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THE INTERNATIONALIZATION PROCESS OF THE ITALIAN COMPANIES:
An explorative study to identify the characteristics to succeed in an Eastern-Europe
country[1]
Andrea Manzoni
Cristina Bettinelli
Ph.D. candidate
post-doctoral research fellow
at the Entrepreneurial Laboratory
University of Bergamo
University of Bergamo
Via dei Caniana, 2 – 24127 Bergamo
Via dei Caniana, 2 – 24127 Bergamo
 +39 035 2052691 –  +39 035 2052549
 +39 035 2052670 –  +39 035 2052549
 andrea.manzoni@unibg.it
 cristina.bettinelli@unibg.it
Giovanna Dossena
Alberto Marino
Full professor of Management
Full professor of Marketing
University of Bergamo
University of Bergamo
Via dei Caniana, 2 – 24127 Bergamo
Via dei Caniana, 2 – 24127 Bergamo
 +39 035 2052670 –  +39 035 2052549
 +39 035 2052509 –  +39 035 2052549
 giovanna.dossena@unibg.it
 alberto.marino@unibg.it
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ABSTRACT
Crossing the national border in order to explore a new market can lead the company to
enhance its position and to take advantage of the difference (i.e. the gap) between its present
market/country and the prospective one. Obviously the intrinsic characteristics of a specific
company (e.g. dimension, core business, production and finance capacity, management) and
its vocation to the internationalization exert influence both on international strategy and on
the modes of entry. Several research has analyzed the firm’ increasing in performance only
after the company installed in the foreign country, meanwhile nobody cares if there were
similar characteristics that could explain the willingness ex ante of a company to
internationalize. The underlying theoretical structure of this explorative analysis concerning
the structural characteristics draws on psychological theories on goal-oriented behavior. In
other words, decisions regarding companies are seen as the result of management decision
making processes and are influenced by companies "attitudes". By company attitudes the
authors mean all those companies' traits (e.g. legal form, assets, equity) that characterize their
structures.
The objective of the present paper is the identification of the potential similarities among the
Italian companies in their domestic markets; splitting them up by country of destination. The
research confirms that companies operating in certain markets have similar characteristics.
This could mean that the decision makers (i.e. leaders/management/entrepreneurs)’ personal
vision shapes the company organizational structure (e.g. structural/financial/patrimonial
characteristics) and, in turn, it might arrange the suitable entry mode strategy.
Keywords: perceived gaps, structural characteristics, Eastern/Southern-East European
countries.
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1.
NTERNATIONAL BUSINESS THEORIES AND NEW POTENTIAL MARKETS
Several studies have shown that internationalization lead companies to better performance
and growth. The reason for internationalization relies on the: i) gap of technology and
innovation between two countries (Vernon, 1966), ii) the possibility to avoid transaction costs
(Williamson, 1975), iii) the benefits in performance linked to act in different markets at the
same time (Dunning, 1988; 1995).
From a theoretical point of view, the origin of the theory on internationalization of firms and
the topic of international business is to ascribe to Hymer (1960). He identified that the foreign
direct investments were not a simple international flow of capital, but a complex and
organized set of transactions that let company transfer not only capital but also technology,
knowledge, etc…
Today, in the current competitive market, like never before, the businesses have to face to a
new scenario that compels them to make a real important choice:

Cross the national border looking for a new potential markets;

Try to survive in its own market.
According to the authors, the only way to go over the present financial and economic crisis is
to choose the first option. Crossing the national border in order to explore a new market can
lead the company to enhance its position and to take advantage of the difference (i.e. the gap)
between its present market/country and the prospective one; according to the most influential
international business theories.
It seems worthwhile to the authors to specify that the term “gap” or “difference” is used with
reference to the cultural, technological, supply and demand (and other factors) gap.
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The above mentioned kind of gaps (Beckerman, 1956) oblige companies to choose a specific
entry mode strategy instead of another one. As the entry mode is concerned, Busija et al.
(1997) state the existence of a relationship between strategy type and modes of entry in a
specific country/market (i.e. internal development, acquisition or a mixed mode).
Obviously the intrinsic characteristics of a specific company (e.g. dimension, core business,
production and finance capacity, management) and its vocation to the internationalization
exert influence both on international strategy and on the modes of entry.
The literature on this topic, although consistent, is not homogeneous. For instance, Driscoll
and Paliwoda (1997) found that socio-cultural distance, tacit know-how and product
differentiation influence the foreign market entry mode meanwhile Madhok (1997) identified
in the resource-based view, the explanation of the entry mode choice.
As the reader can see, the choice of entry mode is a complex one. This is why the authors
started a research project aimed at studying the differences and analogies between the
companies’ own market/country and the foreign one with reference to:

the culture;

the technology development;

the market openness and its potential;

the quality and the pricing of factor of production;
and the strategy adopted to “conquer” that market/country. The aforementioned independent
variables could be used to understand which factors must be considered to define the most
profitable strategy to “hook” a foreign market. The entry mode strategy established by a
company can be influenced, above all, by the perceived gaps between their country/market
and the country/market of destination.
The terminological difference between “gap” and “perceived gap” is that the latest embeds
something not material but psychological: the leaders/management/entrepreneurs’ personal
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vision. According to the authors,
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the afore-mentioned vision might influence not only
international strategy and the mode of entry in a specific country, but also the domestic
business strategy and the domestic company structure as well. Muzychenko (2008) digs
deeper in the analysis of the drivers that influence the international strategy. She studied the
impact of cultural values in the chance of identify business opportunity. In order to confirm
or confute if the same vision leads to the same decision (invest in a specific country) in the
same manner (entry mode), it is necessary to analyze the domestic structural characteristics of
those companies that invest abroad; splitting them up by country of destination.
With the aim to identify the presence of shared structural characteristics among the Italian
companies operative in Eastern and Southeastern Europe, an earliest step of the abovementioned research is required.
The underlying theoretical structure of this explorative analysis draws on psychological
theories on goal-oriented behavior, specifically the Theory of Reasoned Action (Ajzen &
Fishbein, 1980; Fishbein & Ajzen, 1975) and its extension, Theory of Planned Behavior
(Ajzen, 1988, 1991; Ajzen & Madden, 1986). The central premise of these theories is that
behavioral decisions are not made spontaneously but are the result of a reasoned cognitive
process in which the behavior is influenced by attitudes. Therefore, before analyzing the
entry mode strategy in a specific country, a research upon the characteristics (i.e. attitudes)
among the companies that invest in a specific country should be worthwhile. Following the
call for business-management-research that incorporates more-realistic visions of human
behavior (Beinhocker, Davis, & Mendonca, 2009) we applied these theories to business –
strategy - decision-making. In other words, decisions regarding companies can be seen as the
result of management decision making processes and are influenced by companies’
"attitudes". By company attitudes we mean all those companies' traits (e.g. legal form, assets,
equity) that characterize their structures.
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The decision makers’ (i.e. leaders/management/entrepreneurs) visions affect the company’s
strategy and characteristics. If this research confirms that companies operating in the same
foreign geographic area or nation have similar characteristics, then it could be more likely
that those companies are lead by decision makers that have applied similar visions and
similar internationalization strategies.
2.
ONCEPTUAL ARGUMENTS AND HYPOTHESIS
Recent studies on the degree of internationalization and firm performance (Contractor, 2007;
Kumar & Singh, 2008), and on the effects of international strategy on modes of entry
(Pehrsson, 2008; Rasheed, 2005) state the continued interest of scholars in the area of
international business research. However, most research has investigated the link between
internationalization and firm performance; taking the firm willingness – in crossing the
national border looking for a new potential markets – for grant.
Several research has analyzed the firm’ increasing in performance only after the company
installed in the foreign country (Caves, 1996; Thomas & Eden, 2004; Pangarkar, 2008; Zeng,
Xie, & Wan; 2009); meanwhile nobody cares if there were similar characteristics that could
explain the willingness ex ante of a company to internationalize.
Due to the lack of empirical research concerning the domestic performance and structural
characteristics among the companies before extending abroad their market share, the
objective of the present paper, as previously mentioned, is the identification of the potential
similarities among the Italian companies in their domestic markets; splitting them up by
country of destination:
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H1: Italian companies operating in UKRAINE have similar structural characteristics;
H2: Italian companies operating in ROMANIA have similar structural characteristics;
H3: Italian companies operating in BOSNIA & HERZEGOVINA have similar structural
characteristics;
H4: Italian companies operating in SLOVENIA have similar structural characteristics;
H5: Italian companies operating in POLAND have similar structural characteristics;
H6: Italian companies operating in EASTERN EUROPEAN COUNTRIES (EECs) have
characteristics that are different from those of Italian companies operating in
SOUTHERN EASTERN EUROPEAN COUNTRIES (SEECs).
Managers, researchers and financial analysts usually use the term business performance to
evaluate the business achievement of a company; but the term is rather vague (Yang, 2007)
and prior research has used a broad range of performance measures and balance sheet ratio
such as sales growth, profit margin, ROA, ROS, ROE, EBIT and so on.
Given
the
absence
of
a
set
of
universally
–
accepted
indicators
of
the
financial/patrimonial/economic state of companies, this research, based on a review of the
available literature and the best practice used by managers, uses the following 11 primary
variables:
1.
Legal form;
2.
Revenues;
3.
Assets;
4.
Number of employees;
5.
EBITDA (Earnings before interests, taxes, depreciation and amortization);
6.
Net assets (equity);
7.
Net liabilities;
8.
ROA (return on assets);
9.
ROE (return on equity);
10. Bank / Sales;
11. Debt / Equity
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3.
ETHODOLOGY
3.1 Sample selection
In order to identify the Eastern European and Southern East European countries we
considered the United Nations Statistics Division (UNSD) classification. This definition
includes all the states which were once under the Soviet Union’s influence and were part of
the Warsaw Pact. According to the UNSD definition, Eastern Europe consists of the
following ten countries[2]: Belarus, Bulgaria, Czech Republic, Hungary, Moldova, Poland,
Romania, Russia, Slovakia, Ukraine. We consider as part of Southern-East Europe Albania,
Bosnia and Herzegovina, Croatia, Montenegro, Serbia, Slovenia and the former Yugoslav
Republic of Macedonia.
From the list of Countries that belong to these two areas we identified a sub-set of countries
with the following rule:

Italy is in the top 3 ranking of the most relevant economic partners of the country;

The country has published a list of the 40 most important Italian companies operating
in its territory.
Our source of data for the application of this rule was the Italian Institute for Foreign Trade
(ICE), also known as Italian Trade Commission. The ICE is the government agency entrusted
with promoting trade, business opportunities and industrial co-operation between Italian and
foreign companies. The Italian companies willing to operate abroad (either towards importexport activities or outward direct investments) refer to the ICE for receiving support on the
spot. Moreover, the ICE can provide information and assistance to all those foreign
companies that wish to develop business with their Italian counterpart.
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The Italian Institute for Foreign Trade has indeed a network of 117 offices in 87 countries
around the world and publishes official reports on foreign countries and on Italian foreign
trade. The application of the abovementioned selection rule produced a list of companies with
sufficient data for testing our hypothesis. From Eastern Europe the selected countries are:
Poland, Romania and Ukraine, from the Southern East Europe the countries of which we
have data are Bosnia and Herzegovina and Slovenia. From the data source AIDA we gathered
the balance sheets of the Italian companies operating in these countries and created a
database.
3.2 Descriptive Statistics
Our database is composed of 158 observations. The number of Italian companies divided by
foreign country varies slightly because we excluded those with missing values in their
balance sheets (see table 1).
Table 1: Number of Italian companies operating in Eastern and Southern-Eastern Europe
Number of companies
UKRAINE
30
ROMANIA
34
POLAND
39
BOSNIA & HERZEGOVINA
31
SLOVENIA
24
SOUTHERN EASTERN EUROPE
55
EASTERN EUROPE
103
Total number of companies
158
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The majority of analyzed companies are headquartered in the northern part of Italy and are
joint stock corporations (s.p.a.). The described companies are in general medium or large
sized. On average they are owned by a group of nine shareholders and are governed by a
group of five directors.
From table 3 it clearly emerges that Italian companies that operate in the Eastern European
area are larger than those operating in the Southern-Eastern area. Interestingly 44% of the
former are large and very large while only 16% of the latter are large.
It is important to consider that the balance sheets ratios and the structural characteristics such
as EBITDA, ROA, ROE, BANK/DEBT revenues might be sector-related.
Table 2: Descriptive Statistics: structural characteristics of Italian companies operating in
Eastern and Southern-Eastern Europe.
N
Mean
Maximum
Company location in Italy
=north
158
=south
127
31
Legal form Limited liability
158
52
company (s.r.l.)
Joint stock company (s.p.a.)
106
Revenues (€)
158
1,842,463,000
87,256,000,000
Assets (€)
158
2,095,190,000
101,460,000,000
Number of employees
140
3,425
74,717
EBITDA (€)
158
304,502,000
26,104,000,000
EBITDA/Sales
158
8.76
45.54
EQUITY (€)
158
620,070,000
42,867,000,000
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ROA
158
5.69
32.76
ROE
155
9.18
94.66
BankDebt/Revenues
148
22.89
93.00
Number of shareholders
95
9.72
120
Board Size
85
5.80
16
Debt/Equity
151
1.91
22
Table 3: Company Size of Italian companies that operate in Eastern Europe
East
SouthEast
MISSING
%
9.7%
14.5%
SMALL
%
30.1%
41.8%
MEDIUM
%
15.5%
27.3%
LARGE
%
27.2%
16.4%
VERY LARGE
%
17.5%
.0%
100.0%
100.0%
TOTAL
Table 4: Sectors of Italian companies that operate in Eastern Europe
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East
South-East
COMMERCE
15.50%
29.10%
MANUFACTURING
53.40%
47.30%
SERVICES
29.10%
23.60%
MISSING
2.00%
0.00%
TOTAL
100.00 %
100.00%
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The highest number of businesses are involved in manufacturing in both cases. From our
database it emerges that Italian companies that operate in Bosnia and Slovenia with a
commercial activity are twice the percentage of those that operate in Eastern Europe in the
same sector. Italian companies operating in Eastern Europe are more involved in the services
sector than those operating in South-East.
3.3 Methods and Results
The formulated hypothesis concern the relationship between a dichotomous variable
(operating or not in a specific area) and all the variables that describe the structural
characteristics of each Italian company. The latter group of variables are in lager part
interval/ratio ones. Taking into consideration the typology of our hypothesis and that this is
an exploratory study we will analyze two variables at a time to uncover whether or not they
are related. The method which is needed here is the calculation of the Speraman’s rho
(Bryman & Bell, 2007). Table 5 indicates the Spearman correlation coefficients and the level
of statistical significance. It is important to bear in mind that the results we are going to
present uncover relationships among variables but we can’t infer that one variable causes the
other. Our aim is indeed to explore and describe the main characteristics of companies
operating abroad and not to infer conclusions and predict the companies behaviors.
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Table 5: Spearman’s rho, the relationship between the decision to operate in a country
and the company’s characteristics
UKRAINE
ROMANIA
BOSNIA &
HERZEGOVI
NA
.142
-.301(**)
.264(**)
.041
-.120
-.252(**)
.076
.000
.001
.606
.134
.001
158
158
158
158
158
158
-.055
.383(**)
-.323(**)
-.050
.023
.306(**)
Sig. (2-tailed)
.492
.000
.000
.535
.771
.000
N
158
158
158
158
158
158
-.073
.388(**)
-.333(**)
-.053
.047
.317(**)
.364
158
.000
158
.000
158
.510
158
.559
158
.000
158
Correlation
Coefficient
SLOVENIA
POLAND
EAST /
SOUTHEAST
LEGALFORM
Sig. (2-tailed)
N
Correlation
Coefficient
REVENUES
ASSETS
Correlation
Coefficient
Sig. (2-tailed)
N
NUMBER OF
EMPLOYEES
EBITDA
NET ASSETS
(EQUITY)
Correlation
Coefficient
-.138
.395(**)
-.274(**)
-.048
.032
.262(**)
Sig. (2-tailed)
.105
.000
.001
.573
.703
.002
N
140
140
140
140
140
140
Correlation
Coefficient
-.064
.360(**)
-.314(**)
-.010
.013
.270(**)
Sig. (2-tailed)
N
.428
158
.000
158
.000
158
.898
158
.874
158
.001
158
Correlation
Coefficient
-.065
.406(**)
-.301(**)
-.033
-.023
.276(**)
Sig. (2-tailed)
.420
.000
.000
.677
.774
.000
N
158
158
158
158
158
158
Correlation
Coefficient
-.057
.102
-.125
.026
.042
.081
Sig. (2-tailed)
.488
.211
.126
.752
.608
.321
N
151
151
151
151
151
151
Correlation
Coefficient
.006
.092
-.036
.023
-.079
.013
Sig. (2-tailed)
.944
.250
.655
.774
.324
.876
N
158
158
158
158
158
158
Correlation
Coefficient
.026
.182(*)
-.091
-.021
-.100
.092
Sig. (2-tailed)
.746
.023
.261
.798
.218
.257
N
155
155
155
155
155
155
Correlation
Coefficient
.033
-.199(*)
.040
.158
-.006
-.154
NET LIABILITIES
ROA
ROE
BANK/SALES
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Debt/Equity
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Sig. (2-tailed)
N
.688
148
.015
148
.634
148
.055
148
.939
148
.062
148
Correlation
Coefficient
-.015
-.102
.050
.109
-.024
-.125
Sig. (2-tailed)
N
.853
151
.213
151
.544
151
.181
151
.766
151
.127
151
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
Table 5 shows that none of the Italian companies characteristics analyzed are related to the
decision to operate neither in Ucraina nor in Slovenia nor in Poland. Companies that operate
in Romania tend to be more complex (higher revenues, assets value, number of employees,
equity and EBITDA). For these companies, the decision of operating in Romania is positively
correlated to having a large organizational structure (Rho are +.3 or higher and significance is
high).
On the other hand, operating in Bosnia is negatively correlated to organizational structure and
size indicators. We aggregated the countries by considering the area to which they belong
(Southern Eastern Europe VS Eastern Europe). The results show that in general the decision
to operate in Eastern Europe is positively correlated with a set of structural and size variables
while the decision to operate in Southern Europe is negatively correlated to the same set of
variables. Table 6 summarizes our results and shows that in part our hypothesis have been
accepted.
Confirmed
Hypothesis 1 (Ukraine)
Refused
X
Hypothesis 2 (Romania)
X
Hypothesis 3 (Bosnia and
X
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Herzegovina)
Hypothesis 4 (Slovenia)
X
Hypothesis 5 (Poland)
X
Hypothesis
6
(Eastern
X
/Southern-east)
Table 6: Hypothesis confirmation
4.
ISCUSSION, LIMITS AND FURTHER RESEARCH
As the variable LEGALFORM is concerned, the reason why the limited liability company
(s.r.l.) is significant in Bosnia & Herzegovina, meanwhile the joint stock company (s.p.a.) is
the most appropriate legal form for the Italian companies that are operating in Romania,
relies both on the companies’ sectors and on their sizes. Romania in particular and Eastern
European country in general, are indeed characterized by a stronger presence of Italian
manufacturing industry (53% in EEc vs. 47% in SEEc). The same trend is confirmed for the
size as well; the 44,7% of the Italian companies that invest in an Eastern European country
are very big; against the 16,4% of those that operate in a Southern East European country.
According to the Italian standard and entrepreneurial mentality, the preferable legal form of
both manufacturing industry and big size companies is the joint stock company.
With a specific reference to Romania and Bosnia & Herzegovina (countries where the
significant variables assume an opposite result), it is worthwhile for the authors to stress that,
not by accident, the two countries are characterized by important differences in religious,
cultural and living standards spheres.
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The positive and the negative signs of the variables reflect the perceived differences by
Italian leaders/management/entrepreneurs and the distance[3], not only geographical from
those countries and Italy (Beckerman,1956).
These differences derive also from the fact that Romania is a member of several economic
and political networks (e.g. ONU, WTO, NATO, FAO, GATT, UNESCO, UNICEF).
The results of the present explorative analysis, confirm the research hypotheses of our
broader project – mentioned at the beginning of this article – about the importance and the
influence of the decision makers’ personal visions .
The sharing knowledge about a country means that the leaders/management/entrepreneurs’
personal vision will be the same across the companies, and it is the vision that shapes the
company (e.g. structural/financial/patrimonial characteristics) towards both its local market
and the foreigner one and, in turn, arranges the suitable entry mode strategy.
The main limit of these considerations is the uncertainty of business decision makers’
knowledge with regard to a specific country. This is why the authors, are carrying out a
survey about the knowledge (e.g. form of government; membership of EU, religion, currency,
location, etc…) of the Italian people on Eastern and Southern-East European Countries.
However, further research should explore what are the differences and the similarities among
these two groups of countries and what are the factors that affect such decisions.
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Footnotes:
[1] Even if this paper is the result of the shared research of both the authors, the § n. 1 can be
attributed to Andrea Manzoni; the § n. 3.3 can be attributed to Cristina Bettinelli; the § n.
3.1 can be attributed to Giovanna Dossena; the § n. 2 can be attributed to Alberto
Marino. The § n. 3.2 can be attributed to both Giovanna Dossena and Cristina Bettinelli
and the § n. 4 can be attributed to both Andrea Manzoni and Alberto Marino.
[2] United Nations Statistics Division- Standard Country and Area Codes Classifications
(M49) http://unstats.un.org/unsd/methods/m49/m49regin.htm#europe [accessed on the 1st
of Aug 2009] see also the World Population Prospects Population Database
http://esa.un.org/unpp/definition.html [accessed on the 1st of Aug 2009];
[3] The term “distance” involves the cultural values and the entrepreneurial environment
between Italy and the foreign country as well as the characteristics and the behavior of
the decision makers. It is acknowledged and accepted by the academic literature, and
demonstrated by several studies, that cognitive processes and behaviors are shaped by
the interaction between the entrepreneur and their environment (Zahra et al., 2005).
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Cambridge University, UK
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