Will a fourteenth-century industrial district deafeat the subprime crisis?

Today in the FT’s Comments section an excellent article by Peter Marsh showing the significant effects historical factors such as location of industrial districts can have on contemporary businesses.

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Survive the credit crisis the Alpine way

By Peter Marsh

Draw on a map a circle of 200km radius and centred on Lucerne, Switzerland, and you see the Alpine Ring. What this represents holds valuable lessons for the world as it tries to fight its way out of the economic crisis.

The Ring takes in most of Switzerland and parts of Germany, Italy, France and Austria. Inside this circle – bounded roughly by Stuttgart and Bergamo to the north and south, and Imst and Besançon to the east and west – are some 3,000 predominantly small to mid-sized companies in specialised areas of engineering. Nearly all, employing 200,000 people, are privately owned. Many have been run by the same family for generations. The sectors they represent include some that have been important for centuries, such as watch-making, plus newer fields including microelectronics, medical implants and aircraft parts.

In today’s uncertain climate, many of the companies are islands of stability. While few are likely to expand hugely in the next year or so, most of them, helped by their long-term owners and with relatively low debts, will almost certainly survive the current traumas.

They will be in a good position to do well when demand picks up. The companies include a smattering of relatively well-known businesses, such as the Swiss watch company, Audemars Piguet, and Zucchetti, an Italian maker of bath fittings, as well as countless others hardly anyone knows about.

Many can trace their roots to old industries of iron-making and wood-working that flourished in the valleys of the Alps and the rolling Swabian hills close to Stuttgart from the 14th century onwards. But as well as tapping into local skills, the businesses have a history of using ideas from further afield, often brought by outsiders.

The Swiss watch industry is still the world’s biggest, more than 100 years after first achieving this position. It was initially nurtured by the skills of predominantly Protestant craftsmen fleeing from other areas of Europe during the Reformation. The sector gained its current dominance partly by capitalising in the early 19th century on ideas in making high-quality steel in small quantities, devised by the British metals pioneer Benjamin Huntsman. It was revitalised in the 1980s by new thinking introduced by Nicolas Hayek, a Lebanese-born consultant with no previous knowledge of the sector and the brains behind the Swatch brand.

Based on precision engineering skills built up over centuries from the watch sector, a clutch of companies in newer fields has sprung up in the Ring in the past 70 years, in sectors from sensors to medical instrumentation. A surgical instruments cluster has taken shape in Tuttlingen in southern Germany. Similarly, a concentrated industry in small metal parts, based on modern machining know-how and used in sectors such as aerospace, has evolved in the Arve valley close to Mont Blanc in France.

The companies have generally been flexible, capable of using their skills to operate in different industries over time. Obe, a Pforzheim-based company that for many years supplied decorative jewellery, is now one of the two biggest companies supplying specialist hinges for spectacle frames. Precimed, a Swiss business spun out from the Swatch watch company, has moved into hip and knee implants.

In northern Italy, in the region of Lake Orta, a series of companies in taps and valves has appeared in the past 50 years, based on centuries of know-how in the area drawn from expertise in brass-working, used to make bells for local churches. In spite of intense competition from countries such as China, the Lake Orta companies have stayed strong, helped by efforts to introduce new ideas, for instance, in labour-saving automation. In close-by Brianza, a local cluster of furniture companies remains robust, helped by an amalgamation of old skills in wood with newer ones in plastics processing and 21st century design.

Many Alpine Ring businesses have built their strengths over a long time, using conservative accounting principles and borrowing only when they need to. To stay competitive, they have tapped into both local and global networks of knowledge transfer. They have shown that old-established areas of industry are capable of producing new sources of jobs and wealth if managers and employees are adaptable.

As it happens the centre of the Ring is not too far from Davos, where many top business people and politicians are meeting. As policymakers try to re­build the world economy, they may want to use the lessons from the Ring to lay the basis for strengthening existing companies and creating new ones.

The writer is FT manufacturing editor

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