Strategie di Internazionalizzazione delle Imprese Italiane:Tre casi di studio nel Mercato Business to Business The Internationalization Strategies of Italian Firms: Threecase studies in the Business to Business Market

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Strategie di Internazionalizzazione delle Imprese Italiane:

Tre casi di studio nel Mercato Business to Business The Internationalization Strategies of Italian Firms: Three

case studies in the Business to Business Market

Prova finale di:

Cristiana Bonomelli Relatore:

Prof.ssa Giovanna Galli

Correlatore

Prof.ssa Franca Poppi

Anno Accademico 2014/2015

Il presente lavoro si propone di ricercare e di comprendere nel concreto il concetto di internazionalizzazione. Inizialmente, si cerca di dare una definizione generale, e di identificare gli elementi che determinano il legame di questo fenomeno con la globalizzazione e con la liberalizzazione di mercato; successivamente viene descritta la situazione attuale del commercio mondiale, per restringere poi gradualmente il campo fino all'Unione Europea e, infine, allo scenario italiano.

Attraverso delle interviste con tre imprese italiane tutte appartenenti al settore dell'automotive e del mercato Business to Business, ma impegnate in modo diverso nel processo di internazionalizzazione, è possibile comprendere quali siano effettivamente i vantaggi e le criticità di questo fenomeno; inoltre, l'esperienza di queste imprese permette di arricchire la conoscenza dell'internazionalizzazione, mettendo in luce la sua complessità e le sue svariate sfaccettature.

In particolare, dal raffronto tra la “teoria” della letteratura sull'internazionalizzazione, e le risposte delle imprese, ci si rende conto di quanto sia complesso, e a volte controverso, il fenomeno, in quanto, mentre alcuni aspetti della letteratura trovano conferma nella realtà delle imprese, altri mostrano elementi non presenti nella letteratura o, addirittura, in controtendenza con la stessa, confermando così ulteriormente la natura eterogenea e multiforme del fenomeno.

The purpose of the present work is to investigate and to better understand the concept of internationalisation. At the beginning, a general definition is provided, together with those elements that represent a link of this phenomenon with globalisation and trade liberalisation. Then, the work provides an overview of world trade, and subsequently focuses more specifically on the European Union, and finally, on the Italian scenario.

Through the interviews with three Italian firms, all of them belonging to the automotive sector and to the Business to Business market, but with a different degree of international commitment, it is possible to understand the actual advantages and critical issues regarding this phenomenon; besides, the experience of these firms makes it possible to increase the knowledge of internationalisation, highlighting its complexity and its several facets.

In particular, from the comparison between the “theory” contained in the internationalisation literature, and the answers of the firms, it is possible to understand how complex, and sometimes controversial, the phenomenon can be, due to the fact that, while some aspects of the literature find confirmation in the firms' context, others show some elements which are not present in the literature or that are even in contrast with it, thus confirming once again the heterogeneous and multifaceted nature of the phenomenon.

El presente trabajo intenta investigar y comprender en concreto el fenómeno de la internacionalización. Primero, se intenta dar una definición general, e identificar los elementos que determinan una relación entre este fenómeno y la globalización, y la liberalización de mercado.

Segundo, se describe la situación actual del comercio mundial, para después concentrarse gradualmente en la Unión Europea y, en fin, en el escenario italiano.

A través de las entrevistas con tres empresas italianas, todas pertenecientes al sector automovilístico y al mercado business to business, pero con diferentes niveles de participación internacional, es posible comprender cuáles son, realmente, las ventajas y los problemas de este fenómeno; además, la experiencia de estas empresas permite enriquecer el conocimiento de la internacionalización, mostrando su complejidad y su varias facetas.

En particular, tras la comparación entre la “teoría” de la literatura sobre la internacionalización y las respuestas de las empresas, es posible darse cuenta de cuan complejo es este fenómeno, y a veces también controvertido, debido al hecho de que, mientras algunos aspectos de la literatura son confirmados en la realidad de las empresas, otros muestran elementos que no están presentes en la literatura o que, incluso, son contrarios a la misma, confirmando de esta manera la naturaleza heterogénea y multifacética del fenómeno.

CHAPTER 1 3

1.1 Internationalisation: an Introduction 3

1.2 Internationalisation and Globalisation 3

1.3 Trade Liberalisation 6

1.4 Internationalisation and Liberalisation: the Entrance of new economic actors

8

1.4.1 China 8

1.4.2 India 9

1.4.3 Eastern Europe 9

1.5 Internationalisation: what it means for firms 10

CHAPTER 2 14

2.1.1 World Trade from 1980 to 2011 14

2.1.2 Regionalisation 20

2.1.3 World Trade after the Financial Crisis 22

2.2. The European Union 24

2.3 Italy 29

2.3.1 The Effects of the Financial Crisis 29

2.3.2 Opportunities and Barriers 33

2.3.3 Italy Internationalisation today 37

2.3.4 The Relevance of SMEs in Italy 38

CHAPTER 3 39

3.1 Companies Description 39

3.2 Interviews 40

3.3 Observations 99

CONCLUSIONS 130

APPENDIX 134

BIBLIOGRAPHY 149

ACKNOWLEDGEMENTS 155

INTRODUCTION

The present work aims to analyse the phenomenon of firms' internationalisation, by considering its peculiarities and its implications.

Internationalisation, as we will see, represents a complex reality, with different aspects which need to be considered by firms.

For this reason, the first chapter will introduce the concept of globalisation, by describing its relation with internationalisation, and the process of trade liberalisation – which has led to the creation of some important institutions, such as the GATT (or the WTO) and the European Union, and to the entrance of new economic actors, such as China, India and Eastern Europe, in the global scenario. Then, it would briefly introduce the influence globalisation has on firms.

The second chapter will describe the recent trends in world trade – including the effects of the financial crisis – and the changes in countries positions for imports and exports. Then, the chapter will describe the current phenomenon of regionalisation, that corresponds to the increasing trade within some “regional systems” or “regional blocs”, countries with similar economic, political and cultural factors. After this general description, greater attention will be devoted, first, to the European Union – focusing on its levels of openness towards other countries, and its commitment towards international trade –, and then to Italy – analysing the effect of the financial crisis on Italian firms, its level of international activity, the relevance of Italian SMEs (small and medium enterprises) and the institutions appointed by the Italian Government to help Italian firms during the process of internationalisation.

The third chapter will present the interviews – both in the original Italian version and in the translated English version – with three Italian firms, all of them belonging to the Automotive sector, namely Pakelo, Perlini and Athena.

Pakelo is a medium-sized firm, a lubricants producer based in San Bonifacio, near the city of Verona, founded in 1930. It produces engine and transmission oils, and greases for cars, vans, trucks, earth moving and motorbikes, but also for food-industry machinery. For its international activity, Pakelo has opted for an indirect strategy – which does not allow it a direct contact with foreign markets and customers –, using foreign distributors as points of reference.

Perlini is another medium-sized firm, founded in 1957, and, as well as Pakelo, it is based in San Bonifacio. It is a producer of specialised vehicles for highly technical utilization such as dump- trucks, specialised on the transport of loose materials, and firefighting vehicles. Its internationalisation consists in a direct strategy, using both foreign distributors, but also foreign subsidiaries.

Athena is a bigger company founded in 1973 and based in Alonte. It produces different applications – for automotive supplies, earth moving and agricultural machinery, food industry, adaptors, compressors, heat and cold machinery –, and spare parts for both motorbikes and cars. It has opted for a direct strategy, using both foreign distributors, but also agents (one-firm and multi-firm ones), foreign subsidiaries and sales personnel, thus being in direct contact with foreign markets.

Then, through the comparison between several articles of the Journal of International Business Studies (from 2010 to 2015), the notions acquired during the course of Internationalization Strategies, the results from the interviews, and other sources, we will observe the similarities and the differences between the theory on internationalisation and the actual reality of firms' everyday life, through the analysis of each single subject discussed in the interviews.

In conclusion, we will see that while some aspects of the literature on internationalisation find confirmation in the interviews – such as the difficulties SMEs encounter in the process of internationalisation, the importance of international fairs, the robustness of the Made in Italy and others –, other aspects imply a greater complexity, or even the fact that, in some cases, the theory does not correspond to the actual reality, such as in the case of the role of institutions, the adoption of the traditional strategic planning, or the decisions regarding the standardisation or adaptation of the products, the prices, and external communication.

What results from the present analysis on three Italian firms operating in the Business to Business market, is that internationalisation really is a complex and multi-faceted phenomenon, determining different advantages and obstacles, and different approaches and decisions taken by firms.

Note that the present work adopts the British English spelling; nevertheless, for quotations, the original spelling is obviously reported. As a consequence, readers may find some words written in both forms, such as “globalisation” and “globalization”.

CHAPTER 1

1.1 INTERNATIONALISATION: an INTRODUCTION

As stated by Frederick Guy in his book The Global Environment of Business (2009), “in recent decades, the international economy has rapidly become more integrated. Trade in goods and services, cross-border investment, and the organization of production networks across borders, all have blossomed”¹.

Dulupçu and Demirel (2005) confirm this opinion: “Today labour and capital flow among countries and corporations with an unprecedented pace and amount. Therefore, capital flows, production and service activities, commercial and technological developments attain international character”². Even the U.S. President Barack Obama, in a Campaign event at Kettering University in 2008, has underlined the fact that “we are living through an age of fundamental economic transformation”, where technology has changed our lives, but also “the way the world does business”. Obama further described a picture of the world where all boundaries have disappeared, a world where “communication, connection and competition can come from anywhere” and pointed out the existence of new challenges, namely the emergence of China, India, Eastern Europe and Brazil³.

As we can see, the current economic scenario has undergone several transformations, which means that nowadays firms, in order to survive, must understand the implications of this new reality. More specifically, due to this increasing economic integration, they have to consider the option of expanding their activity, not only at a national level, but also internationally.

As it can be easily observed by a search on the web, the literature on internationalisation is really vast. The subject has been treated by many scholars who have focused on the different perspectives through which we can analyse this aspect, and on its several implications. As a consequence, it is important to understand the factors that have caused this phenomenon and those that characterise a reality which can no longer be ignored.

1.2 INTERNATIONALISATION and GLOBALISATION

One of the most common terms that has been associated with “internationalisation” is

“globalisation”. As a matter of fact, according to Caroli and Carli (2008), the evolution of the modern enterprise towards internationalisation takes place in the framework of globalisation, which is a totally pervasive phenomenon of contemporary reality⁴.

Globalisation, in turn, has been defined as a “buzzword”⁵, or, more specifically, the “buzzword of the last two decades”⁶. As Jeffery (2002) points out, the definition provided by the dictionary, defines “globalisation” as “the process enabling financial and investment markets to operate internationally, largely as a result of deregulation and improved communications”⁷; in addition, The Economist (2013) describes it as “the sudden increase in the exchange of knowledge, trade and

1Guy F., 2009.

2Dulupçu M.A. and Demirel O., 2005: 4.

3Obama B., 2008.

4Caroli M. 2008:1.

5Jeffery S., 2002.

6The Economist, 2013.

7Jeffery S., 2002.

capital around the world, driven by technological innovation, from the Internet to shipping containers”⁸.

In a lecture at Yale University in 2011, Martin Wolf identified globalisation as an “extension of markets across frontiers” and as a “process of integration of economies”⁹. Furthermore, the phenomenon was described by the American Defense Institute as the “fast and continuous inter- border flow of goods, services, capital (or money), technology, ideas, information, cultures and nations”; globalisation has also led to an “unprecedented integration among economies” and to the fact that “markets, corporations, organizations and governance are becoming more international”¹⁰. In a presentation at the Social Science Research Council in 2007, Nayan Chanda, talking about globalisation, affirmed that today “the whole world is a factory” and that this results in a “world- wide supply chain that aims to achieve the most efficient use of resources all over the world”¹¹. Apart from the definition of globalisation – which, as it has been shown, has several different meanings and implications – many scholars have tried to identify its causes. On the one hand, Martin Wolf stresses the importance of two main forces, namely technology (referring to transportation and communication), and the policies of liberalisation (of barriers at the borders)¹². On the other hand, Thomas Friedman, on the occasion of the presentation of his book The World is Flat: a brief History of the Twenty-First Century, at Yale University in 2009, affirmed that “the global playing field has been levelled” by ten flatteners, namely: the Fall of the Berlin Wall in 1989, the fact that Netscape went public in 1995, the creation of work flow software platforms, open sourcing, outsourcing, offshoring, the supply chain, insourcing, informing, and steroids (from file sharing to mobile phones). According to Friedman, these flatteners, together with horizontal collaboration and the entrance of Russia, China and India in the global scenario, constitute the

“triple convergence” that started in 2000¹³.

Also Jeffrey Sachs (2007) used the expression “forces of convergence”, to explain a process that, in his opinion, started in 1950, and consisted in the diffusion of technological capacity and ideas and the “catching-up” phase, or the narrowing of the gap between rich and poor¹⁴.

The World Trade Report (2013) stresses the importance of the Industrial Revolution, which

“triggered the massive expansion of trade, capital and technology flows, the explosion of migration and communications and the “shrinking” of the world economy, that is now referred to as “the first age of globalization””. Nevertheless, it also shades light on the relevance of some international organisations, such as the International Monetary Found, the World Bank, the General Agreement on Tariffs and Trade (GATT, nowadays the WTO – World Trade Organization) and the European Economic Community (nowadays EU – European Union)¹⁵.

This last point is also supported by Tedlow and Abdelal (2003), who pointed out that “without international cooperation and openness, the expansion of trade, finance and production across

8The Economist, 2013.

9Wolf M., 2009.

10Dulupçu M.A. and Demirel O., 2005: 4.

11Cox M.L., 2007.

12Wolf M., 2009.

13Friedman T., 2009.

14Sachs J., 2007.

15World Trade Report, 2013.

national boundaries, would have been impossible”¹⁶.

According to an article of the Spanish version of the World Bank website, the acceleration of the economic integration took place between the 1980s and the 1990s, due to the reduction of political barriers by several governments, the economic reforms undertaken by China in the 1970s, the disruption of Soviet Communism and the economic reforms in India in the 1990s¹⁷.

It then appears clear that there is not an exact common consensus on neither the nature of globalisation, nor on its causes. As a matter of fact, in his article about the subject, Simon Jeffery, quotes the statement by the economics editor Evan Davies: “globalization – whatever that means”¹⁸. Although the great amount of literature that traces a quasi-correspondence of meaning between

“globalisation” and “internationalisation”, Tedlow and Abdelal (2003) present a clearer definition for both terms. According to the authors, while globalisation consists in a “new kind of density of economic interactions among societies” and derives from a “convergence of the preferences of consumers”, internationalisation “implies a reduction in national restrictions in commercial exchange” and “results from the behaviour of firms and governments”. Thus, “globalisation is about new types of relations and new kinds of economic actors”, while “internationalisation emphasizes the behaviour and attributes of traditional actors, such as multinational firms and national governments”¹⁹. This last observation suggests that while globalisation is nowadays an almost inexorable process, internationalisation implies a more active role on the side of firms and governments, which “can choose – and unchoose – openness” and thus possibly exploit the opportunities (or, from another perspective, be subject to the constraints) that the current economic scenario presents²⁰.

As a consequence, even if globalisation and internationalisation often appear together, it is important to make a distinction between the two terms; while globalisation has a more pervasive nature – including not only economic, but also political and cultural aspects –, internationalisation focuses more on the economic, or more specifically, trading sphere, that is to say firms' operations.

Nevertheless, Caroli and Carli (2008) point out that globalisation influences the strategic decisions of any enterprise, in particular for what concerns four specific dimensions, namely market, production, resources and values (this last including also people).

First, the market has undergone an evolution regarding both its dimensions and its dynamics: in recent decades we have observed the raise of the economies of Brazil, Russia – or Eastern Europe –, India, China and South Africa (the so-called BRICS), a raise in the level of international openness – thanks to the reduction of entry barriers –, an homogenization of the international demand – which has allowed the creation of the so-called “global marks”, and a greater interdependence of different markets.

In terms of production, globalisation has pushed forward the process of outsourcing of the productive activities. This normally happens for two reasons: either the firm desires to expand its presence abroad, or it wants to exploit better conditions regarding lower costs, higher productivity or resources availability. This in turn can lead to the transformation of subsidiaries into “centres of excellence” (for their relevant level of resources and competences) or to the creation of strategic agreements between different firms or between firms and organizations.

For what concerns resources, the financial liberalisation has allowed an increase of international

16Tedlow R.S. and Abdelal R., 2003:19.

17PREM Grupo de políticas económicas y Grupo de economía para el desarrollo, 2000.

18Jeffery S., 2002.

19Tedlow R.S. and Abdelal R., 2003:19 20Ibidem.

collaborations between financial institutions and business corporations from different nations, and also of the amount of investments abroad. Besides, globalisation has incremented the possibility, for firms, to find resources and favourable economic conditions. In addition, this increasing economic integration has allowed a huge spread of knowledge and the diffusion of technologies, together with the possibility of international research projects.

Eventually, the fourth implication of globalisation on firms' activities regards values. Basically, the presence of certain firms in different nations determines a convergence of the values and managerial models of these firms in the different countries. Another important aspect is represented by human resources; as a matter of fact, the expansion of a firm and the increasing level of competition will imply the need for the firm to look for excellent human resources also outside its country of origin.

Indeed, it has been proved that the presence of human resources with different nationalities, if adequately managed, can enhance the competitive capacity of the firm²¹.

The aim of this paragraph was to introduce the concept of internationalisation by placing it in the frame of globalisation. Even if the two terms represent two different notions, they are nonetheless strictly interrelated. The pervasive nature of globalisation has pushed forward the practice of internationalisation, which, in turn, thanks to the actions undertaken by several firms and governments, has enhanced the effects of the former.

While internationalisation is more related to the operations of firms – the opportunities and risks that they encounter in the current situation, in dealing with partners from different countries – the influence of globalisation is still very important, not only to understand the causes which have led to the present reality, but also to understand its several implications on the firms' strategic choices.

1.3 TRADE LIBERALISATION

After having briefly presented the concept of internationalisation, it may be interesting to consider more in details its recent historical backgrounds, namely trade liberalisation. As we have seen, many authors have identified the effort of different governments as an essential element for internationalisation. As reported by the International Monetary Fund (2001), the growth of trade is

“the result of both technological developments and concerted efforts to reduce trade barriers”²². This last point was achieved thanks to the fact that “some developing countries have opened their own economies to take full advantage of the opportunities for economic development through trade”²³. The process of economic integration was obviously not immediate, and it took several years of negotiations and agreements among different nations to achieve it. The first step for this purpose was the creation of the GATT – the General Agreement on Tariffs and Trade – which was born in 1948, and derived from the negotiations among fifteen countries starting from December 1945, with the aim to reduce and bind custom tariffs. The final deal was eventually signed on 30^th October 1947 by twenty-three countries (called “contracting parties”) by June 1948 through a “Protocol of Provisional Application”, which resulted in “45,000 tariff concessions affecting $10 billion of trade, about one fifth of the world's total”²⁴.

Even if “the original intention was to create a third institution to handle the trade side of international economic cooperation, joining the two “Bretton Woods” institutions, the World Bank and the International Monetary Fund”²⁵, the GATT was essential for the creation of a “strong and

21Caroli, 2008: 6-19.

22International Monetary Fund, 2001.

23Ibidem.

24WTO, (a) n.d.

25Ibidem.

prosperous multilateral trading system that become more and more liberal through rounds of trade negotiations”²⁶. These so-called GATT Rounds were the following:

– the Geneva Round in 1947 (which corresponded to the creation of the GATT) – the Annecy Round in 1949

– the Torquay Round in 1951 – the Geneva Round in 1956

– the Dillon Round between 1960 and 1961 – the Kennedy Round between 1964 and 1967 – the Tokyo Round between 1973 and 1979 – the Uruguay Round between 1986 and 1993.

While “in the early years the GATT trade rounds focused on further reducing tariffs”, the biggest innovations came from the Kennedy Round and the Tokyo Round, which respectively introduced the GATT Anti-Dumping Agreement and a section on development²⁷, and procedures on dispute resolution, dumping and licensing²⁸.

Moreover, the Uruguay Round was the “most extensive of all”, since it led to the WTO (World Trade Organization) in 1995 and to “a new set of agreements” regarding tariffs, non-tariff measures, rules, services, intellectual property, dispute settlement and other topics, which – this time – were signed by one hundred twenty-three countries²⁹.

Eventually, the Doha Round – or the Doha Development Agenda – was launched in November 2001, with the aim to improve the trading prospects of developing countries³⁰.

As stated by Cellami, Retami and Balla, the success of the GATT “in promoting and securing the liberalization of much of world trade is incontestable”, since the “continual reductions in tariffs alone helped spur very high rates of world trade growth during the 1950s and 1960s – around 8% a year on average”³¹. Besides, the “rush of new members during the Uruguay Round demonstrated that the multilateral trading system was recognized as an anchor for development and an instrument of economic and trade reform”³².

The IMF (2001) adds that “no country in recent decades has achieved economic success, in terms of substantial increases in living standards for its people, without being open to the rest of the world”

and that “countries that have opened their economies in recent years, including India, Vietnam, and Uganda, have experienced faster growth and more poverty reduction”³³.

Nevertheless, the same IMF affirms that “although protection has declined substantially over the past three decades, it remains significant in both industrial and developing countries, particularly in areas such as agriculture products or labor-intensive manufactures and services” and, moreover,

“nontraditional measures to impede trade are harder to quantify and assess, but they are becoming more significant as traditional tariff protection and such barriers as import quotas decline”³⁴.

Then, in conclusion, even if a lot has been done in order to support economic integration, “further

26Ibidem.

27Ibidem.

28Hofstra University. The Geography of Transport Systems. n.d.

29WTO, (a) n.d.

30WTO (b) n.d.

31Cellami et al., n.d.

32Ibidem.

33International Monetary Fund Staff., 2001.

34International Monetary Fund Staff, 2001.

liberalization – by both industrial and developing countries – will be needed to realize trade's potential as a driving force for economic growth and development”³⁵.

1.4 INTERNATIONALISATION and LIBERALISATION: THE ENTRANCE OF NEW ECONOMIC ACTORS

Luis Alfonso Dau (2013), in his article on Latin American companies, reports that “in an increasingly globalized and interconnected world, numerous emerging and developing nations have raced to implement pro-market reforms in order to enhance the functioning of their market institutions, and to facilitate the development of their domestic industries and firms”³⁶. The examples of pro-market reforms he offers are deregulation, which “decreases bureaucratic policies that make it difficult to create new entrepreneurial ventures or to enhance the performance of firms”, and trade and FDI³⁷ liberalisation that “increase the opportunities for firm international expansion”³⁸.

Besides, another relevant aspect regards the flow of FDI: while in the past they “used to be almost exclusively between advanced economies, and from advanced to developing economies (downmarket multinationality)”, in recent times they “have been steadily shifting to include greater flows in the opposite direction as well, namely from developing to advanced economies (upmarket multinationality)”³⁹.

As stated by Friedman and other scholars, another key factor for the greater economic integration lies in the entrance of Russia – or the disruption of Soviet Communism –, China and India in the global scenario⁴⁰. As a consequence, it could be interesting to briefly present some of the elements that have allowed this “entrance”, while bearing in mind that even if these countries represent the most evident cases of economic growth and market openness of recent years, they are not the only ones.

1.4.1 CHINA

China represents the emblem of the recent Asian economic growth. More precisely “China experienced a growth stage that resulted in a steep increase in FDI throughout the 1990s and early 2000s”⁴¹.

As stated above, the role of governments and firms is essential for internationalisation; in this case, the commitment of the Chinese government was fundamental, since it “liberalized regulatory and administrative hurdles to facilitate MNCs'⁴² market access and operations, in particular regarding land use, foreign exchange, and taxation”⁴³ and allowed China to enter a “mature stage in the early 2000s that maintained a steady flow of FDI”⁴⁴.

All these factors resulted in the fact that the Chinese market “has attracted a significant amount of

35Ibidem.

36Dau L. A., 2013: 235.

37FDI: Foreign Direct Investments.

38Dau L.A., 2013: 237.

39Ibidem: 236.

40Op. cit.

41Zhao et al., 2014: 844.

42MNCs: Multinational Corporations.

43Zhao et al., 2014: 844.

44Ibidem: 845.

foreign VC⁴⁵ capital, with the VC investment rising from US $1.2 billion in 1999 to US $ 31.4 billion in 2010”⁴⁶.

1.4.2 INDIA

As well as China, India has recently experienced a strong economic growth. Although the low cost of labour still remains one of the main reasons for investing in the Indian manufacturing sector, also in this case the role played by the government was very important⁴⁷.

Prime Minister Modi has set an agenda of reforms and infrastructural investment, with the aim of supporting economic growth and attract foreign investments (in particular from Japan, China, Russia, Canada and Europe). Thus, several initiatives were undertaken by the Indian government, such as the campaign “Make in India” – to support industrial development – and the tightening of the relationships with the Soviet Union. The greater support to this process of international openness started in 1991, and focused on business partnerships with Western countries, Eastern Asia and the United States⁴⁸.

Eventually, a relevant aspect is represented by the Indian entrance in the G20, and in ASEM⁴⁹, BRICS⁵⁰ and IBSA⁵¹ organisations⁵².

1.4.3 EASTERN EUROPE

In the last few years, despite the international crisis, Eastern Europe economies have experienced a substantial growth. Moreover, while at the beginning, the main reason for other nations' interest in these countries consisted in the low cost of labour, energy and taxation, nowadays the situation has changed; those firms that establish business partnerships in Eastern Europe do so not just to exploit favourable production factors, but also because they can find attractive and competitive markets, suitable for their products⁵³.

Enza Roberta Petrillo associates the rise of Eastern Europe – in particular of Bulgaria, Poland, Romania and Hungary – with the creation of job-training programmes, the increase in the number of qualified workers, the growth of domestic markets and the process of reinforcing the role of institutions⁵⁴.

The above paragraphs confirm the opinion of Kumaraswamy, Mudambi, Saranga and Tripathy (2012), who affirmed that “with the onset of market liberalization or privatization, domestic firms in emerging and transition economies confront environmental change”, together with “an economy- wide reshaping of institutional environments, and the increased entry and participation of multinational enterprises (MNEs)”⁵⁵.

45VC: Venture Capitalists.

46Humphery-Jenner M. and Suchard J.A., 2013: 608.

47Ambasciata d'Italia and Direzione Generale per la Promozione del Sistema Paese, 2014: 1-7.

48Ibidem.

49ASEM: Asia-Europe Meeting.

50BRICS: Brazil, Russia, India, China and South Africa.

51IBSA: India, Brazil and South Africa.

52Ambasciata d'Italia and Direzione Generale per la Promozione del Sistema Paese, 2014: 1-7.

53EHI JOURNAL, 2013.

54Petrillo E.R., 2012.

55Kumaraswamy et al.., 2012: 368.

1.5 INTERNATIONALISATION: WHAT IT MEANS FOR FIRMS

“In a decade, the world has changed” affirms Giovanni Solinas (2006) in his article Integrazione dei mercati e riaggiustamento nei distretti industriali, referring, in particular, to the recent rise of China, India and the ex Soviet Union, which represent a threatening competitor for markets since they are “all big economies, with low cost but also qualified labour”⁵⁶. The author also adds that even if the “cake” has become bigger, the commensals are more and the portions tend to be smaller.

The latter is a clear image that reflects the “complete structural change”, expressed by Vittori⁵⁷ (2012), or the “epochal change”, as defined by Lorenzo Lippi⁵⁸(2013). Lippi also adds that this

“epoch” will be the death of those firms who are not able or willing to adapt; then, 'adaptation' is a key word in order to survive in the present reality⁵⁹. As Fletcher (2000) illustrates, this reality is characterised by an “increasing need to serve customers in the global environment, to bring products to market more quickly, to introduce products into several countries simultaneously, to lower costs by firms in each country focusing on their core competencies and to reduce promotion costs by marketing globally under one brand”⁶⁰.

In other words, the “tough competition in a market increasingly saturated” forces “the enterprises of all countries to increase production by internationalization of activities” and “investment abroad is justified by exploiting the differences in cost of production factors, especially labor, but not only”⁶¹. Nevertheless, internationalisation represents a multifaceted phenomenon; as underlined by Guy (2009), “corporations look abroad both to buy and sell: to obtain better or cheaper inputs and to expand their markets”, but “many corporations buy and sell internationally […] without becoming multinationals: they import, they export, but they don't establish foreign operations”⁶².

Indeed, as we will see later on, internationalisation includes different types of activities and, consequently, different types of international commitment on the side of the firms. It can consist in the reproduction in another nation of just one activity of the value chain, in the transfer of the whole value chain abroad, or in the reproduction of the chain in another country. Moreover, the internationalisation mode chosen by a firm is not at all irreversible. Accordingly, in his essay A holistic approach to internationalisation, Fletcher (2000) affirms that “the information revolution, rising fixed costs, the need for increasing R&D expenditures, rapid dispersion of technology, shorter product life-cycles, converging customer tastes, and increasing value placed on brand equity”

require firms to adopt a more dynamic approach and to “switch between forms of international involvement as changing market circumstances require”⁶³. For this reason the author defines internationalisation as a “complex and multidimensional process […] by which firms increase their involvement in international business activities”⁶⁴.

Nevertheless, it is important to bear in mind that, in some cases, firms can also opt for a process of

56Solinas G., 2006: n.d., personal translation 57Vittori R., 2012, personal translation.

58Lippi L., 2013, personal translation.

59Ibidem.

60Fletcher R., 2000: 29.

61Burduş E., 2009: 459.

62Guy F., 2009: n.d.

63Fletcher R., 2000: 28.

64Ibidem.

“de-internationalisation”, which can be voluntary, when firms “downsize, shed unprofitable operations and return to their core competencies and increase their outsourcing – all in the interest of enhancing their ability to compete in the longer term”, or involuntary, “as when expropriation occurs in a foreign country”⁶⁵. De-internationalisation has also been observed by Calof and Beamish (1995): “sometimes, in response to various factors, a firm will drop a product, divest a division, sell a foreign production plant, or lay off people involved in their international operation. In short, internationalization can also take the form of de-investment”⁶⁶. For this reason, they provide the following definition of internationalisation: “the process of adapting firms' operations (strategy, structure, resource, etc.) to international environments”⁶⁷.

As we can see, once again there is a stress on the importance of firms' adaptation.

Dealing with international markets also means to deal with markets which are different – or very different – from the firm's domestic one, and this implies greater risks. First, “international production has its costs: coordination and control are more difficult at a distance; it is neither easy nor cheap to adapt to operation within a foreign culture and an unknown institutional setting; lack of local knowledge and political connections can expose the company to large and unknown risks”⁶⁸. Calof and Beamish (1995) also provide some examples of the possible factors that can lead to a decision to change the internationalisation mode, such as a dissatisfaction with a distributor or an agent, changes in government policy or competitor activity, or even changes in the company itself⁶⁹. Besides, the authors also show that mode change can derive from individual circumstances, or 'intuitions' and 'attitudes' of the top management⁷⁰.

The complexity of internationalisation is also shown by the elements a firm must consider before going abroad, and the parameters that allow to measure the firm's international commitment, defined by Cerrato, Crosato and Depperu (2015) as 'internationalization dimensions': the demand – measured by the ratio of foreign sales to total sales –, the resources located abroad – measured by the ratio of foreign assets to total assets –, the geographical scope – the number of countries or regions covered by the firm and the “variance of economic, political, and cultural factors of the different national or regional environments” –, the firm's business network – or the “range of opportunities a firm can access and the resources and competencies it can leverage in its international activities – and the financial dimension – “based on the type of investors that firms consider”⁷¹.

In addition, scholars have presented different approaches to internationalisation, which are reported in Fletcher's essay (2000); the learning approach is an “evolutionary, sequential build-up of foreign commitments over time due to interaction between knowledge of foreign markets, on the one hand, and increasing commitment of resources to their development, on the other”⁷²; this approach suggests that the process of internationalisation is conducted in a gradual and cautious way by the firm, following a step-by-step increase of commitment, that is quite different from the contingency approach, which implies that a firm's international evolution is contingent upon a “wide range of market-specific and firm-specific characteristics” and that “external situations or opportunities may

65Ibidem.

66Calof J.L and Beamish P.W., 1995: 116.

67Ibidem.

68Guy F., 2009: n.d.

69Calof J.L and Beamish P.W., 1995: 116.

70Ibidem.

71Cerrato et al., 2015: 2-4.

72Fletcher R., 2000: 27.

cause firms to leapfrog stages or to enter markets that are physically distant from the home country”⁷³; this second approach corresponds to an all-of-a-sudden type of commitment by the firms, which normally happens in the case of unique business opportunities. Eventually, the network approach “attributes internationalisation to the development of networks of relationships over time as international buyers and sellers build up knowledge about each other”⁷⁴. This last approach is similar to the learning approach, for its gradual nature, but it focuses more on the human and individual aspects.

Fletcher further focuses on the “international decision-making”, by defining it as “both multidimensional and multifocal. It is multidimensional in that it is not only outward-driven” – or due to external factors – “but can also be inward-driven” – deriving from particular conditions inside the company⁷⁵. “Outward-driven activities can be influenced by inward-driven activities and vice versa. It is multifocal in that firms do not focus on one form of involvement overseas but tailor their form of involvement to both circumstances of the firm and the circumstances of the market”⁷⁶. The advantages provided by a firm presence in different markets are listed by Vittori (2012). First of all, it allows a risk diversification – which means that the risk is distributed in more countries, and that problems in one country can possibly be balanced by positive results in another; secondly, it increases the firm's sales volume and economies of scale; moreover, it represents an instrument to protect the firm from competitors and it enhances the firm's competitiveness in its domestic market;

eventually, internationalisation can also provide innovative experiences to the firm⁷⁷.

Obviously, internationalisation is not always possible. As a matter of fact, there can be some obstacles, or, as defined by Fletcher (2000), 'external impediments', such as “marketing activities by competitors in overseas markets and perception of high risk in overseas markets including lack of continuity in overseas orders, tariff and non-tariff barriers, exchange-rate movements, knowledge of the market and how it operates, issues related to agents and control including attitudes of foreign governments, cost issues, lack of export training and government assistance”⁷⁸. At this point it might be useful to introduce an interesting aspect – which allows us to realise, once more, the multifaceted nature of internationalisation. Trade barriers normally represent just an obstacle in the relationships between different countries, but sometimes, they could also increase the firms' level of commitment abroad. This is well explained in the example illustrated by Guy (2009): “a car company, instead of exporting cars to a protected market, would set up an assembly plant there”⁷⁹.

Vittori (2012) also describes the most common mistakes that firms can make when they enter foreign markets; first of all, it is wrong to base the firm's competitiveness only on price, since price is just one component of the marketing mix⁸⁰, but “not the dominant one”⁸¹. Secondly, firms should know the local culture and market of the foreign country. Another important aspect is that firms that want to go international, should avoid choosing too many different countries, but they should concentrate on specific and best suitable markets. Then, other mistakes that firms sometimes make consist in the insufficient protection of the trademark and in an underestimation of the assistance

73Ibidem.

74Ibidem.

75Ibidem: 44.

76Ibidem.

77Vittori R., 2012, personal translation.

78Fletcher R., 2000: 27.

79Guy F., 2009: n.d.

80The marketing mix includes price, product, place and promotion.

81Vittori R., 2012, personal translation.

costs⁸².

As a consequence, the steps a firm should follow before starting its internationalisation process are the identification of critical points, an evaluation of its own capability, the setting of precise objectives (not in the short term, but in the medium or long term), the internal re-organization of the firm (as internationalisation implies a different mentality), considering possible external supports (such as legal experts in different countries) and finally, drafting a Business Plan (comprehensive of all costs)⁸³.

The 'external incentives', on the contrary – including the advantages previously presented by Vittori (2012) –, are “export incentives from government, overseas demand factors such as competitiveness, and inquiries via industry bodies or government representatives overseas or information in publications”⁸⁴, which come from foreign markets, and others such as a “fall in domestic demand or excess capacity, and reduction in costs of production”⁸⁵, which are linked to the firm's domestic market conditions.

All these considerations show that internationalisation really is a “complex and multidimensional process”⁸⁶. Firms have to analyse their domestic markets and internal capabilities, external opportunities and risks, balance advantages and disadvantages of internationalisation, choose among different countries with different economic, political and cultural environments, look for governmental, technological and legislative support – both in their local environment and abroad –, and make a strategic business plan comprehensive of all costs. All this has to be done in the reality of market uncertainty, and – particularly nowadays – in the aftermath of the recent financial crisis.

Nevertheless – and maybe especially due to the crisis and the changes in the global economic scenario – internationalisation represent the concrete instrument for firms to grow and to survive.

As Antonio Civita states in the conference Internazionalizzazione ed italianità: due casi di successo of November 2013, addressing entrepreneurs, “you are myopic if you don't see that your market is the world”⁸⁷.

82Ibidem.

83Ibidem.

84Fletcher R., 2000: 27.

85Ibidem.

86Op. cit.

87Civita A., 2013, personal translation.

CHAPTER 2

Since “your market is the world”⁸⁸ today, it might be interesting to analyse international world trade, starting from an overview of the last three decades and then focusing on its current situation. Then, as the present work will discuss the case-studies of three Italian companies in international trade, the following paragraphs will focus respectively on the European Union and Italy commitment in internationalisation.

2.1.1 WORLD TRADE from 1980 to 2011

The World Trade Report of 2013 confirms what has already been outlined in the previous paragraphs, by identifying the industrial revolution as “the main driving force for the development of the modern world trading system”, and stating that the derived technological advances in transportation and communication, together with population and investment growth, “were responsible for the sustained increase of international trade during the 19^th and 20^th centuries”. The Report also underlines the importance of trade liberalisation – or political and economic cooperation – for the growth of international trade after the Great Depression, the Second World War and through the “second wave of globalization”⁸⁹⁹⁰.

According to the Report, as a consequence of the diffusion of the Toyota model and international outsourcing from 1980s, there has been a “growing interconnectedness of production processes across many countries, with each country specializing in particular stages of a good's production”, a phenomenon which was named by scholars in different ways: “global supply chains”, “global value chains”, “international production networks”, “vertical specialization”, “offshore outsourcing” and

“production fragmentation”⁹¹. Therefore, as stated by The Business Guide to the World Trading System, “virtually all manufactured products available in markets today are produced in more than one country”⁹².

Another relevant aspect underlined by the Report is that in recent years there has been an important change in trade patterns, which consists, on the one hand, in an increased share in world trade by developing economies and, on the other hand, in a decline in the share of developed economies.

At this point, it is useful to explain the terms “developed” and “developing”, or “emerging”. The Report bases the distinction on the United Nations Millenium Development Goals classification;

accordingly, “developed” countries include the members of the European Union – even newly acceded members, regarded as “transition economies” –, other non-EU western European countries – such as Switzerland, Norway, Iceland, etc. –, the United States, Canada, Japan, Australia and New Zealand. It is nevertheless important to bear in mind that this definition includes some countries which are “presumed to be developed (Greece, Malta, Poland) despite the fact that they may be considerably poorer than some high-income developing economies (Singapore, the United Arab Emirates).

“Developing” countries include: Northern Africa, Sub-Saharan Africa, Latin America and the Caribbean, Caucasus and Central Asia, Eastern Asia (excluding China), Southern Asia (excluding India), South-eastern Asia, Western Asia and Oceania⁹³ (see Appendix n.1).

88Op.cit.

89The “first wave” of globalisation took place between 1860 and 1914. The “second wave” took place between 1944 and 1971. Eventually, the “third wave” started from 1989.

90World Trade Report 2013: 103 91Ibidem: 78.

92International Trade Centre and Commonwealth Secretariat in World Trade Report 2013: 78.

93Unstats.

After having clarified the definition, we can analyse recent trends in world trade more in details. As it can be observed in Figure 2.1, while exports in developing countries accounted for 34% of world trade in 1980, they reached 47% by 2011. Conversely, the shares of developed economies decreased from 66% in 1980 to 53% in 2011.

The most striking aspect that emerges from the figure is the rise of some Asian economies. First, in 1980 China share in world exports amounted to 1%, but in 2011 it had risen to 11%, “making it the largest exporter in the world when individual EU member states are counted separately”, as it can be seen in Table 1.

Secondly, while the Republic of Korea, India and Thailand shares in world exports was not even classified in 1980, they raised to 3 per cent, 2 per cent and 1per cent respectively, by 2011.

Moreover, the major developed countries saw a decline in their shares in world exports from 1980 to 2011: the United States (from 11 per cent to 8 per cent), Japan (from 6 per cent to 5 per cent) and the European Union (from 37 per cent to 30 per cent). Nevertheless, regarding the latter, it should be noted that data refer to the 15-country membership prior to following enlargements, including intra-EU 15 trade.

Figure 2.1 Shares of selected economies in world merchandise exports by level of development 1980-2011 (percentage). Source: WTO Secretariat, (2013) Trade Policy Review. Web Edition.

https://www.wto.org/english/tratop_e/tpr_e/s284_e.pdf .

Table 1: Leading Merchandise Exporters, 1980 – 2011. (US$ billion and percentage). Source: WTO Secretariat (2013) Trade Policy Review. Web Edition. https://www.wto.org/english/tratop_e/tpr_e/s284_e.pdf

2011 1980

Value Rank Share in world Rank Share in world

World 18,255.2 - 100.00 - 100.00

China 1,898.4 1 10.40 30 01.29

United States 1,480.4 2 08.11 1 11.09

Germany ⁹⁴ 1,472.3 3 8.06 2 9.48

Japan 822.6 4 4.51 3 6.41

Netherlands 661.0 5 3.62 9 3.64

France 596.1 6 3.27 4 5.70

Korea, Republic of 555.2 7 3.04 32 0.86

Italy 523.2 8 2.87 7 3.84

Russian Federation 522.0 9 2.86 - -

Belgium⁹⁵ 476.7 10 2.61 11 3.17

United Kingdom 473.2 11 2.59 5 5.41

Hong Kong, China Domestic exports Re-exports

455.6 16.8 438.8

12 - -

2.50 0.09 2.40

22 - -

1.00 0.67 0.33

Canada 452.4 13 2.48 10 3.33

Singapore

Domestic exports Re-exports

409.5 223.9 185.6

14 - -

2.24 1.23 1.02

26 - -

0.95 0.33

Saudi Arabia, Kingdom of 364.7 15 2.00 6 5.36

Mexico 349.6 16 1.91 31 0.89

Spain 308.7 17 1.69 21 1.02

Taipei, Chinese 308.3 18 1.69 24 0.98

India 304.6 19 1.67 45 0.42

United Arab Emirates 285.0 20 1.56 17 1.08

Australia 270.4 21 1.48 18 1.08

Brazil 256.0 22 1.40 23 0.99

Switzerland 234.4 23 1.28 13 1.46

Thailand 228.8 24 1.25 48 0.32

Malaysia 227.0 25 1.24 39 0.64

Indonesia 200.6 26 1.10 20 1.08

Poland 187.4 27 1.03 34 0.84

Sweden 187.2 28 1.03 12 1.52

Austria 178.0 29 0.97 33 0.86

Czech Republic 162.3 30 0.89 - -

Norway 159.3 31 0.87 29 0.91

94 Germany refers to West Germany in 1980.

95 Belgium refers to Belgium- Luxembourg in 1980.

Turkey 134.9 32 0.74 67 0.14

Iran 131.5 33 0.72 40 0.61

Ireland 126.9 34 0.70 46 0.41

2011 1980

Value Rank Share in world Rank Share in world

Nigeria 116.0 35 0.64 15 1.28

Qatar 114.3 36 0.63 50 0.26

Denmark 113.3 37 0.62 35 0.82

Hungary 112.2 38 0.61 44 0.42

Kuwait, the State of 103.5 39 0.57 25 0.97

Viet Nam 96.9 40 0.53 124 0.02

European Union⁹⁶ intra-trade extra-trade

6,038.60 3,905.71 2,132.89

- - -

33.08 21.40 11.68

- - -

37.06 22.55 14.51

Apart from the spectacular rise of China – that went from a rank of 30^th for world exports in 1980 to the first position in 2011 –, other increases in ranks were recorded by the Republic of Korea (from 32^nd to 7^th), Hong Kong (from 22^nd to 12^th), Singapore (from 26^th to 14^th), Mexico (from 31^st to 16^th), India (from 45^th to 19^th), Thailand (from 48^th to 24^th), Malaysia (from 39^th to 25^th), Turkey (from 67^th to 32^nd), Ireland (from 46^th to 34^th), Qatar (from 50^th to 36^th) and Viet Nam (from 124^th to 40^th).

On the contrary, the greatest declines were recorded by Switzerland (from 13^th to 23^rd), Nigeria (from 15^th to 35^th), the State of Kuwait (from 25^th to 39^th), and in particular by South Africa (from 16^th to 41^st).

Germany maintained its predominant role among European countries, shifting from the second position to the third, after China and the United States. Eventually, Italian levels of exports slightly decreased, from the rank of the 7^th most exporting country to the 8^th.

A similar pattern can be observed by focusing on imports shares: developing countries rose from 29 per cent in 1980 to 42 per cent in 2011 (see Figure 2.2).

96 European Union refers to EU27 in 2011 and EU15 in 1980.

China confirms its predominant role with an increase from 1 per cent in 1980 to 10 per cent in 2011, but while China's imports of 2011 are slightly less than its exports (10 per cent rather than 11 per cent), India recorded a greater amount of imports over exports (3 per cent compared to 2 per cent).

For what concerns developed countries, while the United States recorded an increase from 12 per cent in 1980 to 13 per cent in 2011, Japan and the European Union imports shares both declined, from 7 per cent to 5 per cent, and from 41 per cent to 30 per cent respectively⁹⁷.

By observing Table 2, we can note that the greatest changes in rank for imports from 1980 to 2011, were recorded by China (from 22^nd to 2^nd), the Republic of Korea (from 20^th to 9^th), India (from 33^rd to 12^th), Turkey (from 51^st to 20^th), Thailand (from 47^th to 22^nd), the United Arab Emirates (from 49^th to 25^th), Malaysia (from 40^th to 27^th), Indonesia (from 39^th to 28^th), Viet Nam (from 89^th to 33^rd), and Hungary (from 48^th to 34^th).

Table 2: Leading merchandise importers, 1980-2011 (US$ billion and percentage). Source: WTO Secretariat.

2011 1980

Value Rank Share in world Rank Share in world

World 18,437.7 - 100.00 - 100.00

United States 2,265.9 1 12.29 1 12.38

China 1,734.5 2 9.46 22 0.96

Germany⁹⁸ 1,253.9 3 6.80 2 9.06

Japan 855.0 4 4.64 3 6.81

France 713.9 5 3.87 4 6.50

United Kingdom 637.8 6 3.46 5 5.57

Netherlands 598.7 7 3.25 7 3.76

97 Once again, the shares of the European Union refer to the 15 pre-enlargement countries.

98 Germany refers to West Germany in 1980.

Figure 2.2 Shares of selected economies in world merchandise imports by level of development, 1980-2011 (percentage). Source: WTO Secretariat (2013) Trade Policy Review. Web Edition.

https://www.wto.org/english/tratop_e/tpr_e/s284_e.pdf