Italian companies conquering foreign markets
Internationalisation remains a key driver for sustaining the growth of large Italian companies. This, in turn, has a positive impact on domestic GDP. For this reason, and to better understand the views of Italian entrepreneurs, the challenges they face and the opportunities open to them, HSBC commissioned Padua University-CMR to carry out research with both medium and large Italian companies.
The study covers a crucial topic for the Italian economy by analysing who these companies are, their general business strategies, their strategies for globalisation, their governance structure and their expectations. Alongside quantitative data, the research included interviews with 808 entrepreneurs and top managers, providing qualitative data for a more precise understanding of the internationalisation process.
Globalisation: organisations and strategies
Today more than ever, companies of all sizes and in all sectors are taking steps in what is termed the economy of inter-dependencies: a real global village, in which natural and social phenomena spread rapidly across the globe. For companies, there are two important consequences of this. The first is that no company can say “globalisation has nothing to do with me”. The second is that companies need a new way of understanding globalisation and their place in it.
International trade is not equal for everyone. Companies take different strategic approaches – there are those who are active, those who act when required and those for whom the move to operating or trading internationally is involuntary. International strategies cannot ignore the fact that the nature of the economy is evolving ever more quickly. For this reason, strategies for international operations can be interpreted in terms of reversibility. There are approaches that are more easily reversible (i.e. which allow for a change in tack without incurring excessive costs), such as direct exports, direct sales, or other forms of commercial distribution. On the other hand, there are approaches that are more difficult to reverse (i.e., those which incur greater costs if changes need to be made), such as joint ventures and direct investments abroad.
In recent years, there has been a great deal of talk regarding a sort of reverse internationalisation, called back-shoring or re-shoring. How can this strategic behaviour be interpreted? It is not a phenomenon that is juxtaposed against globalisation but is grounded in the concepts of institutional structure, comparative advantage, complementarity and arbitrage. This means the decisions for global operations are less and less driven by a short-term (and recurring) search for the least expensive options and are increasingly steered by the search for locations where institutions work well; where they are effective and efficient.
Manufacturing and service sectors
With regard to manufacturing companies, two-thirds of their production (66.1%) is for the end-user, a quarter (24.9%) is developed for other companies as part of a chain and, 9% is machinery. For commercial and service sectors, 56.7% work within a production chain for other companies; 15.6% have commercial relations with the public sector, and 27.7% deal directly with consumers.
Innovation
The vast majority of companies studied said they had invested in innovation linked to products and processes. More specifically, 61% had innovated in products and 62.8%, in the production process. Three innovation profiles can be drawn from this data – high innovators (49.7%), which have invested in both areas (product and process); low innovators (28.7%), which have made no investments in the last three years, and medium innovators (21.6%), which have invested either in innovating processed or products. The propensity to open up relations with other markets depends on the degree of innovation introduced.
The presence of suppliers and customers is the most important factor (39.2%). 22.1% are looking to limit costs, 19.8% are looking for qualified foreign partners with whom to go into the local market, and 18.4% want to be as close as possible to their end customers. Virtually none are driven by the need or idea of finding labour (0.5%). The proportion of companies that have opened a new plant or office beyond national borders is limited, but not negligible (35.4%). Fewer companies have moved part of their production abroad (25.7%). Fewer still have bought an existing company or production base abroad to use for their own business needs (22.1%).
The most frequent method adopted is also the simplest: using a network of local agents assigned the task of proposing products and services (42.8%). In the second place, we find those with a contractual agreement with a foreign local partner (33.9%). In third place are those that have chosen to autonomously open branches abroad without local partnerships (26.6%).
Finally, a few have established a corporate joint venture with a foreign local partner (17.9%) or purchased a portion of an office/establishment abroad (14.9%). A third (35.7%) of companies with relations abroad apply none of these methods. 28.5% opt for just one method and a 35.8% use at least two operating systems simultaneously.
Issued by HSBC Bank plc, Milan Branch
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