In Italy, an industrial renaissance thrives. Vibrant entrepreneurs with small, efficient firms replace smokestack factories of yore

Sergio Rossi's middle-class home, with unadorned white walls and simple red-slate shingles, is hardly the place one would expect to find high fashion. Inside on the first floor, however, Mr. Rossi mans his phones behind a sleek glass desk. Out back in the garage, three workers use ultramodern cutting machines to produce 100 top-quality leather bags daily, many of which will be exported to New York for sale in Alexander's department stores.

The Val Vibrata, a valley which runs 15 kilometers (9.3 miles) along the Adriatic Sea and 20 km (12.4 miles) inland, illustrates Italy's industrial renaissance.

Twenty years ago, the region was an impoverished rural backwater, and many of its residents were leaving to find work in the factories of Northern Europe. Today, entrepreneurs like Rossi have transformed it into one of the fastest growing areas in Europe.

In the last decade, the Val Vibrata Development Association reports that 485 new companies have opened, producing designer clothes, furniture, and leather goods for such world-famous designers as Gucci, Krizia, and Valentino. In all, the association says the valley boasts 1,650 factories, averaging 15 workers each, managing a turnover of 1.5 trillion lire (about $1.1 billion).

Val Vibrata is not alone. Its expansion represents a widespread process in which the previously agricultural region around Venice, Bologna, and Florence has been turned into thriving manufacturing centers. Italian economists call these areas the Third Italy, to distinguish them from the Second Italy of Milan and Turin - with traditional large industries such as Fiat, Pirelli, and Olivetti - and the First Italy of the agrarian, Mafia-ridden south.

The Third Italy is characterized by much more than simple industrialization. It is a new kind of industrialization. Instead of being clumped together into dirty industrial parks, factories are spread out among villages and coexist with native agriculture. No smokestacks, no huge warehouses mar Val Vibrata's rural beauty. In the valley, farmers are plowing fertile fields for the spring planning, and on the hillsides overlooking the valley, they are tending vineyards and olive trees.

This becomes possible because the new firms are tiny - many, like Rossi, employ less than a dozen people and are located in private homes. But they are not sweatshops. Workers receive union-level wages and use technologically advanced equipment to achieve efficient production and high profits.

``It's the Italian miracle,'' says Massimo Esposito, an editor of Il Sole-24 Ore, Italy's leading business daily. ``Thanks to these small industries in areas such as the Abruzzi, we're competitive even in traditional industries like textiles. Last year, we exported more clothes than we imported from Hong Kong.''

The secrets to this remarkable achievement start with fearless, dynamic entrepreneurs such as Donato Di Sabatini. He grew up in the Val Vibrata village of Nereto, and started working at age 14 in his uncle's workshop producing jeans.

``First I cut the pants, then I washed them, then I repaired machines,'' Mr. Di Sabatini says. ``I learned the production method inside and out.''

At the age of 22 in 1979, Di Sabatini set up shop for himself.

Today, in a two-floor structure dubbed ``Confesioni Paolo,'' he dresses in chic corduroys and sweaters and employs 85 workers who produce 2,000 jeans, skirts, and jackets daily for some of Italy's most exclusive designers. To keep up with booming annual growth of 15 percent, he is adding two floors to his atelier.

``We all watch our neighbor or our relative starting a business,'' he explains, ``and we say, `I can do it, too.'''

Good workers help this entrepreneurial drive and determination pay off. Like other rural areas in Italy, Val Vibrata boasts an artisanal tradition.

Living off the land, the local farmers long spun clothes, knitted sweaters, and stiched bags for themselves. In the new cottage industries, they merely mechanized their old skills.

Dressed all in black, stout, white-haired Celii Laure looks like the stereotypical Italian mama. At Sergio Rossi's apartment-factory, she arrives with 25 finished leather bags, all put together in her own home. Rossi provides her with leather and three electronic sewing machines; she provides him with eight to nine hours of work a day.

``It's terrific,'' she says. ``I make about $5 a bag, depending on the model. And because I work at home, I can take time out to cook my spaghetti.''

Over the years, most Val Vibrata companies have moved beyond the mom-and-pop level.

As they grow, though, they avoid the impersonal bureaucracy of huge corporations, remaining family-run operations able to use their size to respond quickly to market trends, manufacturing almost entirely on demand, and succeeding in foreign markets.

Take the luggagemaker Euroflex, one of the largest and most sophisticated operations in the valley. Since Mario D'Eustachio founded the firm in 1964 with 15 employees, Euroflex has grown into a corporation with a payroll of 200, an annual turnover of some $10 million, and markets as far flung as Macy's in New York - without giving up the flexibility that comes, in large part, from filial incentive.

Mr. D'Eustachio remains president. His wife, Pia, leads the sales effort. Daughter Tiziana designs the bags and son Tito watches after company finances. Oh yes, D'Eustachio adds, don't forget my nephew Paolo, who directs production. Besides the family, three secretaries make up the entire front office.

But Italy's cottage industries face challenges to keep up with stiff Asian competition. In his little factory, Rossi complains of cheap Taiwanese imitations. His solution: go upmarket, producing higher-quality, better-designed goods. Instead of just filling orders for Milan-based designers, he wants to create his own mark - the Sergio Rossi line.

In this way, Rossi can make a lot more money. The same bag for which Rossi is paid $20 sells for $100 or more in Rome or New York. ``Sergio Rossi,'' he says. ``It has a nice ring, doesn't it?''

Other Val Vibrata entrepreneurs are not just dreaming. Eraldo di Stefano, founder of di Stefano Inc., has made his Gran Sasso sweater mark well known throughout Italy.

In the last few years, he has computerized his marketing and distribution by installing an IBM mainframe computer, and upgraded his production techniques with electronic knitters that permit him to produce 300 different colors of garments.

``Only 30 percent of our production now goes to designers like Calvin Klein and Laura Biagiotti,'' di Stefano says. ``In a few years, I want to get that down to 10 percent.''

In this modernization drive, the Italian government only played a small role. Rome poured trillions of lire into building large steel and chemical factories, most of which now lie idle in other areas of central and southern Italy.

In Val Vibrata, it offered low-interest investment loans to fledgling enterprises. Otherwise, it left the entrepreneurs alone.

That's just the way the Val Vibrata businessmen like it. They prefer to act by themselves, ignoring politics. In 1983, they founded the Val Vibrata Development Association, and chose Antonio Angelini, a Communist Party member, to lead the organization.

Mr. Angelini hasn't flinched from using a hard sell to promote exports that would bring smiles to the faces of capitalists.

He has organized foreign shows for potential buyers; one in London resulted in sample requests from such prestigious stores as Harrods, Austin Reed, and Burberrys.

Now he is leading discussions about marketing a line of Val Vibrata luggage under license in Japan.

No doubt about it, Val Vibrata's surprising success looks likely to continue to surprise.

``In Italy, it is possible to be a Communist and industrialist,'' Angelini says. ``I'm happy to tell you that we have lots of millionaires here in Val Vibrata.''