Interview with Fabrizio Zucca, co-founder of Strategia & Sviluppo Consultants, a company that supports Italian SMEs through the processes of innovation and internationalisation.

One of the most complex issues for companies wishing to grow is finance. What are the possible strategies?

Financial planning is actually a result of strategic planning. The first step towards growth is to have a strategy based on awareness of your strengths and weaknesses, and above all knowing the fundamental drivers of value creation. The financial aspect is certainly important when you’re implementing your strategy, when you need to identify sources of finance to carry out the operations. In other words, you first have to understand your starting point and where you want to get to, and whether this path creates value for your company. The strategy must then be translated into actions that require resources - research and the correct identification of these resources (not just financial resources) often determine the success or failure of growth strategies.
Your consulting activity partly involves providing operational support for companies to develop new ideas and relaunch their businesses. What challenges does the current financial situation pose for companies?

Unlike in the past, I believe that uncertainty is now the most critical challenge. If you look at the world in terms of both its geographical spread and technological development over time, the most striking issue is the uncertainty of the future scenario. The problem is that developing a strategy for the future requires full awareness of the current scenario on which to shape the future. The uncertainty of this scenario implies an increasing risk that must be identified, and as far as possible measured and managed. The company must equip itself with a system to monitor the economic scenario in order to achieve the maximum level of resilience. In the past, governance issues mainly concerned large companies.
In the current economic context, how important is it for SMEs to identify governance models to enable them to approach potential investors with greater credibility and transparency?

Governance is fundamental to a company's growth process. The more the company is exposed to contexts that are outside its usual management processes, for example internationalisation, the more essential it is to have complete control of all its processes. In addition, to return to the previous question, the management of uncertainty and risk, and therefore the ability to react quickly, is based on well-designed governance. Don’t forget that the process of internationalisation and therefore the ability to work in markets subject to different laws and customs involves full exposure to local compliance issues that once again require firm, well-informed governance. The connection with identifying financial resources and therefore potential investors can then be made immediately. There is no doubt that any company displaying intelligent and transparent control of its processes is a winner. Good governance can also be important for developing the ability to formalise business objectives and verify when, where and how they can be achieved. This is highly prized by potential investors as a rule.

In an increasingly competitive context, does innovation have an important part to play? What can smaller companies with smaller research budgets do to be competitive?

Innovation is important, but when we talk about innovation today we may only have in mind research, scientific development and hi-tech companies. Innovation is not just that. You can be innovative in your processes or in the way you approach the market or in terms of new models. If this were not the case, most companies operating in mature markets would be condemned to no longer being innovative. Nowadays, any company that does not look beyond its daily operations is destined to be overtaken and marginalised until sooner or later it has to close down. In many cases it’s not the research budget that makes the difference but the ability to observe and interpret changes. We often focus too much on the “today” and what’s immediately around us; in the long run this impoverishes our capacity for innovation, which constantly requires new stimuli. I believe these companies must find a budget for these activities, to fund the time, training and debate it requires in particular.

In periods of crisis like the present one, export is one of the main success factors for SMEs. How would you evaluate the presence of Italian SMEs in foreign markets today?

Statistics tell us that our exports are very healthy. Looking closer, however, we realise that the ability of companies to become established in different markets is often not strong enough. We are often still attached to the old trade fair - order - agent - distributor model, a model that makes exports highly dependent on the situation in the exporting country. The real leap is in the ability to localise in a territory. In this regard, there are many ways and levels of localisation, ranging from a simple sales outlet to a production plant. You can sometimes even localise via third parties (agents or distributors) if you manage your strategic activities in that market from home. It often happens, however, that presence in a foreign market is completely in the hands of the third party, which weakens the system.

What commercial and merchandising sectors have the greatest chance of conquering the international market at the moment?

Globalisation has created international development opportunities even for activities that seemed to be designed exclusively for a specific local market. When I was at university, it was said that activities such as hairdressing were expressly domestic. Today we see that the ability to capitalise on a brand allows us to develop these activities internationally. This means that the possibility of developing internationally today exists for almost every company. If you look at some SMEs within the same sector in terms of internationalisation, you’ll see that some very similar companies have had very different experiences. Some have opened up significantly to foreign markets while others have not been able to extend their operations beyond a restricted geographical area.

In your opinion, what are the main barriers still preventing many SMEs from opening up abroad?

The biggest barrier is cultural. There are two aspects that often hold business projections back, and in my opinion both are linked to historical and cultural factors, and also to the rapid change we have witnessed over the last ten years. The first aspect is the poor attitude to collaboration and the mania for control. Many companies that are too small to be truly incisive in a foreign market could join together, but any attempt to bring more entrepreneurs into the supply chain - and therefore not in competition with each other – often crashes against a wall of distrust. Entrepreneurs don’t often cultivate alliances and don’t embark on activities that they cannot control wholly themselves and would have to delegate to others. The second aspect is related to the change in markets. Up until 15 years ago the world tended to consist of Western Europe and North America. “Abroad” meant Germany or France, and if you went any further, the USA or perhaps Russia, after the collapse of the Soviet Union. Europe should now be considered as the domestic market, and the real markets to be conquered are outside Europe. In 2030 Europe will barely account for 4% of the world population, with 56% in Asia and 23% in Africa. These are the markets that can make the difference for our exports. In these places, the old competitive model based on devaluation and “sales at the trade fair” is ineffective; it takes analytical skills to develop constructive alliances and localise the presence of the business to fully understand the local culture.