AUTOMOTIVE SECTOR REPORT ITALY Italians and Their Cars: Endless Love Italy is and remains one of the most loved countries, where many would love to spend a long relaxing vacation taking advantage of the unique mix of history, art, cuisine, opera, design, fashion and wine – everything you could ever hope to have. Among the ones who appreciate the Italian some help for players who want to undertake ‘savoir vivre’ I must mention automobile a similar venture. fans who, when in Italy, want to breathe some of the good and fresh air that created The Country Factors the fascination of speed in Enzo Ferrari and One of the most complex aspects an Ferruccio Lamborghini in the heart of Emilia, entrepreneur who is willing to make such a and seek inspiration from the pure style move should consider is the country factor. of Nuccio Bertone, Sergio Pininfarina and The choice of a country usually assumes X Giorgett o Giugiaro in the land of Piedmont. factors like signifi cant savings in terms of Alfa Romeo, Bugatt i, Ferrari, Lancia, costs of production and market opportunities Lamborghini, Maserati are all names that locally or in nearby countries. make the heart skip a beat, not only to car In addition to this, many growing countries lovers but to anyone who, just by looking have been implementing free zone at most of these cars, appreciates how a arrangements and ad hoc government powerful and adrenalinic engine can be grants, which can be provided in case of dressed in the most beautiful and timeless investments made by foreign OEMs or main style. suppliers. In order to benefi t from such Italians love to drive and love to take care of arrangements, foreign investors are most their own cars. With a population of more commonly asked to enter into framework than 60 million we are the ones owning investment agreements, which provide for a more cars in Europe – over 37 million in fact, series of undertakings and obligations that according to the most recent data available have to be respected. Such agreements need from the Italian Automobile Club (December to be carefully negotiated, especially when it 2011). Never mind if most of these cars are comes to the exact scope of such obligations, the beloved iconic ‘small cars’. and the timing of the access to the benefi ts. Remedies for breaches or termination for Despite all that, the Italian automotive such agreements, as well as investment exit industry is facing a very challenging time. strategies also need to be carefully examined This is not only due to the acute crisis on and negotiated. Governing laws and dispute the sell side (even though the ‘car’ is still a resolution mechanisms are also of utmost priority in the budget of an Italian family) but importance. Moreover, there will be a local because, according to the Italian Association due diligence to be made in relation to any of Automotive Suppliers (ANFIA), most other local laws or regulations, which comes of the Original Equipment Manufacturers into play with respect to all the activities (OEMs) and car part producers are now interjecting with local players (administrative looking at foreign opportunities in a authorities, suppliers, utilities, workforces, strong eff ort to make their businesses more etc.). international and effi cient, and not only (or anymore) with the aim of delocalising The Local Partners production. Where there is no local government direct As a lawyer, I won’t dare to off er any stimulus, teaming up with local players is perspective on such internationalisation often the main road to follow in order to moves, either from an industrial point of facilitate the establishment in the market and view or a fi nancial one. However, I can share any interaction with all the local elements some guidelines about the complexity of an (authorities, suppliers, union etc.). It also internationalisation process based on my makes sure that the steep learning curve that professional experiences, which might be a foreign entrepreneur needs to face, both 62 • Global Business Magazine • August 2012 Andrea Novarese Latham & Watkins C.so Matt eott i, 22 20121 Milan [email protected] Tel: 0039 02 3046 2000 Fax. 0039 02 3046 2001 from a cultural and entrepreneurial point of by Italian companies. When they do so, view, does not quickly become a negative the fi nancing is usually made available gravity exercise. In such cases it is of the at the level of the Italia parent, or to the utmost importance to enter into investment foreign entity through the local branches agreements with local partners where both (or subsidiary bank), but with some form of the governance and exit strategy (in terms of undertaking from the Italian parent. option, drag along and tag along rights) are clearly and effi ciently regulated. On the other hand, Italian automotive enterprises that are considering starting Other main areas of concerns are the foreign operations can seek for insurances eff ective control of the local business, the tax on political risks and fi nancial support (in aspects, and any local export/import duty in terms of guarantees to be granted in their connection with machinery and supplies to interest and in favour of lenders) by special be imported as well as the production to be institutions like SACE, which provides exported. Any license arrangement regarding similar services to Italian companies tackling technology, know how and trademarks emerging markets. In addition to this, the shall also be carefully considered, in light Italian Government has established and of the eff ectiveness of any action aimed at currently controls an organisation aimed protecting such assets, and/or rights in case at enhancing the development of Italian of breaches or att empts to challenge such companies abroad (SIMEST), which can rights. enter into the share capital of the foreign vehicles (up to 49% of their share capital), How to Finance the New Venture and provide some form of fi nancing/grants In addition to equity commitments, any for case studies and other fi nancial costs foreign investment also requires bank connected to such investments. fi nancing. With respect to the latt er, the One Final Note fi rst and most obvious option is to examine the willingness of multilateral agencies There is no doubt that in modern times and development banks to fi nance an entrepreneurs need to look for new markets investment in their countries of operations. and new opportunities – indeed, this has Therefore, contacts shall be developed with been the case throughout all our history. organisations like IFC (part of the World However, I strongly believe that the heritage Bank), the European Bank for Reconstruction of the Italian automobile culture is, and and Development, the Asian Development remains, strongly connected to many Bank, the Inter-American Development Bank intangible elements typical of my country, and the European Investment Bank etc. and that any internationalisation venture could not be successfully developed without All these organisations are usually able such passion, vision and talent. In this to examine the proposed investment in a respect, I would like to mention the words of timely fashion, through teams with country a visionary entrepreneur, Andrea Pininfarina: experience and industry expertise. In “In a world so sensitive to economic success, addition to this, some of these multilateral creativity wins its batt le over economy organisations are sometimes willing to because only those who continuously take minority stakes in special purpose innovate while creating can eventually be vehicles, which are established for the successful” relevant investment. Needless to say that any fi nancing and/or participation by a Andrea Novarese, Partner, Latham & multinational organisation has unique Watkins visibility and political clout at a local level. Participation of local banks for commercial Andrea Novarese is a fi nance partner in credit lines is also an option worth exploring. the Milan and Rome offi ces of Latham & Watkins. He is Global Co-Chair of the The Domestic Support Automotive Industry Group. With few exceptions, Italian banks are not inclined to directly fi nance foreign operations August 2012 • Global Business Magazine • 63.