The Spanish economy is currently immersed in a complex and intense process of adjustment and changes where the internationalization of its companies is crucial, because as long as this adjustment process continues, domestic demand will be unlikely to fuel economic growth in Spain, and because a high level of negative net foreign debt has accumulated which has at one point exceeded 90% of GDP.
In this context, Spanish exports, which already performed excellently in relative terms from 1999 to 2007, have significantly absorbed the fall of GDP, BBVA Research said in a press release. “So far, it is the only component of aggregate demand that has comfortably exceeded its pre-crisis value, reaching 334,500 million euros (goods: 228.9; services: 105.6) of aggregate annual added value in the third quarter of 2012.”
According to ICEX, Spain had 37,250 regular exporting companies in 2011, of which 20,579 had exports of more than 50,000 euros a year–companies with a proven capacity to compete on the international markets, and ready to lead the process of reallocation of factors to the sectors and companies showing the greatest growth potential.
However, BBVA Research believes that there are still challenges that need to be tackled. Among them, “to generalize this performance among all other companies and sectors, improve the growth potential of the Spanish economy and tear down the barriers to the reallocation and efficient use of production resources.”
BBVA Research highlights in its Economic Watch ‘The internationalization of Spanish companies’ that from the year Spain joined the EMU to 2011, the share of Spanish exports of goods and services in global trade fell by only 8.9%, despite the outstanding increase in exports by China, India and many other emerging economies. Meanwhile, the main industrialized economies have seen their export share in international trade drop between 20% and 40% during the same period.
In general, the evolution of the export share in these countries is scarcely related to that of relative export prices, which suggests that the rest of the determinants of the export share have played a more significant role than the evolution of the competitiveness-price ratio itself. BBVA Research believes that Spain’s case is different, given the positive role played by the determinants of the export share unrelated to the price.
However, this evidence does not mean that the competitiveness-price ratio is not important. If the relative export prices had performed like those of Germany, Spain would have been able to win nearly 20% of share in global trade between 1999 and 2011, which would have meant 6% more GDP.
“This good relative performance of the share of Spanish exports has occurred in parallel to greater geographical (towards emerging and fast-growing markets –EAGLEs–) and production diversification (towards sectors with a greater complexity and capacity to extend the exports to other goods and services, thus benefiting from the accumulated knowledge),” BBVA said, “in both characteristics, the sector composition of Spanish goods exports clearly stands out above the global average.”
Among the sectors better positioned to export, with higher levels of complexity and connectivity, machinery (33%), other chemicals (11%) and other metal products (8.9%) stand out for their share of Spanish exports.
The BBVA Research report also points out that only 12% of Spanish companies exported goods and 9% exported non-tourist services in the 2001-2011 period, according to the Bank of Spain’s database. A significant degree of concentration is added to this characteristic: 1% of the companies with the highest exporting volume account for 67% of total exports, and the figure rises to 93% when 10% of the companies are considered.
BBVA Research considers that the problem is not so much that there are few companies that export (although this figure can also be improved), but that there are too many small companies which are unable to export.
Key factors in internationalization
According to the Spanish bank, the factors that determine the internationalization process of Spanish companies can be summarized into strongly interconnected categories.
“Firstly, the decisions on the factors of production, such as the company size, the investment in physical capital, the quality of the human capital used and expenditure in R&D and in the adoption of foreign technology. Thus, exporting companies are on average eight times bigger than non-exporting companies, use nearly three times more physical capital per worker, make much more intensive use of human and technological capital, and their temporary employment rate is 9.3% compared to 23.3% on average for the economy as a whole.”
All these results in exporting companies recording a level of productivity (real production per employee) two or even three times higher than the productivity of non-exporting companies.
The report also shows that the likelihood of exporting increases with the company’s size, the stock of real capital per worker, the investment in R&D and in the adoption of new technologies, the use of qualified workers, the competition in the main market, and the participation of foreign capital in the company’s share capital.
In addition, the likelihood of exporting increases if throughout the year the company makes product innovations and diversifies its production to include more than one product.
“Specifically, a 1% increase in the company’s size increases the likelihood of exporting by 5%, while a 1% increase in the stock of real capital per employee would increase the likelihood of exporting by 1.8%. Moreover, achieving a product innovation throughout the year increases the likelihood of exporting by two percentage points, while production diversification results in a 1.7 percentage point increase.