In today’s pasta sector, firms face a trade off between export and foreign production. Companies increasingly operates on a global scale and producing abroad is cheaper than exporting with regards to variable costs because, because of distance costs incur. So the widely-held reputation of Italian pasta makers is not just all about research and development of products. There is either innovation in the productive and planning capacity to build up production plants in such strategic markets abroad. This is the reason why, we find Italian watermills and windmills in Europe, Russia, Asia and Northern America. And Africa will be the next frontier.
As pointed out by Stefano Berruto, MD of Pasta Berruto company: “Even if 98% of our output is destined specifically to meet foreign demand, so we are exporting the entire production, actually we make pasta in Italy only.” and he continues ” France is our main market but we are seeking for clients in Middle East region. In addition to this, we are investing in Angola where we are building up our first production plant abroad. Closest to Luanda port city, it’s a strategic point” he underlined ” What about China? We are ever willing to conquer new market but referring to this in particular, I must say that’s not just a piece of cake. I remember when we joined a Trade Fair in Shanghai, where we presented three colors pasta ( Italian flagship) but Chinese buyers didn’t understand and asked us if we were selling candies also”.
So the truly question is: when to shift production abroad is profitable? Firms choose between the two alternatives to serve foreign markets by comparing the associated profits. Concentration of production at home and exporting saves on addition fixed costs, proximity to the customers abroad saves on distance costs. Markets are so segmented by distance costs that will be cases of Italian pasta manufacturers which produce abroad the 95% of output and only the 5% is exported from Italy.