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Manzano's claim to be the chair capital goes back centuries. An 8th century altar in nearby Cividale contains the first trace of chairmaking. During the Renaissance, local carvers and carpenters from the region had their hands full with orders from Venice, 75 miles away. Production of chairs for the masses began in the 1800s, but the real boom came after World War II. Big distributors, primarily from Germany, discovered the local craftsmanship and started buying in bulk, turning Manzano chairs into a $1 billion-a-year business. To cope with the demand, the number of firms grew tenfold as highly specialized artisans set up their own shops, supplying individual parts to their neighbors, who would then work them into the next stage of the manufacturing process. One artisan would do just leather upholstery, for example, or specialize in varnishes. The highly decentralized industrial structure, a type of extreme outsourcing network, is quite common in Italy. By one estimate, there are about 100 such industrial clusters in the country, producing shoes, clothes and even some food products.
The flexibility of such clusters is sometimes held up as a model by experts on economic development such as Harvard Business School professor Michael E. Porter. But the system has proved vulnerable to an onslaught of international competition. About 90% of the firms in the district have fewer than 20 employees, while just a dozen have more than 50, according to a study by Professor Roberto Grandinetti of the University of Padua. Local bankers say all but a few are sorely undercapitalized and lack the resources to build their business to a global scale. And virtually no one has much experience selling to customers other than the big German distributors that once snapped up as much as 70% of the district's output. Says Giovanni Masarotti, president of the Manzano chair district and chief executive of Montina, one of its oldest firms: "If I say three companies have true marketing departments, I'm exaggerating."
Nor is there protection in design capability, which has long been an Italian strength. Chairs are easily copied. Manzano's entrepreneurs complain that Chinese manufacturers simply steal what they find in catalogs and on websites. The Italians insist they still have an edge in quality--especially with chairs made out of fine wood or upholstered in top-quality leather-- and in their ability to tailor production to customers like the hotel industry. But even there the Chinese are muscling in.