ITALY, AN OPPORTUNITY NOT A THREAT FOR SWITZERLAND

“Looking at Italy only as a chaotic and unreliable place where to fish for the best companies to move to Switzerland is a very short sighted approach to the Italian market. Italy, which is the second largest manufacturing country in Europe, could be an even more important export market for Swiss companies than it is today. If Swiss export to Italy was proportionate to the size of the Italian GDP, it would be worth 20 Billion Euros: 7 billion more than it was in 2016“.

I have lived in Switzerland since 2007 and perception of Italy is on average not so positive among the Swiss, mainly as a consequence of bad press, bad reputation of Italian politics and of the deteriorating economic situation which increased immigration of young Italian graduates to Switzerland putting additional pressure on the Italian speaking Canton, Ticino.

The contention of this paper though is that Switzerland could profit from its bilateral trade relations with Italy by adopting a more reasonable and pragmatic approach, less influenced by negative prejudices about its Southern neighbor.

Italy is a G7 highly industrialised country, and is the ninth most important world exporter. It exports world-renowned products in the field of automotive, fashion, technology, design, food and beverage.  This successfull industrial record though  serves rather the purpose of boosting our self confidence as Italians than that of improving the perception that Switzerland has of us: and so explaining the economic benefits for Switzerland of deepening economic relations and increasing trade with Italy perhaps serves this second purpose in a more effective way.

Switzerland enjoys at the moment a very positive trend of exports as it seems to have leveraged the impact of depreciating Euro and Dollar to the Swiss Franc in 2015.

 More than half of the Swiss export go to two markets, US and Germany, leaving tremendous potential in untapped markets such as Spain, UK, Italy and France.

If, in addition, you consider that Italy is the second most important manufacturing country in Europe, Swiss export potential to its Southern neighbor could definitely be higher in volume then it is now. Swiss export to Italy is 32% of Swiss export to Germany, whereas Italian GDP amounts to 50% of German GDP, showing further potential for Swiss export growth to Italy.

A sectorial comparison of Swiss exports to Germany and to Italy, shows a very similar structure: Italy and Germany import the same technology and goods from Switzerland, albeit in different volumes.

Italy’s export is mainly driven by the high and medium value added sectors and only in a minor way by those consumer goods like food and wine that Italy is more famous for. Industrial goods such as machines and precision instruments are the main driving force behind Italian export-led growth and generate consistent demand for foreign and Swiss technology and components. Being that Italy is a dynamic exporter of technology, it is naturally also a great importer and therefore an opportunity for foreign and Swiss companies.

60% of Italian exports consist of industrial machines, fashion, vehicles and metals while electronics, chemicals and food and beverages represent 40%: a diversified and rich manufacturing structure organized in regional clusters and enterprises network.

Industrial clusters reflect Italian DNA of diversification and localism. Tradition and innovation are often born in small villages and towns, far from big cities like Milan or Rome.  This patchwork of different economies within the same country makes Italy  hard to knock down. The traditional North-South scheme is no longer adequate to understand the Italian economy, whereas knowledge of local and informal networks (chambers of commerce, industrial associations, networks of professionals) is an important key to establishing successful business relationships.

Building trust by personally knowing your business partner is still in Italy a necessary step to start a business. This cultural difference must be considered in a strategy aimed at conquering the Italian market: in fact while European companies are normally ready to give up on their business and cultural values in order to better approach emerging markets with deep cultural differences, when it comes to approaching Italy, cultural difference is often made fun of by other westerners, or dismissed with a sarcastic smile.

People tend to forget that Italian backwardness and peculiarity compared to other EU economies do not hinder this country from being the second industrial economy in Europe and the ninth biggest exporter in the world, ahead of countries like the UK and Canada. Entering this big market means establishing local relationships with chambers of commerce, industrial associations, local governments and entrepreneurs: transaction costs may be higher here and results slower to achieve but rewards may very well exceed expectations in the long run. 

Understanding Italy and having knowledgeable partners who can help with the Italian business dynamics can be mutually beneficial to Switzerland to further increase its exports to Italy and to Italy itself to be more attractive for Swiss investors.

Author

Fabrizio Macrì, born in Rome in 1974, has been living and working abroad since 2000. He is the Director of the Italian Chamber of Commerce in Switzerland since July 2012 where he carries out, to the benefit of Italian Institutions, business associations and companies, export support, promotion and consulting activities. Fabrizio has published his first book, « Oltrefrontiera » in 2011, « Generazione Erasmus » and « No Euro No Party » in 2017.