News Analysis: Why Italian firms go foreign?

The deal reached earlier this week by an Italian famous car designer to come under control of an Indian group is the umpteenth case of a made-in-Italy famous brand passing into foreign hands. Why is this happening?

Mahindra & Mahindra will buy all the shares currently held by Pininfarina and will also invest in a capital increase. The deal announced on Monday, including credit guarantees, was valued by media reports at around 185 million U.S. dollars.

Pininfarina is famous for its designs of luxury cars such as Ferrari and Rolls Royce models. "The firm will remain in Italy, as will the workforce and management ... The style and the brand are linked to our history," said President Paolo Pininfarina, who owes his surname to the nickname of his grandfather and founder of the company in 1930, Battista Farina.

Giorgetto Giugiaro, who stands among the great automotive designers of the 20th century, said he was not surprised by the news. "It is the logical consequence of how things are going in the world of car design," the Italian designer was quoted as saying by the local press commenting on the deal.

Giugiaro had founded Italdesign Giugiaro in 1968. He had created some masterpieces, including Maserati Merak and Lotus Esprit, but also ended up to sell his company to Volkswagen Group in 2010. "There was a change when big carmakers began to bring design in-house rather than hire independent firms ... We did not have the capitals to survive such a competition," he said.

"We are seeing a trend in which all the historic car designers in Italy such as Bertone, Italdesign Giugiaro or in the newest case Pininfarina have either disappeared or have been acquired by foreign groups," Giuseppe Berta, an expert on carmakers and a professor of contemporary history at Bocconi University in Milan, said.

What was the problem with these companies? "They have always been managed by families or were bound to the creativity of just one person. When the carmaker system became global, they did not have the resources, the size or the capitals to pursue a strategy of internationalization," Berta explained to Xinhua. This is a "genetic characteristic" of the Italian industrial system, which mainly relies on small- and medium-sized companies (SMEs), he noted.

Pininfarina had been heavily indebted for years. "It is unavoidable that such companies pass into foreign hands, which are attracted by their brands and renown," Berta highlighted. In fact these firms can conserve their value as long as they remain independent even though changing owners, he also added.

After the news of Pininfarina came out, Italian media competed to list the dozens of brands which have gone foreign in recent years. Italcementi, Lamborghini, Ducati, Loro Piana, Grom and Valentino were just a few of them in all sectors from automobile to food and fashion. Several important brands, such as Ferretti, Pirelli and Krizia have been acquired by Chinese groups.

Fabrizio Trau, an industrial economist, is the author of various books on the entrepreneurial system in Italy. "Italian companies are creative and technologically advantaged. Many foreign groups choose a sector in their interest and then make acquisitions with very competitive offers, which of course becomes easier when these companies are in economic troubles," he told Xinhua.

Actually for the owners of some brands wanting to go international it can be more convenient to sell the brands and having a minority share in a big group than keeping a majority share in a small one, he noted.

"Sometimes we complain that the Italian industrial system does not attract foreign investments anymore, but we should look at this issue from a different side. If Italy is not likely a place for greenfield investments anymore, it is a mature economy whose attractiveness is in the many companies that can be acquired," Trau elaborated. And big acquisitions have been made also on a national scale, though global competition makes chances easier for foreign groups, he told Xinhua.

Under this framework, Trau wished however that Italy pays more attention to strategic assets, which in his view need to be protected, and rebuilds an industrial policy after "the country's industrial system over the last decades has been lacking a strategy for development at the national level." Endit