IESE Insight
Foreign Companies Bullish on Spain
Subirà, Antoni; Blázquez, María Luisa
Editor: IESE; Invest in Spain
Artículo basado en: Barómetro del clima de negocios en España desde la perspectiva del inversor extranjero
Año: 2014
Idioma: Spanish

Foreign companies are much more optimistic about Spain than they were in 2012. Nine out of every 10 companies surveyed expect to increase or at least maintain their revenues from Spain in the year ahead. This marks a notable increase compared to two years ago, when just over one in three (37 percent) were expecting revenues to fall.

Forecasts are also positive with regard to investment and employment in Spain: 88 percent of foreign firms believe they will increase or hold steady their level of investment and 87 percent expect their staff to grow or remain stable this year. In both cases the 2014 figures are 17 percent higher than those seen in 2012.

Meanwhile, Spain's current business climate is rated 2.7 out of 5 overall, halting a downward trend seen in recent years, as the economic crisis took its toll.

These are some of the findings of the Barometer of the Business Climate in Spain, a survey of more than 230 foreign firms prepared by IESE's International Center for Competitiveness run by Prof. Antoni Subirà in conjunction with ICEX, the Spanish Institute for Foreign Trade.

The Strengths of the Spanish Market
The features of Spain that are most praised by foreign investors are its infrastructure, human capital, quality of life and the size of its market. Meanwhile, Spain is approaching a passing grade in six other areas analyzed by the survey -- with slight improvements seen in perceptions of its labor market, costs and financing, compared to previous years.

Spain's high-speed railways and airports are singled out for praise, boosting the score for infrastructure. Foreign companies are also bullish on Spain's human capital, the quality of its business schools, and its leisure and cultural offerings.

Despite high marks for human capital overall -- an area deemed very important to those surveyed -- the results indicate that foreign companies would like Spaniards to improve their language and oral/written expression skills, as well as their willingness to assume responsibilities and goals, their learning abilities and the availability of skilled (vs. unskilled) labor.

Quality of life is rated highly. The ease with which expats blend into Spanish society and the availability of international schools are praised in the study, although the cost of living is considered relatively high.

Room for Improvement
Negatives for Spain include the high cost of electricity and difficulties with financing and regulatory issues. Financing is the area with the lowest scores on the barometer, although some improvement is seen in the cost of financing from commercial banks, compared to 2012.

As for Spain's regulatory issues, foreign investors seek greater stability. They also want to see less bureaucratic red tape and speedier and more efficient commercial courts.

Foreign companies also complain about the high cost of complying with regional and local legislation. A total of 65 percent agree that the business community would benefit if the rules set by Spain's different levels of government were made uniform.

Regarding taxation, foreign companies feel Spain can make progress on corporate taxes, value-added tax (VAT) and employers' contributions to the Social Security system for their workers.

In three other areas -- namely, the labor market, costs and the size of the market -- Spain has made progress since 2012 but there continues to be room to improve.

As for the labor market, the main drawbacks have to do with legislation. On the bright side for companies, nearly 70 percent of the firms polled feel that recent labor market reforms make the market more flexible, and 60 percent give the thumbs up to changes in the way collective bargaining agreements are reached.

The Importance of Foreign Investment
Foreign companies' views on investing in Spain are very important to Spain's economy. In 2013, foreign investment totaled 15.8 billion euros, an increase of 9 percent compared to 2012.

Those numbers put Spain in 13th place in the world in terms of foreign investment flows, ahead of Germany, France and Italy.

© IESE Business School - University of Navarra