Italian SMEs Research Articles

Early Warning Systems: A Risk of Increasing Managerial Myopia?

The Italian legislator has recently approved a new Insolvency and Crisis Code (Legislative Decree 14/2019), introducing a compulsory Early Warning System to detect occurring crises. The new provisions are in accordance with the eu policies that require Member States to develop national insolvency frameworks, which force enterprises in financial difficulties to restructure at an early stage of the crisis (EU Directive COM(2016) 723). The aim of the new rules is to prevent, as far as possible, insolvencies, and therefore to maximise the total value to creditors, employees, owners, and the economy as a whole. Since the new rules imply more encompassing responsibilities for corporate supervisory bodies, these provisions are generally perceived as having the ability to induce a significant impact on Italian SMEs’ management control systems. This is certainly to be welcomed, because this is an area where there is still room for much-needed improvements. Nevertheless, some concerns should also be expressed. As a matter of fact, possible misunderstandings and misuses of different sets of control could derive from this new focus on early warning indicators. Notably, a bureaucratic and formal approach in the design and use of companies’ control structure could prevail, since generally, among practitioners, there is not enough knowledge and understanding of the rationale of management control systems. Different kinds of control, such as post-action controls, steering controls, and yes-no controls, could therefore be confused, with an almost assured negative effect on firm’s ability to pursue its strategic aims. Another area of potential misconstruction could arise from the confusion between managerial control systems on one hand, and internal auditing on the other: their roles and aims should be clearly understood and kept separated, although within an integrated framework. This distinction is of a paramount importance because, with the new law, the monitoring of the occurring crisis is no longer a responsibility of the sole directors, but it involves other subjects: the board of statutory auditors (or the single statutory auditor). These subjects will therefore have a set of incentives that make them focus all their attention on avoiding insolvency risks, with no or little interest in the pursuing of long-term goals, possibly leading to short-termism and a lack of strategic action. Early warning indicators are certainly useful, as they can be employed both as a diagnostic form of control, and as a strategic tool to detect in advance the evolutions of the environment and the competitive arena. Clearly, different sets of parameters should be adopted in the two instances, and, more importantly, different logics and ways of interpreting them. Regrettably, the new rules concerning early detection of crises could determine a too narrow focus on the short term, therefore causing managerial myopia. Building on previous literature, this article aims to develop a set of indications that could lead to a better understanding of the purposes and rationales of different kinds of managerial controls, and therefore to help practitioners to design their managerial control systems in a more informed and balanced way.

Digital readiness assessment of Italian SMEs: a case-study research

PurposeGiven the challenges that Industry 4.0 poses, the purpose of this paper is to propose a comprehensive assessment model suitable for evaluating small- and medium-size enterprises’ (SMEs) digital readiness levels, discuss the results of an assessment of 20 manufacturing SMEs using the proposed model and highlight priorities needed to undertake a successful journey towards Industry 4.0.Design/methodology/approachThe research adopts an empirical approach using multiple case studies. Starting with a literature review about maturity and readiness-assessment models for Industry 4.0, the study’s model has been built and validated through two pilot case studies, with the final model used in an extensive case studies research with 20 enterprises.FindingsThe SMEs used in this research present an intermediate readiness level with respect to Industry 4.0. They are aware of the phenomenon, but management is still taking the first steps towards identifying the most appropriate strategy to approach this Fourth Industrial Revolution. Companies need to exploit all opportunities that data availability provides in terms of knowledge creation and decision-making support, in all forms, through investments in people skills and expertise and through an infrastructure that can support data gathering, analysis and sharing.Originality/valueThe Italian industrial landscape comprises mainly SMEs, mostly needing support to understand their path towards Industry 4.0. Therefore, the proposed model specifically focuses on SMEs, given its modularity, ease of understanding and fit to SMEs’ organisational structure. Furthermore, insights from 20 Italian SMEs are examined, and a list of priorities is highlighted.

The relationship between digital technologies and internationalisation. Evidence from Italian SMEs

ABSTRACTThe article empirically explores the role of e-business digital technologies in explaining the export propensity of Italian SMEs and focuses on the adoption and implementation of e-business technologies that enable firms to share information along the supply chain in order to take into account potential heterogeneities in paths of digitalisation. Our results, besides confirming the positive role of internet-based technologies already investigated in the current literature, show that e-business technologies have a positive impact on internationalisation only when they are embedded within process and organisational innovations and investments in digital skills have been made. This indirectly supports the argument that as the array of technological choices increases, the need for concurrent internal changes, as well as a detailed assessment of the connectedness between technological alternatives and specific business types, industries, or trading environment become increasingly important.

R&D internationalization in medium-sized firms: The moderating role of knowledge management in enhancing innovation performances

The aim of this paper is to analyze the relationship between SMEs’ R&D internationalization and their innovation outcomes. Most studies on the topic focused on large multinational companies (MNCs), leaving several gaps in the literature with regard to SMEs. Using data from 106 Italian SMEs we performed an OLS regression analysis to test and find evidence of a positive linear relationship between SME’s R&D internationalization and innovation performance. In addition, we found that this relationship is positively moderated by knowledge management (KM) orientation. Main contributions are directed to the empirical test of the aforementioned relationships in a specific under developed research area, i.e. non-high tech SMEs, thus highlighting the positive effect of foreign acquisition of diverse cross-cultural knowledge on innovation. Moreover, KM orientation has been found to amplify this effect in the context of SMEs, due to a better management and integration of key internal and external knowledge.

ASSESSING THE INNOVATIVE PERFORMANCE OF ITALIAN SMEs

This article aims at assessing the innovative performance of Italian SMEs through the analysis of the many dimensions which together define firms’ innovative capability. The European Innovation Scoreboard (EIS) classifies Italy as a moderate innovator. However, when disaggregating the data, it is possible to observe that Italy performs below the European average, when considering Innovation Enablers (e.g. Human Resources, R&D and Financial Support) and Firms’ Innovation Activities, and above the European average, when focusing on the the Output of innovation, i.e. its economic effect on exports and sales. Thus, it seems that Italian SMEs have been able to exploit agglomeration economies, due to the fruitful activity of industrial districts, and have been the actors of a success story, which combines growth and innovation. Finally, the article identifies and briefly examines three key questions: the impact of capital structure on innovation, the role of public funding in addressing R&D strategies and the potential benefit of the cooperation between firms and universities.

Firms' efficiency and global value chains: An empirical investigation on Italian industry

AbstractThis paper investigates the effect of participation in global value chains (GVCs) on firms' efficiency and explores heterogeneity in this impact across different firms, according to GVC governance, positioning in the chain and time length of participation. Our analysis takes advantage of survey data providing information on involvement in GVCs for a large set of Italian industrial SMEs between 2008 and 2012. We employ Data Envelopment Analysis (DEA) to retrieve a measure of firms' technical efficiency (i.e., DEA efficiency scores) and estimate the impact of involvement in GVCs on firms' efficiency through propensity‐score matching techniques and truncated regression. Our results show that participation in GVCs induces significant efficiency premia, especially for suppliers, with stronger effects in the case of relational modes of participation.

A Longitudinal Approach to Management Turnover in Small and Medium Sized Enterprises in Italy

Italian small and medium-sized enterprises have experienced their first generational turnover in the 1970s, when the founders have been succeeded by their heirs. Today, the theme does not seem to be exhausted, as much in literature, which strongly affirms the multidimensionality and criticality of the transition phase, as in the entrepreneurial reality. Part of a more comprehensive research project on management turnover, this study focuses on a specific territory, the province of Brescia, chosen for its strong industrial vocation and considered as representative of the industrial landscape of Italy. The study focuses on the small and medium-sized industrial fabric management, sampled in 524 enterprises that met the research requirements, home for a total of 2640 roles. Management data has been profiled by age, gender, position and company size. The details of the sample confirm the relevance of turnover issues to Italian SMEs. Managers longevity is higher for chairman and higher executives than other roles; furthermore, most of the examined people perform multiple roles at the same time. The longitudinal approach reveals people over 70 years old hold an average of 2 positions per person, with a strong correlation between the three most prevalent management roles analyzed. This research was supported by the SME Industrial Association of Brescia.

Public Funding and Innovation Strategies. Evidence from Italian SMEs

Using a dataset which combines Community Innovation Survey (CIS) and accounting information on Italian manufacturing firms, we adopt a two step econometric procedure to investigate whether the receipt of public funding determines firms’ innovation strategy selection. In the first step an innovation selection equation is estimated, in the second we adopt a bivariate probit model. The main finding is that public funding influences whether firms select the make, the buy or the make&buy strategy, favoring the latter. The composite strategy is the one linked to the build up of absorptive capacity which, according to the empirical evidence, turns out to be associated to a better innovative performance.

Gender and Performance: Preliminary Evidences from Italian Innovative SMEs

However, very scant is the attention, at the international level, devoted to the analysis of the role of gender in innovation per se and in innovative SMEs. This chapter fits into this underinvestigated stream of research by specifically analysing the impact, if any, of gender on Italian innovative SMEs’ performance.

Internationalisation Strategies and Firms Performance. A Co-Evolutionary Study on Italian SMEs

The hypercompetitive business landscape that SMEs are currently facing is increasingly pushing them to internationalise their businesses. In doing that, entrepreneurs and executives make important strategic choices related to their investments in cost leadership and differentiation strategies to improve, or at least maintain, their current performance. However, despite the great interest of scholars on this theme, there are no studies about the effects of these different courses of action on firms' performance, especially considering the concurrent influence of sectorial and macroeconomic trends. This contribution, which looks at the dialectical relationship between firms' strategic choices and their environment according to a co-evolutionary perspective, tries to fill this gap presenting evidence from a panel study of 4,098 Italian SMEs over ten years (2008-2017). Findings show that environmental trends and strategic choices simultaneously influence internationalised SMEs' performance and that these firms adapt their strategic choices according to market munificence. Entrepreneurs and executives of SMEs may benefit from the results of this study in order to make better strategic choices when defining their internationalisation strategies.

In the mother’s shadow: exploring power dynamics in family business succession

Purpose This paper aims to investigate and explain the power dynamics involving the mother (as the founder) and the daughter (as the successor) during the business transmission process. Design/methodology/approach This qualitative research was conducted on a sample of Italian family SMEs. The adopted approach is consistent with the narration paradigm, where the biographical features of the participant are investigated to highlight the culture, value systems and other background features. Findings This research suggests that if the founder is her mother, the daughter faces further challenges. Findings suggest that during business transmission, it is also important to consider the cultural and contextual factors, such as gender biases, both in the family and in the workplace. This paper seems to suggest that power is important in itself, regardless of the gender of those who exercise it. Research limitations/implications Future research should investigate, quantitatively, the same issues considered in this research, to assess the reliability and validity of the evidence discussed here. Practical implications This paper suggests how to overcome dysfunctional dynamics in mother–daughter business transmission. Social implications Family firms are the most widespread type of firm in the world; as a consequence, systematic failures in business transmission represent a prominent socio-economical problem for policymakers and institutions. Originality/value This research shows that in family business, power is not dynamic and does not shift among family members, as suggested by previous research. Even once the mother retires, a stable power hierarchy remains within the family firm.

Good value for public money? The case of R&D policy

This paper evaluates the role of public R&D support on Italian manufacturing SMEs’ innovation activities, focusing on innovation output rather than innovation input. Combining information from EPO records and the Capitalia survey, the new data set enables a counterfactual assessment of R&D policy from 2001 to 2003 (2009 is the final year of the post-treatment period). We find that publicly supported firms have higher R&D expenditure regardless of their characteristics, confirming a strong additionality effect of public policies on innovation inputs. However, this additional spending does not increase firms’ probability of patenting or the number of patents in comparison with privately financed R&D.

Digitalization and servitization: opportunities and challenges for Italian SMES

Purpose of the paper: Servitization has presented a series of persistent shortcomings for manufacturing companies that have dramatically slowed down its adoption. Recently, digital transformation (digitalization) is posing a very similar challenge to manufacturing. Technologies like the Internet of Things (IOT) are forcing firms to create entirely new business models, migrating from product-centric approaches to (digitally-based) service-oriented ones. This paper aims at describing the impact of digital transformation on the adoption of service business models in manufacturing, with particular focus on problems, challenges and opportunities for Small- to Medium-sized Enterprises (SMEs). Methodology: Given the exploratory aim of the research, a qualitative research method was adopted . The analysis is based upon six archetypal case-studies regarding different types of manufacturing companies involved in digital transformation, and 10 interviews with business and industrial experts. Findings and implications: In our study, connected products offered by industrial machines, cooking appliances and home appliances manufacturers can trigger new service offerings. Predictive maintenance, accurate warranty modeling, consumption control, energy saving, and customer customized utilization of the products foster unprecedented relations with customers. In one case, the connected product is at the base of a machine-as-a-service (MAAS) model, with invoicing based on uptime and process efficiency. In all of the cases the importance of data analytics is deemed to be strategic for business model changes in the near future. Originality of the paper: Digital disruption and transformation is a rather recent research stream, and at the best of our knowledge no research has been carried out with specific attention to its impact on service business models and servitization in SMEs. The paper contributes to this research stream by describing the main challenges and opportunities that await firms engaged in projects and experiments of digital transformation and service transition.

How Much Is the Financial Structure of Italian Textile SMEs?

How Much Is the Financial Structure of Italian Textile SMEs?

To What Extent Do Regional Effects Influence Firms’ Capital Structure? The Case of Southern Italian SMEs’

There is tremendous interest, in the economic literature, for the determinants of firms’ capital structure decisions. A rich body of empirical works now exists that purports to identify firm- and country-level factors affecting firms’ financing patterns. In addition, more recently, a new stream of studies has emerged that investigates cross-regional variation in small firms’ capital structure. While small firms’ leverage does seem to vary across regions, at least in countries where significant regional differences in economic and financial development and in the quality of institutions exist, not much yet is known about variation in debt maturity, in debt in relation to equity, and between different types of small firms. The present paper aims to fill this gap through an empirical analysis of cross-regional variation in the capital structure of a sample of about 30,000 Italian small firms over a 13-year period, including the aftermath of the credit crunch that followed the 2007–2008 global financial crisis. The findings confirm the view that small firms in underdeveloped regions are more financially constrained, but also amend some of the results shown in the literature, in particular by showing how small firms in Italy’s Southern regions have higher levels of equity and fixed assets than small firms in other regions.

Financial policy of Italian SMEs: The impact of mini-bond

Matter of interest is the financing policies adopted by Italian SMEs to sustain their business cycles and competitive strategies; more specifically, the paper attempts to verify the role played by the “mini-bond”, a financing instrument introduced in 2012 by the Italian government. So, this paper can be framed in the part of the wide financial literature that examines the financing decisions of SMEs. In this field, it provides a contribution in this field by analyzing the impacts on the financing policy and choices, generated by the introduction of new and alternative financial instruments. Therefore, focusing on the Italian context, the research analyses whether the mini-bonds have actually triggered variations in capital structure, solvency and profitability of Italian SMEs that have issued mini-bond. After having considered trends and statistics about the mini-bond market, the paper examines the effects of financial policies adopted by Italian companies that tapped the bond market in the last 7 years. The analysis is based on a dataset extracted from database AIDA; this dataset includes accounting data and financial ratios taken from financial statements of Italian SMEs that issued mini-bond between 2012-2016. The research covers a sample of 246 Italian companies and focuses on their accounting ratios related to financial leverage, solvency, and profitability. Considering the variation between the years before and after the issues for each of 12 considered ratios, we measured average, median and standard deviation of variations to analyze the financial behaviour of SMEs in the sample. This research framework is slightly different from previous researches because, to correctly interpret the average variations, we carried out a preliminary significance check using the Student distribution, and we observed the coherence between average and median, also considering if positive variations were less or more than negative ones. The main results we obtain are that mini-bonds have: an impact on the issuer’s capital structure, with clear impacts on the level and maturity of indebtness; a positive influence on the short-term solvency level of the issuers.

The impact of the new Italian Early Warning System Provided by the IC-Code on family SMEs governance

The Early Warning System is intended as an instrument aimed at driving the companies in the identification of the very first signs of crisis. Monitoring the occurring of the crisis is no longer a responsibility of the sole entrepreneur or of the board of directors but other legitimized subjects are identified. The IC-Code sets up new corporate governance rules for a huge number of Italian Family SMEs pretending the introduction of independent control bodies, Board of Statutory Auditors, and/or External Auditor. Some of the suggestions coming from the family business framework seems then to be enforced by law in the Italian context

How did the global financial crisis impact the determinants of SMEs' capital structure

While there is sufficient evidence that a crisis impacts lending behaviour and corporate leverage, the literature on the effects of the global financial crisis on small and medium-sized enterprises (SMEs') capital structure is limited if not absent. This paper aims to analyse how and to what extent various macroeconomic states impact the capital structure determinants of SMEs. Based on a comprehensive dataset of Italian SMEs during the 2006-2016 period, we use a fixed effects panel approach to examine SMEs' capital structure decisions before, during and after the 2008 financial crisis. Our results show that the financial crisis negatively affected SMEs' financial leverage, as the total debt ratio significantly declines in our sample period. However, we also find that the financial crisis negatively impacted trade credit, given that it does not substitute for the reduction of credit from financial institutions. Finally, the impact of capital structure determinants significantly changed during and after the crisis compared to the pre-crisis levels. Our results indicate that compared to the pre-crisis period, profitability, profit volatility and liquidity are the main determinants of the total debt ratio during and after the crisis. These results have implications for firms and policy makers.

Evidence for using the cash conversion cycle to test the relationship with the corporate profitability: an empirical analysis on a sample of textile Italian SMEs

The cash conversion cycle (CCC) is a financial index with increasing importance in recent years since analysts and investors consider it effective for financial analyses. The index provides a correct and truthful situation of the company's ability to cope with its liabilities and allows the company to monitor the cash cycle with reference to purchase operations, production, and sales of products. The CCC is an index expressed by days, so it is necessary to know the days inventory outstanding, the days sales outstanding, and the days payable outstanding to calculate it. The purpose of this research is to analyse characteristics of the CCC and differences with respect to the other liquidity ratios and its relationship with the most relevant financial ratios through empirical applications to verify if it is a reliable index for making decisions regarding a company's cash flow strategy.

Evidence for using the cash conversion cycle to test the relationship with the corporate profitability: an empirical analysis on a sample of textile Italian SMEs

The cash conversion cycle (CCC) is a financial index with increasing importance in recent years since analysts and investors consider it effective for financial analyses. The index provides a corre...