Corporate winners in a hard place
A number of Spanish firms have discovered strategies to help them shrug off the domestic economic crisis
It's not all bad news in Spain. There are entrepreneurs who, assisted by highly qualified professionals, are meeting with success in their business ventures. In the middle of a crisis that is already five years old, a group of companies finds itself far ahead of the market thanks to measures that ensured growth and expansion when the economy was doing well, and even now that it is doing poorly.
These firms have increased turnover and either maintained or expanded their workforce. The secrets of their success have been an international outlook, a management style that is willing to take risks in under-exploited market niches, financial prudence to avoid being crushed by debt, investment in technology and the promotion of talent.
The Spanish businesses that have grown at sustainable rates over the last decade, notes ESADE Business School professor Xavier Mendoza, are those that based their activity on innovation and foreign markets.
They are companies like Mercadona, the distribution and supermarket chain, which succeeded through financial brawn, good management and talent. In other cases, internationalization allowed fashion retailers Inditex and Mango and the services and construction group OHL to become mostly independent from domestic consumption. Meanwhile, innovation has enabled the healthcare company Grifols to gain a foothold in a sector ruled by large pharmaceutical companies.
Mendoza explains that innovation ensures the creation of well-paid, highly specialized jobs. "Winning companies incorporate more knowledge and pay their employees above-average salaries."
Other winners include firms that took advantage of the crisis to gain market share, such as the discount supermarket chain Día or the telecoms company Jazztel. Acquisitions helped Banco Sabadell, the private security firm Prosegur, and Agroalimen, a producer of food and consumer goods.
"Spanish companies that are doing well, crisis or no crisis, are those that continue to invest even though the environment is not favorable to it," says Sebastián Giménez, a partner at McKinsey & Company.
- INDITEX. The fashion retailer founded by billionaire Amancio Ortega saw its share price rise some 70 percent in 2012. In the last decade profits ballooned from 438 million euros to 1.9 billion euros.
Its founder has hit upon a business model that nobody has managed to replicate so far, Mendoza says. "The key to Inditex's success is that it has designed a supply chain with the capacity to generate and distribute new clothes every 15 days, based on the speed of response of its clients," he notes. "It has built operational and logistics capacities that are hard to copy. It has also been able to multiply these capacities, making stability the second key to its success."
Ortega's right-hand man Pablo Isla has accelerated Inditex's expansion. The group had 1,500 stores a decade ago; today it has over 6,000. Its staff has grown from nearly 80,000 to 116,000 in the last six years alone. The company also has a net cash position of 3.95 billion euros.
- OHL. The construction and services group's sales and profits have grown since the crisis began, something few rivals in the sector are able to boast. Enrique Weickert, its economic and financial director general, notes that these are not the right times for boasting, and takes a look back at the keys to the firm's success.
"Things are not improvised," he says. "When financing was unlimited, we imposed a net debt ratio on ourselves, and this acted as a natural corset to filter acquisition decisions, forcing us to go slow and avoid huge projects.
"That ratio could not go above three times operating profit in the form of EBITDA; beginning in 2013 it will be only twice EBITDA."
Weickert says job creation must be part of any self-respecting company's growth policy. In the case of OHL, the staff has grown significantly in the last 10 years, even though construction activities in Spain were limited.
- VISCOFAN. The stock market tends to reward success stories, and wrapping sausages can be a terrific business. Viscofan makes artificial wrappings for the meat industry. The Navarre-based group just joined the blue-chip Ibex 35 index.
"We are world leaders in our market," explains company chairman José Domingo de Ampuero. "In order to get here it was necessary to have an international outlook from the beginning. We now sell in over 100 countries. Besides that, in order to provide solutions to increasingly demanding clients, there must be continuous investment in technology. This requires a team that is capable, committed, and in a constant state of development to find increasingly competitive solutions."
In the last decade, Viscofan practically doubled its sales volume and tripled profits. "Our idea is clear: Viscofan must take advantage of growth opportunities. That is why we are expanding our capacity: in 2013 we will have a new factory in China and we are working to ensure that we can start producing in Uruguay in 2014 with the goal of growing in Latin America," says De Ampuero.
- MERCADONA. The secret to the success of the Mediterranean-based supermarket chain, which saw profits increase fivefold over the last decade, is that customers appreciate its focus on value. This is the way it has gained market share, says Sebastián Giménez of McKinsey. "And it didn't need a crisis to achieve it."
ESADE's Mendoza adds that Mercadona listened to the market and lowered its prices, making customers even more loyal. Since the onset of the crisis in 2007, turnover grew by nearly four billion euros to nearly 18 billion euros and its workforce grew by 10,000. Meanwhile, its network of supermarkets has ballooned from fewer than 700 a decade ago to 1,400. Last year, Mercadona invested 600 million euros.
- PROSEGUR. With over 155,000 employees on three continents, Prosegur has become one of the world's leading private security companies. Between 2003 and 2011, turnover and net profits nearly quadrupled. The firm also managed to keep growing even during the toughest years of the crisis.
"Prosegur has focused on internationalization since its beginnings in 1976," said a company spokesperson. "During all these years we have firmly maintained our growth strategy, combining organic and inorganic expansion, a diversified leadership in terms of geography and products, and a focus on innovation and technology."
Another key to Prosegur's success is the fact that it evolved from basic security services to other services with greater added value (asset security, airport security, security for financial firms and for distribution), adapting to clients' needs.
The company is convinced that growth will continue. "The more advanced a society is, the more it considers security a basic element of its own wellbeing," the spokesperson said.
- GRIFOLS. The Catalan pharmaceutical company specializing in blood derivatives has managed to become a sector giant. Turnover today is four times what it was a decade ago. The quantum leap came in 2010 with the purchase of US company Talecris, but the foundations for success were laid much earlier with a focus on the international market and a cautious financial policy.
"The key is not internationalization per se, but the moment when we began it in the 1980s," says Nuria Pascual, Grifols' financial director. "We didn't wait for the crisis to hit Spain to go abroad. It was a gradual and orderly expansion that enabled us to keep debt in check and grow in size."
In a sector in constant evolution, the company's focus on innovation and technology also goes a long way towards explaining its success. "It is essential to offer quality products in the markets you enter," says Pascual, who also points to the emphasis on nurturing talent. "In our sector, training is fundamental, as is imbuing professionals with the sense that the safety of our products is key."
Pascual still sees margin for growth. "There are big markets like China, India and Japan where we barely have a presence. But in order to grow we need to increase capacity."
- GOWEX. The alternative stock market (MAB) has opened up another form of financing for small- and medium-sized companies, and Gowex is the firm that has rewarded investors the most. Since listing at 3.5 euros a share in 2010, the company's share price has risen 228 percent. Gowex is the market leader in installing and managing hotspots and networks for WiFi access.
Jenaro García, chairman and the company's main shareholder, stops short of calling it a success story because Gowex has still not developed its full potential. This entrepreneur, who founded the company in 1999, lists the guidelines that Gowex lives by. The first is an international focus. "Our market is the world, and we were already exporting a lot before the crisis began," he says. The second formula is not getting carried away by passing fads and having a flexible model to take advantage of opportunities.
"This means that we invest a lot on research and development and on our services platform," he adds. García also underscores the firm's ambition. "We are never satisfied with what we have. This makes life hard for our competitors." The fourth pillar of success he identifies is the workforce. "The people who make up the company love this project and take it personally."
- MIQUEL Y COSTAS. The origins of this company go all the way back to the 18th century, and its activity focuses on making fine and special paper for rolling cigarettes. The Catalan group's books show a sustainable growth strategy that has been rewarded by the market. In the last four years, its shares have appreciated over 200 percent.
"I believe it is essential to have a very strict capitalization policy, with an extremely solid balance sheet that puts the emphasis on reinvesting a major portion of the profits, and without going crazy over expansion," company chairman Jordi Mercader says.
The company has virtually no debt. "We are rigorous with our investment and we do not grow more than we can at any given moment," he says. Mercader also highlights the importance of technology and internationalization. "Over 80 percent of our sales are abroad, in developed countries that appreciate our innovation," he says.
The search for excellence is also a requirement. "It is very important to make quality products because it lets you compete in markets with greater added value and higher margins," Mercader says.
As the company continues to grow, the challenges become harder, but Mercader is confident that expansion will continue after investing 50 million euros over the past year.
- JAZZTEL. When Leopoldo Fernández Pujals took over Jazztel in 2004, the telecoms operator was crushed by debt, and its shares were snubbed by investors. Things are very different these days. The company is making money, it has reached deals with its creditors, and its shares were among those that appreciated the most in 2012. That makes Jazztel the focus of takeover talk.
"Jazztel is the broadband operator that has grown the most in Spain. Current economic conditions are ideal to ensure it continues to lead growth, since it benefits from the greatest sensitivity with regard to price on the part of Spanish consumers," explains Alfonso de Gregorio, management director for Gesconsult.
"The joint investment agreement with Telefónica for the deployment of fiber optic is a starting point for the company's investment in this technology, an initiative that it could not have undertaken alone. The fiber optic network gives it a competitive edge over its rivals, making Jazztel even more attractive with regard to possible corporate moves," De Gregorio says.
- DÍA. This supermarket chain is also doing well. Its business is benefiting from the crisis because of a model based on low prices at a time of dwindling household budgets. Día claims its success is not exclusively due to the crisis, but to responding to consumer needs, which is currently the key element in the distribution sector, company director Amadeo Sánchez Falcón says.
The group, which has 6,982 stores and 47,600 employees, grew at a rate of 20 percent in 2012, "the highest in the sector," boasts Sánchez Falcón. "We have continued to grow and to create jobs in all the countries where we have a presence, and Spain most particularly, especially through the franchise system in which we not only create jobs but also entrepreneurship."
For 2013, analysts forecast that Día's earnings will grow 10 percent.
- MANGO. "Mango is also clear about the fact that to grow above average market levels, especially in times of crisis, you need to invest," general manager Enric Casi says. "We always take a long-term view in the company. We are alert to reality and we adapt to change quickly, offering cutting-edge fashion at the best prices.
"The simple organizational structure of the Spanish multinational makes management agile and its business model easy to replicate," explains ESADE's Mendoza. Right now, Spain represents just 17 percent of Mango's sales. The fashion group continues to create jobs here and abroad. This year, Mango is planning to open 300 sales points, create 3,000 jobs and increase turnover by 20 percent, Casi says. To do so, the company will invest 265 million euros.
- TÉCNICAS REUNIDAS. This engineering company founded in 1960 specializes in designing and building industrial plants, and its clients include some of the world's top oil firms. In less than a decade, its turnover grew from slightly over 500 million euros to over 2.6 billion euros.
"Técnicas Reunidas is a good example of global growth deriving from the energy sector. It has great potential for the future due to the growing needs of countries like China or India," says Iván Martén, a partner at the Boston Consulting Group.