Walther von Plettenberg, general manager of the German-Spanish Chamber of Commerce in Spain, traces the history of the organization’s activity and highlights the efforts of the Chamber in response to Spain’s crisis with a special emphasis on the pharma and biotech sectors.
Could you provide our readers with a brief synopsis of the Chamber’s evolution over the years?
The Chamber was founded in 1917, during the First World War. The situation at this time was quite unique for German companies and representatives in Spain. We disappeared for a couple of years during the Spanish Civil War, after which the Chamber’s main offices were transferred from Barcelona to Madrid. During the 1970s, 1980s and 1990s, the Chamber assisted in a mass integration of German companies coming to Spain. The entrance of foreign companies coming to Spain tapered off at the end of the 1990s, although that does not mean that the 2000s have not been interesting for German companies; the scenario is different. With Spain’s integration into the EU, borders disappeared and our work has changed. We assist German companies already established in Spain, of which there are some 1,300 companies, and companies in Germany with interest in the Spanish market. with our network and consulting services. Today, the Chamber has about 30 employees distributed between Barcelona and Madrid, and is 90 percent funded by its own means, while the remaining 10 percent is funded by public subsidies.
What are the biggest challenges your members face here in Spain today?
The Chambers’ members who have gone through the crisis of the last six years are in good shape for the future. Most of them have profoundly restructured, which was not particularly difficult financially because they are all close to their multinational headquarters. While German companies in Spain traditionally have been highly competitive, they are even more so now, a lot of them being strongly active in exports.
The Chamber publishes a survey every two years, most recently in June 2014. The prospects for this year, 2015 and 2016 are very positive. Most of our members said that 2013 was a good year, with positive earnings. The prediction is even better for 2014 and 2015. About 80 percent of our companies say that their situation is satisfactory or good, which is a noticeable change compared to the results two years ago.
How has the Chamber helped with Spain’s massive unemployment problem today?
We are working to provide better information for young workers. The vocational training system we have in the DACH countries for young people after finishing high school is considered to be highly effective to reduce youth unemployment. The Chamber is highly engaged in promoting Germany´s dual vocational system towards the Spanish administration and working intensively with its associated companies in order to implement the system and train young workers. Spanish legislation also changed on vocational training at the end of 2012. In 2013 the new system started and has slowly been integrated.
What are Spain’s main competitive strengths in the face of regional competitors like France or Italy?
To specify the countries to be compared with, in this case France or Italy, is important, because compared to other countries in the surroundings, say Morocco or Portugal, the competitive advantage or disadvantage of Spain is different. With regard to the countries you have mentioned, I would say that restructuring, specifically in the labor market, has been highly effective. Actually our companies which have restructured with the help of new labor legislation have made well-known productivity gains internationally. Spain has gained in productivity in just three or four years what it had lost in ten years. Labor costs per unit are coming down and Spanish exports have skyrocketed. The number of new companies engaging in exports is quite impressive, and the country’s current account balance has been normalized for the first time in thirty years. This is great news; Spain is competitive again and is actually gaining market share in many economies. Every second infrastructure project in the world is now commissioned by Spanish companies. German companies here are very often implicated in these Spanish engagements in international markets as subcontractors.
Prime Minister Rajoy has made great effort to cut areas in science and innovation, even axing the Ministry dedicated to that. What is your perception of these acts?
Spain has traditionally focused on public financing for innovation and R&D, meanwhile in Germany, it is the private companies who really engage in innovation and public subsidies just help. I think that if the legal framework is adequate, and the horizons for planning are good, the innovation effort put up by the companies in collaboration with academic institutions will come by itself. It is not a question of pouring public money into universities, or doubling the salaries of professors which would grade up our account on expenses in innovation. Rather, it is about establishing a stable framework to make companies engage in innovation because they know the innovation of today will provide mid or long term returns .
What is Spain’s capacity to break away from this way of thinking and focus more on things like seed funding, and can Germany’s venture capital network help?
Seed financing from international companies and specialized funds may be as useful as public money. If Spain is getting a new interest because it is attractive again, many private investors would probably see this as a very good chance to invest and put up seed money. Many new seed finances exist today that were otherwise unavailable five to ten years ago. Spain has the potential and is starting to follow in the footsteps of the Silicon Valley model, which succeeded not because of public subsidies but through good ideas and seed financing by investors who were keen on discovering the savviest companies.
Among your 1100 members, the pharmaceutical represents just a fraction of that. How much do German pharmaceutical companies contribute to Spain’s GDP?
All German companies combined add up 7,3 percent of Spanish GDP in 2012, or 75 billion euros. The pharmaceutical sector is indeed important.
How do you perceive the relationship between German companies and local companies through R&D or production? Are the connections strong?
If you focus on the relationship between mother companies and their Spanish subsidiaries, normally R&D is centered in Germany. But it is true also, that a significant part of Germany companies consider Spanish subsidiaries with their local productions facilities as a worldwide center of excellence for the group. As far as relations between German and Spanish companies who do not belong to the same group are concerned, they are not strong enough yet. Spain has suffered too much in the last years and has earned itself an image of being on the border of falling off a cliff. Investments and collaborations in this area have been very low in the last few years, but more and more new possibilities are coming to fruition. Spain’s biotech sector is not as well-known as Germany’s but is certainly becoming very interesting. The Chamber is working on a possible seminar to bring German biotech companies together with Spanish partners just to make them talk to each other and see where they can join forces.
Could you provide an overview of your regulatory and legal activities?
We have a legal department of about six people. This department acts as a first-aid kit for German companies entering Spain. As an example, a pharmaceutical or pesticide company might have a problem distributing a product, waiting for months in the relevant Ministry. The Chamber helps accelerate this process by engaging with the right people in government. Another example might be a company with a big construction project that needs to be identified as a subcontractor for another company and must be registered by the state; we can help with that. In that sense, our legal department helps in a great variety of situations.
We also have seminars or specific actions. In 2012, the public finance situation was extremely bad, and the pharmaceutical industry was particularly preoccupied since companies were not being paid. With twelve billion euros of public debt outstanding in the autonomous communities, we moderated a process in which we engaged the Swiss and French Chambers of Commerce, Farmaindustria and FENIN. Together we wrote a letter to the Ministry that was very important in terms of accelerating the process of providing an answer to this enormous public debt to the pharmaceutical industry. In Spain the pharmaceutical industry was considered to be quite well off a few years ago, so the government did not prioritize payment in this area. The situation has significantly improved but pharmaceutical companies are still highly sensitive.
The Montoro Plan certainly helped the government to pay back billions of Euros owed to providers. But has this really provided the security that companies need for the future?
The debt-paying situation has changed dramatically. The Montoro Plan helped, but public expenditures and public taxes are also more merged and the deficit is definitely coming down. The cost for Spanish debt is at an all-time low, meaning that the current five percent of deficit of the Spanish state is easily being financed on international capital markets. The government is highly conscious that industry needs to be absolutely sure that they will be paid on time.
The insecurity with respect to the legal framework is significant. We have had a series of reforms until 2010; therefore the pharmaceutical and sanitary sectors are highly stressed because they never know what comes next. Between generics, reference pricing and cost-cutting measures themselves, the state has reached the bottom line if it does not want to sacrifice public health in a compromising way. Nevertheless, the future looks bright for most sectors having been through the worst of the crisis.
What are your expectations for the next five years?
Restructuring has made our member-companies more competitive. They can produce the same with less cost, so the basis is better. Secondly, exports have been growing tremendously in Spain and our German companies are good players in the export market too. What I mentioned before is true also for the pharma sector. A couple of German pharma companies have centers of excellence in Spain for a specific product or process, acting as a worldwide reference center, producing for the whole world, or their process is being imitated by facilities elsewhere because they know how to do it best. A lot of them are responsible for the Portuguese market and some even for markets in Latin America. Most companies have a couple of new products which they want to put in the market. Some are trying to get into the non-prescriptive sector, which is growing and is unaffected by price cuts.
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