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António Rios Amorim: The Competitiveness Challenges of Portuguese Companies in International Markets

Portugal 10/7/2020

Challenging times require extraordinary responses, capable of engendering confidence, vision and creativity. António Rios de Amorim, Corticeira Amorim’s Chairman and CEO, was one of the guests invited to contribute to the book “Esperança e Reinvenção: Ideias para o Portugal do Futuro” (Hope and Reinvention: Ideas for Portugal’s Future) that includes various testimonies by outstanding personalities from the Portuguese business, economic and academic worlds about the unprecedented current situation and how to overcome the difficulties and define solutions that will offer the best response to challenges on the horizon. We publish his contribution in full, entitled “The Competitiveness Challenges of Portuguese Companies in International Markets”, in the book that includes a foreword by the President of the Portuguese Republic.

I. Any crisis is a great opportunity in its own right

Throughout history, great advances have occurred after great catastrophes.

The benefit of hindsight is normally needed to confirm such a statement, but overcoming challenges enables us to advance with even greater vigour and determination, capable of triggering a new period of growth and value creation.

Crises constitute moments of reflection, adjustment and, above all, pragmatism: pending decisions or those put on hold have to be taken; plans that were postponed or require validation suddenly become more evident; and the search for alternatives and more creative solutions broadens the available options and relaunches new horizons.

How, at such a critical moment, can we create a new spirit of hope?

This begins with having confidence in ourselves. We must think, discuss, plan carefully, implement projects with determination and create trust in citizens, workers and society.

Portugal must resume its activities and create conditions that may deliver yet another opportunity to affirm our identity, capacity and, above all, our self-esteem.

The Portuguese people have a strong character and are better prepared every day. We progressively receive fresh praise and growing admiration from others.

We need to have more confidence in who we are and use our talent for adaptability and flexibility to build advantages. In short, we require firmer intentions and, above all, greater ambition.

Portugal, to date, has adequately managed all the problems posed by the current pandemic. History books will assess the level of efficient public health management - and our profound regret for the lives that have been lost. Unfortunately, one of the immediate consequences is the inevitable economic damage. International perception of our management of the health crisis is clearly positive. We must therefore take advantage of this moment to leverage what we do best, and reaffirm the brand of Portugal.

I. The world is increasingly «small», but the scope of our activities must be increasingly large

Thinking about a company solely for the domestic market doesn’t reveal much ambition. Any business project must consider the potential to be scaled to a truly global dimension. If we do not make a commitment to large-scale Portuguese projects and if we continue to criticise success, we will lose any relevant national decision centres and become dependent, for everything, on external bodies.

Ensuring that Portugal stood at the forefront of the industrialisation of cork was one of Américo Amorim’s principal goals. From an early age, he showed his determination to expand Portugal's cork manufacturing base, competing aggressively with competitors who were already solidly established in the world market. He did so by taking our products to all parts of the world. "Our market is the world" we often heard him say, together with his motto - "Not just one market, not just one client, not just one currency, and not just one product". This allowed him to resist attacks from competitors who were much more powerful and had been operating for much longer in our strategic growth markets.

Exports are extremely important, since they offer access to markets that have great potential, facilitate innovation and enable companies to introduce processes and systems that would otherwise take much longer to implement. They also foster a multicultural relationship and knowledge of various behaviours and attitudes.

Exporting is therefore an obligation, whether in terms of tradable goods or services. Most companies understood this reality much better after the 2008/2012 economic crisis, which started out as an international crisis and later became a domestic crisis.

The international context is now bound to change: the free movement of people, goods and capital, as we have known it, will slow down. The 2008 financial crisis, the Chinese-American trade war, which led to customs tariffs on both sides, the recent closing of borders and the strengthening of self-sufficiency will reverse the process of globalization, on which the growth of world trade has been based until now. A more fractional world is the most likely prospect for the immediate future.

II. Prioritise and implement actions with impact on companies in the short and medium term

The greatest current difficulty is that it is not possible to anticipate the longevity of the current crisis and, precisely for that reason, it is particularly difficult to articulate the necessary measures to relaunch the economy. The uncertainty, complexity and ambiguity of the future economic context will certainly be more difficult.

In terms of what depends on us, we must develop short term measures and support, some of which have already been launched by the Government, which will dramatically increase liquidity and ensure the survival of many companies and thereby safeguard thousands of jobs. In a second phase, we must make competitive lines of credit available to launch the economic recovery. It is essential to be close to advisory and support services for SMEs to take advantage of the measures that have been created for their survival and relaunch.

In commercial terms, at such a difficult time, we cannot excessively theorise about the opportunities. There are no moral victories, only orders that enable production lines to remain active and workers with a proper occupation. Therefore, there is an urgent need for the greatest possible pragmatism and speed in such decisions. It is imperative to ensure that tomorrow isn’t worse than today.

In terms of incentives, we must focus on support mechanisms that will boost efficiency, increase productivity and introduce technology that, in the long run, will increase competitiveness and, consequently, improve performance thereby resulting in greater investment and growth. This is particularly important for 2020 and 2021, years in which all companies will adjust their investment downwards. The reinforcement of support and incentives, in order to cover a greater proportion of the investment, will make it possible to accelerate decisions that would otherwise only be taken much later. Extraordinary circumstances require exceptional measures, and time is of the essence.

But, clearly, this survival goal also involves a great deal of homework, in order to emerge from this crisis even stronger.

For all these reasons, we should envisage an action plan that focuses on eight main topics, orientated by a national objective of appreciably increasing the proportion of exports in Portugal’s GDP:

  1. Use of online resources as a way to identify new businesses, promote our products and ensure articulated access to our traditional network of direct customers;
  2. Promotion of Portugal abroad;
  3. Encouraging internationalisation;
  4. Innovation;
  5. Competitiveness;
  6. Ensuring a suitable size of companies;
  7. Talent development and retention;
  8. Sustainability.

 

1. Use of online resources as a way to identify new businesses, promote our products and ensure articulated access to our traditional network of direct customers

The cancelled trade fairs and postponed client prospecting trips will be replaced, at lower costs, by the use of digital media, by larger databases and, above all, by new business possibilities facilitated by online market intelligence.

In fact, understanding and taking advantage of the economy’s accelerated digitalisation is a crucial point in preparing organisations for the so-called "new normal". We have systems that collect and store data every second, down to the tiniest action. We must know how to transform such data into prospective knowledge of our customers, markets and competitors, and anticipate consumption trends, open new distribution channels and create personalised offers. We can thereby have access to more and better customers worldwide. We should therefore develop this model with greater ambition.

Higher margins are required to enable greater investment in the promotion of our products, especially in social and digital networks. We will be directly responsible for promoting our products, and our distributors can gain a great deal from this: implementing all the logistics and extensive distribution structures; ensuring an adequate sales margin; and, thereby, ensuring the continuity of their business within the existing market.

2. Promotion of Portugal abroad

We have to conduct promotion and campaigns with the main markets, with the certainty that distribution networks will make the product available when these campaigns go live, and thereby ensuring that e commercial advantages are not lost.
All markets with strong purchasing power should be a priority, clearly identifying the countries where economic growth and consumption will help expand our activity.

The level of exports to countries such as the USA, is very insignificant. Especially since we’re talking about the world’s biggest largest market, where everything is on a large scale and opportunities are huge. This market has to be a national goal. It has dimension, purchasing power and financial capacity. Our approach to this market must be a high priority for all sectors. It is a market that is difficult to enter, due to its size and scale, but we can capitalise on our existing connections, good public image and our ability to adapt. For the market penetration to be faster and more assertive, there will have to be support for the establishment or consolidation of partnerships.

Asia is another key goal, although this is even more difficult, given the industrial base that already exists in some Asian countries.
The instruments to be used are as follows:

  • a) partnerships with AICEP and sector associations to launch campaigns to promote export sectors;
  • b) support the installation of commercial teams in the main consumer markets (e.g. USA) or create incentives for the establishment of joint ventures or acquisition of companies abroad;
  • c) promote the brand of Portugal internationally.

3. Encouraging internationalisation

The first step towards internationalisation normally depends on exports. This is the fastest route, requires fewer resources and facilitates tremendous occupancy of teams. But this is just an initial phase in a more comprehensive process that, I believe, still has to be implemented in most of Portugal’s SMEs. The initial way to gain access to markets is through agents or distributors. I believe that, with time and with some dimension, we will have to relocate our sales teams to the biggest markets.

It must be possible to create companies abroad that can serve as a platform for the distribution of our products. The obligation is to implement this transition in a staggered way over time and ensure that the parent company's balance sheet can withstand several years of losses until results appear.

Alternatively, to accelerate market entry, it is possible to consider acquisitions or joint ventures with existing operators. Managing an international business poses a high degree of difficulty and risk, so it is crucial to prepare these operations carefully.

Greater proximity to customers will give access to more opportunities, to a more extensive and differentiated relationship and, above all, accelerate the innovation process that will enable us to adapt our product and technology development to market needs.

At a time such as the present outlook, we must go on the offensive. It is imperative to create incentives that will enable companies to increase their capital resources and above all support the goal of internationalisation or, at the very least, create the fundamental sales networks abroad.

4. Innovation

It is important to stress that proximity to customers not only enables greater customer loyalty and greater speed of action, it also makes it possible to anticipate and develop solutions for these customers, thereby generating a far more robust innovation process.

Along the way, there must be many changes in attitude, and even inversion of orientations, that are either the result of commitments established with countless customers, or the dimension that certain products competing with our own products have gained in decisive markets.

Our focus on R&D has enabled us to seek out and develop new cork products, improve the performance of many existing solutions, and achieve greater dynamism when looking for new applications for cork. All of this is supported by a unique, natural and renewable raw material, unmatched in terms of its ecological and sustainability credentials.

The establishment of partnerships with Portuguese and international universities, laboratories and research centres enables us to gain hope and show the market our homework, not only in terms of technical credibility, but, above all, our scientific rigour.

5. Competitiveness

In-house analysis of opportunities for the improvement and simplification of processes should be launched, including clues for cost optimisation, elimination of waste and reduction of invested capital. These measures must be accelerated at times such as the present, since it is important not only to question everything to survive, but also be able to continue with an even greater dynamic.

Commitment to technology is a fundamental goal for all companies, and Industry 4.0 cannot be a reality solely for very sophisticated sectors. It constitutes an opportunity for all industries. Having real time access to reliable business information enables faster action and speedier correction of deviations, which can greatly reduce the cost of our products.

For example, China, which had an initial advantage in terms of low labour costs, now primarily stands out for the speed with which it makes everything happen and then presents itself to the market. I like to say, that in China one minute only lasts 15 seconds…

6. Ensuring a suitable scale for companies

The size of companies in Portugal is a limiting growth mfactor. Let’s begin by placing the concept of a large company into perspective: today, amongst our PSI 18 companies, only a handful have an international dimension. All the others are monitored by research teams of small / mid caps on a European scale. We must have more industry champions, world leaders and global companies.

In other countries, it has been venture capital companies or private equity firms that have consolidated entire sectors and given them breadth, scale and dimension. Along with technological developments in the world, easier access to capital by all these colossal private equity firms has structurally refounded certain sectors and activities. Their modus operandi seems to be extremely simple. And they have been very successful because they are indifferent to any public or political background noise. This formula gives them much higher performance-related flexibility.

I think that in more traditional companies - where there is often a strong family component - such pragmatism is needed. It can sometimes be too radical, but, in most cases, it eliminates inefficiencies, fosters business development and creates value. There is no need to sell the company to enable someone else to do the work that we could have done.

Large companies will have to connect with smaller ones, creating new dynamics in internal supply chains, allowing more Portuguese companies to be linked to this national objective.

7. Talent development and retention

Portugal is a country that is rich in talent. But there is an urgent need to consolidate an ecosystem which will foster talent formation and retention: bringing the academic world closer to companies and organisations, integrating students into the business world as early as possible. Corticeira Amorim's success in the development of new products and new technologies resulted from this collaborative work with the scientific community and R&D partnerships with the existing competences in universities and research centres, hence the necessary response to be presented to the markets.

Knowledge, formal skills and motivation are the cornerstone of any organisation's creativity, innovation and vision. We must ensure that our talented young people find opportunities for growth and appreciation in Portugal. Companies need them!

Over recent months, we have seen the fundamental role played by human resources in ensuring the viability of the business activity of many companies. We therefore have to face new approaches to work: flexibility that also values striking the right balance between family and professional life.

8. Sustainability

There is no memory of another event that has so clearly and profoundly exposed the vulnerability of our economic and social systems. Nor can we remember a comparable unexpected event of nature that has such a tremendous ability to spread. And there is no parallel for the dramatic impacts that this pandemic has already had, and will have, at all levels.

Associated with this urgent goal of “resuming activity, preserving employment, creating new jobs and generating wealth for all”, the second part of the equation (which we know very well at Corticeira Amorim!) is to be “in harmony with nature”.

We must grow by ensuring everyone’s safety and well-being, the efficient management of natural resources, the protection of the balance of ecosystems and the circularity of processes and the economy, moving towards a sustainable development model and a more cohesive society, that is conscious and prepared to face the challenges ahead with ambition and tenacity.

III. Resilience

There is a widespread awareness that we must be better prepared for the next crisis.

It is crucial to be resilient and not fail in the face of public opinion or in light of the more complacent attitudes of many people around us. We must fight and maintain all businesses with unwavering determination and a very high competitive capacity, since opportunities always exist. We must be positive and never give up.

However, and assuming that we are going to overcome this crisis, that has devastating effects, we must now prepare our companies so that we can emerge from this crisis with even more energy and strength than before. And with even greater ambition, because, when we overcome the virus and the economic crisis, we will only have more reasons to feel confident!

IV. Conclusion

Over the last few years, Portugal has been reaping the results of a series of good decisions that have shown that we can achieve excellence, when we combine inevitability with experience, planning and ambition. In addition, we systematically listen to the praise from the most diverse areas, whether economic, political or social. We only have to remember the first budget surplus in the history of Portuguese democracy, the sustained increase in national exports, the gradual fall in unemployment rates, the increase in the confidence of business agents or the dizzying growth of activities such as tourism.

Such good news results from the efforts, boldness and entrepreneurship of a nation that boldly faces adversity. This is a way of being - and a way of doing - but, above all, a way of life, once again confirmed through our collective response to the pandemic. One only has to look at the behaviour of our National Health Service, the conversion of many businesses or the spirit of contagious solidarity among citizens. We have all the necessary ingredients to transform this traumatic situation into an additional advantage, when compared to many people with whom we often like to compare ourselves.

In fact, talent, if well oriented, can only create value, and there is a great deal of good talent in Portugal. Therefore, we must awaken all these assets of confidence, self-esteem and optimism, because we have the ability. Or, as the President of the Republic recently said: "the Portuguese are the best of the best in the world". Let us continue this journey with greater scale, energy, firmness, will and ambition, building success that everyone can identify with, and of which everyone is proud.

António Rios Amorim