Exporting to China: entailed risks and risk management strategies. A case study on Italian enterprises of the furniture industry.

Abstract

Engaging into international trade activities opens up great opportunities but brings along a number of interconnected risks. New global players emerge, trends change, and the world risk scenario evolves, requiring companies to adapt their strategies to the new circumstances. This is particularly true when it comes to exporting to difficult and culturally distant markets such as China. The Chinese market has shown a high potential in terms of opportunities, but needs to be monitored closely, as it also presents barriers and obstacles for foreign firms. The purpose of this study is to provide a clearer picture of the challenges and risks that Italian enterprises face in their path towards internationalization, and to gain a better understanding of the management strategies they can adopt to mitigate their exposure to such risks. The focus is on China, as it is a major export destination for “Made in Italy” products, and on the direct experience of sample Italian enterprises of the furniture industry. More specifically, this work starts with an overview of the international performance of Italian firms, it focuses on the growing role of China and emerging markets, discussing the opportunities and challenges they represent for foreign enterprises. The second chapter discusses the concepts of risk and risk exposure, describing the types of enterprise risks, and analyzing the strategies companies can implement to manage and reduce their exposure to risk (risk avoidance, risk reduction, risk transfer or hedging, and risk retention). These strategies need to be part of a risk management process that, taking a comprehensive and integrated view, guides companies in risk identification, assessment and treatment (ERM). In the third chapter, thanks to the data and information collected on the Chinese market, the study presents an overview of the Chinese market, analyzing the economic, political, social and technological trends in order to identify vulnerabilities and potential sources of risk for foreign companies. The last section of the chapter presents the case studies of Italian furniture enterprises exporting to China. Thanks to the insights and information collected through the interviews, it gives an overview of the furniture market in China, and discusses the internationalization strategies and distribution channels adopted by Italian firms, their target and positioning, their risk perception and vulnerability, the risks they face and the risk management strategies they use.