By IESE Insight
Foreign companies continue to play a decisive role in the Spanish economy, providing 1.3 million jobs. In 2011, their net investment reached $29 billion, an increase of 20 percent over 2010.
These figures make Spain the world’s ninth-highest receiver of FDI and reflect the relative attractiveness of the country in the eyes of foreign investors, even during these tough economic times.
These are some of the findings of the Barometer of the Business Climate in Spain prepared by IESE’s International Center for Competitiveness in collaboration with Invest in Spain.
Generally Positive Outlook
Based on surveys of more than 250 companies, the barometer shows that 88 percent of the foreign companies operating in Spain expect to maintain or increase their exports in 2012.
Likewise, 70 percent expect to do the same with employment and investment levels, while 63 percent believe they can maintain or increase their revenues.
Foreign firms give the business climate in the country a score of 2.7 points out of 5, slightly lower than in 2011, although this barometer does not yet reflect the impact of the latest structural reforms implemented during the current fiscal year.
While foreign investors feel that Spain has made progress with its regulatory framework, the trend since 2011 has been negative in the other areas analyzed.
According to the companies surveyed, infrastructure, particularly airports and high-speed trains, is among the country’s strong points.
They also rate the availability of skilled and unskilled labor, and cite the areas of leisure and culture.
Another advantage for Spain in attracting foreign investment is the size of its market, although respondents believe it is still lacking in terms of its dimensions and accessibility.
Human capital, the most important area for foreign companies, was also rated positively, albeit with room for improvement when it comes to proficiency in foreign languages, accepting responsibilities, learning capacity and availability of skilled labor — all essential aspects for ensuring competitiveness over the medium and long terms.
Notably, the level of Spanish business schools continues to meet the expectations of foreign investors.
In addition, the quality of life index helps make Spain an attractive destination for expatriates and their families, who value the country’s leisure and cultural offerings, as well as its health-care system.
The Flip Side
Spain’s main problems involve finance, its weakest category overall. The ratings are especially low in terms of costs and availability of financing in commercial banking.
Innovation and overhead costs are two other areas that fared poorly in the survey. With regard to innovation, the most problematic aspect is the amount of public spending on RD&I and business applications.
As for the regulatory environment, foreign investors call for greater stability, believing there is ample room for improvement in the degree of bureaucracy faced by companies, a problem echoed by other international competitiveness indices, such as the Global Competitiveness Report 2012-2013 of the World Economic Forum.
In terms of taxation, companies feel that the corporate taxes and Social Security payments made by firms need improvement.
In the eyes of foreign investors, the labor market has some glaring deficiencies, especially with respect to incentives and aid for hiring.
Nevertheless, improvements have been made in aspects such as employee termination costs and adapting labor legislation to the needs of companies.
Specifically, 72 percent of respondents believe that the labor reforms have given the market greater flexibility, and 68 percent consider the collective bargaining reform as positive.
The areas requiring special attention due to their relevance for foreign companies are: proficiency in foreign languages, acceptance of responsibilities and objectives, the bureaucratic burden on companies’ day-to-day activities, and incentives for hiring.