05 October 2017
San Sebastian Campus
Guipuzcoa has a long industrial tradition, as shown by data on the region. In Guipuzcoa there are over 900 SMEs which generated more than 31,500 jobs in 2016, almost half of the employment in Guipuzcoa’s industry. Their turnover reached 7,000 million euros last year. These are consolidated companies and 53% of them have been working in this region for more than twenty five years. They have accumulated knowledge and experience over this time, which has allowed them to gain a foothold in international markets. 54% of them export to markets outside Spain.
An x-ray
A snapshot of Guipuzcoa’s SMEs revealed the following: 65% of them are family businesses, with an average of 32 employees, yearly turnovers of 6 million euros, owned as pure family capital and more than the half are run by the family’s second generation. In other words, they have already completed a succession process.
Nonetheless, there was barely any information on the reality of Guipuzcoa’s SMEs’ succession, their activity and relations with their environment. Deusto Business School, the Antonio Aranzábal Foundation, the Basque Association of Family Business, and the Provincial Council of Guipuzcoa conducted an analysis of the reality of Guipuzcoa’s SMEs' succession to remedy this lack of information. The study envisages business behaviour and tools that make it possible to continue with the business activity and the generation of wealth in the territory. The project was open to all the industrial SMEs in Guipuzcoa and more than 160 took part, giving data and opinions which were used to build the diagnosis and support strategies to prompt SMEs’ to take root in Guipouzcoa. Ikei and the Oteic Group have also collaborated with the project.
Contribution to the region
62% of the industrial SMEs in Guipuzcoa have a medium high impact in the region. Another 20% have a high impact. These figures are eyeopeners: 82% of Guipuzcoa’s SMEs are large generators of business activity and wealth, and therefore contribute intensively to the economic and social development of the region. Indeed, 42% of them buy in the territory and 37% sell in it, which represents a positive export balance. The investment in R&D is another significant indicator of how important the development and generation of wealth and businesses are. 25% of these industrial SMEs spend an average of more than 3% on R&D, while this amount in the rest of Spain is around 2%. Other data from the study shed light on the average amount of 5,850 euros that each SME spends on social actions.
Almost 50%of the SMEs have their own strong product or brand, which allows them to compete on the international scene and exercise a traction effect on companies within the region, from which they make almost half of their purchases (42%). The intercompany network generated by these SMEs strengthens Guipuzcoa’s economic fabric although the domino effect caused by these driver companies closing or leaving the territory is also dangerous. In this respect, maintaining competitiveness and encouraging driver industrial SMEs to put down roots are particularly important, and may have positive multiplier effects for the network.
The study also shows that they committed to future development. Approximately a quarter of these companies invest more than 3% of their turnover in innovation. An SME with these characteristics is attractive to potential foreign buyers. Ownership leaving the territory means less autonomy and higher vulnerability. For this reason, ensuring that the enterprises in Guipuzcoa put down roots means that decisions are made here.
Lastly, these enterprises, which are mainly family businesses and cooperatives or employee-owned companies, have strong social engagement levels. Their commitment materialises as an average staff of 32. Employment generates economic flows that go from industry to trade and other services such as education and healthcare through household units. It also gives stability to society and a better distribution of wealth. In addition to the direct social contribution made by employment, these firms also attend community’s needs, with each SME contributing almost 6,000 euros per year to social actions. Although not often highlighted in the media, their total contribution to the region deserves to be acknowledged and appreciated.
The risks of SMEs
The study also reflects the risks that industrial SMEs face and identifies the factors that trigger them. The risk of exit is closely related to the possibility of receiving purchase offers and having a weak connection to Guipuzcoa. However, the risk of closure is usually linked to events such as loss in market share, issues regarding the size of the business or loss of customers. Finally, the risk of succession (either family-related or not), is usually accentuated by changes in the corporate structure, an upcoming succession or problems typical of the succession itself.
The study shows that there is a risk of closure among industrial SMEs in Guipuzcoa, which requires that measures be taken and mechanisms put into place to avoid the shutdown of these enterprises and thus prevent the loss of wealth and development in the region.
Regarding the risk of exit, the business prototype with a medium high risk is a small company, with fewer than 36 employees, has a turnover of approximately 9.9 million euros. 65% have their own products and 68% do not own other businesses. In this context, 20% of the SMEs have a medium-high social economic impact, which makes it even more important to introduce new measures that keep the companies in the region, investing in talent and implementing conflict resolution mechanisms.
The study also shows that family businesses have a lower risk of closure and exiting the territory than non-family ones.
Putting down roots, everyone’s concern
If the investments and size the business requires to sustain competitiveness are excessive, business leaders may be tempted to abandon, especially if there is a good purchase offer. Faced with this reality and in the interest of the territory, it is important to encourage the desire to keep up investment in businesses in our territory. This task should include the efforts of society, the administration and stakeholders involved in each case.
However, external aid will not be enough if the business does not promote a creative spirit with the aim of progressing. This spirit, embodied by the best business leaders, is a 4.0 “injection” that must be given to future business leaders. For this purpose, besides being efficient in business management, they have to tackle a new way of teaching and encourage the “zip effect”, which involves having both the business and the family/ownership work in parallel.
The challenge is to follow the path of the driver companies which have heeded the recommendations made and promoted the shift from the workshop to the company, broadening the perspective of operational excellence to profitable efficiency, looking after management and pampering corporate governance as well. In this process, it is sometimes important to be guided by people who have already gone through succession.
Providing the business project with continuity by adopting a long-term approach is one of the keys to responsible transmission. It must be a continuous journey, in which the business leader (family related or not) behaves responsibly and has the support of institutions, designing and promoting favourable consolidation and growth strategies.
This study is not an end itself. After diagnosing the situation of industrial SMEs, the next step is to encourage and facilitate training and empowerment processes to accompany family and non-family companies in Guipuzcoa in their transmission processes. This project, with its importance and implications, was a group effort launched to maintain a strong business fabric in our region.
