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Italian coffee
The export competitiveness of roasting
Italian coffee roasting industry industry
Federica Pascucci
Department of Management, Universita Politecnica delle Marche, Ancona, Italy
1529
Abstract Received 30 May 2017
Purpose – The purpose of this paper is to analyze the competitive position of Italian roasting firms in the Revised 6 November 2017
international market, thus developing a multidimensional framework for measuring industry export 11 January 2018
Accepted 11 January 2018
competitiveness.
Design/methodology/approach – Considering that the objective is to evaluate the export competitiveness
of Italian roasting firms, the author chooses “positive” and “ex-post” indicators, combined in a
multidimensional and a multivariable framework. The two dimensions of competitiveness implemented are
competitive performance and competitive potential; the author used four indices to evaluate the first
dimension (export market share, net export share, net export index, revealed comparative advantage) and
three indices for the second dimension (unit export price, relative quality index, relative export growth).
Findings – The evolution of the international context, with the emergence of new competitors and the spread of
coffee consumption worldwide, creates new opportunities but also new challenges for Italian companies. In fact,
both competitive performance and competitive potential have been worsening since the second half of the early
twenty-first century because of the lack of innovation. A mix of external and internal factors explain this lack.
Practical implications – In order to recover their international competitiveness, firms should leverage on
the combination of “traditional elements” – such as Made in Italy effect and the rich technical know-how,
depending on their long tradition in the espresso coffee market niche – with “innovative elements,” depending
on new marketing skills and competences; these new elements could be developed internally or, most
fruitfully, acquired externally, through collaboration with other firms. In this way, Italian businesses could
improve the relative quality perceptions of their offering.
Social implications – Coffee roasting industry in Italy is a significant component of the Italian economic
system and it contributes to the development of the Made in Italy abroad. Therefore, an improvement of its
export competitiveness could be beneficial to the whole domestic market.
Originality/value – This paper constitutes the first attempt to study the evolution of the coffee industry in
regards to the international competitive landscape. This is quite surprising, considering that coffee is one of
the main segments of the food and beverage industry; it is the second most important commodity exchanged
worldwide after oil and the third most popular beverage after water, tea and carbonated beverages. Then, the
analysis of export competitiveness is developed combing two main research streams: the industrial
organization literature and the strategic management literature. Moreover, this paper offers a methodological
framework useful to measure export competitiveness also in other industries and countries.
Keywords Innovation, Export performance, Dynamic capabilities, Coffee roasting industry,
Export competitiveness, Export potential
Paper type Research paper

Introduction
International competitiveness is one of the most important topics in the economic and
management literature, and it has traditionally been at the core of the agenda of academics,
policy makers and practitioners in general.
Despite the term “competitiveness” being largely used, its meaning is still unclear, and a
generally shared definition is lacking, especially when it is applied at the industry and
national level. In fact, a lot of different definitions of competitiveness exist in literature.
This concept can be analyzed at three levels, namely, firm (or micro-economic), industrial
(or meso-economic) and national (or macro-economic), depending on the object of the analysis.
Depending on the level, the conceptualization and the measurement of competitiveness can
vary. Although they are separate, the three levels are interrelated: national competitiveness British Food Journal
is (partially) determined by the economic performance of its industrial sectors, and the Vol. 120 No. 7, 2018
pp. 1529-1546
competitiveness of an industry is influenced by the competitiveness of the firms that compose © Emerald Publishing Limited
0007-070X
that industry. DOI 10.1108/BFJ-05-2017-0306
BFJ In this paper, we are interested in deepening the meso level of the analysis, focusing our
120,7 attention on a particular industrial sector: the roasting coffee industry. As Alon et al. (2010)
claimed, there is still a general paucity of research at this level; thus, a greater number of
studies is needed in order to shed light on this topic.
We chose to focus on the coffee roasting industry because, in last decades, the worldwide
coffee industry has been affected by a deep structural transformation. These changes are
1530 quite similar to the changes that have occurred in other industries some years ago, such as
the wine (Bernetti et al., 2006) and brewing industries.
From an in-depth literature review, no study has emerged concerning the coffee industry
and, in particular, the evolution of this industry in regard to the international competitive
landscape. This is quite surprising considering that coffee is one of the main segments of the
food and beverage industry, and it is recognized as important for international commerce across
the globe, due to the fact that green coffee is mainly produced in tropical regions of the world,
and roasted coffee is consumed in temperate regions (Carvalho et al., 2016; Giacalone et al., 2016).
Moreover, coffee is the second most important commodity exchanged worldwide after oil, and it
is the third most popular beverage after water, tea and carbonated beverages.
In this scenario, Italy plays an important role as producer and exporter of roasted coffee
(Morris, 2010). The “espresso” is one of the Italian symbols in the world, and Italian firms
were the most important worldwide exporter of roasted coffee by value until 2010.
The purpose of this paper is to analyze the competitive position of Italian roasting firms
in the international market from 2000 to 2015. The contribution of the paper is three-fold: it
develops a multidimensional framework for measuring industry export competitiveness,
which could also be applied to other industries and countries; it explains the changing
pattern of competition in the coffee business worldwide; and it seeks to explore key
industry-specific factors for declining competitiveness of Italian firms. We focus on
“exporting competitiveness” because, in the case of the roasting industry, foreign direct
investments are not so relevant; therefore, the exporting and importing data could explain
the competitiveness in a significant way[1].
The remainder of the paper includes six sections. The first summarizes the theoretical
background of the study, combing two main research streams: the industrial organization
literature and the strategic management literature; the second aims to explain the evolution
of the coffee roasting industry in last decades; the third presents the methodology
implemented in order to measure the export competitiveness of Italian firms; the fourth
contains the analysis of the competitive situation of Italian firms in the international context
from both a quantitative and qualitative point of view; the fifth paragraph tries to explain
the main reasons for the declining competitive position of Italian firms; the last one offers
concluding remarks, together with the limitations of the study, and the implications for
future research.

Theoretical background
The industry is the location where firms win or lose a competitive advantage and the basic
unit of analysis for understanding competition is industry (Porter, 1990); moreover, the
industry impacts the competitiveness of firms and countries.
On one hand, at this level, Kim and Marion (1997, p. 337) defined international
competitiveness as “The sustained ability of a nation’s industries or firms to compete with
foreign counterparts in foreign markets as well as in domestic markets under conditions of
free trade.” In accordance with this definition, Pitts and Lagnevik (1998) explained
competitiveness as “The ability to profitably gain and maintain market share in domestic
and/or foreign markets.” On the other hand, Ezeala-Harrison (1999) defined international
competitiveness as the relative ability of a country’s firms to produce and market products
of standard or superior quality at lower prices.
 Porter (1998, p. 2) gave a different interpretation: “The ability of a sector to compete Italian coffee
successfully in order to achieve sustainable growth within the global environment while earning roasting
at least the opportunity to meet the cost of returns on resources employed.” He introduced four industry
determinants of a national industry’s competitiveness, forming the Diamond Model of National
Competitive Advantage; they are: factors conditions (such as natural resources, skilled labor
force or technology), demand conditions (market size and quality of the demand), firms’ strategy
structure and rivalry, and related and supporting industries. As Porter said (1990), the 1531
competitive advantage of an industry is based on the firms’ capacity to innovate, and this
capacity is partially dependent on the external environment in which firms operate, that is the
quality of the “diamond” (Porter and Stern, 2001).
Especially in the light of a greater competitive pressure at the international level,
innovation becomes a strategic factor in order to survive and growth. Innovation
should be considered not only in terms of new products or new industrial processes, but
also in terms of business models, that is “how companies do business” (Tell et al., 2016,
p. 1464), as Nespresso case has shown (Matzler et al., 2013). Business model innovation
seems to be essential for a company’s competitiveness and growth (Chesbrough and
Rosenbloom, 2002).
At the basis of business model innovation, there are dynamic capabilities, which are the firm’s
ability to integrate, build and reconfigure internal competences in order to address or bring about
changes in the business environment (Teece et al., 1997). The strength of a firm’s dynamic
capabilities determines the speed and degree of aligning the firm’s resources – including its
business model – with customer needs (Teece, 2018). In a world where consumers’ preferences
are becoming more and more varied and variable, the international competition ever stronger,
the business environment more and more complicated and the technological evolution faster
than ever before, dynamic capabilities are of vital importance.
According to Teece et al. (1997), dynamic capabilities are firm-specific, whereas other
authors believe that dynamic capabilities show some commonalities among the firms
belonging to the same industry (Cavusgil et al., 2007; Wang et al., 2015); hence, some
“industry capabilities” should exist. They are “systemic properties,” resulting from shared
routines and practices that develop independently – because firms aim to increase their own
competitive position – but converge, due to constraints imposed by technology, regulations
and work processes (Eisenhardt and Martin, 2000). The main engine of industry capabilities
is a cycle of innovation and imitation (Lampel and Shamsie, 2003): firms seek innovative
capabilities to gain advantage, and to the extent to which they are successful, other firms in
the industry follow suit – by borrowing, adapting and improving what their competitors are
doing. This fact proves the existing interplay between the micro and the meso level of
competitiveness, identifying in the firms’ capabilities the foundation of innovation and then
of competitiveness at the industrial level.

New global landscape of the roasting industry

In the last decades, the worldwide coffee industry has undergone a deep structural
transformation; in particular, four main trends have affected the demand side of the market:
(1) Coffee consumption has increased all over the world (from 109.5 in 2001 to 155.7
thousand 60 Kg bags in 2016), but, in a more significant way, in emerging countries
and in those countries that are typically exporters of green coffee (Figure 1), such as
Brazil, which is likely to become the world’s largest coffee consumer by 2020 (ICO,
2013) . The exceptional increase of consumption is the fundamental reason for the
deficit between production and consumption, which reached 3.3m bags in 2016; this
is one of the most important challenges that the whole coffee business will have to
face in the next years.
BFJ 100%
5.9 7.2 Africa
120,7 90%
13.7
80% 20.2
3.1 Asia and Oceania
70% 3.4
Central America
60% and Mexico
41.7
33.7
1532 50% Europe
40%
North America
30%
19.7 18.5
20%
Southern
Figure 1. 10% 17 America
15.9
Geographical
0%
evolution of coffee
2003 2014
consumption
Source: Our elaboration from ICO data

(2) According to ICO’s (2004, 2010) studies, coffee consumption in the traditional
importing/consuming Countries (such as, Italy, USA, Japan) seems to have reached
the market saturation, despite the increase of population. Demand is becoming
gradually more inelastic to the price and per capita income changes.
(3) The increasing demand for specialty coffee in traditional consuming countries; the
trend is toward an increasing high-quality demand because customers have become
more interested in drinking better-quality coffee and they would be willing to pay a
premium price for it. For example, in the US market, the Specialty Coffee segment is
continuously rising, reaching 48 percent of the total consumed cups of coffee and
55 percent of the retail market value share in 2015 (Specialty Coffee Association of
America, www.scaa.org, facts & figures)[2].
(4) The individualization of coffee consumption which results in an increasing market
segmentation according to various preferences of individual consumers (Morris,
2013; Matzler, 2013). This trend allows a stronger price differentiation in final
product markets. It is possible to consider an extension of the coffee market “long
tail” (Anderson, 2008), composed of a multitude of market niches.
In the light of these last trends, we can conclude that coffee has transformed from a simple
commodity to a high-specification product (Carvalho et al., 2016).
One of the fundamental actors of this evolution was Starbucks. The “Starbucks
phenomenon” (Luttinger and Dicum, 2006) has revolutionized the coffee business in two
ways: it has “de-commoditized” and “globalized” coffee, which is now known and drunk
wherever in the world, even if with different formats and flavors. The effects were so
relevant that Ponte (2002) called this phenomenon “Latte Revolution.”
After Starbucks, coffee shop chains became the engine of this growth, contributing to
expand global awareness and usage of coffee. In fact, coffee shops are the fastest-growing
segment in the ho.re.ca. business in terms of global sales, increasing 9.1 percent from
2014–2015, according to Euromonitor International data. This bests the international
restaurant industry as a whole, which grew at 5.7 percent, and was stronger than global fast
food, at 5.8 percent (Friend, 2016).
In regard to the supply side of the market, we can observe two main opposite trends:
(1) The increasing concentration rate: the coffee market is becoming more
consolidated, as a result of several mergers and acquisitions in the last years.
 Since the beginning of 2015, 50 mergers and acquisitions, totaling $3bn, have Italian coffee
occurred worldwide in the coffee industry and related sectors. Of this total, roasting
97 percent of the dollar value accounted for strategic buyers within the industry industry
itself (Wall Street Journal, 2015); the aim is to gain competitiveness, through
adding scale and entering specific strategic market segments. The biggest deal in
the coffee history was the creation of Jacobs Douwe Egberts in 2015, which is
based in the Netherlands, resulting from a combination of Mondelez and D.E. 1533
Masters Blenders 1753s coffee businesses. Now it is the second-largest coffee
company in the world, after Nestlé. Different from Nestlé, Jacobs Douwe Egberts is
a pure player coffee company, focused on the coffee business. Among the leading
players in the global coffee market, based on the retail value, there are also
Tchibo, Lavazza, J.M. Smucker and Keuring Green Mountain, which is a leading
US single-serve coffee maker and was recently acquired by Jab Holding Company.
The latter is the same company that also controls Jacobs Douwe Egberts and a list
of other coffee brands, such as Peets Coffee & Tea, Caribou Coffee Company and
Espresso House, thus aspiring to became the biggest global platform in the coffee
business. So, this evolution is quite similar to the evolution observed in the
brewing industry some years ago (Larimo et al., 2006).
Also, from a geographical point of view, the industry was quite concentrated in
terms of both value and volume. In terms of value, the rate is always above
60 percent (except for 2015), with a peak in 2013 (66.4 percent); in terms of volume,
the rate is lower, and it is decreasing, shifting from 65.88 (2005) to 50.48 percent
(2015)[3]. This means that the industry is more fragmented and other countries
besides the first five are growing in terms of exported quantities, but the first five
exporters maintain their economic power in terms of value.
(2) The proliferation of small roasters and small local brands as a consequence of the
increase in specialty coffees and the development of the Third Wave phenomenon
(Morris, 2013).

Methodology: competitiveness measures and data source

Several indicators have been developed in order to measure competitiveness; they can be
divided into two broad groups: result-oriented indicators (or ex post indicators), based on
trade data, and determinant-oriented indicators (or ex ante indicators), such as the legal and
institutional framework of a country, the infrastructure, etc.
Considering that our objective is to evaluate the export competitiveness of Italian roasting
firms, we choose “positive” and “ex-post” indicators. As Dieter and Englert (2007) pointed out,
these indicators are more appropriate than the others for analyzing the competitiveness at the
industrial level. These are based on observable evidence, which is constituted primarily by
trade data, such as market share, revealed comparative advantage (RCA) index and trade
balance. Hence, they are objective measures. All these indicators reflect the past and the actual
performance, and so they give significant information about the outcome of competitiveness
for a specific industry and in a specific period of time. Because a single dimension cannot
capture all the elements of competitiveness, we adopt a multidimensional and multivariable
approach. By grounding on the work of Zhang et al. (2012), the two dimensions of
competitiveness implemented are competitive performance and competitive potential; the
indices used to measure each dimension are displayed in Table I. In addition to the indices
drawn from the past literature, we also used the relative quality index as a measure of
competitive potential. We added this index because it is useful in order to interpret the trend of
the other indices, and, together with these, it could offer a deeper explanation of the reasons
behind a decrease or an increase of the competitive potential.
BFJ The data source for the study was the Comtrade database, which is the International
120,7 Trade Statistics Database of United Nations. For commodity classification, we chose the
harmonized system nomenclature because it contains many more product groups than SITC
classification at the most disaggregated level. We chose to refer to “roasted coffee not
decaffeinated” (commodity code 09012100) because it is largely the most important item of
the international coffee trade.
1534 The qualitative analysis concerning the Italian firms’ domestic market is based on
different sources of information which were gathered by the author during a field study on
the coffee business in Italy in the last five years (Pascucci, 2016; Giuli and Pascucci, 2014).
Corporate websites, trade journals, trade shows, seminars and workshops, personal
interviews with managers/entrepreneurs of roasting firms and with coffee experts are the
main sources employed.

Export competitiveness of Italian coffee roasting industry: results of the

analysis
Italy plays an important role in the international coffee business, in terms of roasted coffee
exports. Italian firms buy green coffee from the so-called “exporting countries” (in
particular, India, Brazil, and Vietnam) and, after a process of transformation, they sell
roasted coffee to “importing countries” all over the world[4]. In Italy, the sector counts over
700 firms – which are mostly micro-, small- and medium-sized – and 7,000 workers.
In the last two decades, there has been a constant growth of roasted coffee trade in terms
of volume: in 2015, the volume was 4.36 times higher than in 1996. In terms of value, the
growth was even more consistent (in 2015, the value was 7.9 times higher than in 1996), but
it was not uniform. As we can see in Figure 2, the Italian exports followed the same trend, in
regard to the volumes of coffee, and in terms of value, the growth has been lower since 2008.
These first data give us a preliminary negative information about the Italian roasting firms’
situation because they pinpoint a missed opportunity to expand their business abroad.

Competitive performance Competitive potential

Export market share (Buckley et al., 1988; Carraresi and Unit export price (Buckley et al., 1988; Zhang
Banterle, 2008) et al., 2012)
Table I. Net export share (Kim and Marion, 1997) Relative quality index
Indices of export Net export index (Banterle, 2005; Sinngu and Antwi, 2014) Relative export growth (Zhang et al., 2012)
competitiveness RCA (Banterle, 2005; Alon et al., 2010)

900
800
700
600
500
400
300
200
100
0
96 997 998 999 000 001 002 003 004 005 006 007 008 009 010 011 012 013 014 015
Figure 2. 19 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Worldwide and Italian Italy exports value ($) Italy exports volume (kg)
roasted coffee exports World exports value ($) World exports volume (kg)
(1996 ¼ 100)
Source: Author calculations based on Comtrade data
Competitive performance Italian coffee
If we analyze more in depth the competitive performance, we can calculate the export roasting
market share, which reveals the competitive position of a country in the international industry
market for a given sector (Buckley et al., 1988; Banterle, 2005). As we can see in Figure 3,
Italian roasting firms are losing market shares at the international level, in particular, the
export share by value fell from 24.72 (2004) to 13.97 percent (2015), whereas the export share
by volume grew slightly. In other words, the problem seems to be in the export value and 1535
not in the export volume.
Kim and Marion (1997) measured the international success of industries by net export
share, which is the difference between exports and imports as the percentage of total world
exports in a specific industry. As we can see in Figure 4, the Italian index shows two
opposite trends: it increased from 2000 to 2004 and it decreased in a significant way from
2004 to 2015, reaching the value of 0.12.
Quite a same trend is observed for the net export index, which shows a decrease in the
second half of the investigated period of time, from 0.83 (2006) to 0.75 (2015). Net exports are
exports minus imports, and they are divided by the total value of trade (exports plus
imports). A flaw of this index is that it does not take into account the overall level of trade

30%
24.72%
23.43% 23.56%
25% 22.08% 21.40% 20.93%
19.50% 20.14%
18.65%
20% 16.96%
15.60% 14.78% 16.34%
14.40% 14.77% 14.98%
15%
16.44% 16.17% 16.11%
15.47% 15.58% 16.20% 14.87% 15.29% 16.11% 15.69% 16.41%
14.95% 14.97% 15.19% 15.84%
10% 13.97%

5%

0%
00

01

02

03

04

05

06

07

08

09

10

11

12

13

14

15

Figure 3.
20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

20

Export shares by value Export shares by volume Italian coffee

export shares
Source: Author calculations based on Comtrade data

0.25
0.22
0.21 0.21
0.19
0.20 0.18
0.17
0.19 0.16
0.19
0.15 0.13 0.13 0.13
0.12 0.12
0.15
0.13
0.10

0.05

Figure 4.
0.00 Italian coffee net
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 export shares
Source: Author calculations based on Comtrade data
BFJ for a specific product. Therefore, it may happen that a country relatively self-sufficient for
120,7 that product, with a small export surplus and no imports, has a very high index (close to
100), even though it hardly trades. This is the reason why the net export index should be
used together with the relative comparative advantage index (Galetto, 2003).
The last index we employed in order to measure the competitive performance was the
RCA index, which is the relative comparative advantage (Balassa, 1965). This is a
1536 commonly used method to evaluate international competitiveness (Kuldilok et al., 2013;
Bojnec and Fertö, 2009, 2017; Maté Balogh and Jàmbor, 2017; Shafaei et al., 2009; Banterle,
2005), which is grounded in the conventional trade theory and based on the measurement
of the country’s export specialization. It is the share of the international market for a sector
of a country divided by its share of the international market for all products, and it can be
calculated as follows:
P
X ij = i X ij
RCA ¼ P PP ;
i X ij = i j X ij

where the numerator represents the percentage share of a given sector in national exports
(X ij ¼ exports of sector i from country j) and the denominator represents the percentage
share of a given sector worldwide or in a group of countries. If the RCA is above 1, the
country is specialized in that sector, and it has a comparative advantage for the product i
on the global market, whereas if the RCA is below 1, the country is under-specialized in
that sector, and it has a comparative disadvantage for that product on the worldwide
market. We know that RCA presents some shortcomings, but it is easy to calculate, and it
can provide basic information useful to make also comparisons with other countries.
T our analysis, we used the RSCA index, which is the symmetric version of RCA, so it
ranges from −1 to +1.
The index ranges from 0.6 to 0.8, indicating a significant specialization of Italy in the
roasting coffee industry, but it has been slightly decreasing since 2005 ( from 0.78 to 0.66).
This first part of the analysis enables us to conclude that the investigated time can be
divided into two periods:
(1) A successful period during the first five years.
(2) A declining period since 2005 up to 2015, in which the competitive performance of
Italian companies has significantly worsened. As a consequence, a question arises:
which other countries have prevailed the competition in the same period?
In 2015, the four most important exporters by value are Switzerland, Italy, Germany and
USA (in order of size). In particular, Swiss exports have increased in an explosive way in the
last ten years. In terms of quantity, the scenario is completely different, with Germany as
the main exporter, followed by Italy, whereas Switzerland lags behind. This trend reflects
the particular competitive strategy of Swiss firms, and in particular of its main
representative – Nestlé Nespresso Company – which pursues a high-end market positioning
strategy, based on quality, innovation and communication (Brem et al., 2016). It is not a case
that Switzerland exports only 54,871,205 kg. of roasted coffee (2015) against 171,866,786 Kg
of Italy, but its revenues reached $1,819,897,328 against $1,319,189,125 of Italy.
German market shares by value have shown a decreasing trend, even if with some
variations, passing from 16.12 (2000) to 12.44 percent (2015); in regard to the USA, the
market share has declined from 13.43 (2000) to 7.63 percent (2015). Also the German and
the US market share by volume has decreased, even if to a lesser extent: from 19.28 to
18.64 percent and from 11.93 to 8.02 percent, respectively. On the contrary, Switzerland
gained market shares from 1.39 to 5.22 percent.
 To compare the four main export countries’ dynamics of competitive performance, we Italian coffee
calculated three years’ average values of RSCA and then the percentage rate of variation roasting
(Table II). Among the four countries, the USA is the less specialized during the entire period industry
of time, followed by Germany; Italy and Switzerland, which maintain a high level of
specialization, but in all the four cases, the trend has been declining from the second half of
the early twenty-first century. The most interesting performance is that of Switzerland,
which is the most specialized country at the present time, having overtaken Italy in 2006. 1537
In light of these data, it is clearly evident that Switzerland is, at the moment, the
most aggressive competitor and the main antagonist of Italy in the coffee competitive
landscape (Figure 5).

Competitive potential
The second part of the analysis was directed to evaluate the competitive potential of Italian
roasting firms, and, for this purpose, we focused our attention on three indices, as illustrated
in the rest of the paragraph.
The first index is the relative export growth, which is the value of a country’s exports
growth rate in a given industry relative to the world trade growth rate in the same industry.
A higher index suggests a higher potential of that country in that industry. This index
shows a low value for Italy, Germany and the USA (respectively, 2.14, 2.31 and 1.7), whereas
the relative growth of Switzerland is remarkable (33.59).
The second index we calculated was the relative unit export price, which is the ratio of
unit value of the world exports to the unit value of the country in a given industry. Thus, it

2000– 2003– 2006– 2009– 2012– 2005– 2008– 2011– 2014– 2015
2002 2005 2008 2011 2014 2000 (%) 2003 (%) 2006 (%) 2009 (%) (%)

Italy 0.70 0.74 0.70 0.67 0.68 6.35 −5.05 −5.39 2.24 −2.79
Switzerland 0.42 0.57 0.74 0.86 0.84 36.30 29.83 16.57 −2.06 −1.73
Germany 0.27 0.29 0.27 0.25 0.25 8.52 −5.27 −7.20 −2.08 −18.75 Table II.
USA 0.07 0.13 0.10 0.06 0.01 88.40 −18.30 −41.35 −79.69 −11.39 RSCA variations in
Source: Author calculations based on Comtrade data the period 2000–2015

30%

24.72%
25% 23.43% 23.56%
22.08% 22.38%
21.40% 20.93%
20.81%
20.14%
20% 19.50% 18.98% 19.03% 19.43% 19.27%
18.65%
16.96%
16.68% 15.60%
14.98% 14.78%
15% 14.40% 14.77% 13.97%
13.60%

10.86%
10%

4.74% 4.54% 4.65%

5% 3.63% 4.00%
2.61%
1.72%

0% Figure 5.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Italian and Swiss
market share from
Switzerland Italy
2000 to 2015
Source: Author calculations based on Comtrade data
BFJ is based on the analysis of the average unit values of exports. This is a proxy of the exports’
120,7 average price of the country (Buckley et al., 1988). A decrease in the index indicates an
increase in export prices relative to competitors and therefore a deterioration of the
competitive position. This index decreased in the first part of the period (ranging from 0.79
to 0.66) and increased in the second one ( from 0.66 in 2004 to 1.11 in 2014).
This means that the price of Italian coffee decreased in this period in comparison with the
1538 rest of the world,. Therefore, Italian companies would have increased their price
competitiveness and, as a consequence, their volume export shares. Yet, this did not happen
(see Figure 2): the volume export market share of Italian firms has been almost the same in
the last ten years. Hence, another explanation should be considered.
It should be noted that an increase in the index could also reflect higher prices of
competitors due to a change toward higher-quality products without any true deterioration
in competitiveness. In other terms, the perceived quality of foreign coffee is higher than the
perceived quality of the Italian coffee, and this is mirrored in the relative quality index trend,
which is the percent difference between the AUV of Italian exports and the AUV of world
exports; as we can see in Figure 6, it had been decreasing since 2004 and became negative in
2011. Switzerland shows a higher index than Italy since 2002, indicating a superior
perceived quality. This is the result of a decreasing gap between the AUV of world exports
and the AUV of Italian exports, and an increasing gap between the AUV of world
exports and the AUV of Swiss exports, as shown in Figure 7.
These data confirm the very different competitive strategies and business models between
the two national industries: more innovative and value-oriented in the case of Switzerland, and
more traditional and conservative in the case of Italy. Grounding on the illustrated data, we
can conclude that also the competitive potential of Italian firms is worsening in favor of
Swiss industry, which has been able to move from a “red ocean” crowded with competition to
a “blue ocean” of uncontested market space (Kim and Mauborgne, 2015), fueling an explosive
growth. In fact, Nespresso has introduced a new way of drinking espresso, turning a simple
and methodical action into an “experience” at home and consumers are willing to pay a
disproportionally high price for it (Brem et al., 2016; Matzler et al., 2013).
Another important aspect to investigate is the geographical distribution of Italian exports.
Even if the concentration of Italian exports decreased from 2000 to 2015 – the main three target
markets account for 46.35 percent of Italian exports in 2000 and only for 30.48 percent in
2015 – Germany and France are steadily the biggest importing markets, counting, respectively,
for 13.50 and 10.82 percent of Italian exports in 2015, followed by the USA (8.7 percent). The
problem is that these markets are not the most growing ones. Other countries are emerging,

4 3.73 3.58
3.32 3.44 3.25
3.11
2.86 2.98
3 2.69

2.16
1.99
2 1.78 1.75
1.54

1
0.45 0.51 0.53 0.44 0.37
0.24 0.27 0.25 0.19 0.13
0.04 –0.02
0 0.26
0.34 –0.05 –0.07–0.07 –0.10
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Figure 6.
Relative quality index
of Italy and –1
SWITZERLAND ITALY
Switzerland
Source: Author calculations based on Comtrade data
 45
41.18 41.30 Italian coffee
40 37.86 38.80
roasting
35 32.35
33.91 34.95 33.17 industry
30 26.69

25
1539
20
11.52 13.03
15 12.80
10.77 11.81
8.67 8.13 7.95 9.49 9.13 9.04 8.77 8.77
10 7.03 7.72
6.48 6.71
4.81 4.46 4.93 5.83 10.01 9.80 9.73 9.74
8.98
5 7.29 7.17 7.63
6.18
4.90 4.70 5.13
3.89 3.50 3.40 3.85 4.25 4.66 Figure 7.
0
Average unit values
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015
2000

of the Italian,
Switzerland and
SWITZERLAND ITALY WORLD
world coffee exports
Source: Author calculations based on Comtrade data

which show significantly higher annual growth rates, such as China, Czech Republic, Spain,
Australia, Israel and UK. In all these markets, Italian firms are losing market shares because the
annual growth of Italy’s export in these countries is lesser than the annual growth of the world’s
export. On the contrary, Italy is growing in the less dynamic markets, such as the USA, Poland,
Germany, Canada; the only two exceptions are Greece and the Russian Federation.

A qualitative analysis of the domestic coffee market

In order to investigate the reasons of the Italian negative trend, some suggestions can be
drawn from Porter’s Diamond Model of National Competitive Advantage; in particular,
we know that demand conditions play an important role in shaping the competitive
performance of industries (Shafaei, 2009).
In Italy, three main factors regarding demand conditions have negatively influenced the
international performance of roasting firms. The first one is the low rate indemand growth in
the last years, which has discouraged roasting firms from investing money in the innovation
process (Italian coffee consumption has been substantially stationary, fluctuating around
250,000 kg. of roasted coffee, from 2005 to 2015 – based on Beverfood data). However, most
importantly, it is the absence of sophisticated and demanding local buyers (in terms of both
consumers and bars). As emerged in some workshops and business seminars in the last few
years in Italy[5], foreign customers are much more demanding than Italian customers and
they are willing to pay a premium price for quality. Most part of competition in Italy is a price
competition, and this fact is decreasing the attention toward the coffee quality, in favor of
other elements (such as, financial assistance). Indeed, the brand, and probably the objective
quality of the coffee served in a bar, plays a little role in the customer’s choice : according to
market surveys, over 75 percent of the consumers leaving a bar were unable to remember
what brand of coffee they had just drank (Daviron and Ponte, 2005). Ho.re.ca. is highly
fragmented, dominated by independents – mostly family-owned enterprises – prepared to
accept low prices, low-margin and low-service operations. The reluctance of Italian roasting
firms to operate their own coffee-shops chains (in comparison to foreign competitors) reflects
this weakness of the domestic markets in the twentieth century (Morris, 2013).
Moreover, the domestic demand has gradually lost its capacity to anticipate future
patterns and trends, especially in the international context. The expectations and the
BFJ requests of Italian consumers are profoundly different from those of foreign consumers and
120,7 they push Italian firms in widening the gap between what they are offering and what is
required and appreciated abroad. This is a sort of “capability gap,” which can be defined as
the distance between needed capabilities and the firms existing capabilities, in terms of
closeness and strength (Capron and Mitchell, 2009).
In addition to these facts, it must be noticed that the competition among locally based
1540 rivals is quite “limited” in Italy, thanks to some territorial barriers that protect firms from
the entry of new competitors (e.g. the variety of consumers’ tastes in reference to different
geographical regions).
We can conclude that Italian local context has discouraged investments in innovation-
related activities, due to some demand and competition conditions, even if the two other
components of the Diamond model have performed a positive role (i.e. the factor conditions
and the related and supporting industries). Undoubtedly, Italian firms possess a rich
technical know-how as regards to the roasting process and espresso preparation and this is
the most valuable resource deriving from their past history. Furthermore, supporting and
related industries, in particular, professional coffee machines manufacturers, have played a
positive role: Indeed, they are leader at the international level for the “traditional”
(non-automatic) market segment and they went abroad long before the roasting companies.
Therefore, they played a role as pioneers in international markets, when espresso coffee
was still not well-known abroad. For example, Victoria Arduino has begun its
internationalization since the twentieths of last century.

The possible causes of Italian loss of international competitiveness: the

missing link of dynamic capabilities and innovation
Grounding on the previous analysis, we can say that the lack of innovation is the main
factor behind the decrease in Italian competitiveness. The characteristics of the domestic
market have played a significant role in explaining this result, intertwined with some other
firms’ strategic factors.
Italian roasting firms began to go abroad after a long period of domestic experience,
following the gradual and incremental internationalization pathway (Uppsala model;
Johanson and Vahlne, 1977). This means that theory-in-use, mental models, knowledge and
practices were developed in the domestic market, and this fact may constitute a serious
problem when firms have to face a very different business environment abroad, representing
a potential barrier to change (Blomstermo et al., 2004). Firms may become dependent on
national traits and these may be non-transferable to foreign markets, especially if they are
significantly different from the foreign ones. This inhibits the adaptation to foreign markets
and the ability to learn new knowledge about international customers and competitors.
Changing well-established mental models and processes could be very tough. This is
particularly true when firms have experienced a successful period abroad. Past successes
induce firms to reinforce existing practices, competencies, strategies and mental models, to the
detriment of exploring new ones. Authors call this phenomenon “success trap” (Levinthal and
March, 1993) or “competence trap” (Leonard-Barton, 1992) and they have verified its strong
negative effect on dynamic capabilities development (Wang et al., 2015). In other terms, the
past success creates a powerful resistance to change, in favor of the status quo. This is exactly
what has happened to Italian roasting companies: the long experience in the domestic market,
the very different characteristics of this market in comparison to the international markets
and the international success until the first part of the Two Thousands have created a path
dependence, which has hindered the development of the firms’ dynamic capabilities
(Teece, 2007, 2014) and, as a consequence, the development of innovation.
Due to these factors, Italian companies are experiencing significant difficulties
concerning the exploration and exploitation of new international market opportunities,
the development of new products more suitable for the foreign customers, the strategic Italian coffee
renewal of their business model with a particular reference to the marketing component. roasting
For example, one of the most relevant marketing issue regards the value communication of industry
the offering in the international market: this is a weakness point – which could be related to
the decreasing trend of average unit values (see Figure 7) – depending of the scarce
marketing orientation of the Italian companies. They are more product-oriented than
marketing-oriented (except for few cases), and they historically have not invested resources 1541
in marketing activities, preferring to focus the attention on R&D, production and finance.
In a very competitive and demanding environment like the international context in the last
years, this lack may represent a critical point.
The weak marketing orientation could also partially explain the selection of the wrong
foreign target markets. The presence of Italian firms abroad is concentrated in traditional
mature markets and thus, a more focused effort toward more dynamic markets should be a
key in helping to improve their competitive performance. In the most mature markets, a
“premiumisation” strategy could be an effective way to recover competitiveness, that is, try to
differentiate based on different factors (such as, raw material, roasting process, packaging), in
order to give a better and richer customer experience overall, and to get the customer pay
more for their coffee. Italian firms have the potential to follow this strategy, also leveraging on
the Made in Italy effect. Opportunely combined with a more pronounced marketing
orientation, the know-how and the Made in Italy brand could lay the foundations for a
strategic renewal of Italian firms, which seem still anchored to an old system.
With a high probability, the small size of Italian firms did not help in an increasingly
concentrated competitive landscape: the competition with the giants, such as Nespresso,
Tchibo and so forth, seems to be impossible. In this context, in order to overcome their
size-related disadvantages, SMEs should innovate their business models, adopting for
example a network strategic approach (Brinkmann et al., 2014). As illustrated in the Scottish
pig supply chain (Leat and Revoredo-Giha, 2013), shared goals, information exchange and
collaborative interactions between supply chain actors are very important in differentiation
and value creation; moreover, these same factors are also relevant for developing
consumers-oriented innovations (Beckeman et al., 2013). Nonetheless, this is the exact
opposite of the dominant logic in the Italian roasting industry, which is extremely
fragmented, with a dominant individualistic approach and a scarce collaboration among the
actors of the supply chain. It is not a coincidence that a specific national representative body
of the coffee roasting firms is missing in Italy, but there are different organizations which
represent diverse firms in different contexts.

Conclusions
This paper constitutes the first attempt to study the evolution of the coffee industry in
regards to the international competitive landscape and its contribution is three-fold, as
indicated in the Introduction section.
From a methodological point of view, the paper offers a multidimensional framework useful
to measure export competitiveness also in other industries and countries. The two dimensions of
competitiveness implemented are competitive performance and competitive potential; we used
four indices to evaluate the first dimension (export market share, net export share, net export
index, RCA) and three indices for the second dimension (unit export price, relative quality index,
relative export growth). Opportunely combined, these indices offer an efficient instrument to
evaluate the competitiveness and a base to identify the explaining factors of this competitiveness.
The second contribution of the paper concerns the evolution of international context of
coffee industry. The emergence of new competitors and the spread of coffee consumption, even
in areas traditionally not used to consume this drink, have changed the global competitive
landscape of coffee roasting industry in a significant way. Not only the competition is become
BFJ more and more intense, but new critical success factors emerged as a consequence of a
120,7 changing pattern of consumption. This evolution has created new opportunities but also new
challenges for roasting companies. This is especially true with reference to the small- and
medium-sized enterprises, like the majority of Italian roasting firms, which seem more
vulnerable in an economic environment increasingly globalized and complex.
In fact, the third contribution of the paper points out that both competitive performance
1542 and competitive potential of Italian firms have been worsening since the second half of the
early twenty-first century. This result is quite surprising considering the long tradition that
they possess in the coffee business (in particular in the market niche of “espresso”) and the
valuable technical know-how they have developed over time in the roasting process. On the
contrary, the Swiss industry has emerged as a leading exporter in the international context,
thanks to its innovative capacity not only in terms of product (coffee capsules and
machines), but also in term of distribution channels, advertising strategies and business
model. The declining competitiveness of Italian firms could be explained by the lack of
innovation and a mix of external and internal factors explain this lack.
We know that the characteristics of the firms’ country of origin shape the history, the
knowledge capital, the strategies and the evolution patterns of local firms and if those
characteristics diverge from the prevailing characteristics at the international level, a
“capability gap” emerges. The Italian local context, due to some demand and competition
conditions, has discouraged investments in innovation-related activities; the long experience
in the domestic market, the very different characteristics of this market in comparison to the
international markets and the success trap have created a path dependence, which has
hindered the development of the firms’ dynamic capabilities and, as a consequence, the
development of innovation.
Our findings could have also some social implications. Coffee roasting industry in Italy is
a significant component of the economic system and it contributes to the development of the
Made in Italy abroad. Therefore, an improvement of its export competitiveness could be
beneficial to the whole domestic market, in terms of reputation, employment and wealth.
With regard to the limitations of our work, we employ measures of trade in order to assess
competitiveness, but we know that these measures only give information about the past, and
they have limited power to evaluate the sources of competitiveness. Inevitably, our results
suffer from the limits derived from the reliability of trade data, which are far from perfect and
complete; as any other source of information, they are not free of mistakes and omissions.
Despite these shortcomings, trade statistics could be useful if they are correctly analyzed, and
they could constitute a valid point of departure for a more in-depth strategic analysis.

Notes
1. In the case of Italy, the only firm that has implemented foreign investment directed to produce
abroad is Segafredo Zanetti.
2. Specialty coffee is a differentiated product, focused on higher-quality Arabica beans, lighter roasts,
nuanced flavor profiles and greater attention to source and supply chain traceability.
3. The concentration rate refers to the weight of the first five countries’ exports on the
worldwide export.
4. The distinction between importing and exporting countries refers to the International Coffee
Organization classification, and it depends on the global nature of the coffee supply chain. In
particular, we can observe a clear asymmetry between green coffee production, which is
concentrated in the southern part of the world (due to climatic reasons) and the roasted coffee
consumption, which is mostly concentrated in Europe, the USA and Japan.
5. “Il futuro dell’espresso italiano,” round table June 14, 2013, Florence (Italy). “Quale futuro per
l’espresso italiano,” SIGEP January 19, 2014, Rimini (Italy).
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1546
Corresponding author
Federica Pascucci can be contacted at: f.pascucci@univpm.it

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