Financial Times
“When sorrows come, they come not single spies, but in battalions.” Spanish business may not yet be involved in a tragedy of Shakespearean dimensions, but it has suffered a gruelling week of troubles after four years of economic crisis.
The sorrows began at the weekend with news that the Ibex 35, the country’s stock market index, was the worst performing in the world in the year to date, surpassing even Cyprus, Sri Lanka and Morocco in its plunge into negative territory.
On Monday, investors again took fright at the state of the Spanish economy, knocking the price of Spain’s sovereign debt and pushing the yield on 10-year bonds above 6 per cent. That reignited fears that the eurozone’s fourth-biggest economy would eventually need a bailout, like Greece, Ireland and Portugal before it.
As if that were not bad news enough for Spanish investors, Monday also saw Cristina Fernández, Argentinian president, nationalising the majority stake in local oil and gas company YPF held byRepsol, the Spanish energy group.
Repsol shares duly dropped, and are now down by a third since January. Other Spanish groups with Argentinian business, including Telefónica, are understandably nervous about their investments.
Yet Ms Fernández’s theatrical seizure of foreign-owned assets serves as a useful warning for Spanish multinationals: they rely too heavily on the former Spanish and Portuguese colonies of Latin America and should diversify into other emerging markets, especially in Asia.
The risk is not so much that other leaders in the region will follow her example and grab assets as if we were back in the 1970s. Brazil and Mexico, the biggest economies, are unlikely to endanger the investments that have helped them grow richer.
Nor would it be right to argue that Spanish companies erred in investing so much in Latin America. On the contrary, they have done very well out of it – except, in many cases, in Argentina.
Santander, the Spanish bank, boasted when it unveiled its 2011 results that for the first time more than half its profits – 51 per cent – had come from Latin America. Brazil, accounting for 28 per cent of profits, generated more income by far than any other country.
Spain’s big companies remain internationally competitive precisely because they have reduced their dependence on what is now a depressed domestic market. The Ibex 35 companies collectively made 60.6 per cent of their revenues abroad last year, up from 57 per cent in 2010, according to research by William Chislett of the Elcano Royal Institute, a think-tank.
But now it is time to move on from the comfortable Spanish-speaking markets of the Americas on which many of them rely.
As one Madrid consultant puts it, Latin America still presents opportunities, but is a “mature market” saturated by Spanish companies that should be looking east. In Asia, he says, European rivals are literally eating the Spaniards’ lunch. “In places like Singapore, you see Spanish tapas bars run by Italians, French or Englishmen that have nothing to do with the real thing.”
The best companies need no persuading. Inditex, the world’s largest clothes retailer by value, opened 132 outlets in China last year and is preparing to launch a Chinese online store for its Zara brand. Of the new markets it entered in 2011, one (Peru) is Latin American, one (South Africa) is African, and three (Azerbaijan, Taiwan and Australia) are in the Asia-Pacific region.
Spain’s big banks are diversifying, too. BBVA, dependent on Mexico, has moved into Turkey. Santander has moved out of Venezuela and Colombia and into Poland.
Gamesa, the wind turbine manufacturer, has taken a big bet on globalisation and now makes 98 per cent of its sales outside Spain. The company has six factories in China and will have three in India by the end of the year. “Asia is booming and to us Asia has been absolutely critical,” says Jorge Calvet, Gamesa chief executive.
Family companies such as Puig, the Barcelona-based perfumery and fashion group, and Camper, the Mallorca footwear company, have also been spreading their wings abroad. Spain now represents just a fifth of Puig’s global net revenues, down from more than a third five years ago.
Bad news at home has not stopped. On Wednesday, the Ibex 35 had its worst day of the year, dropping nearly 4 per cent to a level last plumbed in the grim post-Lehman days of 2009. On Thursday, the Spanish treasury saw its borrowing costs rise again in a bond auction.
For Spanish companies with international ambitions, however, there is a solution to the sea of troubles threatening to drown them at home: go east to Asia, not west to Latin America.
Victor Mallet is the Financial Times’s Madrid bureau chief
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