1 September, 2022
Doing business in Italy: challenges and opportunities
If you’re an entrepreneur thinking about setting up your business in Italy as a foreigner, probably you should start getting to know better the challenges and the opportunities you could face. In particular, after everything that happened in 2020: as for any other country in the world, the pandemic influenced the Italian economy in many ways.
Of course, we are taking for granted the fact that your business idea fits the Italian market and you identified interesting opportunities there.
At this point, let’s get into the peculiarities of the Italian business culture and environment.
Economical aspects
Italy is historically famous for its relevant role played in the manufacturing sector, as well as the food & beverage field, design, and R&D.
In the last decade, other sectors have been able to increase their productivity as well. Wholesale and retail trade grew by about 1.75 % per year – more or less in line with Germany, France, and Spain. Financial and insurance activities become more relevant thanks to the development of the Internet & Home Banking services.
Unfortunately, COVID hit particularly hard on Italian companies. The pandemic effects that started in Italy before any other country and the stricter containing measures adopted resulted in many months of productivity stops. The traditional organizational models of SMEs (small and medium enterprises), successful for many years, could not adapt to the consequences of the pandemic. The difficult coexistence between innovation and tradition has shown the unpreparedness of Italian management.
In the first quarter of 2021, the Italian economy showed a very slight cyclical recovery (+0.1 % GDP), which however showed a better performance compared to other major European economies.
Opportunities
A long manufacturing tradition
Italy is the 8th largest economy in the world. As mentioned before, its manufacturing sector has a long and strong tradition, that allows Italy to rank consistently among the largest manufacturers globally. According to the Italian trade agency, is the 2nd in Europe (after Germany), 3rd in the eurozone, and 5th in the world. Not only manufacturing but also design, food, and luxury are a long tradition in Italy: Italy is the 2nd largest world wine and footwear exporter, the 3rd largest world fashion exporter, and the 4th largest furniture exporter. For foreign entrepreneurs, Italy is often an attractive country from the perspective of being close to its main producers and suppliers.
Mechanical machinery is still the biggest market in Italy in with a value of 80bln euros, followed by chemistry (Italy is the 3rd largest chemistry producer, with a turnover of more than 50 bln euros) and pharmaceuticals (Italy is the 1st European producer of pharmaceutical goods).
Innovation
Italy can claim a strong network of research institutes, technological hubs, and innovative incubators, often linked to universities. An example is the next big project is being developed in the ex expo area, in Rho, that is called Human Technopole and will collect research groups, research centers, and core facilities focused on Genomics, Neurogenomics, Structural Biology, Computational Biology, and Health Data Science.
Despite a high-quality level of research, small and medium enterprises struggle to incorporate innovative practices into their organization. An example of this lack of connection between research and industries can be seen in the scarcity of innovative start-ups in Italy. The few successful ones (Depop, Yoox, and scalapay) have been sold to foreign multinational companies.
To face this obstacle, which proved particularly damaging during the health crisis, the MISE (Ministero dello Sviluppo Economico) introduced policies to help and support research and innovative investment, hoping to fill the gap Italian companies have compared to other European countries in terms of digital skills and development. Digitalization is also one of the core points of the PNRR (piano Nazionale ripresa e resilienza) that will focus on pushing investments in tech development. In particular, 30.57 billion euros are allocated to improve innovation in the private production system. In particular, much of the investment is earmarked for Transition 4.0 and the establishment of ultrafast networks (5G). The main beneficiaries will be SMEs, which will be incentivized to invest in information systems and digital tools to be used in process optimization.
Geographical position
Its great geographical position makes Italy’s role central in logistics and trade across Europe, northern Africa, and the Middle East. To support trade and commerce, a great effort is put into the construction and improvement of transportation infrastructures (highways, highspeed rail, ports, and airports), which leads to increased growth in export, especially of goods, that is 2017 exceeded 450bln euros. According to ice,” Italy is one of only five countries in the world whose manufactured products have an export trade surplus (over € 47 bln).”
Support to entrepreneurship
According to Movimprese, 2021 shows that there is still the desire for entrepreneurial activities and new businesses set up in Italy. 332,596 new registrations have been recorded (+14 % compared to 2020). Even if we cannot talk about a full recovery and the number are still lower than the pre-pandemic ones (maintaining a gap of about 20,000 fewer openings than in 2019) the new financial support and public investment provided in the next generation EU will support private sector investment.
Challenges
Post pandemic slowdown
As regards GDP growth, OECD predicts a + 2.5% this year, which will slow down to + 1.2% in 2023. Preliminary predictions were more favorable, however, they have been downsized by the impact of inflation, both covid and war-related.
Bureaucracy
One of the main difficulties for entrepreneurs that want to do business in Italy is the complex regulatory environment, which often lacks clarity and efficiency. Italy’s economic freedom has increased by 1,1% in 2021 compared with 2020, thanks to an improvement in judicial effectiveness. However, there is still a long way to reach the average level of other European Countries (it still ranks 36th out of 45 countries in Europe). For everyone that is going to open a company in Italy, is strongly suggested to rely on local legal support.
To set up a company in Italy, contact our corporate lawyers specializing in foreign investments: they will guide you through all the processes.
Cultural aspects
Italian workers in the past
As a result of the pandemic, the Italian labor market has changed dramatically. But before we get to the current situation, let’s do a little historical background that characterizes Italy from a working culture point of view.
Traditionally, Italy has been a country of workers, and savers, attached to the concept of the “stable job“-as permanent contracts in Italy, especially in the past, had considerable advantages for employees. Difficulty in layoffs and protections guaranteed workers the economic stability needed to meet needs considered primary: buying a house and supporting a family. Culturally, loyalty to the company, measured in years of continued employment within the same company, was privileged.
The labor market did not shine in terms of dynamism, given also its composition: the majority of companies in the area were (and still are) SMEs (Small Medium Enterprises) that lacked the strength and adequate structure to find benefit in a high turnover of their workforce. The corporate culture, goes without saying, was centered around the role of the “boss/entrepreneur” who, in exchange for stability, demanded dedication and respect for roles and hierarchies.
This is more or less the traditionalist picture of the labor market and the priorities of Italians, which have remained virtually unchanged for a very long period.
New post-pandemic evolutions
We can now speculate that the mindset is changing. The effects of the pandemic have left many entrepreneurs appalled, and unprepared for the impact not only economically but also culturally. The Great Resignation phenomenon, born in America, has spread throughout Europe arriving in Italy as well. The first 3 months of 2022 recorded almost 460k voluntary resignations from permanent contracts (we can suppose due to a desire for better pay, better work-life balance, and better business culture), compared with 414k in the same period in 2019 (thus pre-pandemic).
Although the number of permanent hires between 2020 and the first 3 months of 2022 does not balance the number of resignations (nearly 3.5 million resignations versus 2.5 million hires) according to inps, the spread is gradually narrowing, suggesting an increase in labor market dynamism. Even VAT openings, especially among young people, are approaching pre-pandemic levels again.
The phenomenon may be a mirror of greater flexibility and openness to change on the part of Italian workers: we will see in the coming years whether these assumptions are borne out, and especially whether companies operating in Italy will be able to embrace the challenge and adapt.
Do you need support in managing payroll activities for your Italian employees? Contact our lawyers specializing in the labor market.
Italian working culture
In order not to address the topic of the Italian approach to work with a boring list of vaguely stereotyped examples (small talk during meetings, little organization, little attention to punctuality…) we try to give a simple classification, which may come in handy in the interpretation of many behaviors. Italian culture is identified as high context culture, which is opposed to the low context culture typical, for example, of Anglo-Saxon countries, Germany, or Scandinavian countries. Because in the business world the example often falls on American or Northern European models, the low context culture is the one that is presumably considered more common in the working environment. However, that is not always the case and it may not be easy for all countries to adopt it.
Low context culture refers to an approach based on the pure meaning of words, the direct expression of one’s thoughts through verbal communication, without contamination or external references. The approach is direct, specific, and analytical. The focus is placed on goals rather than on dynamics or relationships. There is a tendency to prefer a short written form of communication (messages, emails) that gets straight to the point.
In high context culture, references to context are much more frequent. Interpretation of the surrounding situation is essential to read correctly the meaning of a message. Attention needs to be paid to the “unspoken” nonverbal language, and situational and relational references. Relationships are usually more important than tasks. Oral communication is generally preferred over written communication, and in both cases, the approach is much broader.
This is a general classification. We certainly cannot say that the approach of an Italian is identical to the one of a Chinese, an African, or a Pakistani (although all are part of the same high context culture). As well, we cannot 100% liken the approach of an American to the one of a Dane. However, this identification may help us understand that there are different cultures, implying a different – and sometimes opposite – reasoning approach. What is needed is to become aware of this and learn to go along with one’s interlocutor.
We hope that this updated overview of the challenges and opportunities of doing business in Italy will be useful for your upcoming activities. If you need support in setting up your company in Italy, do not hesitate to contact us.
