Fiat Auto: Toward Globalization
In order to look at the internationalization process of Fiat by the right perspective, one must start with the fact that the first and most important intuition of Giovanni Agnelli Senior was that the Italian automobile industry, on the supply side, necessarily had to adopt an international focus. In other words no Italian car manufacturer (although the same was true for European ones) could think of growing and developing by looking just at the domestic market. As a consequence Fiat was born with a marked international attitude which shaped all initial production and market choices: a considerable amount of investments, the acquisition of modern machinery, in large part from abroad, a high level of vertical integration, a strong participation to international sports events in order to exploit marketing effects. Without a focus on the vast international market one could not launch a truly industrial automobile production, able to exploit the advantages of economies of scale both in new product development and in production methods.
Today this attitude could be taken for granted, but at that time it wasn’t so. Contemporary people might look at the automobile industry as an industrial activity ever since reserved to a few makes, but in reality this wasn’t true. According to the L'Auto d'Italia review, in 1907 there were 58 firms in Italy established to manufacture cars, and 46 of which had already started operating. Most of them were located in Northern regions (23 in Piemonte, 16 in Lombardia, 6 in Liguria), but also in Naples there were 6 firms1. Today we do not even remember the name of these automobile firms because the selection process towards an oligopolistic structure of supply took place very early, and based upon the capabilities to acquire strong economies of scale. This meant that there was a strong imperative for all automobile firms, except the American ones2, to structure themselves in order to supply many foreign markets besides the domestic one.
The process of development of foreign branches becomes systematic after World War One. In 1919 Fiat Hispanian and Fiat France are established, and during the following years twenty other branches are added: both in major markets like Germany (1922) and England (1924), in markets where important developments are expected: Argentina (1923), Brazil (1927), and finally in markets where possibilities to grant production licenses or to activate companies for vehicle assembly are evaluated, like Poland or Turkey. The outcome of this fervent initiatives clearly emerges in the growth of exports. Between the two world wards Fiat was the car maker with the highest ratio of exports to production, with shares changing, year by year, but on average above 60%.
Exports clearly require also a commercial network and Fiat, not differently from other European firms, starts a gradual process of development of its own foreign branches. The first stage lies in the activation of foreign agents. In some cases they are independent operators who, lured by sports successes of the Italian make, stimulate the Turin firm to grant them the representation in some prestige places like Paris, London, New York. This process begins very early, in 1902, with the appointment of an importer agent in France and in the USA. fiat manual transmission,manual fiat 500,fiat manual transmission for sale,fiat manual used,fiat 500x,fiat 500 manual for sale,fiat 500c manual,fiat abarth manual.
The “adversed” internationalization
After World War Two the reconstruction of the Italian industry begins a period of strong economic growth which favours the expansion of the automobile industry. Fiat, by the management of Vittorio Valletta, heads this process with a rapid reorganization of the plants and the launch of new models. However the attitude is not immediately aimed at manufacturing vehicles for a mass market. Post-war production exceeds the pre-war record already in 1949 with 70,800 units (against the 52,978 in 1939), but without the launch of a popular model adjusted to the spend capability of the average Italian family. This behavior is partly driven by a prudential choice by Valletta, who intends to take a leap towards a true mass production only after being certain that the domestic market is ready. But it is also the outcome of a short-sigthed politics of the Italian government who did not consider automobiles as an essential element of the industrial and economic growth of a country, but on the contrary as a wealthy consumption good to be heavily taxed.
This behavior dated back to the fascist period which had applied an extremely heavy fiscal drive both on fuel and on road taxes for vehicles, but which it continued also later one, and being increased. In 1958 fuel price in Italy was clearly exceeding that of other European countries, also those without a national automobile industry, and which would have had more reasons to operate a politics of restraint on motorization. The effect of the road tax is similar, which in Italy is highly progressive, according to engine size, while in other countries there is a regressive approach. So when the motorization process takes off in Italy, Fiat is forced to specialise more and more in lower market segments than other countries. The first popular car for the Italian market is launched in 1955 with the Fiat “600” model, and is followed just two years later by a model even smaller in size and in engine, the Fiat “500”.
The transformation of the vehicle parc in Italy clearly shows the new attitude of the Italian demand for automobiles. In 1951 vehicles below 750cc exceed those between 751 and 1,200cc by 25%. In 1960 these ratios have completely changed. The smallest segment is over twice than the second, and ten times larger than the third one. In conclusion, the strong fiscal incidence applied to automobile usage has significantly distorted the segmentation of the Italian market compared to the European one, and has progressively reduced the possibilities for Fiat to compete in foreign markets on higher segments of automobile production.
To the President of Fiat it was clear that the need to acquire a large size, on an international basis, is not linked just to the issue of economies of scale and cost compression, aspects which are undoubtedly important in automobile production but which, as the experience of Japanese firms has demonstrated, can be partly compensated by a more advanced management and by a higher labour productivity. It generally relates to a need linked to economies of the whole company, linked to all main operating areas: from research and development to purchasing, from commercial distribution strategy to politics of integration of the production line.