Bureaucracy, taxes and regulation keep Spanish companies too small

By CaixaBank research team, in Barcelona | The average size of Spanish firms is smaller than that of other countries with a similar degree of development. According to the Central Company Directory, at 1 January 2011, out of the total 3.25 million firms in Spain, 99.9% were small and medium-sized enterprises; that is, they employed fewer than 250 salaried workers. Micro-enterprises with fewer than 10 salaried employees accounted for 95.2% of businesses compared with 92.1% in the European Union. Between 2000 and 2010, the total number of firms increased by more than 600,000 but the predominance of SMEs scarcely altered.

An abundance of SMEs may be the consequence of a dynamic, flexible economy. A high start-up rate may stem from great entrepreneurial spirit. But when the number of large firms is so meagre and company size hardly increases even at the peak of the cycle, we must wonder about the reasons for such an anomaly.

Many studies conclude that those economies with larger business units enjoy higher productivity and their firms are more oriented towards exports. There is also evidence that company size is one of the most decisive factors in a firm’s chances of survival at any time. In terms of creating jobs, new start-ups are highly positive but, when we compare mature SMEs and large firms, the latter usually end up winning in terms of generating and maintaining jobs.

What is the reason behind the paucity of large firms in Spain? There are factors of a social and cultural nature that might provide part of the explanation. But our smaller company size is largely due to an institutional environment that makes it difficult for businesses to grow. The rigidity of the labour market, prolonged, tortuous bureaucracy, the tax and accounting regulations, the disparity of rules between different administrative levels and a certain legal uncertainty in specific cases all hinder corporate development.

Companies themselves sometimes lack sufficient ambition, as well as an orientation towards efficiency, a more extensive use of new technologies and greater effort to incorporate innovation and research and development into management strategy. Also important would be a greater readiness to collaborate in far-reaching business projects.

In this respect, policies to support SMEs are pertinent and can help to offset the disadvantages of size. This is particularly evident in the area of financing, where SMEs face huge difficulties in securing external resources. Broadening access to stable long-term financing via capital and debt, optimizing the liability structure, brings benefits not only to SMEs but also to the economy as a whole.