Survey reveals some insights into the U.S. corporate experience in Portugal - Portugal: Gateway to Europe

Business America, May 20, 1991

There are about 120 American firms (those with 51 percent or more American equity participation) in Portugal. More than half are manufacturing firms such as Merck Sharp & Dohme, General Electric, Black & Decker, 3M, Gillette, Colgate-Palmolive, Schering, Heinz, etc. To gauge their experience in Portugal, the U.S. and Foreign Commercial Service asked these manufacturing firms to reply to a survey reproduced below.

To add a "human" dimension to the figures, it also asked three companies--Texas Instruments, IBM, and Ford--to report in more detail on their experiences.

The survey was sent to 61 American manufacturing firms in Portugal, and 28 responded. The survey, reproduced below, shows how many firms picked a particular value for a given question, by showing the number of firms at that value. For example, in the third question, three companies chose a value at position four.

1. Does your firm manufacture its products in Portugal or import from other international corporate sources for sale in Portugal?

Note: Please continue with survey only if your firm has manufacturing facilities in Portugal. Circle appropriate opinion value.

2. Is the decision to invest in a manufacturing facility in Portugal yielding satisfactory results?

3. Is your output directed principally at the Portuguese market or the EC market as a whole?

4. Have you found Portuguese government investment facilitating agencies, such as ICEP, and incentive programs, such as PEDIP, tax holidays, and training subsidies, to be significant factors in your decision to invest in Portugal?

5. Once established as an operating concern in Portugal, did you find government regulations--and their administration--to be clear, fairly administered, and expeditious in their processing?

Some Conclusions

One-third of "manufacturing" firms in fact import from other EC-sources for sale in Portugal. Another third use Portugal as a source to supply other EC markets. The remaining third manufacture for the Portuguese market. A first generalization readily emerges: most American manufacturing firms with a presence in Portugal regard the country as an integral part of an overall EC manufacturing strategy.

A closer examination of the replies reveals a related observation: those firms which manufacture in Portugal for export to the EC (question 3) tend to be the same as those who gave positive answers for questions 4 and 5. Those firms directed only at the Portuguese market tend to answer 4 and 5 at the other extreme. A second broader generalization can be concluded from these observations: those American firms that have decided to use Portugal as a manufacturing base within their EC manufacturing strategy find government incentives significant and government regulations fair. Those aiming only at the Portuguese market do not.

However, the most important generalization is how both EC- and Portugal-directed American manufacturers found their overall experience in Portugal (question 2)--overwhelmingly, it is highly satisfactory.

Texas Instruments

In 1973, Texas Instruments (TI) began a semiconductor assembly and test facility in Portugal in order to add manufacturing capacity to serve the European market for integrated circuits. Other locations were considered, from Ireland to Turkey, but the good labor availability, low wages, financial incentives, and locations made Portugal the better choice.

TI has found that the Portuguese people have been a great asset to the company. Production volume has grown 16 times since the facility first opened, and its European distribution center has become the "benchmark" performer in the company in just two years of operation. The flexibility of the Portuguese people to adapt to changing methods and philosophies of work has been key to the progress that TI has made. TI believes it is making progress that will impact all of Portugal. Realistically, there will be some difficulties. The level of education in Portugal is not as high as in other European countries. TI has supported education among its workforce and the people have responded.

There are labor shortages in some areas, such as certain engineering fields. Also, the gap between the labor rates in Portugal and other parts of Europe is closing. TI employees are aware of this and are making productivity gains that will be needed to stay competitive. The people are excited about the changes in Europe and their roles in this process. The continued government support and responsiveness continues to make Portugal a great location for TI in Europe.

Ford Motor Company

Ford Motor Company chose Portugal as the site for its new automobile radio manufacturing plant, an investment of some $140 million. It begins operations in the summer of 1991. Two other projects in the works are a $70 million plant for ignition systems and, the most ambitious, a joint $2.4 billion investment with Volkswagen for a European minivan.

Ford's decision to place the radio manufacturing plant was difficult given alternate, and attractive, sites in the European Community, but deciding factors were lower labor costs and an industrial infrastructure adequate to support the project. Easy access to EC markets and government incentives also tilted the final decision in Portugal's favor. Training the 1,700 persons Ford intends to hire is an important concern for the company, but the training center in the industrial zone of Setubal is assisting by giving the potential employees basic courses in industrial manufacturing.