Italy is ranked as the seventh largest economy in the world in 2006 after United States, Japan, Germany, China, UK and France. Italy mainly trades with the European Union member-countries with 59% of its exports.
The major industries in Italy revolve around precision machinery, motor vehicles, chemicals, pharmaceuticals, electric goods, food, fashion and clothing. Italy's economic strength lies in processing and manufacturing of goods from small and medium size firms.
Tourism is a major industry in Italy. At least 37 million tourists flock to Italy each year, making the country the fifth biggest tourist destination in the world. The Italian economy has two parts: the progressive and industrialized North and the agricultural South hounded by high unemployment rates. Italy's economic policy is created to decrease government budget deficits and controlling national debt.
Porter's Diamond Model of Italy
1. Firm Strategy, Structure and Rivalry - these are the conditions that affect corporations in the home market. In Italy, competition or rivalry among small and medium-sized companies is cut-throat. Italy's market is largely dominated by small and medium-sized family-owned companies instead of huge corporations.
2. Demand Conditions - this is the extent and nature of demand for products or services within Italy. Italy's consumer market is sophisticated. It has a number of industrial buyers that put pressure on industrial companies. Demand for quality is also noted in the service industries such as hotels and restaurants.
3. Related Supporting Industries - these are industries that make the country competitive internationally. Italy's economic strength lies in processing and manufacturing of goods which are produced by small and medium size firms. Italy also excels in the production of industrial machinery. It is the third biggest producer of industrial machineries after Germany and Japan.
Italy's major exports are motor vehicles such as Fiat Group, Aprilia, Ducati, Piaggio. It also exports chemicals, petrochemicals and electric goods such as Eni, Enel and Edison. The most famous exports are fashion apparels and items. Armani, Gucci, Valentino, Versace, Bennetton, Prada are the most popular fashion brands in the world. Luxury vehicles such as Ferrari, Lamborghini, Pagani and Maserati also make Italy extremely famous.
4. Factor Conditions -are key factors that help the country remain competitive. The specialized key factors are: skilled labor, capital and infrastructure. Skilled Labor Unemployment in Italy is decreasing to 7.7% in 2007, the lowest since 1992. Women and young people mostly comprise the unemployed.
After passing flexibility measures, unemployment burdens ease up a bit but concerns on increase of working hours and less job security arise. The largely agricultural Southern Italy still copes with 20% unemployment problems though.
The latest population estimate for Italy is 59,131,287 residents. Of which, according to CIA Factbook, the literacy rate of Italians in 2001 is 98.4% of the total population. Italy's Capital Outlay Italy supports free international trade. The Italian government provides incentives such as tax reduction or project financing in some Italian regions specifically the South to counter unemployment problems.
Foreign investors find considerable opportunities in the financial sector particularly foreign banks and insurance. Communications is another viable field for investment in Italy. Infrastructure The Italian government is focusing on improving its infrastructures to be able to serve the business community better.
Bridges, high-speed railway line, transportation projects, tunnels beneath mountains, roads and others are but a few of Italy's infrastructure projects. Rome wants the EU to allow spending for its infrastructure to be exempted from the budget deficit limits and not be regulated by the Stability Pact.
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