Lockdown Economy Italy

Small and Medium Enterprises (SMEs) in Italy make up 99.1% of all enterprises, employ 76.1% of the total workforce and produce 64.3% of total value-added [1]. The overall state of the economy is thus heavily reliant on the performance of SMEs. This is particularly significant when an unexpected event like the COVID-19 pandemic brings about a disruption never seen before. While the whole economy has experienced certain disruptions, the SMEs in the trade and services sector have been significantly hit by the restrictions imposed by this health emergency. 

As society adjusts to a new post-pandemic equilibrium, some trends observed throughout the pandemic will require policy responses to accompany small businesses in the new socio-economic environment. 

Thanks to the Lockdown Economy, an initiative by the Think Tank AlterContacts, the small business owners have shared their insights, challenges, and successes during the COVID-19 global pandemic to inspire, motivate and encourage other entrepreneurs around the world [2].

Meeting your customers’ needs when you can’t meet your customers

From the beginning, the first and most obvious effect of the pandemic was the enforcement of lockdown measures. For small businesses, these restrictions on movement meant complying with regulations on hours of operation and even closing for weeks and months during the most acute phases of this health emergency. It has proved difficult, if not impossible, for all businesses to physically reach old and new customers.

Although not all sectors have been equally affected by the intensity and duration of the restrictions, both manufacturing and service companies have faced this particular challenge.

With the impossibility of having customers physically present, the most successful responses have required some degree of creativity. This is the case of In Sprint, an Italian strategy consultancy. Its founder, Fabrizio Faraco, explains how the impossibility of organizing workshops, which was his main tool for delivering their services, forced him and his business partner to think of a new way of conducting their business. This led to a new online interactive workshop and met with much success. Mr. Faraco stated that the online workshop is an offering that was designed during the lockdown but that "will be part of the solution even in face to face situations" [3].

The call

Micro, small and medium enterprises should be facilitated in accessing product and service design consulting, in order to develop new products and services tailored to the new business environment, where the digital dimension will be increasingly relevant. For instance, financial incentives could be provided to companies that invest in professional services for developing new products and services or improving existing ones.

Upgrading digital skills

While digitalization has multiplied the opportunities for companies, allowing them to maintain some operations during the most critical phases of the pandemic and, in some cases, even develop new services, the situation in Italy is somewhat discouraging.

As reported in a recent study by the European Investment Bank [4], the level of digitalization of Italian SMEs is lower than in other European countries (including their closest competitors). The same report shows that the least digitized sectors were the most affected by the economic impact of the pandemic.

According to the latest data, Italian companies are above the EU average when it comes to the percentage of companies that have a fixed broadband connection (94.5%). Unfortunately, the situation appears worrying when it comes to digital capabilities: Italy ranks fourth to last among the EU countries when it comes to the percentage of the workforce with at least basic digital skills, and second to last when it comes to workers with at least basic problem solving and information processing skills [5].

Call to Action

Public investments should be directed at promoting digital education among employees in SMEs.

Adjusting to a new workplace setting

Not only did interaction with customers and suppliers change in this age of teleworking, but working with colleagues did as well. There are both advantages and disadvantages to working-from-home. First, less time is spent commuting.

But can working from home be considered equally effective? A recent McKinsey study [6] analyzing the potential of remote working in a number of countries concluded that while some tasks can be done remotely in times of crisis, they are much more effectively done in person. This is true for activities that require consultation and feedback, or those that benefit from collaboration.

It's clear that hybrid working arrangements that accommodate both office and home presence are here to stay indefinitely. For smaller businesses, this could mean a very challenging change to their logistics and work organization, which would need to be managed properly. 

Call to Action

SMEs should be assisted in redesigning roles and functions to be flexible and resilient to new working arrangements. As most SMEs don’t have a permanent Human Resources manager which can assist with this process, professional services should be made available to small businesses by government-backed funding. 

Networking with colleagues and, why not, with competitors

Being an entrepreneur when your company is a small business means having very few people around you. For microenterprises, you might not even have a colleague. The pandemic has exacerbated this sense of isolation. On the other hand, has strengthened the rationale for the creation of a virtual network among companies in the same sector. 

Fabrizio Faraco, from In Sprint, states that “A company of two people sometimes can feel a bit lonely, so we team up with a series of companies all around the world (under the label of “Trivium International”) devoted to allowing companies to take opportunities from this shock, simply by strategizing ahead.”

Some businesses have even come to appreciate the contact with competing firms. This is the case for Startup Without  Borders, a startup ecosystem founded by Valentina Primo. “Yes, we collaborate with our competitors. I think that’s the beauty of the start-up world” [7].

But it is during difficult times that support from others is the most helpful. Dora Carapellese, a journalist and consultant in communication and media relations, shares her experience during the first wave of the pandemic in Italy: "Another activity I really enjoyed was giving free consultations to colleagues on personal branding: Mostly conversations with young freelancers in difficulty who have reached out to me. First of all, for the social aspect, because you usually meet with colleagues. The fact that you couldn’t meet, or at least couldn’t talk face to face, gave me the opportunity to deal with different realities, each with its own specificity, and enter into synergy with these young people - they were all women, with the exception of one man" [8].

Call to Action

Policies should address promoting collaboration and cooperation among businesses.

CONCLUSION

Since the outbreak of the COVID-19 pandemic, small enterprises have faced an altered business environment. Regardless of the actual impact on their bottom line, companies face new working conditions in every aspect of their business lives. Although being smaller brings greater flexibility and adaptability, public policy should be geared towards helping SMEs adapt to the new business paradigm. This is particularly true for Italy, whose economy strongly relies on micro, small and medium enterprises.

Whilst the Italian government has responded well since the outbreak of the pandemic [9], some further measures may be useful to help businesses transition into the new post-pandemic economy.

Written by Giulia Silva who holds a graduate degree from Bocconi University. She is currently working as an Economic Affairs officer for a business association in Italy.

Edited by Sara Pasqualetto

Editor-in-Chief - Julia Skupchenko

REFERENCES

1 - European Commission (July 2021). Annual Report on European SMEs 2020/2021. Available at https://ec.europa.eu/docsroom/documents/46062/attachments/1/translations/en/renditions/native . Accessed 22 October 2021

2 - Think Tank AlterContacts, Lockdown Economy initiative. Available at https://lockdowneconomy.org 

3 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown in a Strategy Consultancy with Fabrizio Faraco. Small Businesses Respond to Coronavirus.  Available at https://www.youtube.com/watch?v=jZd7JoqtaOE&feature=youtu.be

4 - European Investment Bank (May 2021). The digitalization of small and medium-sized enterprises in Italy: Models for financing digital projects - Summary Report. Available at https://www.eib.org/attachments/thematic/digitalisation_of_smes_in_italy_summary_en.pdf 

5 - European Commission (2021). Digital Agenda Key Indicators. Available at https://digital-agenda-data.eu/datasets/digital_agenda_scoreboard_key_indicators. Accessed 28 October 2021

6 - McKinsey Global Institute ( November 2020). What’s next for remote work: An analysis of 2,000 tasks, 800 jobs, and nine countries? Available at https://www.mckinsey.com/featured-insights/future-of-work/whats-next-for-remote-work-an-analysis-of-2000-tasks-800-jobs-and-nine-countries. Accessed 27 October 2021

7 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown in an Ecosystem Builder with Valentina Primo. Available at https://youtu.be/7y6ivWIQrw4. Accessed 28 October 2021

8 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Italy with Freelance Journalist Dora Carapellese.  Available at https://www.youtube.com/watch?v=pNUfw-0FI-c. Accessed 28 October 2021

9 - European Commission (in progress).Details of Italy's support measures to help citizens and companies during the significant economic impact of the coronavirus pandemic. Available at https://ec.europa.eu/info/live-work-travel-eu/coronavirus-response/jobs-and-economy-during-coronavirus-pandemic/state-aid-cases/italy_en . Accessed 28 October 2021