A new industrial formula on a Portuguese scale

 In Industry, Investment, Tourism

Portugal is in vogue. Portuguese personalities occupy roles of relevance never before reached in the fields of business, politics, sports and the arts. As a whole, some new businesses are starting to make their mark internationally, and even political parties have managed to organise themselves into an unlikely government that has surprised in its stability and efficiency in some respects.

Economically speaking, Portugal’s money-maker is tourism and other service areas, with a growing performance and internationally recognised appeal. The strong investments in road and telecommunication infrastructures made in recent decades have contributed markedly to supporting growth on these two fronts.

In terms of the industrial sector, the increase in exports indicates improvements in the country’s competitiveness, but a revitalisation like the ones registered in other social and economic areas is yet to be seen.

Structurally, Portugal offers unquestionable assets to increase the weight of its industry for the economy, which currently stands at 15%, close to the European average. The country’s location comprises an undeniable logistical advantage in the economic relationship with the British Isles, the American continent and Western Africa, which may be bolstered further by the geo-economic changes with Brexit. Portugal’s industrial production is also extremely diverse, particularly the light industry such as textiles, footwear, cork and casting. There aren’t however powerful brands in these sectors that allow to incorporate a value as high as those achieved by other European companies, based on an investment in intangibles that ensures the distinctiveness of their products through innovation.Therefore, Portuguese products have a notable intrinsic quality because of the technical skills of industrial companies, but most of the time, those companies lack the management skills necessary to ensure a positioning and an individual narrative that allows them to capture value beyond the strict compliance with functional requirements.

On this basis, I don’t feel it is exaggerated to conclude that, in Portugal, we have good factories and bad industrial companies. A good company must add good process layers in basic areas to its products to compete in external markets which, despite the most recent protectionist relapses, are increasingly open and more demanding. To achieve that, financial, organisational and commercial competencies are needed, which will allow them to explore new locations, create good service experiences for sophisticated customers and generate complex partnerships.

Of course, this assessment doesn’t apply to the large industrial groups, unfortunately scarce on the country’s business scene. I’m referring specifically to the industrial SMEs, the segment with the most potential for transformation and growth, and which is today limited by the combination of ownership and management that defines all the medium-sized companies in the country.

Although in the last few decades, the ability to attract talent and investment has migrated from the large corporations (many of which born from the privatisation of public services) to newsworthy start-ups, the real treasure lies in this middle segment, comprising hundreds of companies with high-quality products but with unknown brands.

In Portugal, the big opportunity lies in increasing scalability of these silent SMEs that, although genuine sitting ducks today, have the potential to become international champions.

With this reasoning, at the end of 2013, my partners and I decided to concentrate our efforts on medium-sized, family owned Portuguese industrial businesses.

We felt our experience in the services sector, in which the customer experience is the key pillar, could be relevant to bring a new perspective to industrial companies, which are excessively inbred and focused on productive assets, their machines, instead of the needs of their customers. Those companies have a dimension that make them uninteresting to large international investors, and require a more relational and sensitive approach to their cultural specificities.

When acquiring companies, the criteria is the opposite of those at beauty pageants: the secret is to concentrate on the ones that go unnoticed. In this way, in mid-2016, we managed to acquire the totality of the shares of Fapajal, the historical paper tissue factory located in Quinta da Abelheira, in the Lisbon Metropolitan Area, which has been producing paper tissues since 1755. It’s a brilliant past that we hope to transform into the prologue of an even better future.

At the time of the acquisition, the company produced high-quality paper which wasn’t easily accessed by customers, given the existing management model. So, Fapajal’s transformation included incorporating a professional management team with experience in services, which segmented the different businesses, drove technological processes and platform development, and opened new markets, multiplying export capacity from 15% revenue to more than 65% during the last quarters, a result of the company’s inclusion in the global value chains. Just as in any other factory, at Fapajal, the machines are very important, but the people are the truly distinguishing element. So we combined the know-know garnered over the centuries, which we call “papersmith”, with the transformational technologies of the Industry 4.0 model – the “papertech” –, to enrich the value of the company with new service experiences, integrated within a circular economy model focused on the sustainability of operations.

This new business model, which we call “micro-multinational”, blends the flexibility and the agility of the smaller companies with the ambition and the agility of corporations, which is today within the reach of smaller businesses through the digital transformation of their processes. We believe that model and that attitude are also within the reach of so many other companies in the country that present similar techniques, but which are limited in their growth by a castrating ownership and management model.

With this in mind, we believe it is possible to revitalise so many other medium-based Portuguese industrial businesses, based on the capacities of a new generation of local entrepreneurs, on the excellent infrastructures that the country offers, on supportive boards, on the available financing and on the growing appetite for innovation and creativity that the country is demonstrating in other areas of activity.

To realise this potential, we need a new industrial ecology that enables us to continuously train our technicians, improve the capacity management of smaller companies and increase institutional competitiveness. And to improve the competitiveness of their products, it is necessary for companies to evolve to a cheaper energy model, which are currently very harsh when compared to their international peers. It is also vital to create a collaborative ecosystem between businesses and universities, which privilege the collective values over the individuality that predominates today.

Portugal has the conditions to experience a golden era in the industrial sector as well, abandoning the eternal infancy of companies today with renewed industrial muscle based on professionalism, technology and information.

A shiny future could await us, founded on renewed ambition and the conviction in our abilities to recover the country’s economic sovereignty through industrial excellence. On my side, I will continue to feed my optimism and my confidence in this model: while I have a 1% chance of replicating the formula we have established at Fapajal, I will continue to invest 99% of my energy and my faith in this country’s industrial SMEs.