Country Report

Spain: Seeking New Worlds to Conquer


Barcelona - The Great Recession has been easy on Enric Casi. In fact, the general manager of Mango, Spain's No. 2 fashion retailer, can barely keep up with business. The 53-year-old Barcelona native has inaugurated 225 stores since the crisis began and anticipates launching an additional 200 annually in coming years, mostly abroad. Since January he has traveled repeatedly to Asia to open outlets and cut deals with suppliers. And in May he jetted off to Munich to celebrate a promotional deal with Scarlett Johansson. "The crisis has affected us, especially in Spain, but it's an opportunity to expand into other global markets," says Casi. The frenetic pace has paid off: Sales are on track to jump 10% this year, to some $2.3 billion.

Mango's story isn't a one-off. Spanish companies from windmill makers to banks to bicycle manufacturers have been flexing their financial muscle just as American and European rivals cut back. Last year, Madrid's Banco Santander (STD), Europe's second-largest financial house, paid $1.9 billion for Sovereign Bancorp in the U.S. and $16 billion for Brazil's Banco Real. Retail giant Inditex, owner of fashion brand Zara, in February penned a deal with India's Tata Group to open stores across the subcontinent. And Iberdrola Renovables, already America's No. 2 wind farm developer, has won $546 million in U.S. federal grants—more than half of Washington's stimulus spending for green-energy projects.

It's a return to form for Iberia Inc. Two decades ago, Spain's biggest companies roared onto the global stage, expanding their operations and buying up rivals, initially in Latin America and later across Europe, Asia, and North America. But as the Spanish economy blossomed over the past eight years, many key players refocused their energy at home, where easy credit fueled consumer spending and a housing boom. Now, with unemployment at 19.3% and Spain's economy expected to contract 3.2% this year, the cream of the corporate crop is again looking abroad to jump-start growth. "Large Spanish companies know how to win overseas," says Xavier Vives, a professor at IESE Business School in Barcelona. "The Spanish economy won't pick up anytime soon, so they have little choice but to focus on international markets."

FEWER TOXIC ASSETSDespite the turmoil at home, Spain's biggest companies are in surprisingly good shape. Most dodged the worst excesses of the pre-credit-crunch era, so they have stronger balance sheets and fewer toxic assets than do international rivals. And a long track record in developing markets will likely be an advantage as these outfits look farther afield for growth. Investors agree. The IBEX 35 index of Spain's leading stocks has risen 24% this year, vs. 16% for the Standard & Poor's 500-stock index. And the foreign investments of Spanish multi-nationals have averaged $87 billion annually since 2007. That's 5.8% of Spain's gross domestic product, roughly the same level as in the late 1990s, vs. 4.3% earlier this decade.

Telefónica (TEF), the pioneer in Spain's previous push abroad, is again leading the way. As the former state monopoly carrier, the company had loads of cash when telecommunications deregulated in the 1990s. After dozens of deals over the past decade, Telefónica has become the largest phone company in Latin America and the third-biggest (in terms of customers) on earth. Since 2003, though, Telefónica has had to fend off growing competition at home, and has invested some $13 billion in domestic broadband and cable TV. Now, with the Spanish economy in the dumps, Telefónica is redoubling its efforts abroad. In September it sealed a $2 billion strategic alliance with Chinese wireless player China Unicom to gain a foothold in the mainland. On Oct. 7, Telefónica offered $4 billion for Brazilian broadband provider GVT, and it's in the running to buy HanseNet, a German Internet player owned by Telecom Italia (TI). "You need to diversify," says Luís Abril, a member of Telefónica's executive committee. "You can't be too dependent on one market."

The country's second-largest bank, BBVA, is renewing its overseas efforts, too. After its acquisition of Bancomer in 2000 made BBVA the largest bank in Mexico, the Spanish company took advantage of the growing appetite for credit at home. Now it's again looking at new markets. In June 2008, BBVA paid $1.2 billion to double its stake in China Citic Bank, the mainland's seventh-largest, to 10.1%, with an option to boost that to 15% next year. And to strengthen its presence in the U.S., BBVA last summer bought distressed Texas lender Guaranty Bank, gaining $13 billion in assets. Further acquisitions across the southern U.S. are likely. "We want to saturate the Sunbelt," BBVA's chief strategist Carlos Torres says from his office overlooking the ornate 19th century facades along Madrid's Paseo de la Castellana.

CLEANING UP ON GREENSpain's long-established clean-energy companies are also getting in on the action abroad. Although they weren't a big part of the earlier overseas investment boom—most barely existed in the 1990s—they have benefited mightily from Madrid's subsidies for renewables. In recent years, Spain's green-energy sector has thrived as Spanish law has guaranteed above-market rates to providers of wind, solar, and other clean power. As politicians now seek to rein in costs, those subsidies have been trimmed. But Washington's green-tinted $787 billion stimulus package has offered some relief.

Chomping at the bit is Gamesa, the world's No. 3 wind turbine manufacturer. The company already employs more than 1,100 Americans, and 17% of its $2.4 billion first-half sales came from the U.S., its second-largest market. It's also diversifying into China, where it owns four wind turbine plants near the port city of Tianjin, and India, where it has a joint venture with conglomerate Pioneer Asia. "Spain has been good to us," says Michaela O'Donohoe, Gamesa's chief of corporate affairs. "But the major growth will now come from overseas."
Scott is a correspondent in Bloomberg Businessweek's London bureau.

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