Saturday, November 12, 2011

From the Basement to the Boardroom

The IBEX-35 is an old boys club, there’s no way around it. The companies have been around for an average of 67 years and the only recently founded companies are in relatively new industries: alternative energy (Gas Natural, SA) and business services (Indra, SA).

The US also has its industrial-age barons and behemoths, but what about Amazon, Google, E-Trade, Ebay, and Facebook, all founded after 1994? There is nothing in Spain that can remotely match that growth trajectory.

It’s probably unfair to cite all those tech examples. The Silicon Valley feeding frenzy that started with Netscape in the 1990’s has never been duplicated, anywhere in the world. Spain doesn’t have the network of programmers, seed funding, and research institutions that would help tech companies grow – much less all of those concentrated in one place like Silicon Valley.

But there are examples in other sectors. Nike, Bed Bath & Beyond, and Victoria’s Secret were all founded in the 1970’s. Capital One, the credit card company, was founded in 1988! There are 6 financial institutions in the Ibex-35 and none were founded after 1965.

There are several reasons that so few young companies are among Spain’s giants. The first is the dynamics of the local market. Due to vast regional differences, companies need multiple strategies just to conquer Spain. Mutua Madrileña, the auto insurer, is an example. In the early 2000’s they had 40% market share in Madrid and just 3% in the rest of Spain. To enter Catalunya, they had to downplay associations with Madrid by calling themselves just MM or “La Mutua.”

Then, once you conquer Spain you still haven’t really gotten anywhere in world terms. You need to expand to Europe or Latin America – again, necessitating new product and marketing strategies, in addition to long-distance logistics. In the US, by comparison, if you have a nationwide presence you reach 25% of the rich world. And if you’re selling on both coasts you already have the logistics wherewithal to expand internationally.

Finally, there is a cultural factor. John Q. Spaniard opens up a shoe store or a bookshop to earn a modest living, not to sell online or ship to Abu Dhabi. American small businesses are more likely to have multiple locations and multi-channel presence.

Again, I’m not suggesting Spanish companies are badly run. But it certainly would be interesting to model economic growth against the presence of young companies that have reached a critical mass. Let’s see if I can find an academic with some on his/her hands...

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