Pandemic leaves Italy digitally lagging struggling to catch up


MILAN (Reuters) – Small Italian car filter supplier Ecofiltri secured a state-backed loan last year, as did thousands of other companies struggling to stay afloat during the pandemic.

General view of the exterior of the headquarters of the Italian filter supplier Ecofiltri, in Vasto, Abruzzo region, Italy, March 16, 2021. Simone Scafetta / Brochure via REUTERS

But instead of spending cash to pay rent and overdue bills, Ecofiltri is investing the money in a technological renovation of its business. The company, already facing a long-term switch to electric transportation, was prompted to act after the virus crisis reduced the number of drivers on the road.

“We have expanded our facilities, we have bought high-tech equipment and we have even created an R&D department in which we are working on three projects that we hope to be able to patent to offer smarter products and services,” the co-founder of Ecofiltri told Reuters , Simone Scafetta. video call.

Italy ranked fourth and last in the EU for digital competitiveness in 2019, according to the Digital Economy and Society Index (DESI). By forcing a huge technological acceleration into the country, the pandemic offers Italy a unique opportunity to boost its weak productivity and economic growth.

For a chart on the DESI 2020 index:

Faster economic expansion is essential for Rome to maintain the world’s third-largest public debt, which the pandemic has inflated to 1.6 times gross domestic product (GDP).

Research from the Polytechnic University of Milan shows that Italy could add 1.9 percentage points a year on average to its GDP growth if its small and medium-sized enterprises (SMEs) covered a gap of 40% compared to their Spanish peers measured by indicators ranging from e-commerce or electronic invoicing capabilities to big data use.

“But the trick only works if companies change from a reactive technology approach (driven by the crisis) to a strategic one, and the environment in which they operate evolves with them,” said Giorgia Sali, director of the Politecnico research center on SMEs. and digital innovation.

To see a graph on the connectivity of the DESI index:

Italy estimates that its businesses in recent years lagged behind the rest of Europe in terms of digital investment by an amount roughly equal to 2 percentage points of GDP.

The pandemic has brought a welcome change, with 86% of Italian respondents in a survey of medium and large companies commissioned by Dell Technologies saying they accelerated digital transformation plans in 2020, up from 75% of the European average.

“The pandemic has forced Italian companies to address the country’s huge digital divide,” said Francesca Moriani, CEO of IT service provider VAR Group, adding that Europe as a whole lags behind the United States and China.

The euro zone’s digital economy is only two-thirds the size of the United States.

It is encouraging that 92% of SMEs surveyed by VAR Group expect to invest in digital capacity in the next two years, despite the hit to sales from the pandemic.

RECOVERY FUNDS

Italy’s digital deficit has several roots.

In a country where broadband access is below the EU average, large companies that can sustain technology investment programs make up only a small proportion of companies.

Many companies are family owned and operated, which means they tend to lack managers with the right skills to lead a digital transformation.

A study by the European Central Bank also highlighted financing limitations when companies rely mainly on bank financing as in Italy, saying that traditional lenders often have a difficult time assessing the risk involved in projects based on complex technologies.

Add to that the aging population and a very low proportion of ICT graduates (around 5,000 a year compared to around 18,000 in smaller Spain, according to Eurostat figures here), Italy has lagged behind. in the digital race.

To support the adoption of cutting-edge technologies by its companies and ultra-high-speed connectivity, Rome has earmarked € 46 billion in EU recovery funds yet to be disbursed for digital investments.

It also offers tax breaks to companies looking to boost digital spending and appointed former Vodafone CEO Vittorio Colao as its technology czar to oversee the efforts for years to come.

As in Greece, the drive for modernization is also targeting public services, which Ecofiltri’s Scafetta says set a bad example.

“We’ve given our staff handheld computers and screens to nonstop sharing information and interacting with customers … people don’t add value by walking alongside to carry paper documents, like they see state employees doing,” he said.

Located in the central region of Abruzzo, Ecofiltri has succeeded in developing a process that gives diesel particulate filters a second life.

To finance its projects, which include sensors to more easily detect problems with its filters and a digital warehouse management system to feed information to its website and serve as a link with electronic sellers such as Amazon, Ecofiltri borrowed 100,000 euros last September from Credimi, a fintech loan company. firm.

Credimi says that digital innovation is a major driver of credit demand faced by SMEs.

“With a few exceptions, the pandemic has caught small and medium-sized Italian companies off guard, causing them to struggle to catch up with digital progress,” said Fabio Troiani, executive director for Italy and global digital services at Milan-based BIP Consulting. .

“For some it has become a matter of life and death.”

FALLING BACK BACK BEHIND

Many small Italian companies are up to the challenge.

The proportion of SMEs using e-commerce in 2020 rose 50% to a third of the total, as first-time e-shoppers jumped by 2 million during a national shutdown last spring, according to data from the Polytechnic and the trade lobby. electronic Netcomm.

To see a graph on SMEs selling online:

Data from the Polytechnic also points to a 42% increase in cloud services for SMEs, as remote workers increased 11.5 times to 6.6 million.

Until now, Italian government programs aimed at encouraging digital investments have been taken over mainly by larger companies.

The challenge is to incorporate companies like Ecofiltri, which is one of more than 4 million Italian companies with less than 10 employees, or 95% of the total.

Small businesses are struggling to attract people with the necessary skills in a country where ICT graduates account for only 1% of the total, the lowest in the EU, contributing to Italy ranking last in the index of DESI human capital.

“It wasn’t easy, but we hired an engineer and the next person we hire must also be an engineer or they wouldn’t fit into our development plans,” Scafetta said.

Diego Ciulli, Google’s senior manager of public policy, warned that not filling Italy’s digital divide when consumers around the world have turned to online channels would be more than a missed opportunity.

“The real risk is falling further behind,” he said.

“If Italian wine producers wait for trade shows to resume to find new foreign customers, while the French get really good at selling their wine online, you not only lose the opportunity to grow, you lose market share. “.

Additional information of Giuseppe Fonte in Rome; Graphics by Stefano Bernabei; Edited by Toby Chopra

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