Company: Ford
Overview
Italy is geographically positioned in Europe. The country’s capital city is the renowned city of Rome. Italy’s population is estimated as over 61.2 million people. The country takes pride in a parliamentary form of government. Moreover, the country trades with Euro (EUR) as its main currency. Since the year 2011, the country’s GDP shows that the main economic sectors are service delivery, industry and agriculture. In addition, the country’s both import and export are associated with the United States, France, Germany, China and Spain.
Economic Situation
Weak Economic Performance
Italy’s economic performance has been in decline since the Eurozone economic turmoil in the year 2012 (Lane 52). The subsequent economic struggles in Greece had a negative impact on both external and internal demands in Italy. In fact, the economic struggles reduced business and consumer confidence in the country.
This factor has a negative impact on Ford’s operations in Italy. With a declining demand for automotive products and reduction in industrial production, Ford would suffer huge losses of the company ventures in Italy in 2013. The general economic performance in Eurozone affects consumer spending. This is attributed to the increasing unemployment rate. Ford manufactures high quality products, and consumers in Italy cannot spend money on expensive automotive.
International Competitiveness
Italy’s position in international competitiveness has been deteriorating since the year 2011 (Smeral 8). The fact that the country has lost at least 20% of the market share in international exports is discouraging. In this respect, Italy has avoided conducting business with countries that do not pose competitiveness in terms of costs and price change. Such countries include Germany and the United States. In this regard, it would not make economic sense to have Ford’s venture in the Italian market.
Inflation Rates
In the year 2012, the inflation rate in Italy had increased incredibly. A major reason for the increasing inflation rate was the rise of energy costs. An increase of the value added tax (VAT) also influenced the high inflation rate.
During this period, the demand for automotive products was stable, but the decreasing demand for trend in the year 2013 is a sign of reduced inflation rate. In this regard, a demand for imports in Italy will reduce in the year 2013. A projected decrease of inflation by 1.6% would influence the demand for Ford’s products in the country.
Unemployment
Unemployment in Italy has been on the rise since the year 2012. By November of 2012, unemployment had risen by 11.1%, which is 25% higher than the previous year (Checchi 148). The current labor laws in Italy seek to protect employees who only work on a permanent contract.
In this respect, companies like Ford and similar businesses are unable to invest in uncertain labor environment. In fact, this makes it difficult for companies like Ford and automotive businesses to manufacture and sell automotive products in Italy. Ford’s success in Italy requires constant availability of labor and stable market.
Bank lending and interest rates
The Eurozone crisis in the year 2012 led to restrained bank lending. The Italian economy has depended on the European Central Bank to fund government projects, and bail out major economic sectors. The increasing lending rates provided by Italian banks are making it difficult for investors to increase their capital base.
Companies like Ford or automotive businesses require support from financial and lending institutions during an economic meltdown. Such support was evidenced in the United States when the government bailed General Motors from receivership and total bankruptcy. Currently, the lending institutions in Italy cannot support Ford or bail out a foreign investor in the automotive industry.
Italy’s interest rates are determined by the European Central Bank. Interest rates in the year 2001 were recorded as 4.8 % compared to 0.5% in the year 2013 (Spaventa 9). The projected reduction of interest rates in the year 2014 might increase the business opportunities for Ford and automotive business in Italy. However, the current interest rates are still high and cause a decline of the automotive business in Italy. Moreover, the high interest rates are causing the weakening of the Euro in the region and especially in Italy.
GDP
It is estimated that the country’s GDP reduced by 0.1% between August and September of 2013. Until the year 2013, Italy’s GDP has always averaged 0.6% since the year 1960. From the year 1992, Italy’s expansion of trade within the European Union has seen its GDP reduce significantly. This may be due to its low international competitiveness and the global economic meltdown. The increased public spending in Italy is not favorable for automotive business and Ford.
Fig 1.0 Sample Italy’s GDP graphical representation
Demand
The demand for Ford vehicles in Europe has been high for the past two decades. By targeting market segments in Germany, France, Spain and Italy, Ford’s sales volume rose by 2.3% by the end of August 2013. However, a decrease of automotive sales in Europe declined by 5.7 % during the same period. This is an indication that Ford’s sales volume may be reducing if the current economic factors remain constant.
Works Cited
Checchi, Daniele. “Labor market and inequality trends in Italy.” The Politics of Structural Reforms: Social and Industrial Policy Change in Italy and Japan. Ed. Magara, Hideko and Sacchi, Stefano. Boston: Edward Elgar Publishing, 2013. 148-170. Print.
Lane, R. Philip. “The European sovereign debt crisis.” The Journal of Economic Perspectives 26.3 (2012): 49-67. Print.
Smeral, Egon. “The impact of the financial and economic crisis on European tourism.” Journal of Travel Research 48.1 (2009): 3-13. Print.
Spaventa, Lugi. “The growth of public debt in Italy: past experience, perspectives and policy problems.” PSL Quarterly Review 66.266 (2013). Print.