2/5/2019 A Tale of Two Companies—and Two Countries - WSJ

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
https://www.djreprints.com.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123

DAVOS

A Tale of Two Companies—and Two

Countries
The di ering fortunes of two producers of cooking tools re lect a broader divergence between Germany
and Italy—two of the eurozone’s biggest economies—since the turn of the century

By Tom Fairless
Jan. 20, 2019 9 22 a.m. ET

SOLINGEN, Germany—Zwilling JA Henckels, a 300-year-old knife-making company based in

this ancient city of swordsmiths, had much in common with Italy’s Bialetti Industrie SpA.

Both are family-owned companies that produce signature cooking tools—knives for Zwilling
and, for Bialetti, a whistling stovetop coffeepot. Both diversified into a range of cooking
products in recent decades and entered international markets with a network of stores.

Then the euro came along 20 years ago, binding Germany and Italy more tightly into Europe’s
giant single market. And the fortunes of the two companies started to diverge.

REGISTER NOW: INSIDE DAVOS

Join senior WSJ journalists as they discuss the main challenges and priorities for 2019 on
the final day of the World Economic Forum in Davos. Register here, and send your questions
on Davos to subscribercall@wsj.com.

Over the past decade, Zwilling has more than tripled revenue to €700 million (about $800
million)—while Bialetti’s sales have fallen 20%, from a similar starting point of around €200
million. In October, Bialetti said it had agreed to a debt-restructuring deal that will hand an
equity stake to Och-Ziff Capital Management , the New York-based hedge fund.

The shifting paths of the two companies reflect a broader divergence between Germany and
Italy—original euro members and the bloc’s biggest and third-biggest economies—since the
turn of the century.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123 1/5
2/5/2019 A Tale of Two Companies—and Two Countries - WSJ

Germany’s economy has grown 31% since the euro’s creation, Italy’s 7%. Residents of Piedmont,
the northern Italian region where Bialetti was founded, were until recently richer than their
German counterparts in North-Rhine Westphalia, where Zwilling is based. Today, the opposite
is true. Household incomes in North-Rhine Westphalia have risen by 18% since 2007, to €25,700
per inhabitant, while in Piedmont incomes have fallen by 5%, to €21,300 per inhabitant,
according to the European Union’s statistics agency.

That widening gap is complicating efforts by the European Central Bank to phase out
stimulus policies: The further countries are from the eurozone average, the less likely that
the ECB’s common strategy will suit them. At worst, it threatens the future of the currency
union, once billed as an engine of economic convergence.

It wasn’t supposed to be this way. The creation of the euro in January 1999 was expected to
raise productivity and living standards in weaker economies like Spain and Italy, as capital and
trade flowed more easily across the region’s internal borders.

Economic fluctuations would fade as countries were forced to adhere to the same budget rules
as Germany. Sharing a common currency meant countries in Southern Europe couldn’t devalue
national currencies to gain a competitive edge. They would have to become more efficient.

Bialetti, an Italian maker of whistling co eepots, closed this plant in Omegna, Italy, and moved production to Romania. PHOTO:
SIMONE SIMONE FOR THE WALL STREET JOURNAL

In short, the euro was supposed to create smaller versions of Germany throughout Europe.

Twenty years on, the euro has been a boon to Germany by creating a big market using a
currency weaker than the deutsche mark was, helping it export to markets like China. Worker
productivity has increased almost 20% over the period, as German companies invested heavily
in training and new technologies.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123 2/5
2/5/2019 A Tale of Two Companies—and Two Countries - WSJ

But the productivity of Italian workers has flatlined, according to data from the Organization
for Economic Cooperation and Development, and exports haven’t grown at the same pace as
Germany’s. Other Southern European nations like Greece and Portugal have also diverged
economically from Germany since 1999, although not as dramatically as Italy, according to data
from the International Monetary Fund.

All of which means that the central bank has had to use stimulus efforts to boost economies
across Southern Europe.

“It was a mistake to communicate that each member of the eurozone had a right to a certain
GDP per capita,” says Jean-Claude Trichet, former president of the central bank and an
architect of the currency union. “That depends on the progress of productivity.”

Some economists and politicians blame Italy’s stagnation on the euro itself. While it cut
borrowing costs for Italian authorities and businesses, the euro also removed key
economic levers from national hands, including control over the exchange rate, which made it
harder for Italian companies to remain competitive internationally.

Increasingly, though, economists argue that the fault lies with Italian companies and
institutions, which they say failed to navigate the rocky transition to a digitized, globalized
economy.

“It was the failure of Italian enterprises to reorganize themselves so as to capitalize on…new
information technologies that caused Italy to fall behind from the mid-1990s on,” says Barry
Eichengreen, professor of economics at the University of California, Berkeley.

Italy’s family-owned companies, with close ties to banks and politicians, were good at playing
economic catch-up after World War II. But by the 1990s, their approach of importing
technologies wasn’t enough to keep up with an environment of rapid innovation and change,
says Mr. Eichengreen.

German businesses fared better in the increasingly competitive environment, he says, perhaps
because the shock of German reunification in 1990 forced companies to alter inherited business
practices. For instance, they restrained wage growth to increase their competitiveness
internationally.

“I wouldn’t put the euro high up on the list of things that have created the Italian problem,”
says Mr. Eichengreen. A return to the lira would help Italian companies to sell products more
cheaply in international markets, but the problem is, the companies aren’t making enough of
the technologically advanced products that would let them keep pace with top international
competitors.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123 3/5
2/5/2019 A Tale of Two Companies—and Two Countries - WSJ

The economic picture was very different when Bialetti was created. The early decades of the
20th century were a thriving time for cookware companies in the company’s home region, 60
miles northeast of Turin.

A Zwilling tempering furnace. The knife maker has more than tripled its revenue over the past decade, while Bialetti’s sales have
fallen. PHOTO: ZWILLING JA HENCKELS

In 1933, company founder Alfredo Bialetti invented an octagonal coffee pot, known as a moka,
which whistles on the stove like a teapot. The product became enormously popular in Italy. Mr.
Bialetti’s firm later merged with a family-run maker of aluminum pans, Rondine, and listed on
the Italian stock exchange in 2007.

Since then, though, Bialetti Industrie has racked up more than €40 million in losses.

The company invested in a chain of retail stores in Italy and nearby countries in recent years,
roughly doubling its staff numbers. But the bet hasn’t paid off. The company attributed a €5
million net loss in 2017 in part to difficulties at its stores in France, Spain and Austria, which
necessitated “the partial write-down of investments in the two-year period 2016-2017,”
according to the company’s annual report.

To save costs, Bialetti closed a factory in Omegna in 2010, which had employed about 120
workers, and outsourced production to Romania. It wasn’t the only company to do so. The town
once had five big cookware firms, but only two remain, says Charles Hubert de Montbel,
managing director of one of the survivors, Lagostina.

“Omegna is clearly in crisis,” he says.

A spokeswoman for Bialetti declined to comment on the company’s performance. She said the
company would use €40 million in funds from Och-Ziff to support a three-year business plan,
with a focus on its recently created coffee-capsules business.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123 4/5
2/5/2019 A Tale of Two Companies—and Two Countries - WSJ

Zwilling’s operation stands in contrast to Bialetti’s. For one, the knife maker has kept key
manufacturing processes close to home. In a factory at the company’s headquarters in
Solingen, on the outskirts of the Ruhr industrial district, the company produces knives for the
U.S. market, which can retail for $100 to $500.

Dozens of orange robotic arms dance and stamp, flitting through intricate steps that turn sheet
metal into knives. Two workers on the factory floor keep an eye out for any malfunction.

Automation and other technology have given the company a boost and helped it succeed in
recent decades, says Zwilling board member René Schmitz, and the automation hasn’t meant
big layoffs because jobs opened up in new fields as the business grew. The company employs
around 30 engineers in Solingen who develop robotized production cells, new products and
new technologies, he says. Manual workers create handcrafted specialty knives that can sell for
more than €1,700 each.

While Bialetti has had problems outside of Italy, Zwilling has thrived. Almost 90% of Zwilling’s
revenue is generated overseas. China is its biggest market, followed by the U.S.

Bialetti has tried to increase sales in China and the U.S. by signing new commercial
partnerships in those markets in 2014. In 2017, its sales outside Europe were only €11 million, or
6% of its total.

The company now plans to focus on its higher-margin coffee business. Its sales of ground coffee
capsules rose by 13% in the first half of 2018, taking fourth position in Italy in the capsule
segment, a spokeswoman says.

Mr. Fairless is a Wall Street Journal reporter in Germany. Email him at tom.fairless@wsj.com.

Copyright © 2019 Dow Jones & Company, Inc. All Rights Reserved

This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers visit
https://www.djreprints.com.

https://www.wsj.com/articles/a-tale-of-two-companiesand-two-countries-11547994123 5/5