High tech is coming on strong in Spain

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.

The prime mover in technological change in Spain is the government; this situation is likely to continue for the immediate future. The government proposes not only to take advantage of every opportunity in the European panoply of technology-development programs, but also to pump up R&D spending internally to 2 percent of GDP. Starting before Spanish entry into the EC, the government negotiated participation in a number of EC high-technology ventures. Although the Spanish share of the projects is relatively small, the technological benefits could be considerable; Spain's need for ancillary U.S. equipment and services is evident. For the long term, the government is proposing a framework of government-academia-industry cooperation that it hopes will provide a dramatic boost to the applications of high technology to Spain's restructured industrial base.

The government is also the major source of funds for high-technology development through its ministries, research and development entities, universities, and public corporations. A new science law promises coordinated plans for the development of high-technology ventures. Government initiatives to cut away bureaucratic red tape could pave the way for accelerated change over the next five years.

Participants in Matchmaker Barcelona saw for themselves the new Spanish demand for high-technology exports. During the three-day trade mission, each company representative averaged between eight and ten quality business meetings. A half a dozen companies in the electronic components and computer software area had about 20 meetings each.

A brief synopsis of some of the more important individual results:

One participant specializing in software applications named a distributor and is on the process of negotiating a joint venture agreement with one of five contacts generated by Matchmaker.

One computer equipment distributor generated more than $20,000 in immediate sales; it foresees a tremendous market potential, limited only by costly Spanish standard certification requirements.

One computer peripheral manufacturer reached agreement for the licensing for Spanish manufacture of his equipment.

Another computer systems participant is working on an agreement to design and manufacture semiconductors in Barcelona.

A telecommunications equipment manufacturer decided to form a joint venture for the shared manufacture of its telecommunication system.

All participating companies looking for either Spanish agents or distributors were successful in their search.

Spain's high-technology takeoff appears to be no flash in the pan. It spans all major sectors and has surprisingly good depth of talent in several sectors. Buoyed by the drop in petroleum prices and a resurgence of confidence, Spain is ready to become a technological growth area. As Matchmaker participants discovered, the U.S. opportunity to supply Spanish startups or rapid-growth companies under such favorable conditions may not last long, because European and Japanese suppliers of goods, services, and technical expertise are already beginning to entrench themselves in Spain.

Some observers think Spain looks like the growth areas in the southwestern United States 15 years ago. Clearly, the U.S. experience is consciously shaping Spanish high-tech development. On the outskirts of Barcelona a new industrial park is being developed, mostly with high-technology firms. Its name? Silicon Valles, of course.

Photo: The Matchmaker mission in Barcelona described in these articles brought U.S. and Spanish officials together for serious business discussions. Picture shows "matchmaking' under way at the Barcelona Chamber of Commerce.

COPYRIGHT 1987 U.S. Government Printing Office
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