Italian Direct Investment Is Lagging Behind Europe

Multinational Italy was not born yesterday. Italian multinationals emerged over the first four decades of the 20th century with names like Fiat, Pirelli, Snia Viscosa, Montecatini, Olivetti, Cirio, Martini&Rossi. If before WWI Italian foreign direct investment (FDI) was especially aimed at Latin America (Argentina, especially), in the interwar period it was reoriented toward France, Germany, and the US. In post-WWII period the Italian economic miracle was fueled by exports, and in the mid-1980s Italy witnessed an acceleration in foreign direct investment, also by medium-sized firms. The ratio between stock of FDI (cumulated flows of investment net of divestments) and GDP has grown from 5% in 1990 to 28% in 2009. But one should not overlook the fact that in 2009 the same ratio was 41% in Germany, 44% in Spain, 65% in France, 76% in the UK: Italy was lagging in the pursuit of an international growth target shared by all advanced economies. There are at least five reasons for this lag in the emergence of Italy as a transnational economy beyond its traditional role as strong exporter: a) the high share of SMEs, which are often unable to sustain the cost of entry in foreign markets as investors; b) a structure of comparative costs dominated by traditional consumer industries and specialized mechanics and metalworking, where firms are by nature less "forced" to become multinationals with respect to those operating in high-tech, high-scale industries such as chemicals, electronics, automobiles; c) in high-tech, high-scale sectors the preponderant role (until the privatizations of the 1990s) of state-owned firms, which, with the exception of Eni-Agip, mostly invested in Italy's Mezzogiorno; d) a macroeconomic context in the 1970s and 1980s which was unfavorable to FDI (inflation, weak and volatile currently, restrictions on capital movements, dearth of long-term credit); e) dualism in economic development, so that Northern firms found abundant, low-wage labor in the South, and credit subsidies from the state. The latest edition of Italia multinazionale, based on the Reprint data bank (ICE – Italian Institute for Foreign Trade, and Politecnico of Milan) records 6,426 Italian firms which invested abroad in 2009; 18,692 have fully-controlled foreign subsidiaries: more than half of which (9,605) are for trading and distribution purposes, more than 4,000 are linked to energy, construction, and mining, and only 5,052 are manufacturing units, but which account for 70% of foreign employees (more than a million in fully-controlled subsidiaries). Over the last twenty years, Italian multinational groups like Stet-Italtel, IRI-Ilva, Bonomi-Saffa, CIR-Valeo, Cragnotti Partners have been bought or have ceased to exist. This affected around a third of the 27 multinational groups recorded by Reprint at the end of 1991. In the history of Italy's few major multinational corporations, of which only Fiat and Pirelli go back to before WWII, what strikes is the succession of failed mergers and alliance, due to strategic errors and political interference. Think about Fiat with Citroen (1970-73), Ford (1984-85), GM (2000-05), or Pirelli with Michelin (the 1960s), or Olivetti with Underwood (1960-68) and AT&T (1984-89).

Multinational Italy is now in the hands of representatives of the so-called "fourth capitalism": managerial family firms which aim at excellence in their market niche, with intense innovation activity, diversification of products and services, and low debt with respect to own capital. This concerns large groups like Ferrero, Luxottica, Riva, Italcementi, as well as groups with sales less than €2 billion, such as Mapei and Mossi&Ghisolfi (specialty chemicals), Brembo-Coesia-IMA-Carraro (mechanical engineering), Recordati-Zambon-Bracco-Dompé (pharmaceuticals), or Zegna-Benetton-Miroglio (clothing and fashion).