January 20, 2008

Surprisingly complicated

I have been doing some research on obstacles to foreign investment in Italy for an article I am preparing on cross-cultural challenges to doing business in Italy. This involved skimming a 163 document prepared by the commercial department of the US Embassy the other day. The opening paragraph introduced the Italian market as "surprisingly" complicated. Why "surprisingly"? As the sixth most important trade economy in the world and an active historic member of Western Europe, one would imagine it to be in line with its peers. I had not even started the document and already Italy stood out as being particolare.

Obstacles to foreign investment include: disparities between the North and the South in terms of distribution systems, a predominance of family-owned small and medium sized businesses (involving high distribution costs), a complex regulatory environment, a level of transparency that is not in line with other highly developed economies, uneven infastructure (guess where), low investment levels in R&D compared to other industrialized countries, lax enforcement of intellectual property laws and corporate governance that could be more "stringent".

Then there is, of course, inefficient delivery of public services (we all experience that), a slow judicial system (we all try to avoid this one), high corporate taxes, low labor flexibility with high labor taxes and last, but not least, bureaucratic red tape. Not to mention the unmentionble, corruption or bribes to tax officials when dealing with government procurement projects.

And everything has to be translated into Italian.

Italians are also very patriotic as we have seen with the Alitalia question, AT&T and a recent attempt by a Spanish company to enter into the Italian highway toll system. There is an underlying reluctance to allow foreign investment in large Italian government controlled companies, with what is called "golden share" regimes for privatized companies.

What do all of the above have in common? What are the underlying cultural perspectives? The "cultural challenges" to doing business in Italy?

Three areas come to mind:
Italians have learned at home, in school and in society to manage a quite high level of ambiguity that is intrinsic to their surrounding environment. Tolerance of ambiguity is not quite so developed in those coming from abroad.

Italians communicate with lots of meaning between the lines, the musicality of the language (both spoken and written) often takes priority over clearly projecting meaning to the other party -- who should instead understand through context. Anyone who has ever translated will agree.

Italians trust people they know, certainly not the system or foreigners. A low-trust culture constantly needs to negotiate rules and regulations and this in turn reduces cooperation. If a government changes in the middle of the negotiation of a large government sponsored project, you have to start the process all over again. The ball is not passed easily from one to the other -- which would involve trust.

Back to work!
a domani,


joe@italyville.com said...

Hi E. Each point is soooo true! It's sad that many of those reasons prevent the Italian economy from excelling even further. Do you think that if some of those aspects were fixed, it would affect Italian culture as we know and love it? Joe

Elizabeth Abbot said...

Of course! Look up a great article in the Financial Times (Jan 22 I think) on Italy's low foreign investment for another perspective and more examples. I recently interview a French executive here who said the Italian are not complicated, they are "complex" -- says it all!!