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Summary:

Western technology companies have traditionally looked to developing economies as a place to find cheap, abundant talent. But thanks to the Eurozone’s problems and the sovereign debt crisis, things are changing rapidly: Just ask the Portuguese, who are finding themselves subordinate to fast-growing Brazil.

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Here’s the way it works: You’re building a web service in the U.S. or Western Europe, but you realize Silicon Valley, New York and London are terribly expensive places to hire programming talent. So you hire staff in a developing economy, perhaps Eastern Europe. And why not? Skilled programmers outside the West are cheaper and whip-smart, helping you save money and improve your product.

It’s an approach that has worked well for big names like Skype, Wikia, Opera and many others.

But guess what? That’s not necessarily the way it works anymore. Partly because of Europe’s financial crisis, some of the “old” countries are now becoming the jumping-off point for services in developing economies, and not the other way around.

Take Portugal. Once it paved the way for the modern age as a nation of explorers who built the first global empire in history. These days, however, it’s fast becoming a center for inexpensive startup workers, especially with those companies looking to expand into Brazil and elsewhere.

A fundamental shift

Here are a few examples. HouseTrip, a holiday rental service similar to Airbnb that is regarded by many as one of Europe’s hottest startups, is headquartered in London but has a large number of service staff in Lisbon. Or what about Webnographer, a UX startup that has had offices in the city for a couple of years?

But the prime candidate is probably Rocket Internet, the notorious German clone factory that has a significant development center in the northern Portuguese city of Porto. It houses at least 150 programmers and support staff, who are all building crucial elements of major international properties like Groupon and Zalando.

For Rocket and its masterminds, the Samwer Brothers, Portugal provides a great base for dramatically expanding its business in developing economies across South America, Southeast Asia and the Middle East. Miguel Pinto, the managing director of the Porto center, confirmed recently that the team was focused on technical development and would carry on expanding at pace.

But Carlos Silva, a Lisbon resident and co-founder of crowdfunding startup Seedrs, says it’s a confluence of bigger circumstances that makes it sensible to hire staff in Portugal for companies focused on markets like Brazil.

“The Brazilian market is definitely a very big and interesting market for European companies, but — at least for a startup — setting up a base there is not an easy task,” says Silva. “Getting work permits is complex, and the country is still quite bureaucratic. Portugal, on the other hand, is part of the EU, making it very easy to attract talent from all over, has a very simple process to create companies and deal with legal and tax obligations, and is geographically much closer to European centers of entrepreneurship.”

The free movement of workers inside Europe certainly helps, but that’s not all that’s going on. There’s also the fact that the economy is under severe pressure. Portugal has the lowest GDP per capita in Western Europe, and the sovereign debt crisis has been kicking the nation in its soft parts for a long time now.

Joao Martins, the CEO of Porto-based news aggregator app Niiiws, thinks the lack of opportunities at home is a big part of this recent change.

“There are at least six great engineering universities in Portugal, graduating a lot of very well-prepared young people to work,” he says. “The problem is the general economic environment, the work culture and the lack of management skills. You can hire one of these guys for $1500, but you can’t find more than a dozen really big Portuguese IT companies.”

Meanwhile Brazil is getting more and more expensive as the startup economy explodes: According to Payscale.com, the median salary for an IT manager in Brazil is 136,000 BRL ($66,000) but the same job in Portugal is just €30,000 ($36,000).

Who’s next?

The connection between the two countries makes a lot of sense — not least because of the linguistic connection and the imbalance in populations (Portugal has around 10 million people; Brazil has 196 million). But in the past it would have been Portugal and its entrepreneurs taking command of those emerging markets rather than simply supplying them with low-cost talent.

The signaling has become even stronger recently. Even the prime minister, Pedro Passos Coelho, got in on the act, telling local people struggling to find jobs that they should emigrate to South America.

That may be excessive — and Coelho came in for plenty of criticism — but it’s clear there’s been a shift.

“Portugal has always been an excellent platform to enter not only the Brazilian market but also other developing markets like Angola and Mozambique or even India, through its connections with Goa, and China, through Macau,” says Carlos Silva. “Bigger companies are already taking advantage of it by having participations in some of Portuguese biggest companies like Portugal Telecom and EDP and, as you said, some startups are starting to do the same. I would not be surprised to see more startups follow that same route.”

The shoe is definitely now on the other foot. The question is whether this change will happen elsewhere in Europe too.

  1. Cristóvão Morgado Thursday, August 9, 2012

    Not only all this advantages but living in Portiugal is CHEAPER than most EU countries.. and the weather is also as good as it gets …

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    1. portuguese fact Thursday, August 9, 2012

      Cheaper for who? Cheaper if you earn much above the average person. With an average Portuguese salary it’s not cheap at all, get your facts straight…

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      1. (Cheaper for who?…)
        Cheaper for whoever goes to live in Portugal keeping the same pay he/she had at the home country.
        This is even more true for service companies that establish themselves in Portugal using local people.
        And this is also true for tourists according many reports I have read: They’ll get much more fore their money.

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      2. Cristovao Morgado Friday, August 10, 2012

        Cheaper than many others European Countries..
        Check the price of housing in spain…france… uk…

        The only thing that is in fact more expensive are cars …

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  2. Cristovao Morgado Thursday, August 9, 2012

    There are also a lot of freelancers available for remote work…

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  3. A While Ago... Friday, August 10, 2012

    Sorry, but no! Living in Portugal is not cheap.
    Here’s some facts and financial math:

    The average salary is less then 800€/month. Houses for rent are in the range of 400€-700€, leaving you with what?….a bunch of euro “bucks” to make a living through the month?

    If you are being paid another country’s salary, it will be haven. I know some German, Finland, etc. guys that are working in Portugal with their country’s salary, that can afford rents of an excess of 2000€/month.
    That my friends, in Portugal, are rent prices of the upper social classes, aka rich people.

    As to car prices, base car prices (out of the factory prices) are identical to other countries. Cars are only more expensive in Portugal because the government, illegally, taxes the car’s base price twice, tax over another tax.
    Car prices for the middle class range from 15.000€-35.000€ (with all taxes included), when the average liquid salary per year is 9600€.

    Prices in Portugal are so high for the average salary, that is usually cheaper to take vacations outside the country to Spain, Greece, Italy, Mediterranean Islands, etc. Yeap, just like that, take a plane to other country’s beaches, spent a week there, and return by plain again, to Portugal.

    That’s how cheap life in Portugal is!

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  4. Pedro Moura [moura@wishareit.com] Saturday, August 11, 2012

    More and more companies (no only startups) are beginning to move / create development centers in Portugal, while maintaining business/marketing in their core countries.
    This obviously comes from the combination of HR quality vs cost, geographical situation (Portugal is a natural hub between North America, Europe, South America and Africa), and all the weather, food, etc perks.
    Another interesting phenomenon is foreign people coming to work in Portugal. It’s just not the salary they make vs cost of life: it’s also due to the fact that Portugal is a great place to live, both to singles and to families.
    Hence, it’s really a win-win situation.

    Of course we’re talking here about technology people/companies, who naturally earn more than average or minimum wage. That is another problem, which could eventually get a help by bringing more tech companies and people to Portugal. But that’s another problem.

    The main challenge is for this movement to serve as a learning experience (specially in terms of management skills, as Nuno said), and as an inspiration to Portuguese-created start-up.

    In my case (Wishareit), we’re a start-up originated in Portugal, aiming for the US on-line consumer market (before the end of the year), but our plan is to move the Business / Marketing there and keep the development team in Portugal (with a mix of Portuguese and foreign engineers). It just makes more sense, in economic and quality-of-life terms.

    Pedro Moura [Wishareit]

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    1. This price business/cost of living has no easy answer.

      A good guide is reading
      http://algarvedailynews.com/news/6851-good-news-portugal-among-least-expensive-eu-countries

      I have found that in the ten years I have lived in Portugal as an expat , that housing prices in the south have crashed 30- 60%, salaries are paltry, food is cheap if you don’t just stock up from one large supermarket, (ie shop around), the government make is close to impossible to run a business – easier to set up, yes, but to run – off putting for many business people.

      Customer-facing buinesses are a non-starter due to a state regulation mechanism that is anti-business, opressive and exasperating. Many expat businessmen run their Portuguese businesses out of the UK or Holland

      The earlier comment about illegal taxation of cars is an urban myth. It is not illegal and the question has been to the EC and back confirming Portugal is legally allowed to charge IVA on a total that already included car taxes.

      Most young Portuguese leave for salary reasons. Most inbound workers arrive for lifestyle reasons. The concentration of web businesses around Lisbon and Oporto is unnecessary as the south offers good facilities and excellent transport links to europe.

      Paul
      algarvedailynews.com

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  5. When Brazil’s bubble bursts in 2016 I will party real hard.

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  6. That is bad news for Portugal.
    First of all, it shows what I’ve always knew: Our managers suck, and we need people from other countries to tell us what to do. (shame on you, managers)
    Second, this article basically tell us that Portuguese people will be working for the rest of Europe for peanuts (1500$ for a good engineer is just a bad joke).
    I am software engineer that came to London 5 months ago to earn more than 4 times more than I was earning in Portugal and right now, if I decide to go back to Portugal, I can’t even keep my old salary… The job offers are already around 20 to 30 percent bellow.

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  7. José Pedro Pereira Coutinho Monday, August 13, 2012

    This is really a cyclic question in Portugal and it lasts from 500 years till today,
    We, the Portuguese, always think that outside is better and that will be the place where all our dreams came true.
    What i think is that is if we can do here what we are willing to do out we will have success. Most of the time we and our companies do outside what we are not able to do in our own country.
    With this i am not saying that we should not go to other countries what i say is that i believe in us and in Portugal. I believe in hard work, innovation and Portuguese people who really cares about one thing Portugal.

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  8. ¿Is Brazil going to do any better than Portugal, Spain or Italy? ¿What will we do when Brazil crashes? ¿Move on to Senegal? ¿And when China crashes and the world goes into recesion? ¿Will we go to the moon? ¿To mars?

    Humanity needs a double dose of humility. We need more science to manage our societies. Without new science all humanity is doomed to the boom and bust cycle.

    WE ARE A VIRUS. ¿WHO WILL CRASH THEIR ECONOMY NEXT?

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  9. Santiago Mendes Tuesday, August 14, 2012

    Espero não ser o único a achar este elogio à qualidade portuguesa um perfeito insulto ao trabalhador português.

    Don’t understand it? Translate it. Can’t be arsed to do it for you. I’m proud to be portuguese.

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    1. Isto é escrito por um bronco armado em carapau de corrida que tem a mania que que o Sul da Europa é sítio fazer uns trocos a explorar os outros. Típica mentalidade que nos trouxe como civilização ao ponto baixo onde estamos hoje.

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  10. Why doesn’t everybody stay put where they are with their big salaries. I’ll keep my salary, my expresso and my relaxing walk by the beach at the end of the money. After all money is not everything. Proudly Portuguese.

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