comparative advantage in the production of such goods. In Italy, increasing competitive
pressures from emerging low labour cost countries forced the footwear sector to
diversify its production by supplying high quality goods (vertical product
differentiation) which do not compete directly with low quality goods from emerging
economies.1 Such a strategy has led the country to widen the quality gap between her
exports and other industrialised countries’ exports in the same traditional sectors over
time (Chiarlone, 2001).
In the last few years, the need to counter competitive pressures from low labour-cost
producers also induced increasing outsourcing of low-value added activities on the part
of several footwear firms in Italy. By so doing, footwear firms have established joint-
ventures and other non-equity linkages with foreign firms, and have therefore become
parts of international production systems. As a consequence, footwear production has
become increasingly fragmented across different countries.
Fragmentation of production is only one of the different ways in which international
delocalisation of production can take place. When all segments of a production process
are delocalised, FDI and international subcontracting are the more convenient ways to
delocalise2. When instead firms find it technically and/or economically convenient to
delocalised only some segments of a production process (pre-assembling/intermediate
or assembling/final phases), this gives rise to fragmentation of production across
countries, i.e. to outward processing (OP).3 This paper is focussed on the latter form of
international delocalisation of production, i.e. on international outsourcing operations.4
This paper will explore the international fragmentation of production in the Italian
footwear sector by focussing on the local - instead of national - level in order to see
how this competitive strategy has been actually pursued by different shoe clusters, i.e.
which pattern of delocalisation of production has been followed by different footwear
districts. As outsourcing activities give rise to an increasing amount of trade flows
1 Vertical product differentiation as a competitive strategy was originally modeled by Flam and Helpman
(1987).
2 For instance, this is what happens in the textile industry, which is characterised by high levels of
production automation in most segments of the production process (Baldone et al, 2002).
3 In the clothing industry, pre-assembling have become entirely capital-intensive due to growing
automation, whereas assembling phases are relatively labour-intensive, so that firms may find it both
technically and economically convenient to delocalised the assembling segments of the production
process only.
4 The other form of international delocalisation (FDI and international subcontracting involving all the
segments of a production process) is also a cost-reducing strategy for Italian firms in traditional sectors
(mainly clothing and textiles), but this does not seem to be case for the footwear sector.