Doing Business in Trieste: The New Italy

Italy has received comparatively little foreign capital investment, compared to other western European countries. One reason is the structure of Italian industry. It is dominated by a very few large companies like Fiat, Olivetti and Pirelli and their cross holdings, but its economic strength really lies with the thousands of small and medium-sized family-owned firms. While companies in other countries were actively launching ventures around the world in the 1960s and 1970s, Italy was experiencing an economic and political crisis. Its companies chose to protect their internal flanks rather than taking risks outside of Italy.

Business Organization Structures Representative Office SRL (limited company). Minimum 20 million lire capital. Must have one or more shareholders. Board of directors or managing director and/or president are required. For companies capitalized at 200 million lire or more, a Board of Auditors is required. SPA (corporation). A minimum of 200 million lire capital. Board of Auditors is required. President and/or managing director is required. Tax Rates Corporate: IRPEG 36%; ILOR 16.2%. Total: 52.2% Individual: IRPEF up to 7.2 million lire: 10% 14.4 million lire: 22% 30.0 million lire: 27% 60.0 million lire: 34% 150.0 million lire: 41% 300.0 million lire: 46% Capital Gains: 25% on the difference between purchase cost and sales price of shares. VAT: 19% on the majority of products. 4% on food, medicine, fertilizers; 10% on vegetables, wood; 16% on ham, construction materials, textile materials. Investment Conditions Restriction on Type: Only for strategic industries (military) Restrictions on Repatriation of Capital: None Exchange Controls: None for non-residents; 20 million lire for residents Labor Laws Work Week: 39-40 hours Overtime: Allowed only under special, temporary conditions Restrictions on Working Hours for Women: None Flexibility in Dismissals, Layoffs: Only under proper and justified reason and/or resolution by mutual agreement. Flexibility in Work Assignments: Total Benefits as a Percent of Wages: 45% (average) Options to Negotiate Wage Conditions: Total flexibility, as long as minimum wages and conditions as stated in the national contract are met.

Federico Pacorini of the logistics company B. Pacorini states another reason for Italy's absence from the list of favorite foreign investment locations: "Rightly, we have been considered unstable, and from a political point of view we're still a mess," he says. "We were the nation with the strongest communist party in the western world, and nobody chases business opportunities at the detriment of safety of his investment. "But this situation has very much changed in the last few years. In our harmless revolution we removed all the old-style politicians. All the major political parties have disassembled, then reassembled. Rome is much less influential than it was. No other country would still be standing after the chaos we've had. This has been traumatic, but business goes on, and does so very well." Despite the political and economic upheaval, Italy remains the world's fifth largest industrial economy and a major contributor to global economic policy through its membership in the G-7. Most companies that have invested in Italy have found the investments to be highly profitable. Business, Italian Style "If an investor wants to locate a facility here or they want to collaborate with an Italian partner, they should always be aware that the Italians are a bit messy," says Federico Pacorini. "The country is unorganized and public services are full of defects. But on the other hand, there are assets you would never find in a very organized environment, where everyone does exactly what he's supposed to do. We have developed a lot of 'antibodies' to defend ourselves from the malfunctions of the system. We have become much more imaginative and innovative than others, we are much more oriented toward serving the needs of the customer, and we are far livelier from the economic point of view." Dealing with Bureaucracy Italy is notorious for the number of permits and approvals required of businesses. However, even this situation is changing. Says Vincenza Nesta of System Sensor Europe: "The perception of bureaucracy by foreign companies is probably only 50 percent true. The situation is much better than it was 10 years ago. Public offices are increasingly efficient. "But it is still hard for a foreign businessman to understand the system. My advice to foreign investors on dealing with the bureaucracy is don't drive yourself crazy over it -- use Italian managers. They know how to move around the system relatively quickly." Many functions, formerly handled in Rome, are now being localized. "In the old days," says Federico Pacorini, "the mayor of Trieste would never have had the powers he has today. Now that the government is being decentralized, we can manage our own affairs much better." This issue is even more critical in Trieste because of its unique autonomous status. When Trieste rejoined Italy after WWI, the national government allowed Trieste to retain not only the powers associated with its free port but also its autonomy as a region. Among many things, these included the principles and procedures established when Trieste was a ward of the Austro-Hungarian Empire. It still retains, for example, its unique real estate record-keeping system. "Our status as an autonomous region means public administration here is much more efficient, quick to respond and flexible than in other parts of Italy," explains Mayor Illy. Business Relationships Italy is well known for its "districts" -- with cities famous for their production of leather, textiles, shoes, or other specialties. But don't expect to find in Trieste the standard Italian industrial concentrations. The industrial make-up of Trieste is exactly the opposite. There is great diversity -- from steel to electronics, from agribusiness to textiles, from chemicals to pharmaceuticals. Furthermore, no one economic sector dominates. There is a general balance among industry, port activities, finance and insurance and tourism.

Says Giorgio Rosso Cicogna, director of the Industrial Assn. of the Province of Trieste: "From the point of view of investing in a new plant or establishing a new business, this is a plus because you will not suffer from a crisis that hits a particular sector. Also, there is basic experience and an entrepreneurial culture in practically every sector. You can find a good foundation of people to help you who have been in that business for some years."

Wages

Labor costs in Italy are similar to the rest of western Europe.

Labor contracts once included automatic adjustments for seniority and cost of living increases. These adjustments ceased in 1992. Wage adjustments now cannot exceed the annual inflation rate as forecast by the government.

National contracts dictate the minimum wage level and hours in industry. These contracts are negotiated every two to four years by the labor unions and employers associations. Companies may not pay at a level below the minimum national wage level.

However, within the national labor contracts there are parts left to the parties to negotiate locally. Within limits, parties can agree on conditions that are different from the national contract. Moreover, the rules are clear, so that there is no misunderstanding among the parties.

That said, the practicalities of location come into play. In most of northern Italy, with its very low unemployment rates of four to five percent, companies have difficulty finding workers at the minimum wage. In Trieste, with its 12 percent unemployment rate, workers, many of them with a secondary education, are available at the minimum wage.

Labor Relations

Like much of continental Europe, Italy has suffered under a poor labor relations image for many years.

"The perception of labor was true years ago, but today that observation is wrong," says Vincenzo Nesta, president of System Sensor Europe. "When I started to work in 1967, the labor situation was bad, with many strikes. Now this has changed. The unions, which traditionally were linked to the political parties, have ended their ties, and they have taken the interests of the workers out of the political situation."

According to Dr. Bruno Zvech, general secretary of the Trieste branch of CGIL, Italy's biggest union, the unions are much more flexible than in the past.

This point was corroborated by Luigi Daniele of the international law firm of Diego Devescovi Deboni Ferletic. "There is a big need for investment here," he says, "and this has convinced the local trade unions to show more flexibility than they have in the past."

Zvech says the unions play a valuable role in worker training. The unions can make an agreement with the company to train workers for new production jobs.

Incentives

Trieste is an area of industrial decline, according to the European Commission. About 10,000 jobs were lost in the steel and shipbuilding and repair industries and to privatization of state-owned industries.

This means there is a substantial labor pool with a strong industrial tradition. But it also means the area is eligible for possible incentives from the European Union and from national, regional and local governments.

The special system of taxes and incentives for investments in the Trieste industrial area is governed by national laws, which have been supplemented by a wide range of financial and fiscal advantages introduced by the Friulia-Venezia Giulia Region. The legislation provides for risk capital and financing mechanisms, such as equipment leasing, leaseback and factoring. Financial support also includes low interest loans (4-6 percent currently). In addition, Fruilia SpA, the local investment agency and bank, can participate in industrial and service companies up to 35 percent of the capital. Special incentives apply at Area Science Park. Under the National Law for Applied Research, laboratories established at the science park can carry out research on behalf of third parties under special terms for small and medium-sized industries (those with fewer than 300 employees). Half of the costs for research, up to 400 million lire a year, can be reimbursed to the industries.

The Friuli-Venezia Giulia Region may provide contributions to capital accounts for up to 40% of the costs of installation, expansion or operating during the initial development period for research laboratories.

The Area Science Park Consortium offers direct incentives to companies in several areas. These include:

• Loans at reduced interest rates (currently 3.7%) for up to 70 percent of research costs. The loan is repayable in accordance with the success of the project.
• Contributions to the capital account, for up to 70 percent of research costs.
• Contributions to the interest account for up to 70 percent of the financing rate.

The consortium is also willing to purchase special instrumentation and informatics equipment and lease these to a company in the park and to provide training grants.