Small and medium-sized enterprises (SMEs) and entrepreneurs are major drivers of innovation, economic growth and job creation, and play a critical role in social cohesion. They are essential to the Italian economy. This review underlines some important points of strength with respect to Italian SMEs and entrepreneurship. Italy can be characterised as an SME economy, with very large numbers of SMEs and entrepreneurs. Italian medium-sized firms very often excel in their market niches and, on aggregate, their productivity exceeds that of their peers in countries such as Germany and France. Italian SMEs have a strong propensity to business collaboration, as found for example in many world class industrial clusters. The Italian business environment is also favourable to business start-ups. The time needed to open a business is shorter than in most other OECD countries. Administrative burdens on firms, especially those of small size, are also low thanks to simplification of rules and procedures during the last 10 years. Important steps have also been taken by the government to help SMEs negotiate the crisis by improving their access to finance; for example the resources of the national credit guarantee fund have been increased and the government has brought forward payments of state commercial arrears to private-sector firms.

Small and medium-sized enterprises (SMEs, i.e. enterprises with less than 250 employees) are the backbone of the Italian economy. They account for 99.9% of its firms, 80% of its employment and 67% of its value added, among the highest proportions in any OECD country, and medium-sized Italian firms (50-249 employees) have high productivity levels by international standards. Italy is also an entrepreneurial economy. Nearly one-half of the population would prefer to be business owners than employed, nearly one-quarter of the workforce is self-employed, and small businesses tend to be young.

SMEs and entrepreneurs are the backbone of the Italian economy. With nearly 100 enterprises per thousand people its business density is one of the highest among OECD countries. One-quarter of the working population is self-employed, the second-highest rate in the European Union (EU). Italian SMEs contribute 80% of national employment and 67% of value added, the third and fifth highest shares in the OECD area respectively. SMEs are also at the core of Italy’s export and innovation performance, accounting for over 50% of the total volume of exports and 22% of business R&D investment. The share of firms that are young, with less than three years of age (14% of Italian enterprises), is in line with the most entrepreneurial OECD economies.

This chapter examines the structure and performance of the new and small firm sector in Italy. It compares Italy with other OECD countries with respect to the distribution of firms by size class, business density and self-employment rates, high-impact entrepreneurship rates, productivity export and innovation levels, and the entrepreneurial attitudes of the population. The chapter shows that Italy is a small business-oriented and entrepreneurial economy with some signs of fragility, with respect to low business start-up rates, low numbers of high-growth firms, relatively few medium-sized enterprises, and a large informal economy.

This chapter examines the business environment and framework conditions influencing entrepreneurship and SME development in Italy. The focus is on: macro-economic conditions; product market conditions; business regulations (i.e. ease of doing business); human resources; access to finance; taxation and social security; transparency and the rule of law; innovation; exporting; and foreign direct investment. Improvements have been made in several areas, particularly in simplifying business regulations and supporting SME access to loans, but there is still room for increasing competition, improving skills, developing equity finance and strengthening the innovation system.

This chapter examines the strategic framework for the formulation of SME and entrepreneurship policy in Italy, including the Statute of Enterprises, the national SME Envoy and the Annual SME Law. It then turns to the roles and responsibilities of different public sector organisations and initiatives in delivering policy, including questions of policy coherence and accessibility to SMEs and entrepreneurs. The chapter highlights the importance of implementing the Annual SME Law and its proposed policy actions in practice, extending the reach of business support services to nascent entrepreneurs and entrepreneurs from under-represented and disadvantaged groups, and strengthening the policy coordination role of the SME Envoy.

This chapter assesses national SME and entrepreneurship programmes for financing, innovation, internationalisation, entrepreneurial culture and skills, workforce development, business management, public procurement, social target groups, social enterprises, and corporate social responsibility. There are important programme interventions in all of these areas, including a well-developed credit guarantee system, support for SME exports, Industry Training Funds promoting SME training, business management and consultancy support and female entrepreneurship schemes. However, there are also several areas where programme support could be strengthened. Priorities include scaling up of equity finance programmes, increasing attention to FDI attraction and embedding as potential levers for SME upgrading, rolling out entrepreneurship education into schools and universities, supporting SME access to public procurement and developing finance and mentoring programmes for immigrant and social entrepreneurs. Attention should also be paid to increasing the proportions of enterprises able to access training and business management support, including smaller firms.

Italy exhibits strong regional disparities, especially between the economically advanced North and the less developed South, and a decentralised governance structure, where most economic development competences are shared by the national and regional governments. The co-ordination of policy between national and regional authorities and the responsiveness of national programmes to differing local conditions are therefore very important in Italy. The State-Region Conference has proven to be a useful tool to coordinate national and regional programmes co-financed by the EU. However, there needs to be greater coordination among national and regional initiatives which aim at the same groups of enterprises. Some national programmes are also unequally distributed across regions, calling for mechanisms to distribute resources in better proportion to the target firm base. Regional authorities also have important responsibilities for business regulation, and the best strategies for administrative simplification should be rolled out at this level.

Industrial clusters have traditionally played an important role in Italy’s economic development, especially in the central and northern parts of the country, and today account for 30% of manufacturing exports. However, since the 1970s, they have been undergoing major transformations as a result of globalisation and growing competitive pressure from emerging economies. Some clusters (e.g. machine tools) have adjusted to these pressures better than others (e.g. textiles), principally by diversifying towards higher value-added market niches whilst building on their traditional competences (i.e. related-variety diversification). Rather than tying incentives to local networks, cluster policies should respond to the changing context by supporting product upgrading and sector diversification and international connections. Individual strategies should be developed tailored to the context of each cluster, recognising the differences among the various types of cluster actors.