Spain relies on internationalization to recover from Covi-19 – Explica

Spain relies on internationalization to recover from Covi-19  Explica

As in previous episodes of contraction. Only this time, Hispanic companies have managed to turn their international businesses into a structural element of the economy. With almost 53,000 regular exporting firms, those that have more than four years with regular sales abroad and consolidated invoices from third markets in their income statements. Government, employers explain their policies and recipes to promote internationalization.

Strategists like Bank of America Merrill Lynch have called their clients, in various official notes, to overcome the decade of dynamism and embrace innovative trends that lead to a new paradigm, a new business cycle that will lead to “distortions” and changes in drastic approaches “in companies and investors”. In one exercise, the current one, dominated by the Covid-19 and with a social confinement still uncertain in time and in the aftershocks -possible outbreaks- as well as in the intensity -major or less, depending on the latitudes- of the de-escalation that has led the world to a “turning point” in the geopolitical and economic-financial order of quite uncertain consequences, as warned by Ian Bremmer, founder of the Eurasia Group. But whate had already accumulated in recent years enough vestiges to think that the model of search for returns and benefits for the distribution of dividends, needs to transform nerve points or incorporate new command instruments. From strategic plans in which the ecological footprint predominates that captivate shareholders and investors to changes in their value chains or in their commercial ecosystems to ensure production and retain customers with an increasingly telematic mindset. Digitization and sustainability, therefore, will go hand in hand with the tactics of executives and the action programs of business managers. From large multinationals, but also from smaller firms. The international vocation, therefore, must address new productive and, consequently, competitive parameters to acquire the muscles required by the global market.

The Spanish Government admits its confidence in the capacity of the foreign sector to act, once again, as a catapult towards the new business cycle. As in previous transitions to other boom periods. The expansion of Spanish companies in the 1990s towards Latin American markets -the first phase of their internationalization- and that of the decade that followed -the first of this century- in which they successfully penetrated the US and Europe with First-rate acquisitions in strategic sectors such as energy, telecommunications or banking and construction, has managed to consummate a diplomacy with a more mercantile profile that has established itself in the tasks of embassies abroad. Even carving out a country image that, with its ups and downs – the last sign of deterioration occurred as a result of the bank rescue in 2012 – has generated a positive outlook. Because, as experts in this matter argue, the concept of the brand-country “is intrinsic to the competitiveness wrought abroad, which is not always precisely uniform.”

Spanish government assessment

The Secretary of State for Trade ensures that “due to its recent trajectory in international markets, the Hispanic foreign sector has acquired a strengthened capacity to contribute to the take-off of activity” in the post-Covid scenario and, gradually , in the process of de-escalation of the confinement, explain sources of the Ministry of Industry, to which this department is attached. In 2019, international trade was subject to significant tensions, they clarify. And, “in this demanding context, our foreign sector was able to close the year with a moderate dynamism and has started 2020 with very promising results, both in growth – 3.5% accumulated year-on-year – between January and February, months that preceded to the declaration of alarm status. “This evolution confirms that Spain has a competitive business fabric that, as soon as the recovery begins, must be able to reaffirm its position in the international marketThese same sources say to Investment Strategies.

Commerce also affects the reinforcement of several factors in recent years, such as the expansion of the export base, which “has increased continuously, with some 53,000 companies exporting regularly”; geographic diversification, which has meant “less dependence on the euro area and a greater weight of exports to Asia, Africa and North America and Latin America” ​​and the growing weight of foreign trade in services, “in particular, of non-tourism” which, in the last two decades, have quadrupled, reaching 69,000 million euros in 2019. In addition to “Spain’s insertion in global value chains at average rates higher than that of the EU and OECD countries”. All this leads us to believe that the contribution of the foreign sector to take-off will be dynamic.

Trade in goods

Despite the fact that “the presence in geographic or sectoral markets that are affected by the crisis – as well as the insertion in global chains that must be reorganized – will require a greater adaptability of companies, to which the policy of promotion of internationalization ”. Reason why the Secretary of State for Trade – advance these sources – “Dialogues and analyzes of international markets are being carried out, in dialogue and in collusion with companies, as well as the perception of global firms or those with export potential, on the coming economic and geopolitical situation ”. In this sense, in addition, “the Biennial Plan 2021-2022, which is part of the Internationalization Strategy, is being redesigned and reoriented, in order to“ pave the way for companies abroad ”, cooperating, they emphasize, with Cámara España y CEOE, among other interlocutors of representative Spanish companies with a presence abroad, to “identify new market opportunities”. As well as the promotion of financial support loans to internationalization through CESCE (with an extraordinary line of insurance coverage of up to 2,000 million euros from the Reserve Fund for the Risks of Internationalization and with great demand from companies) and the preparation for “the day after”, via ICEX. Through instruments such as business training webinars on international markets, service to companies on the ground through the network of economic and commercial offices in more than a hundred countries. Or the new ICEX eMarketServices consulting service, which focuses on making it easier for Spanish companies to draw up a customized international strategic online sales plan, with the help of expert e-commerce consultants and the guarantee of ICEX export knowledge. One of the great challenges of digitization.

Exports and imports

In the whole of 2019, Spanish exports grew by 2.3% more compared to the previous year. Although the number of total exporters rebounded by 2.5%, to total 209,233 business operations abroad. For a value of 290,089 million euros, 1.8% more than in 2018. And exactly 52,949 regular firms – those that have more than four years with regular sales abroad and consolidated invoices from third markets in their income statements – accounted for. The factor that determines that the traditional conjunctural muscle of the foreign sector, in previous crises, has become structural. In other words, companies with an international vocation are so regardless of the phase the business cycle goes through – more or less vigorous – and have established themselves in global operations. In this transit, the preferred destinations of the Spanish foreign sector are, in this order, France, the USA, China, Mexico, the United Arab Emirates, Morocco and Australia, depending on the different continental areas and subregions. Although the top-ten continues to be dominated by European partners. In other words: Hispanic firms have come to world markets to stay.

Ranking of the top 10 export destination countries

A triple leap towards internationalization

The two decades of this century have served to overcome stereotypes. For example, in the difficult task of identifying Spain in the US as “the largest economy in Latin America!” a conclusion that was in the collective business subconscious at the beginning of this century, when Hispanic diplomacy assumed more mercantilist theses to facilitate the access of firms and products made in Spain in foreign markets. With strategic plans, both geographical and sectoral, directed from the Palacio de Santa Cruz -the headquarters of the Ministry of Foreign Affairs- which became Spain, in 2007, the third largest investor in the world, exceeding 100,000 million euros of capital, to knock on the doors of the G-7 or to surpass Italy in per capita income despite its lower demographic pressure. The 2008 crisis altered the process. Before the strength of the large emerging markets, which relegated Hispanic GDP to thirteenth place in the global ranking by size, at constant market prices – in dollars. But the breakdown of the process caused by the 2008 credit-crunch has not, however, interrupted the economic profile that the diplomatic corps has acquired and its constant cooperation with commercial technicians in Spanish legations abroad. In support of companies. With an exponential increase in the meetings between businessmen and ambassadors, in addition to the dialogue with Ibex-35 companies and institutions linked to the foreign sector, with the clear objective of channeling public-private collaboration initiatives. A strategy that has contributed to revitalizing the external weight throughout the past decade.

To the point that the accumulated value of Spanish capital abroad is still above its global ratio, of the size of its GDP, recorded by the IMF at 1.3 trillion dollars. The OECD reveals that the stock of Spanish direct investment (FDI) accumulated abroad amounts to 659,000 million dollars. One of the ten world powers.

Global FDI

However, the hibernation to which the Spanish economy has been subjected, like those of the rest of the planet, to a greater or lesser extent, due to the Covid-19 crisis, has left the economic scorecard in limbo, although with omens more than negatives. With a recession of enormous caliber and unparalleled in times of peace – never seen since the Civil War – and an x-ray of worrying hues that emanates weekly from the Bank of Spain. Among other entities and institutions. In its latest version of events, the regulatory authority supports the European reconstruction fund, although it opts for a revision of the one proposed by the Franco-German axis. So that Add to the resources of half a trillion euros announced by Paris and Berlin a European investment arm capable of acquiring sovereign debt purchases from partners in difficulties with conditionality in the style of IMF counterparts by releasing its financing lines to nations threatened by suspension of payments: a battery of structural reforms of obligatory approval, but prone to growth by an amount of 1.5 trillion euros, which, added to half a trillion, would approach the recommendation of the European Parliament to enable a large fiscal stimulus program of 2 trillion euros. So the Banco de España gives its blessing to variables of conditionality. Resources for reforms. A novelty for times of crisis. Or, to be more precise, to tackle the Great Pandemic, the most serious recession in contemporary history. From which Spain must also leave through European means and resources. Because, according to the calculations of the Spanish supervisory body, the national GDP will fall this year between 9.5% and 12.4%, despite shuffling increases of 6.1% or, even, 8.5% , in 2021.

“We are facing a disturbance of an unprecedented magnitude,” the governor of the Bank of Spain, Pablo Hernández de Cos, warned a few days ago in the Economic Affairs Committee of Congress, where he called for urgent budgetary efforts to mitigate collateral damage, but immediately Later, it required a political agreement “from various legislatures” to clean up the public accounts in the medium term, in short, new Moncloa Pacts that will move the country away from the galloping structural youth strike and direct production to variables of competitiveness and productivity. Digitization, because challenges must be faced with “promptness and decision”, emphasizes Hernández de Cos, which also requires a review of public spending, which is permanent – “periodic and systematic” – that allows alternating periods extraordinary disbursements, such as the current one, with other adjustments that bring the Spanish economy closer to budget balance.

In the end, the Commission proposal has lowered the high profile of the Eurochamber. They will be, if finally approved by the votes of the European Council, 750,000 million euros that are incorporated into the budget of the September 2021-27, and of which half a trillion will be considered a lost fund. Of this exceptional amount for a completely unusual crisis, Spain will receive just over 77,000 million euros in direct subsidies, 15% of the total, in addition to another 63,000 million in credits, for a total of 140,000 million euros. The Brussels initiative – which must receive the backing of Strasbourg, the seat of the EU legislature – will inexorably lead the European club to go into debt on the markets. Permission that links with the support of Hernández de Cos to the purchase of debt securities and with the subsequent withdrawal of the budget plans of all the partners of the Union to fiscal discipline. Because the Community Executive itself advances the gradual return to the rules of the Pact of

Stability and Growth, now under suspension due to the virulence of the pandemic.

European aid is a priority to consolidate the functioning of the internal market, where slightly more than half of Spanish export activity is directed, although in past decades it accounted for two thirds of its international sales. The latest analysis by the Bank of Spain on the balance of payments explained that, “in cumulative terms of twelve months, the financing capacity stood at 31.8 billion euros last February, a figure that exceeds the 26.6 billion reached in the same month of 2019, ”revealing that the sector manages sustainable financial portfolios to pick up speed on the runway. The fourth, after periods of internationalization that, in the case of Spanish companies, have coincided with the last three decades: the departure to Latin America of the nineties, the purchase of firms in Europe and the United States from the first decade of this century and the market diversification that has just ended. All of them, with episodes of crisis in between.

The internationalist vision of the employers

Sources of CEOE explain to Investment Strategies their “full conviction of the leading role and relevance of the foreign sector in the economic recovery”. We – they say in the employers’ – are in close contact with the ministries involved, informing them about the impact of the pandemic on the company’s international activity and identifying measures that can boost our foreign sector, which is one of the main engines of the economy. And of course, “we consider it essential that measures are put in place to promote exports and foreign investment with policies to improve competitiveness and support programs for foreign sales ”. Waiting to know the measures that the Government is considering.

Regarding the business transformations in the budding value chains and the advances in the field of innovation, CEOE assures that the internationalization policy must be distinguished from others such as industrial or innovation. Because, “from the perspective of the first one, the negative consequences of the pandemic in the activity of our companies must be counteracted, reactivate their presence abroad and try to avoid losing, at first, their share in foreign markets “

All of this “must be accompanied by an energetic response by our trade administration against the protectionist measures adopted by certain countries during the pandemic, as well as actions aimed at reducing trade tensions and concluding the signing of pacts, both multilateral -for example , Plurilateral Electronic Commerce Agreement-, such as bilateral; among others, and as a priority, that of the United Kingdom, Mexico or Mercosur. In such a way that “they allow reinforcing the current network of free trade agreements, which are so high priority when it comes to guaranteeing companies the legal security they need to operate in foreign markets.” Although no less important it will be that “we adapt our instruments to support internationalization to the new needs of our companies and to the geographic and sectoral opportunities that arise abroad.”

For the employers, the essential premise when evaluating the capacity of the economic sectors is that “the most internationalized are the most competitive, a result of an amalgamation of factors, among which we can highlight industrial policy, innovation, R&D, participation in European industrial or research projects and the heavy investments made. ” As seen, for example, in sectors related to infrastructure, water or rail transport. In this sense, the reinforcement of the current export segments or the appearance, where appropriate, of new ones, “will be conditioned by our ability to identify our priorities and to know how to make the most of European and national resources.”

The Spanish employers also analyze the options to increase the number of multinationals and the most favorable sectors to undertake the recovery roadmap. Because, they admit in the CEOE, “the size of the company determines its competitiveness in the international order.” In this sense, “We are aware that the smaller number of large companies responds to the atomization of our business structure and it places us at a disadvantage compared to other countries such as Germany, whose exporting strength lies in the large number of medium and large firms ”. In a market economy like ours -they say from the bosses-, where the decision-making resides in the companies, our main function must consist, among other aspects, in promoting free competition in the markets, in perfecting the internal market and promoting a European capital area that facilitates the growth of companies ”. Although, on the other hand, “we totally agree that promoting the image of our export sectors is one of the pillars of foreign promotion of our products and services.” At a time like today, where our country has suffered so severely from the consequences of the pandemic, “It is essential that we strengthen the image of the consumer and technology exporting sectors”. A Strategy that should be articulated around experiences, experiences and sensations that link sectors such as gastronomy, food and tourism; fashion and design; culture and education or businesses related to cross-cutting concepts such as sustainable cities, which encompass a set of productive areas in which Spanish companies stand out for their leadership. From public transport, to water treatment, renewable energy or e-mobility, among others.

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Source: explica.co

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