Nordic scaleups' golden opportunity

Spain's economic resilience: A land of opportunity for NORDIC scaleups

As of 2024, Spain's economic landscape continues to show strong resilience. The growth forecasts for the previous year had been exceptional, with the economy growing beyond the EU average, between 2.1-2.5%. By mid-2023, Spain had achieved pre-pandemic GDP levels, indicating a significant recovery, especially given the severe impact of the pandemic on its service-dominated economy, which accounts for nearly 70% of its GDP.

The pharmaceutical, textile, and chemical industries in Spain have demonstrated competitive prowess internationally. Despite a slight dip in overall industrial production in recent months, diversification in growth drivers beyond tourism and automotive sectors is solid.

Over the past decade, exports as a percentage of Spain's GDP have risen from 30% to over 40%, with a 30% increase in the number of exporting companies. This growing export sector offers significant opportunities for Finnish companies, potentially leading to expanded market access in Europe, North Africa, or Latin America.

However, Spain's internal demand has remained subdued in 2023 due to rising costs and interest rates. A gradual recovery in consumption is expected as inflation eases and the peak of interest rates has passed.

Spain's inflation rate decreased slightly to 3.1% in December 2023 from 3.2% in November, reaching its lowest since August. This was mainly due to a further drop in housing costs and a reduced pace of increase in food and non-alcoholic drink prices. Core inflation, which excludes food and energy, fell to 3.8% in December, the lowest since March 2022, down from 4.5% in November.

The wage agreement signed by employer and employee organizations in 2023 is also anticipated to bolster domestic demand. Employment trends in Spain remain positive, with unemployment rates expected to decrease further. The rebound in tourism has brought the sector back to pre-pandemic levels, reflecting a boost in foreign consumption.

Looking forward, Spain's economic growth in 2024 is estimated around 1,7.%. Challenges lie ahead, especially in sectors like agriculture, and the accommodation and restaurant sectors, which have not yet fully recovered. The impact of the EUR 140 billion EU recovery fund investment, although significant, has been less stimulating for private investments than expected,—some might complain.

Spain's fiscal policy continues to support the economy through expansionary measures. The government's inflation support actions in 2022 contributed to GDP growth and inflation reduction. However, ongoing fiscal challenges necessitate careful consideration of future support measures, particularly given the slowing growth in state revenue collections.

EUR 140 billion Recovery Plan and strategic initiatives

In 2023, Spain updated its recovery plan, seeking additional loan-based funding from the EU, predominantly for its strategic PERTE recovery projects. This plan includes substantial investments in electric vehicles, renewable energy, green hydrogen, and energy storage, with the largest PERTE project receiving EUR 12.4 billion.

The plan outlines reforms necessary for funding, including accelerating sustainable transportation, supporting SMEs through foreign workforce attraction, and environmental strategies like anti-desertification measures and waste reduction.

The first AI regulatory body in the European Union, the Spanish Agency for the Supervision of Artificial Intelligence (AESIA), to oversee the National Artificial Intelligence Strategy.

AESIA aims to ensure that AI development within the nation aligns with principles of inclusivity, sustainability, and a focus on citizen welfare. Public administration modernisation, including transparency in lobbying and enhanced cybersecurity, is also prioritised.

Spain has received EUR 37 billion in EU recovery funds so far. Delays in the next payment request, due to parliamentary elections and reform-related issues, highlight the challenges in fully utilising these funds.

The PERTE projects, including those focused on electric vehicles and semiconductors, have faced implementation hurdles, reflecting the complexities in aligning ambitious recovery objectives with practical execution.

PERTE Projects: A magnet for NORDIC startups

The Strategic Projects for Economic Recovery and Transformation (PERTE) in Spain serve as a new mechanism for public-private partnership, established by Royal Decree-Law 36/2020 to bolster investment in projects that enhance employment and competitiveness.

Part of the Recovery and Transformation Plan, PERTEs aim to rectify market failures and advance key projects that substantially affect economic growth, job creation, and Spain's competitive edge.

Focusing on sectors like electric and connected vehicles, and the agri-food industry, PERTEs command significant public and private funding. They are instrumental to Spain's strategic autonomy and pivotal to the green and digital shift, ensuring effective use of the EU's Next Generation funds.

The first PERTE approved targeted the electric and connected vehicle manufacturing ecosystem. PERTEs hold great potential for fostering public-private cooperation and finance for projects, with significant implications for Spain's economic revival and transformation.

The implementation of PERTE initiatives creates a dynamic environment where local SMEs, entrepreneurs, and corporations compete for resources, skilled labor, and particularly innovative ideas to capitalise on new opportunities.

This competitive landscape opens a window for NORDIC startups to seek collaboration with established Spanish entities. By entering into cooperative ventures, NORDIC startups can leverage the strengths of Spanish market players, potentially accessing not only funding and a rich ecosystem network but also bringing their own wealth of knowledge in innovation and a pool of talent.

Moreover, NORDIC startups can introduce a world of much-needed innovations. This can help NORDIC startups to establish a foothold in the Spanish market and contribute to the broader goals of economic recovery and the digital and green transformation in Spain.

Why Spain is a market of interest for Nordic firms

Spain, with EUR 140 billion allocated to its economic development, is the recipient of the EU's second-largest public investments by 2026. The Spanish National Recovery Plan includes an unprecedented commitment to the green transition (37%) and digitalisation (33%).

Key investment areas cover a broad spectrum, including Industry 4.0, digital transformation, and electric vehicles. Notably, Spain is Europe's second-largest car manufacturer and ranks eighth globally, presenting significant opportunities, particularly in automotive sectors such as recycling, safety, connectivity, and new propulsion systems.

The emphasis on digital transformation is clear in strategic sectors like automotive, tourism, healthcare, trade, and the digitisation of SMEs, startups, and the public sector. The Spanish Electric & Connected Vehicle project alone received an investment of about EUR 24 billion between 2021-2023, demonstrating a commitment to innovative and sustainable solutions.

Furthermore, Spain’s current 21st ranking in Europe according to the 2021 European Sustainable Development Report suggests there is considerable potential for growth through collaboration.

Overall, it is important to note that investments in Spain are strategically aimed at sectors such as Automotive, Infrastructure, Digitalisation, ICT, Energy, Water Management, and Biotech/Pharma. These areas underscore Spain’s emerging market potential for companies specialising in technology and sustainability.

Practical tips for entering the Spanish market: Strategies for scaleups

Here is a set of tips to help NORDIC startups and scaleups getting started in their expansion plans while entering the Spanish market:

1. Market research: Begin by conducting comprehensive market research to understand competitors, partnership opportunities, funding, legal prerequisites, and other critical market aspects.

2. Utilising available resources: It is highly recommended to contact your embassy's representatives locally, for example, reach out to Business Finland in Madrid. Additionally, engaging with accelerators such as Rising UP, SantanderX, Startup Valencia, Barcelona Activa, and Madrid Emprende, and participating in business innovation hubs like Wyra can prove valuable.

3. Hire local expertise: Engage the services of local consultants who can act as your initial point of contact. These professionals can facilitate introductions and connect you with a curated network of potential partners and collaborators. They can also be employed to represent your organisation, much like a fractional country manager, to ensure your partnerships receive ongoing support.

4. Leveraging the economic development fund: With EUR 140 billion allocated to its economic development, local companies are incentivised to innovate, invest, and grow. Ensure you make your presence known to those seeking solutions and partners.

5. Sustainable development and opportunities: Spain's ranking of 21st in Europe in achieving sustainable development goals highlights the substantial scope for improvement, presenting significant opportunities for ambitious, fast-growing Nordic companies.

6. Digital transformation: Investment focus is on strategic sectors such as automotive, tourism, healthcare, and trade, indicating prime areas for digital transformation initiatives.

7. Seeking partnerships: The current climate is opportune for Nordic companies to establish partnerships in Spain and Portugal. It may become more challenging to find partners once this window of opportunity closes, as Spanish companies are currently receptive to Nordic solutions.

8. Understanding regional variations: Recognise the diversity within Spain; it is not a singular market but comprises 17 autonomous regions and two autonomous cities, each with its industry specialisations. It's crucial to identify where your industry aligns regionally.

9. Establishing a presence: The Spanish market is highly competitive and necessitates a physical presence, particularly for B2B-focused firms. Consider hiring a local PR representative or a fractional Country Manager who has the essential networks and expertise to facilitate introductions and effectively represent your company beyond the initial engagements.

10. Building a local team: Create a local team that is proficient in the Spanish language, understands local legislation and regulations, and can navigate bureaucracy and paperwork.

11. Valuing personal relationships: In Spanish business culture, face-to-face communication is often preferred over emails or business calls. Personal relationships play a crucial role in business dealings.

12. Allowing time for adaptation and growth: Allocate ample time for localisation and do not assume that directly transferring your Nordic product to the Spanish market will be immediately successful without adjustments. Ensure sufficient resources, including budget and time, are allocated for this process.

13. Corporate structure considerations: Determine the most effective corporate structure for your operations. Learn from other companies' experiences with successful market entry in Spain.

In conclusion: Navigating Spain's complex and multifaceted business landscape requires time and commitment to achieve results and close deals. Forming alliances with key stakeholders is advisable, particularly as larger companies are often more prepared to invest in technology and innovation. The time to act is now, to take advantage of the current openness to partnerships and the momentum in Spain's economic development.