V. MARKETING U.S. PRODUCTS AND SERVICES DISTRIBUTION AND SALES CHANNELS American business representatives will find that selling in Italy offers new challenges, but it presents no overwhelming problems. Over 7,500 American companies are actively represented in Italy, with approximately 850 of them having subsidiaries there. U.S. executives may find that some commercial practices differ from those in the United States, but most will be very familiar. The system of retail and wholesale distribution, for instance, centers on small family-operated stores, although the supermarket-type operation has gained importance and there are a number of substantial department store operations. Marketing Areas Italy is almost evenly divided into an industrial northern half and a more agricultural southern half where economic and market conditions are very different. The northern area, with a heavy concentration of large commercial, financial, and industrial enterprises, is a ready market for all kinds of capital and con- sumer goods. It accounts for about 65 percent of total Italian imports and is located near important European industrialized areas. Per capita income in the north is almost twice what it is in the south and the standard of living in the north resembles that of France and Germany. The area's vast industrial complex offers a steady demand for new, more advanced machinery and equipment. The population of Italy in 1991 was 57.2 million with a very low growth rate. Rome, Milan, and Naples all have populations of over 1 million people, but the marketing areas of these and other large cities extend beyond their boundary lines and reach a population much larger than that of the cities themselves. Each of the major cities serves as the nucleus and administrative center of a par- ticular province or region. Lombardy whose capital is Milan, has a population of over 8.5 million. Piedmont, whose capital is Turin, has a population over 4.5 million. There are about 15 million people in the relatively small area of the Milan-Turin-Genoa in- dustrial triangle. The Lazio Region, where Rome is located, has a population of 5 million and Campania, with Naples as the capital, also has a population of 5 million. With a concentration of industrial workers and a population exceeding 1.3 million, Milan is considered the major commercial center of Italy. Milan's highly paid workers sets the pattern for tastes, consumer preferences, and demand of the area. Turin is another important commercial and industrial city in the north, and, as Italy's automobile capital, it is also one of the count- ry's best markets. Fiat automobiles as well as many subsidiary products of the motor and metalworking industries are manufactured in Turin. The regions of Piedmont and Lombardy together account for about 30 percent of Italy's gross national product. They are the richest and most sought after markets in Italy. Genoa, Italy's major port, is another important northern commercial and industrial center. Two central regions, Tuscany and Emilia-Romagna, with a population of over 4 million, are also centers for economic activity. The textile industry in Tuscany comprises more than 11,000 firms which export products valued at over 2 billion U.S. Dollars. Footwear production is also a significant activity with more than 75 percent of production exported which is valued at almost 2 billion USD. Emilia-Romagna is also characterized by the activity of many small firms, especially in Bologna, Modena and Parma, producing knitwear and leather goods. Total exports from Emilia-Romagna were valued at more than 15 billion USD. Further south, the capital city of Rome, in addition to serving as the location of government administration and procurement, contains the headquarters of many state-controlled enterprises, including the defense industries, the oil industry, and the airlines. The state enterprises include transportation services, the national electric company, and many major industrial opera- tions. Rome is Italy's largest city and is an important marketing center serving as a distribution hub for other parts of central and southern Italy. Naples, a large port city serving Rome and the south, is an industrial city whose importance is continuously increasing under government development programs. The areas surrounding the cities of Bari-Brindisi and Taranto also have been stimulated by con- siderable government assistance and private investments, and now stand out as the most economically developed in southern Italy. Retail Distribution in Italy With a population of 57.8 million, the Italian retail distribution sector is large in total sales although it serves the consumer at the retail level through numerous small, family-owned, retail outlets rather than large, mass market operations. The market offers many commercial opportunities because of the large sales volume and a lack of competitive companies. Many large retail stores have recently been opening on Sundays. Bill 426 of 1971 restricts the opening of new large retail outlets in order to maintain and encourage the small family-owned traditional stores. However, with time, the pressure of competition and the demands of sophisticated consumers will gradually introduce change in the distribution system. In order to satisfy Italian consumers, firms operating in the Italian retail distribution sector find that they must invest large amounts of money in new techniques, management, research, media promotion, and equipment. The industry's average return on investment is approximately 13 percent. In terms of existing points of sale, there is a trend from the family-type stores and street vendors to the distribution chains. Italian distribution systems include small family-owned stores, street vendors, hypermarkets, shopping malls, specialized stores and discount stores. Horizontal points of sale such as general stores, which had ex- perienced boom conditions in the early 1980s, have begun to lose ground to specialized stores, franchising chains, and hypermarkets. In order to create a unique business identity, department stores have begun a process of realignment and now tend to attract the more affluent, quality-oriented consumers as well as compete on price and product selection. Supermarket chains now look toward further expansion, particularly in creating and operating large shopping malls. Where such shopping centers exist, they are proving to be successful. The Italian retail distribution system is faced with new challenges of competition and technology. It is in the process of being reorganized in terms of number of points of sale and of marketing strategies. The small traditional retail outlets are considered obsolete, but the Italian distribution groups are still too small in many cases to compete effectively with large chains operating in some of the other European nations. A process of internationalization is now taking place among Italian and foreign chains with some agreements already signed. There is, however, room for more. USE OF AGENTS/DISTRIBUTORS; FINDING A PARTNER The marketing of products in Italy is accomplished through a variety of channels, depending on the nature of the product, the sales territory to be covered, the type of buyer, and the sales promotional activities required. Brokers, commission merchants, and independent representatives are used extensively for the sale of raw materials, semifinished products, and capital goods to the larger manufacturing organizations. However, well-established distributors are normally employed to reach industrial firms as well as the large number of wholesalers and retailers engaged in the marketing of consumer goods. Agency--Agency contracts are governed by the Italian Civil Code and by a number of other legislative decrees. An Italian agent for a foreign firm is generally regarded as being authorized to act for the firm. Depending on the contract, the principal may be subject to termination compensation payments and to income taxes and other levies on sales effected through the agent. Distributorship--Under this arrangement the local distributor takes title of the merchandise and assumes the risks, and has the obligation to pay any taxes. Distribution agreements are subject only to the terms of the contract itself. There are no laws or regulations currently in effect in Italy providing for advance notice of termination, termination compensation, or social security payments in connection with these agreements. Frequently, a distributorship agreement provides for exclusive sales rights. There is nothing in the Italian law preventing exclusive arrangements in all or part of Italy. However, if these agreements provide for exclusive sales rights in all or part of the EU, they should be examined carefully, and with the assistance of a competent international lawyer, in light of the antitrust provisions of the EU regulations. Appointing an Agent or a Distributor Italy represents a large and affluent market where language and personal relationships are valued when conducting business transactions. American firms have found that relying on local Italian sales agents or distributors, who have the contacts and understand the market, can most effectively develop sales. It is important to obtain specific legal advice on appointing an agent or distributor, but some general guidelines follow. Italy implemented the EU directive 86-653 in October, 1991, so Italian agency law is now in conformity with EU requirements. All agent agreements should be in writing and state the marketing area and any exclusive arrangements. Termination of the relationship is the area that most frequently causes problems for American exporters. Generally, the civil codes protect the interests of the representative. In the absence of termination provisions in a written agreement, the law provides for a minimum notice of termination of one month during the first year of the agreement, two months during the second year, three months for the third year, four months for the fourth year, five months for the fifth year, and six months for the sixth and further years. Parties may agree to other terms, provided the notice of termination is not less than the above. An agreement with a definite period terminates on the agreed expiration date. If the parties continue to operate under the agreement after that date, the agreement becomes an agreement of indefinite term, which can be terminated in accordance with the above notice periods. If the American principal wants to terminate the relationship, notice of termination should be given, even with a definite term contract. The termination of an agreement without the required notice makes a U.S. principal liable for compensation. The Italian sales agent could seek to claim the amount of the commissions that would have been earned during the termination period or for the amount of actual damages suffered. In exceptional cases, and only for just cause (such as competition or fraud), an agreement may be terminated without notice provided the other party is immediately advised of the reason. In such cases, the courts may be requested to terminate the contract. At the expiration or termination of an agreement, by whatever means, an agent who has increased the value of the business is entitled, in principle, to an adequate remuneration which cannot exceed the average of the commissions in 1 year. Such claims by agents are subject to an expiration term of 1 year. Three kinds of distribution agreements are commonly used: Exclusive distributorships, where the distributor has the sole right to sell specified goods within a defined area. Quasi-exclusive distributorships, where the distributor sells almost all the specified products within a defined area. Informal distributor arrangements under which the grantor imposes heavy obligations on the distributor and which would cause damage to the distributorship if the grantor terminated the agreement. In the absence of mutual agreement, or the failure to meet contract obligations, a distribution agreement of indefinite term cannot be terminated by the grantor without reasonable notice or fair compensation. In general, grantors should consider protecting themselves by entering into agreements for definite periods rather than an indefinite period. Also, specific minimum performance clauses should be considered, such as percent of distributor's sales, minimum annual sales, number of business contacts to be made, etc., and grantors should propose that U.S. law and courts have jurisdiction. A continued and close working contact between the American firm and the agent or distributor is very desirable and should be developed early in the relationship. Certain products and equipment require servicing to maintain their useful life. The U.S. exporter should determine if servicing is needed and develop a distribution network to include such servicing by qualified personnel. To build trust, loyalty, and marketing skills, U.S. producers frequently bring their agents or distributors to the United States for training and marketing assistance. There are important distinctions in Italian law between distribution and agency agreements. A. Distribution Agreements The distributor may be the sole, exclusive distributor for a given territory; in addition, he/she may distribute solely products of one seller. In all cases, he/she assumes the financial obligations and risks connected with the distribution of the products. Distributorship contracts and/or distribution agreements usually have a specific duration, although some may be indefinite with termination possible upon a specific notice. No payments are due to a terminated distributor in Italy, except under normal concepts of breach of contract. The terms of distributor agreements are subject to European Community regulations. A foreign exporter will not be subject to Italian income tax on sales made in Italy through a distributor since there is no permanent establishment in Italy. B. Agency Agreements The appointment of an agent involves some risk since a foreign exporter may be deemed to have a permanent establishment in Italy and therefore be subjected to Italian income tax. Italy's general adoption of the OECD's definition of a "permanent establishment" makes the use of an agent much less of a risk than previously. Apart from tax considerations, the principal problem presented is that an agent has some of the rights granted by Italian law to employees (Civil Code, art. 1742-1753), regardless of the principal's nationality. On September 10, 1951, Italian agency law was brought into conformity with European Community Law by D.P.R. No. 303, with the following amendments: (1) if the parties continue to perform activities under the contract past the termination date, a fixed term contract becomes automatically a contract of indeterminate duration; (2) an agent retains his/her right to a commission after contract termination if prior efforts led to a sale or agreement for the principal; and (3) an agent's right to an indemnity for client development is recognized. More detailed provisions are set out for safeguarding the agent's rights to commissions and limiting the principal's ability to prevent the agent from competing after termination of the agency. The relationship between principal and agent also is governed by collective bargaining agreements entered into between representatives of the agents' unions and the principals' associations. A foreign principal not in Italy may, and generally will, enroll its Italian agent with ENASARCO, a public agency charged with the administration of social security benefits for agents. Social security contributions amount to ten percent (five percent from principal and five percent from agent) on all commissions or on other amounts (i.e., expense reimbursements) paid to the agent with regard to the agency relationships up to ceiling of 34 million lire per year for an exclusive agent and 20 million lire for a non-exclusive agent. Annual contributions may not be less than 240,000 and 120,000 lire, respectively. The principal must withhold the agent's share of contributions from amounts paid to him/her and must also make contributions to ENASARCO for the severance indemnity that is payable to agent upon termination as follows: (a) for exclusive agents, four percent of all sums must be paid on the first 24 million lire per year, two percent from 24 million to 36 million lire, and one percent over 36 million lire; (b) for non-exclusive agents, four percent of all sums must be paid on the first 12 million lire per year, two percent from 12 to 18 million lire, and one percent over 18 million lire. FRANCHISING IN ITALY Italy has the third largest number of franchisors and franchisees in the EU (387 and 19,000 respectively). In spite of the severe economic recession that has hit Italy, the franchising sector has continued to fare well, with the number of franchisors growing by 12 percent in 1993, a total volume of business in excess of 16 trillion lire and a total of 60,000 employees. Approximately 15 percent of all retail trade in Italy is controlled by franchises. Market Demand The Italian population has shown itself to be receptive to the fast and efficient services provided by franchises, but the Italian end-user is not always open to those services that try to replace traditionally strong and consolidated activities. Nevertheless, the Italian market's receptivity to the franchising concept appears to be steadily growing. End-User Profile There is a vast difference in the economic make-up of the geographical regions of the country, as the north is predominantly an industrialized area and the south is primarily an agricultural one. The north has a large number of commercial, financial, and industrial enterprises and has double the per capita income rate of the south. Similarly, the local geographic distribution of franchising is disparate, with a concentration of franchising networks in Northern Italy (54 percent) and an absence of them in the remote regions of the extreme North and South. Competitive Situation Because of the relative novelty of franchising in Italy, the majority of franchisors are working in traditional franchise activities such as apparel retailing, ice cream and candy sales, housewares, and fast food restaurants. The franchising of services accounts for only 21 percent of the total number of franchisers, but is quickly expanding. Trade sources estimate that the total market for the service sector will reach 820 million USD by 1995. Traditionally strong service franchisors have been beauty salons, health clubs, fast photo developing and quick printing shops and real estate activities. Best Sales Prospects The sectors that appear to have the best potential are, courier delivery services, travel and tourism organizations, management consulting organizations and software and consulting services. Growth is expected to be 8 percent annually in 1994 and 1995. Legal Requirements The implementation of the European Unified Market has stimulated a harmonization of trade, tariffs, legal requirements, standards and procedures. Franchising agreements are subject to the laws governing commercial contracts in general, and those governing sales of trademark licensing agreements in particular. Smaller American franchisors trying to find Italian master licensees have to face obstacles related to the lack of their name recognition in Italy and to inexperience with local business practices. The price for the master license is almost always set too high and the assistance to be provided by the franchisor is never spelled out clearly enough. The average validity of a franchising contract in Italy is 5 years in 39 percent of cases, 3 years in 24 percent and 6 years in 10 percent. An entry fee is required by 51 percent of franchisors, while royalties are requested by 70 percent of master franchisors. Eighty-four percent of the standard contracts provide comprehensive training programs, manuals and programs of regularly scheduled workshops for franchisees. Local labor laws discourage employers from hiring part-time or temporary labor, although the new government plans to introduce part-time labor and less protective labor laws. Financing Italian investors have one of the highest savings rates in the world, but they tend to invest their money in ultra-safe government securities rather than speculative ventures with unknown franchisors. Financing is generally privately negotiated between the franchisor and the franchisee. Over half of all franchisees pay royalties on a monthly basis and are usually proportional to the annual sales volume. DIRECT MARKETING There are many logistical problems of operating a nationwide sales network as well as managing the growing personnel and promotion costs. Part-time employment is presently restricted, although there are now some moves to liberalize restrictions. Marketing firms are developing new distribution techniques designed to employ the casual worker and to target groups of consumers by catalog, door-to-door sales, teleshopping or telemarketing. The most widely used methods of direct marketing are: Direct selling, mainly used in the nonfood sector. Mail order, catalog sales, or orders placed directly with the supplier. Mail order marketing has been operating in Italy for approximately 15 years. Although direct marketing is considered a very effective marketing technique, it still remains a modest channel of distribution for Italian companies. One of the disadvantages of this technique, which may be overlooked by foreign investors, is frequent delays by the postal system. The establishment of a semiprivate nationwide express mail service, the proliferation of couriers, and the arrival of foreign parcel delivery services now offer alternatives to the national mail system. Telephone direct marketing is growing faster than any other selling technique. With the development of new telephone equipment, the business world has turned to the use of the telefax, making Italy the second largest per capita user in the world. Teleshopping (buying by telephone) is becoming a popular sales approach to reach the consumer. There are a number of privately owned television stations which mainly host telemarketing programs. Telecommunications technologies are playing an increasing role in the process of restructuring the distribution system. Scanners, electronic cash registers, and display management systems are now common while computerized stock control systems, customer databases, and inventory control programs are being used only by the large distribution networks. The more sophisticated groups have also resorted to consulting services, resulting in technical cooperation agreements between a number of Italian and international chains. JOINT VENTURES / LICENSING A joint venture (Associazione in Partecipazione) involves the participation by a supplier of capital in the profits of the business. The operator manages the business and is solely responsible for the obligations he or she assumes toward third parties. The person furnishing the capital is responsible for any loss in direct proportion to his or her share in the net profit, limited to the amount of his/her original investment. Joint ventures can be for one time defined transactions with a definite duration (contractual joint venture) or a permanent cooperation between separate groups through the incorporation of a joint-stock company (corporate joint venture). Corporate joint ventures are now seen frequently in Italy. Licensing in Italy allows foreign entities to profit from technology transfers of a formula, process or patent without the need to invest substantial capital. The Italian government imposes no exchange control limitations on the transfer of royalties abroad. Protection over the use and ownership of the technology transferred should be included in the terms of the licensing agreement. STEPS TO ESTABLISHING AN OFFICE A foreign citizen wishing to establish temporary or permanent residence in Italy to administer a business or to manage a cor- poration should obtain a business visa for this purpose from one of the Italian Consulates in the United States. All individuals or firms in business in Italy must be registered with the local Chamber of Commerce, Industry and Agriculture. This is a quasi-government office, operating essentially as a field office of the Ministry of Industry and Commerce. To register with this office, an agent for a foreign company must produce a power of attorney duly notarized by Italian consular or diplomatic official in the country of the principal. SELLING FACTORS / TECHNIQUES Direct Buying--Direct purchases of imported goods occur frequently in Italy with wholesalers and large retailers seeking to obtain the lowest cost from the manufacturer. Certain raw materials and some industrial machinery and equipment having limited markets are purchased by the end-users directly from foreign manufacturers or suppliers. Voluntary associations of food retailers and food wholesalers make substantial purchases directly from domestic or foreign manufacturers. Wholesale Outlets--Wholesale establishments are numerous in Italy, but most of these are still small firms. Their scope is limited to selling only to small retailers who are not in a position to buy directly from manufacturers. The larger retail outlets customarily purchase from local wholesalers only those items that they sell in small quantities. Many of the larger wholesalers in Italy are familiar with foreign trade practices and procedures and sell their goods on a countrywide basis. In 1993, there were a total of 127,500 wholesales; of which 35,700 were food wholesalers and 91,800 non-food wholesalers. Retail Outlets--Retail trade is still dominated largely by small individual outlets run by the owner with the help of family members or with one or two paid assistants. Small firms are expanding and are adopting new merchandising techniques. Modern retail outlets, however, such as department and self-service stores, have been increasing rapidly, particularly in the cities. The number of stores handling food products exceeds those handling other lines. Food sales volume is limited by the consumers' traditional practice of making small purchases as needed on a day-to-day basis. According to the Ministry of Industry, there are 287,900 food retail outlets, and 572,600 retailers of nonfood goods in Italy. Department stores and supermarkets have gained wide public acceptance in the last few years, but these large establishments account for 7 to 8 percent of total Italian retail sales. There are some 935 department stores and 3,696 supermarkets in Italy. Issuance of licenses for more department stores and markets has been limited by the goal of maintaining the existence of small retailers. Nevertheless, the expansion of chain and department stores is resulting in more and more centralized buying by head offices. Presently there are 250 shopping malls operating in Italy. The advent of large retail organizations has influenced the streamlining of other distribution outlets. Groups of wholesalers and retailers have formed associations for bulk purchases by their members. Approximately 150 mail-order firms operate in Italy. Of these, 18 companies hold 75 percent of the market. However, the mail-order business in the 1990s is expected to show strong growth and profitability. Franchising--The franchising system is gaining favor in Italy and offers good potential for American firms to extend management skills and marketing practices. Although efforts are being made to expand franchising operations, it is generally agreed that the parent company would need to make a solid commitment and long-term investment in company-owned outlets to establish its name, to educate the consuming public, and thus attract potential franchisees. Franchisors should also bear in mind that a business license is necessary for each outlet. These may be difficult to obtain, particularly if the franchise will be competing against small, independent, local companies. Leasing--It has become common to lease, rather than buy, certain types of machinery. The leasing of foreign machines is usually arranged with Italian clients through local branch offices or agents of foreign manufacturers established to provide this marketing service. Leasing is complicated by the fact that the im- portation, payment of customs duties, and other related business formalities must be taken care of by a firm established in Italy. Such tasks would usually be done by either an agent of the foreign manufacturer or by the Italian lessee. Because the lessee is often not willing to assume the inconvenience of handling importation of leased equipment, local representation is usually necessary. Import Channels Italy has a variety of importers, sales agents, and distributors well versed in all aspects of international trade. Many goods are handled by importers who purchase for their own account and distribute throughout the country and Europe. Because of the size, accessibility, and competitive nature of the Italian market, importers may insist on an exclusive distributorship. If the importer is a well qualified and successful firm, an exclusive distributorship often yields the best results. Wholesalers constitute an important segment of the importers doing business in this manner. They are the primary source of supplies for the small- and medium-sized retail outlets, which often find it impossible to buy directly from manufacturers that require large orders. Purchasing associations are formed by independent retailers. These associations combine purchasing power and operate their own warehouses, thus performing a function similar to the wholesaler. There are many commission agents and brokers in Italy serving the domestic and European markets. An Italian representative can often provide an excellent starting point in exporting to Southern Europe, Eastern Europe, or North Africa. The Italian firm can easily handle the logistics, linguistics, transshipment, and stocks on behalf of the American firm. However, if the American firm desires these activities to be performed, they should be explicitly stated in a contract or sales agreement. If the product normally has a high sales volume and low profit margin, the Italian firms seek to deal directly with the manufacturer. Sales to a department store, chain store, or end- user often give best sales results, but require greater promotional effort by the American exporter. The direct sales method eliminates the added shipping and warehousing expenses, but the U.S. exporter and Italian importer must handle the shipping formalities and work harder to ensure a successful business relationship. The introduction of products into the Italian market should come after the U.S. exporter has planned and reviewed the consumer and business environment. Product representation throughout Italy is facilitated by the unified and compact market and may be achieved with any of the following distribution methods to cover the entire area, depending on the expected sales volume, product support requirements, and marketing techniques. However, these methods must be applied with the U.S. exporter being mindful of the ad- vantages a local representative would have in serving the home market. Establishing a sales office to serve the entire country and provide a distribution base for Western Europe. Selling through an agent a or distributor whose activity may cover specified areas, the entire country, or include European- wide sales. Selling through established wholesalers or dealers. Selling directly to department stores, chains, retailer coopera- tives, consumer cooperatives, or other purchasing organizations. The U.S. exporter would be ill-advised, after having appointed a representative firm, to provide only product literature and samples and then expect to have good sales results. Regular com- munications and visits to the representative, particularly when newly appointed, by seasoned sales personnel or company technicians can reveal information on market developments and assist in the solution of any problems. Regular submission of sales reports can be a vital link to analyzing sales results and identifying potential problems before they occur. Italian firms can purchase products and services from international sources and have come to expect well-designed, high-quality products, with efficient after-sales service. An effective after-sales servicing system also should be incorporated into distribution plans. The U.S. exporter seeking an Italian sales agent should ideally visit Italy to make an appraisal of the relative merits of the prospective agent. Besides acquainting the U.S. exporter directly with local market conditions and special sales characteristics, a visit also provides an opportunity to discuss policy and sales campaigns with the potential agent, and to review responsibility for customs fees, taxes, labeling, business procedures, and pay- ments. These responsibilities should always be clearly defined before undertaking a long-term relationship. ADVERTISING AND TRADE PROMOTION (INCLUDING LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS) Advertising in Italy has grown rapidly in volume, importance, and sophistication. This growth in advertising has been accompanied by a proliferation of advertising agencies and an expansion of services. Along with Italian-owned agencies, there are joint ventures with other European or American firms. While some agencies specialize in specific services and media, a large number of full service agencies deal with all advertising aspects and have market research facilities. The following is a breakdown of media use: newspapers, 35 percent; magazines, 35 percent; radio and television, 22 percent; movie strips, 2 percent; and other methods, 6 percent. Advertising and Trade Promotion--The main means of product advertising in Italy is through the daily newspapers. Newspapers work closely with advertising firms, both Italian and foreign. However, since the newspapers themselves do not maintain advertising departments, advertising firms must place their ads with special agencies commissioned by the papers to receive advertising for them. Of about 90 daily newspapers in Italy, only a dozen or so are read throughout the country, and while some 230 Italian and foreign periodicals are on sale in Italy, only about 20 have a large circulation. Television--Italy is served by three television networks operated by Radiotelevisione Italiana (RAI), a government-regulated company in which the state owns a majority interest. The three networks carry commercials in programs all day long. In addition, some 100 private television stations are licensed for local broadcasting. Radio--There are three radio stations owned and operated by RAI. These are on the air for more than 340 hours weekly, and commercial time is available. In addition to the three networks, there are numerous local radio stations. Motion Picture Theaters--Wide use of film clips is made for advertising purposes. There are some 10,000 motion picture theaters and many regularly show advertising. The rates for advertising vary according to the showing time and class of the theater. Advertising is shown during every intermission. Therefore, this medium may be used to reach a wide market and cut across economic strata. Posters and Billboards--Poster advertising is handled by a number of specialized companies, as is electric sign advertising, which is subject to special regulations. Poster advertisement on walls, along streets, in street cars, buses, and other means of transportation are used to reach the consumer market. Both posters and billboards are subject to the approval of provincial authorities and to payment of a tax on poster advertising. Show Windows and Flyers--Show window advertising is extensively used in Italy. Displays are usually attractively done and show prices of the items for sale. Advertising flyers are in common use, and street banners are used also for special occasions. Loudspeakers are used for advertising at sporting events. Direct advertising, through the distribution of gifts, samples, and price reduction coupons, is frequently used to interest consumers. Trade Fairs--Exhibitions are a cost-effective method to enter a foreign market and meet a wide range of buyers interested in a particular industry sector. Sales professionals find that trade fairs attract extensive buyer attendance and frequently can be used to gauge acceptance and pricing of new products and to observe the competition. In the course of a few days, a new market entrant may be able to generate more qualified and motivated prospects than by using any other sales approach. Also, fairs are useful for finding an agent, distributor, or representative. The U.S. Department of Commerce frequently organizes events that are identified as having excellent prospects for American exporters. Information on participating in Italian trade fairs can be obtained from Department of Commerce district offices located throughout the United States. For information about trade fairs at Fiera Milano, the large international trade fair site in Milan, firms can contact Fiera Milano's U.S. representative for information by calling 1-800 524- 2193. Fiera Milano organizes an extensive variety of international shows each year. Below is a listing major Italian newspapers and business journals Newspapers CORRIERE DELLA SERA Via Solferino, 28 20121 Milano tel. 39-2-6282-7246 LA GAZZETTA DEL MEZZOGIORNO Via Scipione l'Africano, 264 70124 Bari tel. 39-80-270-275 GIORNALE DI SICILIA Via Lincoln, 21 90133 Palermo tel. 39-91-616-5355 IL GIORNALE Via Gaetano Negri, 4 20123 Milano tel. 39-2-85661 IL GIORNO Piazza Cavour, 2 20121 Milano tel. 39-2-77681 L'INFORMAZIONE Piazza del Popolo, 18 00187 Roma tel. 39-6-36931 IL MATTINO Via Chiatamone, 65 80121 Napoli tel. 39-81-794-7111 IL MESSAGGERO Via del Tritone, 152 00187 Roma tel. 39-6-47201 LA NAZIONE Via Ferdinando Paolieri, 2 50121 Firenze tel. 39-55-55-24851 L'OSSERVATORE ROMANO 00120 Citta' del Vaticano tel. 39-6-6988-3461 LA REPUBBLICA Piazza Indipendenza, 11/b 00185 Roma tel. 39-6-49821 IL RESTO DEL CARLINO Via Mattei, 106 40138 Bologna tel. 39-51-536-111 IL SOLE-24 ORE Via Lomazzo. 52 20154 Milano tel. 39-2-31031 LA STAMPA Via Marenco, 32 10126 Torino tel. 39-11-65681 IL TEMPO Piazza Colonna, 366 00187 Roma tel. 39-6-675-881 L'UNITA' Via del Tritone, 61 00187 Roma tel. 39-6-699-961 LA VOCE Via Dante, 12 20121 Milano tel. 39-2-863-751 Major Italian Business Journals L'ESPRESSO Via Po, 12 00198 Roma tel. 39-6-84781 ITALIA OGGI Via Marco Burigozzo, 5 20122 Milano tel. 39-2-582-191 MILANO FINANZA Via Marco Burigozzo, 5 20122 Milano tel. 39-2-582-191 MONDO ECONOMICO Via Paolo Lomazzo, 51 20154 Milano tel. 39-2-349-2451 PANORAMA 20090 Segrate (Milano) tel. 39-2-75421 IL MONDO Via Angelo Rizzoli, 2 20132 Milano tel. 39-2-2588 PRICING PRODUCT When providing the Italian buyer with a price quote, American firms most frequently provide a quote that includes packing costs, insurance, and freight. This is called the c.i.f. price. The average Italian business representative can then usually determine the charges for customs, taxes, and local transportation to arrive at the final landed cost to importer. The customary terms of sale in Italy are either cash or net. Sales made on cash terms call for payment before delivery, on delivery, or shortly after delivery -- usually within 10 days from the date of delivery. A 2 to 5 percent discount is made for payment of the full amount of the transaction at the end of the specified period from 1 to 4 months from the date of the invoice. The length of the period depends on the com- modity involved, the credit standing of the buyer, and the motivation of the seller. A period of up to 2 years is often allowed for payment of capital goods, store equipment, trucks, and similar heavy equipment. Italian firms indicate that some American suppliers are too rigid in their payment terms and have thus lost business to other suppliers because of their rigidity. Financing is considered as much a competitive factor as the product itself, the delivery date, or after-sales service. While some U.S. manufacturers request payment upon receipt of the goods, more successful sellers are offering terms allowing settlement of the account from 60 to 120 days following receipt of the order. The use of irrevocable letters of credit for the Italian market has declined appreciably in recent years. Although such instruments are still required by American exporters, especially when the Italian customer's credit reputation is not well known, the growing reluctance of Italian firms to provide letters of credit has required American exporters to utilize other methods to assure payment or lose the sale to other suppliers in the competitive Italian market. The Italian businessperson is reluctant to pay a high fee for a letter of credit when other suppliers or means of payment are available. American firms have put to greater use the export credit insurance and guarantee programs available through the Foreign Credit Insurance Association (FCIA). Trade and Financial background Information on specific Italian firms is available from the U.S. Department of Commerce through its World Traders Data Reports Service. American companies should contact their local U.S. Department of Commerce District Office. American banks also provide credit information service as well as private agencies. Just as the terms of any sales offer should be presented in a clear and detailed manner, shipments should conform to the contract and to any samples which may have been sent to the Italian importer. Special attention should be given to the prompt observance of agreed delivery schedules, as prompt delivery may be a decisive and possibly an overriding consideration of the importer in placing additional orders. When shipping on letter of credit, all terms specified on the letter of credit must be strictly observed. If the terms are no followed, the letter of credit may not be honored by the bank. Quotations and Payment Terms U.S. sales quotations are usually given on a c.i.f. basis which is the sales price plus costs (such as packing), insurance charges, and air or ocean freight to point of importation. The c.i.f. quote is generally preferred by Italian importers since they are usually familiar with the Italian customs charges and value-added taxes levied on the product at the time of importation, but may not be acquainted with U.S. costs for trucking, ocean, or air freight. Large Italian firms and department stores, however, may prefer to buy on other terms when they arrange for the shipping and insuring the goods. Quotations and invoicing are usually in terms of the currency of selling country. American quotations, usually stated in dollars and on a c.i.f. basis, are completely acceptable to Italian buyers. The usual practice of American firms selling to a new customer is to require cash against documents on the first sale or two. After establishing credit, the importer will expect to pay by 30-, 60-, or 90-day letter of credit. In all cases, the American exporter will have to decide how to balance between making the sale with liberal financing terms versus more secure payment terms but with less sales potential. When first starting out, American firms may often find it necessary to offer their best price and payment terms in order to land the sale in the competitive international market. Later, prices may be adjusted as sales and volume permit. The Italian buyer may request a quote or shipment of goods under INCOTERMS. This is a set of international rules defining the important commercial terms and practices. By referencing INCOTERMS in contracts or invoices, both buyer and seller will have a uniform understanding of their responsibilities in an agreement. Copies of the 90-page publication Guide to INCOTERMS are obtainable from ICC Publishing, 156 Fifth Avenue, New York, NY 10010, (212) 206-1150. Exporters can also obtain information from the Dun & Bradstreet Exporters' Encyclopedia. Merchandise may be examined by the Italian importer before customs clearance for the purpose of making an inventory. Goods cannot clear customs without shipping documents and payment of any required customs duty, applicable value-added taxes, and any excise taxes. These formalities must be undertaken by the importer at the time of clearing customs. Import licenses, if required, should be presented by the importer within the period for which they were issued. SALES SERVICE / CUSTOMER SUPPORT An American company that is successful in Italy becomes so because its products are marketed with the same diligence employed in the U.S. market. Whether the firm establishes a manufacturing operation or a sales branch, or appoints a commission agent, a stocking distributor, or a combination agent/distributor, the American exporter must make a long-term commitment to exporting and follow sound marketing practices in order to sell successfully in the Italian market. A key factor in this commitment to serving the overseas buyer is the local stocking of parts and giving priority to immediate air shipments on request of the European customer. An American company that is entering the competitive Italian market is advised to commit the resources needed to market the products properly and establish long-term sales to achieve maximum sales volume. The appointment of a resident representative is extremely important. For promotion of business and knowledge of the market, there is no effective alternative to a resident representative who is part of the local business community and readily available to customers. Having a local representative is particularly important when the product is complex and may be expected to require follow-up servicing or modification. Local representatives are familiar with the product and needs of the customer and are in a position to solve problems. Personalized service is frequently demanded by customers, creates goodwill, and often stimulates repeat sales. Technical manuals and promotional literature should be in Italian. Italy is a competitive market where a reliable supplier is important. Local representatives with solid reputations and promotional material in Italian reflects a commitment to customer service and the prestige of the American firm. A number of U.S. firms maintain their own sales organizations in Italy. Still others sell through specialized importers or appoint sales agents who often are manufacturers' brokers. A large, well-established Italian firm with an efficient nationwide sales organization is likely to insist on an exclusive arrangement. About 7,500 U.S. firms are represented in the Italian market through agents, branches, subsidiaries, or licenses. Of these, nearly 850 have a substantial direct capital investment in the form of stock as the sole owner or partner in an enterprise. Generally, the sales territory includes all of Italy. In other cases, the territory also covers the whole European Community depending on the type of product and degree of technical support needed. Italian distributors also have excellent contacts with Eastern Europe and the Mediterranean Basin. SELLING TO THE GOVERNMENT The Italian government does not typically purchase goods and services abroad; unless those cannot be procured locally through domestic sources, which would include subsidiaries, branches and agents of American companies. In order to be considered as a source for Italian government purchases, it is recommended that the American firm be represented by an agent/distributor rather than try to deal directly to Italian government agencies. Each of the Italian agencies maintains its own list of contractors and suppliers. Therefore, U.S. firms need to contact each agency directly to establish its eligibility. U.S. companies must first establish their financial and technical capabilities by presenting these directly to the Italian agencies. PROTECTING YOUR PRODUCT FROM IPR INFRINGEMENT SEE SECTION ENTITLED "PROTECTION OF PROPERTY RIGHTS" IN INVESTMENT CLIMATE CHAPTER OF THIS REPORT (VII) NEED FOR A LOCAL ATTORNEY American companies which are interested in setting up agencies, distributorships, licenses or joint ventures are encouraged to seek professional legal advice and counsel. The American Embassy maintains a list of lawyers which is available to the public. Marketing U.S. Agricultural Products and Services The nature of the Italian food business continues to change in response to increased purchasing power, better educated and more widely traveled consumers and the increasing number of working women. Northern Italy remains the country's most important economic region and accounts for 55 percent of national income and 45 percent of the population. In contrast, the central region generates about 20 percent of national income, with 18 percent of the population. The southern region (including Sicily) has 37 percent of the population but accounts for only 25 percent of national income. Household expenditures on food and drink vary according to region. Most households in northern Italy spend less than 18 percent of their income on food, while southern households spend over 24 percent of total income on food items. In recent years Italy has experienced demographic changes such as a declining birth rate and an increased life expectancy, which has served to create an "older" population. In 1991, the number of births per woman of childbearing age was 1.27, down from 1.34 in 1986. The birth rate is slightly higher in southern Italy than in the North. In 1990 (most recent data available), the proportion of the population less than 24 years old was 32 percent, adults between 25 and 44 years old comprised 29 percent of the population, persons between 45 and 64 years old comprised 24 percent of the population, and persons over 65 comprised 15 percent of the population. A distinct advantage for U.S. exporters is the realignment of the distribution sector in Italy. The trend is toward larger chain stores that are organized along the lines of the U.S. supermarket industry. Price competitiveness is more important than ever with the move toward franchising of grocery stores, but U.S. exporters have significant experience in product placement and in-store marketing strategies that could benefit Italian supermarkets. Most importantly for U.S. companies, the recession has forced the Italian food distribution sector to become more open. New brand names are being introduced, new marketing ideas are being tested and supermarkets are willing to experiment in marketing new food products. Many of the larger supermarket chains have now opened buying offices in the United States. Super/hypermarket chains that have the greatest efficiency records are doing better overall than stores which can not achieve economies of scale. Standa, SPA (a hypermarket chain) has actually increased its sales by 20 percent since the recession began. Nearly 40,000 individual bankruptcies were reported in 1992, mostly by small shopkeepers. In the Milan and Turin areas, 3000 food store licenses were simply handed back to authorities. In 1992, there were 256,510 tradition retail outlets, compared to 359,000 in 1989. There were 5,773 supermarkets (between 400- 2,500 square meters) compared to 3,827 in 1989. In addition, there were 120 hypermarkets (more than 2,500 square meters). The largest number of supermarkets are concentrated in northern Italy. In terms of floor space, nearly 70 percent of the country's supermarkets are less than 800 square meters. For the first time in years, Italian store owners have begun to petition in favor of shopping centers, having recognized the irresistible trend towards concentration in the retail sector. Trade journals report that there are still about 17 retail licenses for every 1000 Italians - roughly 3 times the ratio in Germany. In addition, many store owners have successfully campaigned for longer shopping hours which are generally very restrictive in Italy. The bulk of the Italian retail food market remains highly fragmented. The average retail outlet has floorspace smaller than the average apartment (i.e. the vast number of street market stalls that sell large quantities of fresh produce) and many small shopkeepers have survived on bank overdrafts until the recent recession drove them out of business. A "typical" Italian wholesaler might be no more than one person with a truck making a handful of deliveries and existing on tiny margins. In recent years wholesalers (and retailers) have formed associations to take advantage of bulk purchases for their members. Wholesale marketing channels vary greatly according to the nature of the commodity and the region. For example, a large number of wholesale distributors of frozen food products began home deliveries in 1992, a trend that is seen mostly in the north of Italy. Regional wholesale markets can be very important distribution points for fruits and vegetables. However, corruption has damaged the reputation and importance of one of the important wholesale markets (Milan) in northern Italy. Italian retail chains are preparing aggressive investment plans. For example, Gruppo Rinascente has decided to adopt a U.S. retailing formula to create an Italian version of a shopping center that will include a deli/restaurant, garden center, supermarket and non-food space. The French hypermarket group Carrefour recently opened several stores in northern Italy, while Auchan has signed joint distribution agreements with Italian food chains. The German companies Tengeleman and Metro are also in Italy. Franchising is on the rise in Italy as well, and the large number of mom-and-pop stores and restaurants is fertile ground for franchisers. In general the franchising concept still suffers from a lack of respectability created by past abuses and scams (only 8 percent of all franchise stores in Italy are food outlets). Some of the most successful "American style" groups have been fast food outlets such as McDonalds, Dairy Queen and a candy store called "Sweet-Sweet.". Almost all franchised outlets have been opened in northern Italy. In 1992, Italy had 266 registered food franchise outlets. In 1990 (latest data available), there were 226,000 restaurants, bars, bakeries, pizzerias, self-service and fast food outlets in Italy, compared with 219,000 in 1988. Over 60 percent of the fast food outlets are owned by big chains (Quick, McDonalds, Ciao, Burghy, etc.). Over 53 percent of all fast food outlets are located in the north and only 13 percent are present in the south of Italy. In 1992, Italians spent roughly 10 percent of their disposable income on "eating out" (food and drink) and the restaurant industry had a turnover of 85,000 billion lire. The average Italian eats away from home 79 times per year versus 129 time for the Danes and 106 times for the French. The increased popularity of snack foods has pushed up demand for fast food outlets and convinced bars and small restaurants to provide informal snack food service outside of tradition meal times (i.e. happy hour). One of the strongest trends in the restaurant industry is the growing popularity of cafeteria, self- service chains. Ethnic food restaurants are slowly gaining in importance; the most widely accepted ethnic food is Chinese. Standa SPA recently established an "ethnic food" display case in their larger supermarkets, which usually features canned Chinese food and ingredients. Joint ventures or packaging agreements (i.e. providing U.S. raw product for house labels) might be a way to overcome the high dollar and become established in the Italian market. U.S. exporters could exploit their experience and strategic advantage in the area of health foods by test-marketing a broad range of product lines (perhaps through trade shows). Finally, with consumption of certain items such as homogenized baby foods and herbal teas on the increase, supermarkets and hypermarkets are stocking items formerly found only in specialty stores or pharmacies. With the new open borders of the EU market, many U.S. food products will arrive in Italy as "French" or "German" origin, etc. as there is now a trend toward regional distribution of food products by companies that can achieve economies of scale. Also, the high cost of labor and transport in Italy has encouraged some companies to sign joint venture agreements with other EU companies; a strategy U.S. companies might consider when approaching the Italian market. Cultural preferences in food and cheap local supplies of raw products will continue to give Italian-based manufactures an advantage in their home market. Most European companies are willing to conduct business in Italian and to adapt to Italian business practices (e.g. personal contact with buyers). European food companies are almost always present in Italian trade shows and often at the regional level. Larger (multinational) EU companies participate via agents at trade shows or through their local subsidiary. The importance of Germany and France as Italy's largest trading partners cannot be underestimated. These two countries represent Italy's biggest export markets for high value food products, but also remain Italy's main sources of imported food products. This means that food consumption trends and packaging or marketing ideas are passed quickly from one country to the next. Other EU countries must transit France or Germany to reach Italy or else transport their products by boat in order to reach the Italian market. The French national food promotion group SOPEXA has enlarged its Italian offices with the opening of the EU market and added in- house market research (CFCE - a French government sponsored company). The U.K. group "Food from Britain" has established a local office in order to assist British companies in a range of marketing activities including facilitating joint ventures. Both the U.K. and Ireland have installed permanent offices to conduct market promotion activities for meat products. (Note: All of the above mentioned groups have offices in Milan, in order to be close to the food processing and distribution trade.). Both Germany and Austria work to promote high-value foods from the relative proximity of their own countries with substantial support from their diplomatic representatives. The French, Germans and Austrians are the largest participants in the national pavilion section at the VINITALY and CIBUS trade shows. Eastern European company representatives have made some progress in promoting their products in the Italian market, but the products promoted -- sausages, prepared/canned meats and specialty wines-- are less and less in demand by Italian consumers.