Porto shows that it's not just a pretty place

Although tourism and real estate have become very significant parts of Porto’s economy, other sectors are flourishing due to the city’s many specialisms, its talented workforce and its experience in R&D.

“The business boom we’re experiencing today is on the same level as tourism, so if we had a problem with tourism, business would stand up to the challenge”, says Tiago Violas Ferreira, CEO of Violas Ferreira, a Portuguese real estate company.

Numbers talk

Indeed, Porto broke records in 2018. For one, foreign investment hit a 15-year high in the city’s administrative region, with 13 projects valued at $210m in sectors outside of tourism and real estate, according to greenfield investment monitor fDi Markets.

Only four years before, the city was mired with low and stagnant FDI flows due to the financial downfall that hit Portugal between 2009 and 2015.

Porto’s business revival is also demonstrated by the variety of
companies that have risen to prominence in recent years. Most notable is Farfetch, an online fashion vendor and the first Portuguese company to reach a value of $1bn and thus become the country’s first tech
‘unicorn’. Founded in Porto, it now employs 3000 people worldwide.

It is in this environment that the number of businesses established in Porto has increased by 52% since 2014, with 2340 companies established in 2018, according to the National Statistics Bureau of Portugal

Old and new

Thriving business is not new to Porto, however. “Our DNA is one of business people, manufacturers, [industrialists] and traders. So, there’s a strong and long entrepreneurial background to the city," says Rui Coutinho, executive director of the Center for Business Innovation at Porto Business School.

Portugal’s manufacturing industry is experiencing a rebirth, especially in the Porto region, which is home to a sizeable chunk of the country’s manufacturers. Within the city, industrial knowhow is embracing innovation and the opportunities of Industry 4.0, according to Mr Coutinho.

The city’s traditional manufacturers – in shoes, clothes, cork and ceramics – are innovating. For example, Olympic grade swimsuits, such as those worn by Olympic legend Michael Phelps, were researched, developed and manufactured in the Porto region by Petratex.

Historically, foreign investment in the Porto region took the form of blue-collar factories from Ikea, Continental and Bosch. However, more recently, these companies have upgraded to technological development, creating some of the most innovative centres within their sectors, according to Mr Coutinho.

Newcomers have followed suit, with Amsterdam-based stock exchange operator Euronext relocating its technological back office from Belfast to Porto. In 2017, Danish wind turbine developer Vestas created a research and innovation centre in Porto. Then, in 2018, BMW opened in Porto after partnering with local tech start-up Critical Software to set up an innovation centre.

“The talent of postgraduates [in the Porto region] is impressive. The cost of labour is equal to or less than that in Belfast”, says Stephane Boujnah, CEO of the managing board of Euronext.

Knowledge hub

Porto’s educational excellence is generated by the city’s world-class universities and research centres. Indeed, the University of Porto is Portugal’s highest ranked institution, according to the QS World University Rankings 2018.

Porto has the highest number of students in higher education in Portugal thanks to its aforementioned University of Porto and other institutions such as Porto Polytechnic, Porto Business School and the Catholic University.

With specialisms in engineering, medicine and computer science, Porto’s metropolitan area houses 9000 researchers in its 200 R&D institutions, such as the first Fraunhofer Institution outside of Germany, and the Institute for Research and Innovation in Health, which is focused upon finding tech solutions to cancer.

This ecosystem has been facilitated by Porto’s strong links between business, government and education.

Meanwhile, Portugal ranks 12th in Europe for the quality of its scientific research, according to the World Economic Forum’s Global Competitiveness Report 2017/18.

Check the tech

From Porto’s pool of talent has risen a flourishing tech scene. Indeed, the city was awarded the ‘Best Start-up Friendly City of Europe’ title in the World Excellence Awards 2018, and Porto files more patents with the EU than any other Portuguese metropolis.

For this reason, the city is home to the country's leading hi-tech companies and start-ups, such as Farfetch, BLIP, Critical Software, Feedzai, Talkdesk and Veniam. The latter develops ‘Internet of Moving Things’ solutions. It is responsible for the development of the world's largest network of connected vehicles in Porto.

Spinning off from the University of Porto in 2012, Veniam is now backed by Zipcar and headquartered in California. However, the company maintains its engineering team in Porto, where it feeds into the region’s automotive industry.

Veniam recognised Porto as a good test bed for global markets, according to Mr Coutinho. “The most successful start-ups and foreign investments in Porto are tech-based, not in tourism, because we’ve got the talent, business knowhow and quality of life, and Porto’s manufacturing side is demanding this technology,” he says.

Joining the party

International investors are also recognising Porto’s tech attractions. French bank Natixis created its first foreign technology centre in Porto in 2017, employing more than 500 people. Similarly, Chinese agrofood company Cofco recently established a large technological development centre in Porto, while US biotech company Amaris is setting up a research centre in partnership with the city’s Catholic University.

“In recent years, Porto has become a very competitive location in the tech scene, thanks to its universities and the [level] of young, international talent here. The city is experiencing a boom,” says Jens Pape, CTO of Xing SE, a German social networking site.

Porto’s multilingual and tech-savvy talent has also attracted foreign investors, such as BNP Paribas and Adidas, to the city’s shared services sector. Indeed, Portugal’s geographic location has made the country one of the most relevant nearshore centres in Europe.

The big picture, therefore, is positive for Porto’s foreign investment climate. However, could the country do more to attract FDI?

“Porto’s mayor is simplifying business processes [as much as possible], but bureaucratic red tape, an uncompetitive tax system and a public sector-focused mentality are all part of Portugal’s structural problem: it’s a heavily centralised country [under] Lisbon,” says Mr Coutinho.

Nonetheless, as Portugal's economy continues to rebound and attract further FDI, these issues are likely to be addressed. For example, the national government recently legislated real estate investment trusts, tax-efficient property vehicles in keeping with other European member states, thereby assisting UK-headquartered Round Hill Capital with its €250m real estate investment in Portugal in 2018, according to Peter Holden, group development director of the company.