Business | Spanish businesses

Supersize me

A lack of larger firms means fewer jobs, and a less resilient economy

In Spain, good things come in small packages
|MADRID

THE successful stockmarket flotation this month of Aena, a state-controlled airport operator, reinforced optimism that Spain’s economy is finally on the road to recovery. But to enjoy sustained growth, and to become more resistant to shocks, the country needs to fix a problem it shares with Italy and Portugal: a lack of medium-to-large firms.

Spain has a select group of big businesses with international repute—Aena joins the likes of Inditex, a clothes retailer, and Santander, a bank. But the rest are mostly tiddlers. The average Spanish firm has just 4.7 employees, down from 5.1 in 2008. Only 0.8% of companies have more than 50 workers, compared with 3.1% of German firms (see chart).

A lobby group, the Círculo de Empresarios (Businessmen’s Circle), is pressing Spanish politicians to do something about this. It argues that bigger firms tend to be more resilient in hard times than smaller ones. In Britain, for example, large companies—those with more than 250 workers—provide almost half of all private-sector jobs, compared with just a quarter in Spain. The group calculates that if Spain had the same mix of firms as Britain, it would have lost half a million fewer jobs since the global financial crisis.

Bigger companies have other pluses. They tend to be more productive, invest more in research and development, and export more. They also tend to pay their workers better, says Chiara Criscuolo, an economist at the OECD, an intergovernmental think-tank.

Politicians are starting to wake up, says Elena Pisonero of the Círculo de Empresarios, who also chairs the board of Hispasat, a satellite company. As well as passing various business-friendly reforms, the government is supporting Cre100do, a project in which business schools, consulting firms and big corporations have joined forces to offer information, advice and coaching to 100 medium-sized exporters.

That does not address the dearth of Spanish firms that make it into the medium-sized category (50-250 workers) in the first place. One reason is that those which do make this leap are punished. Spain has begun to reform its labour laws but businesses still have a lot of extra responsibilities heaped on them once they reach 50 employees. Midsized companies suffer the highest effective tax rates—small ones get concessions, big ones find loopholes. Tax audits become more rigorous once firms exceed €6m (about $7m) in annual revenues; research by Miguel Almunia of Warwick University in Britain found that Spanish companies bunch at just under that level.

Worldsensing, a Barcelona-based technology company that manages traffic and parking in places as diverse as Rio de Janeiro and Moscow, has 42 staff, and is preparing to tread boldly across the 50-employee threshold. But its boss, Ignasi Vilajosana, points out another deterrent to growth. Whereas access to capital for starting a business is relatively easy, “It’s getting finance to scale up the business that’s the hard part in Spain,” he says.

However, Adrian Ortiz, the boss of Xtraice, a maker of synthetic ice rinks, thinks some of the blame also lies with companies’ bosses, and their lack of ambition. “A lot of people think, why bother growing if I am doing just fine?” Mr Ortiz says he is an exception to that rule: his firm employs 30, and plans to hire a lot more. Others note that family-run firms are often reluctant to share ownership or bring in professional managers. There is much that Spain’s government can do to make it more attractive for businesses to expand. But perhaps it needs more of its small entrepreneurs to think big.

This article appeared in the Business section of the print edition under the headline "Supersize me"

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