This article originally appeared in

August 2001
Telecom Italia, the former Italian state telephone monopoly, started feeling the squeeze three years ago.
Aggressive new competitors were attacking its home turf and the telecommunications giant desperately
needed room to grow. Neighboring countries in the European Union had recently opened their markets,
but start-up costs were high and competitors were wealthy and firmly entrenched.

So Italy's largest company set its sights on Latin America, where the markets and competition were
relatively undeveloped. The company, formerly known as STET, had bought part of Telecom Argentina in
the early 1990s. but now its operations include Bolivia, Brazil, Chile, Cuba, Peru and Venezuela.
Telecom Italia Mobile, the wireless subsidiary and leader of the company's expansion in the region, has
invested US$4.5 billion to become the only cellular phone operator to offer Brazilian consumers national

"Telecom Italia needed some elbow room and found it in Latin America," says Giuseppe d'Ancona, a
Rome-based international business consultant. "In Europe, the company had to compete against
established companies from rich countries like France, Germany and Britain. In Latin America, it can
throw its weight around."

Telecom Italia is one of a growing number of Italian companies looking to Latin America for growth.
According to figures from the Italian trade ministry, Italian direct investment in Latin America totaled $3.9
billion in 2000, up dramatically from $2.2 billion in 1999 and dwarfing a modest $115 million in 1995.
The figures are still small compared to investment from the United States or Spain, but they are growing
much faster.

First-mover status goes to automaker Fiat, which has been active in Brazil since the 1950s but began to
expand operations significantly in the 1970s. In 1988, the Mondadori publishing house inherited a
presence in Latin America after it acquired Spain's Grijalbo. Early this year, the Milan-based publisher's
regional interest dramatically increased when it formed a regional joint venture with Random House, the
U.S.-based unit of German media titan Bertelsmann. The alliance has annual sales of $100 million,
trailing only Spain's Planeta in Latin America. Mondadori's chief Italian rival, media group De Agostini, is
also eyeing the region, having agreed to a $16 million joint venture with Planeta to distribute
Spanish-language materials via the Internet.

Demographic growth. Like Telecom Italia, Mondadori executive Angelo Allegri says his firm looked
abroad to find room to grow. "Population growth in Italy is flat, which in the long term is not at all good for
business:" says Allegri. "Of course, Italy will remain our main market and our home base, but an
encouraging characteristic of Latin America is not only that so much of its market is untapped, but that
even when the market is eventually developed, it will continue to grow simply because the population

With all these business ventures sprouting it was only a matter of time before Alitalia, Italy's flagship air
carrier, began adding Latin American destinations. At least 11 Italian banks have also set up shop there
since 1997 or are thinking of doing so. In addition, dozens of Italian fashion houses, consumer products
manufacturers and food producers have established niche markets.

To be sure, Christopher Columbus was the first Italian entrepreneur to set foot in the Americas, notes
economist Carlo Altieri, a consultant for the Italian Chamber of Commerce. "Italians like to take their
time doing things, which helps explain the 500-year lag before many of his compatriots followed," he

In fact, there were two previous Italian invasions, mostly to Argentina and Uruguay in the early part of the
20th century and after World War II. But this is the first time that the Italians are arriving with checkbooks
in hand. "Previously, Italians went to work in factories and now they are going to open factories," says
Sabrina Mills, a Milan sociologist specializing in demographic trends.

By the late 1990s, Italian companies were facing some of the same challenges that prompted Spain's
wholesale investments in Latin America a decade earlier. Pampered for years as state-owned
bureaucracies, Italy's companies were not rich, savvy, or efficient enough to compete on a European
scale. As the European Union began knocking down barriers to cross-border mergers and acquisitions,
many Italian companies had to grow quickly to avoid being gobbled up by larger rivals. Latin America
represented a fast route to such growth.

Chaos, way of life? "For an Italian company looking to develop a global presence quickly, Latin America
represented an attractive option ... maybe the only option," says Allegri, of Mondadori.

A surprising advantage for the Italians was their ease at dealing with economies plagued by inflation
and political chaos. Unlike their competitors from northern Europe, where things run more smoothly, the
Italians were unfazed. "Let's just say we are automatically accustomed to so-called difficult markets,"
Allegri says.

Italy's move lagged behind Spain's mostly because of two factors. Spanish companies enjoyed obvious
linguistic and historical ties with the region that Italian firms lacked. But, more importantly, Italy was
among the last of the European Union countries to abandon protectionist economic policies that
allowed many companies to enjoy huge market shares and fat profit margins without fear of outside
competition. As European Union rules peeled away that protection, the companies were pushed from
their nest.

Fiat has clearly benefited from its early move. Though the company has been losing market share
domestically and elsewhere in Western Europe since the early 1990s, it continues to expand overall
thanks to growth rates in two regions-- Eastern Europe and Latin America.

Parmalat, now Latin America's largest milk producer, saw its growth curve in Italy flatten in the late
1980s. That prompted its move to Brazil in 1990, heralding a seven-year buying spree in 11 Latin
American countries. The region has become so important that it was the Brazil unit, not the home base
in Parma, Italy, that launched the company's expansion into China. Although the rate of acquisitions has
slowed over the last four years, Parmalat official Gianguido Oliva said the dairy giant remains as
committed as ever to regional expansion.

Mondadori's Allegri says there is another prime reason for expansion. By becoming strong in Latin
America, the Italians could eventually step into the giant U.S. market through the back door and tap its
growing Hispanic population.

COPYRIGHT 2001 Freedom Magazines, Inc.
COPYRIGHT 2001 Gale Group
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