A key distinction we've observed in Portugal, compared to other markets we operate in, lies in its bureaucratically complex regulatory system. The quest for proficient professional teams—bankers, lawyers, and accountants—adept at navigating these complex waters while maintaining the high service standards we expect from markets like London, poses significant challenges. Yet, those who excel in this area can often surpass larger, more established international competitors. Our success in winning pitches against larger rivals in part stems from our ability to simplify and demystify real assets in Portugal, showcasing the effectiveness of navigating the intricacies of the local landscape.
Understanding the Complexity
Portugal's regulatory environment is notoriously complex, characterised by layers of bureaucracy that can be daunting for both local and international investors. According to the OECD, while Portugal has made significant progress in certain areas, the regulatory framework remains challenging, especially in terms of labour market regulations and procedural complexities involved in setting up and running businesses. Local and national construction planning regulations can also seem cumbersome to those not familiar with them. These regulatory hurdles can deter new entrants and frustrate those unfamiliar with local regulations.
The Power of Simplification
The ability to simplify these complexities is not just advantageous—it is a critical differentiator in the competitive landscape. Research from the Boston Consulting Group (BCG) emphasises that companies capable of simplifying complex processes can achieve substantial commercial gains. Simplification can lead to cost reductions, increased speed to market, and enhanced customer satisfaction. BCG highlights that successful simplification efforts can streamline operations, increase cooperation, and significantly boost revenues and reduce costs.
Strategic Advantages
Navigating complexity effectively requires assembling teams with deep local expertise and a thorough understanding of the regulatory framework. The OECD highlights that firms investing in local knowledge and expertise are better positioned to manage regulatory risks and capitalise on market opportunities. This approach not only mitigates risks but also enables firms to offer tailored solutions that resonate with local stakeholders. In our experience, foreign investors that have failed to properly assemble local, professional teams always lose significant time as a result of incorrect assumptions regarding the Portuguese market.
Local teams that are well positioned to guide investors through local regulation, bureaucracy and introduce them to local networks, can be the difference between beating the market and never being able to properly enter it. We have met with funds that have been "in" the market for a number of years, with capital to deploy, and have not been able to make progress of any real significance, wasting countless resources on due diligence and operating costs along the way. However, the difficulty of finding local teams that are effective cannot be underestimated.
Industry Insights
Insights from industry leaders such as Deloitte emphasise the importance of strategic simplification. Deloitte's annual Global Regulatory Outlook reports highlight that regulatory complexity can be turned into a competitive advantage by those who master it, enabling firms to navigate the landscape more efficiently and effectively than their rivals. This is particularly relevant in markets like Portugal, where regulatory nuances can significantly impact business outcomes and so investment into understanding the regulatory environment can significantly improve new market entrants' success.
Simplifying regulatory complexity is not merely an operational necessity but a strategic imperative that we at PortmanLX spend a lot of time focussing on. Where bureaucracy can be a significant barrier, the ability to navigate and demystify the regulatory environment provides a clear competitive edge for our clients. Mastering this complexity can lead to significant commercial gains, allowing firms to outperform larger, less agile competitors and unlock new opportunities in the market.
References:
- OECD: "The Impact of Regulation on International Investment in Portugal." Available at: OECD
- Trade.gov: "Portugal - Market Overview." Available at: Trade.gov
- Boston Consulting Group (BCG): "Mastering Complexity Through Simplification: Four Steps to Creating Competitive Advantage." Available at: BCG
- Deloitte: "The Simplification Principle." Available at: Deloitte
- Deloitte: "Financial Markets Regulatory Outlook 2024." Available at: Deloitte
Worth having a read of these if you are new to the Portuguese market!
