Business Services versus manufacturing: an empirical inquiry on Italian firms and their internationalization modes

This paper briefly describes location decisions of Italian Business Services firms against the background of the recent phenomenon of international fragmentation of production. It assesses the advantages of business services offshoring, highlighting the role of different typologies of services, and dividing those that need a “face to face” relationships from those that can be provided at a distance, for instance by broad band and are intrinsically “impersonal”. For those services which need a “face to face” approach, we test the hypothesis that FDI “follow” FDI in manufacturing, going to the same destination markets or to close ones. To this task, we propose a new measure of downstreaming demand, which we construct from input-output tables. The econometric results support the view that (i) the likelihood of FDI in business services is higher in high income countries (while that of FDI in manufacturing is related to cost saving investments); (ii) distance matters; (iii) market potential is very relevant in enhancing the likelihood of investing for both firms in manufacturing and in business services; (iv) a part from some specific services that need a “face to face”, FDI in business services do not seem to follow manufacturing. This last result is at odds with a similar study carried out on French data and can be explained by the peculiar nature of Italian internationalization pattern: small and medium manufacturing firms doing cost saving investment in close markets (European Union or other central European countries) and even smaller firms in services, except from financial intermediation. The policy implications of this result are interesting: contrary to the recent theory of “unbundling”, in Italy skilled workers in the business services sector still seem to be sheltered from competition of low costs countries. Int. Statistical Inst.: Proc. 58th World Statistical Congress, 2011, Dublin (Session STS066) p.3604