MSc Dissertation with Research Methods
Carlos Curbera Mateo-Sagasta I
International Financial Crisis
Causes and possible solutions
Spain
Program:
MSc. Banking, Finance and Risk Management
Module:
MSc. Dissertation with research methods
Carlos Curbera 04/2014
S1308801 Word count:
MSc Dissertation with Research Methods
Carlos Curbera Mateo-Sagasta II
Acknowledgements
I would like to take this opportunity to sincerely thank the following
people for their assistance during the course of my Masters degree.
Sovan Mitra and Franklin Ngwu for their excellent support and
comments during the course of this work; and Simon Smith for his
assistance over the year.
The small to medium sized family business companies, and financial
directors who took the time to complete my questionnaires.
I would also like to offer my gratitude to Alexandra Gandini for the
assistance and patience she has provided over the past months.
My utmost thanks to my parents, Leopoldo and Marta. Without their
support and encouragement, the completion of this degree would not
be possible and for that, I am extremely grateful.
Finally, I would like offer my special thanks to Elena for her long-
standing belief and continual motivation.
MSc Dissertation with Research Methods
Carlos Curbera Mateo-Sagasta III
Abstract
The economic crisis has affected Spain differently compared to other countries
such as the United States or United Kingdom. A large proportion of Spain's economy is
driven by small businesses and for this reason the crisis has had a different level of
intensity, severity and overall impact. I believe that it is important to study the case of
Spain, and give solutions, because the main reason why Spain will not emerge from this
crisis, while other members of the European Union will do, is that by failing economic
liquidity today, companies cannot finance their business needs and are forced to close,
and if there are no companies, there are no jobs.
The gradual recovery of confidence defines the current economic model. This
economic model is based on confidence in the sustainability of the Euro project, and
confidence that the Spanish economy progressively recovers control over its
imbalances. The actions of the European Central Bank and political developments that
have been made on the Banking Union and the European budget have eradicated fears
about a partial or total crack of the Euro zone. This has been done by confirming the
decision of Member States, including Germany, to maintain the Euro zone in its current
form through appropriate reforms.
The Spanish economy is at a point in which it can observe a balance being
restored, its debts being reduced, unit labour costs of its economy improving,
exportation competitiveness being reinforced and its public deficit begins to show
symptoms that is finally under control.
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Carlos Curbera Mateo-Sagasta IV
All efforts, sacrifices and reforms within the concept of “internal devaluation” are
finally beginning to show their fruits, even though many problems remain to be
resolved. Among these, in particular, are the high levels of unemployment and the
burgeoning public debt that threatens to exceed 100% of GPD for the first time in
history.
It is necessary to maintain trust as a country, through implementing resolute and
deep reforms that allow firms to improve their competitiveness. Reforms such as the
market labour reform or the reform of Public Administration, alongside clear and well
explained measures, are vital to restoring confidence in the international markets, thus
enabling companies to grow and generate employment.
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Table of contents
Title Page
Acknowledgements........................................................................................II
Abstract........................................................................................................III
Table of contents..........................................................................................V
List of figures..........................................................................................VIII
Chapter One – Introduction........................................................................1
1.1. Brief Background of the Problem.........................................................1
1.2. Relevance of the Research.................................................................3
1.3. Aims and Objectives........................................................................5
Chapter two - Literature review.....................................................................7
2.1. Introduction.....................................................................................7
2.2. Brief overview of earlier literature......................................................8
2.3. Review of the recent literature............................................................9
2.4. Globalisation and state capacity .......................................................11
2.5. Limitations.................................................................................12
2.6. Conclusion.....................................................................................13
Chapter Three ...............................................................................................................14
3.1. Spain and the Subprime Mortgage Crisis of 2007-2008..............................14
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3.2. An Analysis of crises in Modern Spain.............................................17
3.3. Conclusion..................................................................................18
Chapter Four – Methodology......................................................................19
Chapter Five - Proposals to revitalise the national economy.............................22
5.1. Introduction..................................................................................22
5.2. Signs of a slow resurgence leading to assured economic recovery............24
5.2.1. More confidence in companies than in the global economy...........25
5.2.2 The necessity to recover confidence............................................26
5.3. Measures to revive economic activity.................................................27
5.3.1 Flow of credit to boost domestic demand.................................28
5.3.2. Public spending geared towards activities that generate growth........29
5.3.3. Cut taxes to boost private consumption.....................................31
5.4. The structural reforms must be continued..............................................32
5.4.1. The reform of the Public Administration is a pending issue..........32
5.4.2. The companies do not want hurdles in the internal market...............35
5.4.3. Important reforms are still pending.........................................36
5.4.4. A more efficient public administration would be an expression of
confidence for the markets..............................................................37
5.5. Export development and innovation to enhance the competitiveness.......39
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Carlos Curbera Mateo-Sagasta VII
5.5.1. Active support to exportation..................................................39
5.5.2. Innovation in order to grow...................................................41
Chapter Six – The Family businesses............................................................43
6. Study of the effects of the European financial crisis in family businesses.......43
6.1. Effects and measures........................................................................43
6.2. Confidence and optimism in light of the severity of this crisis..................45
6.3. The importance of values for a stronger and united family.....................46
Chapter Seven - The internationalisation of the Spanish companies and the
decision to export as a solution for the Crisis.................................................48
7.1. The International scope of the business.............................................48
7.2. Five actions to promote the internationalization of the businesses..............48
7.3. What is export?............................................................................49
7.4. Why to export?...............................................................................52
7.5. Conclusion...................................................................................56
Chapter Eight – Conclusion.......................................................................58
References and bibliography.......................................................................62
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List of Figures
Figure Page
Figure 1: Representativeness of the different sectors..........................................21
Figure 2: Greater pessimism in Spain………………………………………………26
Figure 3: Reduction of the public deficit to generate confidence……………………27
Figure 4: The reactivation of the demand is top priority…………………………….29
Figure 5: Different prioritisation of the public expenses, focusing on the expenses that
generate business activity…………………………………………………………….30
Figure 6: Cut taxes are emerging as the most efficient measure to revive the private
consumption in the short term……………………………………………………….32
Figure 7: The necessary harmonisation of the Spanish internal market………………33
Figure 8: The current State model must be reformed……………………………….34
Figure 9: Impact of the reforms in the growth………………………………………..34
Figure 10: A single Administrative authorization…………………………………..35
Figure 11: Avoid duplications and overlapping competencies between
administrations…………………………………………………………………………37
Figure 12: It is imperative to address the efficiency improvement of the Public
Administration……………………………………………………………………….38
Figure 13: The financial aspects appear to be key for the exports promotion………...40
Figure 14: The boost for innovation in Spain passes through encourage the mobility of
the talent and the efficient management………………………………………………..42
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Carlos Curbera Mateo-Sagasta 1
Chapter One
1. Introduction
1.1. Brief Background of the Problem
The economic and financial crisis, which has affected developed countries in
recent years, has been significant, given its intensity, complexity and the difficulties
involved in overcoming it (Bank of Spain, 2012). During the recent financial crisis no
issue has generated more passion than financial institution bailouts (McKinley, V.P.
2012). Since the Lehman Brothers’ bankruptcy, the thought that any bank wouldn’t fail
in any case, being as bigger as the biggest, were no longer in mind, with the result that
every bank was deemed to be risky (Elliott, L. 2011).
In the days following the fall of Lehman Brothers, the fear of a domino effect
affecting the global financial system across the world rose sharply. This situation finally
forced western governments to inject vast sums of capital into their banks to prevent
them from collapsing. In this sense, the banks at risk were rescued, but it was too late to
prevent the global economy from going into a crisis.
In the case of Spain, the story illustrates the fact that the Euro zone's problems run
far deeper than the issue of excessive borrowing by ill-disciplined governments (BBC
News, 2012). Moreover, BBC illustrates that before 2008 Spain’s economy increased
sharply but its debt-to-GDP ratio was falling. Government borrowings were under
control with a balanced budget on average every year until the boom of the financial
crisis.
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However, after joining the euro, Spain experienced a long boom, supported by a
housing bubble. The housing supply increased dramatically and, in the beginning, prices
decreased slightly resulting in a rise in employment within the homebuilding industry.
This caused many people to leave school and foreigners to come to Spain to work in
construction. Unemployment was at its historical minimum. This bubble was financed
by cheap loans to builders and homebuyers, and as a consequence, many people began
to buy houses. Nevertheless, this increase in the demand in house buying, caused house
prices to rise by 44% from 2004 to 2008, and those who did not stop buying houses
with loans they could not afford, found themselves with debts of hundreds of thousands
of Euros and, ironically, a home the size of a small hiding place, to hide from all their
accumulated debt.
Furthermore, since the bubble burst, prices have fallen by a third. Homebuilding
stopped instantly and hundreds of thousands of people who worked in construction
became unemployed. This contracted the economy, GDP went down dramatically and
those who had bought houses were now in debt, with no income, no job and no assets to
face their payments. These people are called ‘NINJAs’ (No Income No Job and Assets)
by Leopoldo Abadia, as he explains in several talks he made across the country.
Spain’s economy, which grew at a steady 3.7% on average from 1999 to 2007, has
dropped at an annual rate of 1% since then.
The main objective in this essay is to analyse the Spanish crisis. In particular, I
will assess those facts which have determined this crisis having a more significant and
long-lasting impact compared to previous ones and the issues which have arisen in
attempting to find a way out of the recession.
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I will highlight the mistakes of the past which must not be repeated in order to
prevent falling at the hands of future crisis. In particular, I will discuss the actions to be
taken in order to overcome these mistakes as well as the actions that should be taken for
the future stages and furthermore, I will attempt to provide an insight into banking risk
management and the associated role of governments’ actions within the banking system.
The end result is to provide valuable knowledge with this research, for financial
institutions and governments globally.
1.2. Relevance of the Research
Members of the Spanish society, including students studying abroad, are seriously
concerned about the intensity of the current financial crisis in the Spanish economy in
the context of the recession that still plagues us.
This research reflects some of the ideas about the origins and effects of the crisis
in Spain, as well as specific proposals, and substantiated solutions, that will allow Spain
to emerge quickly and in a reinforced manner.
One of the first conclusions that can be drawn from this research is that the current
crisis will significantly modify the present growth model. However, the problem at this
point in time, is that no one, especially the government (and the opposition), knows
which sectors will excel in the following years. Thus, it is important for production
resources, capital, technology and employment, to be able to easily deploy as fast as
possible in the new propellers of growth, so that this growth can really be produced.
How can we achieve this? Not by maintaining artificially moribund sectors. The
historic evidence at this point is conclusive. Allowing companies with no future to
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remain active is to sentence the economy to decades of backwardness in terms of
progress for both, developing and developed countries. Thus, the promoting entities
who cannot sell the flats that were created during the years of real state paroxysm
should be removed. This liquidation process should be carried out in an orderly manner,
but we must not give in to the temptation of subsidizing council flats to emerge from the
juncture, neither to improve the housing tax environment. If anything, it would have to
be those tax deductions which result from purchasing homes which are reduced. The
same lesson should be extended to other sectors, for example the automobile sector.
There needs to be greater investment in infrastructures, but only to the point which these
are required. Improvement of freight traffic on the road and in rail transport, and
investment in ports and “highways of the sea” is much more important, but perhaps less
appreciative for politicians than the launch a new high-speed railway, lavish airports or
highways in the middle of nowhere.
In order to emerge from the crisis, the country should relocate its workers to
emerging sectors. It is important that the labour market allows sufficient flexibility such
that these sectors would want to hire such workers. To take a couple of examples, there
is an urgent need to reform some of the collective agreements in place, to allow simple
opt-out clauses for those companies suffering form more severe problems. It is also
important to improve policies for training the unemployed. The results obtained from
this training should also undergo a strict evaluation process, in order to ensure that the
money invested in this training is producing the best possible results. Furthermore, it
would be beneficial if unemployed people were allowed to decide the outplacement
service, public or private, that better suits them. Fiscal policy may also help and play a
significant role. Our experts say that lowering taxes on labour has a bigger impact in
combating the recession and unemployment than any other fiscal policy measure.
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1.3. Aims and Objectives
The family business is one of the most important solid pillars of the Spanish
society. That’s why I have undertaken this study in order to make known the effects of
the crisis in this type of businesses.
In addition, in order to answer my research question, I will analyse the survey
directed to several Spanish CEOs in order to create value through applied research.
Here, I have opted to give priority to the proposals of the managers, or the owners of the
companies, for the economic recovery. Taking into account the delicate situation of our
economy, I believe that this approach involve an additional input to the necessary
debate around the ideas so much demanded by the Spanish society.
The aim of this study is to show the difficulties that Spain had to face and the key
issues that made the international financial crisis deeper and longer in all the aspects
compared to in previous instances of occurrence in the Spanish economy. Furthermore,
we will explore those tasks which need to be carried out, which the government are still
ignoring, and the reasons behind why qualified people have to emigrate in order to find
a job, etc. This will be achieved through the following objectives:
To analyse the housing bubble financed by cheap loans and its burst in 2008.
To analyse the government at a regional level, its debt and actions.
To analyse the national government level, its size and responsibilities.
To explore the seizure in the banking system.
To evaluate the weak external competitiveness and the high private debt in
Spain.
To analyse the role of trading in the Spanish economy.
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To explore the sky-rocketing unemployment rate in Spain in the past few years.
To analyse the emigration of qualified workers to other countries.
For the future, a good warrant is to try not to dictate to financial institutions to
whom they should lend and how much. Funding is becoming scarcer compared to
previous years as Spain has always been a country focussed around investment rather
than saving, and these investments would then be paid out by foreign funds. This capital
has now withdrawn considerably. In the context of high levels of bad debt, bankers must
therefore act with prudence in order to avoid greater problems. Companies need to be
tailored to this new background. This also means that some financial innovation should
be reinforced. Leading enterprises will require more capital, and this should not be
totally funded by banks, but also through specialised investment funds. These
specialised investment funds, and other innovative financial resources, require a
renewed regulatory framework.
Science and technology have improved compared to the recent past, but as a
country, Spain still hold back in rewarding good researchers. A country that can afford
the best football players worldwide should ease their bureaucratic structure to be able to
pay what the best researchers are worth. It can be expensive, but will certainly be
cheaper than a top-class footballer. It can also be properly measured against researchers’
productivity. Scientific publications and citations of their articles are the equivalent to
goals and matches won. And since we are comparing science to football, it is time to
recall that the increase in public expenditure in science has been higher than private
expenditure in recent years. Companies must realise that their survival in hard times is
achieved through innovation.
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Chapter two
2. Literature review
2.1. Introduction
The main objective of this chapter is to ‘analyse the causes and effects of the
global financial crisis on the Spanish economy, understand the political and governance
factors which affected states’ ability to effectively respond to external shocks,
particularly the global financial crisis, and how policy can be made more responsive and
capacity strengthened’.
The main purpose of the literature review is to review the evidence of the effects
of the crisis to date and to synthesise existing definitions and propositions about state
capacity, which we will then apply through the case study. To address these issues the
literature is organised in three main parts:
Part 1 provides a brief overview of earlier literature and case studies on the effects
of previous financial crises, and to identify if and where the political and governance
implications have been addressed.
Part 2 focused on the review of the (mostly academic) literature on state capacity
to respond to external economic shocks, drawing on literature, on the Spanish financial
crisis as well as recent literature regarding structural adjustment, new institutional
economics and impacts of globalisation.
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Part 3 reviews some of the recent literature on state capacity and globalisation,
placing the current crisis in its historical context.
2.2. Brief overview of earlier literature.
The recent subprime mortgage crisis and its repercussions have stimulated
renewed interest in the study of other financial crises. Demirguc-Kunt and Detragiache
(1998) and Laeven and Valencia (2008) identify crises by determining if one of several
conditions is met. These factors include the ratio of non-performing assets to total assets
in the banking system exceeding ten per cent, the cost of a government rescue operation
being at least two per cent of GDP, banking sector troubles resulting in a nationalization
of banks, or large bank runs.
Kaminsky and Reinhart (1999) show that generally a multitude of weak economic
fundamentals precede economic crises. Bordo (2003) examines boom-bust cycles in
both the United States and abroad, and concludes that recessions originated in stock
market crashes are deepened only if there were already elements of financial instability
(see also Bordo, Eichengreen, Klingebiel, and Martinez-Peria, 2001; Bordo and Jeanne,
2002), Garcia-Herrero and Del Rio (2003) use a sample of seventy-nine nations
between 1970 and 1999 and found that when the objective of central bank is price
stability, the likelihood of a banking crisis is reduced. Suarez and Ceron (2006) provide
international evidence on hot and cold housing markets. Cihak (2007) shows that the
more independent the central bank is, the more stable the financial institutions are.
Reinhart and Rogoff (2008, 2009a, 2009b) claim that parallels can be drawn
between crises in the United States and other countries. Boyd, Nicolo, and Loukoianova
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(2009) question whether a “banking crisis” is actually a crisis in the banking system or
just a response to government interventionist policies. However, Klomp (2010)
concludes that there is no common factor that causes crisis.
2.3. Review of the recent literature
Economy is a science, not an exact science but a human and social science in the
meaning that there are truths and errors (Franch Meneu, J.J. 2012). The economic crisis
has been produced by central banks (Manso, R. 2012). What we are suffering is a crisis
of freedom and a political hyper interventionism crisis. This started in much intervened
markets such as housing and finance markets. The reaction having much intervention
and less freedom was reducing freedom even more and increasing interventionism
(Boceta, V. 2012).
In ‘Financing Failure’, Vern McKinley closely observes areas discussed in this
essay, by examining the policy decisions behind the southern Europe bailouts and
showing their connection to previous government interventions. Similarly, in the wake
of the worst recession in fifty years, David Beckworth (2012) writes about the critical
role the Federal Reserve played in creating a vast speculative housing bubble during the
2000s and plunging the world economy into a Great Recession.
Banks hold more troubled real estate assets than non-troubled ones. As we can see
from the Spanish Ministry of Economy and Competitiveness, of all €323 billion (£269
billion) in assets which are linked to loans from developers, around €175 billion (£146
billion) of these are considered "troubled" by the Spanish government.
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Spanish house prices continue to fall, exacerbating the consequences of the
housing bubble. Societe Generale analyst Michala Marcussen wrote that house prices
have already dropped 25 percent from their peak. The decline in Spanish land and
property prices is probably less than half complete (Buiter, W. 2012). It is expected
these will drop around 60 percent from their peak.
The struggling Spanish financial sector is highly exposed to Portugal (Bank of
International Settlements). Recent estimates show that the Spanish financial sector has
€78.81 billion ($103 billion) in exposure to the neighbouring country.
The Spanish government has passed the most severe austerity budget since it
transitioned to democracy 30 years ago.
J.P. Morgan has estimated that Spanish banks could need a full €75 billion of
recapitalization, and Goldman believes they could need €25 billion beyond the €19
billion already devoted to Bankia.
And analysts are also beginning to believe that Spain won't get by without outside
help. J.P. Morgan's David Mackle wrote recently: “Crisis management is all about
burden sharing: who bears the cost of prior mistakes. Spain looks to have gotten to the
point where it cannot bear the burden alone. The Spanish government recognises the
need for burden sharing, but it does not want the kind of burden sharing that was made
available to Greece, Ireland and Portugal. The Spanish government wants the ECB to
directly purchase its sovereign debt and for the EFSF/ESM to directly recapitalise its
banks.”
The international sphere of business in the financial sector operations worsen an
international financial crisis (Ely, R.T. 2000) given the international dimension in which
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it operates in ways that would not occur in a closed economy. However, it is important
to bear in mind the major role that fundamental domestic flaws can play in bringing on a
crisis. For example, to exclude situations where the poor performance of domestic
economies could lead to debt servicing problems; or to exclude currency crises in
countries forced to adjust exchange rates. However, as we shall see, devaluations can
frequently presage international financial crisis.
The Bank of Spain published a document about the Spanish economic crisis, its
key factors and growth challenges, written by Eloisa Ortega and Juan Peñalosa. The
crisis is described by explaining what has been experienced in the past few years by the
Spanish economy. The authors then review the steps which have made this a deep and
long recession, as well as the obstacles which prevent overcoming it. The document
focuses on macroeconomic developments and economic adjustment, and concludes by
seeking to draw lessons from the crisis, in particular with regards to the external sector,
the real estate market, fiscal policy and the labour market.
2.4. Globalisation and state capacity
Whether globalisation strengthens or hinders national states’ capacity to respond
to economic and other types of external shocks is an open debate in academic circles, or
so it appears from an analysis of the literature.
There are a number of reasons cited to support the hypotheses that globalisation
has severely undermined states’ capacity. These include:
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The internationalisation of production networks (embodied by the rise of
multinational corporations as powerful actors) and potential footloose nature of
corporations
Rise of international finance and increased international capital flows
Constraints on policy space arising from international policy
norms/requirements
In contrast to these arguments, the majority of the authors in the literature
surveyed maintained the perspective that states still have the potential to continue to
play an important role in protecting the well-being of their citizens and retain significant
capacity for policy autonomy:
Challenging the collapse of the welfare state: the insulating effect of state
spending in highly ‘open’ economies
Uniformity of state policies being overstated and national institutions continuing
to be significant
Capacity of the state to adapt the ‘toolbox’ and develop new forms of capacity to
meet the need of globalisation.
Differentiated state capacity to resist imposition of formal and informal policy
constraints, but also to take advantage of opportunities offered by globalisation.
2.5. Limitations
This study does not have many limitations. Given its impact and repercussions in
the global economy, it is the topic that has been on everyone’s lips these years. The
limitations that I have faced are mainly: time, due to this being a Master’s dissertation;
the number of meetings I have been able to arrange with those experienced in the
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subject; and the lack of accuracy of the information, given the many different opinions
that have been formulated on the subject. The main issue will be classifying this
information and selecting that which better explains the subject, an important yet
equally time-consuming task.
2.6. Conclusions
My intention with this research is to show how a country which went into
recession with all the difficulties that had to overcome, such as political, social,
economic and/or financial issues, can turn over a new leaf, create new ways of business
and pull itself out of the crisis. Explain the logical facts which Spain has to face, and
why these are still being ignored. I will also explain the reasons behind why
experienced and graduate students have had to move abroad to be successful in their
jobs.
This research will most definitely help to understand the mistakes made in the
past and could help prevent these from being made in the future. The idea is to give a
course of action and variety of ideas to manage the risk of falling into the depths of a
new financial crisis in the future. This research can result in valuable information and
knowledge for all financial institutions and governments globally.
Furthermore, it should provide an insight into banking risk management and the
associated role of governments’ actions within the banking sector.
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Chapter Three
3.1. Spain and the Subprime Mortgage Crisis of 2007-2008.
Spain had a major role in the subprime mortgage crisis of 2007, largely due to the
issuing of 40-year loan products. Unemployment more than doubled from almost 8.6%
in the fourth quarter of 2007 (Bank of Spain, 2007) to 19.3% by September 2009
(United Nations Department of Economic and Social Affairs, 2010).
Relative to other twenty-seven European countries, Spain experienced a sharp
decline in construction from 2007 to 2009. Similar to other countries that bought and
sold subprime mortgages, the effects of the recession still prevailed long after
economists declared the recession over in late 2009. Like most of the Western world,
Spain used politically controversial stimulus measures undertaken by the Bank of Spain.
The aim was to increase lending and avoid an economic contraction expected to ensue
when the market eventually fell. The Central Intelligence Agency (CIA, 2011) and the
Brookings Institution (Prasad and Sorkin, 2009), estimate that the cost of the stimulus
program in 2009 for Spain was about 5.7% of its GDP.
Moody’s, the ratings agency, had announced at the time that it would consider
reducing its rating on over €16.9Billion Spanish mortgage-backed securities, to adjust
for the rising default rates and declining home values. Furthermore, Moody’s estimated
that the average Spanish homeowner had a debt-to-income ratio above the 40%
benchmark recorded in 2005, which it deemed problematic (Hugh, 2008).
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To further illustrate the crisis of the Spanish market, in the first half of 2008, retail
sales were down by 7.9 per cent. The country launched an unsuccessful attempt to
stimulate the economy by requiring one million electric cars by the end of 2014 (Hugh,
2008), and by 2010 the deficit run up to just short of 10% of GDP (CIA World
Factbook, 2011). Spain also imports all of its fossil fuel, making it more susceptible to
inflationary risks. Thus, the 5 per cent inflation that occurred in early 2008, followed by
the burst of the property bubble in late 2008, and the decrease of stock prices in early
2009, shifted concerns to the risk of deflation instead (Reuters, 2009).
A related theory for the mechanism behind the current Spanish crisis holds that
the entrance of Spain to the European Monetary Union led to low interest rates which
caused increased demand for construction and higher inflation. This combination
dampened self-corrective influences, leading to over-investment in construction and the
housing bubble which was doomed to burst (EEAG, 2011).
Some claim that the recent turmoil can be traced to 1970 and resulted from a
combination of Spanish banks taking full advantage of loose monetary policy.
Additionally, Spanish economic growth was highly reliant upon the housing boom from
the late 1990s through 2007. The European Central Bank (ECB) published an
examination of the average government debt-to-GDP ratio and the per-capita GDP
growth rate for several countries dating to 1970, including Spain (Checherita, 2010).
This examination reveals the means through which government debt, both in
absolute levels and in rate of change, impacts economic growth including private
saving, public investment, total factor productivity, and sovereign long-term interest
rates, both nominal and real. Checherita (2010) suggests that when debt rises above 90-
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100 per cent of GDP, it harms growth. The debt Spain incurred through loans from the
ECB dating to 1970 clearly had an adverse effect on its economic growth.
The Spanish economy was particularly reliant upon construction. From 2003 to
2006, annual percentage changes for construction and housing far exceeded all other
sectorial demand for credit. During the same period, home purchases comprised the
largest annual percentage change for credit to individuals (Bank of Spain, 2008).
Once the ECB reversed its policy, recession set in, similarly to other member
countries of the Organisation for Economic Co-operation and Development (OECD).
The proponents of this viewpoint maintain that reliance upon fiscal stimuli has resulted
in large public deficits and expanding debt. Rather than improve the economic condition
of Spain, that reliance has worsened it.
Spain has been struck during the crisis by extremely high levels oof
unemployment, which have soared from around the European Union (EU) average to
over twenty per cent in 2010 (OECD Labour statistics, 2010). Some claim that this
phenomenon is tied to its labor market structure and overdependence on the
construction sector.
The importance and concomitant fall of the Spanish construction sector led to
notable unemployment levels, especially among its young population, estimated to be as
high as forty per cent. The Spanish economy finds itself restructuring away from
construction, so that the job loss in this sector is often permanent (EEAG, 2011).
Short term contracts, which are beneficial in times of prosperity, are reversible in
times of crisis, leading to rapidly increasing unemployment. The temporary employment
rate in Spain has exceeded thirty per cent. This can be contrasted with France where
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Carlos Curbera Mateo-Sagasta 17
temporary employment has been around half that of Spain, hovering around fifteen per
cent over the same period, since around 1992 (Bentolila et al., 2008).
Prior to the crisis, France had a comparable total unemployment rate to that of
Spain, but its unemployment stayed below ten per cent during the financial crisis, about
in line with the EU average, whereas the unemployment rate in Spain shot to about
20%, double the one in France (Eurostat, 2011).
3.2. An Analysis of crises in Modern Spain
The current financial crisis in Spain, along with crises of recent decades, is an
interesting fusion of trends. As with other economies, one could point to lax
government regulations, attesting that the lack of oversight contributed to risky methods
of investment, which led to the crisis.
However, government attempts to remedy the downturn of the housing market
through aggressive policy were not effective. The Spanish budget deficit is at the time
of this writing, a source of international concern.
Moderate government spending in areas which foster investment buffers the
economy and contributes to economic growth. The impact of excessive spending by the
Spanish government has implications for other countries, like the United States, that
have turned to government stimulus and lower interest rates as the means for ending
recessions.
The Spanish government were focusing on alleviating the impact of the crisis by
cutting taxes and extending unemployment benefits. However, the expanding budget
deficit, has led to higher taxes, lower government services and reduced social benefits.
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3.3. Conclusion
Many factors contribute to financial crises, and to “boom bust” cycles that are
typical of a capitalist economy. However, some measures can and should be taken to
lessen the intensity of financial crises. Specifically, Spain needs to decrease its
exorbitant budget deficit.
This deficit has contributed to inflation and to excessive government control of
the economy, stifling private investment and economic growth.
Prudent government involvement with limited regulations may prevent risky
ventures and investment. This is probably easier claimed than actually acted upon, due
to the extremely high unemployment rate that drives out Spain’s most talented and
skilled labour force.
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Chapter Four
4. Methodology
This research will investigate the beginning of the global bank financial crisis, its
reasons for occurring and potential solutions. Moreover, I will study the case of Spain
and evaluate the situation before 2008, from 2008 to the present day and a forecast from
this point forward, critically analysing the results of actions put into practise.
In order to complete this dissertation, the materials which I will use are based on
actual information and official documentation from relevant institutions. These are
complemented by two questionnaires, one of which was directed to economists and
CEOs from several financial institutions, and experts in the subject area. The other was
directed to family companies’ owners to understand how they were, and continue to be,
affected by the recession. This will be followed by a number of interviews that I carried
out in order to explore further the key issues identified from data collected from these
questionnaires.
Later in this essay, I will discuss this in further depth, using knowledge gained
from assisting in university talks and forums, and also from the interviews I have been
able to carry out with experts in the field. I will also use data which is available in the
public domain, as opposed to data collected by researchers.
Sources used from the public domain include government and industry
publications, journal articles, books, talks and the internet. This data is usually wrong or
incomplete and often fails to answer a research question (Blumberg et al, 2005).
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Therefore, primary data will be collected to answer specific research objectives (Riley
et al, 2000). Both quantitative and qualitative research will be utilised in this study
Quantitative research will be based on questionnaires and these will be
complemented by interviews to answer specific research objectives. Qualitative research
will be carried out using multiple sources of data with the characteristic of an emerging
design, whereby early data collection influences subsequent data collection. Qualitative
research requires a much smaller sample size than quantitative research.
The questionnaire responses will also be used to gain an overall idea of how this
financial crisis is affecting the banking sector, and to pinpoint the actions that these
institutions are putting in practise. According to Saunders et al (2009) a 30% response
rate is reasonable for delivery and collection questionnaires.
I applied this methodology for the purpose of continuing to ensure the
representativeness of the Spanish entrepreneurial sector. In these surveys, the figure of
the high director corresponds to positions such as CEO or Managing Director, and in
some cases the vice president or president, according to the organizational structure of
different companies.
The graphs that appear throughout the report do not include the responses of
Unknown/No reply (except in the cases where this has already been indicated),
therefore, the percentages do not necessarily add up to 100%.
The firms involved are a sample of the most representative sectors of the Spanish
economy, and many of them are benchmarks for their industry. Most of these are
Spanish companies based in our national territory and, to a lesser extent, multinational
companies headquartered in Spain.
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On the basis of turnover volume, approximately a 70% of the surveyed companies
earn more than €700M per annum, while the other 30% are below this amount.
The interviews to the high directors were via online surveys. In conjunction with
these, seven in depth interviews were carried out to capture, with greater detail, the
perception of representative top management in the most sensitive economic sectors.
Figure 1: Representativeness of the different sectors:
Financial services (Banking,
Insurance, Private Equity); 21%
High consumption and retail; 11%
Manufacture of industrial
products; 11%
Pharmaceutical Industry; 4% Automotive; 3%
Energy; 7%
Technology, Information,
Communications and
Entertainment; 16%
Services (Construction and Transport); 27%
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Chapter Five
5. Proposals to revitalise the national economy
5.1. Introduction.
In this chapter I will analyse the survey directed at several Spanish CEOs in order
to create value through applied research. Here, I have opted to prioritise those proposals
for economic recovery given by either the owners or managers of businesses.
Due to the delicate situation that the Spanish economy is currently in, I believe
this approach will provide additional support to the ideas currently being debated on the
economy, a debate whose conclusion is much demanded by Spanish society.
In order to create value, I have used data collected from 43 top managers
including Chairmen, Deputy Chairmen, CEOs and Managing Directors. These
constitute a highly representative sample of Spanish entrepreneurship and are a valuable
source of information to gain an understanding of the Spanish economy nowadays. The
companies surveyed are mostly Spanish, although the subsidiaries of several foreign
multinational companies have also been consulted. Their activities cover the key
production sectors of the national economy.
I would like to extend my gratitude to these companies for giving a helping hand
in this dissertation.
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These top managers consider it important for the reform process to continue. In
particular, they believe it is necessary to address those changes which need to be made
to public administration structures.
Furthermore, they underline that we should focus on the competitiveness, the
internationalisation and innovation within businesses. However, at the same time, they
believe that we must take advantage of the positive signals of our economy to
effectively address policies for economic growth. Only thus can the partial improvement
which we can already observe, be transferred not only to the real economy but also to
the perception of the citizens. This is the first step to breaking out of the vicious circle
of the recession.
In addition to the above ideas, we should support a selective economic recovery
policy focussed on those sectors that could serve as a starting motor for the recovery. I
believe that the Spanish economy needs a change in its production model, however in
the current situation this renovation process of our structures cannot be carried out
overnight without being subject to risks. For this reason, I support the idea of an orderly
and cost effective transition between a low-cost economy and an economic system
based on added value. Therefore, to continue to offer good quality at a low price as
many companies are currently doing is surely the most reasonable strategy in the current
circumstances.
I believe that the proposals included in this research constitute a useful approach
to emerge from the crisis. The surveyed illuminated a way full of obstacles with their
answers, but also great rays of hopes. Let us hope that the national and regional
authorities realise it and make the most of these opportunities.
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5.2. Signs of a slow resurgence leading to assured economic recovery
Spain is improving the competitiveness of its national economy as a whole, given
that there are positive signals showing some recovery. However, the effects on job
creation and the reduction of public deficit will take a little longer to make their
presence felt.
There are signs which show that we are in a different and slightly better situation
than we were five years ago. Liquidity and the price of debt have changed, and amongst
European countries, agreements have now been made around some key aspects of the
economy, such as banking and fiscal unions. The big problem is the social cost for a full
restructuring process to take place, a cost which at this point in time is too much of a
burden for the country to handle. (Nin, J.M., 2013).
Spanish executives have suggested that we are beginning to see some recovery
signs in our economy, such as improved Spanish competitiveness, cost reduction,
budgetary control and self-discipline in the public sector, the price of debt, one financial
sector capitalised, healthier sectors which are no longer cutting employment and the
increase of exports.
These signs are insufficient to create a more positive perception amongst citizens.
However, people are starting to perceive that the recovery will come with a positive
growth in the economy at the end of this year (2014).
Considering the different sectors, it is clear that the financial services,
technological, communicational and entertainment sectors carry the most optimistic
chance of recovery in the short term. Meanwhile, the industrial, energy and retail sectors
are more conservative, and are expecting positive growth in Spain at the later date of
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2015. During the interview process carried out, it was found that 7% of the CEOs
interviewed consider that economic recovery will not materialise for the next two years.
5.2.1. More confidence in companies than in the global economy
Whereas on a global level trust in companies’ growth tends to stabilise around the
40% marker, confidence in Spain falls down almost to those levels observed at the
beginning of the recession. Since 2009, the confidence of senior officers in Spain in its
companies’ growth prospects has followed a parallel evolution to that registered
worldwide, but this year the differential is bigger than ever: 16 percentage points in 12
months, and 20 in three years.
On the other hand, globally 46% of those surveyed believe in a medium to long-
term recovery. This point towards a restoration of confidence in senior officers, 48% of
whom believed the same in 2011, and 50% of whom believed the same before the crisis.
This perception is absolutely different in Spain, with a degree of pessimism that meets
the difficulties experienced by Spanish companies at present.
The economic environment in the country alongside the growing levels of
unemployment, falling demand and a complicated social and political situation results in
the confidence of senior officers to be low.
In contrast, at an international level, the growing stabilisation of markets and the
economies of countries such as Indonesia, Brazil and South Africa (which grow steadily
and whose growth is predicted to accelerate), China, India and Saudi Arabia (which are
still growing but are currently experiencing a downturn phase), or the United States,
Germany, France, United Kingdom and Japan (which grows but are at risk of this
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growth decelerating), boost the optimism of 46% of senior officers interviewed, which
shows lots of confidence in the expected growth of 2015.
Figure 2: Greater pessimism in Spain
Based companies: Spain 2013 (50), 2012 (82), 2011(98), 2010 (81), 2009 (87), 2008 (90); Global 2013 (1330), 2012 (1258), 2011 (1201), 2010 (1198), 2009 (1124), 2008 (1150), 2007 (1084), 2006 (not given), 2005 (1324), 2004 (1386), 2003 (989). Source: PwC Inform Global CEOs, 2013
5.2.2 The necessity to recover confidence
During these times, austerity measures are necessary for the build-up of trust
within the country and 65% of the Spanish senior officers recognise this. They are also
of the opinion that reducing the general government deficit is a priority. The directors
perceive that adequate adjustments are being made and that introducing cost reductions
will make us more competitive. This will help us emerge from the crisis, although at a
high social cost.
26%
31%
41%
52% 50%
21%
31%
48%
40% 36%
46%
53%
13%
23%
31% 30%
20%
26%
0%
10%
20%
30%
40%
50%
60%
2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2015
Percentage of Senior Officers who answered "Great Confidence"
Global
Spain
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However, the directors also consider that the cuts must not be ballast for the
recovery of the demand. Thus, a 43% of the CEOs feel that the politics behind massive
cuts should be abandoned, and selective reforms should be undertaken to revive the
consumption instead.
Similarly, CEOs are also conscious that the reactivation of private consumption is
a priority and, therefore, 27% of them consider the greatest importance to be cuts to
taxes, prioritising growth over the timely fulfilment of Spanish deficit targets.
Figure 3: Reduction of the public deficit to generate confidence. Question:
Assess the relevance of the following stimulation measures. Prioritize from 1 to 3 the
following measures, where 1 is more
important and 3 less important.
The public deficit should be reduced,
continuing with the fiscal politics.
Some selective reforms must be undertaken to
revive the public demand, and abandon
cutting politics.
Taxes should be reduced to reactivate public
consumption, even though this will increase
the public deficit.
Austerity politics must continue to assure the
fulfilment of the deficit target.
Companies included: Spain (43). Source: Questionnaire Survey directed to top managers
5.3. Measures to revive economic activity
The economic recovery of Spain is now based on consumer confidence and an
increase in internal demand; however the resources needed to achieve this are currently
limited. It is not just a credit problem, but also a lack of solvent projects to invest in.
Any type of support from the government should also introduce an economic
profitability variable.
65%
43%
27%
20%
Percentage of CEOs that answered “Priority 1” in relation
to the stimulus measures of the Spanish economy
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5.3.1 Flow of credit to boost domestic demand
The restrictions of the flows of credit to companies and families, together with the
containment of demand are two of the main aspects affecting the Spanish economic
recovery. The high profile directors interviewed were asked which measures they
believe will be the most effective in turning around these two factors. 42% responded
‘very important’ with respect to allocating part of the bail out money to direct lines of
credit to companies.
According to some directors, credit is now reaching companies and solid
entrepreneurial projects, in order to avoid making the same past mistakes. However,
they notice that there are still very few sectors with a clear, growing and solvent profile.
They assert that confidence in development should be encouraged to drive the
companies and investors to invest.
Other key measures to revive credit and demand include the empowerment of the
brand “Spain”. This measure, considered very important by 34% of the CEOs surveyed,
should facilitate access to international capital by Spanish companies, and promote
exports.
The concerns that exist about the brand “Spain” are linked to difficulties that
companies are experiencing in relation to the high risk premium associated with Spain
in international markets.
This perception vastly increases capital costs and makes international funding
difficult to obtain, thus impeding Spain’s development. They are also concerned about
the consequences that this funding differential could have on Spanish companies,
acquired and/or sold by foreign companies, who have access to cheaper funding.
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5.3.2. Public spending geared towards activities that generate growth
For the economic recovery of Spain, it is necessary for the recovery of demand in
both public and private sectors to occur. 49% of top management suggested that top
priority should be given to the reactivation of private consumption, and considers that
the government’s economic policy must focus on achieving the upturn on consumption.
Figure 4: The reactivation of the demand is top priority. Question: Which
should be the priority for the government’s economic policy to revive the demand?
Prioritize from 1 to 3 the following measures, where 1 is more important and 3 less
important.
Reactivation of the public consumption
Reactivation of the private
consumption
Foment the exports
In relation to the public consumption, most of the high directors (64%) are of the
opinion that a different approach to public expenses is necessary, focusing in particular
on those expenses which generate business activity. It is not necessarily a question of
spending more, as a recovery of public consumption which is based on an increase in
government expenses, may not be understandable for the markets. It is considered that
49%
10%
4%
The graph shows the percentage of the top managers that answered “priority 1” to revive the
demand. Based in 43 Spanish companies, source: Questionnaire to Top Management
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the Public Administration have to spend their money in a different way, focusing
towards expenses that generate investment and growth.
As a second priority, 43% of CEOs aim towards the development of a new
Provider Plan Services, which could prevent invoice accumulation and the
consequences that this issue has caused. One of the main consequences is lack of
liquidity among Spanish companies, particularly those most closely linked to the public
sector.
Furthermore, they have also noted the need for more flexibility in respect of the
fulfilment of the deficit objective in Spain, as an alternative to the reactivation of public
consumption, with 29% considering this to be ‘very important’.
Figure 5: Different prioritisation of the public expenses, focusing on the
expenses that generate business activity. Question: Which of the following proposals
do you consider most in line with public consumption recovery?
Based in 43 Spanish companies, source: Questionnaire to Top Management
0% 20% 40% 60% 80% 100%
Make a different public expense prioritisation, focusing in thoso which generate business
activity
Elaborate a new Provider Plan Services which would prevent from invoices accumulation in
the Public Administration
More flexibility in respect of the fulfilment of the deficit objective
Slow down the pace of cutting of determined public expenses that affects the companies
3%
1%
1%
8%
0
3%
17%
25%
8%
22%
19%
32%
25%
29%
32%
25%
64%
43%
29%
8%
Not Important Low Importance Important Very Important Most Important
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Jaime Guardiola, CEO of Banco Sabadell said: “There is a long road of economic
reforms, including the improvement of the Public Sector’s efficiency, which would
allow for a certain softening in the compliance of deficit, in the case where Europe sees
this as a determined commitment for the reforms in Spain.”
5.3.3. Cut taxes to boost private consumption
Lowering taxes constitutes a key method for high management when asked how
to recover private consumption in the short term. 50% of CEOs consider this very
important, and a method which comes before the reactivation of credit flow from banks
to families (25%) and the encouragement of new employment niches (24%). Economic
policy is a rowing boat with two paddles, the fiscal one and the monetary policy one. If
Europe has control over the monetary policy paddle (and applies it restrictively) and, in
addition, requires Spain to restrict fiscal policy as well, then the whole ship sinks. Any
politician knows that the easiest way to adjust deficit is by increasing taxes, but the
consequence of taking money out of people’s pockets is a growth constraint.
Other measures, such as the Sectors Recovery Plan, are also considered important.
However, these are focussed around profitable industries with a bright future and who
are in nature, prone to aiding the rebuilding of the economy. As Ignacio Garralda,
president of Mutua Madileña, said: “Sectorial reactivation plans may make sense,
provided they are applied to profitable industries, and industries with a future. Public
expenses at sectorial level should have guidance for investment, as occurs in
technological sectors when a public purchase of technology is introduced, or in the
automotive sector when attracting new models to manufacture; but the essence is there,
in the recovery, which is not the same as sustainability.”
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Figure 6: Cuts in taxes are emerging as the most efficient measure to revive
private consumption in the short term. Question: Which of the following measures
will be most efficient reactivating private consumption in the short term?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
5.4. Structural reforms must continue.
The reforms which have been undertaken are improving Spanish competitiveness,
however there is still work to be done to deepen several reforms, or to address new
ones. For example, the reform of the public function is key, in order to note visible
effects in employment and the deficit.
5.4.1. The reform of the Public Administration is a pending issue.
The high directors interviewed recognise that the reforms carried out were
necessary, starting with the reform of the financial system, the labour reform and the
organizational adjustment realised at the private level. However, they consider that
0% 20% 40% 60% 80% 100%
Cut Taxes
Revive flows of credit from banks to families
Promote niches of employment (green economy sector, biotechnology, etc)
Extend the Sector Recovery Plans to other sectors
1%
1%
4%
11%
14%
22%
14%
21%
29%
25%
43%
17%
31%
29%
24%
50%
25%
24%
14%
Not Important Low Importance Important Very Important Most Important
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these structural reforms should be kept or built upon, in order to increase the credibility
of Spain as a country, and to set us on the road to development and growth.
Thus, the vast majority of the high directors consider that it is necessary to
implement a legislative harmonisation at regional level in order to avoid the
fragmentation of the Spanish internal market (89%), and 86% believe that the current
State model must be reformed. In this sense, the survey reflected that the structural
reforms with more impact on the growth of companies in the short term would be, from
most to least important, the internal market reform, the State model reform and the
operative reform (improvement of efficiency) of Administration.
Figure 7: How necessary is the harmonisation of the Spanish internal
market? Question: Do you consider it is necessary to harmonise autonomic legislation
in order to avoid internal market fragmentation?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
Though Spanish firms are accustomed to moving in a fragmented market,
nowadays, many entrepreneurs still think that different requirements, at a regional and
89%
4% 7%
Yes No Not know/No answer
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Carlos Curbera Mateo-Sagasta 34
local level, are a key impediment for the expansion of their businesses throughout
national territory, and agreed the reform the internal market to be a top priority.
Figure 8: The current State model must be reformed. Question: Do you
consider that the current State model –State of Autonomies- has come to an end and
needs to be reformed?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
Figure 9: Impact of the reforms on growth. Question: Which of the following
types of structural reforms do you consider would have a more positive impact on the
growth of your company in the short term? Prioritize from 1 to 3 the following
measures, where 1 is more important and 3 less important.
Internal market reform
State model reform
Reform of the Public Administration
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
86%
11%
3%
Yes No Not know/No answer
29%
25%
10%
The graph shows the percentage of the top
managers that answered “priority 1” to obtain a
more positive impact in the growth of their
company.
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5.4.2. Companies do not want hurdles in the internal market.
For years, the CEOE has consistently pointed out that the costs and barriers
derived from fragmentation and the diversity of the existent normative within the
national territory are a primary reason for the disincentive of investment in Spain and a
big obstacle for the competitiveness of firms. An excellent example of this is the graft
legislation, which was approved by the Council of Ministers at the end of January 2013.
This legislation attempts to ensure the free movement of goods and services throughout
the national territory. This idea behind it is also to eliminate the cost and growth
restraints which result from having to adapt to the different existing regulations. The
target here is to implement the European principles of single license and sole legislation
and authorisation, starting from the place of origin of the operation and throughout the
national territory.
Figure 10: A single Administrative authorisation. Question: If you consider
that a harmonisation of autonomic legislation is necessary to avoid fragmentation of the
internal market, which measures would you believe will contribute more to achieve a
single and authentic market in Spain?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
0% 20% 40% 60% 80% 100%
Reorder the competencies over licensing concessions by concentrating on higher level …
Force a Basic Law from the Central Government
Recover the licence of national operator
8%
3%
27%
20%
10%
30%
30%
28%
27%
43%
60%
Not Importat Low Importance Importan Very Important Most Important
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In order to obtain this single market in Spain, 60% of CEOs deem it very
important to recover the licence of national operator. This is compared to other CEO’s
which considered it most important to force a Basic Law from the Central Government
(43%) or re-order competencies over licensing concessions by focussing on higher level
administrative units (27%).
This is not about attracting competencies towards national organisms, but it is
about a permit granted by a regional or local Administration which is to be admitted as
valid by the rest of the Administrations in the national territory.
The Guarantee of Unity Market draft law is moving in that direction, in line with
the construction of the internal market at a European level. To this end, the new text
steps up on cooperation mechanisms between the general, autonomic and local
Administrations, which are key to developing this much needed internal harmonisation.
5.4.3. Important reforms are still pending
The high directors denote the public sector reform as the major pending reform,
within both structural (State model) and operative (efficiency) reforms. Furthermore,
other important reforms to undertake have been identified, such as the educational
reform, the justice reform, further releases in some sectors and the increment of labour
flexibility, etc.
The main problem with the current State model lies in the overlapping
competencies between Administrations. 68% of managers consider it very important to
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create a unique window, and to 66% a clarification of the competencies in both the
Central Government and Autonomic Administrations is deemed necessary.
Figure 11: Avoid duplications and overlapping competencies between
administrations. Question: If you consider that the current State model –State of
Autonomies- has come to an end and should be reformed, in relation to the State reform,
how do you rank the importance of each of the following measures?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
5.4.4. A more efficient public administration would be an expression of
confidence for the markets.
The high directors know that the same efficiency principles they have applied to
their businesses have to be implemented in the Public Administration, contributing to
the economic recovery of the public sector. Almost 50% of high directors deem the
improvement of efficiency in the provision of public services to potentially have a very
0% 20% 40% 60% 80% 100%
Drive a financial model in which every entity of the Public Administration must finance their …
Reinforce the coordination between State and the Autonomous Regions,
Reinforce the role of inspector and sanctions system of the Government to ensure the …
To clarify the competencies in both, the Central Government and Autonomic …
to create a unique window in order to end with the overlapping of competencies
2%
14%
7%
7%
3%
7%
29%
15%
15%
7%
42%
24%
39%
19%
22%
34%
36%
36%
66%
68%
Not Important Low Importance Important Very Important Most Important
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important impact in the economic recovery, followed by the reduction of administrative
charges to companies, performance assessments and public policies.
There is a perception that adjusting the current public employment may be unfair
and demotivating, leading to a situation of a senior government being poorly paid and
extensive overstaffing that could lead to a voluntary administration, which may be
corrupted and inefficient.
Figure 12: It is imperative to address the efficiency improvement of the
Public Administration. Question: Which of the following reforms of the Public
Administration do you estimate will have a greater impact for economic recovery?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
In the publication “What changes does the Spanish Public Administration need?”
(PwC, 2012), three necessary changes are pointed out in order to modernise the public
Administration: modify the way it operates, how it spends and how it functions. In all
three cases, efficiency is key.
0% 20% 40% 60% 80% 100%
Greater concentration to the service delivery
Assess the efficiency of the public policies
Performance assessment of the public employees and vinculate it to their career …
The reduction of the administrative charges to the companies
The improvement of the efficiency in the provision of public services
1%
13%
1%
3%
6%
1%
28%
21%
31%
14%
21%
35%
42%
26%
36%
32%
24%
35%
39%
44%
46%
Not Important Low Importance Important Very important Most Important
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For ‘the way it operates’, the administration needs to be agile and efficient. It also
needs to evaluate public policies, reduce the burden imposed on citizens and firms and
integrate the electronic administration with the joint services centres.
For ‘how it spends’, costs should be reduced and structures rationalised, with good
debt and treasury management, financial restructuring, and public-private collaboration
in order to generate liquidity.
Modifying ‘how it works’ requires clear limits of the public function, widespread
performance evaluations and taking advantage of the internal mobility and teleworking.
5.5. Export development and innovation to enhance the
competitiveness
Exporting and innovation are the drivers of growth in Spain. Companies will be
driven to invest in development and innovation to achieve sustainable success in the
markets, whilst exports are increasing. Company growth and a more efficient cost
reduction process will help firms to gain competitiveness and thus emerge from the
crisis.
5.5.1. Active support to exportation
Spanish exports are currently the most important factor for optimism in the
country’s economy. While economic recovery still appears to be a long way off, the
balance of trade is increasingly balanced and Spanish companies are launching
themselves into foreign markets with ambitious plans in the pursuit of demand that is
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restricted locally by the specific conditions related to the financial containment of
families and firms.
In this context of financial restrictions, 40% of high directors believe it to be very
important to ease access to exportation credits, and 36% to lower social contributions so
that the companies can take that step up and become international, boosting their growth
and the Spanish recovery with it.
Other measures, such as the development of external commercial relations and the
reinforcement of the “Spain” brand, constitute additional ways of promoting exports.
The actions that the government would need to undertake in to adopt these measures
would be welcomed by businessmen; as they are well aware that growth and becoming
international is not easy.
Figure 13: Financial aspects that are important for the promotion of exports.
Question: Which of the following measures do you consider important to boost exports
and the internationalisation of your company?
Based in 43 Spanish companies, Source: Questionnaire to Spanish Top Management
0% 20% 40% 60% 80% 100%
Support from commercial offices abroad
Repayment of export duties by the …
Sectorial Aids from the Government to …
The abandonment of the austerity politics in …
Greater emphasys on the development of …
Reinforce the brand "Spain"
Lower the social contributions to improve …
Simplify the access to credit for exportation
7%
3%
1%
6%
3%
3%
19%
30%
25%
25%
9%
20%
3%
7%
34%
34%
29%
20%
31%
24%
33%
14%
27%
14%
27%
25%
27%
19%
25%
30%
9%
9%
13%
16%
24%
31%
36%
40%
Not important Low Importance Important Very important Most Important
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5.5.2. Innovation to achieve growth.
A well-known fact is that the countries with better ranking on rates of innovation
have a greater growing rate, which is more sustainable over time and has higher levels
of productivity.
The question is, how should this be promoted by public authorities? The first
executives distinguish between two main methods: those directed to create an
environment that is adequate for investment, and those with a direct impact. Amongst
the first, removing administrative barriers affecting demand and supply of employment
is the most relevant for 73% of surveyed people. This is followed by the management of
innovation, carried out by the Public Administration and based on efficiency and
profitability criteria (72%) and the creation of a more agile market of intellectual
property.
For those with a direct impact, increases in the average size of aid was considered
by 50% of those surveyed, while 42% selected the option of public management
focussing on innovation within a single agency. Finally the inclusion of innovation
demands for public tenders was believed to be most important by 40%, these three
being the top favourites.
Figure 14: The boost for innovation in Spain will encourage the mobility of
talent and efficient management. Question: Which of the following actions should the
Government put in place to boost innovation in our business and economic
environment?
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0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Public management concentration of the innovation in a single agency
Innovation demands for public tenders
Focus and rise the average size of public aids for innovation
Creation of a more agile market of intellectual property
Management of the innovation needed by the Public Administration according to efficiency and
profitability criteria
Remove administrative barriers to the demand and supply of employmen
7%
3%
20%
23%
14%
15%
1%
4%
26%
30%
35%
31%
24%
22%
23%
20%
25%
25%
33%
28%
19%
20%
25%
28%
39%
45%
Not Important Low Importance Important Very Important Most Important
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Chapter Six
6. Study of the effects of the European financial crisis in family
businesses
The family business is one of the most important and solid pillars of Spanish
society. Therefore, to highlight the effects of the crisis on this type of business, I have
chosen to include these as part of my essay. The questionnaire used was made available
to 134 businessmen and owners of family businesses in Spain. This was designed in
such a way that it has been possible to develop a barometer to indicate the effects that
the crisis has actually caused in family businesses. Thus, we can draw conclusions from
these questionnaires, in order to find the best proposals and solutions across the Spanish
economy as a whole. Furthermore, some of the questions were designed to understand
the impact that the crisis has had on relationships amongst family business owners.
6.1. Effects and measures
Currently, the unemployment rate in Spain stands at around 25% of the working
population, and according to estimates made by the Family Business Institute, family
businesses will collectively generate 75% of private employment. In this case, of the
firms surveyed, 35% acknowledge a high or very high impact of the effects of the
financial crisis. Meanwhile, only a 19% of the firms surveyed recognise that the crisis
has not affected their job positions. However, 44% of the companies assert to have
suffered a low or medium disruption.
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Given the results obtained, one can conclude that the widespread fall in
consumption has been reflected in sales, as more than 54% of surveyed businesses
consider that the recession has affected their turnover in an significant way. This can be
compared to the 14% which considers that the crisis has had minimal or no impact on
their business. The fall in turnover, logically, is also reflected in the profits of these
companies. Therefore, more than the half of the companies asserts that there has been a
significant impact on their profits as a result of the recession.
At the same time, we can highlight that 36% of the surveyed businesses reveal
that their portfolio of clients has not been affected seriously, and almost 40% considers
that their portfolio of clients has been significantly affected by the economic crisis.
The most common measure in family businesses is to reduce costs, as voted by
84% of those surveyed. The second alternative (70%) is the search for new markets.
This is a sign of positive attitudes. This compares to the least common measure (only
20%) which is to become more energy efficient, and this does not cease to be an
indicative fact.
With the decline of sales, payment deadlines are lengthening. This situation
concurs with the cut in the capital credit lines by many of the financial institutions.
Thus, the lack of liquidity has become one of the main problems. When asked about
their relationship with the financial sector, nearly half of the companies, 46.4%,
revealed that its sources of funding had been affected significantly or entirely by the
crisis.
Among other statements, it is important to note that an 87% of the surveyed
businesses believe that the notion of leadership is very important in times of crisis.
Furthermore, 60.2% have experiences their market coming to a half or being reduced,
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and more than half of the companies surveyed feel that is becoming increasingly
difficult to determine forecasts and make longer-term strategic plans. As a response to
the recession, more than half of family businesses maintain that they have attempted to
pursue alternative opportunities such as partnerships with other companies. It is also
worth noting that, despite many of the opinions voiced in respect of this, only 44% of
the surveyed businesses witnessed the economic crisis as a good opportunity to seek out
the talent available in the market
6.2. Confidence and optimism in light of the gravity of this crisis
In general, one can say that family businessmen’s trust in banks and other
financial institutions has been affected in a negative sense. Similarly, the financial
sector, together with the construction sector, appears, in the opinion of family
businesses, to be the key trigger of the economic crisis. 52% of those who responded
identified financial institutions as the main trigger factor; whilst the construction
industry is pointed out by 31.7%. Additionally, the responses given in relation to the
levels of satisfaction in respect of the steps taken by the government in the context of
the crisis have been forceful: a staggering 82.3% is totally or considerably expressing
disagreement.
However, despite the severity of the situation, family businessmen are more
optimistic about the ongoing timeline of the crisis in the case of their own business
rather than on a global level. More than a 60% of respondents considered that their
business will get through the crisis in the next 3 years, and 21% perceive that they will
achieve this in the next 12 months. On a global scale, less than half of the businesses
believe that it will take between 1 and 3 years to overcome the crisis and a further
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33.5% feel it will take between 3 and 5 years. Only a 4.79% believe that on a global
scale it will take less than a year.
6.3. The solidity of important values for a stronger and united family
This optimism is also reflected in the wish for continuity within family
businesses. Perhaps precisely because of this, the most positive note of this
investigation is the fact that, despite the severity of the economic crisis, 87% of those
surveyed are confident about the future of their business projects and these clearly assert
that the sale of their business is not something they have in mind. On the other hand, of
those who have had to sell their business, almost 62% of them acknowledge that they
will eventually start a new business project. One might interpret this as an indication of
overall good health of entrepreneurial spirit, which in my opinion represents a key
element for the economic recovery in our country.
Another key element is the family unit. Every crisis generates strain in personal
relationships and business families do not escape these effects. However, at the question
which was posed as to whether the crisis has had direct impact in the quality of the
family relationships, almost half of those questions negated this. Only 30% revealed that
the quality of family relationships suffered due to the crisis. On the other hand 38%
acknowledged that economic difficulties had modified the conduct of family members.
All these answers lead to the final conclusion that the solidity of family values
help in difficult economic times. In fact, 88% of the responses are fairly broadly in
agreement with this statement.
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In this time of crisis, when asked about what mechanisms the family have used
for adopting strategic decisions about important topics in their business, 47% of the
respondents affirm to making use of their family council in order to seek appropriate
solutions, whilst 41% resorted to the use of external experts. With regards to this
question, it should be noted that the restriction on the answers has led to some of the
surveyed businesses to lean towards the first of the three possible answers (Family
council, external experts, other). However, some recent studies on this subject matter
show that the family council is not formally operative among family businesses. As a
result, the interpretation that seems the most likely, from information obtained, is that in
the family business environment, the decision making process has been addressed “in
family”, in the widest sense of the term, independently of whether they formally have a
figure of family council or not.
A final element to note is that 134 Spanish family businesses were involved in this
survey from a wide variety of activities, but mainly from services, trading,
manufacturing, and consultancy and distribution sectors.
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Chapter Seven
7. The internationalisation of Spanish companies and the
decision to export as a solution for the Crisis
7.1. The International scope of business
In a world where globalisation is constantly increasing, internationalisation is now
a key factor for the survival not only of large companies, but also for many of the
existing SMEs. The target is to continue to grow even after all domestic ground has
been covered. Thus, it is necessary for a business to expand its horizons, not only
because all existing ground has been covered, but also because of the need to follow its
customers wherever they go, in order to avoid being replaced by competitors across the
globe.
The financial crisis in Spain was not made public until mid-2008; although the
fact is that the first signs appeared as early as 2006. The recession has been particular
for businessmen since that date and, little by little, they have been seeking alternatives
in order to move their business onwards. One of the best solutions found has been the
exportation of both products and services, seeking demand and prices that cannot be
obtained within the Spanish frontiers.
7.2. Five actions to promote the internationalisation of businesses
1. To prepare and implement a Special plan in order to identify sectors and
business processes which are most likely to grow at a global level. In
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particular, identifying needs, prioritising help for businesses, obtaining the
correct guidance from management in terms of business strategy and
providing the necessary administrative and institutional support for the
different sectors involved.
2. To establish amongst business sectors key performance indicators (KPIs) to
measure and compare the internationalisation and actions of Spanish
companies abroad, split by sector and the most competitive business
processes.
3. To promote the internationalisation of Spanish companies in the most
competitive regions of the world, such as China, India or South-East Asia at
the moment, in order to facilitate the implementation, expansion and
consolidation of these markets.
4. To adopt a new formative plan orientated in a specific form towards the
internationalisation of companies to promote the study of foreign languages,
marketing and management techniques of companies in expansion.
Furthermore to increase knowledge of the new markets, international hiring
and corporate culture in the target countries.
5. To fund part of the cost suffered by Spanish companies by accessing
international markets.
7.3. What is export?
We can define to export as the action of selling, delivering and charging products
and/or services to customers currently outside of the national market. Having said that, I
need to clarify here what is meant by a national market. A national market is one in
which our merchandise can circulate freely without customs or tariff restrictions. Under
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these conditions and from our perspective, we could consider the European Union to be
a national market since there are no customs restrictions. However, there are currently
different forms of documentation needed to sell in the European Union territory, thus
leaving this territory at an intermediate stage between a national market and an
exportation one, and this is referred to under the term ‘Intra-community Transactions’.
Therefore, we will consider our state to be the national or domestic market.
There are a few reasons that may lead us to believe that exporting is a more
complicated operation than selling in the national market. These are related to the
existing differences between the different judicial systems, customs, communications,
commercial usage and language. Furthermore, until recently, it was also considered to
be a more complicated process due to the different documentation that was necessary,
the existence of greater tariff barriers and hurdles within customs and transport being
both more expensive and not as secure.
Currently, this picture has been modified as a consequence of the gradual opening
of frontiers, thanks to the activity of the World Trade Organization (WTO). Similarly,
as a consequence of the increase in competitors, there has been a reduction in transport
prices and, moreover a reduction in paperwork. This, associated with the ease in
communication, allows us to extend commercial networks towards new markets, and
consequently new clients which may result in a more attractive customer base than
previously held.
For this reason, exporting often implies change in a company’s attitude.
Simultaneously, this involves a change in behaviour based on new opportunities that
await businesses in different markets.
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In spite of the differences that sales directed to national or foreign markets entail,
we can assert that these differences are not as deep as some of us have been led to
believe. Since both the national market and the foreign market have clients with
different buying habits, the need to produce products at a competitive price is inherent
to any market. In these two markets, we will have some difficulties related to the
possibilities of our company in terms of the positioning, purpose, etc. The diversity of
commercialisation channels, as well as administrative procedures, transport and delivery
of goods are present in any market. Finally, regardless of the methods used and the
relevant markets, what are indispensable for the survival of any company are the billing
process and, therefore, the payment for those goods or services which have been
provided.
Despite these similarities, we still have to consider some of the factors which do
not affect sales in the national market. Usually, in the overseas markets as a
consequence of geographic and cultural remoteness, it is essential for extensive research
to be carried out in order to obtain adequate information that allows us to adopt
decisions which will minimise the risks that are implied in all commercial operations.
Cultural and linguistic diversity include different forms of communication, negotiation
and interrelation at both an enterprise level and a market-client level. In this way, given
that they are different states, we find ourselves with the existence of no-customs
barriers, related to the different forms of business, law and traditions to which a
company must adapt. Even though previously we referred to distribution channels as not
being one of the substantial differences, in international trade these selling channels can
be longer. Consequentially, this can hinder and reduce the level of control held by the
company distributing the product, through the existence of several unknown or complex
intermediaries compared with those that can be found in the national market. Naturally,
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this chain will contribute to production costs increases, as a consequence of the
additional costs involved in long-range transport, arranging cargo insurance,
commercial brokerage costs, tariff rates, transport and logistics costs in the target
market. On top of this, there is also the extra cost associated with the existence of
different means of payment, sometimes specific to international trading and which have
to be carried out in an adequate form.
All these differences could progressively be solved, by taking advantage of the
knowledge gained for each of these elements. The support of public institutions can help
reduce the risks present in these elements, by lending a hand through services they are
able to provide in the different areas which were discussed.
7.4. Why export?
From a macroeconomic perspective (balance of payments, trade deficit, etc.),
export is always positive for the country’s economy. However, a business decision must
not be based exclusively on this assertion, as each case will have to be analysed for the
desirability of the exports, and solely from the point of view of the specific situation for
each company.
I will now go through the pros and cons that would lead a company to determine
whether or not to export their products. Firstly, we will see the key benefits that can
determine the decision to confront the challenge of accessing the overseas markets:
Access to overseas markets provides risk diversification for the business
operations of a company. The existence of new international customers
reduces dependence on regular internal customers. This will provide more
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markets in which to sell products and services, thus producing a positive
collateral effect from the perspective of sales, as sales made overseas can
stabilize possible fluctuations which occur in the domestic market or other
markets.
The existence of these new clients overseas results in an increase in
company turnover and enables it to achieve balanced growth in a
competitive market. Moreover, this turnover enhancement will not
increase competitive pressure in the internal market, as the external market
is larger, the increment of customers significant and as a consequence of
economies of scale, there may even be an improvement in the competitive
position within the national market resulting from the reduction in unit
costs.
In the same way, this wealth of experience enables us to learn from the
market. Opening up new markets brings new opportunities and new
challenges for companies. This offers a complementary vision which will
allow the adoption of new ideas, new products, new ways of working, etc.
In general, this makes companies more flexible and generates a greater
capacity of adaption to future changes.
In many cases, access to external markets considerably extends the useful
life of a product. Frequently, once a product has been saturated in the
national market or has become obsolete, it will be replaced by a new one.
This, however, may not be the case in foreign target markets, and this
replacement can therefore occur at a later stage. Access to overseas
markets where there is a huge technological difference enable us to extend
a product’s life cycle.
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Sales and production increases will reduce the unit cost of manufacturing.
This directly results in an optimisation of productive capacity, allowing for
economies of scale and a reduction in the unit cost of production.
The global perception of the market should allow us to take advantage of
greater business opportunities. Companies are organisms that evolve to a
greater or lesser degree and at a greater or lesser speed, however what is
absolutely crucial to their survival is constant evolution. Strategies of the
past may now be ineffective in the present, and may seriously affect a
business if not replaced by new opportunities. In this respect, if a business
addresses the needs of different customers and develops their activities in a
different environment, this can then result in the discovery of new product
needs and this develop a whole range of actions needed for improvement.
Moreover, a global competence will force us to improve and to ensure that
we are not left behind. As a consequence of globalisation, international
markets are converging and eliminating differences. Not to access these
markets means to lag behind in the race to generate new or improved
goods and services compared to competitors who may have already been
able to adopt a strong position in certain overseas markets.
Last, but not least, internationalisation allows a company to create a
greater public image and prestige for itself. Its presence abroad and
international projection is an intangible asset on which a price cannot
easily be ascertained, however this undoubtedly revaluates and improves
brand image and the prestige of the company both, nationally and
internationally.
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In spite of the benefits for businesses, access to markets abroad is not all plain
sailing. I will now turn to the possible disadvantages that a business could come across
should they choose to export:
Access to markets abroad with different cultures and buying habits can
force us to modify our products, packaging or presentation.
Different regulations in the markets can force us to obtain the
homologation or official approval of the product in target countries and
this can be costly.
In the same way, the recruitment of new permanent and specialised staff is
required, specifically people with language skills and knowledge of target
markets. It is possible to have to appeal to external expertise, which were
not necessary beforehand.
Distribution and logistical organisation can be slower and more
complicated than at national level.
Moreover, it may be necessary to obtain special certifications about the
quality of process management in order to gain access to certain overseas
markets.
The professional expertise of the company would need to be trained in
order to adapt to the changing needs of the target market.
Access to these new markets makes it necessary to undertake as
comprehensive a search as possible, using professionals skilled at the task.
There could be additional difficulties involved in choosing the best
distribution channel, which is not always a simple choice, as is initially the
knowledge of these markets is not sufficient.
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In some cases, it may be necessary to design a strategic plan specifically to
export, given the diversity and complexity of the overseas markets.
In the case where a company needs funding, it may have to find a different
funding system from its usual one if additional investment is needed to
provide working capital for exporting.
Naturally, it is time consuming to access overseas markets, and as a
consequence to manage travel costs and external contracts involved.
There may need to be modification or investment in new advocacy and
communication materials.
Exports of products entail an increased administrative burden, which can
force us to change our management strategy, at least partially, a result that
could increase administrative costs.
This would involve time and patience to ensure that the benefits of the
overseas market return to the company.
Furthermore, the existence of higher risks both on an economic-legal level
and political level due to these markets being based in other countries can
contribute to additional costs.
These types of risks will force us to search for the necessary means to
cover the possible contingencies that may occur in respect of default, loss
or damage to products, political risks, corruption, etc.
7.5. Conclusion
The internationalisation of a company constitutes an investment in time and
human resources which are to be amortised over a long period. Therefore, as a priority,
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a business must always analyse this from a financial point of view, before beginning
any export activities.
Once an entrepreneur has carried out a projected forecast for its commercial
activity in foreign markets, they would have to carry out a series of early internal and
external tests to enable the objective selection of the most cost-effective trade
opportunity, achieving the export “adventure” in a controlled manner in which risks can
be diversified within these markets.
Entrepreneurs must lift their eyes up from the crisis mudflat and look into the
future, beyond the immediate consequences of the current crisis, and abroad, in order to
find a solution; exporting. Companies committed to promoting external openness will
resist the crisis more easily and will emerge stronger from it. Moreover, it is important
to exploit these opportunities to export, as this will ‘weather the storm better’. Outside
of Spain the situation is difficult, but less so. In order to face these ‘cold temperatures’,
to face the bad omens, the everyday bad news and the evidences of the data that can
torment us, we need to provide solutions and react swiftly and effectively to future
changes, because we could only leave this crisis with the help of our companies.
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Chapter Eight
8. Conclusion
The gradual recovery of confidence defines the current economic model. This
economic model is based on confidence in the sustainability of the Euro project, and
confidence that the Spanish economy progressively recovers control over its
imbalances. The actions of the European Central Bank and political developments that
have been made on the Banking Union and the European budget have eradicated fears
about a partial or total crack of the Euro zone. This has been done by confirming the
decision of Member States, including Germany, to maintain the Euro zone in its current
form through appropriate reforms.
The Spanish economy for its part is just seeing how the imbalances in the current
balance practically disappear, the indebtedness is reduced, the unit labour costs of our
economy improve, reinforcing the exportation competitiveness, and the public deficit
starts to show control symptoms.
All efforts, sacrifices and reforms within the concept of “internal devaluation” are
finally beginning to show their fruits, even though many problems remain to be
resolved. Among these, in particular, are the high levels of unemployment and the
burgeoning public debt that threatens to exceed 100% of GPD for the first time in
history.
At this point, we must move swiftly and decisively in implementing the necessary
structural reforms for recovery. In particular, those reforms relating to the Public
Administration, in order to stop these from being an obstacle to the economic and social
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dynamism in the country, and use them instead as a strong force to drive change and
innovation. To do this, efficiency targets need to be set for management, and
furthermore, simple procedures which can be easily followed should be implemented
and there needs to be a high level of co-operation between different levels (central,
autonomic and local).
Similarly, it is necessary to set up active policies for selective growth reactivation
that, based on well-defined incentives in the key sectors, will allow us to break the
vicious circle that frequently results in economic recession. In the same vein, it is
crucial to speed up the restructuration process of the financial sector to allow normal
credit flows to the real economy as soon as possible. We have to find the right balance
of credit to avoid the over-indebtedness that led us to the crisis, and the consumption
suffocation that takes us into recession.
The main structural reform that Spain has undergone in the last years is,
undoubtedly, the internationalisation of its production network. The beneficial effects of
this, in particular the survival of international firms in the midst of the crisis, should
push Spain towards internationalising more of its business areas which have not yet
expanded in such a way. On the other hand, having many and important companies
whose main turnover and business volume is outside of Spain, forces us as a country to
deeply rethink the essential questions around tax, labour, and social policies, including
the role of the State and new collaboration spaces between the public and private
sectors.
In light of a widespread, deep and continued process of change, we need
economic agents, businessmen and employees to have the appropriate tools and
behaviour needed to adapt to the requirements brought about by change. Innovation
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within areas such as products, processes, and management becomes a strategic variable
category itself. This should not occur by chance but sought out consciously by the
corporation and with the support of public authorities.
Spain must find an intermediate path between competing as a cheap option and
competing via added value. The first will require a reduction in the standards of living,
which would be incompatible with democratic co-existence. The second will, most
certainly, require time that we simply do not have. Many companies and sectors are
finding the solution by working on these two fronts, by minimizing costs and
maximizing the added value. Furthermore, they are structuring their activities and their
relationships with suppliers and clients, based on the principle of producing quality at a
low price. That is what we should look for.
The reforms process must continue, and aim to promote the competitiveness of
companies and their internationalisation. Company directors are beginning to see signs
which point towards an on-going economic recovery; however this is still not sufficient,
neither to move into the real economy nor for the establishment of a positive citizen
perception.
We really are at a turning point now, and from 2014 it is possible that we will
begin to see actual growth in Spain, although the high unemployment levels and the
high social suffering caused by the crisis and the austerity politics will result in slightly
slower growth.
It is necessary to maintain trust as a country, through implementing resolute and
deep reforms that allow firms to improve their competitiveness. Reforms such as the
market labour reform or the reform of Public Administration, alongside clear and well
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explained measures, are vital to restoring confidence in the international markets, thus
enabling companies to grow and generate employment.
Austerity politics are necessary in order to generate trust. However, we must not
forget measures aimed at rapid economic growth and sustainable development. The
country needs to be capitalised and to work harder and more efficiently in order to
create wealth. The expenditure control allows increasing competitiveness, but we must
continue to make progress, promoting efficiency to firms and the Public Administration.
The key focus points for economic recovery are the internationalization of
companies and innovation. For both of these it is necessary to promote the increase in
the average size of the current Spanish business network, generally comprised of small
and medium-sized enterprises for which it is harder to assume the risks associated with
the venture of external markets and innovation.
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REFERENCES AND BIBLIOGRAPHY
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