Entrepreneurship in Italy
From an agriculturally based economy, Italy has developed into an industrial country ranked by both the World Bank and the International Monetary Fund as the world’s sixth largest economy in USD exchange-rate terms and either the ninth (World Bank) or tenth (IMF and the CIA World Factbook) largest in terms of purchasing power parity (PPP).
Italy’s economic strength is in the processing and the manufacturing of goods, primarily in small and medium-sized family-owned firms. The country has been less successful in terms of developing world class multinational corporations. In addition, the small and medium-sized firms typically manufacture products that are technologically moderately advanced and therefore increasingly face crushing international competition.
The Italian economy is also affected by a large underground economy–worth some 27% of Italy’s GDP. This production is not subject, of course, to taxation and thus remains a source of lost revenue to the local and central government.
Some facts about firms in Italian: – High rate of self-employment (27,5% in 2003) is almost twice the EU15 average – Entrepreneurship has been characterized by the explosion of “industrial districts” which have revealed to be the epitome of Italian competitive advantage in the global economy – Micro firms and small firms are over-represented in many sectors of the economy – Italian firms’ specialization is concentrated in low and medium technology industries – Italian firms’ degree of foreign involvement is mainly through exports, and their degree of foreign involvement through direct investments is comparatively low.
Some people have no doubt that the business and political environment acts as a deterrent. Ronald Spogli, US ambassador in Rome, has affirmed that: “Investments are not made where they are not welcome, where the rules of the market can be changed continuously.” Preliminary figures from the United Nations Conference on Trade and Development have shown a collapse in new foreign direct investment in Italy, just when such inflows elsewhere in the European Union have boomed.
Italy is also missing indirect investment. According to Federation of European Securities Exchanges data for 2005, the latest available, Italy had the smallest percentage of foreign ownership, at 13 per cent, of any stock market in Europe. The country lags its peers in private equity and venture capital activity too. Excessive bureaucracy and a slow judiciary weigh heavily. Above all, high taxes make investors worry.
Paolo Gentiloni, Italy’s communications minister, says he does not think Italian bureaucracy is impossible to wade through. He points to home-grown companies such as Benetton as having shown it is perfectly possible to build a chain of shops in Italy. There is much more competition now than ten years ago, especially in areas that were previously or nearly state monopolies. Even if a fully competitive environment has yet to be achieved in these sectors, liberalization measures will remain a central element of the government’s economic policy.
Venture capital investment in Italy is indeed below its potential. In 2005, the European Private Equity and Venture Capital Association recorded only 30 million euros in seed and start-up investment in Italy, while Spain invested 183 million, the Netherlands 210 million, Germany 500 million, and France 1.1 billion. Market capitalization as a portion of GDP in Italy is well below the United States, Germany, the UK or France.
Italy is famous for having one of the world’s highest private savings rates. Little is held in equities, for example, while bank deposits and real estate investment continue to be favorite choices for investors to place their capital.
Italy is characterized by both high degrees of product and labor market regulation and a reduced extent of law enforcement which seem to explain why Italy has such a large shadow economy. Such strict regulations, lacking complete enforcement, do not seem to have affected adversely entry in entrepreneurial activity, but rather the type of entrepreneurs selected.
Recently, Decree Law 223/06 introduced a range of measures to increase competition in Italy in services provided by taxis, pharmacies, banks, insurance companies and professional services. The law abolished fixed or minimum fees for professional services, and permits advertising of professional services; it removed some restrictions in the retail trade so that it will become easier to open shops; it requires banks to inform customers about changes in contractual terms and conditions at least 30 days before they are introduced; and it prohibits banks from charging account-closure fees.
Italy’s antitrust law covers monopolies. The concept of abuse of a dominant market position is consistent with that of antitrust law in most OECD countries, and particularly with competition rules of the European Union.
Companies operating in Italy are generally free to sell their products and services to whomever they wish. Law 114/98 began liberalization of the retail sector in 1999. The legislation’s main features were deregulation, reduced bureaucracy and decentralization. It did away with licenses for shops smaller than 250 square meters, removed restrictions on opening times and simplified classification. Italian government policy is to liberalize markets so that market forces improve the quality of services, encourage investment and contain prices.
Education cannot yet be considered as a determinant of entrepreneurship in Italy. Individuals choosing to become entrepreneurs are, on average, less educated then their employees. This outcome is not consistent with what we observe in other advanced countries and, specifically, in the U.S.
In Italy, just about one third of self-employed workers are entrepreneurs, while the rest are members of the arts and professions. The one factor positively affecting the entrepreneurial choice is the parental work status. The ability to create contacts with people in government institutions is confirmed to also play a positive and significant role.
- 4.6% of individuals between 18 and 64 are actively working on starting a new enterprise or already running one according to Fast Company Magazine.
- Men are much more active in start-up enterprises than women.
- Most pressing issues are financial support issues, and labor market complications.
- Most of the start-ups are concerned with personal fulfillment. Therefore, there are not many start-ups in high techonology sector, most concentrated in mature markets.
- Lowest level of angel investor activity except in Japan.
- The population is expected to decline. Therefore, the entrepreneurship activity level is expected to decline since there will be less young people.
- Italians see entrepreneurship as more like self employment compared to seeing as a growth opportunity.