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INTERNATIONAL BUSINESS

The future of Spain is outside Spain

The political uncertainty that threatens Spain's reality after the last elections once again puts the claim of Balbino Prieto, president of the Club of Exporters and Investors, at the forefront.

One of the most profound transformations that the Spanish economy has undergone in the last few years has been the strengthening of the external sector and its consolidation as one of the foundations of our current production system. We can say that exports have increased by approximately 50% from 2010 to the end of 2014, reaching a total of over 240,000 million euros. International sales now represent a quarter of the national wealth, which makes Spain an export powerhouse in the European Union, over France or the UK.

The recent development of the Spanish foreign sector, unlike what happened in other countries, isnīt based on a devaluation of the currency. On the other hand, it is the result of the great effort made by our companies, given the weakness of domestic demand, to go abroad and successfully compete in foreign markets.

This effort has resulted, firstly, in a significant enlargement at the base of export companies. In 2013, more than 151,000 businesses were registered with international activity, and with the absence of definitive data on the date this text is written, it can be estimated that in 2014 this figure stood at 160,000 businesses. If we think that in 2009, there were fewer than 110,000, in the last 5 years the export base has increased by nearly 50%.

Secondly, the international competitiveness that Spanish businesses have acquired is demonstrated in the growing geographic diversification of exports. During the last few years, the euro zone has lost weight as a destination for our exports, although it remains by far our largest trading customer. Against the weakness of the euro zone, the Spanish businesses have been able to redirect their sales to emerging regions. So, since 2010, the exports to Asia have increased by 100%, those to Latin America, more than 80%, and those to Africa, more than 75%.

Another factor that, without doubt, has contributed to the strengthening of the external sector is the variety in our export supply, which has an increasingly greater weight of products with a medium-high technological component. Capital goods are the main export item of the Spanish economy and make up, along with the automobile sector and chemical products, 50% of our sales abroad.

The Club of Exporters and Investors consider that it is vital that our businesses maintain the level of international competitiveness achieved in recent years, so that exports continue to be one of the engines of Spanish economic growth. It is true that historically the external sector has shown countercyclical behaviour relative to GDP: exports rebounded in times of crisis to cushion the fall in domestic demand, and recoiled as consumption and investment increased. However, now that the groundwork has been laid for the recovery of the Spanish economy, it would be a serious error to slacken the internationalisation efforts made by our companies since - as stated by the president of the Royal Elcano Institute, Emilio Lamo de Espinosa, in delivering the XII prize to the internationalisation club of exporters and investors - "the future of Spain is, largely, outside Spain".

In fact, Spain is a mature market with limited potential for internal growth, so economic progress is invariably put second to external demand. If Spain wants to achieve sufficient growth rates to preserve its level of economic and social development, it should direct its production network towards international markets, and especially towards emerging countries,which form the main focus of growth of the world economy.

Fortunately, the current economic situation is favourable to the internationalisation projects of Spanish businesses. The collapse of oil prices is good news as long as we stimulate global demand and reduce our costs of exportation to the Euro zone countries. The depreciation of the Euro against the dollar also contributes to reinforce international competitiveness of goods and services produced in Spain.

In an increasingly globalised world, competitiveness is an essential condition to go abroad; but the key to obtaining a competitive sustainable advantage over time is not to reduce costs - a short-sighted strategy of developing countries - but by pursuing innovation as a tool to develop high value-added products. In fact, it can be said that internationalisation and innovation are two sides of the same coin.

Now, going out and competing with other countries with an innovative product is not accessible to all businesses. It requires a maturation period and a volume of human and financial resources that today lacks much of the Spanish SMEīs. Experience shows that size is a determining factor for the internationalisation of a business. Although there is no threshold from which this guarantees success, the greater a company is, the more facilities it has to take on the costs arising from entry into international markets. The problem is that Spanish SME's are relatively small compared to their European counterparts. For example, companies with less than 10 employees make up 94.4% of the Spanish business network, compared to 81.8% of the German business community, according to Eurostat data. The solution is to encourage corporate mergers and joint inter formulas of cooperation that equip exporters of sufficient sizes to confront the costs involved in opening to the outside with good prospects of success.

Becoming international also requires awareness of the risks of a diverse nature (political, economic, financial, legal...) that run businesses in the context of foreign activity. Faced with the increased interests of Spanish companies outside our boarders, business intelligence is revealed as an essential support tool to the external sector. Both large companies and SME's should be concerned about analysing the environment when developing their international business, as well as being able to obtain the necessary keys to make the most appropriate decisions from a strategic and operational point of view.

Thanks to the international competitiveness acquired in the last few years, the external sector is able to continue to decisively contribute to the growth of the Spanish economy. To do so, it is necessary that the public administration promotes a legal and tax environment that is favourable to the internationalisation of the business sector and to launch ambitious financing programmes, similar to what is occurring in some other nearby countries, so that our businesses - world leaders in sectors as diverse as infrastructures, banking, telecommunications, renewable energies or fashion - can take full advantage of the many business opportunities offered by the international markets. One of the most profound transformations that the Spanish economy has undergone in the last few years has been the strengthening of the external sector and its consolidation as one of the foundations of our current production system. Without knowing the definitive data from last year, we can confirm that exports have increased by approximately 50% since 2010, reaching an amount exceeding 240 billion Euros. International sales now represent a third of national wealth, which makes Spain the second export powerhouse in the European Union, only behind Germany.

Source: The Club of Exporters and Investors (February 2015)