Aug. 23 (Bloomberg) -- Earlier this month, Fabrizio Pedroni wished his employees a happy summer holiday and told them to return to work in three weeks. That night, he began dismantling his electric component factory in northern Italy and packing its machinery off to Poland.
“Had I told them earlier about any plans to shift the production abroad, they would have occupied my factory and seized all my stuff,” Pedroni said in an Aug. 21 telephone interview from Poland. “The plain truth is that I wanted my business to survive and there weren’t the right conditions for me to operate in Italy any longer.”
The news that Firem Srl, based in Formigine near Modena, was shifting to Eastern Europe reached the 40 employees too late. On Aug. 13, 11 days after Pedroni activated his plan, a group of employees suspicious of the movements around the plant rushed to its gates just in time to stop the last of 20 lorries packed with machinery. Firem’s move became a national controversy and the fate of its workers is still unclear.
The loss of the factory highlights the struggle Italy faces to revive manufacturing and its economy, which remained in recession in the second quarter even as the broader euro area returned to growth. Italy ranks 128th in the World Economic Forum’s global pay and productivity table, one place behind Burkina Faso, compared with 39th for Poland.
Pedroni, 49, now lives in fear for his life after receiving multiple threats to himself and his family. He says he won’t change his mind about the choice he made for the company first opened by his grandfather after World War II. He’s not alone, with Italian companies from car firm Fiat SpA to Indesit Co. SpA, the maker of ovens and fridges, moving production lines abroad to cut costs.
Sneaking off “was certainly disputable and hopelessly harmed relations with his employees and community, but like many entrepreneurs before him, he abandoned the ship called Italy because it was the only way to survive,” said Carlo Alberto Carnevale Maffe, professor of business strategy at Milan’s Bocconi University. “In Italy, most businesses like Firem have been posting losses for at least five years.”
According to Pedroni, whose factory is close to the headquarters of luxury carmaker Ferrari SpA, his decision was forced by factors ranging from foreign competition to labor costs and higher taxes.
Firem had sales of about 3 million euros ($4 million) last year but hasn’t posted a profit since 2008, said Pedroni, who opened his new Polish factory this week and doesn’t plan to return to Italy anytime soon given the tensions with workers. He didn’t attend an Aug. 20 meeting with unions and local institutions in the Formigine town hall.
Firem “implemented a move that I would call clandestine to say the least,” lawmaker Matteo Richetti, a member of Prime Minister Enrico Letta’s Democratic Party, told parliament on Aug. 19. “I am in favor of market freedom and that means that you can move your company wherever you want, but this must happen after notifying the staff and the local community.”
Richetti and a colleague from the opposition Five Star movement called on the government to report urgently to Parliament on Firem’s fate.
The government’s capacity to provide financial support is constrained by a debt ratio forecast to exceed 130 percent of output, the highest after Greece. At the same time, a cohesive response may be difficult from a government supported by a makeshift coalition of parties currently bickering on the judicial wrangles of former premier Silvio Berlusconi.
Italy’s economy shrank 0.2 percent in the second quarter. In contrast, Germany and the U.K. expanded 0.7 percent.
Cgil, the country’s biggest union, said this week it wants Firem to “find a solution to ensure production” stays in Italy.
“The way to emerge from crisis cannot be to impoverish our industrial production, competing only in terms of cost reductions, particularly labor costs,” it said.
Pedroni said he had no option and that other potential solutions would likely have doomed his company.
“I don’t want to make more profit, I just want to start making profit again,” he said, adding that to show his good will, he brought five Italian workers he trusted to Poland, asking them not to tell others of the plan. In Italy, Firem will continue to exist on paper with 10 employees.
In the ten years through 2011 about 27,000 Italian companies with annual sales of more than 2.5 million euros shifted production abroad, the Cgia association of small businesses said in a report in March. In 2011, the last year for which data is available, there were 737 companies in Poland controlled by Italians, employing more than 67,000, according to the Italian Foreign Trade Institute ICE.
While larger companies may not have the ability to move at Pedroni’s speed, they too are shifting at least part of their production abroad. Indesit said in June it planned to cut 1,400 jobs, or a third of its workforce, as it moves production to Poland and Turkey. Fiat, no stranger to clashes with unions over job reductions and transfers, employs more than 4,000 workers at its Tychy Plant in Poland.
Poland’s economy, the only one in the EU to have avoided recession since 2009, will expand 1.1 percent this year, according to central bank projections published on July 8. By contrast, Italy’s economy is seen shrinking 1.8 percent, three times the euro-region average, according to a Bloomberg survey of economists.
“Many of my colleagues called me to say I was right and brave to do it,” Pedroni said of his move. “I’m not the first to go and won’t be the last.”
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