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The great challenge of internationalization

March 11, 2015

In the current climate of economic uncertainty, any new approach hoping to create economic stability has to be based on innovation and business competition. With this in mind, the opening up of Spanish companies to foreign markets is probably one of the most important changes to the country’s economy in the last 30 years. Thanks to its commercial capacity and its large economy, Spain is among the European economies most open to international trade.

Despite this, just one in six Spanish businesses work abroad. Of these, the majority have opted for an export-based business model while 27% have gone as far as establishing a permanent base in a foreign country. The companies that have gone down this route of internationalization tend to be either large or medium size enterprises, businesses for whom the risk of branching out is lessened by their financial clout. Of these, industrial and agricultural companies are most likely to look abroad. In contrast, just 16% of companies dealing with commercial services and 5% of construction firms work internationally.

The Eurozone countries are the most common foreign markets for Spanish business to work with followed by Latin America, in particular Mexico, Colombia and Argentina. Also popular are states across North Africa such as Morocco and Algeria, China, the United States and Canada. In fact, activity in China has jumped in recent years. Over 30% of Spanish firms operating abroad have established a permanent base there, more than the share of companies exporting to this rapidly-growing economy.

The turnover generated by Spanish companies from activity in foreign markets is growing thanks to the fact that two in every five companies generate between 26% and 75% of their income from outside of Spain. In addition, some 63% of companies that have branched out abroad report that they’ve benefited financially from working in foreign markets while only a small percentage have reported no tangible benefit. To avoid bad results, it’s important to carefully consider all eventualities and to prepare for all possible problems that the company might face in a new market. It’s also important to bear in mind that pulling out might be the best form of action if things don’t go well.

Internationalization isn’t easy. Spanish companies that have expanded abroad or are in the process of doing so often cite complex legal and administrative export procedures as the biggest obstacle to exporting goods. Securing funding and working out how to develop a strategy for operating in a foreign country are also problematic, as are financial capabilities and political and institutional bodies. Financial capabilities are ultimately a great determinant of whether a company can operate abroad or not.
Whatever the reason, some 80% of companies not already operating abroad say that they have no future plans to do so.

At the other end of the spectrum, a number of medium-sized Spanish companies such as Patel and Agrucapers have undergone a process of internationalization with great success and can today be found across the world. Both companies have known how to take advantage of their quality products to expand their business abroad. Patel’s presence across Europe, Russia and China – 50% of its products are sold abroad – demonstrates the global nature of the company. Similarly, Agrucapers has become known worldwide for the production and distribution of capers. In fact, a quick look at its balance sheet shows the importance of foreign markets: 70% of the 15 million kilos of capers it produces are year are destined to be sold outside of Spain and the company’s products can be found in 55 different countries. The company has invested heavily in Morocco and Turkey in particular and has established processing plants from which they can supply countries all over the world.

MdC has also successfully gone down the route of internationalization by creating a hub and spoke business model. CEO and founder Didier Lagae explains: “MdC has successfully developed a strong global presence that allows the agency to offer communications support across Europe from its triangle of owned offices in Madrid, Barcelona and Paris; in Latin America and the USA from its office in Miami; and throughout Africa from its Casablanca base. These five offices are strengthened in turn by affiliated offices in over 40 cities across the world. Our international model has been a great success, so much so that 60% of the agency’s income currently comes from abroad.”

The agency’s extensive capacity for international support is demonstrated by the work carried out for the Moroccan Investment Development Agency (AMDI), one of MdC’s most important clients: “We were faced with the challenge of attracting foreign investors to Morocco. Using testimonials from key businesses and key institutions and highlighting the principal advantage of investing in the North African country we created a comprehensive 360º strategy including advertising, press relations, event management, public affairs and press trips. The results were impressive. We generated a 49% and 76% increase in Foreign Direct Investment from France and Spain, respectively, and an increase of 54% globally. The campaign has been recognized by a host of international awards, an achievement that reflects the professionalism of the MdC team.”

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