Doing Business in Italy

Welcome to “Doing Business in Italy,” the fifth in our continuing “Going Global” blog series. Designed for companies looking to expand globally, our ongoing series has already covered China, the Czech Republic, Hungary, and France, addressing important but below-the-radar finance and accounting issues. (Please note: this series is not intended to provide cross-cultural tips.)

The UNIT4 CODA blog is called “Accounting for Change” for good reason – because the global business environment is undergoing significant change. This is particularly true in the European Union (EU), where Greek debt issues and the need for austerity continue to embroil other EU countries, including Ireland and Portugal.

The World Bank ranked Italy as the 87^th (out of 183 economies) based on ease of doing business there, but ranked the country as 77^th in terms of starting a business there. That puts Italy behind 19^th-ranked UK but ahead of Switzerland (85), Germany (98) and Spain (133).

The good news for Italy, a G-8 nation with the third largest economy in the 17-nation Eurozone, is that its economy offers opportunities for U.S. companies, driven by its strength in the processing and the manufacturing of goods. Major industries include precision machinery, motor vehicles (Ferrari and Fiat), chemicals, pharmaceuticals, electric goods, tourism and fashion including high-end global goods such as Armani, Gucci and Prada. Italy is the U.S.’s 16^th-largest trading partner, and the two countries work closely on major economic issues. U.S. foreign direct investment in the country exceeded $28.7 billion in 2009, according to the most current numbers available from the US State Dept.

Italy does face some economic challenges that include:

• High public debt reaching 120% of GDP in 2011.
• Borrowing costs on sovereign government debt has risen to record levels.
• Joblessness of 8.9% – the country’s highest since 2004 though that places the country at 99^th in the world, according to the CIA World Fact Book.
• A mild recession, affecting other EU countries, including the Netherlands and Belgium.

However, the country is experiencing relatively low inflation of 2.3%, ranking it as the 29^th best in the world, ahead of the 52^nd-ranked US with 3%, and has a highly educated workforce that has a 99% literacy rate. And the country has gained more respect within the EU following Silvio Berlusconi’s resignation as Prime Minister in 2011. The new Prime Minister, Mario Monti, has announced government plans to stimulate economic growth that The New York Times reported could include measures to “encourage competition and develop an outdated economic infrastructure, which many analysts say keep production costs high and uncompetitive in world markets.” Meanwhile, earlier in 2011 the Italian government passed a series of austerity measures, including an increase to the value-added tax (VAT), reductions to public administration, to balance its budget by 2013 and decrease its public debt burden.

As we look at accounting issues in Italy, there will be similarities with other EU countries we’ve profiled including the VAT. However, there are always local issues to address.

Step #1: Select accounting software available in Italian that can interoperate globally. Italians are reasonably flexible about language, but not about functionality. However, the expectation among users and regulators is that the software will be in Italian. Be careful: some software packages might use Italian on major pages but revert to another language for more detailed screens. (To counter that, UNIT4 Business Software, which has produced an Italian version of Coda Financials for 16 years, has developed a very specific localization layer on top of Coda Financials that comprises hundreds of thousands of lines of code. We have found that compares very favorably, and often beats, native Italian solutions, thanks also to the underlying Coda framework.)

Tomorrow, we’ll cover two more steps regarding working locally and operating globally.