How to Do Business in Italy Table of Contents Introduction 3 International Relations 3 Economy Policy Outlook 3 Economic Growth 4 Economic Policy 4 Consumer Confidence Improvements 4 PESTEL Analysis 5 Employment Condition Of Italy 6 Consumer Lifestyle 6 The CAGE Distance Framework 8 Culture Distance 8 Administrative Distance 9 Geographic Distance 9 Economic Distance 10 Conclusion 10 Works Cited 11 Appendix 1 15 CAGE Framework 15 Appendix 2 16 Appendix 3 17 Appendix 4 18 Appendix 5 19 Introduction Most of the successful entrepreneurs try to look for innovative opportunities as well as new and fresh markets in which these entrepreneurs can expand their products and services1. The geographical position of Italy permits it to form a crossroad for international trade, serving as a bridge between Europe and Africa thereby making it an attractive point to conduct business2.
International Relations It can be observed that the Italy does not have good international relation with most of the countries3. In the recent times, Italy is facing significant challenges in meeting its debt requirements and the consequential harm which has been caused because of euro zone along with the EU which is quite difficult to eradicate4. Economy Policy Outlook Italy is considered to be a country with heightened financial as well as economic crisis that weakens its position in the euro zone.
This arises essentially from a change in market perception of the state of its public finances. Approval was received from the Parliament on September 14th 2011, regarding the budget that was designed for the period of 2012-2013 in order to minimize the budget deficit to zero in the year 2013, from 4.6% of Gross Domestic Product (GDP) in the year 2010 and an approximated 4% in the year 2011. Nonetheless, because of the reduction in the estimation of economic growth along with higher interest payments, it has been apparent by the month of November of the year 2011 that more funds would be required by the country in order to attain this objective.
Starting a business in Italy is considered to be quite expensive rather than time consuming in Italy5. Economic Growth In the year 2010 and in the first half of the year 2011, the country’s upturn from recession had been modest. In consequence of combination of greater fiscal difficulties, a weakening of the business confidence and sharply declining external demand, it can be expected that Italy will suffer from numerous quarters of negative quarter-to-quarter growth6.
Economic Policy The creation of the new technocratic government has not been successful at minimizing the rate of interest on Italian government bonds considerably6. Consumer Confidence Improvements There has been significant decline in the consumer spending since April 2011. In the first three quarters of the year 2011, it was noticed that there was decline in the unadjusted value index by 0.8% year-on-year. However, after the importunate fall that initiated in the month of May of the year 2011, in the month of November of the year 2011 there was noticeable rise in the consumer confidence index to 96.5 from 93.3 in the month of October of the year 2011.
It was noticed that the index remained below the average for all 12 months of 99.4. It was in the month of November 2011 when the consumers’ evaluation of the overall economic situation improved significantly7. PESTEL Analysis Prior to entering into any country, it is quite vital to conduct PESTEL analysis in order to comprehend the business environment of that particular country. It can be stated that the government of Italy has passed an €40 bn sternness program so that it can resolve its weak financial position and thus take out ways to strengthen them.
It has been observed that although the government takes numerous measures in order to reduce the tax rates, it is quite high in Italy. In the year 2010, the corporate tax rate has been 31.4% which is quite higher in comparison to the EU average of 23.2%. There has been rise in the exports as well as imports to non-EU countries by 17.7% and 30.0% respectively in the year 2011.
It has been noted that the average life expectancy of the people in the year 2010 has been 81.77 years, the life expectancy for men has been 79.16 and that of women has been 84.53. There is high unemployment rate in Italy in comparison to other developed nations of the world which had been at around 8.4% in the year 2010. Information and technology sector is given the most opportunities by the government of Italy. The rate of internet piracy is quite high in Italy which rose by 5% in the year 2010 and led to loss of nearly US$670m.
The government of Italy has a very poor record in terms of waste management. It was in the year 2010, when the European Commission gave warnings to Italy that if it is incapable of removing around 2400 tons of garbage piled up in the streets of Naples then it might have to pay certain fines8. Employment Condition Of Italy Italy has been facing the issues related to low employment rates. It is because of the cultural factors as well as business outlook that have been restraining female labor participation9.
This can negatively impact the consumption, competitiveness as well as economic development. It can be implied that because of the low employment rates the economic growth prospects adversely impact upon consumer expenditure10. The figure in the appendix section helps to explain the total employment rate, employment gap and working age population in few selected Western countries of Europe for the year ended 2008 (Refer Appendix 2). Appendix 3 helps to demonstrate the economically active population and employed population and unemployment rate of Italy for the period of 2004-2009 (Refer Appendix 3).
Consumer Lifestyle The consumer expenditure is expected to rise from the year 2010 to 2020 at a Compounded Annual Growth Rate (CAGR) of 1.2% approximately because of higher prices instead of increase in demand. Taking into consideration the slow recovery, it is expected that the consumers will remain value conscious till 2015. Whilst, a few of the Italians might shop in traditional supermarkets and street markets in the forecast periods, most of the other Italians might consider spending less, developing upon the economical habits that they developed during the period of recession.
The figures in the Appendix 4 and Appendix 5 help to explain the consumer spending. The CAGE Distance Framework Through CAGE distance framework, it becomes quite easier for the managers to identify and evaluate the impact of distance on numerous industries11. The figure in the Appendix section helps to understand the CAGE Framework in appropriate way (Refer Appendix 1). Culture Distance The numerous factors that create cultural distance between, for instance, USA-Italy are languages, various ethnicities, numerous religions of Italy and social norms.
It has been observed that the official language that is used in Italy is Italian12. Family has a great influence upon the social structure and thus offers a soothing influence for its members13. It has been noted that the creativity of Italy is generally reflected in the model which tends to pay more attention upon the quality of life. The country comprises of “the industry of taste” that has been generally based upon individual aesthetic likings in relation to dimensions such as fashion, the agro-food industry as well as gastronomy14. Administrative Distance The citizens of Italy have established low level of concern in the politics, however, high degree of recognition with political parties15.
Furthermore, the government of Italy has announced an action plan to be taken for the information society15. Therefore, government’s intervention in the information technology is higher in Italy. The government has been paying due attention on the business related to cellular phones16. Geographic Distance It has been noticed that Italy enjoys widespread train networks and travelling through train is considered as quite efficient and cheap.
The climate of Italy is dependent upon how far one is from the sea or mountain17. Grapes are widely available in most of the Italian regions. Therefore, wine making is quite prominent in this country. Olives are also considered as the most profitable export of Italy. Economic Distance There has been a new income tax treaty between two countries i. e. the United States and Italy that came into force from the year 200918. It has been observed that garment industry is quite suitable in Italy because of the effectiveness in labor and other factors19.
Conclusion Italy is a country with quite a few political and legal unrests in recent times. In other words, it can be noted that the business environment of the country is quite unfavorable. The unemployment rate at Italy is quite high. Although, in the near future, the consumers’ expenditure may rise, however, it has been observed that the consumers are expected to spend less because of the negative experience from recession. Despite unfavorable business environment, the country seems to have a favorable climatic condition for a few of the products such as wine, olive and garments20. Works Cited American University, “Government Policies”, 2000, Overview, 23 February.
2012 . Beeching, Angela, Myles. “Beyond Talent: Creating A Successful Career In Music”. Oxford University Press. Bianchi, Annaflavia, “Industrial Reshaping And International Production: The Italian Garment Industry And Its Linkages With Morocco, Romania And Turkey”, 2003, Abstract, 23 February. 2012 . Data Monitor, “Country Analysis Report ItalyIn-depth PESTLE insights”, 2011, Overview, 23 February 2012 . DePaul University, “Welcome to Italy”, 2012, Italy, 23 February. 2012 . Economist Intelligence Unit. “Country Report Italy”.
The Economist Intelligence Unit Limited. Euromonitor International, “Ease of Doing Business 2010: Regional overview”. Business Environment: Italy (2010): 1-10. European Commission, “Italy”, 2012, Slow recovery continues, February 23. 2012 . Euromonitor International. “Consumer Trends”. Consumer Lifestyles – Italy (2011): 1-84. Euromonitor International, “Implications”. Low Italian employment rate and High Employment Gap Inhibit Growth Prospects (2009): 1-9. Food and Agriculture Organisation, “Livestock’s Long Shadow”, 2006, FAO, 23 February. 2012 . Global Mobility News, “US-Italy Income Tax Treaty Analysed”, 2012, News, 23 February. 2012 . Ghemawat, Pankaj, “Distance Still Matters”, 2001, Measuring the Impact of Distance, 23 February.
2012 . Kwintessential, “Facts and Statistics”, 2012, Location, 23 February. 2012 . KEA European Affairs, “The Impact Of Culture On Creativity”, 2009, Executive Summary, 23 February. 2012 . MVA, “How To Do Business In Italy”, 2007, Purpose, February 23. 2012 . Pearson Education, “Italy”, 2012, Geography, 23 February. 2012 . Pistella, Fabio, “Italy’s E-Government Policies And Implementation Strategies: Hints From Practical Experience”, 2010, Data, 23 February, 2012.. Princeton University Press, “The Outsider: Prejudice and Politics in Italy”, 2002, Subjects, 23 February.
2012.. US Department of State, “Background Note: Italy”, 2012,Geography, 23 February. 2012.. Appendix 1 CAGE Framework (Source: 8) Appendix 2 (Source: 7) Appendix 3 (Source: 3) Appendix 4 (Source: 4) Appendix 5 (Source: 4)