Introduction
Spain is an important and vibrant member-nation of the European Union (EU) because of an economy that ranks fifth in the EC and eighth largest in the world. In addition, the Spaniards are likely to maintain their lofty standing because GNP routinely grows better than the average for the Community. Among members of the Organization for Economic Cooperation and Development (OECD), the exclusive club of the world’s developed countries, Spain also stands out for having the fastest job creation growth year after year.
Spain is extremely attractive for foreign direct investors for the preeminent position internationally and the gigantic size of export markets favorably disposed to Spanish goods. The nation commands respect among trading partners because, even as a “second-echelon” nation, Spain is the third largest foreign investor after the U.S.A. and China.
From the Iberian Peninsula, the country offers easy access not only to the rest of the Continent but also to North Africa and to other markets around the Mediterranean. Elsewhere, the once-mighty reach of Spanish navigators and conquistadores open up tremendous opportunity in no less than 440 million Spanish-speaking consumers, chiefly in Latin America and the Caribbean. No wonder then than Spain plays magnanimous host to no fewer than 54 international banks and 11,000 foreign businesses.
Regulations Governing Market Entry
Even more than the already wide-open norm for the EU, the legal environment is extremely open and “business-friendly”. The letter and spirit of contract law adheres to the laissez faire principle that parties enter into contracts of their own free will. Consequently, the legislative, judicial and regulatory environment holds domestic enterprises and even government itself accountable for their contractual commitments, except:
- Where compliance with EU standards for free, fair and open competition apply.
- When workers must be afforded the fullest labor relations protection possible.
Otherwise, foreign direct investment has already been deregulated, meaning that foreign companies are permitted entry into the full spectrum of high potential business areas: education, R & D, renewable energy, recycling, information and communications technologies (ICT), biotech, desalination, wastewater treatment, travel, leisure and hospitality.
Foreign direct investors enjoy wide latitude in the form by which presence in Spain is organized. A company may choose, among the modes popular in the country, such forms as joint ventures; distribution agreements with a local counterpart and structured as agency, a franchise, a licensing or direct distribution agreement; or acquisition of a shareholding in the local company, which agreement may involve actual shares of stock, assets/in kind or a stock-securities swap.
Regulatory oversight naturally differs according to the form by which a foreign investor enters Spain:
In the case of Agency Agreements, for instance, setting up in Spain means the authorities must be satisfied that both parties enter the agreement voluntarily; disclosure of the contractual conditions that prevail over the life of the agreement and afterwards, once terminated; proof shall be given of goodwill indemnity payments; adjudication shall be held under Spanish law and in a domestic forum.
Other organization forms bear scrutiny that is more intensive and require more documentation. An exhaustive review is, however, beyond the scope of this brief essay.
Formal registration of agreements arrived at with local juridical or legal personalities are limited solely to those that may adversely affect third parties, those involving real estate, where formal guarantees are made, and in the case of incorporation papers.
In fact, formal documentation and business establishment requirements are held down to the barest minimum. These are limited to registering articles of incorporation or partnership and registering a business name. The former must be notarized and a waiting period of ten days is enforced, principally to enable motions that the industrial or service category is already “overcrowded” or that the proponent does not meet EU standards for liberalized competition. At from 15 to 30 days, business name registration lags. Once these two are fulfilled, however, companies may commence operating at once: even registration for social security, corporate and individual tax need be done only from day two, when there are assuredly staff actually operating the business.
Exporting finished products to Spain, e.g. cosmetics and beauty products must conform to dual sets of regulations: the “European Directives” (essentially stringent labeling requirements), the Europe Common Customs Tariff for goods from outside the EU, local import and selling regulations including testing and clearance from the Spanish Directorate General for Pharmaceutical and Health Products – Ministry of Health (‘Direccion General de Farmacia y Productos Sanitarios’ – DGFPS), a 16% VAT payable on arrival at a Spanish port, (Austrade 1).
When home country agreements have been arrived at involving subsidiaries operating in Spain – e.g. the merger between Glaxo and SmithKline or Google licensing the Android mobile operating system to Orange of the UK and both operate in country – domestic law leans toward ensuring that these satisfy Spanish requirements. In case of disagreement, however, the proponents are permitted binding arbitration and the choice of applicable country law, forum for hearing complaints and choice of language that will be given priority in interpretation (Echarri 14).
As in most advanced economies, finally, the exchange rate regime is market-oriented and essentially liberalized (Banco de España 1). Hence, foreign direct investors can freely repatriate profits or dividends.
Product Mandatories
While open EU borders and the liberal FDI regime in-country essentially permit manufacturers to enter the Spanish market freely, marketers should also be wary of minor cultural differences and peculiarities of Spanish standards of living that may require product adaptation.
For instance, Coca-Cola needed to re-think the introduction of the two-liter PET bottle that the company relies on to boost per-capita consumption in most markets. The reason is that the bottle simply did not fit into the relatively narrow refrigerator door shelves so common in Spaniard households. The packaging entry only took off when advertising positioned the bottle for immediate family consumption once brought home. This meant, of course, that the two-liter bottle could be sold primarily in outlets with commodious coolers or chillers.
When distribution agreements entail product manufactured in America or the U.S., the most significant adaptation needed is consideration of Spanish labeling. A brand like Coca-Cola is so universally recognized and the label limited to just the brand that it is possible to export the product as is. For most other products, notably those that contain vital ingredient, indications, preparation and consumption information on the label, the reality is that Spain is not an English-speaking country. Hence, labels need to be rendered in Spanish.
In the fast food category, McDonalds is the prime example of adapting to local markets. Owing to Spaniards’ beverage preferences, beer enjoys pride of place in place of carbonated soft drinks. As well, there is the “Greek Mac”, an adaptation to local preferences of the Big Mac: two burger patties wrapped in a pita rather than bun, lavished with yogurt sauce and the usual garnish of tomato slices, iceberg lettuce and onions.
Works Cited
Austrade. “Cosmetics and Toiletries to Spain.” 2010. Web.
Banco de España. “International Standards and Regulation.” 2009. Web.
Echarri, Alberto. Doing Business In Spain: Legal Environment, Best Practices. Madrid: Gómez-Acebo & Pombo Abogados, 2008.