Spain Becomes Country of Contrasts, but Where is Crisis?

Look at the pictures below and tell me what differences you see. Taken approximately at the same time, some 600 meters from each other: 6 PM... Madrid... center of the city...

A nice evening route at Westin Palace...

...and a huge line to buy a lottery ticket for the upcoming bonanza called El Gordo de Navidad:

600 meters and an abyss of difference. One thing is sure - if people go to the lottery stalls, they have given up on their government. They are entrusting their future to blind fate, which is rarely benevolent to those who are desperate. Those who spend hours in lines are desperate because instead of buying the same tickets online, they wait in cold and rain as they think that this particular lottery shop is lucky.

Yet, something is very unclear to me. I tried to make a reservation at Teatriz, a restaurant that I really like; where I have spent many memorable moments of my life with very special people. It's a remodeled building of a theater, which now wines and dines anyone who appreciates good cuisine in a quaint setting. If you ever go there, make sure you visit the restrooms downstairs - that's quite a mirror labyrinth. So, I was trying to make a booking and all to no avail, because it was fully booked throughout the weekend, and, indeed, finding a place to eat on a Friday night turned out to be a task worthy of Sisyphus himself. We are talking about a country that is allegedly in a crisis.

OCDE predicts exacerbation of unemployment in Spain in 2012, but the boutiques on the Serrano Street in the posh area of Salamanca are full of people buying things. Loewe decorated their shopwindows with cute looking  wooden soldiers and nostalgia evoking toys and that does attract Spaniards too, suffering from over 20% of population out of jobs. All media are crying out loud about a crisis in the country, but the crisis is nowhere to be seen, at least not in Madrid: the bars are full, the nightlife is rampant as ever, the airports are full with travelers. In 1998 in Moscow people were careful which ATM they were drawing money from to save on the withdrawal fee: that was the feeling of a crisis.

The politicians love the crisis horror story; it's hot political currency nowadays. A very popular game too: at first you create a crisis and then you are trying to manage it - will guarantee you two terms in most cases. On November 20th Spain went to the polls and, no major surprise, the leader of the Popular Party won, even though he was not able to formulate his position (or clearly avoided doing so) on any issues of vital importance. What we know for sure is that cuts to public spending are coming and it's not going to be pretty. Many young Spaniards only wait for their graduation to leave the country. The government does not seem to notice. Maybe it's time now it stopped playing lottery with its people and started helping them instead?

Has Spanish Youth Lost Faith in Its Country?

If we believe to this BBC article (http://www.bbc.co.uk/news/world-europe-15171607), Spanish youngsters who are getting higher education, do not plan on using it in Spain. Either for the lack of opportunities or for the given-up hope in the society and the government, the young people, who are the future labor force of the country, are looking elsewhere but not on the Iberian peninsula.

Hence, we should not really be surprised by the appearance of web pages like this one: Juventud SIN Futuro (sp.: Youth WITHOUT Future).

There no other future but the one that we create together. I think it's a quote from the Terminator, but I might be mistaken. Flight and Denial are the easiest and most destructive ways to deal with change. Change is inevitable and it was coming. What Spain really needs now is a charismatic leader who would be able to reach the hearts and minds of the young Spanish people, but, to tell you the truth, there is none currently on the public political arena. Pity.

If you look at the bigger picture, though, Spain is not alone, and maybe it is not worth off. Here is a selection of Wall Street Journal articles on Generation Jobless, as they have been baptized in the US:

• The Toll on Parents When Kids Return Home
• Students Pick Easier Majors Despite Less Pay
• Is an Ivy League Diploma Worth It?
• From Ivied Halls to Traveling Salesman
• Speeding Through College to Save Money
• Generation Jobless: Young Men Suffer Worst as Economy Staggers
• Among Minorities, a New Wave of 'Disconnected Youth'
• For Those Under 24, a Portrait in Crisis

Study in Spain, Work Elsewhere

Spain is a great country. It gave this world Velazquez, corrida and Serrano ham. It is the birthplace of flamenco and really loud people, and anyone who comes to Spain cannot fail to get infatuated with the contagious easiness of being and enjoying this life to the brink of our capacity.

Apart from the mundane pleasures, Spain carries the heritage of a strong scholastic tradition: its universities are well-ranked and many streets bear such grand names as

José Ortega y Gasset or Diego de Zúñiga. In fact, according to many international agencies of good repute and my personal experience, Spain is a great place to study: the cost of living is lower than in many rivaling countries, the climate is amazing and party life is rampant. You study hard too. (see Spain - the Country to Do an MBA!)

The hard truth hits afterwards. What are you going to do with this splendorous education that you have obtained so arduously? Considering the fact that Spain continues to fight its own economic development, getting a job there for a young MBA graduate may be tricky. Where I say "tricky", read "problematic", and when I say "problematic", read "hardly possible". I am looking at my MBA class trying to remember who wanted to stay in Spain after they had graduated from IE Business School. Virtually everyone. Well, most of them, unless they had hard-set family business plans back home already in gear. How many are there now? A meager bunch, and some still looking for a job. One day they too will despair and go looking in other countries.

Why is it that MBAs are not wanted in Spain. I see there are a number of reasons. First, the economic crisis has had its toll: the unemployment rates are low and the companies are not that eager to hire. This is easy to understand with a little caveat that hiring high-potential employees delivers high value to the company and the results that they are able to produce result in growth and creation of more workplaces.

But, these sentiments aside, there is another reason: the sovereign debt issues and the austerity measures to follow call for a specific type of managers - those who revel in cost cutting and who are at their best managing rather than leading. MBA schools are trying hard to create leaders, visionaries, reformers… Nobody teaches at business schools how to be penny-pickers and cost-cutters. Well, they do, but these matters end up being swept under the rug, and the MBA students rush on making presentations of spectacular projects costing millions of euros, all about expansion and sustainable growth. I guess what I am trying to say is that MBAs are best suited in booming economies or consulting companies (that will survive no matter what - someone has to do SOx audits, after all).

So it's not about Spain per se. Although MBA hiring soars, the world is still trying hard to recover from the recent economic blow and the new wave of rapid growth is not here yet. So it's time to get philosophical and take it as it comes. If you want to have a challenging  and interesting project in Spain, maybe it's better to wait a year or two and in the meantime have a spell in a BRIC country. Or (yet better) go down to Madrid Centro and have a sangria or two, you are in Spain, after all!

EU Scenarios Bleak

This October promises to be hot: http://october2011.org/. Not so much in Celcius (or Fahrenheit for that matter) as in social (in)justice emotions and revolutionary urges.

It is enough to see what's tweeting under #GlobalRevolution to realize that October 15 is going to be messy:

While Germany is holding off the rescue package to Greece, unemployment numbers in Spain refuse to shrink, Italian debt ratings go down nearly as fast as Belorussian roubles, and students protest against educational cuts, big businesses ought to get pensive as to what their scenarios are should good old Europe follow the fate of that large boat on having encountered the iceberg. When push comes to shove, the companies will have to act quickly: secure credits and cash flows, manage inflation and find ways to pay the suppliers and workers.

RBS came up with 5 probable scenarios (four of them involve Greece default by December), the Dutch government did some scenario planning too, and according to the former CEO of Volvo, “It would surprise me if any well-run company were not preparing itself for the worst scenarios, however remote those may be”.

The Economist baptized the situation "Under the Volcano". Surely, they need to see their magazine, and drama sells well, but maybe what we are about to witness in the area of EU economics in the next couple of months is going to be more spectacular and far more troublesome than the eruption of that tongue-twisting Eyjafjallajokull in small and distant Iceland, which this time might turn out to be least affected.

A Tale of How Spain Was Fighting With Its Own Economic Development

Once upon a time there was a country. It enjoyed many sunny days a year, beautiful beaches and colorful flamenco music, igniting the hearts of many of its inhabitants. Tapas with gazpacho kept them fed and sangria made them happier than, may be, they should be. It would be heaven on earth, had this little Mediterranean country, called España, a better government. The list of social and economic issues impeding its economic growth stretches from Paris to Tegucigalpa and on May 15 many Spanish people had to gather together on the central square of its capital and indignantly protest against the ruling regime.

The people of Spain also bear a part of the blame for the situation that the country has found itself in (see Spanish Youth and Cucumbers). The disillusioned, the revolutionary and the complacent have not done enough to be internationally competitive in the globalized world of today. Many Spaniards will vehemently object to being moved to a different city within the country, leave alone expatriation. With such attitudes it is difficult to imagine how they are going to develop the skills essential to manage business across the national and geographical borders. It always shocked me how the pharmacies work in Spain only from 10 am till 2 pm and then from 5 pm to 8 pm and still make money. A healthy siesta will always take prevalence over customer service; actually, I believe the phrase "customer service" should be eliminated from the Spanish context and substituted by the term "customer experience". If things continue as they are, soon someone will come up with a new business idea of outsourcing dealing with various call centers on behalf of the customer, because getting anything out of them (in case you manage to get through the numerous automatic switchboards and robotic messages) if you do not have the sufficient experience and patience is only comparable by intensity to giving birth, which in some instances yet might turn out to be less painstaking and irksome. 

However, the government can claim the first prize for the inefficiencies and dire faults in the societal tissue. Well, it's true that people have governments that they deserve, but I wish to hope that those who sit in the parliament or serve the administrative branch are part of the intellectual elite of the nation, charged with making things better, not worse. The current so much needed economic reforms are met with violence and rejection, which is an indication that the ruling few have entirely lost touch with their electorate, that they are unable to explain the necessity of severity measures and the previous attempts to handle the affairs were nothing but populist. Gayle Allard of IE Business School argues that the unemployment picture is getting bleaker. Only one look at the graph below would be enough to grasp the idea that not all is well. At soaring heights of 21.2%, the unemployment figures are even worse among those who are less than 25 years old - 46.2%:

Even if you have not attended a business school, you would intuitively agree with Peter Drucker's take on social corporate responsibility: the public sector is there to make money. Forget the rest for a moment. If there are frequent monetary (re-) injections into the economy, it generates a virtuous cycle as money tends to multiply itself. Even if a firm does absolutely nothing else with regards to CSR (corporate social responsibility), let us assume that making profit and complying with the relevant legislation would suffice. Spain seems to know better and is doing its best to keep the businesses from profiting.

What is the greatest asset of any company? It's human capital, right? Innovation and creativity do not come from complacency and spectator attitude. If a company wants to be successful and profitable, it has to get the best people. For centuries the prerogative to select and hire the professionals has been with the business and the government stayed away, since, frankly speaking, the bureaucrats have no idea whatsoever about running a particular business and even less so do they care about it. Therefore, it beats me why the Spanish authorities are trying to dictate the companies whom they should be hiring. You heard me right: whenever a company wants to hire a foreigner, it has to go through the motions of interviewing the "eligible" local candidates and providing the proof that those do not fit the job description. The process may last from 3 to 6 months. There is a special service (INEM) that checks its database for such candidates and does not grant a permission to proceed with the work permit until it is convinced that there is absolutely no one with a Spanish passport who can do the advertised job. Let's pause for a minute here:

• Hiring foreigners is an expensive and generally burdensome practice. Why would a company decide to resort to such measure? Because there is nobody on the local market!
• Always - I repeat - always a company will first scout the market with the help of search agencies and headhunters. Only after that step is done will they look abroad. So if the recruiters have not found anyone locally - there is nobody on the local market!
• What sort of people will INEM offer? (1) Unemployed, (2) same as in the search agencies databases, and (3) rejected everywhere else. How can that candidate fit the job if all the headhunters have confirmed that… there is nobody on the local market!

It is my naïve logic, still I'll venture laying down my thoughts. Companies pay premiums for expatriate staff because they bring skills and knowledge unattainable locally. Being more qualified, these employees produce better results and pass their knowledge onto their local subordinates and colleagues. Better results lead to higher profits. Profit euros get reinvested into the economy creating more workplaces. Knowledge transfer and retention practices ensure upskilling of local staff up to the point that they can replace expatriates, driving fixed costs down and increasing profits, which get reinvested… you get the picture. The government does play its role, but its role should not be meddling, but rather regulating and supporting. All countries mark the playing field and establish the rules but then they give the business to make its own decisions within those regulations. Even the most stringent countries are at least reasonable when it comes to employment regulations, e.g. South Africa (linking labor force profile to state subsidization and governmental contracts eligibility) or Saudi Arabia (limiting expat tenure and demanding skills transfer). Those governments are also concerned with well-being of their citizens but they understand that companies need expatriate workforce for a reason.

Why does the Spanish government want to do it exactly in reverse?

It is undoubtedly honorable to be patriotic. It might also pay off to be nationalistic, particularly if you are a politician. It feels good to guard traditions and preserve the best of the past. But nobody has yet abolished common sense nor has cancelled logic. So being traditional, nationalistic and patriotic against the reason, logic and facts is at least irresponsible. At most - stupid. There is a limit in everything, even human vanity has it. I honestly, frankly and sincerely do not wish that Spain ends up like this unfortunate torero:

Spanish Youth and Cucumbers

My dear friend Gary Stewart published his new blog post today, titled Indignant Fellows, Spanish Mothers and Tupperware. In his article he blames overprotective Spanish mothers for lack of ambition and passiveness of the Gen Y (or generación Ni-Ni, as he refers to them), which in the long run affects the economy, political and social setup of the country. While Gary's standpoint might be accused of extreme generalization (and is slightly aggressive), I cannot but agree that his article has resonated with my personal experiences here in Spain.

Yes, the younger generation in Spain has been taken for a ride and even now most companies and governmental agencies are trying to take advantage of the vulnerable position of the (especially younger) workforce, as I have already mentioned in my Offensive Job Offers post. I would not be too hasty to jump at conclusions that the Gen Y is a victim and everyone else is just a money-grabbing bastard not giving a damn about anything but personal profit. Over the course of the past year, I've met enough young Spaniards to notice certain trends in their economic behavior and I don't think that I will be too far off if I broadly categorize them into three groups:

1. The disillusioned. They have a pretty good understanding of what is going on but no motivation to change anything, either because they tried and failed or merely because they know exactly what it will take from their personal lives, peace of mind and vocal cords to make a tiny difference. So they are looking at moving to greener pastures where meritocracy has a louder toll. London and Germany are normally the most popular European destinations.
2. The revolutionary. Dolores Ibárruri would be proud of this group of her compatriots. They pray by May 15 and enjoy living in tents on Plaza del Sol. They believe that if they shout loudly enough, the jobs, money and public admiration will descend from above not unlike the manna people once received from heaven. History proves over and over again that forced redistribution of wealth has never led to anything but suffering and greater disbalance.
3. The complacent. Life sucks and we are cool with it. An acquaintance of mine (26) wants to work as a waiter (he's in his last year at university working towards a degree in Geology). Not a research assistant, event coordinator, twitter feed manager or something else having a bigger value add, but a waiter. I respect the waiting profession. I want to try it out on Saturday nights as well. Being a waiter at 18 is cute. At 26 it's sort of embarassing.

Whatever group those youngsters (and I am talking about 18-30 years old here) belong, their low level of motivation is truly shocking. They would rather be demonstrating for a month than join a vocation school to learn Excel or English. Surely, I have not been talking about quite a large proportion of the Spanish youth who do have ambition and challenging targets in their lives, but I am trying to paint a general picture here and unfortunately it does look that bleak.

You would ask me what cucumbers have to do with this discussion. As usual, it's a metaphor. Perception is reality and your mental models define who you are and determine how you behave. In the midst of the Spanish cucumber scandal a few weeks ago, all Spanirds were adamant about the quality and taste of their cucumbers. In the end, the bacillum was located in Germany and Spain was cleared of all accusations but... their cucumbers are not that great, really.

50 EUR Note or How to Lose Talent

Jokingly, the 500 euro notes in Spain are called "bin ladens": they exist in theory, but nobody has seen them (I am not sure if this joke is still relevant in the light of the recent developments). The jokes are only funny when they are not played on you, thoght... I did not have to deal with a note as large as a 500-euro bill but even a tenth of it gave me quite a headache today.

Speaking metaphorically, I fell prey to the global drive of wading away from cash transactions and eliminating cash from the value exchange. I had to take a bus from Plaza de Castilla in Madrid to go to Alcobendas, the fare for which is EUR 1.50. I arrived at the bus station 10 minutes in advance with a general feeling that everything was under control and I had more than enough time to get the bus and maybe even enjoy a coffee on the way. Imagine my dismay when I relaized that I only had a 50-euro note in my wallet and no coins at all. I start darting around the terminal looking for someone who would change it into something more tradeable as the bus driver refused to accept it upright. Now... the ticket machines did not accept it, the ticket office did not have change and even the hot-dog-stand vendor could not help, even though she was a most amiable lady. My last hope was an ATM, and when I asked for EUR 50 hoping that I would get two twenties and a ten as usual, the wretched thing spat out another 50-euro note at me and that was already happening 30 seconds before the bus departure. Cursing the banking system, the electronic means of fund transfers and the public system of the Community of Madrid, I went back to the ground level and got a taxi. Taxi drivers always have change for some strange reason.

Still being in the metaphorical mood, I started contemplating the implications of having "500-euro notes" in organization, i.e. senior seasoned and well-qualified employees who do not fit the structure any more. That happened to Shell South Africa a couple of years ago, when after a successful implementation of Global SAP many employees who were working on the project could not be integrated back into the workplace because they have outgrown their old positions, the organization has become much flatter due to streamlining of the business processes and, in general, there are fewer jobs at the top (the champagne bottle effect). So they were like those 500-euro bills: high value, looking pretty but hardly utilized in the new environment, which suddenly became extremely transactional and controlled. As a result, many had to exit the company.

Moral of the two stories: sacks of coins are heavy to carry but having just large bills may get you nowhere, thus balance is the magic word. There is a caveat though... this rule does not apply if you have LOTS of money and can swap the bus station for a helipad :)

Where are Spanish companies heading?

Today I have seriously started exploring the job opportunities with Spanish companies. I have met with one of the headhunters on the local market, and his greatest sentiment is that Spanish people are not interested in leaving the country and go work overseas. This is all flattering news for me, of course, as I am as internationally mobile and flexible as ever, but not for the Spanish economy. As far as I understand, it is not a matter of educaiton or training. Well, partially, it is, but there are many Spaniards who speak good English and hence theoretically can do business living in other countries - it is Spain that they are so unwilling to leave.

I faced this problem once, trying to get people from Cape Town to move for work to Johannesburg or Durban in South Africa. There is something that the Table Mountain does to them that they become virtually untransferrable, and even if you manage to convince them to leave their beloved domicile close to the ocean (at a premium, make no mistake about it!), they will find a way to get back there in a couple of years.

Researching the topic, I have found this article published a few years ago, but it still holds true for many Spaniards:

Where Are Spanish Companies Headed?


Nowadays, Spanish companies like Zara (Inditex), Telefónica and Santander do not need any letters of introduction. It wasn’t always that way. Over the last decade, Spain has gone from being a net recipient of foreign investment to a country that has growing significance as an investor in foreign markets. Indeed, Spain has become the eighth-ranked investor in the world, behind only the U.S., the U.K., France, Germany, Hong Kong, the Netherlands and Switzerland. Over the past two years, Spain has overtaken Canada and Japan. The Circulo de Empresarios (Businessmen’s Circle) in Spain joined with the Wharton School to take the pulse of the Spanish enterprise in the global environment. The two organizations recently published the annual 2007 edition of “The Globalization of the Spanish Corporation.”
The report also provides results of a new survey about the most outstanding foreign investments made by Spanish companies in 2006. The award winners were Acciona’s investment in Australia, where it is constructing the Waubra wind power park; Ebro Puleva’s acquisition of the Minute Rice chain; the acquisition by Ferrovial of BAA, the British airport management firm; the arrival of Santander in the U.S., where it acquired Sovereign Bank; and Telefonica’s purchase of O2, the British cellular operator.
Universia-Knowledge@Wharton spoke with the report’s author, Mauro F. Guillén, a management professor and the director of the Lauder Institute at Wharton, and Belén Romana García, who heads the Circulo’s economics department. The goal was to explore the achievements and challenges presented by globalization in the past, present and future.
Universia-Knowledge@Wharton: What factors were responsible for transforming Spain from a net recipient of foreign investment into a country that has growing influence abroad?
Belén Romana: It is a logical consequence of the fact that Spain has undergone an almost unforeseeable economic and social transformation that has had enormous significance. In the realm of economics, the most important thing was the opening of foreign markets: The entry into the European Community (1986), the establishment of a single [European] market (1993) and the adoption of the euro (1999). All this led to a change in the country’s economic structure by quickly introducing a large dose of competition into Spanish markets. This process permitted Spanish companies to make experiments at home before going abroad. [This happened, for example,] in the financial sector … and also in the infrastructure sector. Over the years, Spanish companies have learned how to compete for managing, financing and constructing infrastructure projects. All of the changes in the Spanish economy are associated with opening its economy to the world. We Spaniards do not improve ourselves simply on our own. Instead, we are compelled to open ourselves to risks that come from outside Spain. And when we do that, the Spanish economy has a great capacity to react.
UK@W: What role has Latin America played in that change?
Belén Romana: Latin America has been a second testing ground. Spanish companies learned [their lessons] at home; Spain is a country which had undergone political and economic changes. But in Latin American countries, which have a similar culture and the same language [as Spain], those companies immediately began to undergo exactly the same processes of political as well as economic change as a result of the privatization process. They also promoted democratization and a market economy. Those Spanish companies that go to Latin America are quite capable of developing themselves because the environment there is quite similar to their own.
Mauro Guillén: The sequence of events is very important. First, there was competition in the Spanish market. Before that happened, Spanish companies could not jump into the European market for two reasons: their [small] scale of operations and the fact that Europe was very protectionist in every sector -- and continues to be so. Latin America was an opportunity that presented itself at the right moment because there were two completely separate and distinct processes, and they enabled companies to acquire experience and scale. Latin America was the last resort, the only hope …. Nowadays, we see the greater scale of operations, thanks to Latin America, and it enables Spanish companies to make acquisitions in Europe and the U.S.
UK@W: According to the report, in 1997, 50% of Spain’s foreign investments were in Latin America. In 2006, that figure was only 4%. Which regions are currently the targets of Spanish investment, and why?
Belén Romana: Nowadays, Spain’s outward investments are basically directed toward Europe; in 2006 the United Kingdom took in 56% of the total [value of Foreign Direct Investment from Spain]. The United States came next with 10.5% and Southeast Asia was somewhat lower. Spanish companies have tried to take advantage of the modest deregulation that has occurred in Western Europe. The United Kingdom is the European country that has taken market deregulation most seriously. When Spanish companies try to enter other European countries, they do it where they can. In Italy, for example, their attempts have failed to some extent.
Mauro Guillén: It should be emphasized that Spain’s four most important foreign operations took place in the United Kingdom -- Santander’s takeover of Abbey, which opened the doors; Telefónica’s takeover bid for O2; Ferrovial’s deal with BAA; and Iberdrola’s deal with Scottish Power, the utility, in 2007. In Europe, it might have been simpler to make acquisitions within the euro zone but it turned out to be much easier in the U.K. because of regulatory factors and issues of competitiveness.
UK@W: Is Spain missing the boat in the competition against the faster-growing BRIC economies – Brazil, Russia, India and China?
Belén Romana: There is the case of Brazil and then there are the others. In Brazil, Spanish companies do have a presence. However, Brazilians are also beginning to go abroad and, in some cases, they’re going to Spain. In Russia, there has been an effort but only with rare success. In China and India, Spanish companies face very complex challenges. I believe that you pay a high price for having a [strong] cultural tradition. All of the countries that have had colonies in Southeast Asia know how to operate in that region because they have had a presence there for 100 years. But the Spanish have not. In addition, there are some negative factors; it [Southeast Asia] is a part of the world whose culture is very foreign; that acts as a very clear constraint.
Mauro Guillén: Large Spanish companies have a presence in Brazil, such as Santander, Mapfre (insurance), Telefónica and some small companies that supply auto components and machinery. In China, smaller companies also have a presence. However, Spanish companies still have much ground to make up in the BRIC bloc, except for in Brazil. Moreover, these companies usually don’t have the managers they need in order to carry out the expansion process.
Something interesting is happening in China, although it has yet to bear fruit. When it comes to infrastructure development, the Chinese are interested in Spain’s role in Latin America. That’s because China depends on Latin America for its raw materials. Take, for example, the case of Telefónica, which purchased a minority interest in Netcom, China’s second-largest phone company. In return, the Chinese got their own board member in Telefónica Internacional S.A. in 2005. That deal was motivated by China’s desire to have an influence on infrastructure decisions in Latin America.
UK@W: In your latest report, you note that Spanish companies have yet to project themselves fully onto the global scene, even those companies that have high visibility and a strong image in the global financial press. How has the image of Spanish companies evolved in such influential publications as the Financial Times, Wall Street Journal Europe, and the Economist?
Mauro Guillén: A decade ago, they had very little visibility, which reflected the small size of the Spanish economy. Over the last 10 years, their image has grown considerably. In 2006, more than 3% of all the articles in those four publications mentioned at least one Spanish company. At the time, the Spanish GDP supplied something less than 2% [of the world economy’s GDP]. That means that we are over-represented. That’s a good thing. The companies that are mentioned a great deal are the big companies; it’s always Telefónica, Santander and so forth.
At first, when Spanish companies began to invest abroad, especially in the mid-1990s, the media couldn’t believe it. They thought that Spanish companies would “only last a short time” abroad and that they “were going to crash.” Later, confidence in Spanish companies took an upturn but that subsequently collapsed after the Brazilian crisis of 1999 and the Argentine crisis of 2001. People started to say things like, “We told you so.” Starting from that point, however, the image [of Spanish companies] has improved a great deal.
Belén Romana: In addition, there is a clear imbalance. Companies that have assets in the United Kingdom stand out from the rest. Nevertheless, [Spanish companies’] success in Latin America has helped send the message that these companies were staying for the duration. You prove that you really are a global company when you survive and when you demonstrate that what you’re doing is relevant. The press has recognized that.
UK@W: Spain’s foreign account deficit is one of the largest among developed countries. Does Spain have a competitiveness problem? In which sectors are Spanish companies most competitive on a global scale?
Belén Romana: Clearly, the fact that Spain has both a trade- and current-account deficit reflects the country’s competitiveness. Deficits cannot be attributed entirely to this, however, just as in the case of the United States. When it comes to Spain, some portion of the deficit results from its unusual position: The country trades above all with the European Union, but while Spain has been growing lately, the EU has not grown [much] for 10 years. When that sort of thing happens, you wind up buying more than you sell. That’s part of the problem. On the other hand, Spain is poorly positioned when it comes to trade because it sells to countries that are not expanding while other countries sell to faster-growing markets. We’re in a very complicated position because our trade pattern does not match up much with the trade patterns of China and India. There is very little to sell them that we produce here [in Spain].
Spain does, however, have a problem of competitiveness as a result of pricing differences. What can you sell when your prices grow continuously for a decade, and your prices wind up being no longer competitive? Traditionally, our approach to selling merchandise was based on this strength -- our labor was cheaper. Nowadays, that approach is impossible when it comes to Poland and ridiculous when it comes to China. Our trade pattern doesn’t work out for us because it is based on a factor where we are no longer the best. We have to change that pattern and, yes, that is a problem of competitiveness.
It’s quite natural that a lot of companies have noticed this change in global trade patterns and have globalized as a result. They realized that national markets defined by borders are dead nowadays and that you have to look at the world as a single market. The Spanish companies that have changed their perspective are the global companies. Many of them originated in the public sector, but others did not.
Mauro Guillén: Next, there are the midsize companies. Some of them continue to be competitive by exporting from Spain but manufacturing some kinds of products in other locations. The important thing is that there is a lot of variation; some have figured out how to respond to incentives but others have been left behind. This happens in every economy, not just in Spain. On the other hand, the headlines are always about the banks, telecom companies, utilities… There are perhaps 200 or 300 first-rank global manufacturers in Spain -- in machinery, food, optics and so forth. All of this changed because of deregulation and because opening the Spanish market to foreign companies has been a positive process, not only in those three sectors. In practically every sector, there is a Spanish company that has made progress. It’s not that there are just a handful of geniuses; these companies have created institutions and conditions that improve their competitiveness and the economy. This has enabled a very wide range of companies to move ahead. When and if they succeed ultimately depends on the dynamics of the market.
UK@W: What factors do you need to keep in mind when it’s time to make a foreign acquisition?
Belén Romana: First, you have to figure out where you can enter; which markets you can get into. Next, [you need to find out] whether you will have a competitive advantage in know-how if you decide to enter that market where you are better than your competition. Third, you have to identify what factors will help you acquire prestige, muscle, financing and global scale, and what factors will enable you to jump to the next stage.
Mauro Guillén: When you create a multinational company, you don’t become competitive right away, not in just one or two years. You have to look for new opportunities to do business and make investments that enable you to learn new things. The sequence that we were talking about is something very important -- going first into Latin America and then into Europe, and so forth. You need to have the mentality of going up the rungs of the ladder and opening one door at a time, identifying new choices to make. This is a very dynamic process, and you need to have a vision that looks ahead for five or 10 years.
UK@W: Some Spanish companies have stood out by making important acquisitions around the world. Is this a growing trend or are these just isolated cases?
Mauro Guillén: What we are seeing is just the beginning. My prediction is that Spanish companies are going to make important acquisitions in the U.S., partially as a result of the strength of the euro. Within a few years, we are also going to see the first significant acquisitions in Asia. Assuming that there is not a global recession, Spanish companies will continue to make headlines with these acquisitions. Nevertheless, there will be some Spanish companies that will also become targets, and they will be acquired. That is the case with Endesa, the electric utility that is now Italian-owned. There is also talk that Iberia [Airlines] might be acquired. There is going to be a process of give-and-take, and that isn’t a bad thing. It will be mostly European companies who come to Spain to make acquisitions.
UK@W: What challenges do Spanish companies face as a result of globalization?
Mauro Guillén: Spanish companies are going to face the same sorts of problems they have faced until now, but on a greater scale. You see that in the case of Ferrovial’s acquisition of BAA, a company that operates airports. The problem was that the deal was financed with debt and was leveraged. Secondly, the company’s prestige was at stake. BAA was a company that had a lot of problems, and it was poorly managed. If it fails now in the United Kingdom, it will be very hard for BAA to penetrate the U.S.
Belén Romana: In any globalization process, you have the problem of bringing together a distinctive market and business with another culture and another organization [that are quite different]. Some of these companies have more business activity outside Spain than they do inside it. In addition, personnel management is a very complicated issue.
Mauro Guillén: Regarding that final point, companies are very poorly prepared because programs for managing employee rotation have only recently begun to be implemented. Outside Spain, you have a pool of people who speak Chinese and Russian in Holland, Switzerland, Sweden and the U.K. Not so in Spain. The problem is that it takes decades to develop internal training programs for rotating employees in four or five countries and creating managerial cadres that have great operational skills. The big Spanish companies began to do that only four or five years ago. They haven’t had much time yet. This is the most important bottleneck that Spanish companies have, and you can’t resolve it overnight; you need to invest five to eight years.
Belén Romana: In Latin America, companies learned that they have to place a great deal of trust in local managers. After all, they are the ones who know all about the company you just bought as well as about the market and the regulators. In contrast, there is no natural reserve [of such people] in Spain. People don’t speak languages [in Spain], and they don’t have any special calling for global management. Everyone wants to live in Spain. It is a cultural problem that we will have to address.

Publish Date: Nov 14, 2007