Challenges of Doing Business in Italy

According to the 2011 Index of Economic Freedom (The Heritage Foundation and The Wall Street Journal), Italy is only the 87th freest economy in the world. Italian economy remains burdened by political interference, bureaucracy, corruption, high levels of taxation, a rigid labor market, an ineffective judicial system, a complex regulatory framework and the high cost of conducting business.

Despite this not particularly flattering picture, Italy is an interesting market and offers many good business opportunities in sectors such as life sciences, information and communication technologies, renewable energies, high quality consumer goods, high tech design and engineering products just to name a few. In fact, North American businesses look at the Italian market with great interest but also with a degree of skepticism and concern since they find difficult to understand how the country operates. Italian culture, its business environment, and the regulatory and legal requirements are certainly very different from their American counterparts, and it can be challenging for any foreign company to understand how to achieve its business goals in Italy.

Understanding some of the cultural characteristics of the Italian society helps businesses to interact more effectively and successfully with their Italian counterparts and helps to overcome some of the obstacles that foreign companies may face when conducting business in Italy.

Hierarchy and Decision-Making

Trying to reach agreements with your peer-level Italian colleagues on strategic issues may be ineffective and a waste of your time. Italy has a very large percentage of small and medium-sized family-owned enterprises (SMEs), and even some of the largest corporations are still controlled by single families (for example Fiat, Ferrero, Benetton, Mediaset, etc.). Because of the strong family presence in the Italian society and likewise in business, the management structures are often weak and very hierarchical. Most, if not all, of the decisions are made by the owner of the business, by the family or by the very few key decision makers in a company. The decision making process often takes place outside company meetings and board rooms, with the management often notified about critical decisions without having had opportunity to offer input.

The Italian management style is also very different. Italians have respect and admiration for the decision-maker and leaders. However, often a manager's power is determined by the strength of the relationships that individual has with the senior management and/or the owner of the business. Therefore, a considerable quantity of management time is spent networking, maintaining or improving existing relationships with the real decision makers.

Relationships and Communication

As relationships are very important in Italy, you should not consider the relationship-building (such as lengthy business meals that may at first appear more social than work related) as a waste of your time and money.

Another consequence of the family-oriented society is that employees are not very mobile and will rarely leave their cities and regions to move to another place. Of course, this attitude can be a problem when you try to streamline a company's organization and look at moving employees from one office to another located in a different region. Always keep in mind that labor laws in Italy and in Europe in general are rather different from the U.S.

The way Italians communicate is also very different from the Americans culture. Italians will use rhetoric in their communication, raise their voices during conversations and will be almost theatrical. There are also some seeming contradictions in how colleagues interact. On the one hand, compliments to a colleague are more accepted than they are in the U.S. Alternatively; Italians will often use official titles and will be extremely formal in their communications. It is not rare that they will address their comments to their equivalent peers and ignore people who they may perceive as being of a lower level within an organization. Being informal can come across as impolite.

Communication style during meetings is also dissimilar between Italian and American companies. Italians have a different concept of punctuality and would tolerate a delay of 15 minutes (or more) in the start of a meeting. Additionally, agendas, when they exist, are very flexible. Further, all meeting participants will contribute to the conversations but may do so by interrupting others, holding side conversations, coming and going from the meeting while it's in session, or speaking on the mobile phone without excusing themselves. This also happen because decisions are made outside the meeting room by the owner of the business or the few key decision makers, and therefore the meeting has more of an informative function.

From a more operational point of view, Italian companies will very rarely develop a business plan or even a marketing plan. For many business owners a business plan is not necessary or useful. It is not rare to find managers of Italian companies that have never drafted or even seen a business plan. With the SMEs it is also uncommon for managers to have P&L responsibilities or operate with clear targets in mind. It can be difficult to understand how an organization would build and maintain a viable business without having a plan in place, but Italians are masters of improvisation!

Italians are creative, but creativity does not always go well with processes and follow up. It is not always sufficient to get a verbal agreement because an Italian may give his agreement merely out of politeness or to end a conversation. So perseverance, persuasion and follow-up (in both verbal and written forms) are essential elements to successful working relationships.

Italy is a modern country but Italians are very reluctant to change and seem to be happy with the "status quo", although you will often hear them complaining. For any successful international partnership, it is important that you do your homework, you try to understand how the market works, and you consider the social and business cultures in that country.