In times of supply bottlenecks and political unrest, Portugal is positioning itself as a European alternative for industry. The Partner Country of the HANNOVER MESSE is also convincing more and more German companies.
When Luís Castro Henriques, Chairman & CEO of AICEP, wants to surprise foreign guests, he lets them guess: What is Portugal’s most exported product? Henriques has been head of AICEP, Portugal’s Investment and Foreign Trade Agency with headquarters in Lisbon, for five years. When he looks out over the city from his meeting room on one of the top floors, he can see planes approaching Aeroporto Humberto Delgado every few minutes. But tourism is hard to export.
And so the majority of his guests – he meets entrepreneurs, managers, investors, politicians, tourists, sometimes even journalists – at first guess port wine or fish. If they felt well informed, some also answered “cork”. In fact, Portugal is the world’s largest producer of cork. But the correct answer to Henrique’s question is: car parts. Few people expected that, he says, and smiles. Bravely. He has probably already given this surprise many times, because car parts have been Portugal’s number one export good for a few years now.
“Portugal will also present itself as a procurement market in Hanover”.
Especially for Germany, Portugal has developed into a relevant partner in this respect: After Spain (25 per cent) and France (14 per cent), Germany is the third-largest customer country for Portuguese exports with around twelve per cent. And against the background of the current crisis situation – supply bottlenecks, political uncertainties, corona strategies – the country is trying to position itself as a European alternative to increasingly difficult locations. “Portugal will also present itself as a procurement market, especially as a partner country of HANNOVER MESSE,” says Karl-Heinz Dahm, Portugal expert at the German Association for Foreign Trade and Location Marketing GTAI.
The focus is on the production of precision parts made of metal, plastic or rubber. Customers come from the automotive industry, aviation and the electrical and electronics sector. But Portugal has also made a name for itself in the fields of software and automation,” says Dahm, “as well as for energy solutions and digital ecosystems. And because the country cannot compete internationally as a low-cost location despite its low wage costs on average in the EU, it is now “more likely to focus on products with higher added value at a good price-performance ratio”.
Third most engineers per inhabitant in Europe
At this point, AICEP boss Henriques usually has a second surprise in store for his interlocutors. Portugal produces the third most engineers per inhabitant in Europe, after Germany and Austria. Even without much prompting, Henriques lists the German companies that have chosen his country. Siemens and Bosch were the first, Volkswagen has been in the country for almost 30 years and opened a new software centre in Lisbon in 2018. Mercedes-Benz, Continental and Eberspaecher, Thyssen-Krupp, camera manufacturer Leica and Groz-Beckert, the Swabian world market leader for industrial machine needles, precision parts and fine tools, also produce locally. Around 550 German companies are active in Portugal.
Another German company that has been won over by Portugal is BMW. In September 2018, the Munich-based carmaker set up a joint venture with the Portuguese company Critical Software. The new software company called Critical Techworks, in which both companies now hold 50 per cent each, moved into premises in Porto as well as Lisbon and grew rapidly. Starting with around 200 employees, Critical Techworks now employs 1,600 men and women. One of them is Jochen Kirschbaum. The 46-year-old started at BMW in Munich 18 years ago, built up the app centre for BMW in Shanghai in the meantime and moved to Lisbon in 2018; he is responsible for operations in the four-member Critical Techworks management team.
Why Portugal? Two things in particular were decisive in the choice of partner and location at the time, he recalls: “Firstly, we were looking for a market with a high affinity for IT. That is definitely the case in Portugal. Portugal was hit harder than most other European countries by the global financial crisis of 2008/2009, but subsequently made more sensible investments than most others: in promising university fields, especially in the natural sciences. “Since 2014, we have observed a large and growing number of really well-educated university graduates in Portugal,” says Kirschbaum.
2200 start-ups in Portugal – seven of them unicorns
“And secondly, Portugal has built a reputation as the home of a very healthy and creative start-up ecosystem.” The Web Summit, held annually in Lisbon since 2016, is considered one of the largest technology conferences in the world. According to GTAI, Portugal – a country of just ten million inhabitants – has more than 2200 start-ups. Among them are seven so-called unicorns, such as Talkdesk, a cloud-based artificial intelligence software provider, Farfetch, a fashion boutique now based in London, and Sword Health, which offers virtual and digital physiotherapy and reached its billion-dollar valuation fastest ever (in six years). “Yes, they are real!” the Porto Business School exulted at the accumulation of billion-dollar start-ups.
“And BMW wanted a partner company we could learn something from,” says Kirschbaum, “so we found that here.” At the Lisbon location, the co-director can also present some examples of the software products – such as the so-called “Theatre Screen”, in which his Portuguese team has developed shares. This 31-inch touchscreen extends from the roof in the rear of the new i7 electric car so that the passengers sitting in the back can watch cinema films. The “Touch Command” sensors that replace the window buttons in the i7 were also developed in Lisbon. The “My BMW” app was also co-developed in Portugal. It was presented for the first time in a new generation in July 2020. Or the new severe weather warning. Or the software that automatically switches hybrid vehicles to electric mode when driving into a corresponding low-emission zone; so-called zero-emission zones are already planned for parts of London, Paris and Amsterdam.
Software Engineers in Germany Earn 3.5 Times as Much
What Luís Castro Henriques, Chairman & CEO of AICEP, probably doesn’t like to talk about, however, is the figure 3.5. Software engineers in Germany, according to Siemens-Portugal, earn on average about 3.5 times as much as software engineers in Portugal. The average wage was around 1200 euros gross in 2020, according to GTAI. Real wages in Portugal stagnated in 2019 and 2020, the GTAI states. There is still a way to go, says Siemens Portugal boss Pedro Pires de Miranda, who also worked for several years at the company’s headquarters in Munich. In Portugal, Siemens has four business units and a total of 3,500 employees.
Miranda wants to increase the current turnover of 378 million euros to 500 million euros in the medium term. “Portugal is to become one of the leading Siemens country units for Global Business Services,” he says. Energy supply is to play a central role, also generally for the future of the country. “Portugal has been swimming against the tide,” says Miranda. For many years, he says, Europeans wondered why so much had been invested in renewable energies. “And now, with the gas crisis, we are the hotspot,” he enthuses.
Portugal has no nuclear power, but heavily developed wind and solar energy parks. Portugal gets most of its gas from North African countries. In the port city of Sines, 115 kilometres south of Lisbon, Portugal has been operating a large LNG terminal since 2004. Soon, Portugal wants to start exporting green hydrogen. By 2026, 80 percent of the country’s electricity production is to come from renewable sources.
“In the next decade” Luís Castro Henriques also proclaims that Portugal will become a supplier of sustainable energy. That would be something new with which he could surprise his interlocutors.
by Stephan Knieps
01 June 2022
Read the full article at WirtschaftsWoche
