BBVA - Press Room

• “Prudence is as important as daring in the international expansion process”
• “Opportunities for investing at the right price will come up, although the most important thing is not price but a realistic and rigorous analysis to assess what a transaction can add to the business model, how it can enhance our ability to create value going forward"
• “Spanish companies do not have a presence in areas of high growth potential such as the United States and Asia, two very clear targets for expansion"
• “BBVA has put together the leading regional franchise in Texas and the entire southern region of the US, and that’s only the starting point, because BBVA has great ambitions in the US”
• “BBVA’s expansion in China and Southeast Asia is based on our strategic alliance with the CITIC group, which we will complement with independent ventures in India and other countries”
• “We must become multicultural companies in which diversity is considered a positive element"
• “It is essential for companies to start working immediately on research and development and to put R&D at the heart of our strategy"
  

“The current climate of weakness in domestic demand and a strong euro can serve as a stimulus for increasing the pace of Spanish companies' international expansion," BBVA Chairman and Chief Executive Officer Francisco González said today.  “And in this process, prudence is as important as daring.” “Although opportunities for investing at the right price will come up, the most important thing is not price but a realistic and rigorous analysis to assess what a given transaction can add to the business model, how it can enhance our ability to create value going forward," he added. In his opinion, Spanish companies do not yet have a presence in two areas with high growth potential: the US and Asia, which the executive deemed “very clear targets for expansion.” Francisco González mentioned talent management and innovation as two key issues that must drive Spanish companies' international expansion.

Francisco González made opening remarks today at a conference in Santander titled “The Spanish Company’s International Expansion. Risks and Opportunities,” sponsored by the Menéndez Pelayo International University (UIMP) and the Association of Financial Journalists (APIE). “It’s not that there are no risks, it’s just that the balance is overwhelmingly in favor of opportunities,” González said. “Certainly the greatest risk of all is to try to remain isolated from an economic system that is increasingly global.”

After explaining that many Spanish companies have understood this opportunity, he said that since the 1990s, Spanish companies' international expansion has been a very significant factor behind modernization, social and economic transformation and wealth and job creation in Spain.

In the chairman and CEO's view, Spanish companies were late in starting their international expansion, but the process has since been rapid and intense.  “In 15 years, our country’s companies have achieved an international presence more in keeping with our size and weighting in the global economy. Not only big corporations, but many other smaller companies have had a role to play in this process,” said Francisco González.

”Overall, all of us have broadened our markets and created value: we have improved our profitability and diversified our revenue streams, which means that income has become more recurrent,” said the BBVA chairman and CEO.  “This process has also prompted changes in management models, fueling technological change and adaptation to multicultural working environments. All of these have helped us to become more efficient."

In his opinion, international expansion has been the best teacher for Spanish companies in two key areas: innovation and competitiveness in a global market. "From an overall macroeconomic standpoint, geographic diversification of the earnings base at Spanish companies has become a very important element of support for the Spanish economy,” González said.

Rapid change

Large corporations that opted for international expansion today generate nearly half their earnings outside of Spain – at BBVA that percentage is over 50% and growing – .  “This makes companies, and Spain as a whole, less dependent on domestic economic trends, and thus more stable,” González added.  

“The experience of international expansion at Spanish companies has been very positive, but it's not over yet because success depends upon our ability to clearly define our objectives and strategies," said Francisco González.

This process must take two key issues into account.  The first, which is crucial for the long term, is to understand the nature of the rapid change underway throughout the world.  This change is driven by the technology and telecommunications revolution, but it has economic, social and even geopolitical implications.  The second issue is a temporary one: the change we are currently experiencing in the global economic cycle.

“Clearly this does not affect broad long-term trends, but it is very important in order to avoid making mistakes on targets and the timing of decisions.  Because missed opportunities very rarely come up again,” said the BBVA chairman and CEO.

On this subject, Francisco González pointed out that in addition to a deteriorating economic and financial environment, a key factor is uncertainty: “We can all make forecasts about how long this downturn will last and how bad it will be: I have my own; I believe that in the second half of 2009 the US will start to recover, which will fuel improvement in the global economy.  However, the situation is particularly complex and uncertain, and until now most experts have underestimated the magnitude of the problems we're facing."

Value creation

“The current scenario – which is likely to continue in the immediate future – of increasing weakness in domestic demand and strength in the euro can serve as a stimulus for increasing the pace of Spanish companies' international expansion,"  Francisco González said.

“And in this process, prudence is as important as daring. There will doubtless be times for investing at the right price.  Price is important, but it’s not the only important thing; it’s not even the most important. The most important thing is a realistic and rigorous analysis, a good plan for assessing what a particular transaction can add to the business model, how it can enhance the ability to create value in the future. Because even in the current circumstances, if a transaction makes financial sense and creates value, it will always be doable.”

Following this analysis, the BBVA chairman and CEO moved on to a discussion of some of the structural elements of the international expansion process among Spanish companies.  He explained that, until now, Spanish companies’ expansion has focused on two areas: First, the 1990s saw heavy investment in Latin America as these economies were deregulated and privatized, and as companies leveraged the advantages offered by a familiar culture and a shared language.  More recently, the main recipients of Spanish investment have been European economies, which comprise our top market and are our leading suppliers.

After pointing out that both trends were logical choices which have generated favorable results, González emphasized that Spanish companies for the most part have no presence in other markets that offer high growth potential:    the US and Asia, which the executive deemed very obvious strategic areas. “The US is in the midst of a recession, or something very close to a recession, but this could be a great opportunity if we look at it from a medium-term perspective,” González said.  “Although investment flows from Spain into the US have increased lately, total Spanish investment in the US economy is still only a tenth of the US assets held by France, Germany or the Netherlands, for instance.”

The BBVA chairman and CEO next outlined a few of the advantages the US offers as a place to invest.  The US has growth potential of around 3%, a percentage point higher than the euro zone, and in some states, particularly in the southern region (“Sun Belt”), potential growth rates are similar to those seen in emerging countries.  States such as Texas, with a GDP similar to that of Canada and Spain, in the past 10 years has grown at an average of nearly 4% annually, while Arizona has posted growth of almost 5% per year.

In addition to the size and diversity of its domestic market, the US economy is implementing a growing number of free trade agreements which allow companies doing business there to open their doors to other markets.  Meanwhile, the country’s legal certainty is a positive factor for investment.  Above all, the US is a highly competitive economy, with plentiful resources, ample financing opportunities and a high level of human capital, and is on the technological cutting edge.  As a result, it is a demanding market, which forces companies aspiring to do business there to be especially dynamic and innovative.   

Francisco González stressed that these are some of the elements BBVA took into account as it considered expanding into the US market.  It made its first “pilot” acquisition there in 2004. a small lender, Valley Bank, with only four branches in southern California. Following several other acquisitions of larger banks in Texas, in 2007 BBVA bought Compass Bank.

Organic growth

“We have put together the leading regional franchise in Texas and the entire southern US, known as the Sun Belt.  The Sun Belt states in which BBVA has a significant presence have combined GDP that is 50% higher than that of Spain, with potential annual growth of around 4%,” the executive said.

BBVA currently has 14,000 employees and a network of 667 branches, in addition to its bank in Puerto Rico, a growing corporate and wholesale banking business based in New York, and a clear leadership position in remittances through Bancomer Transfer Services, with 35,000 points of sale in the US.

BBVA USA is now a heavyweight in the US financial system (it is one of the country’s top 20 banks) and in the BBVA Group, accounting for nearly 10% of group profit.  

"And this is only the starting point, because BBVA has great ambitions in the US," said Francisco González. "We will complete the integration of all of our banks in 2008, and from there we’ll develop a plan for strong organic growth based on implementing our own retail banking model, which is clearly more advanced than anything in the US today.

If Spanish companies' presence in the US looks weak, it's even weaker in Asia," said BBVA’s chairman and CEO.  But China, India and the economies comprising the Association of Southeast Asian Nations (ASEAN) make up the region of the world with the highest current and potential growth.  These countries’ combined GDP could rise by around 7% annually in coming years, and China is set to grow even faster.  

It is the world’s most populated emerging region, and its improving macroeconomic stability and rapid growth have boosted the buying power of its consumers.  It is estimated that in the next two decades, 450 million people in the region will move into what we term the middle class, that is, they will have annual income exceeding $10,000.

“This growth of a middle class will spark a change in buying patterns. Growth in urban populations will also contribute to a change in the demand for goods and services, in favor of those with higher added value.  Taking China as an example, the number of cars per 1000 people will double in the next five years," he said.

Cooperation and learning in China

From the standpoint of corporations, "the region has a huge need for development in many areas, from infrastructure to services," Francisco González stressed. “The experience Spanish companies have acquired in other development processes is a great comparative advantage. Asia is a source of enormous potential growth. But to create value there we must be able to do business in a very different cultural environment and learn from its great qualities and values.  

This is the view at BBVA, and this principle of joint cooperation and learning is what is guiding our expansion in Asia.  An expansion in China and Southeast Asia which is based on our strategic alliance with the CITIC group, which we will complement with independent ventures in India and other countries,” he said.

The BBVA chairman and CEO later in his speech referred to two crucial and related elements: managing talent and innovation.

“If you ask me what the real bottleneck is for Spanish companies’ international expansion, I would say it’s human resources.  In my view, we have sufficient financial capacity, ideas, products, technology and competitive ability.  Even the Spain brand, which has been one of our basic deficiencies for a long time, is less of an issue as more and more companies show the world that Spain offers quality and good design in a diversified range of products and services,” he said.  

He pointed out that with regard to the brand and all of the other factors mentioned above, “we can and must make great improvement.” But what we need most right now are more people who are properly trained and who literally want to take over the world. We need many more leaders, entrepreneurs who are able to do business in remote places and different surroundings."

Attracting the best people

“Those people exist, we have them working for us or we can have them working for us,”  “But we must make a great effort to strengthen our human resources and attract the best people. Of course this requires improvements in training. But above all else, it requires a change in corporate culture.  We must reward initiative, the taking on of responsibilities, the generation of new ideas and the ability to execute projects."

Along these lines, he added: “We must become true multicultural companies, in which diversity is considered a positive element for value creation.”  

Francisco González next turned to innovation. “Competitive advantages based on labor costs, a recognized brand and the right strategy are very important, but they are perishable.  In addition, they fall from favor increasingly quickly, because things are changing at a dizzying pace in our business.

"The key to sustaining these competitive advantages over time lies in permanent efforts toward innovation,” the executive said.  “Innovation to cut costs, react in a more flexible manner to market changes, create new products and services and boost the effectiveness of marketing. This is another pending task for Spanish companies.”

In González’ view, “there’s no use blaming the system, in this case the government. It is true that our professional and upper educational systems are clearly out of sync with companies' requirements.  It’s also true that government R&D spending has historically been very low, compared with other developed countries.”

Nevertheless, these deficiencies have started to be corrected in recent years, according to the BBVA chairman and CEO. A comparison of the statistics shows that the biggest discrepancy is in private sector R&D spending.

Despite sharp growth in recent years, R&D spending by Spanish companies accounts for less than 0.7% of GDP, less than half that of Germany and far behind the US and Japan.  According to the latest issue of the World Economic Forum’s Global Competitiveness Report, Spain is ranked 48th in the world in innovation, behind Thailand, Poland and Brazil.

“Even with the shortcomings we can attribute to these kinds of reports, the rankings are very far from matching our weighting in the global economy, where we are among the world’s top 10 economies,” said Francisco González, who nevertheless wanted to leave the audience with a message of optimism in this regard: “This is not a good time for pessimism. Our country is a dynamic one, and our companies are proving that they have the ability to compete. We have made a great leap forward in only a few years. But if we want to hold onto our position, and especially, as I believe, we aspire to improve it, we must give top priority to R&D," he said.  

Spain, a significant player

“A range of government programs are in place to support innovation at businesses and cooperation between companies and universities,” said González.  “They are very much welcome. But it is essential for companies to go beyond rhetorical statements, to start working immediately on research and development, dedicating resources and our best minds to R&D and putting it at the heart of our strategy.   

“At BBVA we are already doing this. For several years, people and R&D, along with the bank’s principles, have been the key cornerstones of our strategy.  I believe that these efforts are increasingly reflected in our business model's results in terms of greater efficiency, time to market and the generation of new business ideas.  But we are only taking our first steps down this road: technology offers us enormous opportunities for improvement, for multiplying the value our human resources talent can generate," said the BBVA chairman and CEO.

Francisco González concluded with the following comment: “This is the way to success. If we make the necessary effort, businesspeople and the government, to improve our human capital and support innovation and development, Spanish companies, and our country as a whole, have the potential for becoming a truly significant player on the global scene in the 21st century.”