MIE1.docx

MANAGEMENT OF ITALIAN EXCELLENCE THE MADE IN ITALY CONCEPT The Italian economy is driven in large part by the manufacturing of high-quality consumer goods produced by small and medium-sized enterprises, many of them family-owned. Italy is part of the G7 and the third-largest economy in the Euro zone...

MANAGEMENT OF ITALIAN EXCELLENCE THE MADE IN ITALY CONCEPT The Italian economy is driven in large part by the manufacturing of high-quality consumer goods produced by small and medium-sized enterprises, many of them family-owned. Italy is part of the G7 and the third-largest economy in the Euro zone, but its exceptionally high public debt and structural impediments to growth have rendered it vulnerable to scrutiny by financial markets. The NGDP value in Italy is quite high amounting to $1.807 trillion (2017) and the exports sector weights about $462 billion (2016). EXCELLENCE - regards both small and medium enterprise - “the quality of being outstanding” - which means something that is going over. In the business context, it refers to the unique set of outstanding practices and values in managing the firm that contributes to the achievement of superior results. Behind this outstanding practices and values, there’s the history and the results of specific area. The company get and receive these practices and values from the society and from the environment that is surrounding and forging people. So basically, the company assimilate, because of the environment where it is doing business, the specific culture which lead to practices and values. As a consequence, the concept of “MADE IN ITALY” is related to the territory and the culture of the country. This means that this concept is linked to the history of the territory of the nation, but more specifically to each industrial district --> concept of “Bello e ben fatto.” 1980s: «Made in Italy» begins to be used to indicate the excellence and uniqueness of Italian products. The concept of Made in Italy is used today more as a «cultural asset» than a mere label. The economic sectors in which Italy excel are called the 4A: abbigliamento, alimentari, automotive, arredamento. The essence of Made in Italy is composed of 2 complementary aspects: -  The key features of products: Tangible elements (craftsmanship, technical and engineering excellence) Intangible elements (creativity, design, aesthetics) Italy is famous above all for the intangible elements --> concept of TAILORMADE APPROACH - for each specific client the company customize a specific product with a specific design according to its needs. This approach in Italy is widely spread on one hand because of a cultural reason, on the other because of the high distribution of small and medium enterprise. The margins are very high because the client is asking for something not in the large scale production. -  A way of being and thinking: result of heritage, tradition and Italian culture difficult to imitate and replicate outside of Italy The key pillars of the Made in Italy are creativity, research, innovation, tradition, quality and uniqueness. The competitive advantages of the made in Italy products and the companies on the Italian market are given by different sources which are the quality, the distribution and the location. B2C - relation between the producer and the final consumer - selling to the final client - they are suppliers and they sell directly to the final clients (es. Carrefour, Conad) B2B - there’s an intermediate part between the producer and the consumer - selling to partners with which they have specific agreement - it is a form of transaction between different kind of businesses (dealers) in order to enter in the market and sell specific services and machines. The Geographic proximity is a “plus” in the supply chain because it is part of the same culture and environment, and you are able to follow the faces of the production process in our area. The key features of the Made in Italy companies are: Made in Italy firms are typically family-owned (93%) which means that they are firms dominantly controlled by a family with the vision to potentially sustain family control across generations. Therefore, key strategic decisions are often taken by family members, which differentiates Italian family companies from other European countries The Italian industrial system is dominated by small and medium-sized enterprises (SMEs): 99.9% of Italian firms, 80% of Italian employment and 67% of its value added. Governance - the system that specifies the structures, the distribution of rights and obligations among the different constituents of the firm The EU (in accordance with the EU recommendation 2003/361) classifies firms, according to their size, into micro, small, medium and large enterprises. The main factors determining the size of an enterprise are: - the staff headcount - either turnover or balance sheet total Managerial challenges 1 - Keeping a balance between contrasting pressures - maintaining artisan manufactory technics - staying on the cutting edge of new technologies 2 - Innovation Innovation is a quite large concept; there can be innovation in terms of product or process. Product innovation: is embodied in the output (product or services) of the organization (e.g., significant improvement of an existing product, creation of a new product) Process innovation: relates to the way in which an organization conducts its business and operations like methods, techniques, (e.g., improving the production efficiency, increasing quantity produced in the unit of time, reducing defects rate, etc.) Innovation can be reached thanks to - research and development - employees based competencies - specific customer needs The innovation can be: - Incremental - it does no change completely, but proportionally, step by step - Radical - there’s a radical and revolutionary change Innovation can be measured through different metrics: - number of patents filed in the past year - total R&D expenditures or budget as a percentage of sales - number of active projects Number of ideas submitted by employees - percentage of sales from products introduced in the past X year(s) - managerial challenges LOCATION SPILLOVERS: THE ROLE OF INDUSTRIAL DISTRICTS Started in 1919 - Marshal - “Districts are an original form of agglomeration of businesses, characterized by strong industrial specialization, where the local dimension of production within them has a key role in creating an environment more favorable to individual success.” The co-presence of firms in the same sector and in the same area would create an “industrial atmosphere” that could support and encourage the strengthening of local industry. An important determinant of the competitive success of industrial districts is the effective co-operation within and between firms. Therefore, we can define the industrial district as a simple aggregation of industrial and professional activities of the same species, located within the same geographic area. In 1979, Italy - Becattini - better explain the idea of agglomeration, defining it in terms of a system combined with the socio-economic context linked to the territory and the tradition of this place (Italy) - “An industrial district is a socio-economic system, where local development forces and territory become crucial.” In this case, the socio-economic system is giving a value to the community and Italian industrial districts represent a new level/entity in between the industry and the single company. The Italian district: - takes into account the production sites and the production communities with their specializations as sets of history, unwritten rules and shared values; -  directly affects the productivity and structure of the district itself; -  is characterized by horizontal and vertical integration forms and also by production specialization: Horizontal - acquire another company related to the same business sector, but producing a different product Vertical - enrich the value chain of our business. Characteristic of industrial district Close relationship between communities and businesses External economies and rising return due to the widening demand Mix of cooperation and competition --> constant exchange produces creativity and innovation. Industrial districts are distributed on the Italian territory irregularly. According to the Istat data collected in 2011 the total number of industrial districts in Italy amounts to 141, 40 units less than the number surveyed in the previous Census of 2001. The majority of industrial districts is composed by small and medium enterprise (SME) that thanks to their organizational structure are the driving force of the Italian national economy. The majority of industrial district are located in the north of Italy, in particular, in Lombardy, Veneto and Emilia Romagna with a spread of 49.6%. The center of Italy holds the 24.1% of the total focused above all in Tuscany and Marche. The south together with the islands cover the 14.9% of the total. In the 2011 Census, the district model is completely absent in six autonomous regions or provinces: Valle d'Aosta, Bolzano, Molise, Basilicata, Calabria, and Sicily. The decrease in the number of industrial districts in Italy from 2001 to 2011 was mainly due to the shock that the SME faced after the international financial crisis of 2008. The census data for 2001 and 2011 highlight the combined effect of the crisis and the historical process of tertiarization of the Italian economy which results in a reduction of job-place (increase in unemployment). Industrial districts are very important for Italian export, representing more than 60% of the total products exported by Italian industry. The districts of “Made in Italy” represents 92.2% of the industrial districts of the country. “Made in Italy” products represent the spearhead of Italian exports and can be identified as a set of goods strongly associated with the image of the country in the world. Strength of Italian industrial district Due to the challenges of the market and the globalization, Italian districts try to innovate and focus their attention on the quality of their product --> tailormade approach; they promote, for instance, the differentiation leadership (not focalized on the quantity, but on the diversification and customization). Moreover, these companies prefer an open dialogue with the reference market. The key to growth in the global scenario is to strive for increasing differentiation, and not just in the strength of the brand name generically defined as “Made in Italy”. Fundamental levels for the growth of businesses in foreign markets: - Product innovation - Loyalty strategies - Direct control of after-sales services abroad Weaknesses of Italian industrial district Investments are very important to boost exports, but overall considered still inadequate. The small size of the business is accompanied by family-ownership structure familiar and management practices, often reluctant to run the risks of innovation and unable to tackle global markets. Small companies have difficulty in self-financing due to imposed limitations on bank credit + the venture capital market, specific financing method to foster the rapid growth of innovative start-ups, is still poorly developed in Italy. Currently the educational system is unable to produce human capital adequate to the needs of companies that must compete globally. Intangible capital (i.e. managerial capital, organizational capital, intellectual property, design, brand, and specific skills) are still not well-developed in terms of management, soft skills Emerging trend and performance The performance of district companies in terms of turnover is better compared to non-district businesses. Affirmation of a more differentiated, customized demand and product --> a specific client has specific needs higher costs, higher profits Deep transformation of industrial specializations determined by the entry of Asian competitors - the tendency is going through the process than the final product Mechanical engineering sector has become the driving force of “Made in Italy” manufacturing specializations Change in export composition and content of trade surplus of Italian firms --> change in the portfolio of products Common elements characterizing best performing districts: -  propensity to invest in innovation -  efficient governance -  presence of several leading companies coordinating numerous chains -  high autonomy of subcontracting companies -  synergies with universities and research center (above all with large companies) GLOBAL SUPPLY CHAIN - EXPORT How to develop and consolidate the distribution networks of dealers 1- Suppliers - usually divided in different levels 2- Manufactures 3- Distribution channels 4- Market demand Different ways of international business development - Import - domestic purchases of foreign goods - Export - foreign purchases of domestic goods - Licensing - developing the business thanks to partnership; there’s a contract with which a company gives to another company the license which enable to produce a specific product with technical design and specific characteristics under the payment of a fee (typically of the luxury sector) - Franchising - a form of collaboration; the owner of a business system (the franchisor) grants to an individual /group (the franchisee) the right to sell a product or provide a service using the franchisor's business system. - Join venture - the agreement of cooperation between two different company to develop a new product, enter a new market - Direct Investment - crate directly (in a short period of time) a new company in this country, but in terms of brand reputation and investment, so in order to have a return, there’s the need of a longer period of time (almost two years) - Countertrade (baratto) - exchange of goods - Outsourcing - relocation of some services in other countries (example of IT sector); it is an engagement with an external provider that happens thanks to a long-term agreement with the objective to reduce uncertainty International business development UPPSALA/PROCESS MODEL - it is a model basically focused on the knowledge we have related to the geographic location or market. Thanks to the market knowledge the company create the commitment. This fact generates activities and these activities lead to decisions. NETWORK THEORY - companies, above all the Italian ones, develop their international business starting from their personal network that they crate thanks to associations (e.g. Confindustia) and fairs. INTERNATIONAL ENTREPRENEURSHIP THEORY - this theory is focused on skills and abilities and aims to create value in organizations --> “combination of innovative, proactive and risk seeking behavior.” In this case, the key to internationalization is the experience of the entrepreneur - he needs to be opportunity seeking and internationally experienced in order to exploit the opportunities he might see in the market and be able to commit to it through entrepreneurial activities that would be translated as entrepreneurial services. INNATE EXPORTERS / RAPID INTERNATIONALIZERS - that are not doing step by step process - it’s the case of a rapid internationalization; new companies are not following the step-by-step model, as they are overlapping the single steps thanks to products that are very innovative (typical of Hi-tech companies) Types of distribution channel Channel 1 --> direct channel Channel 2 --> Caterpillar model - intermediate role of dealers which have supporting role as they help producer companies to solve problems in the country where the goods are sold (tendency of SME) Channel 3 --> indirect channel --> conventional channel Example of the caterpillar model in the marketing channel A distinction between: - Sales - all activities involved in selling a product or service to a consumer or business - Marketing - supporting the sale, working mainly in a “push-and-pull strategy” in order to attract customers (pull - to attempt to create brand loyalty; push - to short-term sales). Push strategy is a promotional tactic where businesses attempt to take their products to the customers. The term push stems from the idea that companies are attempting to push their products at consumers. Common sales push tactics include trying to sell directly to customers, meetings, negotiations, fairs etc. Pull strategy takes the opposite approach. The goal of pull marketing is to get the customers to come to you, hence the term pull, where marketers are attempting to pull customers in. Common sales tactics used for pull marketing include mass media promotions, word-of-mouth referrals and advertised sales promotions. The marketing channel (example) can be separate/conventional or vertically integrated. Today, the most used and innovative is the vertical marketing channel (VMC). In the VMC, producer, wholesalers and retailers act as a unified system who can be dominated by any of the three members. This system allows to control channel behavior and eliminate the conflict that results when independent channel members pursue their own objectives. Criteria of how to select foreign distributors The overall qualifications, that a “good” foreign distribution has to have, are: - financial and company strengths - product factors - marketing skills - commitment - facilitating factors Agent - the company is selling directly to the customer; according to the price of the product the agent will get a percentage, specified in an agreement, thanks to the support that he’s giving to the sale of the product. Distributor - real owner of a real company; it is a real entrepreneur as it buys the product, does stocks and resell the product with a margin; in this case the producer company is much more protected even because the dealer, which is local, knows quite well the market. Steps to develop an international supply chain Evaluate how your final customers need to buy - your distribution strategy should deliver the information and service your prospects need and think to a strategy that also include a first reference. Link between customers’ needs and distribution strategy - find an alignment between the strategy of the producer company and the strategy of the distribution companies by seeing how their behavior is with customers. Identify natural partners - look for companies that have relationships with your end-users. If consultants, distributors or retailers already reach your customer base, they’re natural partners. Build your distribution chain in accordance with the dealer - treat your distribution channel with one or more partners as a sale process. Minimize pricing conflicts - choose almost the same prices between the different distributors in order to avoid pricing problems between dealers (which kind of strategy, exclusivity, prices etc.). This means to carefully map out the price for each step in your channel and include a fair profit for each type of partner. Then compare the price that the end-user will pay; if a customer can buy from one channel at a lower price than from another, your partners will rightfully have concerns. Drive revenue through the channel - service your channel partners as you’d service your best customers and work with them to drive revenue. Strategies to consolidate the distribution-network (CAT philosophy) Caterpillar thinks that the dealers are not only the channels that can explore more users and make relationships with them, but also need to play an important role of presales consulting and post-sales service. This representation shows the function of distribution channel in Caterpillar. Educate the distributors - international distributors know more than you about the needs of your final customers, so try to implement a constant training to them. Give quick access to necessary documentation and react fast to give feedback - your international distributors want to maximize the sale minimizing the effort. It would be important to give them all the needed information/ documentation to reach the final deal easily. Thus, it’s important to prepare in advance all sales-materials, brochures, agreements, price lists, case-study etc. Support distributors in marketing and communication - to increase your international brand reputation and create a common sense of belonging among your network you should support your partners with a marketing strategy that includes common marketing materials, web-design, content marketing, annual conventions. Support the distributor in product development and cross-sell - to change your relation from vendor to a real partnership you can support distributors in improving their products/services. This will increase your legitimation, will strength your relation and give you the opportunity to know better the local market and potentially cross-sell new items/products/services. Send them LEADS (before asking you should give) - providing leads to your distributors you will consolidate the commercial relations with them. Follow the sale process - it would be important to support and follow the sale-process of your distributors in order to learn more about the needs of your clients and to create personal touch with them. Follow and share inventory management - as distributors entire business revolves around inventory, you should systemize and shared it with your distributors even to be involved and better control it. Provide incentives - to push the activities of your distribution network you can develop an incentive-framework which may includes specific discounts, specific payments terms, vacations, gifts, prices. Share the risk - to become real partners you should also share risks with your distributors such as financial risks. Avoid stealing business from your distributors - to keep a long-term partnership with your distributors do not skip them, but forward them the leads referring to their territory. Possible channel conflicts that may crate and that companies have to avoid are: - Incompatible goals with partners - Lack of communication - Unclear policies / contract / roles - Marketing and strategy differences - Resistance and fear of change - Intermediaries’ great dependence on the manufacturer FAMILY BUSINESS Family businesses make up more than 60% of all companies in Europe. They range from sole proprietors to large international enterprises. Big or small, listed or un-listed, family businesses play a significant role in the EU economy. In Italy it has been estimated that family businesses are around 784,000 which represent more than 85% of the total number of businesses in the country. Family business represent around 60%of the Italian shareholding market and 66% of Italian family businesses are fully managed by family members. In addition, in Italy around 4.000 of family businesses are SME.   How family businesses are divided within Italy (from a geographic point of view): - 74% northern part of Italy - 16% center of Italy - 10% southern part of Italy   In terms of distribution across different business sectors, family businesses in Italy are primarily concentrated in: - Manufacturing - 43% - Commerce - 28% - Financial and Real Estate - 12% - Services - 8% - Construction - 4% - Transport - 3% - Energy and Extraction - 2%     The notion of “family business”   The notion of “FAMILY BUSINESS” links together the concepts of management and ownership. “A business firm may be considered a family business to the extent that its ownership and management are concentrated within a family unit, and to the extent its members strive to achieve, maintain and/or increase intra-organizational based relatedness.” There are 4 different approaches addressing the 4 prevailing requirements/characteristics of the family’s influence: v Ownership, governance and management - the link between power and control. It does not matter how many family members are involved in management, or which amount of capital share is held by the family, or any other objective characteristic because companies with the same objective requirements of familiness may have differing behavior regarding the degree of influence of the family on the business     v  Generation transfer - related to time and family generation (challenge; difficult for the old generation to transfer the ownership/power to the new generation - therefore they continue to lead the company in the new world with an old approach)   v  Interdependence between subsystems - relationship with the environment/industrial district around. It takes into account different key elements which are inside the family business   v  Existence of multiple conditions   Quantitative methods - based on data and numbers - looking at the combination of different variables. Qualitative methods - mainly interviews and surveys - deep analysis if a specific issue that has to be explained.     F-PEC model   The F-PEC model identifies 3 main elements used to analyze how the family business are developed. According to the F-PEC model, the 3 main channels through which a family influence the business are power, experience and culture.   v  Power addresses all ways by which control is exercised, both directly and indirectly and it embraces ownership, governance and management.   v  Experience concerns the cumulated involvement of the family in the business crossing through generations --> ability of transmitting experience from one generation to the next.   v  Culture is represented by the level of overlap between the values and the principles of the family and the business, in addition to the commitment of the family members to the business (experience), not just work- wise but also in a moral sense.   Golden circle - in terms of communication, influence, marketing, the golden circle is useful to put some effort on something in a different way through the key questions defined by this approach.     Corporate governance in Family businesses In a family business, the family might choose either to act mainly as an owner/inspector, leaving the executive power to professional managers, or to act both as owner and leading manager. Therefore, we can talk about corporate governance when we argued about the separation of control and ownership. There are two main schools of thought:   v  Agency Theory - “agency relationship” Separation between ownership and control - no linkages between a principal (the family owners) and an agent (the non-family managers). In this case, the main task of the board of directors is to control the opportunistic behaviors of the managers (as the management function is not covered by a family member).   3 characteristics: - the board should be mainly composed of non-executive directors; - the positions of CEO and chairman of the board should not be hold by the same person; - the total size of the board should range from 9 to 15 members.   v  Stewardship Theory 
It is based on a steward whose behavior is ordered such that pro-organizational, collectivistic behaviors have higher utility than individualistic, self-serving behaviors (it is the theory typical of the Italian companies)   3 characteristics: - the involvement of the executive directors increases the effectiveness of the board’s activity (the goals   of the family ownership and the nonfamily managers seem to be aligned - the combine leadership structure is preferable to the separated one - the size of the board of directors is small - between 5 and 9 people