"'Made in Italy' is Obsolete"

Italy's exports are in freefall and its economy is stuck, but Nerio Alessandri proves Italy can build technology-driven companies that can compete in global markets. He also believes Europe's fourth-largest country isn't doomed to economic decline.

The 44-year-old founder and chief executive of Technogym developed his first fitness appliance while tinkering in his garage in 1983 and now heads a $333 million Italian export champion, based in Gambettola.

Technogym is the world's second-largest maker of fitness equipment such as treadmills and body building machines. Alessandri counts Formula 1 champion Michael Schumacher and a slew of Olympic athletes as clients. He stays a step ahead of the competition by packing his machine with electronics that help personalize training.

And he has a line of machines designed specifically for rehabilitation. Despite Italy's stagnant economy, Technogym's revenues grew 22% in 2005 -- and another 35% in the first three months of 2006.

Alessandri spoke with Senior European Correspondent Gail Edmondson about the economic challenges facing the new Italian government, which is likely to be headed by former European Commission President Romano Prodi. Prodi's Union coalition secured a narrow victory Apr. 11 over Prime Minister Silvio Berlusconi in both houses of parliament, although Berlusconi supporters vowed to contest the results in court.

A new center-left government led by Prodi will have a delicate job pursuing reform. Which priorities should Prodi place at the top of the list?

The first thing he should do is fight tax evasion and the underground economy. It is siphoning off funds we need to bring down the deficit. There is a huge black economy in Italy. Second, he needs to make Italy's companies more competitive by lowering the cost of labor, bringing down the cost of energy through liberalization, and spurring competition in sectors such as energy, telecoms and banking.

The third change is to create a meritocracy in public administration and services. We need to eliminate bureaucracy and reduce costs of government operations. If I were Prodi I would do this immediately.

He should give a green light to nuclear energy and render the justice system in Italy faster. We need to make Italy a country where legal rights are honored. That isn't the case now. And the last thing is overhauling Italy's approach to research.

China is clobbering Italy's economy with low-cost imports. What will it take, in your opinion, to revitalize Italy's export engine?

Italy has to rely on innovative products, research, scientific development, design and services. Companies need to become more international. We have to teach Italy Inc. how to operate in a global economy. We need to outsource production to low-cost countries.

I believe "Made in Italy" is obsolete. We need to "create" in Italy. It's important that innovation, research, and marketing all remain in Italy. The brainware, creativity, and intelligence should be done in Italy. The hardware can be done anywhere -- where it costs the least.

Italy is one of the least attractive countries in the Organization for Economic Cooperation & Development (OECD) for foreign direct investment. What will it take to attract more investments to Italy?

We need to create free competition and tax incentives for foreign companies that invest in Italy. The country has to offer the guarantee of stability, legal rights, and legal certainty for those who invest.

Weak spending on research and development is the Achilles' heel of the Italian economy. Given the budget deficit and debt, where can the new government scrape together funds for this vital task?

We need tax incentives for those companies that invest in research. We need large incentives and we have to support talented young people. We also need to create the conditions in which corporate players can work together with universities. It's impossible today. There is no protocol for companies to have a relationship with universities.

Finally, we would need a kind of database to make information about technological developments around the world more accessible to small and medium-sized companies. We could do this via universities. We have to develop our polytechnic universities better.

After years of heavy losses, restructuring, and management changes, Fiat now seems to be turning around. What is the lesson to be learned from that painful experience?

Two things. First, it's risky and distracting to diversify away from one's core business. The lesson is focus, focus, focus on the core business. The attention should be always on the product. Fiat was focused on finance, finance, finance. And image, image, image. The focus of a company should be on the core business and the product.

Do you see any signs of light at the end of the tunnel for the Italian economy? If so, what are they?

I see the beginning of an economic pickup. I talk to suppliers and they have contact with many smaller companies. They are all noticing a kind of recovery. We have all felt it since the beginning of the year. It's not so clear yet in the overall economy. We have had political stability for the past five years, but we had to live through five years of global problems, from the impact of the euro on inflation to 9/11.

Now there is finally the first sign of recovery -- Germany is growing nicely again -- but if the new government can't govern, we risk seeing that recovery go up in smoke.

Before it's here, it's on the Bloomberg Terminal.