 2011 show that the use of Cocordato Prevetivo, a agreemet betwee the etrepreeur ad creditors aimed at avoidig bakruptcy, decreased for all SMEs apart for those small eterprises with a turover of 2 millio to 10 millio, where it remaied stable (0.3%). I particular, the use of this istrumet amog micro eterprises decreased by 22.4% (Cerved group, 2012). I Jauary 2012 a ew law established a ew istrumet to support those micro eterprises ot regulated by the provisio of the bakruptcy law. These micro eterprises i difficulty are ow able to reach a similar agreemet with their creditors (PMI.it, 2012a). I terms of closures, data from the Movimprese database collected from the Chambers of Commerce Uiocamere (Miistero dello Sviluppo Ecoomico, 2011) show that i the first semester of 2011 there have bee almost 232,000 ew eterprises startig up, almost 30,000 more tha the 202,559 eterprises that ceased to exist. It is also iterestig to ote that the umber of those eterprises that closed, although showig a marked icreased betwee 2006 ad 2007, remaied stable ad actually decreased slightly betwee 2007 ad 2010, although it icreased slightly oce more i 2011. Table 3: Growth ad mortality of Italia eterprises, by year Year Registered eterprises* New eterprises Ceased to exist Net 2006 6,125,514 246,755 206,171 40,584 2007 6,123,272 258,754 232,665 26,089 2008 6,104,067 243,179 228,124 15,055 2009 6,085,105 216,248 218,948-2,700 2010 6,109,217 230,400 199,360 31,040 2011** 6,119,975 231,880 202,559 29,321 * It must be uderlied that the defiitio of eterprise adopted by Uiocamere is differet from the defiitio adopted by ISTAT ad for this reaso Uiocamere records about six millio eterprises i 2011 agaist 4.3 millio eterprises recorded by ISTAT i the same year. ** data at 30 Jue,2011 Source: Miistero dello Sviluppo Ecoomico, 2011 However, there are sigs of difficulties for artisa SMEs, as i the first semester of 2011, there were 4,000 fewer ew eterprises tha the umber of those that closed. Nevertheless, it is importat to otice that while, oce agai, the umber of eterprises that ceased to exist remaied quite stable at the peak of the crisis (2007 2009), the umber of closures has decreased dramatically sice 2010 ad resumed pre-crisis values by 2011. O the other had, sice the oset of the recessio i 2007, the umber of ew artisa eterprises decreased dramatically, implyig that the difficulties are due to a decreasig umber of artisa start-ups rather tha to the mortality of existig eterprises. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 7

Restructurig i SMEs: Italy Table 4: Growth ad mortality of Italia artisa eterprises, by year Year Registered eterprises* New eterprises Ceased to exist Net 2006 1,483,957 67,831 68,746-915 2007 1,494,517 78,019 74,017 4,002 2008 1,496,645 71,365 74,095-2,730 2009 1,478,224 61,160 75,692-14,532 2010 1,470,942 62,316 70,331-8,015 2011** 1,464,322 64,292 68,493-4,201 * It must be uderlied that the defiitio of eterprise adopted by Uiocamere is differet from the defiitio adopted by ISTAT ad for this reaso Uiocamere records about 6 millio eterprises i 2011 agaist 4.3 millio eterprises recorded by ISTAT i the same year. ** data at 30 Jue, 2011 Source: Miistero dello Sviluppo Ecoomico, 2011 It is also importat to uderlie that the Movimprese database, compiled ad maaged by Uiocamere, collects the details of registered ad closed eterprises by sector ad geographical distributio, regardless of their size. However, give the high promiece of micro, small ad medium-sized eterprises i the Italia system, these data ca be a good idicator for micro eterprise ad SME developmets. Mergers ad acquisitios Merger ad acquisitios are ways of restructurig, both for expasio, as they eable eterprises to grow, eve with a lack of liquidity, ad for compaies i crisis, as they allow a more ratioal use of facilities ad as a result a better distributio of fixed costs. There is ot much literature o the relevace of mergers ad acquisitios for SMEs as they seem to be used more by larger eterprises, especially the acquisitio of foreig compaies. Results from Cofidustria s focus group study (Arrighetti et al, 2011) show several iterestig comparisos. Oly 6.2 % of SMEs with fewer tha 50 employees ad 14.8% of SMEs with 50 249 employees have acquired foreig compaies operatig i the same or similar sector (compared with 46% of larger eterprises). Oly 11.1% of SMEs with fewer tha 50 employees ad 19% of SMEs with 50 249 employees have acquired a Italia compay operatig i the same or similar sector, compared with 27% of larger eterprises. Oly 14.8% of SMEs with fewer tha 50 employees ad 10.6% of SMEs with 50 249 employees have established a partership with other Italia compaies, compared with 15% of larger eterprises. Oly 12.3% of SMEs with fewer tha 50 employees ad 14.8% of SMEs employig 50 249 employees have established parterships with foreig compaies, compared with 28% of larger eterprises. Most of the literature o the topic seems focused o joit vetures ad aggregatios of activities or projects, especially as a growig strategy i iteratioalisatio, rather tha o firms mergers/acquisitios. 8 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy Iteral restructurig As already discussed, give the promiece of the Italia system of social shock absorbers i the maagemet of the restructurig process, iteral restructurig appears to be the first strategy i cases of restructurig ot characterised by busiess growth. I fact, by iterally restructurig, eterprises ca try to reduce productio ad workforce costs, while maitaiig their workforce. The curret ecoomic crisis has hit Italia SMEs hard. Betwee 2007 ad 2009 their turover decreased by 12%, ad despite a improvemet i 2010 (+4.4% for medium-sized eterprises), their turover is still at 2007 levels. Micro ad small eterprises were the hardest hit. As a result, i order to compesate for the loss of reveue, SMEs implemeted restructurig processes aimed at reducig costs icludig labour costs via iteral restructurig (Romao ad Schivardi, 2011). I order to facilitate eterprises eed to restructure, the Italia system provides for social shock absorbers based o a wage guaratee fud (Cassa Itegrazioe Guadagi, CIG), which allows eterprises facig difficulties to reduce temporarily the umber of worked hours, while preservig employmet umbers. Employees i CIG receive a wage supplemet for the o-worked hours. CIG, the mai istrumet available, is maaged by the Natioal Social Security Istitute (INPS) ad maily used by eterprises with more tha 15 employees i the maufacturig ad costructio sectors. The system operates two differet schemes: the ordiary wage supplemet (Cassa Itegrazioe Guadagi Ordiaria, CIGO) ad the extraordiary wage supplemet (CIGS), the latter specifically aimed at eterprise restructurig, with the alterative of the solidarity cotract (Cotratto di Solidarietà). A secod system aims at maitaiig jobs i the small busiesses ad craft sectors, which do ot have access to the CIG system. These bilateral bodies (eti bilaterali), joitly maaged by social parters, pay specific subsidies, as a itegratio to the uemploymet beefit, to workers i the evet of workig hours reductio or suspesio, with the cotributio of the Employmet Fud maaged by the Italia Miistry of Labour ad Social Policies (Salvatore, 2010). The CIG proved to be a very effective tool i terms of meetig the eeds of compaies facig difficulties, as it eables compaies to udertake restructurig while retaiig jobs, at least i the short ru. Data from ISTAT show that the use of CIG has differed quite otably for firm size, ad hours of CIG have icreased more rapidly i larger eterprises (500+ employees) tha i smaller eterprises (10 499 employees). I particular, large idustrial eterprises reached a peak of 116 hours of CIG for 1,000 hours worked i the secod trimester of 2009, while i the secod trimester of 2010 the value wet dow to 80 hours of CIG for 1,000 worked hours. Smaller idustrial eterprises implemeted a more gradual use of the CIG up util ed of 2009 (facilitated also from the extesio of applicability of the CIG, especially of CIG i derogatio, CIGD), reachig a level of 80 hours of CIG for 1,000 hours worked by the last quarter of 2009. By the ed of 2009, the use of CIG started to decrease ad by the ed of 2010 it stabilised at a level of 50 hours of CIG for 1,000 worked hours. CIG is geerally less used i the service sector ad, up to the third quarter of 2008, o average oly two hours of CIG for every 1,000 hours worked were used. However, by ed of 2008, the use of CIG i the service sector started to icrease, although this stabilised i 2010. The icidece of CIG icreased firstly i large eterprises: from a average of two hours of CIG for 1,000 worked hours, by the third quarter of 2008, to eight hours of CIG i 2009 ad 2010. Smaller eterprises resorted to CIG more gradually but, due to the extesio of CIGD, implemeted i the secod half of 2009, smaller eterprises resorted i 2010 to usig more hours of CIG tha their larger couterparts (Istat, 2011a). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 9

Restructurig i SMEs: Italy Busiess expasio Although restructurig processes have bee traditioally associated with job losses, restructurig, as uderstood i this project, ca also have a positive aspects ad result i busiess expasio. Results from Cofidustria s focus group study (Arrighetti et al, 2011) outlie that the large majority of SMEs have a strog desire for growth as they believe it is crucial for: obtaiig more resources for research ad developmet ad iovatio; acquirig a stroger presece i foreig markets. Growth ad chage are particularly ecessary for micro ad small eterprises with 32.1% of them statig that it was ecessary for their survival, ad 18.5% of them statig that it was ecessary i the log-term i order to guaratee their competitiveess. Moreover, 26.1% of medium-sized eterprises (50 249 employees) declared that growth was ecessary for their survival, while 31.7% said it was ecessary i the log term i order to guaratee competitiveess. These results are cosistet with those draw from the CSC-Demos ad Pi survey (Nardozzi ad Paolazzi, 2011). Here, it clearly emerged that all eterprises uderstood the added value of growig. This was to: icrease productivity (53.9%); reach ecoomies of scale to be able to ivest cosistetly i research ad developmet (65.8%); to have greater presece i foreig markets (62.2%); to cotrol ad maage the markets i a more efficiet way through commercial etworks (67.5%). Moreover, oly 13.5% of the SMEs i the sample said they were happy with their size. A study by Mediobaca Uiocamere (2011) showed that there is a very high umber of medium-sized eterprises 2 that icrease or decrease their size. Some 20% of eterprises i Italy are dyamic (the umber of those expadig betwee 2001 ad 2008). Eve if there are fewer of these eterprises tha stable eterprises (50% of the sample) or those that dowsize, they still cotribute to the creatio of added value ad ew employmet, which compesate for the losses of static ad dimiishig eterprises. Furthermore, there is a greater proportio of dyamic eterprises amog small eterprises. Accordig to the Mediobaca Uiocamere study, the factors cotributig to a icrease i size are: iovatio i terms of products ad processes; stregtheig ad moderisatio of the goverace system (separatig the shareholders ad the maagemet); presece i iteratioal markets. Furthermore, it seems that dyamic eterprises are youger: they have, o average, bee operatig for fewer tha seve years, ad they have a CEO who is youger tha 45. 2 As already metioed here it is importat to uderlie that cotrary to the EU defiitio of SMEs, i the Mediobaca Uiocamere study medium-sized eterprises are those eterprises employig betwee 50 ad 499 employees. 10 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy These results are cosistet with those reported i Barba Navaretti et al (2011). The employers orgaisatio Cofidustria, usig iformatio from Bureau va Dijk, a publisher of compay iformatio ad busiess itelligece (which had collated a sample of 14,911 Europea maufacturig eterprises i seve Europea coutries 3, from the Efige ad Amadeus datasets) estimated the tred of these eterprises i terms of size variatio for the years 2001 2008. Eterprises were thus grouped ito six size classes: 10 15 employees; 16 29 employees; 30 49 employees; 50 99 employees; 100 249 employees; 250 employees or more. As a result, those eterprises which wet ito the ext size class are called upsizers, those which stayed i the same class were called persistet ad those which fell ito a lower class were called dowsizers. Results of these estimates outlie that, i Italy betwee 2001 ad 2008, 44% of eterprises employig betwee 16 ad 249 employees were dowsizers, compared with a average of 25% i the UK, Spai ad Frace. This is observed for all Italia eterprises i the sample, apart from those eterprises employig betwee 10 ad15 employees, which maily seem to be persistet (70%), although 30% of them were upsizers. Almost 50% of those eterprises with 16 29 employees were dowsizers i the years cosidered, ad oly 10% of them were recorded as upsizers. Furthermore, 20% of eterprises with 30 49 employees were upsizers, while those eterprises with 50 99 ad 100 249 employees seem to be maily persistet (over 50% i both cases), ad the percetage of those eterprises icreasig i size is less tha 10% for both. These results are iterestig sice, i literature, it is ofte argued that growth is associated with ivestmets i activities with high fixed costs, which is difficult for small eterprises to implemet, while data here show that the highest percetage of upsizig eterprises i the years cosidered was reported for SMEs with 10 15 employees, which traditioally are regarded as havig fewer resources to attract fiace. Cosiderig employmet levels, a total of 17,000 ew jobs were created amog all Europea eterprises betwee 2001 ad 2008; of these 4,100 ew jobs were created by Italia eterprises. Eve though it might be obvious that busiess expasio creates ew jobs, oe must cosider that eve those eterprises remaiig i the same size category ca still cotribute to the aggregated umber of ew jobs created. 4 Moreover, it ca be iterestig to aalyse if, ad to what extet, the creatio of ew jobs ca offset the destructio of jobs due to dowsizig eterprises. Cosiderig those eterprises with 16 249 employees, oce agai the highest cotributio to employmet growth comes from upsizig eterprises (10%), while dowsizers ad, to a lesser extet, persistet eterprises destroy jobs by 15% ad 2.5% respectively. Cosiderig also large eterprises (250+ employees) it ca be observed that while the highest cotributio to employmet growth is still give by upsizig eterprises (11%), persistet eterprises also cotribute substatially to the creatio of ew jobs (by about 7.5%). This implies that ew jobs 3 4 Italy, Frace, Spai, UK, Germay, Hugary, Austria. Here it must be stressed that also the opposite ca hold true. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 11

Restructurig i SMEs: Italy are created i persistet eterprises oly whe these are large (250+ employees). Ideed, i 2001 2008 amog Italia SMEs ew jobs were created oly by upsizig eterprises ad those ew jobs were ot eough to offset the egative impact o employmet levels of persistet ad dowsizer eterprises. From a ecoometrical aalysis the authors were able to show that dyamic eterprises were substatially differet from the other types of eterprises as they: are youger by about 30%; have a higher labour productivity (20%); pay o average higher wages (10%); have a more complex goverace; their CEOs are youger; have implemeted iovatio i products ad processes; are preset o several foreig markets. The CSC-Demos ad Pi survey (Corò ad Gurisatti, 2011) furthermore highlights how may efforts i busiess expasio have bee chaelled through iteratioalisatio processes. Amog the sample of 508 maufacturig SMEs associated with Cofidustria: 32.6% of the total value of productio seems to be geerated from sales o iteratioal markets; 18% is gaied from sales o regioal markets withi Italy; almost 50% of the turover seems to be geerated from atioal sales. Noetheless, iteratioalisatio does ot deped oly o firm size. Ideed it is iterestig to ote that the latest geeratio of etrepreeurs (those aged uder 30) is more likely to ope a commercial uit abroad (15.3%) ad to outsource productio to foreig suppliers (29.4%) tha the average. I terms of turover by sector, 50.6% of turover i 2011 for Meccatroica was achieved abroad, while for made i Italy ad chemical sectors it was at about 37%. I particular, SMEs argued that the improvemet i the turover origiatig from iteratioal activities was maily due to: a icrease i the demad (64.8%); better quality ad wider rage of products (30.4%); access to ew markets (22%); more competitive prices (17.6%); better kowledge of market opportuities (11%). The majority of SMEs with iteratioal activities maitaied stable employmet levels (also helped by the Italia social shock absorbers), while 21.6% of those SMEs decreased their employmet ad 16.1% icreased their employmet levels (Istituto Tagliacare, 2011). 12 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Drivers of restructurig The mai drivers for restructurig seem to be ot oly the survival of the firm but also a desire for growth, especially i terms of icreased turover. I terms of their specific objectives, the results of Cofidustria s focus group study (Arrighetti et al, 2011) outlied that the mai itermediate objectives of the sampled SMEs that had successfully restructured were: productio diversificatio (42% micro ad small eterprises ad 55.6% medium-sized eterprises); expasio o foreig markets (22.2% micro ad small eterprises ad 33.1% medium-sized eterprises); improve the quality of their products (32.1% micro ad small eterprises ad 32.4% medium-sized eterprises); marketig ad emphasis o the trademark (24.7% micro ad small, eterprises ad 28.7% medium-sized eterprises); upgrade i productio upgradig (25.9% micro ad small eterprises ad 33.8% medium-sized eterprises). However, i terms of fial objectives: 49.4% of small eterprises ad 49.3% of medium-sized eterprises said they were drive by the desire to expad their turover; 14.8% of small eterprises ad 23.9% of medium-sized eterprises aimed at icreasig their added value ad productivity; 18.5% of small eterprises ad 14.1% of medium-sized eterprises were lookig to improve their profitability; 3.7% of small eterprises ad 8.5% of medium-sized eterprises were lookig to acquire a larger market share. It is also importat to uderlie the poit made i the busiess expasio sectio that, whe asked to outlie the mai reasos leadig to growth: 32.1% of micro ad small eterprises ad 26.1% of medium-sized eterprises i the sample declared that chage was deemed ecessary for the survival of the eterprise; 18.5% of micro ad small eterprises ad 31.7% medium-sized eterprises declared that eve if chage was ot ecessary i the short term, it would have bee ecessary i the log term; 24.7% of micro ad small eterprises ad 28.2% of medium-sized eterprises said that chage resulted from their desire for growth (Arrighetti et al, 2011). As regards those SMEs egaged i activities i foreig markets, SMEs ivolved i iteratioalisatio seem to be maily drive by the desire to: access strategic markets (35%); reach efficiecy i market distributio (27.6%); obtai raw materials more cheaply (17.6%); cut costs ad bureaucracy (15.1%). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 13

Restructurig i SMEs: Italy While 27.9% of SMEs said the reaso for their delocalisatio was lower costs, 22.1% of offshorig SMEs said they were seekig ot oly lower productio costs, but also lower costs due to bureaucracy. I fact, 23.3% of the maufacturig SMEs i the sample declared that apart from those coutries offerig competitive costs, they chose to delocalise to solid ad structured markets where there is a high quality supply, such as North ad Cetral America (Istituto Tagliacare, 2011). 14 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Distictive characteristics of restructurig i SMEs Aticipatio, plaig ad preparatio of restructurig evet Restructurig processes ca happe at various phases of a eterprise s life. They sigal the eed for chage ad if this chage is aticipated, plaed ad properly maaged, they ca also result i the stregtheig of the eterprise. A well-plaed ad maaged restructurig evet may result i a improvemet of the skills of the members of the orgaisatio ad i the itroductio of iovative processes ad outputs. However, there is limited research o aticipatio of restructurig i SMEs, ad literature suggests that restructurig is ofte implemeted i a uplaed ad uaticipated maer. I particular, literature suggests that i restructurig, which egatively affects employmet levels, etrepreeurs ofte do ot uderstad the symptoms of chagig situatios, ofte oly ackowledgig them whe it is too late. This is also due to the lack of diagostic tools; crises are ofte sigalled by phases of declie ad, if diagosed i time, the degeerative process ca be stopped ad restructurig ca ideed represet a opportuity for iovatio, progress ad growth. However, too ofte crises happe, ot because they are ievitable, but because eterprises do ot heed the warig sigs. This is the reaso why much crisis maagemet literature suggests developig, withi firms, a culture of chage aimed at facig crisis, ot as a extraordiary evet but rather as a key elemet of strategic plaig (Arcari, 2004). Ways of aticipatig restructurig are also closely liked with moitorig ad idetifyig structural shifts, particularly with the developmet of ew competeces ad skills, but also iovatio i terms of techology, as well as orgaisatioal iovatio. However, give the relatively small size of SMEs ad the extremely high icidece i Italy of micro eterprises (1 9 employees) it must be highlighted that SMEs ot oly struggle i fidig available resources to implemet iovative processes ad techologies, but are also less likely to have a proper Huma Resources departmet, a writte HR strategy or a clear strategy for staff developmet. However, these results should ot be misiterpreted. Ideed from Cofidustria s focus group study it emerges that SMEs recogise the importace of skills developmet. The survey shows that some competeces ad skills seem to have a favourable effect o restructurig. I particular, accordig to the respodets, these were: techological competeces (24.7% of micro ad small eterprises ad 24.6% of medium-sized eterprises); huma capital skills ad competeces (12.3% of micro ad small eterprises, ad 13.4% of medium-sized eterprises); orgaisatio of productio (8.6% of micro ad small eterprises ad 9.9% of medium-sized eterprises) (Arrighetti et al, 2011). Table 5 clearly shows that the amout of firms offerig traiig to their staff icreases with their size. I geeral, 84.9% of large firms (500+ employees) offered traiig courses, either iteral or exteral, to their staff i 2010, compared with oly 29.4% of micro eterprises, ad 45.2% of small eterprises. The fact that 70% of medium-sized eterprises offered traiig should ot be surprisig as, i Italia terms, they are already cosidered as big eterprises, ad they ted to operate i much the same way. It is iterestig to highlight, however, that the share of traiig offered by the public utilities sector is also cosiderably high for micro busiesses (42%) ad small oes (62.1%). Notably high shares are also idetified i the costructio sector (35.1% of micro busiesses ad 53.8% of small oes) (Isfol, 2012). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 15

Restructurig i SMEs: Italy Table 5: Eterprises offerig traiig courses to staff i 2010 (%) Eterprise size Sector 1 9 10 49 50 249 250 499 500+ Total Idustry 28.8 42.8 64.6 83.6 84.5 33.2 Strict idustry 21.8 38.0 63.6 83.9 85.1 28.9 Public utilities 42.0 62.1 74.3 84.2 88.1 55.7 Costructio 35.1 53.8 67.0 81.0 75.4 37.5 Services 29.7 47.6 70.4 80.2 85.1 33.7 Total 29.4 45.2 68.0 81.3 84.9 33.5 Sources: Uiocamere-Miistero del Lavoro, Sistema Iformativo Excelsior, 2011, ISFOL, 2012. From Table 6 we ca see that the majority of traiig is aimed at improvig ad updatig skills o curret tasks ad resposibilities (84.3%), rather tha o the acquisitio of skills for ew tasks ad resposibilities (10.1%). This is particularly relevat for SMEs, as Table 7 shows over that 80% of all SMEs that offered some sort of traiig to their staff i 2010, have offered traiig aimed at improvig ad updatig competeces ad skills o curret tasks ad resposibilities. Table 6: Objectives of the traiig by sector of the eterprise i 2010 (%) Sector No. of firms offerig traiig (% of total) Trai ew recruits Aims (%) Traiig o curret tasks or resposibilities Sources: Uiocamere Miistero del Lavoro, Sistema Iformativo Excelsior, 2011, ISFOL, 2012. Traiig for ew tasks or resposibilities Idustry 33.2 5.8 83.2 11.1 Strict idustry 28.9 6.8 81.6 11.6 Public utilities 55.7 7.1 83.4 9.5 Costructio 37.5 4.8 84.6 10.6 Services 33.7 5.6 84.8 9.5 Total 33.5 5.7 84.3 10.1 Table 7: Objectives of the traiig by size of the eterprise i 2010 (%) Size No. of firms offerig traiig (% of total) Trai ew recruits Aims (%) Traiig o curret tasks or resposibilities Sources: Uiocamere Miistero del Lavoro, Sistema Iformativo Excelsior, 2011, ISFOL, 2012. Traiig for ew tasks or resposibilities 1 9 29.4 4.9 84.8 10.2 10 49 45.2 5.1 84.4 10.5 50 249 68.0 5.9 87.7 6.4 250 499 81.3 15.7 71.8 12.5 500+ 84.9 20.9 69.5 9.6 16 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy Furthermore, the report GreeItaly (Uiocamere-Symbola, 2011) says that as a respose to the ecoomic crisis, more ad more Italia firms, ad particularly SMEs, have bee tryig to improve their competitiveess by ivestig i iovatio. I Italy, i 2010, 30% of SMEs ivested i gree products ad gree techologies, with 57.5% of SMEs doig this i 2011 5 (ISFOL, 2012). This tred is also cofirmed i the Demos ad Pi study by Corò ad Gurisatti (2011) where 72.3% of surveyed SMEs declared that evirometal issues were a opportuity for busiess expasio ad iovatio, rather tha a costrait to growth. I particular, as Figure 1 shows, the share of SMEs with 20 49 employees that ivested i gree products ad techologies icreased sharply betwee 2010 ad 2011, from about 30% i 2010 to over 55% i 2011. Figure 1: Share of maufacturig SMEs ivestig i gree techologies (%) 50 499 employees 20 49 employees 2011 2010 Total SMEs Source: Uiocamere-Symbola, 2011 0 20 40 60 80 Maagig restructurig The majority of restructurig processes i Italy are maaged through the use of social shock absorbers, the collective dismissals legislatio ad the mobility procedure. The mai istrumet available is a system based o a wage supplemet, the wage guaratee fud (Cassa Itegrazioe Guadagi, CIG) maaged by the Natioal Social Security Istitute (INPS) ad maily used by medium-sized ad large busiesses (i Italia terms, those with more tha 15 employees) i the maufacturig ad costructio sectors. Withi the system there are two differet schemes: the ordiary wage supplemet (CIGO) ad the extraordiary wage supplemet (CIGS), with the alterative of solidarity cotract (Cotratto di Solidarietà, CS). A secod system aims at maitaiig jobs i the small busiesses ad craft sectors, which do ot have access to the CIG system. These bilateral bodies joitly maaged by social parters, pay specific subsidies, as part of uemploymet beefit, to workers if their hours are reduced or suspeded, with the cotributio of the Employmet Fud maaged by the Italia Miistry of Labour ad Social Policies. The CIG is the primary itervetio desiged to support workers affected by reduced workig time ad temporary suspesio of work. Established i 1947, the CIG plays a key role i the Italia social shock absorber system. It was created after the Secod World War to protect the icome of idustrial workers whose jobs had bee destroyed durig the war. Its origi, therefore, lies i the safeguardig of workers icome from evets that are ot the employer s fault. Later, the measure was used to help durig temporary market shrikages ad was iteded as a meas of temporary 5 These data refer to the study carried out by Uiocamere-Symbola, 2011 ad it must be highlighted that for the purpose of this study, SMEs are cosidered as those eterprises employig betwee 20 ad 499 employees. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 17

Restructurig i SMEs: Italy icome protectio for employees, i the expectatio that the compay ad its employees would soo resume ormal activity; this is owadays kow as CIG ordiaria (ordiary wage guaratee fud, CIGO). Ideed, CIGO is used whe a eterprise reduces or suspeds the activity of its etire workforce (or parts of it) due to temporary evets which are beyod its cotrol, such as temporary market difficulties, or seasoal weather coditios. CIGO ca be used for blue ad white collar workers (full-time ad part-time) i the idustrial sector regardless of the umber of employees the firms employs (the crafts sector is excluded), as well as i the costructio ad buildig supply sectors (subject to seasoal workig time reductio due to the weather) ad for workers o fixed-term cotract. It does ot cover, however, seior executives, temporary agecy workers, home workers ad appretices. CIGO pays a wage supplemet for o-worked hours equal to 80% of the salary the worker would have eared for full-time employmet. Workig time may be reduced by a maximum of 40 hours per week ad the wage supplemet caot be higher tha a mothly ceilig established aually by the Italia Statistics Istitute (ISTAT) based o the Cosumer Price Idex (CPI). The measure ca last for a maximum of 13 cosecutive weeks, with a possible ad exceptioal extesio to 12 moths (52 weeks ot ecessarily cosecutive); i the costructio ad buildig supply sectors the beefit ca be exceptioally exteded to 12 moths (52 weeks) oly i the evet of reductio of the workig time, but ot if workig time is reduced to zero hours worked per week (CIG zero hours). For the same productio uit, at the ed of the treatmet equal to 52 cosecutive weeks, it is possible to apply agai for the beefit, but oly after productio has resumed for at least 52 weeks. If the eterprise beefits from the measure for o-cosecutive periods, the maximum legth of the treatmet is for 52 weeks i two years. To face the crisis, INPS otice No. 58 of 20 April 2009 modified the criteria to calculate the periods durig which beefits are paid by CIGO: previously, each week i which there had bee eve a partial reductio of workig hours was couted as a whole week of CIGO, ow this calculatio is based o the days i which workig hours have bee reduced. I practice this results i a loger period of CIGO availability. I terms of fudig, the CIGO is based o a isurace mechaism ad it is etirely fiaced by cotributios paid by the employers, who pay a cotributio o all wages to the INPS i order to provide for CIGO. I periods whe CIGO is used, the employer pays the wage support to the employees, ad the recoups the amout from INPS. Sice its itroductio, the CIGO budget has always bee i surplus ad, eve durig the curret crisis, its budget is i balace. The CIGS is the mai measure aimed explicitly aimed at maagig restructurig. It was itroduced i 1968 to help firms avoid makig dismissals. CIGS caot be used for seior executives, temporary agecy workers, home workers or appretices. It applies to blue ad white collar workers (full-time ad part-time), employed for at least 90 days i the followig eterprises: eterprises i the idustrial, costructio ad buildig supply sectors, with more tha 15 workers; eterprises i the commerce sector with more tha 50 employees; publishig compaies with ay umber of employees; eterprises i the craft sector with more tha15 employees ad complyig with Law 223/91; eterprises i the restaurat ad caterig sector with more tha 15 employees, oly if the cotractig eterprise is usig CIGS; eterprises providig cleaig services oly if the cotractig eterprise is usig CIGS; service eterprises with more tha 15 employees; cooperatives with more tha 15 employees; travel agecies ad tour operators with more tha 50 employees; 18 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy eterprises providig security activities with ay umber of employees; eterprises operatig i air trasport ad other supportig air trasport activities with ay umber of employees. It also applies i the followig cases: Whe the eterprise reduces or suspeds its activity due to: restructurig, reorgaisatio or chage of activity; crisis of the eterprise; bakruptcy. Furthermore, a ecessary coditio for access to CIGS requires that the eterprise draws up a pla for relauchig productio ad safeguardig jobs. The CIGS pays a wage supplemet for o-worked hours equal to 80% of the salary the worker would have eared for full-time employmet. Workig time may be reduced by a maximum of 40 hours per week. The wage supplemet caot be higher tha a mothly ceilig established aually by ISTAT based o the CPI. I the evet of restructurig, reorgaisatio or chage of activity the measure ca last for 24 moths, with a possible extesio of 12 moths that ca be grated twice, after two separate applicatios. I the evet of crisis of the eterprise the measure ca last for 12 moths that ca be exteded oly oce for a maximum of 12 moths. I the evet that the eterprise goes bakrupt, the measure ca be used for 12 moths ad ca be exteded for six more moths. For each productio uit the CIGS caot be used for more tha 36 moths i a five-year period, icludig periods of CIGO due to temporary market difficulties (periods of CIGO for bad weather coditios, atural disaster or other reasos are ot icluded i this limit). This meas that the full possible duratio of receivig beefits from CIGS (as listed above) for some evets is oly possible if several uits withi the compay are cocered. As with CIGO, the CIGS is based o a isurace mechaism ad it is fiaced by cotributios paid by employers ad by the employees. I additio to this, there is a priciple of bous-malus: eterprises usig the CIGS have to pay a additioal cotributio equal to 5% of the wage supplemet give to the employees (3% for the eterprises with up to 50 employees). This additioal cotributio is doubled from the twety-fifth moth of wage supplemet. As for CIGO, i periods whe CIGS is used, the employer pays the wage support to the employees, ad the recoups the amout from INPS. CIGS is very reactive to ecoomic cycles. I the last few years the crisis has had a huge impact o its use, but historical treds show that, o average, the budget has bee balaced. This uderlies that CIGS is a well-workig self-fiacig system. The employees to be placed i CIGS must be selected accordig to specific criteria i compliace with the priciple of direct ad idirect discrimiatio. Italia law also provides for madatory rotatios of workers workig i the same productio uit ad with the same duties. If the eterprise fails to comply with this provisio without havig reasoable orgaisatioal ad techical reasos, the eterprise is obliged to double its additioal cotributio, ad after the twety-fifth moth of this, the eterprise has to pay a additioal cotributio equal to 150% of it. Solidarity cotracts (Cotratti di solidarietà, CS) are a alterative route to the CIG ad, i the budget of the INPS, are calculated uder the CIGS. CS were itroduced i 1984 ad are compay-level agreemets based o the priciple of solidarity amog all the employees of a productive uit i a eterprise who all reduce, to the same extet, their workig Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 19

Restructurig i SMEs: Italy hours i order to avoid dismissals (difesivi) or to allow the recruitmet of ew employees (espasivi). These cotracts ca be stipulated by all eterprises havig access to the CIGS with the exclusio of: seior executives temporary agecy workers home workers appretices employees workig i the firm for fewer tha 90 days seasoal workers. Part-time workers are eligible oly if the firm shows that before the CS, the part-time job was a structural aspect of the firm s orgaisatio of work. The agreemet compesates for a reductio i wages, because of a cut i workig hours, up to a maximum of 60%, correspodig to the reductio i pay. This ceilig has bee temporarily raised to 80%, because of the global fiacial crisis. The measure ca last up to 24 moths, after which it ca be exteded for a further 24 further moths (36 moths for souther Italy); oce the maximum extesio has bee reached, a ew CS for the same uits ca be agreed oly after productio has resumed for at least 12 moths from the ed of the last agreemet. Cotratti di Solidarietà are fuded by the same cotributio paid for the CIG, ad this cotributio is admiistered by INPS. Furthermore, i order to icetivise employers to use them, there is a reductio i the amout of social security cotributios to pay for the workers affected by the CS. If the workig time is reduced by more tha 20%, employers cotributios are reduced by 25%; if the workig time is reduced by more tha 30%, employers cotributios are reduced by 35%. I additio to this, ulike the CIG, for Cotratti di Solidarietà there is o maximum ceilig of wage support received per moth. For those compaies ot havig access to the CIGS, Law 236/93 Art. 5, modified by Law 33/2009, allows eterprises ot havig access to the CIGS to use Cotratti di Solidarietà for their workforce (icludig appretices ad employees o temporary cotracts) with the exceptio of seior executives. I this case, both the employees ad employer receive wage support for the o-worked hours, equal to 25% of the lost wage. The treatmet ca last for up to two years. The oly uiversal social shock absorber i the Italia system is uemploymet beefit, ad as CIGS ad CS caot be used by all compaies, the Italia govermet provided for special social shock absorbers i 2004 to help workers who would otherwise ot be covered. These social shock absorbers i derogatio (ammortizzatori sociali i deroga) are put i place o a yearly basis if state fudig is available. For those eterprises that caot use CIG, or that already exhausted all their treatmets of CIG, the special social shock absorber that ca be used is the CIG i derogatio (Cassa Itegrazioe Guadagi i deroga, CIGD). Sice the secod half of 2008, ammortizzatori sociali i deroga have represeted the oly feasible tool to face the crisis i a timely maer, thus with Law 2/2009 the Italia govermet exteded the use of the CIG to ay category of worker of ay firm through the CIGD. I order to establish the CIGD the State ad Regios siged a special agreemet i February 2009, that they both share the cost of these measures. I particular the State cotributio fiaces the icome support provided i the CIG i derogatio, while the regioal fuds fiace actios of active labour market policies liked to the CIGD. Regios are resposible for the maagemet of the measure ad each regio held separate egotiatios with all social parters to establish the criteria ad modalities of the measure. This implies that there have bee 20 differet egotiatios i Italy, oe i each regio. All workers, icludig temporary agecy workers, home workers ad appretices, employed for at least 90 days i eterprises operatig i sectors or areas specified i ad hoc govermet agreemets ca receive icome support via CIGD. 20 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy As CIG, CIG i derogatio pays a wage supplemet for o-worked hours equal to 80% of the salary the worker would have eared for full-time employmet. Workig time may be reduced by a maximum of 40 hours per week. The wage supplemet caot be higher tha a mothly ceilig established aually by ISTAT based o the CPI. The duratio of the measure is decided i the various regioal agreemets. Periods of CIG i derogatio do ot accout for the limit of 36 moths maximum period of CIG per uit. Iterestigly, the wage support is coditioal to a declaratio of immediate availability (Dichiarazioe immediata di dispoibilità, DID) for a job or for a traiig course. If a worker refuses to sig this declaratio or, havig siged it, the refuses the offer of a suitable traiig course or job the wage support is stopped. CIG i derogatio is fiaced by State ad regioal fudig; the regioal fuds used to fiace the measure come from the Europea Social Fud, ad as ESF fuds eed to comply with specific criteria for their utilisatio, this implies that a special coectio with active labour market policies had to be created. Give the sectoral characteristics of the CIG, ad that may types of eterprises are excluded from its use, some sectors, icludig the crafts, services, ad credit sectors, established, from collective agreemets with social parters, bilateral bodies. The first, i 1988, was for the craft sector. Bilateral bodies operate at regioal level, ad the umber of their members varies sharply from regio to regio. They seem for example to be very active ad have a large membership i orther Italy, with fewer members i the south. Membership is volutary, with each eterprise that jois payig a cotributio. These fuds are joitly maaged by the social parters ad are used to pay specific subsidies to workers i the evet of a reductio or suspesio of workig time. With the crisis, ad i order to exted social shock absorbers to those sectors that caot use the CIG, Art. 19 of Law 2/2009 provided that employees temporarily suspeded from firms ot beefitig from CIG could beefit from the uemploymet beefit, coditioal o a 20% itegratio of the amout of support uder the uemploymet beefit paid by the bilateral bodies. This meas that, give that i Italy the uemploymet beefit is equal to 60% of the lost wage, the bilateral body would pay a itegratio of 20% of the support received by the uemploymet beefit, meaig that the temporarily suspeded employee would get a wage support equal to 72% of the lost wage. This latter provisio ecoutered some resistace due to the coditioality of the itegratio by the bilateral body; i fact if the bilateral bodies do ot exist for a specific sector, or have o fuds to provide for the itegratio, the suspeded worker has o right to beefit from the uemploymet assistace at all. I order to solve this problem, Art. 7 of the Law 33/2009 provided that if the bilateral body for a specific sector does ot exist, or if the bilateral body exists but the eterprise is ot a member of it, or if the bilateral body has o fuds to itegrate the uemploymet beefit by 20%, the affected employees ca directly beefit of the CIG i derogatio (Salvatore, 2010). If the crisis persists ad efforts to cotai it via the social shock absorbers fail, the employer may decide to proceed with permaet redudacies applyig the law o collective dismissals. This procedure is applied to all eterprises employig 15 or more employees which, withi a period of 120 days, ited to dismiss at least five employees i the same productio uit or at several productio uits withi the same provice. Eterprises with fewer tha 15 employees may make multiple dismissals, which eed to be justified by objective reasos. I the case of collective dismissals ad more geerally for those eterprises eligible for CIGS, eterprises may iitiate the mobility procedure. Uder this, the dismissed employees are placed o special job placemet registers compiled to promote the re-egagemet of the dismissed employees. Employees of those eterprises eligible for CIGS also receive a mobility allowace equal to 80% of their last wage (100% of CIGS if the eterprise beefited from CIGS) i the first year ad 80% of the CIGS i the followig years. The beefit is paid: for 12 moths to those employees aged up to 39 years; for two years to those employees aged betwee 40 ad 49; for 36 moths to those employees aged 50 ad over. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 21

Restructurig i SMEs: Italy Dismissed employees i the south get a extra year of mobility allowace. Whe it expires, those employees ot qualifyig for retiremet receive a extraordiary allowace util they reach retiremet age. Eterprises pay a fee i 30 mothly istalmets for each employee they place i mobility; this fee is higher if the eterprise goes ito mobility without applyig CIGS first. The istalmet paymets cease if the eterprise helps its redudat employees to fid a permaet job. Italia law provides icetives for eterprises willig to recruit workers i mobility (Ricciardi et al, 2009). Research fidigs o maagemet of restructurig There is ot much academic literature o maagemet of restructurig i Italia SMEs; however a umber of examples of differet maagemet strategies i SMEs restructurig have bee idetified i the existig literature. Here are some examples. Iteral restructurig Results from the Demos ad Pi survey i Corò ad Gurisatti (2011) show that, i the last five years: 74.7% of SMEs implemeted iovative strategies i terms of products; 69.9% of SMEs implemeted iovative productive processes; 63.8% iovated i terms of orgaisatio; 52.3% iovated i terms of commuicatios strategies. SMEs also icreased their resources for research ad developmet activities, although oly 31.6% registered patets, ad oly 37.7% registered trademarks. As for future strategies: 90% of SMEs pla to iovate i products ad/or i processes; 80% pla to eter ito ew foreig markets; 70% of SMEs declared they pla to itroduce ew maagerial positios i order to gai ew competeces; 60% pla to ivest i trademarks. Iteratioalisatio Over half of the Demos ad Pi sample (Corò ad Gurisatti, 2011) said they had some trade relatio or productive relatio o foreig markets. I particular: 34.1% said they exported less tha 25% of their turover; 15.3% said they were exporters i competitio with other advaced ecoomies; 4.5% said they were exporters i competitio with Chia ad other emergig ecoomies. I terms of types of iteratioalisatio: 69% of SMEs sell products abroad; 23.6% outsource productio to foreig suppliers; 11.8% have established commercial uits abroad; 7.2% have established productive uits abroad. 22 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy Furthermore, these dyamics differ accordig to firm size. Medium-sized eterprises, give their size ad the cosequet available resources both i terms of attractig fiace ad i terms of havig the ecessary huma resources ad competeces are more likely to have a commercial uit abroad (24.9%) ad to have a productive uit abroad (16.8%). These values are much lower for smaller eterprises. Figures from Istituto Tagliacare (2011) show that: 37.4% of SMEs say they have more tha te foreig parters; 27.7% say they have betwee two ad five foreig parters; 71.3% of the commercial agreemets have bee i place for over te years; i 5.3% of cases the agreemet was siged fewer tha three years ago; 88% of SMEs declared havig tradig relatioships with firms i EU coutries. SMEs have established relatios ot oly with those parters permittig competitio i terms of costs as for example Asia excludig Chia ad Idia ad Oceaia (21.8%), Africa (17.6%), Chia (11.8%) ad Idia (4.3%) but they also choose to operate i solid ad structured markets where there is a high quality supply such as i Cetral America (22.3%). I particular SMEs i the made i Italy sector ted to have more relatios with EU parters (89.6%) ad other Europea coutries (28.3%), while those SMEs i chemicals have most relatios with parters i EU coutries (92.4%) but also ted to have relatios with Chia (14.5%) ad Idia (5.3%), while SMEs i Meccatroica, apart from relatios with other EU parters (84.2%), ted to have relatios with emergig Asia ecoomies (29%) ad Lati America coutries (17%). Iteratioal outsourcig Results from research by Istituto Tagliacare (2011) outlie that legal ad cotractual activities are the most iteratioally outsourced activities (45.5%), followed by the maagemet of ICT processes (21.3%), commercialisatio ad distributio (16.5%), desig (11.6%), marketig ad commuicatios (8.8%), testig (8.8%), audit ad actuarial activities (8.5%), research ad developmet (8%) ad packagig (6%). I geeral, those SMEs who have outsourced iteratioally for at least te years outsourced legal ad cotractual activities, while more recetly eterprises have started to outsource research ad developmet, testig activities ad commuicatios ad marketig activities. I the last three years there has bee a icrease i the outsourcig of packagig (11.1%) ad desig ad plaig activities (7.1%). Actors ivolved Social parters, the Miistry of Labour ad various agecies are ivolved i SME restructurig. Social dialogue is deemed essetial i eterprise restructurig. I fact, the ivolvemet of social parters is expected i all social shock absorbers. Ideed, while eterprises willig to apply for CIGO must first cotact the trade uios to iform them of the reasos for the suspesio of employees, ad of the umber affected, the eterprise does ot have to stipulate collective agreemets with a trade uio i order to apply for the CIGO; although the applicatio must be made withi 25 days of reduced workig hours to the Miistry of Labour. I the case of CIGS istead, before applyig for it, the eterprise must orgaise a phase of cosultatios, that must lead to collective agreemets with the trade uios. Durig this phase the employer must iform the trade uios of the reasos for the suspesio/reductio of activity, of the criteria used to select those workers to be placed i CIGS ad of the modalities of rotatio of the workers. Withi 25 days after itroducig the reduced workig hours the employer must apply for the CIGS to the Directorate Icome Support Measures of the Miistry of Labour ad Social Policies, ad must attach to the applicatio a pla providig for the resumptio of the activity ad protectio of jobs, eve if oly partial. This pla is examied ad approved with a decree by the Miistry of Labour ad Social Policies after 30 or 90 days. As stated above istead, solidarity cotracts are the result of a agreemet betwee the eterprise ad social parters, while bilateral bodies are the expressio of social Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 23

Restructurig i SMEs: Italy dialogue. I the evet of mobility procedure istead, while the eterprise must iform the local offices of the Miistry of Labour ad must iform the trade uios, the procedure ca proceed eve without a collective agreemet. I order to stregthe the lik betwee active ad passive labour market policies, Law 2/2009 Art. 19 c.10 prescribes that ay icome support measure, icludig social shock absorbers i derogatio, is coditioal to a declaratio of immediate availability (Dichiarazioe immediata di dispoibilità, DID) for a job or traiig course. I this cotext other actors, such as PES ad INPS become ivolved. Geerally the declaratio has to be siged i the INPS local offices at the same time as makig the applicatio for the wage support measure. I order to implemet these welfare to work policies the law prescribes that INPS must pass o the ames of the employees beefitig from the wage support schemes to the relevat job cetres, i order for them to orgaise job cousellig ad relevat traiig. Obviously, i order to hoour the provisio ad itetios of this law effectively, job cetres will have a key role i esurig that the declaratio of availability will result i suitable job offers ad suitable ad meaigful traiig courses. It should also be stressed that uder Article 117 of the Italia Costitutio, regios have sole legislative power regardig traiig. The geeral agreemet Liee Guida per la formazioe el 2010, siged by the state, regios ad all the social parters i February 2010, provided the guidelies for traiig i 2010. I particular, the agreemet stressed the eed for a better lik betwee active ad passive labour market policies, with a key focus o effective ad relevat traiig, while beefitig from a social shock absorber. The agreemet, which has five mai guidelies, aims at a more efficiet use of traiig fuds, which, for 2010, amouted to aroud 2.5 billio. The objective is to ehace the skills of those workers who are uemployed, out of the labour force, i mobility or i CIG. Each regio has the power to decide o which actios to implemet i order to improve the lik betwee traiig ad icome support measures. A report from Isfol ad Italia Lavoro (2010) o the measures implemeted by regios to deal with the effect of the crisis o employmet shows that the level of implemetatio of those actios varies amog regios. Some regios such as Lombardy, Veeto, Friuli Veezia Giulia, Emilia Romaga ad Lazio as well as the provice of Treto, have already started implemetig traiig activities for those workers o wage support measures i the secod half of 2009; some regios such as Piedmot ad Molise started implemetig actios by March 2010, while other regios started to ask for teders for traiig activities oly durig the first moths of 2010. The agreemet also provided for a stregtheed role of bilateral bodies, i the sectors where they exist, ad also provided for the provisio, withi the bilateral system ad withi the public ad private actors, of iformatio poits ad of educatio ad career guidace i order to help workers i their trasitio to aother job. This process is moitored at atioal level, with the establishmet of a atioal task force, resposible for locatig at local ad sectoral level what skills are eeded. Regios ad social parters (also bilateral bodies where they exist) are resposible for gatherig the iformatio o the professioal figures eeded o the market. This iformatio will be used to desig the appropriate traiig ad to use effectively the available fuds. Moreover, Law 388/2000 (Art. 118) 6 established Fodi Paritetici Iterprofessioali (or fodi settoriali), i order to ehace competitiveess ad to guaratee employmet levels via the promotio of lifelog learig. These fuds are the result of a collective agreemet amog social parters, which was later traslated ito Law 388/2000. This agreed that a madatory cotributio, paid by all eterprises sice 1978 to the INPS to fiace cotiuous traiig, could be paid istead to specific sectoral fuds established i 2000 to maage these cotributios that equal 0.30% of salaries. These fuds are etirely maaged by social parters, ad are created o a sectoral base; oetheless firms ca joi ay fud, ot just the oe for their specific sector. Membership is also volutary as a firm ca opt to pay the cotributio for cotiuous traiig to the INPS. Ulike the bilateral bodies, which have a very ueve membership, the membership 6 http://www.lavoro.gov.it/nr/rdolyres/6676bab9-7933-4857-8752-e8459badc188/0/013_legge_388_art118.pdf 24 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy rates of sectoral fuds are quite high. The fuds have bee very successful with their traiig projects. The traiig processes established by the fuds are collectively agreed by the social parters at compay level (Salvatore, 2010). There are aroud 20 sectoral fuds, ad the most importat fuds for SMEs are Fodo Formazioe PMI (FAPI) 7 ad Fodo Dirigeti PMI, which offers traiig to SME maagers. FAPI, durig the difficult ecoomic times betwee 2009 ad 2011, made almost 60 millio available to fiace measures for developig skills eeded to stregthe competitiveess ad iovatio (Isfol, 2012). There are also a umber of actors ivolved i iteratioalisatio. The mai oes are baks, sector associatios ad chambers of commerce. Cosultig firms, embassies ad cosulates might be importat actors for SMEs willig to iteratioalise while, to a lesser extet, other actors are regios, local etities ad export cosortia. 8 Not surprisigly, those SMEs ivolved i offshorig make more use of support services for iteratioalisatio, particularly baks, trade associatios ad chambers of commerce (six out of 10 SMEs). Export cosortia are little used. Offshorig SMEs also make more use of services offered by Italia cosultig firms ad embassies ad cosulates, while they make little use of foreig orgaisatios. Exportig SMEs make less use of the support services for iteratioalisatio (oly 40% of exportig SMEs), istead turig mostly to baks, chambers of commerce ad trade associatios (Istituto Tagliacare, 2011). 7 8 http://www.fodopmi.it/fodopmi/il_fapi.asp While there is o literature available o the relevace of baks, employers orgaisatios ad cosultats for other forms of restructurig, it ca be assumed that these actors are ideed relevat also for other forms of restructurig. Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 25

Mai challeges ad costraits facig SMEs i restructurig SMEs have itrisic characteristics that make their restructurig substatially differet to restructurig i large eterprises. Their size ad more limited access to istrumets to aticipate ad maage restructurig meas they are more vulerable to cyclical ecoomic dowturs ad, agai, their size seems to udermie their bargaiig power with baks ad other fiacial istitutios so that they fid it more difficult to access credit. I fact, due to their limited size ad resources, ot oly fiacial but also i terms of huma resources ad their capabilities, may SMEs are viewed as lackig the formal busiess plas ad/or cash flow projectios ad the type of plaig ad iformatio usually required by baks to secure credit. As a result SMEs score higher tha average failed loa requests or have to pay higher iterest rates to compesate for perceived risk. Either way, credit ad fudig support dries up whe most eeded ad o ivestmet or restructurig ca be implemeted without fiacig ad credit. Ideed, from the study by CSC-Demos ad Pi (Corò ad Gurisatti, 2011) the mai reasos for ot ivestig i iovatio were give as: ucertaity of the ecoomic situatio (49.3% of the sampled eterprises); lack of credit (22.9%); less favourable ormative ad admiistrative framework (11.6%). The same sampled SMEs, asked about obstacles to busiess expasio, poited to: weak demad (48.5%); lack of capital (47.9%); bureaucracy (27.8%). The emphasis o costs is also highlighted i the results from Istituto Tagliacare (2011) where SMEs said the mai reasos prevetig them from iteratioal outsourcig, were: usustaiable costs (61.2%); iadequate quality of the offered services (30.8%); lack of a adequate etwork of services (21.9%). The ecoomic dowtur prompted fiacial istitutios to review their ledig policies ad defie credit worthiess usig stricter guidelies. SMEs have bee profoudly affected by these chages, largely i the form of reduced access to capital. This is extremely importat as the lack of fiace might cause SMEs to postpoe ivestmets, thus costraiig their busiess. Ideed, fiacial ucertaity hauts Italia SMEs as they still battle to get through the recet ecoomic turmoil. I October 2010, Forbes Isights (2010b) coducted a survey i Italy ad five other coutries (Caada, Chia, Sigapore, South Africa ad the UK). I total, 266 Italia SMEs participated i the survey. Asked about their greatest cocers durig the past year, the Italia SMEs cited: ecoomic ucertaity (29%); fidig ew customers ad prospects (29%); fidig fiacig (25%). 26 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Restructurig i SMEs: Italy Also, cash flow issues are a major challege for may Italia SMEs. Overall, 43% of Italia SMEs told the 2010 survey that it was harder to maage cash flow the tha it had bee a year ago; just 12% said it was easier; ad 44% idicated it was about the same. The study showed that slow receivables ad low reveue, i particular, were straiig cash flow for Italia SMEs. A sigificat umber of respodets were axious that they did t have a strog eough capital positio to survive aother dowtur. Asked whether or ot they felt they had adequate cash reserves to face aother fiacial crisis, 45% of Italia SMEs said they did ot. Small busiesses (10 49 employees) appeared the least axious, with 52% sayig they had adequate cash reserves to face aother fiacial crisis. However, eve uder ecoomic pressure, more tha 40% of Italia SMEs said they secured all or most of the fiace they sought over the past two years. Overall, 86% of SMEs i Italy said they applied for fiacig over 2009 ad 2010; of those: 12% said they secured the full amout; 32% secured most of it; 42% secured a little; 14% received oe. Italia SME respodets stated that they have see little easig of their fiacig markets: just 20% said their ability to secure fiacig improved over the past year; 35% said it worseed; 45% said it remaied about the same. The outlook by the Italia SMEs for the followig year was more positive: 28% aticipate their ability to secure fiacig will improve; 21% expect it to be worse; 50% foresee o chage. Secured bak loas are the most commo form of debt fiacig Italia SMEs use, ad this should be the same over the ext two years. Overall, the top forms of debt fiacig that Italia SMEs use (ad expect to use for the ext two years) are: secured bak loas (39%); busiess credit cards (28%); secured bak overdraft (27%); trade credit (25%). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 27

Restructurig i SMEs: Italy Italia SMEs wat to use debt ad equity fiacig for domestic expasio ad ew techology. The top three thigs they expect to use debt fiacig for over the ext two years are: domestic expasio (31%); ew techology ivestmet (30%); expadig capacity (27%). Those seekig equity have similar goals (Forbes Isights, 2010a). The Europea Cetral Bak survey o access to fiace for SMEs reported that, betwee April ad September 2011, Italia SMEs reported a deterioratio i the et availability of bak loas (about -10%) (Europea Cetral Bak, 2011). Also a smaller percetage of SMEs applied for a bak loa tha previously. Lookig at the success rates of loa applicatios: about 60% of SMEs applyig for a loa obtaied the etire amout requested; 10% of them got most of it; 15% got a limited portio; 10% of them had their applicatio rejected; about 5% refused the loa grated as the cost was too high. Ideed, betwee 70% ad 80% of SMEs reported a icrease i iterest rates ad other costs of fiacig (for example commissio fees) (Europea Cetral Bak, 2011). Moreover, give the specific characteristics of SMEs, etrepreeurs ofte ted to establish a relatioship of trust ad friedship with the employees. This ca mea that restructurig decisios, especially those ivolvig chages i the status quo, a reductio i employmet levels or eve worked hours, are ofte upopular ad difficult to make ad obviously challege the SME s ability to restructure. 28 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Busiess support from public ad private sources Supply The Italia Miistry of Ecoomic Developmet has implemeted a series of measures to support SMEs, which are aimed to complemet support programmes admiistered by the Europea Commissio, ad the Small Busiess Act (Europea Commissio, 2008). I order to prevet bakruptcies ad to icetivise egotiatig measures aimig at the survival of the eterprise the law o bakruptcies was reviewed. Furthermore i souther regios areas of zero bureaucracy have bee established (Law 122/2010). I order to facilitate SMEs i accessig credit, law 662/96 established a cetral guaratee fud for SMEs (Fodo cetrale di garazia per le PMI) aimed at facilitatig SMEs access to fiace via gratig a public guaratee o fiacial operatios. The fud is aimed at busiesses i all sectors ad covers all kids of fiacial operatio withi the scope of their busiess activities. It guaratees betwee 60% ad 90% (depedig o the amout borrowed) of the amout borrowed, up to 1.5 millio. Due to the ecoomic dowtur, i 2009 the fud was exteded to eterprises i the craft sector ad it was re-fiaced with about 1.6 billio for 2008 2012. By 31 October 2010 slightly more tha 65,000 loa applicatios had bee accepted gratig total fiacig of about 12.5 billio. I August 2009 a agreemet betwee the govermet, baks ad eterprises itroduced a moratorium of oe year o SME debts o mortgages ad leasig repaymets, ad a extesio of 270 days o short-term credits, i order to avoid liquidity costraits o SMEs durig the ecoomic crisis. I 2012 the moratorium was reviewed ad stregtheed alog the lies of the agreemet reached i 2009. The itervetio provides for three actios: repaymet of mortgages is suspeded for oe year; repaymets o fiacial leasig are suspeded for oe year o busiess property leasig; repaymets o fiacial leasig are suspeded for six moths o persoal property leasig. The suspesio agreemet ca also be retroactive for a maximum of 90 days. Secodly, duratio of mortgages ad deadlies for short-term credit repaymets are exteded for 270 days. Fially, i order to promote the developmet of SMEs activities, baks will grat fiace proportioal to the icrease i capital (ABI, 2012). It is estimated that about 260,000 SMEs beefited from the measures by the ed of February 2012 (PMI.it, 2012b). The atioal fud for iovatio (fodo azioale per l iovazioe) aimed at easig SMEs, difficulties i obtaiig the guaratees ecessary i order to get fiacig ad credit to iovate ad produce goods based o iovative patets. The fud is allocated 80 millio i order to put i place a mechaism of credit ad ivestmet risk-sharig for baks ad other fiacial itermediaries fiacig projects coected to patets. The high tech fud (Fodo High Tech) (Agezia per la diffusioe delle tecologie per l iovazioe, 2010) aims at promotig access to risk capital for iovative SMEs usig digital techology i areas of low employmet, i order to promote the techological ad process iovatio i the south. The fud provides for the participatio of the Govermet, through the pla E-Govermet 2012, Objective Eterprises, for a total of 86 millio, agaist a total budget of 160 millio (Agezia per la diffusioe delle tecologie per l iovazioe, 2010). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 29

Restructurig i SMEs: Italy The miisterial decree of 22 December 2009 lauched the fiacig of projects realised i uder-utilised areas aimed at promotig ad spreadig techologies amog SMEs, as well as i high tech start-ups. The programme is allocated 12.5 millio from the FAS Fud budget ad 58 projects had bee preseted by 26 April 2010. Each selected project receives fiacig for 50% of the expeses amoutig to 1 or 2 millio for a maximum of 24 moths (Miistero dello Sviluppo Ecoomico, 2010). Demad As already outlied i the restructurig sectio, SMEs top priorities are easier access to fiacig ad credit ad less bureaucracy. Ideed, as already argued, fiacial resources are idispesable for restructurig ad for ivestig i research ad developmet ad iovatio. Furthermore there is widespread agreemet o the ecessity to reduce bureaucracy, as too much ca udermie restructurig processes. I fact, as has already bee argued, if impedig crises are recogised ad addressed i time ad their egative cosequeces ca be limited, they ca actually represet a opportuity for developmet, improvemet, iovatio ad growth. However, too much bureaucracy ca work agaist eve timely itervetios. Moreover, several SMEs face major cash flow challeges due to o-payig ad slow payig customers, especially i public admiistratio. Public admiistratio owes Italia eterprises about 70 billio i upaid debts. May of these eterprises are SMEs, which are badly affected from these delays, especially whe securig fiacig ad credit is already difficult (Il Sole 24 Ore, 2011). 30 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Outcomes of restructurig As discussed, give the relevace of the system of Italia social shock absorbers most of the restructurig evets that do ot etail busiess expasio usually do ot impact o employmet levels i the short term. However, these restructurig processes require some orgaisatioal chages. Coversely, busiess expasio, by its itrisic ature, has some importat effects o employmet levels ad o the firm s orgaisatio. Orgaisatioal effects I terms of successful evets, the results preseted i the busiess expasio sectio show that whe compaies grow they ted also to moderise their goverace, developig a maagerial structure, where owership ad maagemet are separated, actors exteral to the family ca ivest capital i the eterprise ad CEOs are youger tha average. Successful compaies also ted to iovate more, ivest i research ad developmet ad itroduce iovative processes via iovatio i techology. Ulike other types of restructurig, the mai cosequece relates to the reorgaisatio of productio ad processes ad also the subsequet traiig ad re-traiig eeded to implemet the reorgaisatio i terms of issues such as fuctios ad skills. Ideed, traiig is essetial to fulfill the ew processes ad positios emergig from the restructurig process. Traiig is also essetial durig processes of restructurig maagemet, as the rotatio of workers i CIGS requires a redistributio of tasks, which requires a upgrade i skills ad competeces. Employmet effects There is ot much literature o the employmet effects of SMEs restructurig. This is most probably due to the fact that, as most restructurig processes i Italy are carried out with the assistace of the Italia system of social shock absorbers, the egative umerical effects of restructurig o employmet are at least temporarily avoided. Ideed, the CIG proved to be a very effective tool i terms of meetig the eeds of compaies facig difficulties, as it eables compaies to udertake restructurig while retaiig jobs at least i the short term. The use of the CIG before the 1990s was extesive, as rules about its duratio were ofte disregarded ad eterprises were allowed to be i CIG for may years, basically avoidig dismissig employees i the short ad log term. From the 1990s, rules ad moitorig o the CIG were tighteed ad the CIG became a very effective ad useful tool to help i retaiig jobs. I fact the CIG was maily used as a tool to guide employees towards their pesios, as there was a implicit agreemet with social parters at firm level that older workers would be placed i CIG, as they were the oes closest to pesio time. I some cases after the CIG those workers would the be placed i mobility util they became eligible for pesio. This meat a loss of experieced huma capital for the firms but also that restructurig could be doe without major social costs ad social urest. The curret crisis has bee too extesive to cotiue with this iformal agreemet; this is the reaso for a shift i perspective: stregtheig the lik betwee active ad passive labour market policies, ad successful trasitios i the labour market (Salvatore, 2010). Selected outcomes from specific types of restructurig While academic literature exists o the outcomes of specific forms of restructurig, there is ot much literature o the outcomes of these restructurig processes for SMEs. However, a umber of examples of differet outcomes i terms of orgaisatioal ad employmet effects have bee idetified i the existig literature. Here are some examples. Offshorig/delocalisatio I its survey, Istituto Tagliacare (2011) oted the experieces of 172 SMEs ivolved i offshorig activities, 171 SMEs subject to passive foreig direct ivestmet (bought by foreig eterprises), ad 259 SMEs operative o foreig markets Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 31

Restructurig i SMEs: Italy i terms of trade ad commerce (exportig SMEs). Some 52.3% of SMEs that delocalised or elarged their activity abroad improved their foreig turover. I their view this was maily due to: a icrease i demad (66.3%); better quality ad wider rage of products (31.3%); access to ew markets (25%); more competitive prices (20%); ivestmets (13.8%). The last reaso is quite iterestig, as it shows that ivestmets i delocalisatio, eve if costly, ca be a strategic choice i order to improve firm performace. Of the SMEs which delocalised: 55.2% maitaied stable employmet levels (with the help of the social shock absorbers); 20.9% decreased their employmet levels; 22.1% icreased them; 39.5% declared that delocalisatio helped them to reduce costs (Istituto Tagliacare, 2011). Iteratioalisatio I implemetig processes of iteratioalisatio, the study by Istituto Tagliacare (2011) showed that: 29.7% of SMEs said they had better access to ew market segmets abroad; 29.7% SMEs improved their productio capability; 31.7% of exportig SMEs declared a improvemet i productivity; 29% said they had a improved rage of offered goods; offshorig compaies reduced costs (39.5%) offshorig compaies gaied access to ew market segmets abroad (31.4%). I terms of size, the survey shows that micro ad small eterprises seem to gai more from accessig foreig markets (31.8%) while medium-sized eterprises gai from a reductio i costs (32.8%) (Istituto Tagliacare, 2011). The survey also shows a strog relatioship betwee presece o foreig markets ad improvemet of firm performace. I fact 42.2% of the sample said they had improved their turover durig 2010 due to sales o iteratioal markets. I particular a higher turover was recorded for those SMEs ivolved i offshorig ad delocalisatio (52.3%), agaist 46.9% of those ivolved i passive FDI ad 33.7% amog exportig SMEs. Bakruptcy/closures It is iterestig to ote that, i a recet article, Filippi (2012), usig ISTAT s archival data o ew eterprises as a proxy for ew eterprises, estimated that the umber of ew eterprises is correlated to their employees turover, or more precisely to the positive ad egative variatios of the employees recorded for each eterprise. I particular, whe lookig at data for provices, the higher the umber of jobs destroyed i eterprises, the higher the umber of ew eterprises. The vast majority of these ew eterprises (88%) did ot survive their first year. Furthermore, data show that the more eterprises are bor the more eterprises cease to exist. Ideed, as most eterprises are bor whe other eterprises destroy jobs, it could be argued that may of these ew eterprises are attempts o the part of dismissed employees to promote their selfetrepreeurship via oe-perso eterprises, rather tha a real process of creative destructio (Filippi, 2012). 32 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

Coclusios ad policy issues SMEs are the backboe of the Italia ecoomy; however there is ot much literature o how ad why they restructure. Most SMEs have attempted to couter these difficult times, by implemetig measures icludig iteral restructurig, mergers ad eve bakruptcies ad closures whe all other efforts i cuttig costs ad reorgaisatio proved usuccessful. Iteral restructurig is the mai strategy for restructurig as it eables the reductio of costs ad the itroductio of reorgaisatio programmes while temporarily preservig employmet levels. Noetheless bakruptcies icreased dramatically durig the crisis. However, respodets to the CSC Demos ad Pi survey (Nardozzi ad Paolazzi, 2011) declared that busiess expasio was their ultimate goal, i order to improve productivity, to reach ecoomies of scale ecessary to be able to ivest i research ad developmet as well as to icrease their market presece. I this sese, SMEs are every day more aware of the importace of iovatig ad expadig, sometimes via iteratioalisatio. Regardless of the difficult circumstaces over half of the iterviewed SMEs said they had icreased their budgets for research ad developmet ad for iovatio, both techological ad orgaisatioal. All SMEs declared that access to capital was vital i order to implemet ay effective restructurig process, while delays i paymets from debtors posed a further costrait o restructurig especially i times of ecoomic difficulties. Moreover, it must be uderlied that the Italia system of social shock absorbers has proved to be crucial to SMEs restructurig, especially durig the crisis. However, some argue that the system has to be carefully implemeted ad moitored, i order to assist those eterprises that ca effectively beefit from restructurig. For this reaso these social shock absorbers should oly be a temporary tool. Whe it is evidet that restructurig caot lead to positive outcomes, policy efforts should focus o shiftig employees from dowsizig, ad i some cases o upsizig eterprises, rather tha tryig to secure the employmet relatios betwee employer ad employee (for example, CIG) (Barba Navaretti et al, 2011). The ecoomic crisis caught the Italia etrepreeurial system i the middle of a restructurig process, while they were adaptig to globalisatio ad the adoptio of the euro. With globalisatio low-cost labour suppliers (especially Chia) became fierce competitors of Italia SMEs, particularly i the traditioal made i Italy idustries (such as textiles), while the adoptio of the euro preveted SMEs from competig o productio costs as currecy devaluatio was o loger possible. Ideed Italia maufacturig SMEs lost their competitive advatage, which resulted i a stagatio of productivity. However, pre-crisis evidece idicates that some successful eterprises, which modified their busiess models, chose to igore the traditioal path of focusig o ivestmets relatig to productio phases, ad istead ivested i research ad developmet, desig, marketig ad advertisig as well as distributio etworks, access to ew markets ad assistace. I this way they differetiated their products from those of their competitors, ad they refraied from the pure competitio of prices. The crisis did ot stop the process of restructurig but rather started a process of selectio. Evidece shows that those eterprises that were able to grow cotiued to do so durig the crisis, while those eterprises that were ot able to iovate ad stayed i their traditioal model were overwhelmed by it. SMEs that grew were those that made more immaterial ivestmets, ivestig i itagible goods. Hece restructurig cotiued also durig the crisis, ideed there was rather a polarisatio of performaces: those SMEs that were expelled from the market were already fragile, ad as the fiacig was allocated i a selective maer they were left with poor prospects (Romao ad Schivardi, 2011). This is also stressed by the fidigs of a survey by Forbes Isights to which the Italia respodet SMEs declared that the recessio essetially forced them to become better busiesses. Overall: 71% said they were plaig more effectively; 57% agree they are smarter today about ruig their busiesses tha they were before the recessio; 60% feel they are i a stroger positio today tha they were prior to the dowtur (Forbes Isights, 2010a). Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013 33

Restructurig i SMEs: Italy I coclusio, a umber of recommedatios ad policy poiters ca be formulated to stimulate discussio ad further research. Give the peculiarities of SMEs ad their relevace at atioal ad Europea level, more research should be focusig o explorig the characteristics ad eeds of SMEs restructurig. Access to credit ad fiace for SMEs should be eased, especially i times of ecoomic difficulties. I particular, special focus should be placed o those SMEs ivestig i iovatio. Bureaucratic procedures should be simplified ad a cultural ad legal chage might be ecessary i order to reduce the stigma associated with failure (bakruptcy). More efforts should be devoted to aticipatig restructurig. Too ofte restructurig evets are implemeted i a uplaed ad uaticipated maer. I this cotext more focus should be placed o developig tools to moitor ad idetify structural shifts. I particular, more focus should be placed o iovatio, i terms of ew skills ad competeces, but also techological iovatio ad orgaisatioal iovatio. The Italia Cassa Itegrazioi Guadagi plays a key role i restructurig processes. However, this support must be temporary ad used oly for eterprises which ca beefit from the restructurig evets. Whe it is clear that eterprises caot survive the restructurig evet, support should be focused o easig the trasitio of employees towards other eterprises. 34 Europea Foudatio for the Improvemet of Livig ad Workig Coditios, 2013

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