Summary

1. Company Profile: A Typical Italian Family-run SME
2. China Mission: Inception & Development
3. Sino-Italian Cooperation: A Good Example for Italian SME Internationalization
4. Obstacles & Advices

1. Company Profile: A Typical Italian Family-run SME

Due to confidentiality and privacy concerns, this article will use “the Company” in place of its official title to avoid any future claim or inconvenience.

Like most of Italian SMEs, the Company is a family-run business focused on the clothing sector incorporated and managed by family members, who are among the most prominent local entrepreneurs.

After three decades of development, the Company’s business portfolio is comprised of two major business segments, specialized on proprietary branded swimwear manufacturing and licensed clothing products supply for multinational brand as their subcontractor.

Its own brand is highly recognizable among the central and southern geographic regions in Italy but relatively less present in the northern market. The Company is sparing no efforts to develop corporate branding strategy to ensure the maximum margin as this business pattern is much more sustainable and reliable in terms of revenue generation.

While as a subcontractor, which is a new business pattern launched only in recent years to diversify and secure new area of growth, apart from being licensee for theme clothing products for a global leading company in cartoon animation industry, the Company is also working hard to expand its clientele portfolio to become licensee for other multinationals.

2. China Mission: Inception & Development

At its inception, the Company has turned out to be a great success when the local production cost was relatively low. However, by the end of 1990s and in the beginning of twenty-first century, on account of business cost-effective concern, it was inevitable for the Company to delocalize and outsource abroad.

As the global manufacturing center, it is understandable for the Company to outsource their business in China. Like most of Italian businessmen, in the very beginning, the owner made regular business tours to China to locate what they believed to be their best Chinese suppliers with respect to cost, reliability, sampling, quality, lead time, inter alia.

Through numerous China trade missions, like many Italian business peers, they have located their supply base in the Province of Guangdong, better known as Canton, as is traditionally recognized which is much easier for Italian business community given this traditional reference.

Due to the well-established industrial & supply chain and high-degree clothing industry clustering, Canton has become what is China to the world in terms of globalization, outsourcing and manufacturing as the very center stage of “Made in China” and economic powerhouse for the whole China.

Upon the decision to use Canton as their supply base and given the expensive international exploratory business tours at the initial stage of business development without a permanent physical presence, which is a common business practice for Italian SMEs with both encouraging and frustrating results, the Company eventually decided to set up their own liaison office, or quasi representative office, in Canton aimed to better serve its needs and to save operational cost. This is also a natural result after the establishment of reliable business relations with their Chinese suppliers after a prolonged trial period given the fixed cost of establishing a physical presence in China.

Likewise, out of cost-effective concern, the Company also employed one local staff in their Canton office whose daily job is to work as a bridge between the Company’s headquarters in Italy and Chinese suppliers. By doing so, the Company has managed to realize substantial reduced GSA expenses which would otherwise have been incurred through the frequent international travels.

Naturally, apart from the physical presence, the executives also pay regular visits to the Canton Fair, the largest biannual trade fair worldwide of all the industrial and manufacturing sectors in order to locate new suppliers with limitedly occasional business side trips. It should be noted that both approaches are equally important in order to expand supplier network and to secure the best possible products with lowest possible cost. Upon the completion of supply contract, all the follow-ups and subsequent actions are taken care of by the Chinese liaison office.

3. Sino-Italian Cooperation: A Good Example for Italian SME Internationalization

3.1. Local Physical Presence, a Win-win Outcome for Both Parties

Since the Company launched its internationalization strategy, its China Mission, generally speaking, has turned out to be a win-win situation both for the Company and its Chinese suppliers with steady business growth for both parties. It has enabled the Company to keep its operating cost in China to a minimum level without having to make substantial investments to establish its proprietary factory, which would otherwise have required a much large capital investment.

With an insignificant annual operating cost in consideration of the much lower labor cost for local Chinese staff and office rental in China, the Company is well positioned to contact their Chinese suppliers instantaneously thanks to their local staff’s Chinese language capabilities, which is also a great advantage in terms of communication with suppliers as the language barrier is indeed counterproductive for international trade.

Based on my personal professional experiences, I would recommend this approach as a good business model for Italian SMEs if they want to outsource their operations in China.

In addition, by following this business model, it will be much easier for Italian SMEs to close the deals with lowest possible cost. This would not be possible had it been a proprietary factory in times of global economic downturn, recession and rising factors of production.

3.2. Initial Personal Contact with follow-up by Local Coordinator, an Alternative Solution for Internationalization

However, in view of the still existent annual cost and expenses with such a minimum level of physical presence, which requires a certain business level following this pattern, it would also be advisable for Italian SMEs to contact the Italian public agencies, such as the Italian Consulate, ICE or Chamber of Commerce, which will be able to provide a list of qualified proficient local Italian speakers working as their coordinators.

If the Italian SMEs prefer to follow this pattern, they are strongly advised to contact the afore-mentioned list members, through internet video conference, to individualize the most suitable candidate with respect to personality, Italian language proficiency, international traded-related knowledge, western business culture understanding, Italian mentality, among others, for their trade mission. At this stage, however, it is still necessary to emphasize the importance of personal business tour to issue and evaluate the competency and sustainability of the suppliers and establish partnerships with the local professionals, who will become their future coordinators and facilitators.

Out of cost-saving concern, it is also worth noting that it is much more preferable to locate a reliable local facilitator, ideally independent and self-employed professional with previous living experiences in Italy given the complexity of Italian language, who will be able to provide advice and assistance with professionalism and expertise in international trade-related matters rather than simply hiring a one-off interpreter, who usually will keep changing over the time.

It is reasonable to expect that Italian SMEs eventually may have to pay somewhat more by teaming up with la local Chinese facilitator, who usually gets paid on a commission or flat monthly fee basis, as compared with the one-off interpreter, who will cost less at the initial stage but without any further follow-ups, which is a essential for international trade.

However, in comparison with establishing a physical office in China, it is obviously much more economical to have a trustworthy partner who will take care of their clients’ interest, in which, in his turn and to a large extent, he is closely involved. There exist some highly qualified professionals around Canton area whom the Italian SMEs can count on as their right arm for their business internationalization. As a result, it is advisable for Italian SMEs to choose this solution for their internationalization mission, not only from the perspective of cost saving but also due to the difference of language, business culture and mentality. A tentative explanation in this regard will be presented in the following part.

4. Obstacles

4.1. Language Barrier

Problems related to this linguistic barrier can take place regularly as not all the Chinese staff from the Chinese suppliers’ side is able to be highly competent in international business English, let alone Italian, a much more complicated language compared with English.

For instance, as far as the Company is concerned, due to the lack of profound English Language proficiency and unconvincing professional profile of Italian and Chinese staff (who does not understand any Italian), there have always been some misunderstandings between the Company and its suppliers related to every aspect of international trade, including quality, quantity, coding, sizing, styling, sampling, lead time, payment terms, etc. Somehow, all these seemingly minor problems might eventually cause some damage for the Company’s business operation in terms of supply chain, which could have been better positioned if there would be some more qualified staff in China and Italy.

In turn, given the limited university faculty for Italian language, the complexity and difficulty of Italian language, and the scarce teaching and study resources for this major in China, many university undergraduates majored in Italian language are not able to acquire a convincing linguistic ability for daily Italian language, not to mention the commercial Italian, even after years of study.

As a result, on the one hand, it happens quite often that a local Italian Chinese interpreter is not able to communicate fluently with his Italian client. On the other hand, this interpreter is not highly competent in English if he is an Italian language major. Vice versa, the understanding of Italian language for an English or international trade major is even worse.

Therefore, this is the reason why it would be highly advisable for Italian SMEs to locate a trustworthy and experienced local facilitator with Italian proficiency to take care of their business and interest in China, preferably with previously living and working experiences within Italy so that he will be better positioned respecting the understanding of Italian mentality and business culture. In case of establishment of overseas branch in China by Italian SMEs, naturally these people shall be short listed as the most suitable candidates.

4.2. Product Barrier

What’s more, it is suitable to remind Italian SMEs that please do not take everything for granted after the sampling and counter-sampling from their Chinese suppliers as there are always some product-related problems in the international business.

It is well noted that China is the global manufacturing center for every sector and basically any Italian SME shall be able to locate the right suppliers. However, during the initial stage of internationalization, any Italian SME is required to pay great attention to the different understanding between Italy and China in terms of product quality, design, performance and appearance.

Specifically speaking, it happens regularly that the sample product seems to be perfect in this regard at the very beginning when it is individualized during the Canton Fair, the largest comprehensive biannual trade fair in world with over $45 billion turnover as per the official statistics. However, when the final product is delivered to Italy after tedious and long time negotiation and preparation, quite often, the quality is not satisfying in regard to design, material, function, appearance, etc.

Probably it is right to say that there exist two kinds of Chinese suppliers in China. The first category works for multinationals as subcontractors which are able to deliver the same products exactly as what their clients need and require. In this case, it is the multinational concerned that guarantees that the product will be delivered as expected and required. As usual, these suppliers are focused on big orders for big clients with big organization, which obviously does not fall within the situation of Italian SMEs.

In turn, the second category of Chinese suppliers works for any client who will place order to them, many of which are local SMEs with limited productive capacity, technical solution and sometimes unskillful workforce. To make things worse, they tend to lower down their quotation to secure the order as much as possible, which in turn will put product quality at stake.

When dealing with this kind of suppliers in China, extra attention must be paid by Italian SMEs to every stage of the internationalization including sampling, counter-sampling, quality control, pre-shipment inspection, etc., to make sure, to the largest extent, that the final product to be delivered is what has been ordered. Otherwise, as per the export business practice in China, very different from Italy requiring 30% payment as deposit after contract signing and 70% balance payment upon receiving the electronic copy of B/L based on FOB delivery, once the goods are shipped out, it will be very hard to claim compensation for defective products.

From this point of view, once again, the importance to have a trustworthy and reliable professional figure across the ocean to help your internationalization has been underscored.
 

DOI 10.4439/ig8

Publications 

“Overview of Canada’s Anti-dumping Practice”, Guangdong Provincial Foreign Affairs Journal (academic quarterly of Guangdong Provincial Foreign Affairs Office) - Volume-II, 2006

References

Article & Video Clip at the invitation of the Faculty: My Life & Study in Macerata: Official blog of the Facoltà Scienze Politiche, Università degli Studi di Macerata,
Article: http://www.blogscienzepolitiche.it/2010/07/my-life-study-in-macerata/#more-322

Video Publication: http://flash1-bo1.unimc.it/streamings/sp/AA0910/MasterEst_interviste_06/.

http://www.cismef.com.cn/web/eng/en/review/review3.html The 3rd China International SME Fair & China Italy SME Fair, which I was part of the Liaison Office of the Organization Committee.

Confidential work reports published in the internal journals of Guangdong provincial government department when I was working for local government agency.

Guaderno, bilingual quarterly of the Camera di Commercio Italia-Cina.

Le PMI italiane in Cina: Produrre per Competere, Giorgio Prodi, Numero: 3, luglio-settembre 2007, L'industria, Rivista di Economia e Politica Industriale.