High tech is coming on strong in Spain

Business America, Dec 7, 1987 by Charles Arthur Ford

High Tech Is Coming On Strong in Spain

For many Americans, Spain conjures up images of sunny beaches, bullfights, and flamenco dancing-- a relaxed and laid-backed lifestyle far removed from the fast track of the United States and other more industrialized countries. More than 50 million foreign visitors will come to Spain in 1987, lured by the successful marketing of these attractive characteristics.

Beyond these tourist attractions, Spain now offers the international executive a wide range of new and exciting business opportunities, particularly for companies in high technology. Nineteen medium- and small-sized high tech U.S. companies recently confirmed the exciting export and licensing opportunities offered by Spain's recent technology takeoff. These companies participated with resounding success in the mid-October Matchmaker '87 trade mission to Barcelona. Sponsored and organized by the Commerce Department's U.S. and Foreign Commercial Service (USFCS), Matchmaker Barcelona generated important trade opportunities for all participants.

Business meetings arranged by USFCS Barcelona with more than 160 Spanish companies produced one license agreement, two joint venture partners, and 10 new Spanish distributors for U.S. high-tech exports. All other participants indicated that they had identified potential Spanish partners and would be in a position to export to Spain for the first time within the next three to six months. Four companies had to delay their departure a day in order to meet with all interested Spanish companies. The regional government of Catalonia and the city of Barcelona were gracious hosts, staging several events and tours for the Matchmaker delegation. Press coverage was extensive and quite favorable.

Even in the early 1980s, hardly any observers forecast the current success of Spanish economic policy nor singled out Spain as a potential European takeoff site for high-technology applications. Spain in the early 1980s was still in a political transition to democracy after almost 40 years of one-man rule by General Francisco Franco. Politicians were busy creating new parties and political alliances; political uncertainty had led business to disinvest or postpone important new investment decisions. Science had stagnated. Spanish consumers, until recently, were little concerned with computers, biotechnology, or advanced materials research.

Spain has undergone a major transformation in these last few years. Having resolved in large measure the majority of the concerns dominating the public policy debates of the early 1980s, it is now poised for takeoff in high technology. Leaders in government, business, and academia recognize that high-technology development holds the key to Spain's ability to compete in the EC and other international markets.

In 1986 Spain joined the EC and affirmed its intention to participate in the North Atlantic Alliance. In December 1985, Spain became a member of COCOM, the coordinating committee of Western allies that sets policy and restrictions on high-technology exports to the Eastern bloc.

The government has liberalized business conditions and--to a limited extent--labor laws, to the point where investment incentives are nearly as good as those in Ireland, considered the best in Europe. In addition, a secondary stock market has been created to assist venturecapital firms. The military has turned its attention to modernization of all branches, seeking technology to put the services on a par with their new European allies.

Executives of a significant number of U.S. corporations, observing this rapid Spanish transformation, are making major new investments. To name a few: AT&T in 1986 began construction of a major manufacturing facility and design center for customized chips with plans to export an important percentage of production to other EC destinations . . . Hewlett-Packard has gone forward with a manufacturing facility for computer peripherals (plotters), with plans to export to other EC destinations. The company also plans new research and development activities in Spain . . . IBM has announced a consolidation of its software research activities in its Barcelona officers . . . Several U.S. firms are discussing with Spanish authorities the possible establishment of manufacturing facilities to produce semiconductors and other electronic components.

While the Matchmaker delegation found Spain to be a land of high-tech opportunities, they found some structural problems that need to be overcome if Spain's high-tech potential is to be fully realized.

Detailed studies prior to Spain's entry into the European Community resulted in these sobering conclusions:

Spain lacks the critical mass of trained personnel necessary to implement a high-technology takeoff;

R&D funding is woefully inadequate;

Capital equipment is aged and unable to compete against world-class exporters;

Key technologies must be imported in the short-term.

In addition to major unemployment problems and the fear of competition from the more technologically advanced members of the EC, Spain is faced with structural problems brought about by neglect of research and development over many decades and by an inability to connect laboratory developments with application and marketing. Until very recently, Spain spent less than six-tenths of 1 percent of gross domestic product on research and development--equivalent to what Spaniards spend on coffee and beer in a year--that is, $1 billion. By comparison, the average EC nation spends 2 percent of GDP. More than 20,000 persons are believed to be full-time employees in research and development in a nation of nearly 40 million inhabitants. Of 100 firms that purchase imported technology, 75 are multinationals, accounting for 70 percent of all remittances for technology. Eighty percent of the patents registered in Spain are those of foreign nationals, versus an average of 45 percent in the rest of the EC. More than half of the capital goods manufactured are under foreign license. Only 2 percent of Spanish scientific successes ever make the transition from the laboratory to applications. Finally, the private sector has not invested in R&D in any appreciable measure, since it accounts for only 30 percent of total R&D expenditures.