Almost-invisible firms and the COVID-19 crisis: An exploratory analysis and a research agenda

Italian economy is continuously marked by weak productivity growth and large productivity differentials across firms, which compromise improvement in living standards and wellbeing: in Italy, prior to the Covid-19 crisis, labor productivity of firms was 17% lower than OECD best performers, GDP per capita was 26% lower than the same benchmark and the poorest 20% of households earned 6.6% of total income (OECD, 2021). The Covid-19 3-month lockdown generated an aggregate yearly drop in profits of about 10% of GDP and many firms, especially small and medium-sized enterprises (SMEs) and those belonging to the Manufacturing and Wholesale Trading sectors, became financially distressed (Carletti et al, 2020). The severe recession experienced by SMEs is especially important if we consider that the development of SMEs is a priority for policymakers in many countries across the world (Cowling and Mitchell 2003), where they have become the focus of governmental economic policies. Addressing Italy’s weak economic growth requires tackling long-standing structural challenges including low levels of investment, productivity and employment. To embrace these challenges would improve the economy’s resilience to shocks and reverse the trend of stagnating GDP per capita. It is demonstrated that SMEs capacity to face systemic downturns and grasp growth opportunities increases when they take advantages of the economic returns of cooperation and interactions with their business counterparts. Entrepreneurial association might give access to knowledge and resources at lower costs whose benefit represent a source of competitive advantage (Gulati and Higgins 2003; Zaheer and Bell 2005). Evidence for Italian SMEs over the period 2008-2014 shows that establishing a formal business network has a positive effect on a firm’s gross margin ratio and exports, even if it has no effect on profits (Cisi et al., 2020). The advantages of this type of networking are stronger for smaller firms, firms operating in traditional and in turbulent markets, and firms that are not part of an industrial district. Associations and chambers of commerce and industry play a role also in innovative milieux through the building and maintaining the relational capital that represent a factor of success of the milieu itself, and SMEs appear to benefit from the existing milieus more than large firms (Maennig and Ölschläger, 2010). Previous evidence had raised doubt on these results and argued that the contribution given by associations through the specific services offered to individual companies appears to be relatively limited (Bennet, 1998) so that further research on the subject is highly valued, given the significance of SMEs and the diffusion of business associations in the Italian and international economic context.