Insight: Bangalore on Tagus? Portugal outsourcing gets reforms boost


When Nelson Craveiro lost his minimum wage job selling soft drinks last October due to Portugal's raging economic crisis, he dared not imagine that his fluent German would soon get him a better-paying job without the need to emigrate.

He now works at a call center helping German clients deal with holiday bookings around the globe. He earns 700 euros ($920) a month, 200 euros more than previously, plus bonuses, and the company covers his rent - a rare perk in Portugal.

Continue Reading Below

Many Portuguese still scoff at outsourcing as the lot of developing nations that destroys "real jobs" in the old world. But for Craveiro and thousands of others these jobs are a real, saving grace when unemployment is at a record 17.7 percent.

"The supervisor told me I'm doing very well and can have a longer contract soon. It's almost like there's no crisis," said Craveiro, 31, born and raised in Germany in a family of emigrants who returned to Portugal when he was 18.

The crisis is still there, but business process outsourcing (BPO) is showing signs of benefiting from Portugal's international bailout, which involves scaling back the public sector and improving its efficiency.

The country's outsourcing market grew 0.5 percent last year despite a 3.2 percent economic slump, should expand over 1 percent in 2013 - when GDP is set to shed 2.3 percent - and up to 3 percent in 2014, the International Data Corporation says.

Portugal still lags countries like Bulgaria, Ireland, Poland or Romania in luring BPO projects, but boasts strong language skills thanks to a long history of migration, good technical education and infrastructure as well as an attractive coastline.

It has also benefited from a "nearshoring" trend that brought many businesses closer to home from Asia - where the Philippines and China rival India's traditional global offshoring dominance - as well as BPO centralization in Europe.

Craveiro's employer, France's Teleperformance, is hiring locals and foreigners for its Portuguese arm that has grown 40 percent in 2012 and now employs 4,000, making it one of the fastest-growing firms in the recession-hit Iberian nation.

It is just one of the multinationals like Cisco Systems, Microsoft, Fujitsu, BNP Paribas, or Siemens, whose multi-lingual contact centers in Portugal serve clients all over the world in fields from computer technical support to credit recovery or healthcare.

Home-grown firms have also made strides abroad, including in booming former Portuguese colonies, Angola and Brazil.

Portugal Telecom is the main shareholder in Brazil's Contax - the leader in one of the world's hottest BPO markets. While such expansion does little directly to help Portugal employ more, it strengthens its companies during recession at home.


Reforms have already cut labor costs by about 10 percent in western Europe's poorest country, economists say, while living standards have been rising in countries like Romania and Poland. Wages are still lower in those two, but Portugal's gross average monthly wage of about 1,000 euros is a third of that in Ireland.

Luis Matias, Fujitsu head of global delivery recently promoted after heading Fujitsu in Portugal, says that in key aspects like quality and productivity Portugal beats its still more successful competitors from India to Poland.

"Staff rotation is only around 5 percent a year, and in India it's over 100 percent. So training costs are much lower here and the quality of service much better. You have cheaper labor costs than in northern Europe, but top quality," he said.

While it is still about 40 percent cheaper to operate out of Poland for Fujitsu mainly due to lower taxes, Matias says the Portuguese center is 30 percent more productive.

"We could use some help from the government in tax breaks or other incentives to be able to hire and invest more. If we solve that Portugal would be much, much more competitive," he said.

On April 23, the government promised just that - a significant cut in corporate tax rates as part of a wider range of incentives to drag the economy out of its worst recession since the 1970s.

The plan, yet to be presented to parliament, is particularly targeted at new export-oriented investment that creates jobs, which would help BPO firms that essentially export services and can provide work for those with technical and language skills.

Last year, Portugal posted its first surplus in combined trade of goods and services since the 1940s. The surplus, of 111 million euros, would have been impossible without outsourcing that makes up some 0.5 percent of GDP, or 890 million euros.


With India's BPO revenues at around 15 billion euros, a breakthrough into the major BPO league is all but impossible for Portugal unless the state becomes a major provider of outsourcing contracts, says Guilherme Ramos Pereira, general secretary of the Portuguese Outsourcing Association.

"That would give us the critical mass to grow, employ and export more. We could be the India of Europe in BPO," he said.

"The reforms do benefit our sector, there is a very positive evolution in labor legislation, but we still need to evangelize to get the state on board. More than ever, the state has to cut spending, generate efficiency and that's what our sector does."

The government plans 6 billion euros in spending cuts in 2013-16. That involves complex merging of municipalities, courts and hospitals where outsourcing firms could be called in to provide solutions, also partly absorbing some of the layoffs.

Portuguese firm SIBS Processos is already working with the government to digitalize official archives and free up thousands of square meters of prime locations that could be rented or sold, said Sergio Moraes, General Manager of SIBS Processos.

SIBS, which also offers ATM networking, cheque clearance and bill payment services, is also expanding abroad and has even made inroads into Portugal's key BPO rivals Poland and Romania.

"SIBS is a case study globally thanks to Portugal's single ATM network it set up. We now export this know-how," Moraes said, also citing countries like Angola, Mozambique and Nigeria.

Portugal Telecom says its expansion in Brazil has given it new muscle and know-how to further grow abroad and at home in what it sees as a "natural BPO growth trend in our economy".

Pedro Reis, head of state exports agency AICEP, said the government advertises Portugal's first-rate communications networks, attractive geographical position and the long coastline of Europe's southwesternmost country.

"The set of attractive characteristics is unique," said Joao Antonio Cardoso, local chief of Teleperformance. "And most importantly, there's an enormous number of people who have lived abroad and speak fluent French, English, German, Spanish."

The crisis also brought its advantages.

"A few years ago, we wouldn't have been able to come near these premises rent-wise," Cardoso said of the company's new offices in Lisbon's bustling Expo complex by the Tagus, the Iberian peninsula's longest river.

"Now we've got two buildings here."

(Additional reporting by Daniel Alvarenga and Filipe Alves; editing by Philippa Fletcher)