Doing Business in Spain

A Hot Tip about Business Practices in Spain

Posted on: 23 Feb 2010

Market Overview

For the past several years, Spain was one of the European Union’s best economic performers. It enjoys a long-standing and wide-ranging bilateral relationship with the United States and has traditionally provided a healthy export market. U.S. exports to Spain through September 2008 were USD 9.5 billion, an increase of 31 percent compared with the same period in 2007.

 

• Spanish economic growth was estimated at 3.7 percent in 2007, slightly lower than that of the previous year, making Spain one of the fastest growing countries in the European Union (EU) for the last 15 years. The economy slowed significantly during 2008, and full-year growth is expected to be around 1.3 percent. 2009 economic growth is projected to drop to something between negative 1 and negative 1.6 percent. Inflation rose to 5 percent on a year-onyear basis in July 2008, before falling to 1.4 percent in December 2008. As a result of the sudden slowdown, for the first time in about 10 years, Spaniards are much less optimistic about the economy.

 

• Spain is the eighth largest manufacturer of motor vehicles and the first European producer of light commercial vehicles. Most of the world´s biggest car manufacturers are present in Spain. Although Spain experienced a 12 percent reduction in production in 2008, the automotive sector remains very important; it produced almost 2 million cars in 2008. In the tourism sector, Spain is the world´s second largest recipient of international tourists and continues to be one of the star performers in the European Union for outbound travel to the United States. Travel to the United States in 2008 is estimated to have risen approximately 30 percent over 2007. This increase was due to the stronger euro as well as to a growing interest in the United States as a tourist destination on the part of the Spaniards. Within the energy sector, Spain’s installed wind (almost 16,000 MW) and solar power (almost 3,000 MW) capacity makes it the third largest wind and solar energy producer in the world after Germany and the United States.

 

• Major Spanish firms in the telecommunications, banking, infrastructure and energy sectors have become global leaders. The largest bank in the Euro area, one of Europe´s largest phone companies, and the majority of Europe’s top-ten construction companies are headquartered in Spain. Major procurement decisions for the largest British airports, Brazil’s major cellular operator, and Mexico’s leading bank are made in Spain.

 

• Spanish companies continued to invest heavily in the United States in 2008 in banking, renewable energy and construction. BBVA completed its acquisition of Compass Bank and rebranded the bank as BBVA Compass. Santander purchased the three-quarters it did not already own of Sovereign Bank in the Northeast of the United States. Iberdrola acquired Energy East in September 2008. Acciona and Abengoa have continued to expand their renewable energy projects. Isolux Corsán was awarded $400 million of a $5 billion contract to build electric transmission lines in Texas in January 2009 to move more wind power to Texas customers. In January 2009, Cintra was selected as the “Best Value Proposal” to construct and maintain 13 miles of the North Tarrant Express in Dallas/Fort Worth, Texas. The contract signing is pending the public funding and environmental permits. ACS recently won a 35-year concession for the I-595 Highway in South Florida which includes the construction of additional lanes.

 

• Despite a significant drop in investment levels, the U.S. continues to rank among the top ten investor nations in Spain. Official statistics show that U.S. direct investment went from USD 10.5 billion in 2000 to USD 14.8 billion in 2002, USD 6.4 billion in 2003, USD 2.4 billion in 2004, USD 3.5 billion in 2005, USD 2.6 billion in 2006, and USD 2.4 billion in 2007. In 2007 the U.S. investment into Spain decreased 17.66 percent compared with 2006 investment; it represented 4.7 percent of the total. U.S. investors hold significant portfolio investment in shares of some of Spain’s largest companies.

 

• As of the end of the third quarter of 2008, venture capital investments were reported at USD 2.5 billion (Euros 1.87 billion), a 45 percent decrease over the same period the previous year.

 

Market Challenges

The weakness of the dollar versus the euro is advantageous for U.S. exporters. Nevertheless, U.S. suppliers will continue to face stiff competition from EU countries and from Japan.

• Cost, financing terms, and after-sales service are important competitive factors. European exporters provide generous financing and extensive cooperative advertising, and most European governments support exporting with trade promotion events. Japanese and Chinese companies are also emerging as formidable competitors. Although U.S. products are well respected for their high level of technology and quality, American firms sometimes fall short of their competitors in flexibility on financing, adaptation of product design to local market needs, and assistance with marketing and after sales service.

 

• The recent economic downturn appears to have resulted in some companies´ reluctance to commit to purchase or represent new products or services. Nevertheless, developing export sales or distribution channels takes time and export-ready U.S. firms are urged to explore opportunities in Spain and throughout the euro zone.

 

Market Opportunities

Major U.S. exports to Spain have traditionally included aircraft and associated parts and equipment, medical products and equipment, outbound travel and tourism, software and services, electric power systems, and pollution control and water resources equipment and telecommunications equipment. Other sectors offering good prospects include defense, security equipment, renewable energy equipment and services, e-commerce, chemicals, engineering services, transportation and industrial machinery.

 

• The rail transportation sector was liberalized in 2005. In January of that year a new law came into force separating the management of the rail infrastructure from the transportation service. Rail transport is a key objective in the 2005-2020 Strategic Infrastructure and Transport Plan, accounting for almost 50 percent of the planned Euros 248 billion (USD 342 billion) investments. It is expected that by 2020 all Spanish cities will have direct access to the high-speed train network and 90 percent of the population will be within 50 kilometres of one of its stations.

• Although industrial production continues to play an important role in the Spanish economy, indicators show that the service sector continues to expand, with services now accounting for 67 percent of economic activity.

• Principal agricultural exports to Spain from the U.S. in 2007 included tree nuts, wheat, coarse grains, forest products, fish and seafood products and feed and fodder.

• The EU Council of Ministers approved a reform of the Common Agricultural Policy (CAP) in June 2003. CAP reform is expected to result in support programs that are more market oriented and make EU farming more competitive in world markets. The 2003 reform of the CAP introduced a new system of direct payments under which subsidy payments are no longer linked to production (decoupling); this system is known as the Single Farm Payment (SFP). The Government of Spain (GOS) chose January 1, 2006 as its implementation date for CAP reform while Portugal implemented most of the reform during 2005.

• In April 2005, the EU reformed the olive oil, tobacco (full decoupling by 2010), cotton (35 percent decoupling) and hemp programs. In addition, current sugar reforms include voluntary quota cuts until 2010 in order to reduce European sugar production.

 

In January 2007, the European Commission (EC) proposed reforms to the Common Market Organisation (CMO) for fruits and vegetables, aiming to improve the competitiveness and market orientation of this sector. Spain approved this reform in June 2007, with implementation slated for 2008. Currently, Spain has a five-year transition period to fully implement the SFP program for selected fruits and vegetables. As of January 1, 2008, the Spanish Ministry of the Environment and Rural and Marine Affairs (MARM) fully decoupled peaches and Williams pears intended for processing, as well as dried figs, Ente prunes and Moscatel grapes. Citrus intended for processing remain fully ‘coupled’ until the end of 2009 and industrial tomatoes will keep 50 percent of the current support received ‘coupled’ to production until the end of 2010 ,

Principal Growth Sectors

Feed ingredients

Seafood

Tree Nuts

Pulses/Legumes

Note that the Foreign Agriculture Service provides market info for the Iberian Peninsula, which includes Spain and Portugal. See Chapter 4 for more details on the sectors indicated above.

 

Market Entry Strategy

The Spanish market is made up of a number of regional markets joined by the two hubs of Madrid and Barcelona. There are a total of 17 autonomous communities in Spain (similar to U.S. states) with varying degrees of autonomy and cultural identity. However, the vast majority of agents, distributors, foreign subsidiaries and government-controlled entities that make up the economic power block of the country, operate in these two hubs. The key to a foreign firm's sales success is to either appoint a competent agent or distributor, or to establish an effective subsidiary in the Madrid or Barcelona areas.

 

• Spanish commercial procedures are in line with the rest of Western Europe, where price and value remain paramount. However, credit terms, marketing assistance and after sales service are also important factors in local purchase decisions. The use of credit to purchase consumer goods is widely accepted in Spain, particularly in the cities, with banks competing to offer coverage.

• The Spanish government has eased regulations at all levels and increased incentives in an effort to attract foreign firms and investments. In recent years investment incentives designed to reward investors for establishing manufacturing operations in less developed areas have dispersed some investment from the major hubs. Except in a few cases, Spanish law permits foreign investment of up to 100 percent of equity. However, disincentives such as high labor costs, inflexible labor laws, and concern for intellectual property rights in the copyright area still exist.

• Spaniards tend to be more formal in personal relations than Americans but much less rigid than they were 10 years ago. The approach to doing business is similar to doing so in Italy or France. Professional attire is recommended.

• There is no substitute for face-to-face meetings with Spanish business representatives to break into this market. Spaniards expect a personal relationship with suppliers. It can be challenging to elicit a response to initial communication by phone or e-mail. Direct mail campaigns generally yield meager results. Less than 30 percent of local managers are fluent in English.

• Spaniards tend to be conservative in their buying habits. Known brands do well. Large government and private sector buyers appear more comfortable dealing with other large, established organizations or with firms that are recognized as leaders within their sectors.

 

 

 

Read the full market research report


Posted: 23 February 2010

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