Doing business in Madrid

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Madrid

The Spanish capital is emerging from years of recession, pulling in service sector firms that can stomach the two-hour lunch breaks, long working days and vivacious lifestyle…

Madrid lunchbreaks rarely involve trudging down to a local sandwich shop for a chicken and avocado wrap. Take a 2pm stroll around the barrio of Salamanca and you’ll find terrazas and restaurants overflowing with suited workers having a caña (small beer), eating tapas and jabbering away passionately with colleagues. The leisurely lunch comes just three hours after the 45-minute desayuno (breakfast) when employees leave offices for pincho de tortilla (omelette). “Madrid is a city where you work well and live well,” says Roger Cooke, president of British Chamber of Commerce in Spain. “But siestas don’t exist – people regularly work 15-hour days.”

Looking at the convivial scenes – not to mention the non-stop action of nocturnal Madrid – few would believe that this city had been the focal point of Europe’s worst recession in decades. ‘La crisis’ has dominated life in Spain for the past seven years, ever since the property bubble burst, crippling its construction and tourism-led economy. Businesses closed doors and unemployment soared – in 2012 one in four Spaniards was out of work – prompting a €40bn (£28bn) Brussels bailout for its banks and a rise in anti-austerity politics.

However, an export-led recovery (car factories are thriving), means today Spain is one of the eurozone’s fastest-growing economies, with the IMF forecasting 3.1 per cent growth by the year’s end. While Madrileños have always been a gregarious bunch, a celebratory mood is clearly returning to the confidence-rattled city.

The last 18 months has seen British and Irish companies move in too, taking advantage of Spain’s falling corporate tax rate (25 per cent in 2016, down from 30 per cent in 2014). Primark opened a five-floor store on Madrid’s Gran Via in October, while discount retailers Dealz-Poundland arrived last year, since opening eight stores, including four in Madrid.

“Spaniards have been fatigued by years of crisis and now optimism is returning at a working level,” says Impact on Integrity founder and chief executive Murray Grainger, who points out Madrid’s wealth has yet to trickle down to poorer parts of the country, still wracked with high youth unemployment – 50 per cent of young Spaniards are out of work.

High Ambition

Madrid
The fortunes of upmarket British estate agents Savills, which recently celebrated its 25th anniversary in Spain, give an indication of the country’s economic history and where it’s heading. Buoyed by the 1990s construction boom – real estate prices rose 200 per cent from 1996-2007 – Savills was hit hard by the 2008 property crash hit.

“The [seeds were] first sown in the real estate market – in Spain we constructed more houses than the rest of Europe,” explains Rafael Merry del Val, head of country, in Savills’ belle epoque Salamanca office. “In 2009, we dropped to -1.5 per cent growth [from 2008’s 3.5 per cent]. The crisis was in the blood of companies, in their soul, nobody generated new business. Everything was low.” From September to December 2013, Savills only received “one very bad offer”. Merry del Val knew “things were changing” when January 2014 brought three new tenders. Today, Savills Spain boasts a €10m turnover and high profitability thanks to a svelte 70-strong staff.

Ninety per cent of Savills’ business is in Madrid, mainly office rentals. Ensuring many of these workplaces remain free from rats, cockroaches and other vermin is British firm Rentokil, which, since establishing itself in Spain in 1981, has become pest control the market leader (see Case Study, page XX). In 2012, the company decided to enter Latin America for the first time. Having initially considered running operations from either the US or the continent itself, it decided Madrid would make the perfect base. “If a British company wants to expand to Latin America, think about coming to Madrid,” says Roberto Sanchez, Rentokil Spain’s finance director. “Spain has trade agreements with most Latin countries and flight connections. We know the people, language and culture.” The services sector in particular prospers in Madrid. “The industrial sector might be stronger in Catalonia, but most service companies would have their hub in Madrid,” notes Cooke.

Ex-lawyer Murray Grainger founded Impact on Integrity in Madrid in 2013, aiming to provide compliance services. “In terms of compliance, Spain isn’t as sophisticated as other European markets – I realised the market was having issues,” he tells Director over a (one-hour) lunch in a restaurant opposite Real Madrid’s Bernabéu stadium. Grainger funded his nascent company himself, by setting up as a UK firm with a Spanish branch.

“Costs are very manageable in Madrid,” says Grainger, who rents desk space in communal offices for his five-strong staff, often paying as little as €300 a month. “If our offices were in London, costs would be three or four times what they are here.” Salaries also remain low in Spain, with Grainger observing “virtually everybody is on the minimum wage” [€5.08 an hour, equivalent to £3.55; the UK minimum wage is £6.70]. However, thanks to Spain’s generous social welfare system, the cost of recruiting is high. “If you’re offering somebody a salary of €1,000 a month, the cost to the business will be €1,800 a month [due to] obligatory social charges such as healthcare entitlement and benefits. When you’re a small business, that’s a deterrent to hiring people,” says Grainger, “For me, it’s definitely worth [employing freelancers] because of the fixed costs.”

With Spain’s high youth unemployment rate, Grainger talks of being “inundated with applications for every advertised position” and of “smart, young graduates bouncing around internships”. To entice the graduate talent of Spain’s so-called ‘lost generation’, Savills offers new recruits the chance to work in the firm’s London offices for three months.

Madrid Rising

Madrid

With 68 per cent of young Spaniards reportedly considering moving abroad, Grainger isn’t unduly worried about a brain drain either. “People are reluctant to leave the comfort security blanket of Madrid. They’re very family-based, want their kids to see their grandparents every day, plus aunts, uncles, etc.” “You have to respect the fact family is important for Spaniards,” adds Cooke. “For business, it’s good. You gain trust quite easily.” Long lunches are central to this relationship building, but too many Riojas at lunchtime can hamper business. “If you’re calling contacts, do it in the morning, either before or after breakfast,” one businessperson told Director. “If people drink alcohol at lunch, when they return to the office at 5pm, nothing much productive will happen… You get people not returning phone calls or attending meetings.”

Thanks to recent tax reforms, Spanish consumers have more disposable income, with demand increasing for everything from British chestnuts to fashion and scented candles – Stella McCartney and Jo Malone recently set up in Madrid – all forming part of the annual £13.5bn of domestic exports to Spain. “Some well-known British brands have had problems transporting products because buying is centralised here,” cautions Cooke. “If you’re selling winter woollies in the south of Spain, you won’t have much demand.”

Madrid
Although payment terms are longer in Spain (90-120 days and often six months in construction) Cooke notes: “Pure debtor conditions are very healthy. It might take longer to get paid, but you do.” Grainger, though, remembers problems leasing computers. “Two out of the ten didn’t work, so I refused to pay for them,” he says. “What should normally be a black-and-white issue turned into a big palaver, with the firm demanding to get paid 100 per cent.”

New government legislation also aims to remedy the previous headache of the regulatory differences between Spain’s 17 autonomous regions. “If you’re working in Barcelona, but your company is based in Madrid, you have to apply for different taxes and systems,” says Merry del Val. “This is felt more in real estate, where you need planning permission and different sizes and volumes for each region.”

Madrid

It’s also worth keeping an eye on the Catalonian parliament’s independence plans, plus the Spanish general election on 20 December. The governing PP party’s austerity reforms combined with corruption scandals (‘anti-corruption’ board games D€mocracy and Corruptopolis became best-sellers last Christmas), engendered the rise of anti-austerity parties Podemos – advised by French economist Thomas Piketty – and Ciudadanos.

“Some of these parties are more focused on distributing wealth rather than creation,” says Cooke. “That could be a concern for some businesses as companies won’t stay or invest. Any [new] government needs to take this seriously.” Despite Cooke’s caution, Rentokil’s HR director Jesús Torres Mateos is upbeat: “It’s a good moment to invest in Spain. We are growing [compared to] the rest of Europe, plus the reach to Latin America will open many doors.”

“Brand Spain represents fiestas, bullfighting, beaches, which together with the recession may not be a great message from a business point of view,” adds Grainger. “But entrepreneurs always see opportunity in crisis. In Madrid, companies are willing to pay for services while costs are very manageable. It’s a great place to be based.” As he finishes his lunch and heads back to his office in sizzling November sunshine, few could disagree.

Case Study: Rentokil Initial España

ROBERTO SANCHEZ

The 90-year-old Surrey-headquartered pest specialist arrived in Spain in 1981, launching a small hygiene control business. Within two months, it started acquiring local pest control firms, with the organic growth making Rentokil market leaders by 1993. As finance director Roberto Sanchez explains, pest control in Spain is a diverse business: everything from working with the Madrid municipality to “keep drains, parks, everything free of cockroaches and rats” to working in “worm areas” such as Andalucía to preventing beetles arriving from Africa. During ‘la crisis’, Rentokil Initial España disposed of its facilities services and textile (cleaning garments) business, shedding staff from 3,000 to 500 in the process. They also consolidated their premises –merging six Madrid offices into one – and started diversifying into what Sanchez calls “ambience services”, renting flower and fruit displays to offices and providing scents to retailers to waft around their stores in an aim to make consumers purchase more. “There are some smells that make a customer buy in a shop, for example if you go to Zara, you may smell a certain scent, while we put the smell of chocolate muffins in coffee shops in the morning. It’s the cool division of Rentokil.” Sanchez estimates 45 per cent of their business is in Madrid, and turnover stands at a healthy €30m (£21m) (70 per cent of which is pest control). They haven’t had problems attracting young Spanish talent: “People know we’ve been here for 35 years, so there is security,” he says. Although Rentokil is succeeding in keeping rodents off the capital’s streets (“I remember visiting Madrid as a kid and seeing rats – today’s it’s pest-free”), globalisation is presenting new problems. “Fifteen years ago, there wasn’t a single bedbug in Spain. But today we suffer with bedbugs travelling in suitcases. I’d previously associated them with the Spanish Civil War in the 1930s. But we’ll get them.”

Ticker Facts

A PwC study ranked Spain 23rd of 27 OECD countries for integrating women in the workplace

Women only comprise 16 per cent of Spanish board directors in 2014

An estimated 80 per cent of Spanish companies are family owned, generating about 70 per cent of GDP

Spain’s population of 47 million makes it one of the EU’s biggest consumer markets

Spain aims to spend two per cent of GDP on R&D by 2020

21 per cent of all foreign direct investment in Spain since 1993 has come from the UK (who were the third-largest investors in 2014)

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About author

Alexander Parker

Alexander Parker

Alexander Parker is a freelance writer and filmmaker.

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