Expanding into Spain: this month we take a look at look at some of the things foreign businesses should watch out for.
Spain is the 4th largest economy in the Eurozone and the fastest growing one, so it’s an attractive market for international companies looking to expand abroad. How you go about it will depend on many factors, and we’ll look at some of them here.
Entering any new market has its risks, and there is no guarantee of success. But there are ways to improve your prospects, the first of which is to invest time and money in researching the market before you take the plunge. This could help you avoid a costly mistake; however good your bayonet-fitting light bulbs are, for example, you won’t sell them in a country where all the bulbs are screw-in. Once you’ve established that your product has a chance, you’ll need to ask the same questions as for any market – who are your target customers and how will you reach them? Who is the competition? How does your product compare on price and quality with what is already around? Are your potential clients likely to be from the public sector?
The infrastructure you’ll need in Spain will depend on the answers to the above questions, as well as how you see the potential of your business here, and the scale of your plans.
One of the big decisions is whether to set up a subsidiary – the most ambitious companies usually choose this route, which gives you the most control over the business but is also the most expensive option. Check out the Spanish labour laws and the likely employee costs.
For many, teaming up with a local distributer will often be the most cost-efficient way to sell in Spain, but the choice of partner is a hugely important decision and can require time and patience. Distributors are in business to make money, so they want products that will sell, and the easier the better. So do you: if they don’t shift the container load they’ve bought from you, there’ll be no repeat orders. A good distributer will want to see that you have a Spanish marketing plan before accepting working with you, – training, marketing budget, promotional events, whatever will help them sell your product. Any potential partner who doesn’t insist on this is probably not the right one.
In Spanish business, face-to-face contact is important, so fly over to meet your partners and make sure you’re clear on what you expect from them. If you want them to actively sell your product, it would be wise to think about training – your brand’s image is at stake. Broach the subject of payment terms early on, as many distributors in Spain will expect credit terms from you. On the subject of credit, don’t expect too much largesse from Spanish banks to finance your new subsidiary; and if your main customers are other companies, especially large ones, count on getting paid later than in other countries.
Some sectors in Spain are especially competitive – gin, for example. Spain has been at the forefront of the gin and tonic boom, but the market is as crowded as Madrid’s Gran Via on a Saturday. Dozens of Spanish home-grown gins have sprung up and compete with others from all over the world. Enhanced with exotic botanicals they may well be, but in the end the main distinguishing feature is the marketing budget. Being smart might help reduce the bill, but to compete, you’ll need to spend, so make sure that’s in your business plan. Retail stores – El Corte Ingles first among them – will not fall over themselves to stock products that don’t already have a name in Spain, which again means investing in marketing. The same holds true for many consumer products; the Spanish are faithful to known brands.
If your customers buy directly off your web-page you probably need to speak to UPS or Fedex rather than a distributor. The Spanish Post Office offers a service that includes designing your webpage and handling all the logistics, from printing labels to dealing with returned goods. You will also need a website in Spanish. Get a good translator – a badly translated website gives the wrong image. And since Spain has four official languages, you may want to think about whether it’s worth the expense of translating marketing material, labels or operating instructions into Catalan, Basque or Gallego.
Should you want to dip your toes in the market cautiously and test in one region, you could do worse than consider a place with a large population squeezed into a relatively small area and with the highest spending power in Spain. No prizes for guessing that we’re talking about Madrid.
By Roger Pike