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Doing Business in Portugal

Market Overview

Mainland Portugal, along with the autonomous island regions of the Azores and Madeira, offers American exporters a market of approximately 10.6 million people in a country roughly the size of the State of Indiana. As a member of the European Union (EU) and the euro zone, it is fully integrated with the EU, uses the euro currency, and follows directives from the European Commission in Brussels. As with all EU countries, Portugal’s borders and ports are completely open to the free flow of trade with other EU member countries. Portugal has a politically stable environment with a democratically elected parliamentary government and is welcoming of foreign business and investment.

Portugal’s GDP per capita is €15,600 (2012), and its language is the 6th most widely spoken in the world. The country retains close political and economic relations with its former colonies, which are spread throughout Africa, Asia, and South America. However, against a backdrop of slow recovery from the global recession, the Portuguese economy contracted by 3.2% in 2012, following a 1.6% contraction in 2011, according to the Bank of Portugal. The government forecasts further contraction in 2013. The government has been implementing austerity measures under a three-year (2011-2014) bailout program with the Troika (ECB/IMF/EC) to reduce Portugal’s budget deficit to 3% of GDP by 2015, in line with the EU’s limit. With the government’s focus on deficit control and fiscal consolidation, public investment projects have been impacted.

The government remains committed to attracting FDI, expanding trade with South America, Africa, and Asia, and focusing on niche sectors of the economy such as tourism, renewable energy, high quality industrial components, technology services, and value-added agricultural products. U.S. Census data indicates that Portuguese consumers bought approximately $1.1 billion dollars worth of U.S. goods and services in 2012. During that same period, U.S. imports of Portuguese goods and services totaled over $2.61 billion, up from $2.14 billion in 2010. The top U.S. states exporting to Portugal were Texas, New Hampshire, California, Ohio, New Jersey, Wisconsin, Indiana, and New York. Top U.S. exports included computer and electronic products, industrial machinery, agricultural products, chemicals, and electrical equipment.

Although the United States ranks 8th among Portugal’s top export trading partners (2nd among non-EU countries), Portugal ranks 78th among U.S. export markets. However, the total amount of U.S. goods sold into Portugal is undoubtedly higher than the statistics reflect, as census data does not account for U.S. products imported into other EU countries and subsequently transported into Portugal for sale. It is common throughout the European Union for goods to be shipped to one EU location – often to take advantage of lower value added tax rates - and then to be distributed by ground transport to neighboring member state markets.

The United States continues to work closely with Portugal to find ways to expand and deepen two-way trade and investment to better reflect historically strong political, geo-strategic, and security ties between the two countries. Portugal’s continued drive to modernize and diversify its economy will offer possibilities for growth in U.S. trade and investment over the medium and long-term. Demand for high-quality, price-competitive U.S. products in Portugal is strong, and privatization of several large government-owned companies will provide additional opportunities for investment.

Market Challenges

American exporters also face competition in Portugal from savvy European competitors. European companies are already familiar with aspects of the business culture, financing, regulations, standards, etc. In addition, they do not face import tariffs that U.S. companies have to pay to get their products into Portugal. Some U.S. companies have also reported that they are now encountering Chinese competitors in Portugal.  In addition, Portugal still has one of the highest Value Added Tax (VAT) rates in Europe at 23%.

Market Opportunities

The current dollar/euro exchange rate continues to present an advantage for U.S. exporters to Portugal and other euro zone countries. A commonly held belief in Portugal is that U.S. products are high quality, but not competitive on price. All U.S. firms are advised to press their price advantage to break into the market and/or increase their market share.

The Portuguese market is larger than it may initially appear. While there are only 10.6 million people in Portugal, there are well over 230 million people who speak Portuguese worldwide. Former Portuguese colonies, including Macau, Mozambique, Angola and Brazil, have close business ties with Portugal. U.S. companies can often find avenues to these other markets through Portugal and, indeed, the Portuguese Business Promotion Agency (AICEP) is actively marketing the country as a “gateway” economy into third markets, particularly in Lusophone Africa.

Portugal is an excellent entry point or test market for U.S. firms looking to establish access into the EU. The country is politically stable; the crime rate is relatively low; the bilateral relationship is strong; English is widely spoken; and the population is very friendly toward Americans. Both physical and IT Infrastructure are well developed, and Portugal is still one of the lower commercial cost business environments in Western Europe.

Market Entry Strategy

First time exporters are urged to contact the nearest of over 100 U.S. Export Assistance Centers (USEAC). These USEACs are part of the worldwide network of U.S. Department of Commerce offices to support U.S. exporters. The U.S. Commercial Service in Portugal recommends that U.S. firms get acquainted with the Portuguese market through the standard market research reports we publish, and which are publicly available through the USEACs and the Internet. Companies that have already penetrated one EU country will have met the requirements for Portugal as well.

The quickest and best way to enter the Portuguese market is to work with a local partner. Both small and large U.S. exporters can benefit from finding the right person or group in Portugal who can provide advice and contacts. The U.S. Commercial Service office in Portugal, located in the U.S. Embassy in Lisbon, offers a variety of services to help U.S. firms find the information they need about the market and identify an agent, distributor or representative for their products or services.