DISTRIBUTION AND SALES CHANNELS
American business representatives will find that selling in Italy offers new challenges, but it presents no overwhelming problems. Over 7,500 American companies are actively represented in Italy, with approximately 850 of them having subsidiaries there. U.S. executives may find that some commercial practices differ from those in the United States, but most will be very familiar. The system of retail and wholesale distribution, for instance, centers on small, family-operated stores. Despite this phenomenon, the supermarket-type operation has gained importance, and there are a number of substantial department store operations.
Retail Distribution in Italy
The Italian retail distribution system is faced with the new challenges of competition and technology. Reforms introduced starting in 1998 have entailed some degree of liberalization, especially as regards small retail businesses. Nevertheless, compared to other EU countries, Italy’s retail distribution sector is characterized by a large number of small firms and low concentration. In food retailing, for example, the combined market shares of the five largest retailers in Italy is 17.6 percent, the lowest ratio in the EU, and considerably lower than the EU average of around 50 percent. In addition, according to the OECD’s 2004 survey of the Italian economy, the retail sector has one of the highest outlet densities in the EU, with a very low average number of employees per enterprise, reflecting the general absence of medium and large retail outlets. Thus, productivity in the sector is low, and estimated mark-ups in wholesale and retail distribution in Italy are among the highest for EU countries.
Accounting for this is the fact that retail distribution in Italy traditionally has been subject to more extensive regulation that in other EU countries and is hindered by numerous restrictions. A law introduced in 1998 liberalized the opening, relocation and expansion of mall-sized outlets by abolishing the requirement for small business to obtain commercial licenses in order to start-up. However, implementation of regulatory measures at the regional level, in line with Italy’s devolution of authority to regional governments, has meant that new commercial establishments, rather than being subject to regulation on commercial activities, are now subject to regulations on urban planning. In practice this has meant that authorization for medium and large outlets is required (and rarely granted) in order to integrate them into urban development plans, while the opening of small shops has been liberalized.
Firms operating in the Italian retail distribution sector find that they must invest large amounts of money in new techniques, management, research, media promotion, and equipment. The industry's average return on investment is approximately 13 percent. In terms of existing points of sale, there is a gradual trend away from the family-type stores and street vendors to the distribution chains. Italian distribution systems include small family-owned stores, street vendors, hyper-markets, shopping malls, specialized stores and discount stores.
Horizontal points of sale such as general stores, which had experienced boom conditions in the early 1980s, very gradually have begun to lose ground to specialized stores, franchising chains, and hyper-markets. In order to create a unique business identity, department stores have begun a process of realignment and now tend to attract the more affluent, quality-oriented consumers, as well as compete on price and product selection. Supermarket chains now look toward further expansion, particularly in creating and operating large shopping malls. Where such shopping centers exist, they are proving to be successful.
USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER
Italy represents a large and affluent market where language and personal relationships are valued when conducting business transactions. Consequently, some form of local presence is generally required to be successful. Companies wishing to enter the Italian market, as an alternative to establishing a subsidiary, might decide to use an agent or a distributor. The choice depends on the nature of the goods or services to be distributed in Italy. There are important distinctions in Italian law between distribution and agency agreements:
Agency Agreement: Agency contracts are governed by the Italian Civil Code and by a number of other legislative decrees. The term “commercial agent”, as a literal translation from the Italian Civil Code, does not correspond exactly to the concept of agency in common law countries. Under an agency contract the principal (manufacturer or exporter) appoints an agent as principal’s sole agent for the territory concerned, who then permanently acts for and on behalf of the principal in promoting the execution of the agreements. The agent may or may not have a special power of attorney to execute contracts, but, if so, will do so only on behalf of the principal. The contractual relationship is thus between the principal and the buyer, not the agent. The normal pattern of remuneration for an agent is either entirely by commission or partially by commission in addition to a periodic payment.
Distribution Agreement: Under Italian law a distribution agreement is one by which a manufacturer or exporter contracts with a distributor to purchase goods which the distributor then sells on the distributor’s own account, usually to retailers for ultimate resale to the public. The incentive for the distributor is in the price differential between one transaction and the other. There may be variations involving the possibility of returning the non-sold goods or other formulae, but the distributor is always acting as the principal in the contract with the subsequent purchaser. There are no laws or regulations currently in effect in Italy providing for advance notice of termination, termination compensation, or social security payments in connection with these agreements.
Frequently, a distributorship agreement provides for exclusive sales rights. There is nothing in Italian law preventing exclusive arrangements in all or part of Italy. However, if these agreements provide for exclusive sales rights in all or part of the EU, they should be examined carefully, and with the assistance of a competent international lawyer, in light of the antitrust provisions of the EU regulations.
Appointing an Agent or a Distributor
It is important to obtain specific legal advice on appointing an agent or distributor. However, some general guidelines apply and are outlined here. Italy implemented EU directive 86-653 in October 1991. As a result, Italian agency law is now in conformity with EU requirements. All agent agreements should be in writing and state the marketing area and any exclusivity arrangements. Termination of the relationship is the area that most frequently causes problems for American exporters. Generally, the civil code protects the interests of the representative. In the absence of termination provisions in a written agreement, the law provides for a minimum notice of termination of one month during the first year of the agreement, two months during the second year, three months for the third year, four months for the fourth year, five months for the fifth year, and six months for the sixth and additional years. Parties may agree to other terms, provided the notice of termination is not less than the above. An agreement with a definite period terminates on the agreed expiration date. If the parties continue to operate under the agreement after that date, the agreement becomes an agreement of indefinite term, which can be terminated in accordance with the aforementioned notice periods. If the American principal wants to terminate the relationship, notice of termination should be given, even with a definite term contract.
The termination of an agreement without the required notice makes a U.S. principal liable for compensation. The Italian sales agent could seek to claim the amount of the commissions that would have been earned during the termination period or for the amount of actual damages suffered. In exceptional cases, and only for just cause (such as competition or fraud), an agreement may be terminated without notice provided the other party is immediately advised of the reason. In such cases, the courts may be requested to terminate the contract.
At the expiration or termination of an agreement, by whatever means, an agent who has increased the value of the business is entitled, in principle, to an adequate remuneration which cannot exceed the average of the commissions in 1 year. Such claims by agents are subject to an expiration period of 1 year.
Three kinds of distribution agreements are commonly used:
- Exclusive distributorships, where the distributor has the sole right to sell specified goods within a defined area;
- Quasi-exclusive distributorships, where the distributor sells almost all the specified products within a defined area;
- Informal distributor arrangements, under which the grantor imposes heavy obligations on the distributor and which would cause damage to the distributorship if the grantor terminated the agreement.
In the absence of mutual agreement, or the failure to meet contract obligations, a distribution agreement of indefinite term cannot be terminated by the grantor without reasonable notice or fair compensation. In general, grantors should consider protecting themselves by entering into agreements for definite periods rather than an indefinite period. Also, specific minimum performance clauses should be considered, such as percent of distributor's sales, minimum annual sales, and number of business contacts to be made, and grantors should propose that U.S. law and courts have jurisdiction.
A continued and close working contact between the American firm and the agent or distributor is very desirable and should be developed early in the relationship. Certain products and equipment require servicing to maintain their useful life. The U.S. exporter should determine if servicing is needed and develop a distribution network to include such servicing by qualified personnel. To build trust, loyalty, and marketing skills, U.S. producers frequently bring their agents or distributors to the United States for training and marketing assistance.
FRANCHISING
In spite of Italy’s sluggish economic situation, franchising continues to grow at a satisfactory pace. Latest figures indicate that in 2003 Italy had 665 franchisers, an increase of 5.9 percent over 2002, and 41,901 franchisees, up 6.6 percent over the previous year. The total turnover exceeded $15.5 billion, representing an increase of 5 percent and accounting for 4.5 percent of all sales of retail goods and services in Italy. The total number of people employed by the franchising sector reached 109,877 in 2003, accounting for a 3.8 percent increase over the previous year, providing a major offset to unemployment problems in other sectors.
Market Demand
The Italian business community has accepted the concept that franchising is the most innovative way to introduce a new business concept. The Italian population has shown itself to be receptive to the fast and efficient formulas provided by franchises. At the same time, the Italian end-user is not always open to franchises for services that are traditionally strong and consolidated in the country. Nevertheless, the Italian market's receptivity to the franchising concept appears to be steadily growing, particularly in the services sector.
End-User Profile
There are considerable differences in economic characteristics among various geographic regions of the country. Northern Italy, the most developed part of the country, has a larger number of commercial, financial, and industrial enterprises and double the per capita income of the south. Similarly, among the various regions distribution of franchising is disparate, with franchising networks concentrated in northern Italy. However, there are recent indications that franchising is also gaining momentum in southern Italy, where it is perceived as a way to alleviate the effects of chronic unemployment.
Competitive Situation
Italy has an extremely fragmented distribution system. The predominance of small, family-owned stores and the disproportionately large number of point-of-sale outlets contribute to market inefficiency. The present retail system survives mainly due to the complexity and protective nature of existing regulations. However, there is now a noticeable move towards concentration in retail distribution, which creates economies of scale and more efficient management. Thus, franchising seems to be increasingly a system well suited to Italy.
Franchising in Italy was formally established in 1971, with the foundation of the Italian Franchise Association (Assofranchising Italiana). The beginnings were very slow and in 1978 there were only 15 franchisers in the country. Growth has since escalated, and between 1990-1995 there was a surge in growth, with 89 percent more new brands. Local Italian franchisers have now been in operation for a number of years and have achieved both success and profitability and some have acquired name recognition worldwide.
The most developed segment of the franchising sector is services, with over 20,000 franchisees and 297 franchisers, while the personal products sub-sector ranks second, with 8,000 franchisees and 157 franchisers. Another very strong sub-sector is specialty retail stores, with 77 franchisers and 4,000 franchisees.
The Italian business community views American franchising companies with a very open attitude and recognizes their predominance in the sector. However, smaller American franchisers trying to find Italian master licensees may find they face obstacles related to lack of name recognition in Italy and to inexperience with local business practices. The price for the master license is almost always set too high and the assistance to be provided by the franchiser is often not spelled out clearly enough. Commercial Service Italy can assist in this regard by providing introductions to the most qualified, suitable potential business partners for U.S. firms in Italy, either through one-on-one counseling and assistance, or through such events as our U.S. Pavilion at the annual Franchising and Partnership trade show in Milan, usually held during the fall each year (for more information, contact Commercial Service Italy at e-mail: rome.office.box@mail.doc.gov).
Best Sales Prospects
The sectors that appear to have the best potential are in the services area. New activities stemming from the “new economy” are making a breakthrough and concepts linked to Internet, e-commerce, telecommunications and information technology have a proven record of success. Other very promising and more consolidated areas are travel and tourism, education and training, fast delivery services, management and consulting services, and automotive services. Other good prospects are offered in fast food and hotels that have good brand recognition, and in personal items and fashion.
Legal Requirements
After several years of negotiations, Italy has signed a law regulating franchising activities. The Italian franchising law became effective on May 2004. An English version of the Italian franchising law can be viewed on www.buyusa.it. In Italy, a franchising agreement is governed by general contract law principles and is considered a bilateral agreement between separate business enterprises resulting in "collaboration", not "association", between parties. Franchising agreements are subject to the laws governing commercial contracts in general and to those governing sales of trademark licensing agreements in particular. The Italian Franchising Association (Assofranchising) has established a set of rules, which reflect standards prevailing in the Italian business community and are often taken into consideration in legal proceedings.
The development of the European Union has stimulated harmonization of trade, tariffs, legal requirements, standards and procedures. There are no trade barriers or limitations to the importation of US franchise business methods in Italy. However, due to the lack of specific Italian norms on franchising agreements, it is advisable that contracts be written in great detail when entering into an agreement with a master licensee.
The average validity of a franchising contract in Italy is 5 years in 40 percent of cases, 3 years in 19.4 percent and 6 years in 16 percent. An entry fee is required by 51 percent of franchisers, while royalties are requested by 70 percent of master franchisers. Most of the standard contracts provide comprehensive training programs, manuals and programs of regularly scheduled workshops for franchisees.
Financing
Financing tailored to franchising activities is a concept that is gradually penetrating the local banking system. At present, a small number of local banks have programs tailored to the specific needs of the sector, offering loans to franchising systems and setting up a specialized franchising department. Other leading banks have indicated an interest in approaching the franchising sector. However, the prevailing practice remains that financing is generally negotiated privately on a case-by-case basis between the master franchiser and the franchisees. Over 50 percent of the franchisers offer financing and leasing programs. Virtually all franchisees pay entry fees, royalties and contribute to advertising expenditures. Close to 80 percent of franchisers grant exclusive area contracts, while 46 percent require total inventory turnover with a contractually based mark-up. More than 70 percent of the
large companies offer assistance in the way of operations manuals, computerized management programs, assistance for the opening of the points of sale, as well as training seminars. Most companies hold annual conventions and provide newsletters and comprehensive assistance programs. The cost of a franchise varies from a minimum of $10,000 to an average cost of $100,000 and escalates to $300,000 and more.
DIRECT MARKETING
There are many logistical problems of operating a nationwide sales network as well as managing the growing personnel and promotion costs. Part-time employment is presently restricted, although there are now some moves to liberalize regulations governing part-time employment. Marketing firms are developing new distribution techniques designed to employ the casual worker and to target groups of consumers by catalog, door-to-door sales, tele shopping or telemarketing. The most widely used methods of direct marketing are:
- Direct selling, mainly used in the nonfood sector.
- Mail order, catalog sales, or orders placed directly with the supplier.
Mail order marketing has been in Italy for approximate 15 years. Although direct marketing is considered a very effective marketing technique, it still remains a modest channel of distribution for Italian companies. One of the disadvantages of this technique, which may be overlooked by foreign investors, is some delay by the postal system. However, the establishment of a semiprivate nationwide express mail service, the proliferation of couriers, and the arrival of foreign parcel delivery services now offer alternatives to the national mail system.
Telephone direct marketing is growing faster than any other selling technique. With the development of new telephone equipment, the business world has turned to the use of the facsimile, making Italy the second largest per capita user in the world.
Tele shopping (home shopping through TV) is becoming a popular sales approach to reach the consumer. There are a number of privately owned television stations which mainly host telemarketing programs.
Telecommunications technologies are playing an increasing role in the process of restructuring the distribution system. Scanners, electronic cash registers, and display management systems are now common while computerized stock control systems, customer databases, and inventory control programs are being used only by the large distribution networks. The more sophisticated groups have also resorted to consulting services, resulting in technical cooperation agreements between a number of Italian and international chains.
Electronic Commerce/Electronic Business
Internet usage in Italy has experienced explosive growth in the past 4 years and the number of business and home Internet users has boomed: according to a recent study of market research company IDC for Federcomin, the Federation of Information and Communication technology associations and companies belonging to the Italian Industrialists Association Confindustria, the number of Internet users was estimated at 19.8 million in 2002 and reached 22.6 million in 2003. This number is expected to reach 25.5 million in 2004 and 28.6 million in 2005.
Italian Internet users are relatively less mature in the use of this medium with respect to the European average, but they are rapidly catching up.
Electronic commerce applications have taken off and are experiencing very positive growth. According to the IDC study mentioned above, the total market value for e-commerce transactions in Italy, which was estimated at 29.7 billion euro in 2002 (US $35.6 billion at current exchange rate), registered revenues of 42.6 billion euro in 2003 (approximately $51.1 billion) and is expected to reach close to 73.9 billion euro in 2004 (approximately $88.7 billion).
The main factors fueling the development of e-commerce in Italy are: 1) improved Internet access infrastructure; 2) recognition of e-commerce as a means to provide better support to customers and suppliers; 3) improved consumer protection legislation and greater confidence in online payment systems; 4) Italian legislation which recognizes the legal validity of digital signatures and digital contracts; 5) agreements between Italian banks and credit card operators to introduce Secure Electronic Transaction (SET) protocol; 6) Italian government plans for accelerating the development of a new economy culture, ICT acceptance and e-commerce adoption; 7) initiatives of trade associations, major organizations and local governments to foster innovation and to promote e-commerce, especially among small- and medium-sized enterprises; 8) a mobile phone diffusion among the highest in the world, which will enable both the business and consumer segments to take advantage of new telecom technologies for e-commerce transactions (It is estimated that there are over 55 million mobile phone lines activated, and over 40 million cellular phone users - - over 70 percent of the Italian population).
E-business is one of the areas with major growth potential over the next two years. As the number of users and companies utilizing the Internet increases, as well as increases in the volume of business conducted online and the use of information technology in process management, investments are expected to catch up in order to carry out the transition to a more advanced stage of e-business. The market research company IDC forecasts that investments in e-business enabling solutions will reach over $13 billion by 2005 in Italy.
The next phase in the evolution of the e-business sector will require the upgrading or renewal of Italian companies’ technological base, including infrastructure, applications, and their integration. Selectivity will be the key to new investments. There will be no single “killer” application stimulating users to invest in new e-business platforms and services, but rather companies will want to select among an array of solutions, adopting both internal applications (ERP, Sales Force Automation, human resources, knowledge management, e-learning) and applications for the automation of upstream and downstream relationships (supply chain management, e-procurement, e-selling, CRM, e-marketplaces) that add value to their own business model and meets their needs. Prospects for growth in these areas are good, and they should expand faster than the IT market as a whole. In addition, these applications are associated with an equally important set of enabling technologies (broadband, new generation wireless, hosting) that will be positively influenced by the development of e-business.
The growing complexity of network technologies and the need for specialized skills to implement e-business strategies is leading large and medium-sized Italian businesses to outsource services to supplement their in-house capabilities. It is expected that American e-commerce integrators and service providers will play a key role in providing the strategy, marketing, design, and technical services associated with developing an e-business culture and with building advanced e-commerce sites.
Business-to-business (B2B) & Virtual Marketplaces - According to recent surveys, the penetration rate of the Internet in Italian enterprises in 2003 was estimated at 92 percent, one of the highest in Europe.
Sustained growth is expected in B2B e-commerce solutions. According to the mentioned IDC study for Federcomin, B2B e-commerce transactions reached 37.6 billion euro in 2003 ($45.1 billion), and are expected to increase to over 65 billion euro in 2004 ($70 billion) and to close to 112 billion euro in 2005 ($134.4 billion). The most active players focusing on the implementation of B2B solutions are in the automotive, pharmaceutical, grocery, information technology, tourism and telecommunications sectors.
The Italian Government has recently approved an Action Plan to accelerate the diffusion of the New Information and Communication Technology (NICT) in the Italian economy. Trade associations, major organizations and local governments are also actively promoting initiatives to foster innovation and to promote e-commerce among small and medium enterprises (SMEs) by offering them hosting solutions for both B2B and B2C e-commerce applications (malls, virtual marketplaces, portals, etc.).
Many smaller Italian companies with a web site still only use it to create brand awareness, offer product information, and generate leads, but this is rapidly changing. The evolution of organizational business models and strategies has created the need for increased interaction with suppliers and customers. A growing number of large and medium-sized companies are investing heavily in Intranet/Extranet infrastructure and are implementing web sales and purchasing applications to meet these needs.
Both central and local Italian government have implemented excellent e-procurement practices, and virtually all major Italian industrial groups are organized for e-procurement. According to a B2B study of the School of Management of the Milan Polytechnic University, e-procurement transactions reached 9.5 billion euro in 2003. It is predicted that in three years time at least half of all company purchases will be via e-procurement.
Business-to-consumer (B2C) Projects and Prospects – According to the IDC research for Federcomin, spending on B2C e-commerce reached 4.9 billion euro in 2003 ($5.9 billion) and is expected to grow to 8.6 billion in 2004 ($10.3 billion) and close to 23 billion in 2005 ($27.6 billion). The most promising purchasing items are computers and software, books, Internet music and videos, and bookings for entertainment events, vacation and travel. New Italian Government investments to foster ICT and have all Italian schools connected to the Internet, the increasing availability of inexpensive personal computers, and the decreasing costs of Internet access are acting as strong driving forces for the development of the sector. More importantly, as mobile phone diffusion in Italy is among the highest in the world, the Internet consumer market is expected to be driven by the availability of web-enabled, new-generation mobile phones.
Financial Services - Banks are investing considerable resources in e-commerce applications both to sell their own home and corporate banking services, and to support the e-business strategies of their clients by developing virtual malls and portals and by supporting secure transactions. On-line banking is experiencing substantial growth. According to the market research companies Nielsen/Net Ratings and CommStrategy, the number of Italian clients utilizing on-line banking services was 4 million in 2003. The possibility of accessing financial markets through new generation cellular phones is expected to contribute to the development of this market. E-insurance is also registering positive results, with a growing number of clients especially resorting to on line car insurance to oppose prices among the highest in Europe.
E-government - An important e-government action plan, which calls for an investment of $1.3 billion, was approved by the Italian government within the framework of the European Union’s E-Europe program. It aims at offering more efficient, more integrated, and higher quality public services, as well as Internet access to information and services for all citizens. Among the actions being taken are the development of a nation-wide extranet to connect and integrate all central and local government networks; the development of specific portals for accessing different government services; issuance of one million electronic ID cards/smart cards to allow easier access to public services; increasing adoption of e-procurement at the central and local government levels; and countrywide promotion and use of digital signatures.
Interesting Internet sites:
http://www.innovazione.gov.it/eng/index.shtml (the English version of the web site of the Italian Ministry for Innovation and Technologies)
www.bakerinfo.com/ecommerce (legal aspects of e-commerce in 33 countries)
Major Italian Search Engines:
http://www.motoridiricerca.it/classi_it.htm (for statistics and complete list – in Italian)
www.altavista.it
www.excite.it
www.godado.it
www.google.it
www.iltrovatore.it
www.kataweb.it
www.libero.it
www.lycos.it
www.msn.it
www.supereva.it
www.tiscali.it
www.virgilio.it
www.yahoo.it
LEASING
As in many other countries, in Italy it has become common to lease, rather than to buy, certain types of goods (machinery, vehicles, boats, etc). All the major Italian banks have their own leasing companies, which can also be used for leasing foreign manufactured goods. The leasing of foreign machines is usually arranged with Italian clients through local branch offices or agents of foreign manufacturers established to provide this type of service. Importation, payment of customs duties, and other related business formalities are usually more easily done through a firm established in Italy. Such tasks would usually be done by either an agent of the foreign manufacturer or by the Italian lessee. Because the lessee is often not willing to assume the inconvenience of handling importation of leased equipment, local representation might be necessary.
JOINT VENTURES / LICENSING
A joint venture (Associazione in Partecipazione) involves the participation by a supplier of capital in the profits of the business. The operator manages the business and is solely responsible for the obligations he or she assumes toward third parties. The person furnishing the capital is responsible for any loss in direct proportion to his or her share in the net profit, limited to the amount of his/her original investment.
Joint ventures can be for one-time defined transactions with a definite duration (contractual joint venture) or a permanent cooperation between separate groups through the incorporation of a joint-stock company (corporate joint venture). Corporate joint ventures are now seen frequently in Italy.
Licensing in Italy allows foreign entities to profit from technology transfers of a formula, process or patent without the need to invest substantial capital. The Italian government imposes no exchange control limitations on the transfer of royalties abroad. Protection over the use and ownership of the technology transferred should be included in the terms of the licensing agreement.
STEPS FOR ESTABLISHING AN OFFICE
A foreign citizen wishing to establish temporary or permanent residence in Italy to administer a business or to manage a corporation should obtain a business visa for this purpose from one of the Italian Consulates in the United States. All individuals or firms in business in Italy must be registered with the local Chamber of Commerce, Industry and Agriculture. This is a quasi-government office, operating essentially as a field office of the Ministry of Productive Activities (formerly the Ministry of Industry and Commerce). To register with this office, an agent for a foreign company must produce a power of attorney duly notarized by an Italian consular or diplomatic official in the country of the principal.
ADVERTISING AND TRADE PROMOTION
Marketing and advertising are factors critical to success in the Italian market, due to the sophisticated nature of Italian consumers.
In the past decade, advertising in Italy has experienced rapid growth in volume, importance, and sophistication. This growth in advertising has been accompanied by a proliferation of advertising agencies and an expansion of services. Along with Italian-owned agencies, there are joint ventures with other European or American firms. While some agencies specialize in specific services and media, a large number of full service agencies deal with all advertising aspects and have market research capabilities.
However, in the past few years, the economic recession forced most Italian companies to reduce their advertising and promotion expenditures, and advertising agencies and related industries were hit particularly hard, making the Italian environment very difficult.
Recently, reorganization and concentration prevail in the Italian advertising market. Most advertising agencies are not limiting their activities to advertising, many also have integrated divisions specialized in direct marketing, sales promotion, etc. Recently a growing phenomenon is the introduction of special divisions devoted to the new electronic forms of advertising.
Advertising media include newspapers (35 percent of total advertising), magazines (35 percent), radio and television (22 percent), movie theaters (2 percent), and other methods (6 percent).
Newspapers and magazines: The main means of product advertising in Italy is through daily newspapers. Newspapers work closely with advertising firms, both Italian and foreign. However, since the newspapers themselves do not maintain advertising departments, advertising firms must place their ads with special agencies commissioned by the papers to receive advertising for them.
Of about 90 daily newspapers in Italy, only a dozen or so are distributed throughout the country. While some 230 Italian and foreign periodicals are on sale in Italy, only about 20 have a large circulation (see list below).
Television: Italy is served by three public television networks operated by Radiotelevisione Italiana (RAI), a government-regulated company in which the national government owns a majority interest. The three networks carry commercials all day long. There are also four major nationwide privately-owned television stations. In addition, some 100 private television stations are licensed for local broadcasting.
Radio: There are three radio stations owned and operated by RAI. These are on the air for more than 340 hours weekly, and commercial time is available. In addition to the three networks, there are hundreds of local radio stations and several national private stations.
Motion Picture Theaters: Wide use of film clips is made for advertising purposes. There are some 10,000 motion picture theaters in Italy and many regularly show advertising. The rates for advertising vary according to the show time and class of the theater. Advertising is shown during every intermission. Therefore, this medium may be used to reach a wide market and cuts across economic strata.
Posters and Billboards: Poster advertising is handled by a number of specialized companies, as is electric sign advertising, which is subject to special regulations. Poster advertisements are used on walls, along streets, in streetcars, buses, and other means of transportation to reach the consumer market. Both posters and billboards are subject to the approval of provincial authorities and to payment of a tax on poster advertising.
Show Windows and Flyers: Show window advertising is extensively used in Italy. Displays are usually attractively done and show prices of the items for sale. Advertising flyers are in common use, and street banners are used also for special occasions. Loudspeakers are used for advertising at sporting events. Direct advertising, through the distribution of gifts, samples, and price reduction coupons, is frequently used to motivate consumers.
Trade Fairs: Exhibitions are a cost-effective method to enter a foreign market and meet a wide range of buyers interested in a particular industry sector. Sales professionals find that trade fairs attract extensive buyer attendance and frequently can be used to gauge acceptance and pricing of new products and to observe the competition. In the course of a few days, a new market entrant may be able to generate more qualified and motivated prospects than by using any other sales approach. Also, fairs are useful for finding an agent, distributor, or representative. The U.S. Department of Commerce frequently organizes U.S. pavilions at events that are identified as providing excellent prospects for American exporters. Information on participating in Italian trade fairs can be obtained from Department of Commerce Export Assistance Centers located throughout the United States.
For information about trade fairs at Fiera Milano, one of the largest international trade fair sites in Europe, firms can visit Fiera Milano's web site www.fieramilano.com. They can also contact the U.S. Commercial Service in Milan at +39-02-659-2260, e-mail: Milan.office.box@mail.doc.gov. Fiera Milano organizes an extensive variety of international shows each year, and the U.S. Department of Commerce participates in some of these events.
Major Italian Newspapers:
AVVENIRE
Piazza Carbonari 3
20125 Milano
Tel.: +39-02-67801
Fax: +39-02-678-0208
E-mail: lettere@avvenire.it
Web: www.avvenire.it
CORRIERE DELLA SERA
Via Solferino 28
20121 Milano
Tel.: +39-02-6339
E-mail: astronig@rcs.it
Web: www.corriere.it/
IL FOGLIO
Largo Corsia dei Servi 3
20122 Milano
Tel.: +39-02-771-2951
Fax: +39-02-781-378
E-mail: lettere@ilfoglio.it
Web: www.ilfoglio.it
Lungo Tevere Raffaello Sanzio 8/C
00153 Roma
Tel.: +39-06-589-0901
Fax: +39-06-5833-5499
www.ilfoglio.it
lettere@ilfoglio.it
LA GAZZETTA DEL MEZZOGIORNO
Viale Scipione l'Africano 264
70124 Bari
Tel.: +39-080-547-0400
Fax: +39-080-547-0488
www.gdmland.it
gazzettamezzogiorno@tin.it
GAZZETTA DEL SUD
Via Uberto Bonino 15/C
98124 Messina
Tel.: +39-090-2261
Fax: +39-090-2936-359/2932-063
www.gazzettadelsud.it
info@gazzettadelsud.it
GIORNALE DI SICILIA
Via Lincoln 21
90133 Palermo
Tel.: +39-091-662-7111
Fax: +39-091-662-7280/617-7517
www.gds.it
info@gds.it
IL GIORNALE
Via Gaetano Negri 4
20123 Milano
Tel.: +39-02-85661
Fax: +39-02-7202-3859/80
segreteria@ilgiornale.it
IL GIORNO
Via Stradivari 4
20121 Milano
Tel.: +39-02-277991
Fax: +39-02-2779-9537
http://ilgiorno.quotidiano.net
segreteria.redazione@ilgiorno.it
IL MANIFESTO
Via Tomacelli 146
00186 Roma
Tel.: +39-06-687-191
Fax: +39-06-689-2600/6871-9573
www.ilmanifesto.it
redazione@ilmanifesto.it
IL MATTINO
Via Chiatamone 65
80121 Napoli
Tel.: +39-081-794-7111
Fax: +39-081-794-7584
www.ilmattino.it
IL MESSAGGERO
Via del Tritone 152
00187 Roma
Tel.: +39-06-472-01
Fax: +39-06-472-0665
www.ilmessaggero.it
prioritaria@ilmessaggero.it
LA NAZIONE
Via Ferdinando Paolieri 2
50121 Firenze
Tel.: +39-055-249-5111
Fax: +39-055-234-3646
L'OSSERVATORE ROMANO
00120 Citta' del Vaticano
Tel.: +39-06-69899310
Fax: +39-06-69883675
www.vatican.va/news_services/or/home_ita.html
ornet@ossrom.va
IL PICCOLO
Via Guido Reni 1
34123 Trieste
Tel.: +39-040-373-3111
Fax: +39-040-779-7043
www.ilpiccolo.it
piccolo@ilpiccolo.it
IL POPOLO
Piazza del Gesú 46
00186 Roma
Tel.: +39-06-69190334
Fax: +39-06-695-49354
www.ilpopolo.it
redazione@ilpopolo.it
LA REPUBBLICA
Piazza Indipendenza 11/B
00185 Roma
Tel.: +39-06-49821
Fax: +39-06-4982-2923
www.repubblica.it
larepubblica@repubblica.it
IL RESTO DEL CARLINO
Via Mattei 106
40138 Bologna
Tel.: +39-051-600-6111
Fax: +39-051-532-990
www.ilrestodelcarlino.it
segreteria.redazione@ilrestodelcarlino.it
IL SECOLO XIX
Piazza Piccapietra 21
16121 Genova
Tel.: +39-010-53881
Fax: +39-010-5388426
www.ilsecoloxix.it
redazione@ilsecoloxix.it
LA SICILIA
Viale Odorico da Pordenone 50
95126 Catania
Tel.: +39-095-330-5440
Fax: +39-095-338-073
www.lasicilia.it
segreteria@lasicilia.it
IL SOLE 24 ORE
Via Lomazzo 52
20154 Milano
Tel.: +39-02-312-055
Fax: +39-02-3022-2486
www.ilsole24ore.com
info@ilsole24ore.com
LA STAMPA
Via Marenco 32
10126 Torino
Tel.: +39-011-656-8111
Fax: +39-011-655-306
www.lastampa.it
online@lastampa.it
IL TEMPO
Piazza Colonna 366
00187 Roma
Tel.: +39-06-675-881
Fax: +39-06-675-8869
www.iltempo.it
il_tempo@infinito.it
L' UNITÁ
Via dei Due Macelli 23/13
00187 Roma
Tel.: +39-06-699-461
Fax: +39-06-678-6219
www.unita.it
posta@unita.it
Major Italian Business Journals:
L'ESPRESSO
Via Po 12
00198 Roma
Tel.: +39-06-84781
Fax: +39-06-884-5167
www.espressonline.it
espresso@espressoedit.it
ITALIA OGGI
Via Marco Burigozzo 5
20122 Milano
Tel.: +39-02-5821-9207
Fax: +39-02-5831-7559
www.italiaoggi.it
italiaoggi@class.it
MILANO FINANZA
Via Marco Burigozzo 5
20122 Milano
Tel.: +39-02-5821-9237
Fax: +39-02-5831-7518
www.milanofinanza.it
mf-milanofinanza@class.it
PANORAMA
Via Mondadori 1
20090 Segrate (MI)
Tel.: +39-02-7542-2512
Fax: +39-02-7542-2769
www.panorama.it
panorama@mondatori.it
IL MONDO
Via Angelo Rizzoli 2
20123 Milano
Tel.: +39-02-2584-3784
Fax: +39-02-2584-3880
www.ilmondo.rcs.it
ilmondo@rcs.it
Largest Advertising Agency Trade Association:
AssoComunicazione:
Associazione delle Imprese di Comunicazione
Via Larga 23
20122 Milano
Tel.: +39-02-5830-7450
Fax: +39-02-5830-7147
info@assocumunicazione.it
www.assocomunicazione.it
Advertising Agencies:
Armando Testa
Via Luisa del Carretto 58
10131 Torino
Tel.: +39-011-8810111
Fax: +39-011-8810367
info@armandotesta.it
www.armandotesta.it
Young & Rubican Italia
Piazza Eleonora Duse 2
20122 Milano
Tel.: +39-02-77321
Fax: +39-02-7600-0904
www.yr.com
McCann-Erickson Italiana S.p.A.
Via Albricci 10
20122 Milano
Tel.: +39-02-852-91
Fax: +39-02-801-207
mccann mi@mccann.com
www.mccann.com
BGSD'ARCY
Corso Galileo Ferraris 24/A
10121 Torino
Tel.: +39-011-560-1911
Fax: +39-011-517-5300
welcome@bgsdarcy.it
BGSD'ARCY (Address 2)
Via Correggio 18
20149 Milano
Tel.: +39-02-467-91
Fax: +39-02-481-8633
J. Walter Thompson S.p.A.
Via Paolo Lomazzo 19
20154 Milano
Tel: +39-02-336-341
Fax: +39-02-336-34400
jwt.Italia@jwt.com
www.jwalterthompson.com
Lowe Pirella Spa
Via Pantano 26
20122 Milano
Tel.: +39-02-857-21
Fax: +39-02-878-778
agenzia@loweworldwide.com
www.lowepirella.it
Grey Worldwide Italia S.p.A.
Via Bertani 6
20154 Milano
Tel.: +39-02-349-761
Fax: +39-02-349-76321
grey@worldwide.grey.it
Leo Burnett Company
Via Fatebenefratelli 14
20121 Milano
Tel.: +39-02-63541
Fax: +39-02-2900-5229
info@leoburnett.it
www.leoburnett.it
Euro RSCG
Via Dante 7
20123 Milano
Tel.: +39-02-8020-21
Fax: +39-02-7200-0027
eurorscgmem@eurorscg.it
www.eurorscg.com
Saatchi & Saatchi
Corso Monforte 52
20122 Milano
Tel.: +39-02-770-11
Fax: +39-02-781-196
info@saatchi.it
www.saatchi.it
Ogilvy & Mather Spa
Viale Lancetti, 29
20158 Milano
Tel.: +39-02-607-891
Fax: +39-02-6901-8107
PRICING PRODUCT
When providing the Italian buyer with a price quote, American firms most frequently provide a quote that includes sales price plus packing costs, insurance, and freight to the named point of destination. This is called the c.i.f. price. Very often, the average Italian business representative can then usually determine the charges for customs, taxes, and local transportation to arrive at the final landed cost to the importer. The customary terms of sale in Italy are either cash on delivery (which is rare) or settlement 60-120 days after invoice date (more common).
Sales made on cash terms call for payment before delivery, on delivery, or shortly thereafter, that is, usually within 10 days from the date of delivery. A two to five percent discount is made for payment of the full amount of the transaction at the end of the specified period from 1 to 4 months from the date of the invoice. The length of the period depends on the commodity involved, the credit standing of the buyer, and the marketing and sales objective of the seller. A period of up to 2 years is often allowed for payment of capital goods, store equipment, trucks, and similar heavy equipment.
Italian firms indicate that some American suppliers are too rigid in their payment terms and have thus lost business to other suppliers. Financing is considered as much a competitive factor as the product itself, the delivery date, or after-sales service. While some U.S. manufacturers request payment upon receipt of the goods, more successful sellers offer terms allowing settlement of the account from 60 to 120 days following the invoice date, which is the most common practice in Italy.
The use of irrevocable letters of credit for the Italian market has declined appreciably in recent years. Although such instruments are still required by American exporters, especially when the Italian customer's credit reputation is not well known, the growing reluctance of Italian firms to provide letters of credit has required American exporters to turn to other methods to assure payment or lose the sale to other suppliers in the competitive Italian market. The Italian businessperson is reluctant to pay a high fee for a letter of credit when other suppliers or means of payment are available. American firms have put to greater use the export credit in-surance and guarantee programs available through the Foreign Credit Insurance Association (FCIA).
Quotes and Payment Terms
Italian importers generally prefer price quotes on a c.i.f. basis, since they are usually familiar with the Italian customs charges and value-added taxes levied on the product at the time of importation, but may not be acquainted with U.S. costs for trucking, ocean, or air freight. Large Italian firms and department stores, however, may prefer to buy on other terms when they arrange for the shipping and insuring the goods. Quotes and invoicing are usually in terms of the currency of selling country.
American quotes, usually stated in dollars and on a f.o.b. basis, are completely acceptable to Italian buyers. The usual practice of American firms selling to a new customer is to require cash against documents for the first sale or two. After establishing credit, the importer will expect to pay by 30-, 60-, or 90-day letter of credit. In all cases, the American exporter will have to decide how to strike a balance between making the sale perhaps more easily with liberal financing terms versus striking a sale by seeking more secure payment terms. When first starting out, American firms may often find it necessary to offer their best price and payment terms in order to land the sale in the competitive international market. Later, prices may be adjusted as sales and volume permit.
The Italian buyer may request a quote or shipment of goods under INCOTERMS. This is a set of interna-tional rules defining the important commercial terms and practices. By referencing INCOTERMS in contracts or invoices, both buyer and seller will have a uniform understanding of their responsibilities in an agreement. Copies of the 90-page publication Guide to INCOTERMS are obtainable from ICC Publishing, 156 Fifth Avenue, New York, NY 10010, (212) 206-1150. Exporters can also obtain information from the Dun & Bradstreet Exporters' Encyclopedia.
Merchandise may be examined by the Italian importer before customs clearance for inventory purposes. Goods cannot clear customs without shipping documents and payment of any required customs duty, applicable value-added taxes, and excise taxes. These formalities must be undertaken by the importer at the time of clearing customs. Import licenses, if required, should be presented by the importer within the period for which they were issued.
SELLING TECHNIQUES / SERVICE / CUSTOMER SUPPORT
Successful marketing in Italy requires even an extra measure of diligence for American companies than does marketing in the United States. Whether establishing a manufacturing operation or sales branch, or appointing a commission agent, stocking distributor, or a combination agent/distributor, the American exporter must make a long-term commitment to pursuing the Italian market, maintain regular contact with the local partner, and remain conscious of customers’ needs. A key factor in serving the overseas buyer is the local stocking of parts and readiness to make immediate air shipments upon request. Dependable after-sales service is essential.
An American company entering the competitive Italian market is advised to commit the resources needed to market its products appropriately. Appointment of a resident representative is extremely important. For business promotion and market knowledge, there is no effective alternative to an Italian representative who is fully familiar with the local business culture and readily available to customers. Having a local representative is particularly important when the product is complex and likely will require follow-up service or modification. Personalized service is frequently demanded by customers; supplying it creates goodwill and often stimulates repeat sales. Technical manuals and promotional literature should be in Italian. Italy is a competitive market where reliability is important. Local representatives with solid reputations and promotional material in Italian reflect a commitment to customer service and enhance the business reputation of the American firm.
A number of U.S. firms maintain their own sales organizations in Italy. Others sell through specialized importers or appoint sales agents who often are manufacturers' brokers. A large, well-established Italian firm with an efficient nationwide sales organization is likely to insist on an exclusive arrangement. About 7,500 U.S. firms are represented in the Italian market through agents, branches, subsidiaries, or licenses. Of these, nearly 850 have a substantial direct capital investment in the form of stock as a sole owner or partner in an enterprise. Generally, the sales territory includes all of Italy. In other cases, the territory also covers the entire European Union, depending on the type of product and degree of technical support needed. Italian distributors also have excellent contacts with Eastern Europe and the Mediterranean Basin.
SELLING TO THE GOVERNMENT
The Italian government does not typically purchase goods and services abroad unless they cannot be procured locally through domestic sources, which would include subsidiaries, branches and agents of American companies. In order to be considered as a source for Italian government purchases, it is recommended that the American firm be represented by an agent/distributor rather than try to deal directly with Italian government agencies.
Each of the Italian agencies maintains its own list of contractors and suppliers. Therefore, U.S. firms need to contact each agency directly to establish their eligibility. U.S. companies must first establish their financial and technical capabilities by presenting them directly to the Italian agencies.
NEED FOR A LOCAL ATTORNEY
American companies that are interested in setting up agencies, distributorships, licenses or joint ventures are encouraged to seek professional legal advice and counsel. The American Embassy in Rome and the individual Consulates maintain a list of lawyers (according to geographic jurisdiction) that is available to the public.
PERFORMING DUE DILIGENCE
Information on specific Italian firms is available from a variety of private agencies. American companies can contact their local U.S. Department of Commerce Export Assistance Center for a listing of firms offering this service. In addition, this section includes a list of Italian private sector firms that provide this service. American banks also provide credit information services.
Just as the terms of any sales offer should be presented in a clear and detailed manner, shipping documents should conform to the contract and to any samples that may have been sent to the Italian importer. Special attention should be given to the prompt observance of agreed delivery schedules, as prompt delivery may be a decisive and possibly an overriding consideration of the importer in placing additional orders. When shipping on letter of credit, all terms specified on the letter of credit must be strictly observed. If the terms are not followed, the letter of credit may not be honored by the issuing bank.
Italian private sector firms providing background information checks:
Dun & Bradstreet Kosmos S.p.A.
Via di Valtorta, 48
20127 Milano
Tel.: +39-02-284-551
Fax: +39-02-287-2181
www.dnb.com
Dnb_italia@dnb.com
Lince S.p.A.
Corso Vittorio Emanuele, 22
20122 Milano
Tel.: +39-02-77541
Fax: +39-02-7602-0458
www.linceonline.it
lince@lince.it
Ponzi S.p.A.
Corso Monforte, 9
20122 Milano
Tel.: +39-02-7600-2821
Fax: +39-02-781-515
www.ponzi.com
ponzi@ponzi.com
MARKETING U.S. AGRICULTURAL PRODUCTS AND SERVICES
The Italian market for U.S. agricultural fish and forestry exports in 2003 totaled more than $688 million. Socio-economic and demographic changes have had a very positive impact on the Italian consumer market. There are many more singles and senior citizens who have disposable income and are interested in new and foreign products. These buyers want consumer-ready products (if available, in single portion packages), and are willing to pay the price for high quality food.
The Italian market is highly receptive to quality U.S. consumer goods. There are, however, a few constraints affecting the export of U.S. products:
1. EU policy and health regulations. There are strict regulations issued by the EU to control the sale of health/dietetic and organic food products.
2. Consumer resistance to biotech products/ingredients. Pressure from environmental groups, supported by a “Green Sympathetic” Agricultural Minister, has resulted in several policies that limit the use of biotech or “genetically-modified” (GM) products in Italy. In August of 2000, the Italian government unilaterally banned the use of four EU-approved corn products, based on an argument that the products should have been approved following a full EU review and not based on substantial equivalence. Italy, additionally, still bans genetically-modified (GM) products in baby food. In both cases, a zero tolerance level is expected for adventitious GM presence. Few, if any, consumer products containing more than the one percent GM threshold for labeling are found at the retail level because of importer and supermarket chains' concern about consumer backlash.
3. BSE (bovine spongiform encephalitis, or “mad cow”) and other animal diseases. Outbreaks of BSE and Foot and Mouth disease in many European countries have affected the meat market in Italy and EU. This situation has created strong demand for non-European origin pork and non-hormone treated beef.
The Italian hotel/restaurant and institutional food products sectors are also booming, and is expected to grow even more in the future. Italy is the world's fourth largest tourist destination, attracting millions of tourists every year. This has stimulated establishment of new restaurants, both traditional and ethnic. In addition, demand from Italy’s younger generation has supported this trend. This presents enormous potential for quality U.S. food manufacturers in this industry sector.
Italy continues to play a major role in the organic and natural food sector, both as a producer/exporter of bulk organic and natural food products and as a consumer. The Italian organic food sector is enjoying healthy expansion, as Italians are becoming more health conscious. The media has had a major role in this increased interest in organic/natural foods, particularly by constant reporting on food safety problems such as BSE, dioxin, and other food safety problems. Focus is placed on the nutritional/health aspects of organic products, making them desirable and very trendy.
U.S. participation in this market continues to face limitations due to strict import certification requirements, allowing EU competitors an advantage in market access. EU policy still stipulates that member state authorities need to be satisfied that imported products meet the EU standard for “organic.” U.S. and EU standards are not identical. In addition, the importer must request import authorization for each separate product imported.
Italian citizens’ relative affluence and higher disposable income have opened the market for other specialty food items. The pet care sector, for one, continues to expand, creating new opportunities for unique and high quality U.S. products. Quality U.S. pet food has developed a profitable market share in Italy. However, competition is fierce and new prohibitions on ingredients for pet food took effect in 2002. Because of the BSE (mad cow) crisis, the EU has passed more stringent rules governing products made from animal by-products, including pet food. All ingredients used for the manufacture of pet food must be “fit for human consumption.” To summarize, pet food must come from a registered establishment. These and other requirements are evolving as the EU seeks to instill consumer confidence, even in the pet food sector.
The Italian Retail Food Sector in the north has grown rapidly in the last few years, expanding from the traditional mom and pop local store to an ever increasing number of hyper-markets, supermarkets and self service grocery store chains. This retail evolution has brought with it a wider selection of merchandise, better service and quality of food. Italian consumers are becoming accustomed to buying all of their food products in one large store, versus going to several smaller specialty shops. Competition is fierce, as many foreign owned hypermarkets have started to penetrate the Italian market forcing the Italian grocery store chains to increase the number and quality of products offered. The growth of hyper and super markets in the south is much slower.
Ongoing socio-economic and demographic changes have also had an impact on the Italian retail food market, as the average consumer has more disposable income and is better-traveled, and therefore is interested in foreign or exotic foods. In addition, the number of singles is on the rise both among the young and the older generations, forcing retailers to cater to their desire for single portion, ready made food products.