When I worked at Linuxcare, we had a reasonably successful time doing just that. We had an extremely bright group of people (including antirez and several others of that caliber) that didn't cost all that much, all things considered.
I still wonder why more foreign shops don't set up some of their operations in Italy - there are a lot of bright people willing to work for a lot less than they would get abroad. Sure, it is bureaucratic and run in an illiberal way, but it's not so different from other continental European countries. And the climate is nicer, with great food and a stunning amount of natural variety. The important thing is to avoid Milan:-)
I think less capital-intensive activities like R&D are best. If you're running your money through Italy via sales or something, that's probably not an ideal strategy (Google is in Ireland in Europe for a reason). However, having a bunch of smart people working on a project that requires some ingenuity and hard work is perfect for Italy.
Fabrizio Capobianco has more to say on the subject:
Regarding R&D, there was a time before the bubble burst when that happened and some US companies had R&D centers here. Now there is not much left (various reasons involved), there is a cisco's r&d center for optical networking gears in Monza where i work atm, but i can't think of any other similar places.
I definitely agree that this is the perfect place for offshoring, especially for smaller software shops. The bureaucracy will seem a bit intimidating at the beginning but in the long run it will be worth it.
About the market, offering an innovative product (especially if it targets end-users) here feels like a sure-failure strategy. If it's some free toy like facebook it could work, but don't expect to have a meaningful number of paying customers if you are selling something/offering a service.
In Monza there're some other R&D center, left behind by the old Philips R&D of the 80s. First that come to mind in my field (embedded) is the Flextronics Medical Division.
A lot of people is currently consulting and building "dinamic-teams": one small srl take the work and the team grow as needed with consultant.
Startups? I joined one in 2000 (ubiquity, in milan) they are still around but they changed their DNA.
Although based in the UK I used to do a fair amount of work in Milan - why would you avoid it? I thought it was a pretty nice place, although even when I dressed smartly I still felt pretty scruffy compared to most of the locals. :-)
It's relatively expensive, big, crowded and polluted, and yet wages are still not that high for programmers. I like living in Italy, but if I wanted a big city, I'd rather go back to the US where I'd make more money in a place like San Francisco, which is a nicer city than Milan.
My opinion is that you get a good mix of "things going on" and "Italian lifestyle" in the mid-sized northern/central towns like Padova, Pavia, Verona, Trieste, Bologna, Firenze, and so on. But that's just my bias in life...
As an Italian currently living in Milan and planning my escape, I agree. Also, as a southerner, I recommend you avoid South Italy, because there is less support for entrepreneurs.
I agree that one of the most untrue stereotypes of Italians is that they do not work hard, because most people I have met are willing to put in very long hours.
Unfortunately I have also found the "Italians are not that effective" stereotype to be somewhat true. In a university context people are willing to meet and study all day long but often there is no agenda, no direction poor preperation and people being late. Basically I think Italian systems should focus more on brevity and precision, then they could also take some more time off and get the same amount done :)
Disorganized? Maybe in some situations. Of course, that could also be an advantage for those who can manage to work with a bit of chaos, because what startup isn't chaotic at the beginning?:-)
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