Report on Investment in Italy

The political, social, and cultural environment of Italy makes the country an ideal site for the expansion of this company’s manufacturing facilities. Italy is a developed, stable, and prosperous nation where investments of a sizable magnitude will be safe from various harmful or corrosive influences. This document will examine the civic, economic, and societal makeup of the country in an attempt to explore the various consequences of investment in such a climate. As a result of these examinations, this paper will demonstrate the reasons why the sociopolitical and economic climate of the nation of Italy makes it an ideal location for investment and development of manufacturing facilities for our company. There are a wide variety of reasons why investment in the Italian state is a reasonable and savvy decision, and it requires a great deal of intensive and detailed study of the particular situation within the nation to accurately understand the logic behind such an assertion. To adequately convey the potential positive impact of substantial investment in the Italian nation, it is therefore imperative to first discuss general information regarding the country.

There are a variety of basic facts regarding Italy that must first be explained for an adequate grasp of the country’s business environment to be conveyed. According to the Central Intelligence Agency World Factbook, Italy has a population of approximately 61,000,000 people, making it the twenty-fifth largest country in the world (2014). The country is relatively religiously and ethnically homogeneous, with Italians forming the dominant ethnic group and Roman Catholicism being by far the most widespread religion in the country (“World Factbook” 2014). This cultural and ethnic homogeneity means that there is a lack of widespread racial or religious tension in the area, which creates a positive business environment where the likelihood of unrest and strife is miniscule and we as a company can be confident that any investments will remain safe. This stability also extends to the economic arena, where it is clear that Italy is in many ways a safe location in which to invest.

By most economic measures Italy is developed and advanced economic nation. According to the United Nations Development Index Rankings, Italy receives a score of 0.881, which places them twenty-fifth in the world (2013). According to the CIA World Factbook Italy’s Gross Domestic Product is $1.813 trillion, which ranks eleventh in the world; however, the per capita gross domestic product is only $29,800, which ranks forty-seventh (2014). These statistics clearly place Italy within the realm of the world’s most industrialized, advanced, and wealthy economies, especially in terms of quality of life and overall GDP. While it is easy to become lost in the rhetoric regarding the collapse of the Italian economy, in the overall global economic picture Italy is still relatively well situated, a fact that must be kept in mind. Such an environment is clearly relatively safe for investment, although it is also clear that the Italian economy faces certain severe issues. However, while the Italian economy has suffered setbacks in recent years, much like those of the United States and the rest of Europe, that does not mean that it is necessarily a poor location for investment. The political environment of Italy is similarly well constructed and developed, although not devoid of certain issues and problems that merit examination.

Overall the Italian population enjoys a large degree of political freedom. The Freedom House organization gives Italy a score of 1, the best possible, for both political rights and civil liberties, and declares the country’s status to be “free” (2014). This is an extremely important issue, because it signifies that the political process within the country is fair and functional, a necessity from both a human rights and business standpoint. Without a doubt this means that the nation can be considered for investment, whereas any other score would make involvement in the country both a morally and financially dubious proposition. To better understand the political climate of Italy it is also important to examine the functional design of the Italian government and how this affects life and business within the country.

Italy is a liberal democracy with a parliamentary system. As Global Edge at Michigan State University states, “The 1948 constitution established a bicameral parliament (Chamber of Deputies and Senate), an independent judiciary, and an executive branch composed of a Council of Ministers (cabinet), headed by the president of the council (prime minister)” (“Italy: Government,” n.d.). This quotation provides an excellent overview of the basic governmental structure of the country, although the particulars will be addressed in much further detail. It is important to note that this is a parliamentary system, where the Prime Minister is the head of the government and that the executive is elected by the parliament, who are elected by the populace. Most importantly this illustrates that there is a constitution in Italy that has been in place since the years following World War II, and that it is considered to be effective and has the support of the people. To properly understand the nature of Italian politics, the process deserves to be examined in further detail.

The Italian electoral process is slightly complex and requires a great deal of explanation to properly comprehend, although in certain ways it is similar to the American system of government. According to Global Edge, “The houses of parliament are popularly and directly elected by a proportional representation system...legislative bills may originate in either house and must be passed by a majority in both” (“Italy: Government,” n.d.). This echoes the form of government in the United States, although one major difference is the fact that the Prime Minister is nominated by the President of the republic, who in turn is chosen by parliament rather than by direct election. It is also important to examine the judicial structure of the Italian government for an accurate view of the political culture of the country.

The highest level of the judiciary is the constitutional court, which handles judicial review of Italian law. However, “There is only partial judicial review of legislation in the American sense. A constitutional court, which passes on the constitutionality of laws, is a post-World War II innovation. Its powers and the volume and frequency of its decisions are not as extensive as those of the U.S. Supreme Court (“Italy: Government,” n.d.). Therefore, while judicial review is an aspect of Italian governance there is a great deal of autonomy for the legislature in terms of their leeway to create laws as they see fit. In addition, it is important to note the regional structure of the Italian government, rather than solely focusing on the national level.

The Italian government contains a number of localized aspects, although it is undoubtedly a unitary state. As Global Edge states, “The Italian state is centralized. The prefect of each of the provinces is appointed by and answerable to the central government. In addition to the provinces, the constitution provides for 20 regions with limited governing powers. Five regions--Sardinia, Sicily, Trentino-Alto Adige, Valle d'Aosta, and Friuli-Venezia Giulia--function with special autonomy statutes” (“Italy: Government,” n.d.). Clearly the central government maintains the majority of the power in the Italian state, but regional governments have a variety of responsibilities, and are more powerful in certain autonomous regions than in others. This is important due to the implications for business etiquette and customs in different areas of the country, as a result of how the interface with government entities could vary depending on region. The impact of the governmental system on the populace can be seen in the electoral process and how it has functioned in Italian society.

The turnout in Italian elections is relatively high. According to the Institute for Democracy and Educational Assistance 75.19% of the population voted in the most recent parliamentary election (2013). Although this was the lowest figure since the recording of this statistic, it is still a respectable percentage of the population and the figure indicates a healthy democracy. Voting is not compulsory, although it was up until the 1994 elections. Since then voter turnout has steadily decreased, although, as previously mentioned turnout remains relatively satisfactory. However, the low turnout by Italian standards is indicative of the political problems facing the nation.

The results of the most recent election are a window into the political chaos that has developed recently in Italy. As The Economist stated after the most recent election, of the voters who cast their ballots, “almost 30% endorsed Silvio Berlusconi...a further 25% voted for the Five Star Movement, which is led by...Beppe Grillo. By contrast, Mario Monti, the reform-minded technocrat who has led Italy for the past 15 months and restored much of its battered credibility, got a measly 10%” (“Send in the Clowns” 2013). The severe split between the various parties and platforms, with no one candidate gaining a substantial majority of votes, is indicative of the fractured nature of Italian politics and the widely varied responses to the economic woes facing Italy at this time period. These results show that the political parties in Italy are relatively evenly matched with no group significantly stronger than the others. While, as these election results demonstrate, Italy is clearly facing a period of substantial economic and political turmoil, this in fact has surprisingly positive implications for the prospect of foreign investment within the country.

Despite the economic and political issues that Italy is confronting, the nation remains ripe for foreign investment. As The Economist states, “corporate Italy is feeling sick. But a crisis for some is an opportunity for others. The past year has been a great time to buy Italian companies” (“Luxury on the Cheap” 2012). Clearly, the stagnating Italian economy in fact provides an enormous opportunity for foreign investors to take hold in an industrialized and technologically advanced country with a high standard of living and history of manufacturing excellence. The economic issues facing the Italian state can therefore be viewed as a development that has allowed foreign companies to invest at previously unforeseen levels into a traditionally insular country. In addition, there are further reasons for investment in Italy in the field of manufacturing.

Opening a manufacturing facility in Italy would tie our company into the strongest aspect of the Italian economy. As Frank Sensenbrenner and Angelo Federico Arcelli state, “Italian manufacturing is quite sophisticated and advanced...the fashion industry and its associated areas (textiles, tiles, etc.) represents only 10 to 12 percent of Italian manufacturing in terms of total sales, whilst around 30 percent is in machinery, electrical equipment and related areas and around 6 percent is in high tech” (2013). The diversity and sophistication of the Italian manufacturing environment make it an ideal location for the establishment of a manufacturing facility. Quite clearly the country has the technological capability and experienced workforce necessary for a high level manufacturing facility. However, despite these excellent reasons for expansion, there are a number of potential challenges and obstacles to investment in Italy.

Various political issues could potentially stand in the way of investment in Italy by foreign companies. As The Economist states, “Italy has not historically been a magnet for cross-border investment. Emma Marcegaglia, the president of Confindustria, Italy's bosses' club, blames red tape, slow justice, high taxes and a rigid labour market. However, the perception of Italy has improved recently…” (“Luxury on the Cheap” 2012). The traditionally unfriendly aspects of the Italian government and society toward foreign investment are a serious potential roadblock that need to be considered when discussing the prospect of investment in Italy. Clearly, these forces have hindered efforts by multinational corporations to expand into Italy in the past. However, the current recession facing the Italian economy has created a situation where Italy has been forced to be more open toward the prospect of foreign investment than they have been in the past, making this an excellent time to move forward with investment into the country. However, there are other unfortunate issues in Italy that need to be addressed.

Italy’s foreign relations are also largely stable, with no major conflicts with any neighbors or global powers. Economically Italy remains inextricably linked with the rest of the European Union, the United States, and China. As Frank Sensenbrenner and Angelo Federico Arcelli state, “Italy shares with the U.S. and its EU partners an interest in the success of the TTIP (Transatlantic Trade and Investment Partnership) negotiations to join more deeply the economies on the two sides of the Atlantic” (2013). The existence of the TTIP proves the excellent nature of the relations between Italy and the rest of the western world. The strong economic, political, and cultural ties between Italy, the EU, and the US are exemplified by the establishment of this agreement. In addition, Italy’s strong relationships with the rest of the global superpowers extend beyond their ties to the US and EU.

Most important in terms of the development of Italian foreign relations has been the increasingly close relationship between Italy and China. As Song Ping reports, at a recent meeting, “officials from China and Italy expressed satisfaction with current political, economic, cultural, scientific, and technological cooperation. Each hoped to further strengthen political ties and bilateral dialogue” (2010). Clearly on a governmental level Italy and China are quite close, while Chinese businesses have also ramped up their investment in Italian markets in recent years. The strong connections on a political and economic level with the Chinese further indicate Italy’s excellent relations with the major global powers. These strong economic and political ties with the powerful players of the geopolitical community are a necessity for any location considered for investment, and the fact that Italy is so clearly and fully integrated into the global economy makes it a suitable location for investment from this important standpoint.

Italy is a fascinating and complicated nation in a variety of ways. The country is relatively highly populated, with a largely homogenous ethnic and religious makeup. Italy ranks relatively high by most economic and standard of living measures, although the country is currently in the midst of an economic recession. The Italian government is a liberal democracy where the legislators are elected by the people and political rights and civil liberties are protected. The nation has strong political and economic ties with the international community, and is not embroiled in any serious conflicts. The current economic recession in Italy provides an opportunity for cheap foreign investment in a stable nation with a highly developed infrastructure and manufacturing system, although there are certain obstacles that may be presented by the government and human rights issues that must be addressed. Overall, Italy is a well developed and prosperous country that, despite its issues, forms an excellent environment for investment.

References

Annual Report 2013. (n.d.). Amnesty International. Retrieved from http://www.amnesty.org/en/region/italy/report-2013

Freedom in the World. (n.d.). Freedom House. Retrieved from http://www.freedomhouse.org/report-types/freedom-world#.UwwpCUtX_Ww

Human Development Reports. (n.d.). United Nations Human Development Programme. Retrieved from http://hdr.undp.org/en/countries/profiles/ITA

International IDEA. (n.d.). Voter turnout data for Italy (Parliamentary, EU Parliament). Retrieved from http://www.idea.int/vt/countryview.cfm?id=110

Italy. (n.d.). Central Intelligence Agency. Retrieved from https://www.cia.gov/library/publications/the-world-factbook/geos/it.html

Italy: Government. (n.d.). globalEDGE: Your source for Global Business Knowledge. Retrieved from http://globaledge.msu.edu/countries/italy/government

Luxury on the cheap. (2012, March 17). The Economist. Retrieved from http://www.economist.com/node/21550285

Send in the clowns. (2013, March 2). The Economist. Retrieved from http://www.economist.com/news/leaders/21572763-how-beppe-grillo-and-silvio-berlusconi-threaten-future-italy-and-euro-send

Sensenbrenner, F., & Arcelli, A. F. (2013, June 7). Italy's Economy Is Much Stronger Than It Seems. The Huffington Post. Retrieved from http://www.huffingtonpost.com/frank-sensenbrenner/italy-economy_b_3401988.html