6 points to consider before internationalizing to the mainland.
Many Brazilian businessmen in different sectors are studying opening a company in Portugal as the first destination for the internationalization of their company. But is Portugal the best destination to start your international operation?
Like any country, it also has pros and cons. To help you reflect a little, try answering the questions below:
Does your company's team only speak Portuguese?
Is your business related to trading (import/export), retail, tourism, or real estate?
Does your company serve Portuguese or Brazilian expatriate customers?
Is your company a SME?
If you answered yes to the 4 questions above, Portugal is an excellent option. If you answered no, it might be better to look for another platform for your international expansion. Let's explore a little more?
What i saw over there
I was in Lisbon and the region in October 2018 and it's really amazing what's happening there. Especially in the center, it was impossible to walk calmly with so many tourists. And everywhere we went, the economy looked really booming, people buying, public services running, enviable optimism (whilst here we were tense about the elections). But the first question I asked myself was: where are the Portuguese? What really is Portugal's LOCAL economy?
That's when TripAdvisor recommended the best Japanese restaurant in Lisbon for dinner, Unique Sushi Lab. When we walked in, it felt like we were in a restaurant in São Paulo. Amazingly, all employees were Brazilian. I called the manager to talk. What was the history of the place? Well, a sushi man from São Paulo was invited to be a sushi man in Cannes, France. He and his wife pooled money and opened their first Japanese restaurant with an investor in Portugal. It worked so well that in less than 6 months they paid the investment and opened a unit just for delivery (by the way, if you work with Japanese cuisine in Brazil, you can internationalize to -almost- anywhere that’s worthwhile, but back to this... ). I asked the manager what was this phenomenon in Lisbon, of vibrant tourism. She explained to me that because of the risks with terrorism in London, Paris and Berlin, Portugal became a great option for Europeans, as, in addition to being cheap, it has historical content, the atmosphere is great and it’s possible to have several local experiences. In conclusion: Portugal is POP for tourism in Europe.
Well, but what about the rest of the local economy? If you don't work in tourism or retail, there is nothing that relevant in growth anymore. The real estate market was inflated because of Brazilian investors seeking the Golden Visa, but in terms of the real economy, there is no great sectorial diversification.
The return of prosperity
Portugal was one of the European countries most affected by the 2008-2009 financial crisis. 16.2% of the population became jobless in 2013 and a good part tried to immigrate to other countries in search of income for their families.
The GDP grew 1.4% in 2016 and the unemployment rate is at 11.1%. It ranks 34th in the World Bank's Doing Business Report.
The government finally managed to make some changes in the field of competitiveness (such as tax reductions) and expanded visa routes for Brazilians (you've heard of the Golden Visa, right?) and these were the main attractive factors for us to see this country with more interest.
Well, the numbers are certainly better than the Brazilian indicators, especially when comparing the last 3 years. But in terms of Europe, the country has some important limitations to consider.
Portugal for business
A gateway for imports and exports to Europe (foreign trade) due to geographic position, the destination for retirees due to the climate, POP for tourism due to security, and back-office due to low operating costs.
Portugal is a place with cheap and unskilled labor, the minimum wage is €580 (the lowest in Western Europe) and a GDP per capita of €17,905. This is good if you intend to hire Portuguese employees for basic functions, but bad if you need them to have purchasing power or qualifications. See, the University of Porto is the first university to appear in 197th position in the ranking of European Universities.
78% of the Portuguese economy is made up of SMEs: “The productivity of Portuguese companies with fewer than 250 workers is about half the European average”, according to a report published by the European Union. So if your business is B2B, you may find it difficult to hire efficient employees or have clients with large bank accounts that pay well.
So what works? If you work with tourism, retail, food, and consumer services, the country received more than 12 million tourists in 2017, it's really relevant. If you need a base to distribute your products to Europe, it's also excellent. Or if you work in construction and real estate, there are opportunities to develop new regions and also retrofit.
The Brazilian Exodus
Indeed, the crisis in Brazil made us look at Portugal with great interest. It's an excellent “plan B” if Brazil doesn't work for you and your family, mainly because of the ease of visas. A country with an excellent quality of life and security, but with a restricted supply of qualified jobs is an important factor to consider. It is a movement of people, but not of business, due to the limits of the Portuguese economy illustrated above.
The population of Brazilians is a little over 85,426 citizens. It is the biggest destination for expatriation from Brazil to Europe, due to the language and obviously our history as a Portuguese colony. Still, it is a small target market if its internationalization is aimed at serving the Brazilian public. I've already talked about the risks of the “expat” market in other articles. Take a look at "Does being Brazilian sell?" to know more.
There is a very interesting dialogue between the phenomenon in Portugal today and what happened in Miami a few years ago. In 6 reasons not to open a business in Miami, you will find a lot of similarities about these destinations.
Gateway to Europe
Let's talk a little about numbers. Portugal is a country with a little more than 10 million inhabitants, with 500 thousand living in Lisbon or 2.8 million in the metropolitan region (MR). In terms of Brazil, it is as if Lisbon were Caxias do Sul – RS or its metropolitan region, Belo Horizonte. Would you internationalize your company to BH?
You may think: "But it is a country that gives access to 500 million people!", but look, it's as if you were talking to a European company that entering Brazil through Recife - you have access to a market of 200 million. Does that work?
One of the main theses of internationalization is “follow the client”, you must be where your client is. If your European potential customer is in Portugal, or you have a large local potential market, start there. But if the biggest European markets for your business are in the UK, France or Germany, create an entry plan for those destinations. The costs of travel, marketing and reputation do not make up for the fact that you have a Portuguese company.
At most, Portugal is definitely the gateway to Spain. An internationalization strategy that considers the Iberian Peninsula can maximize regional business opportunities.
Is Portugal Tech? The role of the Web Summit
You've probably been invited to participate in a Web Summit mission, or you've participated in several editions. You arrive at the event and find more than 70,000 participants and think: “Wow! Portugal is a technological giant and I didn't know it!” Or that's what the Portuguese government wants you to think? So it is. The Portuguese government paid 110 million for the event to take place in Lisbon over the next 10 years.
It is not a market movement. But rather a government strategy. After the event ends, businessmen return to their countries, and what remains is a very small local sector. The country is not in the ranking of the 25 largest technology markets in the world, according to Forrester.
The perception of some Brazilian businessmen is that Portugal is between 5 and 10 years behind in Brazil in terms of technological development. This is an excellent competitive factor, bearing in mind the size of the local market (remember BH, ok?).
The recommendation here is if you really want to open your technology company in Portugal, is to open a commercial office and let your development stay in Brazil. Still, if you really have European or global ambitions, you would no doubt look at the UK for your European base, then France and Germany. They are more robust markets, with competitiveness factors (mainly in terms of market size and then operating costs) that are worth the internationalization effort.
The ideal thing is for you to look at countries with markets larger than Brazil for a process of internationalization and not smaller ones. Your motivation and returns will be worth it. This is the case of Portuguese companies entering the Brazilian market.
In this article I wanted to show you that Portugal can be a good internationalization destination for some market segments and some business strategies. There is a Europe beyond Portugal to be studied for its international expansion. The right place for your European address will make a difference in your international positioning.
Sterna is the first Internationalization Boutique in Brazil. We can help you open your company abroad. Shall we have coffee? email@example.com