I know a businessman with a business facing the public who was doing great until 2019. The company was his father’s and he helped with it since he was a child. All the secrets were known. They invested most of their earnings each year in expanding their business. I saw them prosper because they gave very good service. Always better facilities and more employees. Then the pandemic arrived and its clientele diminished considerably, but it resisted and remained open. A seven-week perimeter lockdown fell on him and he had to close down. Then he applied for an ERTE. As he had 61 workers, they told him that he had to finance 25% of the social contributions of his workers. If you had less than 50 employees, you would not have had to put anything in.
Result: it has fired 15 workers, it has closed part of the business because it must also maintain social distance to continue operating and has thrown numbers and has discovered that it can maintain a similar profitability by being smaller. The consequence will not be noticeable in your margin, you will probably live calmer because you will have less activity, but Yes, the 15 workers who have lost their jobs will notice, as well as your suppliers that will sell you less gender and that sooner or later will have to look for alternatives or reduce their size.
“If the pandemic had not come, I would never have discovered that the business virtue in Spain is to stay below 50 workers,” he explained to me. Unfortunately, he is not without reason. This phenomenon is known in the economic world as ‘the curse of employee number 50’.
Spain stands out in Europe for the small size of its companies. The number of medium-sized companies is 33% lower than the EU average, according to data from Cepyme, the sector’s employer’s association. Only 0.6% of Spanish firms are medium compared to 2.4% in Germany. In fact, 95% of the companies are micro-companies, with less than 10 workers. In Germany, on the other hand, micro-enterprises are 82%. Generations of Spanish politicians have been unable to understand and resolve this. With the excuse of helping SMEs, they have done nothing more than create incentives so that they do not stop being SMEs. Now, the government seems committed to studying a law that encourages business growth.
The critical factor is the over-regulation. “Eliminating obstacles to business growth is the only way for European funds to be useful for SMEs and gain competitiveness,” says Gerardo Cuerva, president of Cepyme. Cuerva mentions some of the barriers that hold back the growth of the workforce above 50 employees: the obligation to set up a works council, not being able to present annual accounts in an abbreviated form, the obligation to make VAT payments on a monthly basis and the need to hire an account auditor.
The employer proposed that these obligations be optional and that their obligation be raised to a greater number of employees, for example, 150.
In addition to these four barriers, various investigations have shown that there are other fiscal, administrative and organizational issues that incentivize companies to remain small. A recent study by the Bank of Spain, signed by Juan S. Mora-Sanguinetti and Ricardo Pérez-Valls, has verified that «the complexity of the regulatory framework in Spain on a disaggregated scale is negatively related to the total number of companies and the capital of the incoming companies ”, that is, the more complexity, the fewer companies and with less capital. But the normative production in Spain does not stop: has quadrupled since the late 1970s. In 2018, the sum of new regulations for all Administrations amounted to 11,737 standards. In 1995, there were 7,918 standards.
This complexity affects companies in a different way. It highly penalizes limited liability companies, with a larger size, while it encourages individual companies, limited to local markets.
It has been shown that smaller companies are less productive, have less financial strength, are more vulnerable to crises, access financing in worse conditions, invest less in R & D & I, attract and retain less talent, their workers have lower educational level, they survive fewer years, they internationalize less and they cooperate less with each other.
The Cepyme Barometer detected a better performance of medium-sized companies compared to small companies in this crisis. They have lost income, but to a lesser extent. 40% of companies have seen their income reduced by more than 50%, while medium-sized companies have seen their income fall, but in a lower percentage (51% have lost between 0 and 25%), two out of each three medium-sized companies have opted for teleworking and only 23.7% believe that their survival is in danger, compared to 50.5% in the sector.