Innovation Blog

Innovation in Italy — problems and solutions

Italy is lagging behind the European frontrunners in the innovation-related activities both in public and private sector. This delay in innovation processes is due to a number of problems Italy is facing.

One of the structural problems of the country are related to the low proportion of people with a university degree and insufficient orientation of the education system towards technology-intensive specialisations. Furthermore, the economic crisis and budget cuts have restrained the country’s ability to invest in research and education. Moreover, Italy’s business environment is stifled by complex bureaucratic procedures and new companies such as startups have difficulties entering the market. Another gross problem is low labour productivity growth in comparison to other leading European economies.

As the data show, the productivity growth in Italy is entirely driven by investment in physical capital and some improvements in labour quality. Italy mainly invests in machinery, equipment and buildings and only a small fraction on R&D and other intellectual property products as well as other forms of intangible assets. Moreover, the patenting propensity in Italy is rather low when compared to some other developed economies that are engaged in patenting to a much higher extent. This is partly due to the fact that the Italian model is based on incremental innovation that requires from the company less financial and organisational commitment than the one necessary for R&D activities and patenting abilities at the level of leading European economies. The number of startups that patent is also very low: only about 5 per cent of new firms are engaged in patenting.

The percentage of Italian companies involved in the innovation of products or processes is lower than in the most developed European countries. This can be partly explained by the fact that Italy is characterized by a large share of small and micro firms – more than 90 per cent of all registered firms have less than 20 employees. On the other hand, bigger companies tend to spend more resources on R&D than the smaller ones. Furthermore, collaboration is crucial for innovation and innovative Italian companies are only marginally involved in collaboration with other firms. About 10% of them collaborate on innovation with other Italian firms, and only an additional three per cent is involved in international collaboration.

Nevertheless, Italy has some advantages and a great potential for growth in the field of innovation. The innovativeness of small and medium-sized enterprises (SMEs) and the excellent quality of scientific outputs remain two important strengths within Italy’s R&I system. This clearly indicates that the country has significant innovation potential which simply needs additional support to be fully exploited.

There are several possible solutions. Public policies play a key role in promoting and supporting innovative efforts by firms, while continuity and stability of policy plans bring durable effects on the innovation system. For example, tax policies affect the decisions of firms to save and invest and have a clear bearing on innovative activities (e.g. R&D tax credits). Accelerating innovation in the public sector may act as a driving force for the whole country’s innovation system (e.g. e-government). As highlighted before, collaboration is crucial for successful innovation: OECD analysis shows that firms that collaborate on innovation spend more on innovation than those that do not. In addition to the more intense collaboration between companies, creating better links between the scientific research community – universities, polytechnics, research labs – and innovative (or potentially innovative) firms is also viewed as essential in fostering innovation activities. Finally, another way towards more innovative products and services is the development of innovation clusters (such as the Silicon Valley), drawing on the existing industrial districts that Italy is well-known for.

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