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Last Updated: Sunday, 27 November 2005, 15:55 GMT
Italian lingerie maker dodges China threat
By Mark Gregory
BBC World Service business reporter in Modena, Italy

At a time when Italy's textile trade is being decimated by Chinese competition, one small clothing company in the industrial city of Modena near Milan still has reasons to be cheerful.

Model wearing Mediterrana underwear
Mediterrana underwear is designed by the SG3 boss's mother

SG3 makes designer women's underwear, a product Chinese manufacturers can't yet easily copy at lower cost.

The story of how this business manages to prosper has lessons for legions of other small firms in Italy, and indeed other high wage nations struggling to cope with new competition from the developing world.

"Our customers are fashion conscious women aged between 25 and 40 who care about what they wear under their clothes. Often they buy our products for special occasions", explains the boss Mattia Carretti, without going into detail about what those occasions might be.

He then shows off a catalogue filled with pictures of beautiful ladies wearing skimpy but elegant bras, knickers and other lingerie.

Lifetime's experience

The secret of this firm's success is occupying a niche in the market where customers care more about quality and fashion than price.

Mattia Carretti, head of SG3
Upmarket customers care more about quality, insists Mr Cambi

SG3 has been going for forty years and, like so many Italian businesses, it is family run.

The current boss, Mr Carretti, is a grandson of the original founder.

He explains that many of the garments the company makes are designed by his mother.

They once employed a professional stylist, but it was expensive and the underwear she came up with sold no better than Mr Carretti's mother's creations, which are based on a lifetime's experience of what sells and what does not.

Upmarket push

The factory is an extension of Mr Carretti's family home, which is common for small firms in Northern Italy.

SG3 has always focused on the higher end of the market, but up until about 15 years ago much of its business came from supplying underwear to Italian chain stores and supermarkets.

That trade no longer exists.

Larger manufacturers, many of them in low wage developing countries, can churn out this type of mass product for lower prices than SG3 ever could.

To survive, SG3 has had to develop recognised brands of its own and go further up market.

The company's underwear is sold under the Mediterranea label.

Flexible firm

Along the way the workforce has been cut from 25 to 12 employees, but the ones that remain have a reasonably secure future.

Mr Carretti admits SG3 does not have the financial resources that larger luxury goods suppliers can mobilise to create an image and sustain their brands.

Lingerie makers at the SG3 factory
Lingerie making skills are based on generations of experience

But he says there are some positive advantages in being small.

For example, he insists the company's employees feel they are treated like people not machines, which makes them more committed to its success.

Also, being small means the company is flexible and can quickly adapt to whatever the market demands.

Industrial decline

Italy's remarkable rise from poverty to prosperity after the Second World War was driven by the entrepreneurial flair of thousands of small family firms a bit like SG3.

But the country's distinctive family-based model of capitalism is having trouble coping with the modern world where globalisation is the name of the game, where successful companies are often vast, and where the process of actually making things is shifting to places where wages are much lower than in Italy.

The success of Mr Carretti's little company is interesting because it is unusual.

Last year, 200 clothing and textile firms based around Modena, where SG3 is located, went out of business.

An industry that has been vital to the city's economy for centuries is likely to be all but gone within the next ten years.

Modena's other major industries, which include engineering and food processing, are also beginning to run into trouble.

The virtual corporation

Modena is a city of 175,000 people located an hour and a half by train from Milan.

Ermes Ferrari of Italy's National Confederation for the Craft Sector and Small and Medium Enterprise, or CNA
CNA's Mr Ferrari is optimistic about Italian firms' ability to adapt

Its main claim to fame is that Ferrari and Lamborghini cars are made here.

But these two internationally known firms are not typical of the local economy.

Most business enterprises in Modena are very small, employing on average just four workers each.

And according to Ermes Ferrari, spokesman for the Modena branch of Italy's National Confederation for the Craft Sector and Small and Medium Enterprise, or CNA, only firms with special skills or a distinctive niche for their products in the market will survive in the longer term.

The economy of a proud city in Italy's industrial heartland is facing potential Armageddon.

But actually, Mr Ferrari is quite optimistic about the future.

He says businesses in Modena often do have unique skills and deep knowledge of their markets to draw on.

The problem, he reckons, is that they are frequently too small to make the changes they need to survive and prosper again on their own.

To get round this issue, the CNA is pioneering the concept of what's described as the "virtual corporation".

The idea is that lots of small firms gang up together so that between them they can offer the full range of goods and services one would expect of a large company.

In the past, explains Mr Ferrari, industrial buyers sourced individual components from many different small firms, but what the market now generally wants is a one supplier providing a complete product or service.

By working co-operatively, he says, small firms can do this while at the same time keeping the flexibility and specialist skills that are their main strengths.

Is this pie in the sky or a real solution for the problems of a local economy based on very small companies?

It is too early to tell, but two prototype "virtual corporations" are up and running around Modena.

One makes high technology electronic goods. Another supplies machinery to the food and agricultural sectors.

Many in Italian business will be watching to see if the experiment works.

This is a country of once dynamic little companies now facing an uncertain future in a fast changing world economy.

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