More than 140 Italian companies will attend the Italy-Serbia Economic and Scientific Forum to be held on Tuesday 21 and Wednesday 22 in Belgrade. The Forum will focus on three topics – agri-tech, infrastructure and ecological transition, with the objective of a quality leap in relations between the two countries. Anyway, this goal will require a change of attitude on the part of the business world, in addition to diplomatic efforts.
Over the last two decades, with a few rare exceptions, Italian industrial investments in Serbia have mostly been related to setting up production lines for semi-finished products or components re-invoiced to the parent company. In other cases, Italian companies have transferred to Serbia mature and low-margin production, which required low-skilled personnel and paid out low wages. The companies that were opened in Serbia were and often are considered a sort of satellite company, dependent on Italy for every strategic decision, mere transformation centres, often without autonomy in terms of organization and sales addresses, and even less in terms of investments or financial management.
For this reason, managers with a specific professional background, whether Italian or not, were rarely hired. Very often, instead, the chosen persons were a “friend” or a relative” of the investor’s family” able to reassure that ‘purse strings’ were in trustworthy hands, even if they were less capable of autonomy or of improving the processes or innovations. That this ‘trusted’ person would then sometimes betray the entrepreneur’s trust, is a part of the recurring Italian-style familistic tragicomedy.
But let’s go back to our reasoning. In this ‘cost-based’ view, the attention of entrepreneurs and directors is centred on costs and products, and much less on studying the competitive scenario, the transformations in the social and economic environment, and the innovations that the production plant in Serbia could develop. And, in all fairness, we should mention that in a stationary situation of a low-growth, high-unemployment country like Serbia was between 2006 and 2015, this model brought significant economic benefits to many entrepreneurs.
In many ways, however, Italian entrepreneurs in Serbia have been taken by surprise by the country’s growth which in the last ten years (and especially between 2015 and 2021), has increased its Gross Domestic Product by 50%, from EUR 40 billion to over EUR 60 billion, and that has almost doubled the national minimum wage, which rose between 2016 and 2023 from USD 255 to USD 490 per month respectively. Certainly, these are still small numbers and attractive wages for those from more developed countries seeking to cut on labour costs, but already indicative of a trend that has, if anything, grown in recent years. Even greater short-sightedness is seen in failing to grasp that the country’s political leadership was aiming with increasing conviction that the country’s transformation was based no longer on low-cost manufacturing but on a number of driving sectors for rapid growth, such as construction and infrastructure, information technology, high-tech industries, creative industries, not least the ambition to rebuild a still fragmented primary sector with low investment and low yields, and to integrate the agri-food chains with the view of offering more finished products and fewer raw materials to international markets.
Closures or downsizing of some Italian investments in recent years are basically the result of an inability to foresee or react to this change of scenario. The same abrupt closure of the Geox plant in Vranje, for its modalities and the indifference shown towards its social impact (the lowest point of Italian entrepreneurship in Serbia), exemplified this incapacity: the erroneous assumption of being able to continuously benefit from state subsidies, the extreme requirements from the workforce who are paid the minimum wage, the inability or impossibility of adapting the plant and the business plan and transferring to Albania in an effort to secure lower labour costs.
A New Beginning?
The Italy-Serbia Business and Science Forum, which will take place in Belgrade on 21 and 22 March, could represent a new beginning in industrial and scientific relations between the two countries. Italian entrepreneurs and managers are called upon to show that it has understood Serbia’s new expectations of Italy. For its part, Serbia can offer new opportunities in addition to some traditional cost advantages such as workforce and related legislation, energy, logistics, taxation, and public administration directed towards simplification and digitalisation. New competitive advantages can be developed by linking up with the growth of certain leading sectors such as digital and IT solutions (with exports totalling more than EUR 2.6 billion in 2022), the necessary evolution of the agricultural sector, as well as the ecological transition and the complete innervation of infrastructures in a strategic area for relations between the Mediterranean, Northern Europe and the countries of the Near and Far East.
But in addition to the three thematic areas proposed by the Business Forum, there are other sectors on which Serbia has begun to strategically focus to support its development. Creative industries are intended to be the meeting ground between humanistic and artistic creativity and Information Technology: in sectors such as augmented reality, audiovisual post-productions, and gaming, Serbia already boasts world-class companies. Mechatronics is another field that arouses great interest because of its ability to innovate the Serbian industrial fabric and to benefit from national ICT skills.
There is also significant state investment in biotechnology and Artificial Intelligence applied in medicine. Evidence of this is the BIO4 Campus, which is currently under construction, a multidisciplinary research complex dedicated to the convergence of biological sciences and technologies and ICT, as well as the establishment of the Fourth Industrial Revolution Centre which will focus on bioengineering, biotechnology and the application of Artificial Intelligence in healthcare.
But this is not just a list of promising areas of cooperation and joint development between the two countries. Belgrade is today a very international and increasingly multicultural and multiethnic city: the arrival of no less than 100,000 Russians following the aggression of Ukraine is coupled with fast-growing Asian communities who see the Serbian capital as a hub for pursuing their international business while enjoying the socio-cultural, economic and even climatic advantages of a European country. Serbia as a whole is also seen as a destination to be by many young Asians, Africans and South Americans, professional and less professional, eager to live and work in a European context without the immigration filters imposed by the European Union. These socio-economic and demographic changes are opening up many opportunities for small and medium-sized Italian companies that want to internationalise.
Yet, to truly seize the new opportunities of this change of scenario, Italian companies should see their investments in Serbia in a different light.
From being regarded as mere branches, Serbian subsidiaries could become the realities through which to manage the internationalisation process of the entire group, thanks to the proximity of many markets, the greater accessibility to multilingual staff and highly qualified professionals, established logistics networks, and further development. From domestic subcontracting companies, Serbian subsidiaries could become centres for the elaboration of organisational, product and process innovation, thanks to the lower costs that the country guarantees if unexplored paths are to be taken. From low-cost centres to which low value-added production could be delegated, Serbian subsidiaries could dialogue with local start-ups and new entrepreneurs to absorb and test new ideas and solutions, if only to find new ways to save costs.
A new operational model of Italian companies in Serbia could also imply overcoming certain reciprocal mental laziness, joining the most innovative social and entrepreneurial fabric, monitoring the transformations underway to seize opportunities, so as to better understand each other’s needs and also recover a geopolitically more meaningful link in this complex historical phase.
It has been many years since Italy and Serbia have been in the situation of needing each other, in so many complementary ways – from their respective diplomatic networks and projections to the need to rethink their economic directions. As is often the case, the best opportunities arise from needs, as well as individuals’ ability to see and seize them.
This post is also available in: Italiano