Overcoming the paradox of globalization in industrial districts

How are community-based industrial districts that rely on local networks evolving in a globalized world? New research examines the apparent paradox of this local/global tension.

Valentina De Marchi

In the late 19th century, the English economist Alfred Marshall defined the concept of industrial districts (IDs) in his seminal work Principles of Economics. The term was coined to describe areas where firms established industries and their auxiliary ecosystems, with local populations creating a concentrated network of specialist workers in small and medium businesses.  

A century later the concept still proved useful, and evolved thanks to the observation of several districts in Italy and Spain, to describe the solid relationship between business and community on which this model relied. 

Increasing tensions

IDs remain a distinctive feature of Italian manufacturing, representing around a quarter of the Italian economic system. But the rise of globalization, which began in the 1990s, threatens the organization of industrial districts, with increasing tensions between local and global priorities. 

One of the major paradoxes faced by multinational corporations is that of globalization and localization

A wide body of research has examined the organizational paradoxes faced by multinational corporations (MNCs) in the face of the tensions between local (adaptation) and global (standardization). But a study published in the Journal of Regional Research claims to be the first to study IDs through this paradoxical lens. 

In Industrial districts, multinational corporations, and their local/global paradoxes, authors Simone Carmine (IÉSEG School of Management, Paris), Valentina De Marchi (Esade) and Roberto Grandinetti (Department of Economics and Management, University of Padova) illustrate how the conceptual framework of paradox theory can be utilized to better understand today’s IDs dynamics and their evolution. 

Think local, act global

Paradox theory relates to the ongoing contradictory demand and goals at play within the operation and management of an organization. Financial goals and sustainable development, competition and knowledge sharing, exploration and exploitation can all be viewed through these paradoxical lenses. 

Absorbing global knowledge and using it in a local context, and vice versa, enhances the cognitive and entrepreneurial value of a firm

One of the major paradoxes faced by the modern multinational corporation is that of globalization and localization. While “think global, act local” may be a simplistic slogan, the strategic goals of a global corporation are frequently at odds with local demands. 

But while much research has examined this paradox in the multinational context, the theory has not been studied in the context of industrial districts — until now. 

The capacity to adapt

Industrial districts are, by their very nature, localized operations. However, these local systems are increasingly suffering from the impact of global competition. To remain competitive they must become global, and at the same time maintain their operations local. How can they overcome this paradox? 

The answer, suggest the researchers, lies in the capacity of local organizations to adapt and function as interfaces between local and global operations. Absorbing global knowledge and utilizing it in a local context, and vice versa, serves to enhance the cognitive and entrepreneurial value of a firm. 

Turning to the Italian industrial districts first analyzed by Giacomo Becattini four decades ago, the researchers compared two leading organizations in the eyewear district of Belluno, Veneto. 

All eyes on growth

Luxottica has enjoyed extraordinary growth since it was founded in Belluno in 1961. Founded by 26-year-old optical apprentice Leonardo Del Vecchio, the company embarked on an ambitious strategy to integrate the design, manufacturing and distribution of eyewear. After a series of international acquisitions and a merger with lens manufacturer Essilor, Essilor-Luxottica became the world’s largest eyewear company — headquartered in Paris.  

But while Belluno’s Luxottica altered the international structure of the eyewear industry to find its way to global success, the Paris-based Kering Group, which owns luxury brands including Gucci, Yves Saint Laurent and Balencia, has helped Belluno to evolve as the eyewear district.  

MNCs can embed themselves within local industrial districts to complement, rather than threaten, their existence

Formed in 2014, Kering Eyewear follows the group’s established business model of focusing on high-end R&D and outsourcing manufacturing to subcontractors. After establishing its eyewear division in Padova, Veneto, the MNC outsourced the majority of its manufacturing to the eyewear specialists of Belluno. This global luxury leader has done more to establish the Italian town as the eyewear district than home-grown Luxottica. 

In the shoes of the stars

In the Riviera del Brenta district, specialized in the production of high-quality women’s footwear — known for hosting the companies that produce the high heels shoes of Michelle Obama and Rihanna — transformations began more recently and rapidly than in the eyewear district. 

With the turn of the century, luxury multinational companies (LVHM, Kering, Prada, Giorgio Armani, and others) entered the district. They first came in as buyers of finished products made by functionally downgraded district firms, and then through the acquisition of existing firms or the creation of greenfield plants that make extensive use of the production skills of local firms.  

Such acquisitions and collaborations completely transformed the district, that soon became the production basis of those big brands thanks to its design and manufacturing capabilities.  

Local knowledge in a global economy

Research has highlighted the growing importance of the skills and knowledge within industrial districts for multinational corporations. By embracing and utilizing IDs as areas of expertise, multinational companies can embed themselves within these communities to complement, rather than threaten, their existence. 

However, the researchers warn against simply using the IDs as an extension of the MNC. The presence of MNCs is not enough to ensure IDs can remain competitive systems — ID organizations must retain the ability to operate independently and retain their local value, rather than becoming little more than a functioning arm of an international network. 

Further research, they conclude, could focus on the actors who can perform within this global interface — and become the natural solution to manage this organizational paradox. 

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