At the end of 2008 when western economic systems experienced a dramatic process of resizing and decline in their basic foundations (vertical drop in demand, sudden production stoppages, crisis in consumption and financial collapse) many used the expression that was then to become famous '... nothing would be like before...', meaning that the changes imposed on the economic and production systems would have been to such an extent that an entirely different scenario from the past would be created. Five years later, a look at the crisis that occurred showed just how anomalous it was with respect to those suffered in past decades, to the extent that still today, on a global scale, we are struggling to find an escape route. However, these thoughts should not hide the evident facts that the production systems are entities that are constantly on the move, because it is the dynamics themselves of competitions that lead businesses to constantly remodel their relations with the market. If businesses are unable to face this change, they thus risk yielding to it; those who study the phenomena of industrial demographics know only too well that the birth and mortality rates of businesses represent the point where various dynamics meet: the structure of competition, the prospects for development, the complexity of production and technological know-how, the availability of adequate resources (human and financial) all contribute to the lifetime of businesses.
This work offers an in-depth look, as regards the Veneto region, at the results of a study on a number of characteristics in the evolution of business models of the SMEs in the sector of 'instrument mechanics' (Note 2) on a national scale. For this purpose, a large amount of structural data was used from SOSE regarding businesses with turnover of less than 7.5 million euros.
When referring to a business model, this means the combination of the main elements in the value chain, through which enterprises set up their business and internal organisation to face competition; the special mix of these elements under the effect of decisions taken by each business leads to a specific configuration of activities, which are reflected, in a summarised form, in the business profile (Note 3) . Table 5.1.1 lists the main business profiles of the sector SMEs according to a hierarchy of complexity, from the simplest to the most complex.
With respect to the original choice of a business to adopt a specific model in line with the internal system of technological, productive and commercial skills, the behaviours with which businesses interact with the market dynamics give rise to flows of transition from one model to another, often with substantial changes to the value chain and factors of internal organisation.
In relation to the direction of change undertaken, these directions of transition have been indicated as downgrading processes, when the enterprise abandons a more complex business model in favour of a simpler version: these are situations where the change involves, for example, the commercial structure - reducing it, or in extreme cases eliminating it - or the abandonment of product brands, or again the loss of foreign markets, or lastly the simplification of the production process, not only in how the supply range is structured, but also in the organisation of the production phases. (Table 5.1.1)
In a large number of cases, downgrading can mean an enterprise adopting a new business model that does not envisage direct market coverage, but rather a focuses on production services provided with regard to one or more client businesses (roles as subcontractors). In general, similar trends indicate a difficulty in maintaining competitiveness when this is focussed on competitive tools that are excessively complex for the business's level of organisation skills and its system of knowledge; from here comes the attempt to find a new competitive role, more 'suited' to the enterprise's capacities and aimed at facilitating a more secure place on the market. In 'instrument mechanics' these transition flows on average regard no less than 40 % of the businesses, with peaks of up to 70 %-80 % depending on the adopted business model.
On the contrary, the processes of upgrading indicate directions of actual growth, above all in terms of organisational, strategic and often production complexity, which as a consequence leads to larger dimensions over time (Note 4) . In terms of quantity, these flows are generally less significant on the quantitative level, but are nevertheless important, as they demonstrate not only the vitality of a small business, but also its 'selective' approach (i.e. of a minority of small businesses) to push towards more difficult and bigger market challenges. In fact, it is virtually always the case that upgrading tends towards business models where the value chain is strongly centred on foreign markets and dealings with international competition. Larger studies conducted in the past (Note 5) , show that this trend involves no more than 30 % (approx.) of businesses in all sectors, with more marked proportions in the sectors of 'Metal processing' and 'Plastic Processing'; also in the sector of 'instrument mechanics' this phenomena is of notable interest.
But what are the results of these processes of change in production systems? And to what extent can evolution of the original business model increase the ability of a business to deal with competition or even, in more simplistic terms, keep a hold on the market? In an attempt to answer these questions, we have, for the sector of mechanics, drawn up an empirical estimate of the probability of business survival (Note 6) in relation to the different behaviours of change to the specific business model, verifying the following:

• in what conditions is the transition between different models able to increase the probability of survival and within which time frame;
• in these processes, whether a specific model is shown to be more effective than others;
• whether the transition from more complex structures in the value chain to simpler structures is more successful than the situation vice versa.

As well as evaluating the degree of success of transformation strategies in relation to the adopted business model, we also asked whether, and to what extent, the size of the outlet markets influences the choice of the process of change. In fact the competency profiles and the same value chain take on different forms according to the target market to be reached by the business, whether local, national or international. To sustain business competition more effectively on international markets, and, more generally speaking, guarantee survival also in the long term, evolved business models are needed, in which the value created depends greatly both on the capacity for technological innovation and the exploitation of intangible resources such as sales strength and use of product brands, and lastly the ability to make production costs flexible.
On the contrary, if the operating environment of a business is limited to local dimensions, a craftsman type and/or less structured approach to the market may still prove to be adequate. In fact this level, characterised by a limited scale of production, facilitates low cost control of the dynamics in demand and customer needs; it does not require commercial structures and can do without the use of product brands, at times enabling greater margins of freedom on the price factor. However, given that the dynamics of local markets are still - even if less directly - governed by the evolution of global markets, these factors do not appear to be sufficient to ensure a long-lasting presence of a small business on the market, sheltered from larger-scale competition, to the point that their own fragility can have repercussions on the probability of survival of the enterprises operating with this type of business model, shortening their lifespan.

In structural terms, the division of small enterprises of the mechanics sector by business model in the Veneto region does not differ greatly from the national average, as is the case of the changes to this structure occurred in the period 2004-2010.
In 2010 most subcontractor models showed similar proportions (65 % of the total number of businesses) both in the Veneto region and the national average in Italy, as was also the case of the composition of profiles within these businesses. Among the various forms of subcontractor models the most widespread (61 %) was in both cases based on '...specialisation in one production phase, with a predominantly single-client relation' (BM6); followed at a distance (3 %) by 'subcontractors outsourcing phases of high added value (treatments)' (BM4) and (1 %) 'subcontractors specialised in a single outlet market, dealing also with international trade' (BM2). In the first instance, these profiles indicate that the industrial fabric of the small enterprises of the mechanics sector, both in the Veneto region and in Italy in general, is characterised by a strong presence of informal networks, comprising above all operators specialised in providing production services to other businesses (subcontracting). These services require a very high level of quality (in terms of prompt deliveries, quick processing times, competitive prices) at the risk of losing the relationship with the client business, an ability to make the production response flexible to customer needs, resorting to a further level of specialised subcontracting and participation in international supply chains thanks to the optimal efficiency of the service provided.
This structure grew from strength to strength in the latter half of the first decade of 2000: in 2004 the impact of these models was lower (57 % in Veneto and 55 % in Italy); among these in particular, 'exclusive' subcontracting grew significantly in this period (by +14-15 percent) where loyalty to a principal client is closely tied to the ability to maintain quality and reliability in the subcontracting relationship. (Figure 5.2.1) (Figure 5.2.2)
In parallel to this there is the loss in ability to remain anchored to the international supply chains: the number of enterprises with subcontractor business models open to foreign Countries was not even high in 2004 (2 % in Italy, 3 % in the Veneto region) and in 2010, due to the global crisis of markets, this figure halved in Italy and fell to a third in the Veneto region.
When focussing attention on the relationship between the business model and size of the market served (local, national and international), the analysis by 'destination market' of products/services shows that opening up towards international supply chains is not only typical of BM 2 'subcontractors specialised in a single outlet market, dealing also with international trade' , but also reflects the competitive approach of the 'subcontractors outsourcing phases of high added value (treatments)'(BM4): indeed, in the case of both groups, of the 59-63 % enterprises that achieve their turnover predominantly outside the local area, more than 90 % export abroad, and to a significant extent (72 % - 84 %) also to non-EU Countries. (Table 5.2.1) (Table 5.2.2)
On a national level, the same basic characteristics as described above can be confirmed, but at a lower percentage, proof that in the Veneto region the presence of areas with strong production specialisms and the same presence of production districts lead to a strategically and more internationalised set-up of mechanics enterprises.
On the contrary, the business model of 'exclusive' subcontracting, with subcontracting services aimed at a single principal client (BM6), reveals a completely different market approach, mainly focussed on local relationships: in fact 78 % of Veneto enterprises achieve their turnover (tabb. 5.2.1. e 5.2.2) within a geographical area that is little more than regional, while exports abroad count for less than 20 % of the enterprises. The national profile of this business model is virtually identical to that of the Veneto scenario: this leads to the conclusion that:

• on the one hand, the relationship of loyalty to a main client seems to require geographical proximity, which contributes to simplifying and reducing costs of controlling client relations;
• on the other hand, focus of production skills on a single processing phase, typical of this approach, contributes to weakening the ability to compete, meaning less possibility of opening up to international markets.

This latter consideration should also be made in light of the growing importance that this business model has gained over the latter half of the first decade of 2000, both in the Veneto region and on a national scale: a substantial number of small enterprises of the mechanics sector have in fact adopted this type of organisational logic and value chain. So we now need to understand these processes of evolution in the businesses that have chosen to modify their original and competitive outlook, in favour of this strategic approach: is this basically a move in defence and to survive in the face of global resizing of demand? And what are the prospects of success?
The following analysis will attempt to answer these questions, and highlight the characteristics of the processes of evolution from other business models towards this model of single-client subcontracting, evaluating the probability of enterprises holding their place on the market thanks to such a strategic choice.
As regards the business models of the small enterprises of the mechanics sector with direct coverage of the outlet markets, the dominating businesses, both in the Veneto region and Italy, are , 'businesses specialised in the production of systems and parts using their own brands (BM3)' with a share of around 19 %-20 % of the total (figures 1 and 2): these are businesses that manufacture production plants (or parts) destined for other businesses (BtoB channels) mainly in the sectors of metallurgy, wood, agriculture and plastics. The market dimension is above all national, with the share held by Veneto businesses above the average (71.7 % vs. 67.8 %); Nonetheless, the use of product brands, and the force for penetration of international markets remain rather limited for this type of business model, but still higher in the case of Veneto enterprises in comparison to the national average (62 % vs. 59.6 % for EU areas, and 52.5 % vs. 50.6 % for non-EU areas). This is also due to fewer investments in the commercial structure, which also affect the profile are still not sufficient to sustain significant growth on international markets. (Table 5.2.3) (Table 5.2.4)
However, the business models with the highest capacity for exports are those classed as BM5 'businesses specialised in systems and parts, with international opening and using their own product brands' which, given the same production specialisation as the category BM3 and the common strategy of enhancing brand value, stand out from the latter category in their strong international vocation, supported by greater intangible investments in commercial networks; and BM11 'businesses specialised in finished products, using brands and outsourcing added value treatments' for which the share of enterprises achieving a turnover from outside the local markets is higher than 80 % (tables 5.2.3 and 5.2.4) with over 90 % achieving these figures from exports. It should be noted that with respect to the Italian average, in the case of Veneto enterprises, the percentage of businesses exporting to non-EU Countries was higher than that of EU Countries already in 2010, showing a more rapid response to emerging markets.
However, the significance and distribution of these business models among the small enterprises is still quite low, not exceeding 7 % overall, as can be seen in figures 5.2.1 and 5.2.2. On the other hand, the remaining business models (BM7 'businesses specialised in systems and parts, with a single specific outlet market but without a brand' and BM9 'businesses specialised in finished products and which do not use brands') where small enterprises of the mechanics sector have direct market coverage, show a clear and marked tendency to operate on local markets (no less than 60 %-65 % of these businesses), as a consequence of value chains based on a simplified internal organisation, which is non-managerial and characterised by negligible or no investments in intangible factors (brands and commercial networks).

The analysis showed that in the sector of instrument mechanics, the relation between business models and geographical size of the market appears to be strongly influenced by the complexity of the value chain underlying the single business model, and in particular by the following factors:

1. investments in intangible resources (commercial networks and product brands);
2. the level of technological and production know-how which presupposes significant managerial skills in the organisation of an enterprise.

In fact, increased opening to international markets - both for businesses with direct coverage of the outlet markets and those adopting subcontractor models able to access and work within the international supply chains - is found among the business models based on more evolved value chains and the above-mentioned competitive edge. This relationship seems to take on a quasi-structural nature: in fact it appears to separate itself from the territorial context considered, showing itself to be much more similar both for businesses working in the Veneto region and those across Italy.
How important are the diverse and specific competitive advantages of the business models in determining their probability of survival on the market? Is it the very advantages that guide the process of transformation? If this is the case, then we would expect a general evolutionary tendency towards those business profiles, where the competition factors and value chain are higher. In practice, the observed trajectories of change (Note 9) are mostly configured as competitive downgrading processes rather than evolutions towards more complex business models (upgrading); with this framework in mind, it could be supposed that these dynamics stem above all from the difficulty in facing competition by businesses that have built up a value chain that is not simple to efficiently manage and thus the same businesses aim at simplifying their set-up. On the other hand, the enterprises that keep the same business model over time may be considered the most solid and skilled in efficiently managing their competitive edge.
To verify this hypothesis, a survival curve was plotted for the entire group of enterprises operating in the sector (for at least one year) between 2004 and 2010 in the Veneto region and in Italy. The results obtained refer to the probability of enterprise survival for each business model considered, calculated in the short term (three years) and medium to long term (seven years) for the best evaluation of stability and prospects of remaining on the market; the threshold that discriminates the best prospects of staying on the market was set at 50 %. (Figure 5.3.1) (Figure 5.3.2)
The results are surprising: in the Veneto region, businesses that maintained a stable position with the same business model throughout the period show a probability of survival - in the short term, and even more so in the long term - below the general average of the sector, but above all below that of businesses in the process of upgrading or downgrading.
More specifically, in the short term, the survival rating for this group of businesses exceeds the threshold of 50 % only in the following cases:

1. among the businesses with direct market coverage, with business models based on more complex value chains, where intangible investments constitute the determining competitive edge in dealing with international markets (BM5 and BM11 and to a lesser extent BM3) (Note 10);
2. among the businesses that provide subcontractor services to other businesses, exclusively using the BM6 model, in which the exclusive relationship with the client business represents the fundamental strategy.

In all other cases, the survival ratings are below 50 %, a result that may be explained by the fragility of the competitive factors that form the basis for these business models: for subcontractor businesses working with international supply chains (BM2 and BM4), one negative factor is the strong exposure to the logic of competition on more difficult markets: in this particular case, it seems that specialisation in a production skill, or the ability to govern further levels in outsourcing production phases (BM4) do not constitute a sufficient factor in dealing with this issue. Meanwhile, for the other businesses with direct market coverage (BM9, BM7 and BM1), the weak points seem to lie mainly in the very size of the local market itself, dealt with using organisational structures with little (or no) managerial bias: in this way the absence of investments in distinctive product brands and the little importance given to articulated commercial structures lead to the concentration of competitive edge on the product price alone, while reducing business margins.
The negative outlook of this framework is even bleaker when considering the medium to long term (7 years): only two business models maintain a probability of survival over 50 % (Figure 5.3.2) and these are businesses with direct market coverage, also offering product brands (BM5 and BM3). In all other cases the probability is reduced quite drastically, especially in the case of third party subcontractors (BM2 and BM4) for which there is only 15 %-16 % probability of survival, while in the case of business models with direct market coverage and simplified value chains (BM1, BM9 and BM7) these vary within the range of 19 % to 37 %.
In contrast, the choice of businesses to undertake processes of transforming their value chain proves to be worth taking: whether these processes are oriented towards competitive upgrading or in the direction of simplifying the internal value chain, the probability of survival in the short term (3 years) generally increase to over 90 %, regardless of the original business profile. Also in the long term (7 years) these values stay high, mostly above 80 %, with highly significant and positive differences mostly in favour of the weaker business models most exposed to the risk of falling out of the market: two subcontractor models (BM2 and BM4) and BM1 'businesses specialised in instrumental goods, with opening to international markets but without product brands'; in the latter case, the downgrading processes are seen to be the most beneficial.
There is also a notable increase in the ability to keep hold of a market following an upgrading process, where the enterprises abandon their original set-up based on simplified value chains (BM7 and BM9) to take on more complex business models. The direction taken by these businesses, and which organisational and competitive configurations are mainly adopted are described below. (Figure 5.3.3) (Figure 5.3.4)
When compared with the behaviour of businesses across the nation, these trends basically confirm the evidence shown for the case of the Veneto region:

1. the probability of survival for enterprises that do not change their initial competitive profile is greater than 50 % when limited to the same business models as shown for the Veneto region. The values are similar, of around 62 %-63 % (Figure 5.3.3); a little higher (58 %) with respect to the Veneto region in the case of BM1;
2. when considering the processes of change in the short term, the probability of survival increases to over 90 % and is on average higher by a few percent compared to the Veneto situation; there are several transformation options for categories BM2 and BM4, where businesses opt to upgrade, though survival percentages are lower than in other cases;
3. in the long term (Figure 5.3.4) the survival ratings stay on average around 80 % but they are generally lower by a few points than those for the Veneto region for the same business models (except for BM6, BM7 and BM9);
4. in general, the upgrading processes lead to lower survival ratings with respect to those of downgrading, aimed at simplifying competitive edge and market strategies.

It is now worth looking in detail into the ways in which small enterprises of the mechanics sector transform, with the aim of maintaining their ability to stay on the market. In other words, which business models are favoured in the evolutionary process when the businesses decide to change their competitive approach and to modify their internal value chain structure? The most interesting cases are those highlighted in the previous analysis, in which the positive change to the probability of survival on the market is most marked when the business model is changed.
Considering the businesses with direct market coverage, the models 'businesses specialised in systems and parts, with a single specific outlet market but without a brand' (BM7) and 'businesses specialised in finished products and which do not use brands' (BM9) take two very different directions: on the one hand, refocusing their value chain and radically changing strategy (table) or transforming their specific business model into one of single-client subcontractor (BM6) or specialising in a single process (BM8). These are processes of simplification with respect to the original strategy, as the business abandons the approach of production specialisation and above all the logic of direct market management. On the other hand, the businesses take the direction of upgrading (Table 5.4.1) strengthening the use of product brands (BM3) and upgrading the commercial networks to compete more effectively on international markets (BM5). (Table 5.4.2)
Meanwhile, as regards the two subcontractor models used in international supply chains (BM2 and BM4) it should be noted that their directions of change consist exclusively in the simplification of competition strategies, aimed at focussing subcontracting mainly on the domestic market - even limited on a regional scale (table 5.4.2) - and abandoning the complexity of organisational coordination and process skills (BM4) that have previously been achieved but cannot be sustained. (Table 5.4.3) (Table 5.4.4)
As can be noted in fact 'subcontractors outsourcing high added value phases (treatments)' in BM4 are oriented on the one hand towards forms of single-client subcontracting (BM6), and on the other towards specialisation in a single process but completely integrated and developed internally (BM8); in the same way 'subcontractors specialised in a single outlet market dealing also with international trade' (BM2) are also oriented towards 'exclusive' subcontracting processes (BM6). It is also worth noting (tab. 5.4.3) the radical strategic changes that open the enterprise to direct market coverage (BM3) thus maximising the probability (93 %) of survival, also long term. No evolutionary directions towards more complex configurations (upgrading) of the value chain (table 5.4.4) are taken by these businesses; however, these are directions of growth taken by the 'subcontractors specialised in a production phase, with a predominant single-client relationship' (BM6), who position their competitive strategy in various ways: taking direct control of the market by means of business models specialised in production systems (BM7) or finished products (BM9); investing in more evolved organisational structure (BM5) able to compete on foreign markets, thanks to the investment in product brands and commercial networks. Repositioning of the competition strategy, lastly, also occurs when subcontractor services are pushed towards the challenges linked to international supply chains (BM2 and BM4).
A last consideration regarding the behaviour of enterprises adopting more complex business models and which have direct coverage of outlet markets, featuring a strong tendency abroad (BM5 and BM11): the remarkable fact is the considerable increase in probability of survival on the market (+28-32 percent, Figure 5.3.1) when these businesses implement a downgrading process in competition, abandoning product brands (BM7 and BM9, table 5.4.1), or which radically modify the strategic approach in favour of roles as subcontractors (table 5.4.1): both on local markets (BM6 and BM8) and abroad (BM2 and BM4). This is a tangible sign of the widespread difficulty in sustaining the logic of competition, which requires complex organisational structures and internal value chains, a high degree of managerial skills and continuous intangible investments, tending rather towards strategies that imply simpler competitive strategies. (Table 5.4.5)
Behaviour not typical of just the small enterprises of the mechanics sector in the Veneto region, but common to the entire nation. If there are any discernible differences, these lie in basically two aspects.

• The first concerns the transformation processes of businesses that adopt subcontracting models and which on a national scale show a broader range of options for strategic change. In fact these are upgrading processes involving radical changes to the strategy adopted, abandoning the subcontracting logic to embrace a logic of direct market management (towards BM1, BM5 and BM11).
• The second aspect regards the final results of these processes of change, expressed in the probability of survival in the long term and which, as already shown, is higher for Veneto businesses when compared to the national average.

In the latter half of the first decade of the 2000 (2004-2010) in the instrument mechanics sector in the Veneto region, the small enterprises have implemented changing competitive behaviours in dealing with the continuing changes of the economic scenario, with the aim of reinforcing their hold on the market: in a schematic approach, it can be said that both adaptive behaviour (mainly the downgrading processes aimed at simplifying the internal value chain structure and the connected business organisational set-up) and proactive behaviour (the adoption of more complex business models) have achieved this objective with remarkable success. Indeed the probability of survival on the market has increased significantly for enterprises undertaking this process of transforming their business model, above all in the short term (all above 90 %) but also in the long term. On the contrary, the enterprises that have maintained a stable competitive approach and the same structure of the internal value chain, without changing their 'value proposition', generally have more difficulty in keeping a hold on the market; the only exceptions are, on the one side, models with an approach to the market focussed on intangible investments and managerial skills able to sustain competition on international markets, and on the other, the model of 'exclusive' subcontractor, aimed at a single main client.
Thus transformation means responding to changes imposed by the markets, and is the winning strategy to keep up competition, a positive sign of vitality and dynamics. However, within this broad reaching phenomenon, it is necessary to separate the value of the transformation processes to be able to judge their worth appropriately. First of all, the widespread trend of simplifying the competitive mechanisms and international organisation structures, linked to improved survival probability, is the sign of a general difficulty in sustaining more complex business models and in particular those that enable competition on foreign markets. In this sense, resorting to the domestic market and, even more so, on a local scale, cannot be considered a positive trend, but rather expresses the lack of managerial skills and, in a broad sense, in marketing skills, i.e. those skills that are essential to enhance the excellent quality of Italian products on international markets.
Secondly, the central role in the production chain of the business model of 'exclusive' subcontracting (single-client) where the processes of transformation of the various business models of the sector converge, as well as the predominantly local scale of the production relationships, represent the other side of the problem outlined above: especially at times of particularly turbulent markets it is easier to 'sell your own production skills' to other larger businesses, rather than setting out to seek new markets, often very far away. This constraint does not just apply to the case of the Veneto system; in fact the analysis has shown a widespread identity with the behavioural models and production system structure on a national scale. But it is for this very reason that there is an increasing need for actions and policies aimed at evolving the entrepreneurial culture from one with a product vision to one with a market vision, at the centre of which is a solid and effective commercial ability: this leap would inevitably lead to increased organisation dimensions, abandoning the restrictive logic of staying small.