The Division of Labor in the Italian Market - Essay Example

Analysis Italy qualifies as a host country for foreign direct investment especially for American companies. Initially, conservative measures held that Italy fails to qualify as an attractive destination. This research found out the contrary following a study of one hundred multinationals in the country. The discourse finds that foreign companies investing both directly and indirectly have always played an important role in the industrial development of Italy throughout the twentieth century. Research on multinationals indicates that the companies centered on businesses in the areas with high scale and technological intensity. These areas included among others the pharmaceutical companies and chemicals. This area had little competition from domestic companies for a long period. The Italian government helps the multinationals in the process of developing them to become strong Gerschenkronian factors that enhance development. This factor provides room for interesting parallels to develop and grow carrying components of the modern emerging economics (Jackson, 2013, 62). The economic stability dates back to the mid nineteenth century when it was the only South European country to achieve the same by the end of the nineteenth century. Italy qualifies as a long-run host economy following its dynamic in depth. From nineteen thirteen, the growth of the Italian economy came through as a latecomer gradually generating into one of the world’s economic powerhouse. Partially, the sluggish nature of growth at the time was influenced by the nation’s consolidation of industrial model as well as the structure of its capitalistic setting that largely denied foreign investors opportunities for business operations. The first two decades after unification saw the country experience an accelerated rate of economic growth. Analysis of the country’s sectoral attractiveness entails a dynamic analysis. Trends in Italy reveal that they are in tandem with the dominant technological changes in the rest of the world. There are foreign controlled investments especially in the textiles and mining industry that defy the economic waves to remain successful as they respond to technological changes. Other sectors whose stability is strong and attractive to the United States companies include transport and utilities comprising of distribution of water, gas, as well as electricity. Economists attribute this to the ever-increasing demand for expansion of infrastructure. This results from the whole urbanization process that started towards the end of the nineteenth century. In the traditionally foreign dominated chemical sector, the relevance of the sector shifted to petrochemicals, pharmaceuticals, and advanced chemicals. This is a good indicator to American companies that the country embraces a new technological paradigm (Jackson, 2013, 88). Chemicals provide an attractive case for American companies interested in direct foreign investment. Research carried out in two thousand and one revealed that there is a generally weak domestic interest and entrepreneurship in various sectors including advanced chemicals, energy, pharmaceuticals, research and development, as well as other sectors with features of high intensity of technology. This is evidence that companies that engage in foreign investment in these sectors have privileges for application of both medium and high-tech technology. Among the leading factors that can possibly, influence an American company into setting up operations in the region is the single European market and economy. The country is an active participant in the socio political and economic union a feature that expands both its market and economic might. The union expands the market thereby expanding the market of any other company operating in the country. Any American company operating in the country would therefore enjoy a free market economy with minimal debts owing to the strong Italian economy. The country has minimal legislations governing the operations of the free market economy. Additionally, the market has relatively lower labor and power costs two fundamental features that will facilitate the development and operation of companies. Italy has effective infrastructural development that has facilitated the economic development. The country has an expansive and high quality road network that traverses the entire country besides joining it to its other neighbors thus facilitating movement across the region. Additionally, the country has effectively manages rail systems serving both within the leading cities and throughout the nation and equally joins the country with her neighbors. The country also has several interactional airports in its leading cities, which serve as entry points into the country. The several means of transport coupled with the expansive sea ports ensure that the country enjoys interactive relations with her neighbors as they engage in active economic activities. Studies of international business strategy on multinationals in Italy indicate that Greenfield investment is most appropriate entry strategy for foreign investors in the Italian market. The strategy has most advantages for strong technological achievements. The Greenfields investments thrive in the high-tech industries including mechanics, mining, pharmaceuticals, and chemicals. On the other hand, countries in the investing in the mid-tech sectors need to apply the acquisition strategy. Companies within this range include beverages, foods, and textiles among others (Jackson, 2013, 114). The foreign investors venture into these industries by acquiring domestic companies. The advantage of using this method is that it helps the foreign investor to strengthen his or her position in the Italia domestic market. It cans also help push forward the entire process of integration. The third entry strategy available for use by American companies is by use of a joint venture. Few multinationals in Italy applied this method. This method dates back to before the World War I that is similar to the application of acquisitions. Initially, the domestic partner held the majority of the shares but the Italian government has transformed the rules to allow the partner to negotiate as per their agreement. Recommendations American investors need to comprehend that the Italian market demonstrates some common characteristics with other European countries. However, Italy has important unique qualities in the field of technological advancement as well as organizational and institutional abilities. Investors need to comprehend the historical economic development of Italy with help of substitutive factors as proposed by Alexander Gershcenkron to appreciate that it is a safe and productive market for foreign investors. These factors include but not limited to the general role played by banks and other financial institutions, and the role of government in enhancing domestic entrepreneurship as it facilitates its coexistence with foreign investment. This paper recommends to American investors that Italy is economically a member of the advanced countries therefore, a worthy market. Weakness in the domestic power to invest in specific sectors of the economy does not hinder in any way both direct and indirect foreign investment. The division of labor in the Italian market is well structured between foreign business firms and domestic businesses. Features of the entrepreneurial model in Italy include the dominance of small and medium firms owned by either families or individuals that are labor intensive, and traditionally run. The foreign investment carries the capacity to replace lack of capacity and interest from domestic entrepreneurs. This means that American companies are bound to be successful in Italy. The growth of foreign investments takes place during times when the Italian market embraces and shows dynamism. Works Cited Jackson, J. Robert. Global politics in the 21st century. Cambridge: Cambridge University Press, 2013. Print. Read More