International commercial due diligence in Spain

If you are going to invest in a company with international expansion plans, you want to make sure that their product or service has good chances of being successful in the countries where you have ambitions.

This of course is also important for Spain. Only with the right knowledge about demand, competition and regulations it is wise to invest in market entry.

Business opportunities in Spain

Spain, with its vibrant culture and diverse economy, is one of Europe’s most dynamic markets. Known for its strong tourism sector and increasing digitalization, Spain offers significant opportunities for businesses. However, understanding local market nuances is crucial.

Key Market Numbers

Spain is the fourth-largest economy in the Eurozone, characterized by a growing service sector and a high quality of life. Here are some key market statistics:

Population: Approximately 47 million (2023), with a relatively young median age of 44 years.
GDP per capita: Around $36,000 USD (2023), reflecting moderate purchasing power compared to other Western European nations.
Urbanization: About 80% of the population lives in urban areas, with Madrid, Barcelona, and Valencia as major economic centers.
Economic Structure: Services account for nearly 75% of GDP, followed by industry (23%) and agriculture (2%). Key industries include tourism, automotive, and renewable energy.
Ageing Population: Yes, Spain has an ageing population, with 20% aged 65 or older. However, it also has a growing segment of younger, tech-savvy consumers.

Language and Documentation

Language and cultural adaptability are important for success in Spain, where regional diversity adds complexity.

Official Language: Spanish (Castilian) is the official language nationwide. However, regional languages like Catalan, Basque, and Galician are also prominent in specific areas.
Language Considerations: While English is increasingly used in business, particularly in larger cities and among younger professionals, Spanish is essential for effective marketing and consumer engagement. Regional languages may be advantageous in certain areas, like Catalonia or the Basque Country.
Packaging and Documentation: Spanish law requires labels and instructions in Spanish, particularly in sectors like food, pharmaceuticals, and electronics. English-only materials may not comply with regulations or resonate with consumers.

Consumer and B2B Buying Behavior

Spanish consumers and businesses exhibit unique buying behaviors influenced by cultural values and increasing digitalization.

Consumer Behavior: Spanish consumers value price, quality, and brand reputation. Sustainability and ethical practices are becoming more important, especially among younger generations. Approximately 75% of internet users in Spain shop online, with fashion, electronics, and travel being the top categories (2023).
B2B Buying Behavior: Spanish businesses prioritize trust, long-term relationships, and a personal approach. Decision-making processes can be slower, involving multiple stakeholders. Networking and building local connections are essential for success.
Online Presence: E-commerce is growing rapidly, with online retail accounting for approximately 20% of total sales in 2023. A strong online presence, including localized websites and social media, is critical for engaging both consumers and businesses.

Market Challenges and Opportunities

Spain offers numerous opportunities but also presents unique challenges for foreign businesses.

Products/Services that May Struggle: Products that are too expensive without clear value or those that lack a local cultural adaptation may struggle. Low-cost items face stiff competition from established local and global players.
Test Market Potential: Spain is a good test market for products targeting Southern European consumers. Its diverse regions and urban-rural mix allow for broad market insights. However, localization, including language and cultural adaptation, is crucial for success.

Comparing performance in existing markets

If the company the we are assessing already has sales in different countries, you can determine distributor performance or sales staff performance.

One do this by correcting the actual turnover with data about:

the buying power in the market;
the geographical reach of the distributor or sales team;
the competition intensity;
the number of years active in the market.

Combining the data of the various countries over time leads to a growth curve where overperformers and underperformers can be easily identified.

You can then do selective interviews what causes any underperformance, and you can take corrective measures.

A curve like this also helps to estimate the potential in a new market.

Before you focus only on Spain

Please note that there are many countries in the world and the biggest ones or the ones nearby are not automatically the best choice. It all depends of the market growth, the competition and the barriers for entry.

Therefore we would advise you to make a short-list of at least three, but preferably five potential new markets and compare them against the same criteria.