The size of Spain’s companies is an unnecessary drag on the economy

The effects of the crisis on Spanin's businesses' productivity and competitiveness remain

In the corporate world, size is also important. One of the areas still pending after the reforms carried out by the last government, and one of the economy’s biggest weaknesses, is the size of Spain’s companies. According to studies published by groups like the Circulo de Empresarios (Circle of Entrepreneurs) or research institution Fedea, Spain’s GDP would grow 13-15% if the average size of its companies was closer to that of neighbouring countries like Germany or the UK.

In Spain there are currently over 3.114 million companies, of which 99.88% are SMEs. Micro companies, with up to 9 employees, make up 95.8% of the total, which is 3.4 percentage points higher than the estimate for the whole of the European Union (92.4%).

On the basis of this data, none of the parameters analysed in relation to this atomization of Spain’s corporate map favours important  issues for the country’s economic future like employment, productivity or innovation.

Here’s one figure: Spanish micro companies account for 41% of employment, but don’t account for even half of the productivity per employee of the bigger firms.

The majority of the research shows that an important part of Spain’s lag in terms of productivity is down to the size of its companies, which sets us apart from European standards or, more specifically, from Germany. In that country, 17.7% of all corporates are SMEs, 76.5% are micro companies and 5.8% are large firms. Furthermore, 38.5% of jobs in Spain are thanks to micro companies, while the EU average is 29.5%.

There is absolute consensus amongst the experts: that bigger companies are more intensive in human, physical and technological capital; they are more likely to export; they have easier access to financing; they are more innovative and have a greater capacity for establishing R&D processes.

But it is not easy to change the corporate map in Spain and facilitate small firms’ transition to mid-sized or big companies. There are plenty of reasons to explain this phenomenon. These include the lack of trained human resources, the low level of technological intensity and low quality management. In addition, the regulatory framework in place is unfavourable, something which the last few governments have failed to do anything about.

The proverbial tendency of public administrations to indulge in excessive interventionism or, if you like, regulation, is not unconnected to this situation. The OECD has shown that there is a clear inverse relation between regulation and size: as regulation increases, the number of small companies rise.

Far from boosting companies’ expansion and development, the current Spanish regulatory framework is perverse. It in fact encourages their non-development. Smaller firms benefit from incentives because of their size. This can be seen in the quarterly, not monthly, VAT returns. They are not obliged to provide audited financial statements, have the possibility of presenting abridged annual accounts or pay their corporate tax in installments.



About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.