Can The Veneto Keep It Up?

Go to Alfa Cabel's factory outside Padua any Saturday morning these days, and the place will be humming with activity. Normally, the 60 workers who help turn out Alfa's yearly output of 11 million electrical cables sleep in on Saturday. "But orders have been so strong we've been working around the clock for the last three months," says Alfa Chief Executive Guistina Destro.

It's a similar story throughout the Veneto, the flatland around Venice that is now at the heart of Italy's export-led recovery. Exports, which account for a third of the region's output, are up by 21.5% this year. So far, the Veneto's 80,000 enterprises have been largely able to insulate themselves from Italy's astronomical interest rates and mounting labor and political strife.

For these companies, including such giants as clothing multinational Benetton Group, the message is the same: Business is booming, at least for now. "Obviously, a good part has to do with the devaluation," says Alfa's Destro, referring to the 30% decline of the lira against the mark since Italy pulled out of Europe's system of managed exchange rates in 1992.

SALES DOUBLE. She and other Veneto entrepreneurs say that's not the whole story. The small and medium-size companies such as Alfa that make the Veneto tick seem to be more flexible and dynamic than their counterparts elsewhere in Italy. Almost a decade before car giant Fiat began seriously improving quality, Japanese-inspired quality circles were standard practice at companies in the Veneto.

Destro credits quality for Alfa's success in becoming a leading supplier of electrical cables and plugs to titans such as Sweden's Electrolux and Germany's Robert Bosch. The bottom line shows it. Margins have been steadily improving, while sales this year will hit $9.4 million, double the level of two years ago. With orders coming in from as far afield as South Korea's giant Lucky-Goldstar International Corp. and Black & Decker Corp. in the U.S., Destro is predicting a further 50% rise in sales next year.

SELF-FINANCED. As at many other companies in the Veneto, Alfa's steady profit stream from its export orders allows the company to finance its own expansion. That's crucial, since bank credit is hard to get and expensive: Real interest rates in Italy are now at a crushing 12%.

Despite Alfa's buoyancy, Destro is worried. Rome may be almost 600 km away, but tensions in the political salons of Italy's capital are already being felt in the Veneto. Although Alfa's workers stayed on the job during Italy's general strike on Oct. 14 and didn't participate in the huge antigovernment demonstrations in Rome on Nov. 12, estro is concerned that Italy's social balance is fraying. If wage-containment agreements carefully worked out two years ago break down, labor costs could quickly go up. All of which helps explain why Milan's bourse is up only 3% this year. No one is certain just how deep are the roots of Italy's export boom.

    Before it's here, it's on the Bloomberg Terminal.