The other reason why the Portuguese footwear industry is sexy [story]

An initiative has recently been launched to promote the Portuguese footwear industry and its international development. It appears to be financed in part by the EU and in part by the Portuguese Government.

Portuguese shoes, we are told, are “sexy” and the industry “combines tradition with cutting-edge technology and know-how with the best in design”. It is a good start to promote the industry and to build an image.

However the turnaround in the Portuguese shoe industry was more than marketing. It is a case of product innovation and it is related to technology. From what I know, early in the ’90s, the Portuguese footwear industry was very traditional. Producers used basic tooling and were producing footwear in large quantities. This started to pose a real problem as competition from Asian countries increased.

At around this time, some Portuguese capital goods producers started producing machinery which used water jet technology to make the components which form the basis of the shoes. Some of this technology came from other sectors, such as automotive. The technology could be transposed to the footwear industry with good results.

While certain footwear manufacturers used imported machinery, others started used Portuguese machinery which was more adapted to their needs and to the real raw materials used in the country. Gradually, the industry started changing and became more innovative. The shoes looked better and could be produced in smaller batches, which meant extra flexibility.

Today, the industry remains competitive and exports to a number of markets. Some niche brands have emerged. Rather than competing in volume with Asian countries, some producers manage to sell their products in smaller quantities while still making good margins.

It is all about innovation and the use of technology to improve the productivity of a traditional industry.

From this perspective, it is slightly disappointing that the list of companies that take part in this initiative does not include a single capital goods company.

Why Portugal needs a more effective innovation policy [hack]

There have been many accusations during the electoral campaign, focusing on the current Government’s mismanagement of the economy. Rather than pointing out what has gone wrong in the last years (and a lot has in fact gone wrong) it’s interesting to consider what would be some options available to the next Government to promote innovation and foster economic growth.

As far as Government-owned companies are concerned, the first and more basic means of promoting innovation would be to halt systematic losses and the accumulation of debt on balance sheets. Any company which turns in a loss year after year will almost certainly not embrace innovation. This is particularly the case for loss-making Government-owned companies. Management is usually too busy managing interest payments and running day-to-day activities to even think about improvements.

Aside from avoiding systematic losses in Government-owned companies, what else could be done? PSD, which is leading in the polls, wants to attract private equity investment, provide fiscal advantages to innovative companies and improve the links between universities and companies.

PS’s manifesto also mentions the link between universities and companies as one of the ways it will seek to promote innovation. But it does not seem to show a link between finance and innovation – rather the link appears to be between science and innovation.

One of the main reasons for the lack of innovation in the Portuguese economy is the low-level of education. This should be tackled however any improvements will not be felt for a long time. Which mechanisms could be used to achieve results more quickly?

One of the most promising areas of development is related to capital goods and it could result in fast improvements. Countries such as Germany have developed a proven ability in capital goods. This has various economic benefits: not only do capital goods producers innovate by themselves, but the machines produced are then used by clients to boost productivity, creating yet another layer of innovation. The development of  the capital goods industry would certainly bring benefits to the economy. This view has been supported by the Innovation Agency (AdI).
Another option would be to reconsider business models to meet the needs of emerging markets – which is a different subject, to be developed in another post.