Learning from the growth of North West part of country, the Italian Government identified 199 clusters in 70s and  prepared a national level cluster policy to support these clusters which is now called  Third Italy Model. Italy is divided among three regions based on the economic development First Italy- mainly areas towards North -West Italy developed due to its proximity to European market - Switzerland, France and Belgium. Second Italy- mainly South of Italy remained backward  due to poor industrial growth. Third Italy- attracted the attention of international community due to its unusual and very fast pattern of growth. They are the world leaders in fashion industry and leather and food products in spite of the fact that normal firm size is just 20.  It was found that fast growth was due to post Second World War investment policies. The growth was further reinforced by clustering and sectoral phenomenon. Sectoral concentration led to vertical disintegration and flexible specialization where economies of scale could be reaped through inter-firm co-operation. Common goals and socio-cultural identities helped to build up trust in the clusters and self-help institutions were used as vehicles for political lobbying.

Italian SMEs have excelled in exports of high quality consumer goods, fashion (textile and leather) products, and capital goods.  This has been made possible by the small firms ¦not as individual entities, but as a part of groups of firms that together are able to create what they would not be able to create as single firms. Such groups of firms were found in geographical concentrations and are called industrial districts or clusters The Italian clusters of Prato (Woollen textiles), Trevisio (Knitwear), Reggio Emilia (agricultural machinery) and Bologna (automatic machines) are internationally recognized. Around 199 industrial clusters of Italy comprise 42.5% of its manufacturing employment.