Internationalisation and the agglomeration effect: evidence from the Italian automotive supply chain

We study the internationalisation process in a representative sample of 786 firms in the Italian automotive supply chain. Most of these firms have agglomerated in the Turin industrial district, the cradle of FIAT, the dominant Italian car-maker and one of the global players in the automotive industry. Both FIAT and its suppliers have experienced a substantial process of internationalisation. Our main research question is straightforward: is the internationalisation process of the Italian firms in the automotive supply chain driven by the off-shoring of FIAT activities, or is it a relatively independent process, driven by the cumulated effect of agglomeration in a Marshallian-type urban district? We build an Internationalisation Strategy Index, that discriminates between firms that do not export at all, or that export without owning structured sale or production organisations abroad, or that possess such organisations. After controlling for firms’ characteristics, and building three simple agglomeration indicators, we perform a multinomial logit micro-econometric analysis. We find that there is an impact of agglomeration on firms’ internationalisation, independent from the vertical linkages between suppliers and their main customer FIAT. In fact, dependency from sales to FIAT decreases the probability of internationalisation, while being located in a high-density industrial district has the opposite effect. This result points to a positive impact of agglomeration per se, particularly in a urban context, and rejects the alternative view that internationalisation of firms in the supply chain is driven by the core firm in the “hub-and-spoke” context.