The Prada Group chief executive officer discusses his perspective on Italy’s supply chain and the struggles it faces in light of political, global and economic challenges.

This story first appeared in the February 21, 2014 issue of WWD. Subscribe Today.

WWD: What should Italian business leaders be doing to support small and medium–size enterprises?

Patrizio Bertelli: “Over the past 10 years, as globalization has spread and the markets of the BRIC countries have steadily grown, nothing has been done to address the problem of how small and medium enterprises should handle the onslaught of competition on the cost of labor front: There should have been a stronger shift in production toward superior quality products incorporating high-end know-how.

“As globalization has advanced, Prada has more than doubled its turnover and our whole supply chain has benefited from this. Big corporations should have done more to help smaller ones, securing their growth, which is something that Prada has done all the way along its supply chain.

“The issues faced by small and medium enterprises have been further complicated by: a) Bureaucratic complexity; b) The failure to reach international markets when internal consumption in Europe has, for all intents and purposes, been struggling since 2008; the only boost coming from tourism; c) The difficulty obtaining credit, both due to the crisis in the banking system and failure to present credible projects; d) The tax system in Italy, which is too much of a burden for businesses and private citizens, [and] e) A frozen economic system, unable to reap the benefits, as it did in the past, of inflation or deflation making businesses more competitive on international markets.”

WWD: Some of your colleagues criticize our politicians for doing nothing about this. What do you think about this? [This interview was conducted before the pro-business mayor of Florence, Matteo Rienzi, was tapped to become the country’s next Prime Minister.]

P.B.: “Our political system is floundering, it has been for more than 20 years, and Italy’s national debt has made it impossible to pass laws to reduce the tax burden on private citizens and businesses.

“This debt was, and still is, strangling the Italian economy: Any measures introduced, such as a tax wedge to cut income tax withheld on employee pay by 10 percent, needs cover that has never been found.

“It’s a vicious circle: less money, less spending, less consumption, less production.

“So, we can only hope that the new reforms being drafted in Parliament will speed up change in the manufacturing system.”

WWD: To secure the supply chain’s future, some businesses in Italy, such as Gucci and Diesel, are working to ensure their suppliers have access to credit. Does Prada do this too?

P.B.: “Prada has always supported its supply chain, helping out businesses in trouble or in development on many occasions.

“But the best help we have given is to make our ‘production partners’ involved in the growth of the brand to make them feel proud to be a part of it. Each and every worker must know what they are working on and what the requirements are for the product they are creating.

“Our suppliers have never had any problem obtaining credit insomuch as the continuity of their relationship with Prada, in some cases as long as 20 years, has always been a guarantee for the banking system.

“We have never gone in for window-dressing, but we know our banks have never failed to support our production partners.”

What are the biggest challenges facing small and medium-sized enterprises, today and in the future? Do you think the Italian supply chain will survive the economic crisis?

“I think the Italian supply chain will only survive if it makes radical changes to improve the quality of its products and to grow, instead of waiting for the government to step in.

“It should be pointed out that on top of the economic crisis, we also have a generational crisis, the old guard having lost the motivation to keep going: we need a new wave of young entrepreneurs willing to go into business, as happened in the 1960s, and a system that creates the necessary conditions for them to succeed.”

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