Sorry, We're Coming Back

ITALIAN COMPANIES SEEKING QUALITY AND INNOVATION ARE REPATRIATING THEIR ACTIVITIES AFTER A DECADE OF OFFSHORING

by Paolo Preti, Dept. of Management and Technology, Bocconi
Translated by Alex Foti

The term is re-shoring but it could be translated as: “Sorry, we were wrong but we’re coming back” would be more apt. In fact, re-shoring refers to those firms that had offshored production toward close and faraway countries at the turn of the millennium, but have then decided to bring back those assets and functions within national borders. After years when it was all the rage, rather then seeking new markets, to go where production costs were lower to stay competitive with traditional customers, many companies have understood that a U-turn in strategy is in order: not old customers to be retained at a discount by manufacturing in developing countries, but new clients to be conquered with continuously improved products, in terms of quality, image, services.

Since none of this is easily obtainable from the economies that are offshoring destinations, where unit cost minimization of standard goods of medium-to-low quality is the only pursuable strategy, here are the Italian firms coming back, without fanfare, to the homeland to reappraise the country’s diffuse manufacturing abilities.

There is another phenomenon that can be assimilated to this. We often hear in Italian TV talk shows the threat of many entrepreneurs from Lombardy, Venetia, Friuli of moving their firms to more hospitable Switzerland and Austria, to cut red tape and obtain incentives and higher services for their businesses. Nobody went back a year later to ask how many of these entrepreneurs had actually decided to close shop in Italy and move their business abroad. If the media had done so, they would have discovered that less than 10% had gone from complaint to defection: talk is cheap, but moving your family and assets to another country is not.

But there is more. In the current economic debate, there are those who are fierce defenders of the Made in Italy from the attacks of foreign capital. However they fail to see that Italian companies are also acquiring firms abroad, and that is standard practice for foreign companies in Italy to leave the businesses they bought where they found them, because it is there that the right combination of skills and human capital exists to manufacture the products that made the firm appealing in the first place. The argument is then settled: Italy has an original tradition and background for which there is no substitute, other than for rapidly obsolescent short-term business strategies. You cannot find elsewhere what Italy has to offer, in spite of the country’s all lingering problems, in terms of entrepreneurial resources and manufacturing skills.