Luís Castro Henriques Chairman & CEO of AICEP
In 2018 there will be several high-level bilateral visits between Portugal and China. These visits confirm the importance our two countries attach to one another and give us the opportunity to deepen our strategic cooperation. Next year, Portugal and China will celebrate the 40th anniversary of the establishment of diplomatic relations, yet exchanges between our two peoples go back to more than 500 years, at a time when Portuguese sailors and merchants had a prominent role in the trade between China and Europe. Since then, Portugal and China have maintained a friendly and peaceful relationship built on trust and mutual understanding.
In the past 10 years, economic relations have experienced a remarkable boost. Chinese companies invested and developed partnerships in areas such as utilities, renewable energies, finance, insurance, healthcare, among many other sectors, making important contributions to the Portuguese economy and highlighting the role of Portugal as platform for both Europe and the Portuguese Speaking Countries (CPLP).
According to the most recent information, we expect new projects to be announced soon. I am very confident that, in the upcoming months, more and more competitive and experienced Chinese companies will come to understand the advantage of establishing operations in Portugal. AICEP – Portuguese Trade & Investment Agency – will support their investments before and after their decision.
In a time of significant changes in the World economy, to which both China and Portugal respond by further promoting globalization, multiple international fora and initiatives are providing our companies with more opportunities for cooperation. A new chapter of our bilateral economic relations will be written over new joint projects not only in Portugal, but also in third markets. Chinese companies are becoming increasingly globalized and learning quickly with their experience in overseas markets. As some have built factories in Europe, gradually we see a shift towards new investment strategies.
When asked about opportunities in Portugal, one must say that automotive manufacturing is a sector of undeniable potential. Furthermore, it is also one of the most relevant for the trade relation between Portugal and China. Vehicles and other transportation materials are the largest category of Portuguese exports to China, accounting for 34.2% of total exports. According to Portuguese Statistics, exports of light passenger vehicles to China in 2017 were worth EUR 280.2 million, recording a remarkable growth of nearly 98% from 2016.
For roughly 70 years, the auto industry in Portugal has received foreign investment and it remains a top target industry for investors. Portugal offers important advantages which are highly valued by foreign investors, including those from China seeking to innovate and compete internationally:
1. Strong support from the Portuguese authorities, namely AICEP. Note that the Portuguese Government is among the most supportive towards foreign investment and its work has been often praised by Chinese investors. Several reforms and policies have contributed to improve significantly Portugal’s business environment and boost technological development. In the past, investment incentives have been granted to hundreds of productive and R&D projects developed by companies established in Portugal, aiming towards adding value to the Portuguese economy, introducing new production processes or products, creating highly-qualified jobs and increasing exports. Current incentives plan offers interest-free financing, cash grants and tax incentives;
2. Competitive talent: world class science and university system and multi-language skills. Automotive manufacturers in Portugal acknowledge the value of local resources, both regarding an experienced supplier base and competitive and flexible labour skills. In the past decades, our suppliers developed the ability to customize solutions and respond to the strictest quality requirements of car manufacturers worldwide. Of course, availability of highly qualified engineers and cooperation with world-class technological and research centres are fundamental factors in this equation.
3. Strategic location being a platform for both Europe (500 million consumers) and the CPLP (250 million). Portugal’s strategic location and one of Europe’s most developed infrastructure network make the country an ideal place to access the European market, as well as markets in the American and the African continents;
4. High quality infrastructures, namely ICT and logistics. For three consecutive years, Portugal ranked first regarding conditions of trade across borders, according to World Bank’s Doing Business Report. In fact, 96% of vehicles produced in Portugal are sold in overseas markets;
5. Pleasant and safe country to live in. According to the Global Peace Index Portugal is the 4th safest country in the world in terms of security and social peace.
For these and other reasons, foreign investment has been continuously growing in the past years. Automotive companies have renewed their trust in Portugal’s economic capabilities by investing in expansion and construction of production plants. New industrial projects in automotive industry supported by AICEP-managed incentives since 2015 were worth EUR 626.51 million. Over 95% of these projects were invested by foreign-owned companies.
Not only we have seen growth in volume, but also an upgrade to more technology-intensive activities, shifting from low costs-based to more added-value strategies. We are also attracting to Portugal many Shared Service Centres more and more sophisticated, especially in the auto sector.
For instance, Bosch has recently opened in Braga a new technology centre for the development of sensors and software functions for automated driving. Bosch has a longstanding research partnership with the local University of Minho, one of the country’s top universities. In 2017, Mercedes-Benz has opened its first global digital delivery hub in Lisbon
where the company wishes to drive its future digital transformation from premium automobile manufacturer to premium mobility service provider. A few months ago, the Volkswagen Group also opened a software development centre for Volkswagen Group IT and MAN Truck & Bus AG, this centre will work on the development of cloud-based software solutions for the further digitalization of corporate processes within the Group and for the connected vehicle. More recently, the BMW Group announced the creation of a joint venture with the Portuguese company, CRITICAL Software, called Critical TechWorks, in which they will combine their expertise in automotive software engineering, focusing on areas relating to in-car systems and the digitalisation of corporate processes.
We believe that, for Chinese auto manufacturers seeking to develop operations overseas, Portugal is your next location. You will be able to produce with the World’s highest quality standards, hire outstanding engineers and partner with companies experienced in international markets, while taking part in a single-market with millions of consumers and opportunities. Welcome to Portugal!
Outlook of Portugal’s Auto Industry
The history of the automotive industry in Portugal goes back to the 1940s, with the production of chassis and elementary parts. In the past 70 years, it evolved from very basic manufacturing processes and products to an experienced and internationally competitive industry. The auto sector has integrated advanced technology and is able to respond to the most sophisticated requirements.
Nowadays, the World’s most renowned auto brands from luxury to mid-segment vehicles procure in Portugal a wide range of parts and components. Components industry makes roughly 85% turnover out of exports, with a widespread client base across Spain, Germany, France, the UK and other European countries. In fact, most of vehicles produced in Europe have components made in Portugal. It has been experiencing a remarkable growth, with turnover and exports increasing 10% and 12% respectively in 2017.
More than 220 car parts manufacturers located in the country make 60% of their sales turnover out of metal parts and electronic and electrical parts. Production of other car parts such as plastics, rubber and other composites, textiles and coatings are also relevant in Portugal.
Auto components manufacturers perform an important role not only relatively to trade, but also by contributing significantly to research and development.
Portuguese companies have accomplished world-level advancements in fields such as multimedia components, electric vehicle charging, new composites and materials for interiors, and environment-friendly and sustainable technologies.
The development of the car parts industry in Portugal goes along with the growth of the auto industry in the Iberian Peninsula, which represents Europe’s second largest car manufacturing region and the number one in light commercial vehicles. Four vehicle manufacturing plants of foreign ownership and a Portuguese bus plant are located in Portugal. In 2017, these five OEMs produced roughly 180 thousand vehicles, including light vehicles, commercial vehicles, trucks and buses. In addition to production, investment in research & development has enabled manufacturers to keep up with market trends, namely on the electric and hybrid segments. Electrical buses and trucks produced in Portugal can already be found in European countries. Source: China Investment