Italian Republic Business Guide
Introduction
Italy (Italian: Italia, officially the Italian Republic; Italian: Repubblica Italiana), is a country located in Southern Europe, that comprises the Po River valley, the Italian Peninsula and the two largest islands in the Mediterranean Sea, Sicily and Sardinia. Italians also refer to it as lo Stivale ("the Boot", due to its boot-like shape), il Bel Paese ("the Beautiful Country") or la Penisola ("the Peninsula" as an antonomasia). Italy shares its northern alpine boundary with France, Switzerland, Austria and Slovenia. The independent states of San Marino and the Vatican City are enclaves within Italian territory, while Campione d'Italia is an Italian exclave in Switzerland.
Economy
Italy has a diversified industrial economy with roughly the same total and per capita output as France and the UK. This capitalistic economy remains divided into a developed industrial north, dominated by private companies, and a less-developed, welfare-dependent, agricultural south, with 20% unemployment. Most raw materials needed by industry and more than 75% of energy requirements are imported. Over the past decade, Italy has pursued a tight fiscal policy in order to meet the requirements of the Economic and Monetary Unions and has benefited from lower interest and inflation rates. The current government has enacted numerous short-term reforms aimed at improving competitiveness and long-term growth. Italy has moved slowly, however, on implementing needed structural reforms, such as lightening the high tax burden and overhauling Italy's rigid labor market and over-generous pension system, because of the current economic slowdown and opposition from labor unions. But the leadership faces a severe economic constraint: the budget deficit has breached the 3% EU ceiling. The economy experienced low growth in 2006, and unemployment remained at a high level.
Market Overview
Following several years of stagnation, Italy’s economy is showing signs of a mild recovery. According to Italian Government estimates, the economy grew 1.7 percent from the 3rd quarter of 2005 to the 3rd quarter of 2006, bolstered by steady consumer spending and an upturn in both imports and exports. Italy, with a population of about 58.5 million and a gross domestic product around $1.7 trillion (GDP per capita = $28,700) represents a market comparable in terms of size and wealth to that of France or the U.K. [See the CIA World Fact Book for more demographic details on Italy.] Responding to pressure to meet European Union fiscal targets (Italy has adopted the euro and was a founding member of the E.U.), the Italian Government is making an effort to get its house in order. Inflation is now low, at around 1.8 percent (November 2006) and unemployment is improved at 6.1 percent (lower in the north and much higher in the south of the country). Italy – famous worldwide for its designer fashions and fine gastronomic tradition – is, in fact, a world leader in a range of other industrial sectors, such as machinery, metal products, chemicals and transportation equipment. However, growth in Italian exports has recently been hard hit by diminishing competitiveness vis-à-vis lower cost producers. The Italian consumer is sophisticated and generally prefers products of high quality and style. At the same time, for many goods price is increasingly a factor. American products enjoy a reputation for high quality and innovation. At the same time, most U.S. exporters can expect strong competition from domestic and European producers. Italy is a major U.S. trading partner. In 2005, Italian goods exports to the U.S. reached $31 billion. U.S. merchandise exports to Italy totaled $11.5 billion, making Italy our 16th largest market – behind Germany, France and the U.K., but ahead of Spain or India. Through the first 10 months of 2006, U.S. exports to Italy were trending upwards.
Market Challenges
Although integration into the European Union has helped in important ways, Italy can be a surprisingly complicated market for new entrants. One problem is Italy’s distribution system, characterized by north-south disparities and the continued predominance of small, family-owned businesses. Italy’s regulatory environment is equally complex; regulatory as well as business decision-making sometimes lack the transparency found in other highly developed economies. The uneven presence of infrastructure (generally well developed in the north and less so in the far south) also poses a challenge to U.S. investors, as well as to the distribution of American products in Italy. Investment in R&D as a percentage of GDP lags behind other industrialized countries and more effective enforcement of existing intellectual property laws and more stringent corporate governance are needed. In Italy, the development and maintenance of personal relationships remain a vital part of doing business. This is even truer for foreign businesses that lack an intimate understanding of Italy’s distribution practices and regulatory procedures. Finding the right Italian business partner is an essential part of establishing a business presence in Italy, and the U.S. Commercial Service Italy is committed to helping U.S. firms do so.
Market Opportunities
In general, the recent recovery in the Italian economy combined with a sharply more competitive U.S. dollar (the euro has appreciated nearly 50 percent against the dollar over the last five years) points to strong and growing demand for U.S. exports. U.S. products and services that meet the needs of Italy’s changing demographics have good opportunities. Italians are generally getting married later and having fewer children. Italy’s low birth rate means its population is aging quickly. Twenty percent of Italian’s are now aged 65 or older. In addition, more and more women are entering and remaining in the workforce. Another trend is that Italians are increasingly adopting pets as members of their families. And finally, an influx of immigrants from Africa, Asia, Eastern Europe and Latin America means the tastes and habits of the consumers in Italy are changing and that there are identifiable ethnic markets to be served. Such developments are opening up whole new segments of the economy. U.S. firms also enjoy good opportunities in sectors where new regulations (often imposed by the European Union) are creating demand, where there is no domestic competition, and/or where the American product offers clear technological advantages. Best prospects that respond to these factors include information technology, safety and security, medical and pollution control products and services. There are also significant opportunities for U.S. service providers in the franchising, travel and tourism, e-commerce, consulting, insurance, education and training sectors, to name just a few. In the agricultural sector, bulk and intermediate commodities (used as ingredients for Italian value-added products), seafood, hardwood and softwood, and consumer-oriented products are in demand.
