An anecdote commonly heard in the business world in the United States explains how multi-millionaire Warren Buffett was challenged with a simple question in an Apple shareholders meeting. “How is it that you are one of the company’s main investors and yet you say you will never invest in a technology brand?” The businessman brushed the enquiry away with the answer: “I only invest in large consumer companies.” Barcelona University professor José María Gay de Liébana told this story in his talk, The SME in the new disruptive economy: understanding what the world is like and where we are going, which he gave at the HQ of Pimec, to show what the companies that are doing well in the economy are like: they are expansive and invasive.
“The iPhone did not exist 10 years ago, but today it not only dominates the mobile telephone market, but has conditioned and shaped sectors like banking, automobiles or leisure, for example,” says Gay de Liébana. Apple, Amazon and Google are examples of expansive tech companies because they dominate the market with their products, and invasive because their business model is to be found everywhere. “They are companies without growth limits,” says the professor.
For the economist, the appearance of companies with these characteristics has allowed the United States to maintain its dominant position in the world, despite the rise of powers like China. The statistics bear this out. Among the world’s 20 largest companies some 14 are American, compared with three Chinese, one Dutch, one Swiss and one South Korean.
“The United States has 278 Nobel prizewinners, while only eight have come out of Spain, if we count Mario Vargas Llosa, who has dual nationality”
That the most innovative and dominant companies should be concentrated in the United States is no accident. “The key is investment in research and development,” says Gay de Liébana, who quotes a devastating fact. “The United States has 278 Nobel prizewinners, while only eight have come out of Spain, if we count Mario Vargas Llosa, who has dual nationality.”
An image from Gay de Liébana’s talk at Pimec | Ceded
Let’s look at it using more conventional data. According to Eurostat, the average investment in Research and Development in the European Union is 2.03% of GDP; some 302.2 billion euros. In Spain, the percentage drops to 1.19%, with annual investment of 13.3 billion euros. The most worrying thing, however, is the history behind this situation. A decade ago, some 1.19% of GDP went to R&D, meaning that there has been zero progress.
There has been zero progress in the evolution of investment in R&D in Spain in the past 10 years, at only 1.19% of GDP
The comparison with the world’s great powers exposes the reality in Spain. The United States invests some 2.79% of its GDP in R&D, a total of 453.2 billion dollars, while Japan dedicates 3.29%, China 2.07% and South Korea 4.23%. “It is a smaller country than Spain and invests 52.4 billion dollars in innovation. We should not be surprised that it comes first in the PISA reports,” points out the professor.
The result is that Spain comes in 34th place in the ranking of global competitiveness, below Chile and above Azerbaijan.
A rigid market
“If Spain has such low levels of competitiveness, it is because its growth is based on tourism and falling interest rates, which has allowed for reducing the debt, the risk premium and the indebtedness of companies, but which has not had repercussions on productivity,” points out Gay de Liébana.
Alongside the scarcity of investment in innovation, the professor points out a second problem, which is the lack of connection between domestic firms and universities. “A more fluid relationship would favour the growth of the economy, but the university institutions have no real interest in working with companies.”
Spain’s global competitiveness is below that of Chile and above Azerbaijan’s
The third reason to explain the Spanish economy’s lack of competitiveness is the ecosystem itself, which the economist says is peppered with defects. “Spain has a rigid job market, carries the burden of heavy regulation, high government debt, difficult access to credit, inefficient laws, few incentives for companies, an education system lacking quality and all types of obstacles to hiring and firing. Then we wonder why multinational firms go to Ireland,” he concludes.
Despite this situation, the professor provides two keys for the survival of SMEs in the future. The first is to understand that the market is no longer at home, but rather is the whole world. And the second is to work out what the market values. “A company’s value is no longer so much its net result, but rather its capacity for business,” says Gay de Liébana, who illustrates his explanation with a well-known case. “Amazon, for example, does not make huge profits, but it aspires to become the supplier to all households. The market values the fact that Amazon is becoming expansive and invasive in sectors like distribution and supply, and there are no barriers to growth in its model.”
A roboticised future
The future panorama in Spain that Gay de Liébana paints is not much better. “GDP will be weaker in the coming years, private consumption will fall and the unemployment rate will go down less than the Central Bank says,” he predicts. For the professor, the endemic problem of unemployment in Spain will feature two phenomena. “The first is our continued inability to fill certain job profiles, given how overqualified a large part of our population is, and the second is the speed of technological change, which will mean that robots and artificial intelligence will arrive in force in companies over the next few years.” The consequence, according to the economist, will be that “those at the top and those at the bottom will work increasingly more, while the jobs in the middle will tend to disappear and, with them the middle class.”
“We already have banking, airlines and many other services on our iPhone”
Nor is the professor referring to a distant future. In 2008, Spanish banks employed 278,301 people, and in 2016 that had dropped to 194,283 employees. “We already have banking, airlines and many other services on our iPhone.”
The challenges for SMEs
Faced with this panorama, what should SMEs do to be more competitive in the immediate future? Professor Gay de Liébana has three pieces of advice. The first is to have a clearly defined strategy: “Knowing what we want to be and how to go about it.”
This first piece of advice is closely linked to the second, which is to go ahead with digital transformation. “And we are not talking about changing a website, but rather applying technology to all processes.” To do so, though, the professor warns that a difficult question must be answered. Who will make the decisions? “At the moment, the seniors have to draw on their experience, but it is the young who know where the company must go next and they have to push it in that direction, as they are the ones who are up-to-date,” he says, while closely linking digital investment with opting for knowledge.
Finally, the economist thinks it is essential to “stop investing in mature products and focus on new technology, innovation and international projection.” In fact, it is nothing more than copying the model of the state’s large brands. “Mercadona, Inditex and El Corte Inglés have been following this strategy in recent years, and have got rid of property assets to invest increasingly more in their online business model.”