Portuguese business needs to get productive

Paul Evans who represents the Global Talent Competitiveness Index has recently been sharing his views on what Portugal needs to do to pull itself up through the rankings from its lowly position of 33rd in the world league table and make the economy more productive. His key finding was that management in Portuguese firms has not been adept at nurturing and retaining talent and indeed this is all to apparent to anyone who has spent any time working with Portuguese businesses.

It is worth remembering that Portugal has only had a capitalist free market since 1974 (when democracy was reestablished), so there is not a deep seated culture of free enterprise; as a result there are few firms that have been passed down over many generations and most of the publicly listed firms are relatively young. So many businesses are in an early stage of development, with the vast majority being small or medium sized and still dominated by the first or second generation of the family that first set them up. This can mean that there is a lack of professionalism in management as the skills that were needed to first set up a business can be very different to those needed to manage a larger business.

1974 revolution in Portugal

Paul Evans’ research supports what many have identified as a key failing in Portuguese businesses: that Portuguese managers typically fail to delegate responsibility down through firms and as a result employees do not fulfill their potential, because they are not given the chance to prove what they can do and learn through pushing themselves beyond what they were initially trained to do. This fosters an undynamic business culture within a firm, with the business owner having to make too many decisions at the top of a stratified management structure and too few ideas rising up from the shop-floor. To try an compensate for this, the Portuguese Government has provided funding for training programs to make the workforce more qualified, but what Evans says is missing is a culture of learning by doing and trial and error, which is typically much more valuable than formal training programs in boosting productivity.

So Portugal is being held back not by its workforce, but by its management; the corporate ecosystem is still dominated by family firms reluctant to cede decision making powers to employees and as a result these businesses reach a certain size and then meet a series of challenges they are unable to confront because of a monolithic management structure.

For foreign firms looking to establish production in Portugal, this failure represents an enormous opportunity however, because they can bring with them modern management techniques that disperse authority down through the chain of command and encourage employees to grow and contribute more, to help make a very successful business. There is no shortage of foreign companies that have done just this, led by German firms such as Continental, BASF, AEG, Gruhe, Siemens, Volkswagen and Leica that have very productive production facilities in Portugal, where they have combined dynamic management with generous European subsidies (which are still available for foreign companies investing in Portugal) and a hard-working, low cost workforce desperately in need of leadership. The hope for Portugal is that these best practices will gradually filter through to Portuguese businesses, but this kind of change is going to take a while….