Small Is Beautiful in Portugal as Coelho Heads Into Election

  • Coelho, like Opposition, leans on SMEs for economic growth
  • Small firms are economy's backbone, like Germany's Mittelstand

Helsar-Industria do Calcado SA, a small shoemaker in northern Portugal, thrived during the European crisis that brought many of the country’s largest groups to their knees. 

That resilience has put companies like it at the center of the country’s economic future as Portugal heads on Oct. 4 into its first general election since 2011, when it sought a European bailout.

Patricia Correia.
Patricia Correia.
Photographer: Paulo Duarte/Bloomberg

“We were able to overcome these last few years by exporting,” said Patricia Correia, 36, a designer at Helsar, the 75-employee company based in the town of Sao Joao da Madeira. “That’s what we will continue to do.”

Firms like Helsar have become a cornerstone of the economic plan for Prime Minister Pedro Passos Coelho, who heads the first Portuguese coalition government to survive a full term since the end of a four-decade-long dictatorship in 1974.

His government has worked on bolstering small and medium-sized companies, even as it has shed 9.5 billion euros ($10.6 billion) of assets in the past four years. The state sold most of its stakes in large companies, in contrast with countries such as France that continue to nurture and own shares in national champions from utilities to carmakers.

For Coelho, as for the opposition Socialists he faces at the ballot, backing small- and medium-sized companies makes both electoral and economic sense. Of Portugal’s 1.1 million businesses in 2013, only 1,020 didn’t fall in that category. They also accounted for 79 percent of the country’s employment based on 2013 figures in the European Commission’s annual report.

Greater Recognition

Both Coelho and Socialist leader Antonio Costa spoke at rallies in the northern constituencies of Braga and Oporto over the weekend. Voters in the region are feeling the love.

There is “greater recognition” of the importance of small- and medium-sized businesses and of the north, said Ricardo Figueiredo, 52, the mayor of Sao Joao da Madeira. 

Ricardo Figueiredo.
Ricardo Figueiredo.
Photographer: Paulo Duarte/Bloomberg

“We have a strong industrial culture,” Figueiredo said in an interview this month. “In Sao Joao da Madeira, three in five people work in industry. You talk about industry at lunch, at dinner, among friends, among family, every day and every hour.”

There were 66,423 manufacturing companies in Portugal in 2013, almost half of them in the northernmost region, according to the country’s statistics institute.

The northern areas close to the Atlantic coast are also among the most important for the national election. The northern constituencies of Oporto and Braga are the biggest, behind only Lisbon.

State Support

Last year, the government set up the Financial Development Institution based in Oporto to help with financing and other services for small and medium-sized enterprises.

“Big companies have very diverse financing alternatives; they don’t need such specific support from the state,” Secretary of State for Innovation, Investment and Competitiveness Pedro Goncalves told reporters in Lisbon on Sept. 2. “The model that Portugal should follow is a model focused on the production of exportable goods.”

Fepsa-Feltros Portugueses factory in Sao Joao da Madeira.
Fepsa-Feltros Portugueses factory in Sao Joao da Madeira.
Photographer: Paulo Duarte/Bloomberg

Portuguese exports rose to 40 percent of gross domestic product in 2014 from 30 percent in 2010, according to the European Union’s statistics office. That compares with 46 percent for Germany and 29 percent for France.

The increase coincides with Portugal’s rekindled love for smaller companies, taking it away from the French tradition of bolstering large national champions. Germany’s Mittelstand, the mostly family-owned small- and medium-sized firms, serves as a model, although that sector in Europe’s largest economy is in a league of its own.

“German industry is at a higher level of technology and knowledge than the rest of Europe,” Mayor Figueiredo said.

Italian Design

Manufacturing represented about 11.5 percent of GDP in Portugal in 2014, compared to 20.4 percent for Germany. The country also needs to learn from the Italians on marketing better, said Figueiredo.

“The Italians know how to sell better than the Portuguese,” he said. “We continue to be much better at manufacturing than at distributing.”

It’s that manufacturing prowess that has helped Helsar rise in export markets, said Correia.

“The Italians win on design, but then they lose on workmanship, they lose on the technical side,” she said in an interview in an office above the factory floor. “The workmanship for most of our shoes is expensive because they take a lot of time to make.”

Quality Driven

Fepsa SA, a felt hat maker nearby, with clients including Hermes and Chanel and 97 percent of sales outside Portugal, also avoids competing on price.

Fepsa-Feltros Portugueses CEO Margarida Figueiredo.
Fepsa-Feltros Portugueses CEO Margarida Figueiredo.
Photographer: Paulo Duarte/Bloomberg

“Our cost structure isn’t based on low wages,” said Chief Executive Officer Margarida Figueiredo, 44, the third generation working in the business. “Our bet is on quality and client service.”

A similar approach has kept the Portuguese textile industry afloat. The sector’s exports
will this year be close to the record 5 billion euros reached in 2001, said Paulo Vaz, general director of the Textile and Clothing Association. That’s even though the industry has half the workers it had then.

“Today we produce goods with much greater added value,” Vaz said at a conference in Oporto on Sept. 10. “This sector has a survival instinct.”

Rightful Place

The rise of these companies has come as the government sold stakes in flagship airline TAP SGPS SA, postal service CTT-Correios de Portugal SA, airport operator ANA-Aeroportos de Portugal SA, utility EDP-Energias de Portugal SA and grid operator REN-Redes Energeticas Nacionais SA. It also
coincided with the collapse of the large, far-reaching Espirito Santo Group and sales of parts of other anchor companies like Portugal Telecom SGPS SA.  

For some, the turn of events has put Portugal’s smaller companies in their rightful place at the heart of the economy.

“We will always be a country of small and medium-sized companies,” said Paulo Nunes de Almeida, president of the Portuguese Entrepreneurial Association, at a Sept. 10 conference in Oporto.

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