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Friday, Feb 11, 2005

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`Pocket multinationals' looking to India

By Siddharth Varadarajan

Rome: In the old joke about capitalism, culture and cattle — you know the one where the Indians worship theirs, the Nazis shoot yours, and the Swiss have none of their own but charge interest for storing the cows of others — capitalism, Italian-style, is summed up thus: "You have two cows but you don't know where they are. You break for lunch."

Like most jokes, this one too perhaps once had a grain of truth, though it is hard to relate the stereotype of indolence to the dynamism, innovation and style that is so evident here today. The Italian economy is the sixth largest in the world (based on non-PPP adjusted national income) and Italian brands — particularly in automotives, textiles, leather and food — are well-regarded in most countries. But Italian capitalism is different from say, the American, German or Japanese variety in two key respects: in the prevalence of a large number of small and medium enterprises (SMEs), many of them family-owned and run, and in its tendency to be inward looking, focussing primarily on the domestic and European market.

Aware that they have beaten by competitors in several lucrative markets overseas, particularly China, Italian businesses are particularly anxious not to "miss the boat" in India. So when Italy's President, Carlo Azeglio Ciampi, comes to India on a state visit next week, no fewer than 40 top CEOs will be accompanying him as part of a large business delegation put together by Confindustria, the Confederation of Italian Industries. Among these will be the head of Fiat and Ferrari, Luca Cordero Di Montezemolo, who is also the president of Confindustria, and the heads of defence firm Finmeccanica (which has won the contract to design India's air defence ship), oil major ENI, Perfetti, Olleific Colavita, Brembo, Carraro, Lombardini, Benetton and Ferragamo.

The dominance of SMEs — rather than the oligopolistic market structure prevalent in most advanced capitalist countries — has been described by the former Prime Minister, Giulano Amato, as `dwarf capitalism' and is seen here as both a bane and a blessing. If the business historian, Andrea Colli, calls these firms "advanced posts of the new Italian capitalism" and estimates that the top 350 SMEs ("pocket multinationals") account for more than 30 per cent of GDP, Massimo Mucchetti calls Italian owners and managers "captains of hot air." The SMEs, he believes, are incapable of taking risks and prefer acquiring smaller companies to investing in production.

Though nothing much can be done about the small to medium nature of businesses here, the Italians are keen to spread their wings overseas, beyond Eastern Europe where the expansion of the European Union is leading to higher wages, and into Asia.

"This is going to be far more than a simple state visit," says Mr. Montezemolo, who has pushed for the greater internationalisation of Italian business ever since he took charge of Confindustria last year.

Businessmen and economists here believe that Italy — with its core strength in manufacturing — and India, with its comparative advantage in services, particularly those that are IT-enabled, are potentially ideal business partners. At the same time, they acknowledge that quite a few Italian projects in the past had come a cropper, largely because Italian firms tended to avoid making greenfield investments and instead relied heavily on local partnerships which often came unstuck.

"In China, we definitely got in too late," says Beniamino Quintieri, head of the Italian Institute for Foreign Trade (ICE). "We are late in India too but are hoping to still manage something."

The visiting Italian companies will take part in a business forum with CII and FICCI as well as a large exhibition at Pragati Maidan.

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