Piero Castellano
Dec 04 2018

Turkish firms shut Italian chocolate factories, leaving bitter taste

In November, following months of uncertainty at Cioccolato VdA, a small chocolatier in the Valle d’Aosta region, the Turkish owner closed the factory and dismissed all the workers. That same week, the iconic brand Pernigotti announced that its 150-year-old factory in Novi Ligure would shutter and production would relocate to Turkey to cut costs.

The moves sparked fears of broader job loss and raised legitimate concerns about Turkish investments in Italy, which increased fourfold last year.

“Turkish companies invest in Italy for a wide range of reasons,” said a representative in Istanbul of ICE, the Italian government’s investment agency. “There might be an opening for their specific industry and a Turkish group playing a global game might choose to invest in Italy. Also, Italy has a very good capability to export, much like Turkey, but to different places.”

Just as small Italian companies invest in Turkey to enter new markets, Turkish conglomerates might buy an Italian firm to get a foothold in the EU, perhaps with a recognisable brand. “Italy’s country brand reputation is very high; ‘made in Italy’ is considered a premium brand,” said the ICE official, who declined to be named.

“With emerging countries entering the global market, Italian products and especially historical Italian premium brands have become more and more attractive for companies who have considerable capital to re-invest,” said Federico Donelli, a post-doctoral research fellow at the University of Genoa.

“On one side, the exponential growth of the Turkish economy has allowed many groups to be in this situation. On the other side, the collateral damage of globalisation, exacerbated by the 2008 financial crisis, has led to the sale of many European companies,” he said.

Donelli said that, unlike investors from Gulf countries who were mainly interested in real estate and new technologies, investors from countries with a strong manufacturing industry were attracted to sectors similar to their own.

“Of course, the main powers were China and India, but Turkey came next. Many Turkish entrepreneurs aimed at historical Italian brands in their respective sectors,” Donelli said.

That led to an injection of entrepreneurial energy in the famously lethargic Italian industry. Official data show Turkish investment to Italy jumping from 28 million euros in 2016 to 110 million euros in 2017.

“Turkish entrepreneurs currently have a lot of energy. They are going to places where others don’t go, like African countries, in order to create new export markets,” said the ICE official. “Often the Italian part of the company helps to export to developed markets and the Turkish branch helps to gain market share in developing markets. Turkish and Italian construction companies go to developing markets together because the Italians know design, project management and engineering very well, and Turkish companies are very good at the construction operation itself. It is really a win-win situation for Italian-Turkish companies.”

While Turkey and Turkish companies are supposedly turning away from the EU to conquer new markets, they are finding it better to work in those new markets alongside European partners. If anything, Turkey’s push towards trade with Africa and Central Asia has reinforced its economic connections with the EU.

Still, the failed chocolate factories highlight possible pitfalls.

While Cioccolato VdA was a small factory bought by entrepreneurs with the help of a loan, Pernigotti was founded in 1860, and few Italian brands are more iconic. "For Italians," according to one story on the closure, "Pernigotti is to chocolates as Ferrari is to cars." Yet it is now owned by the Toksöz Group, which has interests in sectors from pharmaceuticals, to energy and food products.

The fall of the Turkish lira by about a third against the dollar this year and high inflation in Turkey have taken their toll.

“If you're a company without big capital, or if you're a company that only has operations in Turkey it's a bit more difficult right now,” said the ICE official. “But, and it's a big but, there are quite a lot of Turkish companies with deep pockets."

Toksöz, the owner of Pernigotti, is one such company. Its plan to close the Pernigotti factory in Novi Ligure, cut 100 local jobs and move production of the beloved Italian brand to Turkey has spurred political uproar. The populist Italian government has tried to mediate between the owners and the unions.

Italian media reports are tinged with nationalism: Turkish hazelnuts in Pernigotti products would be “inferior to the Italian ones” and “among the most contaminated”, according to Italian farmers association. Some blame Brussels for its financial aid to Turkey and the case is depicted as yet another foreign company taking jobs away from Italy.

While there is some truth in the trend, part of the reason is the rigidity of Italian commercial law rather than investors’ intentions, at least in the Pernigotti case.

Eugenio Vaccari, law lecturer the University of Essex in Britain, wrote that the lack of an insolvency mechanism in Italy made it difficult to save solid industrial firms in trouble with creditors.

Large, insolvent firms like Pernigotti have the option of “amministrazione straordinaria” (extraordinary administration), which has little appeal for a viable parent group like Toksöz.  

“It’s an option that imposes an administrator, appointed by the government, to rule the company instead of the board of directors elected by shareholders,” Vaccari told Ahval.

“I don’t think Toksöz even considered the ‘amministrazione straordinaria’ because, though Pernigotti is in crisis, the Turkish holding is not. Moreover, there are no legal reasons to prevent moving production from Novi Ligure to another site, in Italy or abroad. Lastly, Toksöz wants to keep control of the brand,” Vaccari said.

Despite a long list of successful investments, the chocolate factories could be a sign that harder times are coming for Turkish investments in Italy.

The opinions expressed in this column are those of the author and do not necessarily reflect those of Ahval.