The report here presents the economic political and social contexts of Italy which are considered by the marketing team to evaluate the country for penetration. Here the required details for the marketing considerations are provided which may make the decision to enter Italy or not a lot easier. This essay will portray the numbers that a marketer should be concerned about while deciding to enter an economy in order to judge the market’s viability.
Italy’s economy has a GDP of $1.18 trillion with GDP growth at a CAGR of 0.95 percent in 2007 (Datamonitor). Though it is the eighth largest economy in the world, its performance has been stagnating over the past few years. Further in 2008 the country has shown a decline in the industrial performance and a consumer demand also dipped in 2008 (Datamonitor). So as far the economy is concerned it shows a few strengths i.e. a strong, well developed economy with hospitable investment climate. The weaknesses that the economy shows are that of a stagnating economic and industrial growth (which is actually decelerating) and a declining consumer demand which makes the market look less attractive. As table 1 show, the GDP growth rate has declined considerably while the inflation is increasing. This indicates that the economy’s fundamentals are becoming weaker. This indicates that investment in this economy is risky.
Given the economic strengths and weaknesses of Italy, I will now demonstrate ease of entering the Italian market and how international trade policies help or hinder the process. Italy has a friendly trade climate which is friendly to foreign direct investments (FDI). Further, due to its affiliation with the EU, Italy’s trade, and business climate has improved tremendously as it is bound by EU treatise and legislations. Further, in the 1990s the country’s FDI policy and company laws underwent a change which provides greater in order to provide greater flexibility and transparency in doing business in Italy. Further, the structure of commercial companies were also changed and simplified in order to enhance the process of setting up business. The Italian government adheres to the EU tariff schedules and EU trade barriers. Imported goods can also be brought in the free-trade zone which facilitates in payment of no taxes or duties, if those are for manufacturing products meant for export. Italy has applied a value added tax (VAT) ranging from 4% to 9% on all imports (Datamonitor). The country’s corporate tax in 2008 was 27.5%. In addition there is a local tax (IRAP) imposed at a rate of 3.9% which makes the effective corporate tax to be 31.4% (Datamonitor). Further, there is a tax on capital gain at the rate of 12.5% from shareholding and non-qualifying shareholding of 20%. The capital gains tax rate for companies is 27.5% (Datamonitor). This shows that the tax structure is complex, increasing the cost of operation in the country and foreign companies will not be very comfortable working in the country. Further, Italy’s foreign credit rating has been declining indicating the government’s inability to handle the debt burden (Political Risk Service).
From the point of view of market in the country, Italy’s per capita income provides an indication towards the people’s income strength. The average per capita for 2003-07 has been $3057 which is an increase from the average of 1997-02 (Political Risk Service). The economy has been growing unbalanced economically. Report shows that the disparity increased by 2% from 1980s to 1990s (Datamonitor). Further, the level of income of the population is not very high with majority of the Italian population i.e. 42.8%, belonging to the lowest income group (Datamonitor). 13.2% of the population is under poverty line (Datamonitor). Further, the disparity is seen more with the income concentration in top 20% of the population. When the country’s earning data is compared to other EU nations, the average monthly earnings of individuals are less than that of other EU nations (Datamonitor). The income inequality in the economy is high with household income being low. This data indicates that the economy’s potential as a market for income groups is low. The people have low income reducing their purchasing power. But the Italian household consumption expanded by 1.4% (Datamonitor) which is due to the increase in disposable income. This indicates that even though the average income is low, the disposable income has been increasing to increase the consumption rate which indicates a market which has increasing demand.
Table 1: KEy Indicators, Source: Datamonitor
Unemployment is high in Italy and has been increasing marginally (table 1). The unemployment rate is higher than the EU average of 7.3% (Datamonitor). The labor force is fairly well educated and the government has a high investment level on education (Political Risk Service). Hiring and firing employees by foreign companies may become a problem as a company may hire a non-EU employee only if the government-run employment office certifies that no qualified unemployed Italian is available to fill the vacant position (Political Risk Service). Further work visas are subject to annual quotas.
The above discussion on the Italy’s economic and social condition indicates that the country’s viability for new foreign investment plan. This view is shared by AT&T who withdrew from investing in Telecom Italia in 2007 (Political Risk Service). Further, the income inequality and low household income also makes the market less attractive for chocolate chip market in the country. Apart from this high corporate tax makes operating costs higher in Italy, which cuts into the company margin. So from a marketing point of view, Italy is not a very lucrative market to start business.
References
- Datamonitor. Country Analysis – Italy. Country Analysis. New York: Datamonitor, 2008.
- Political Risk Service. Country Report Italy. Country Report. New York: PRS Group Inc., 2008.