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Italy must adapt to survive, Illy boss warns

From Richard Quest, CNN
updated 2:08 PM EDT, Thu April 5, 2012
  • The head of Illycaffe says Italian business has failed to compete internationally
  • He says Italian industries have shrunk as they have struggled to adapt to a global marketplace
  • Reforms currently being implemented were needed to restore its economic might

(CNN) -- Italy -- an economic giant of the eurozone -- is failing on the global stage and must adapt if it is to survive, the head of coffee giant Illycaffe has warned.

Andrea Illy, CEO of Trieste-headquartered Illycaffe, told CNN his country's woes would be "just the beginning of our problems" unless its businesses learned to compete in the international marketplace -- something they had largely failed to do.

"The Italian economy is wrong in the sense that it is not conscious enough about how important it is to become competitive in the global arena," he said. "Let's say we don't really step up: what we have suffered until now... is just the beginning of our problems."

Italy's economy makes up 17% of the eurozone -- almost three times that of bailed-out Greece, Portugal and Ireland combined -- and, as the third-largest economy in the bloc, is regarded as "too big to fail."

Illy's comments come as the borrowing costs of Spain, another pillar of the bloc, push toward 6%, feeding fears the debt crisis is spreading to larger economies. Italy's borrowing costs passed the psychological 7% level -- beyond which countries are considered unable to fund themselves -- last November, before dropping back.

According to Illy, Italian businesses have been slow to adapt to the demands of a globalized economy -- unlike many German businesses, for example, which had aggressively pursued a path of international expansion through creating foreign partnerships.

"Some entrepreneurs did it: few, not enough," he said. "In the meantime, the relative size of the Italian industries in most of the sectors has been declining."

He said the far-reaching reforms being implemented by new Prime Minister Mario Monti were "absolutely" necessary for Italy to regain its economic vitality.

"This country needs a break in Italian politics in order to reform," he said. "Otherwise there will be no growth."

Illy is the grandson of Francesco Illy, who developed the modern espresso machine and founded the company in Trieste in 1933. Today, Illycaffe sells its products in more than 130 countries around the world.

The company faced a significant challenge in competing "in a more crowded, competitive market arena," he said. But, conversely, "opportunities are becoming much larger," he added.

He saw a strong future for the company in the premium sector of the coffee market, which had undergone significant changes in the past decade or so.

Previously, he said, the market had been "the shape of an anvil... with a big mainstream part and a very small narrow premium coffee segment." Today, he said, it was more like an hourglass, with a substantial market for premium, specialty coffees.

"This is the future," he said. "It will be more and more high quality, like wine."

Being an internationally competitive coffee brand did not mean aiming to have as many outlets as Starbucks, he said. "I would like to have 1% of what they have, but to reach the same awareness."

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