The fact that Spain is a country of SMEs – more than 99% of our business fabric and more than 70% of national employment – does not invalidate the fact that our country also needs to have a greater number of large companies. The proportion of 5,000 large companies compared to 3 million SMEs is eloquent in this regard. But what exactly are we talking about when we talk about large companies?
From CEOE they explain that there is no single definition of a large company. «In the European Union, a large company is considered to be one that has more than 250 employees or whose annual turnover exceeds 50 million euros. However, for the Tax Agency, a company that exceeds 6,010,121.04 euros in turnover in one year, starting the following year, becomes a large company. According to the Central Business Directory (Dirce) of the INE, and taking into account the number of employees, in Spain there are 4,863 large companies (with more than 250 employees).
Juan Carlos Martínez Lázaro, professor of Economics at IE University, explains that large companies in Spain -around 5,000-, They represent only 0.20% of the fabric of our country. They employ more than 6.8 million workers, which represents almost 38% of employment. Almost 75% of large Spanish companies operate in the services sector and their export activity accounts for more than 56% of the export figure,” he states.
By the way, this greater number of SMEs compared to large ones is also a trend in Europe. As Eurostat data shows in 2022, the Spanish percentage of large companies with 250 or more workers (0.14%) was very similar to the EU average (0.16%). «In terms of the employment generated by large companies, it should be noted that in Spain 34% of employment is found in large companies, below the EU average (37%), Germany (44%) and France (46%), although surpassing Italy (25%)”, they explain from CEOE.
There is no single factor that explains why Spain has not managed to consolidate large companies in its economic structure. Experts point to a combination of a conservative business culture, bureaucratic barriers and a dependence on low value-added sectors. The late Spanish industrialization, compared to other European countries, caused our economic development to focus on sectors such as commerce, tourism and construction. Furthermore, Spain has a long tradition of family businesses, which tend to be small and medium-sized, and which mostly maintain control within the family, making it difficult for them to expand on a large scale or the entry of external capital.
grow for the worse
But, the factor that perhaps most affects the small size of our companies has a lot to do with the so-called “curse of employee 50”: Reaching this number of hired workers entails a series of union obligations, which are dissuasive for the employer. Something similar happens in tax and audit matters when the company exceeds 6 million euros in turnover. «The increase in regulations and bureaucracy applicable from a certain size, generally 50 workers, is the main barrier to growth, but this is common to all the countries around us – explains Mª Jesús Fernández, senior economist at Funcas-. Something to take into account in the Spanish case is the great fragmentation of regional regulations that we have, which constitute a barrier to the geographical expansion of business activity. Furthermore, labor regulation in Spain is more rigid than in most countries and establishes many administrative, labor and fiscal obstacles to business growth (more regular VAT submissions, end of short-form methods for annual accounts, obligation to hire audits, creation of works councils…) and encourages small companies not to grow, since doing so would lead them to lose the tax, labor and regulatory advantages that the legislation grants them.
Experts also consider that there is a direct relationship between size and productivity. Small companies have fewer economies of scale, more expensive and difficult access to financing, less ability to attract and retain talent (both among workers and managers), and all of this influences lower productivity and less ability to, for example, export. «Working conditions, salaries, etc., are also worse than in large companies – they explain from Funcas –. SMEs play a fundamental role in the process of creative destruction, by which new companies, with new ideas, more agile and dynamic, compete and snatch their dominant position from large established companies. But this process, which is what fuels long-term productivity growth and technological progress, has stopped working properly in Europe and Spain, precisely due to the difficulties in increasing size.
From CEOE they consider that to remedy this situation it is essential to improve the quality of the institutional and regulatory framework so as to avoid administrative burdens and obstacles to both the creation and development of companies that are, in many cases, unnecessary and unjustified. «It is important to emphasize that the continuous increases in administrative burdens or excess taxes borne by companies, which in many cases violate even the most basic constitutional principles necessary for business development, such as the principle of freedom of enterprise, end generating uncertainty and legal insecurity, just the opposite of what would be convenient.
On the other hand, simplifying the regulations that govern company mergers and acquisitions, as well as the taxation applicable in these processes, is essential to foster a business environment in which companies can expand. Mergers and acquisitions are key tools for companies to grow and gain competitiveness, as they allow them to access new markets, acquire innovative technologies, optimize costs and take advantage of economies of scale. It would also be necessary to offer alternative financing plans to bank credit so that small businesses can undertake new projects that accelerate business growth.
“It would be necessary to act on these regulations so that some were postponed or introduced more gradually, so that they did not create a border effect that would discourage companies from growing,” the IE explains. It is also important to improve the management capacity of your management teams, so that they are capable of assuming the greater complexity in management that the increase in size implies. Our economy needs large companies because they have greater financial resources, better access to financing and greater investment capacity. In addition, they have more highly trained staff, they have a greater chance of attracting the best talent, and their productivity is higher, both due to the greater training of their employees and greater access to capital goods and technologies. Finally, they can devote more resources to R&D projects and have a greater propensity to export.
Not only that, but they are also important for SMEs. It is common for small and medium-sized companies to be part of the supply chains, both in goods and services, for large companies, which represents a source of income, sometimes relatively stable for these smaller companies. «Collaboration with large companies sometimes also makes it possible to facilitate or promote the internationalization of other smaller companies and access to new markets. Furthermore, from a competitive point of view, the greater agility of SMEs when detecting trends or new needs drives them to complement the offer made by large companies or to focus said offer on specific segments of the population,” explains CEOE. . “However, in recent years there has been greater interest in promoting innovation, entrepreneurship and internationalization, which is why large companies could emerge in the future, especially in sectors such as technology and energy,” they conclude.
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