Made in Portugal is in fashion
After years of recession and austerity, Portugal has found its way back to growth while modernizing. We investigate the recipes that have made this country one of the most promising in Europe.
Colorful ottomans, sofa corners, swings, ping-pong and pool tables. A tree house and a studious hive atmosphere in front of the computers. We could be in California, but we are in the vicinity of Porto. Under the big glass roof of Farfetch, the world champion of online luxury sales.
Launched by Portuguese José Neves in 2008, the company has 1.56 million customers in 190 countries worldwide and posted €171.6 million in revenue in 2016, 74 % better than the previous year. It operates between London and Porto. Selling chic and exclusive, well-known brands, but also cutting-edge labels. Previously found in a handful of trendy stores around the world, now accessible in three clicks.
We have succeeded in shaking up a sector as conservative as luxury by introducing a new privilege, time savings.
"In 2016, we were 600 people in Portugal. Today we are 1,300, more than half of which are IT engineers, says Andreia Gomes. Communication Manager of Farfetch. We have succeeded in shaking up a sector as conservative as luxury by introducing a new privilege, the time saved "she explains.
Take off again
The company is now exploring new terrain, such as the "stores of the future," to offer, it says, "new customer experiences and a tailored offer by leveraging both the benefits of the digital revolution and augmented reality".
The story of Farfetch is one of those that tells the story of the Portuguese economy taking off again. The time is far from Portugal being a low-cost supplier for the big textile or leather goods chains.
The country, which is re-emerging after years of recession and austerity, has dusted off its traditional sectors. It has modernized and opened up to international markets at full gallop to survive despite domestic demand stalling during the crisis.
Labour market flexibility
Five years after being forced into a 78 billion euro bailout with a severe adjustment plan. Portugal is now one of the most promising economies in Europe.
The socialist government, which came to power in November 2015 with the support of the far left, promising to turn the page on austerity, had nevertheless been greeted with skepticism by its European partners. But, against all odds, the Prime Minister, António Costa, has managed to revive the machine.
"He was able to play it cleverly, sending reassuring signals to the middle classes, by freeing up salaries and pensions. Without going back on the reforms that made the labour market more flexible and reduced the size of the state.This is what the political scientist António Costa Pinto, a professor at the University of Lisbon, says.
It is this mix of recovery and flexibility, Scandinavian style. It is this Scandinavian-style mix of recovery and flexibility that is boosting consumption and reinvigorating the country's economy, which is being driven by both the tourism boom and exports.
Growth takes off
Growth is taking off. It is at 2.6 % in 2017 while unemployment has fallen to 7.8 %, the lowest figure since 2004, and the public deficit is down to 1.4 %. Its lowest level in forty years. All of Europe is wondering about the Portuguese recipe.
In the wake of successes like Farfetch. Lisbon and now Porto have become fashionable destinations for start-ups, attracted by a qualified and easily multilingual workforce, a pleasant environment and the proximity of prime surf spots. But the rest of the industry is also benefiting from a new dynamic.
SMIC at 650 euros
In addition to a flexible labor market, the country clearly benefits from low labor costs, with the minimum wage at 650 euros. But not only that, says Luis Castro Henriques, president of Aicep. Aicep is a dynamization agency that supports Portuguese companies in their exports and facilitates the entry of investors. "What decides a company to locate here is a complex productivity equation. Which introduces other factors such as the ease of attracting talent. Professional and academic training, language skills as well as the quality of the country's infrastructure and social stability. Which offers long-term visibility."
We have moved from shared service centers or simple back offices to more complex activities, from advanced engineering centers to software development
French companies are at the forefront of productive investments. Those that have been there for a long time are consolidating their positions, such as Renault, PSA, Faurecia and Altran. But the profile of newcomers is changing," says Luis Castro Henriques: "We've moved from shared service centers or simple back offices to more complex activities, whether it's advanced engineering centers or software development."
This is the case of Mecachrome, a French group specializing in high-precision mechanics for the aeronautics industry, which inaugurated a new factory in Evora last October. A few hundred meters away are also the facilities of the Brazilian Embraer, the third largest aircraft manufacturer in the world. The two companies are creating a fertile ground for a new Portuguese aeronautics cluster, says Mecachrome plant manager Christian Santos, who is impressed by the efforts made by the local administration to facilitate the installation of newcomers, especially in terms of recruitment.
Business Services
"There is a real business service attitude on the part of public employment services"he says. Not only have they developed tailor-made training courses on aeronautical trades, from boiler making to sheet metal work, painting or machine control, but the local employment center managers are also interested in employer satisfaction, to see how the training could be made more effective. "They're looking to anticipate, to know what headcount I'll need in six months and with what concrete training so they can adapt their modules based on demand and shorten the 'time to job.'"
For us, it is not about low cost, but about 'best cost'.
A reliable, trained and motivated workforce is one of the country's calling cards when it comes to convincing companies to locate here. "For us, it's not about low cost, it's about 'best cost', says Christian Santos. There is also a geographical and cultural proximity. That makes collaboration easier than in Poland or Turkey."
Alongside the newcomers, the country's traditional industries have also undergone a revolution, explains the Secretary of State for Industry, Ana Teresa Lehmann, citing the example of the textile and leather industries: "They opened up to innovation in production, they also worked on the notion of brand and the perception of quality, reorienting the image of made in Portugal towards an idea of high-end design and added value."
New markets
Invest, innovate, reinvent: this is also the recipe applied by Vista Alegre, the emblematic brand of Portuguese porcelain, to resurrect itself, after having almost disappeared in 2009, crushed by debts. "The company, which relied on the national market and a portfolio of loyal customers, has rebounded by prospecting new markets and succeeded in promoting its know-how to open up to collaborations.says Alda Costa, a member of the board of directors.
A hundred kilometers south of Porto, the Vista Alegre factory in Aveiro offers a dazzling image frozen in time. Framed by the white and ochre buildings of the chapel and the theater, where the workers were educated. Nothing seems to have changed since its foundation in 1824.
And yet, in addition to its usual production lines, the company has landed a major contract with Ikea. It delivers 30 million pieces per year to the Swedish giant. with the prospect of increasing to 48 million pieces in the coming years. For Vista Alegre. This collaboration marks a renaissance, as does the development of collections for brands such as KitchenAid or Nespresso, or the design of custom tableware for star chefs.
Innovation
In a very different sector, the Amorim group, world leader in cork, has also managed to pass a difficult stage. "Who was going to bet on cork, when aluminum or plastic caps threatened to dethrone it? "says Antonio Rios de Amorim. The president of the company, which produces 4.7 billion corks a year, a third of the world's production.
In order to keep up, it has been necessary to make continuous efforts to innovate in the manufacturing processes, quality and traceability of corks. But also to develop the use of cork in other sectors, such as the production of artificial grass. Its introduction in the processes of manufacture of railroad cars or decks of cruise ships. As well as its use in the aerospace industry
Diversification
After some difficult years, "The winds have finally changed and they have come from the East, he affirms. Indeed, it is finally the marked preference of the Chinese consumers for the cork. Which made lean the balance of its side and convinced the sector of the wine to return to the origins. Relaunching the demand after years of slowdown.
We have a problem of scale with many uncompetitive micro-businesses.
In Lisbon, in his office with a view of the 25 April Bridge. The head of the employers' association, António Saraiva, president of the Confederation of Portuguese Industry, is cautiously savoring the country's takeoff.
"We have barely 20,000 exporting companies out of 400,000 in total. This represents barely 5 %, he recalls. We have a problem of scale with many uncompetitive microenterprises. Those that have survived the crisis are the strongest. They have shown great resilience and have been able to open up and transform themselves. But we can't stop there," he warns. To move forward, we need to gain volume. We will need to merge, absorb and promote the path of concentration." No question for him to stop on the way.
