Description of the firm - Portugal Global
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A Work Project, presented as part of the requirements for the Award of a Masters Degree in Management from the Faculdade de Economia da Universidade Nova de Lisboa. IFL – SME COMPETITIVENESS MPG Shipyard’s International Business Plan to Angola Sara Patrícia Pardal da Silva Student Number 517 A Project carried out on the Management course, with the supervision of: Professor Sonia Dahab and Professor Filipe Castro Soeiro January 7, 2011
Transcript of Description of the firm - Portugal Global
A Work Project, presented as part of the requirements for the Award of a Masters
Degree in Management from the Faculdade de Economia da
Universidade Nova de Lisboa.
IFL – SME COMPETITIVENESS
MPG Shipyard’s International Business Plan to Angola
Sara Patrícia Pardal da Silva
Student Number 517
A Project carried out on the Management course, with the supervision of:
Professor Sonia Dahab and Professor Filipe Castro Soeiro
January 7, 2011
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Abstract
The aim of this work project is to assess an internationalization business plan in order to
improve MPG Shipyard’s competitiveness. The first step is an analysis of the European
market and the African market in order to understand their attractiveness for the
company and if its intention to focus on the Angolan market is feasible. The following
topic is an analysis of the chosen market in order to understand its characteristics and to
select the most appropriate mode of entry. The final step is to elaborate an
implementation plan with recommendations that will guide the company on its
internationalization process.
Key words: Internationalization, Competitiveness, Shipbuilding, Angola
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Description and Historical Background of the Firm
Manuel Pires Guerreiro, Lda (MPG) was created in the 1950s as a metallurgical
company. Initially, it produced tools for the mining industry in its facilities in Beja.
In 2000, the company was sold and, in 2005, it diversified into the shipbuilding sector,
creating a new production centre: MPG Shipyard. This choice was taken because one of
the new owners had had a ship repair company. The new unit builds especially platform
supply vessels for offshore platforms and, its facilities are in Setúbal. Recently, the
company started negotiations to internationalize to Brazil.
The metallurgical activity was re-named to industrial fabrication and mounting and it
produces metal structures like reservoirs. Nowadays, the majority of its production is an
input for MPG Shipyard, as it is the case of steel stairs, but for the shipbuilding activity
it is only a small part of its inputs. Besides this, the two units are quite independent.
In 2005, MPG’s sales were approximately €3 million and, in 2007, they reached €18
million. The forecast was to continue growing but, due to the crisis, it did not happen.
Currently, MPG has around 200 employees and 80% of them work in the shipbuilding
unit. The majority of clients are foreign companies who represent 86% of the sales.
Mission
To provide high quality supply vessels to the offshore industry, assuring respect for
individual safety and environmental protection.
Vision
MPG wants to become an international reference in quality shipbuilding and as a
Portuguese Exportation Company in 10 years in the offshore market segment.
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Profit
Margin
(12-30%)
Strategic Objectives
In the medium-term MPG Shipyards wants to be present in two distinct regions due to
their big oil reserves. These regions are: the “Deep Water Golden Triangle” that
includes Gulf of Mexico, Brazil and the West coast of Africa; and in the Middle East.
2 years: Do partnerships with marine suppliers
7 years: Be completely established in Santa Catarina and Pernambuco, Brazil.
Up to 10 years: Start to operate first in Angola, and then in São Tomé and Principe.
Up to 15 years: Enter the Middle East (possibly Qatar)
Operational Objectives
Get a contract in the first year of operations in Angola.
Get orders worth $150 million in the first year of operations in Qatar.
Financial Objectives
1 year: Keep the revenues’ level and initiate the internationalization process.
Figure 1 represents the value chain of the company. It is composed by the primary and
support activities whose costs, in percentage, are presented in brackets.
Figure 1- Value chain of the company
Inbound Logistics includes inbound and storage of raw materials and equipments;
Operations include steel cutting, fabrication, painting, outfitting, assembly and
launching; and Marketing and Sales includes the initial contract and contract signing.
Firm Structure – Corporate overhead (1 – 11%)
Human Resource Management (12-30%)
Technology development (includes ship design) (0.1 – 0.3%)
Procurement (63-70%)
Inbound
Logistics
Operations
(12-30%)
Delivery
(0.2-0.4%)
Marketing
and
Sales
(2-3%)
After
Sales
Service
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Starting Point Analysis
Figure 2 represents the main players in the offshore supply vessels industry and the type
of relationships the company has with them. Names of players in the Portuguese market
are presented in brackets but, the information can be extrapolated to the destiny market.
Figure 2 – Industry Mapping
MPG can work with the final client or it can be sub-contracted by another shipyard who
then finishes and delivers the product. Final clients are ship owners who are contracted
by companies operating offshore platforms in order to supply those platforms.
Other players in this industry are the company’s competitors, its suppliers, the
government and other entities that influence the activity through legislation,
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classification societies that define ISO standards and classify the vessels, banks,
partners that transfer knowledge and innovation programs to develop capabilities.
The activities performed by companies in this industry are the following:
Figure 3 – Process performed by shipbuilding companies
The process starts with promotion. Once a client selects the shipyard, both parts sign a
pre-contract stating vessel’s characteristics. Then, the vessel is designed and it is subject
to client’s approval. After that, a detailed construction plan is drawn. Next, the company
produces the vessel, delivers it and, finally, it provides customer service when needed.
Regarding the Portuguese shipbuilding industry, it has a diversified offer. Companies
are specialized in certain materials, like steel or fiberglass, and types of ships, like
recreational. MPG is the only one building offshore supply vessels and national demand
for them is inexistent. Thus, it needs to internationalize looking for opportunities.
The current situation of MPG is represented in the following scheme:
To determine the best hypothesis, it is needed to do a brief analysis of the markets. In
Europe, production of offshore vessels accounts for 43% of the worldwide production
and it represents 20% of the sales in the European shipbuilding industry. (Ecorys,
Problem
Lack of opportunities in
the Portuguese market
Hypothesis 1
Internationalize to a European country
(Develop presence in Europe)
Hypothesis 2
Internationalize to an African country
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2009). Key players are European, like STX Europe and Bergen Group (Norway), or
have operations there like Keppel Offshore & Marine (Singapore). (Ecorys, 2009)
Demand is cyclic, following the economy. When GDP grows, oil exploration increases
and the demand for offshore vessels also increases since ship owners have liquidity.
(Deep Sea Supply PLC, 2010) As building a vessel takes 1 or 2 years, consequences of
the recession are only felt about 1 year and a half after its beginning. (José Sousa, 2010)
Outsourcing has become a trend. Companies sub-contract labor during peaks of
demand, which allows them to have a more variable cost structure, and rely on other
shipyards, with cheaper labor, to perform some tasks. Another trend is to rely on
suppliers to do the R&D investments on behalf of shipbuilders.
Big players have been acquiring others, becoming even more powerful. For instance,
STX (South Korea) acquired Norway’s Aker Yards, which was the biggest shipbuilder
in Europe. Furthermore, there is an international increasing competition from emergent
markets, and from Chinese companies that used to be focused on standard vessels.
Analyzing the environmental context of the industry, in political terms, it is influenced
by the Government and by the International Maritime Organization. Economic factors
affecting the industry are GDP’s growth, the financing policy towards the sector,
volatility on oil prices and on the dollar exchange rate, and the growth of the oil sector.
In social terms, the industry is influenced by people’s increasing concerns with the
environment and with sustainability. Regarding technological factors, the impact comes
from technological developments in equipment and in renewal energy.
Figure 4 summarizes the Porter’s Five Forces analysis. There are high barriers to entry.
Shipyards are located seaside or riverside and companies need a concession to operate
in such areas. Furthermore, shipbuilding requires a high initial investment and it is
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difficult to get financing. Once established, it is not easy to get the first clients, since
company’s prestige, shown by clients’ recommendation letters is a main decision factor.
Moreover, as vessels are customized economies of scale are difficult to achieve.
Figure 4 – Porter’s Five Forces Framework applied to the European market
There are high barriers to exit because it is hard to find a different use for the shipyard.
The level of internal rivalry is high; competition has no geographic barriers.
Furthermore, shipyards from Eastern Europe compete aggressively on prices given that
they receive subsidies from their Governments while other shipyards do not.
Buyers have high bargaining power. Suppliers’ bargaining power depends on the type
of inputs, it is higher when suppliers do R&D investments on behalf of shipbuilders.
The threat of substitutes is not very significant since the airplane is not a viable option.
So, internal rivalry is high in the offshore supply vessels industry in Europe, especially
due to barriers to exit and the existence of subsidies in some countries.
MPG is a small player that produces hulls, the main structure of the vessel, for platform
supply vessels. Its direct competitors are shipyards that, as MPG, are subcontracted to
produce this part of the vessel. The ones considered are: Maritim (Poland), Gdansk
Shipyard (Poland), Santierul Naval Constanta (Romania) and Cemre (Turkey).
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Internal Scanning
The table in Appendix 1 compares MPG with the above mentioned companies. In terms
of facilities, MPG has the biggest dry dock, which allows the company to perform some
projects that others are not able to or, at least, to be more competitive than them.
Regarding lifting capacity, MPG also has a higher capacity. However, the company has
no domain in the technology needed to build other parts of the vessel besides the hull.
In order to gain knowledge, MPG signed, recently, a cooperation agreement with Rolls-
Royce, which does vessels design and is a supplier of engines. During 3 years, Rolls-
Royce will transfer technological knowledge to MPG. Moreover, it has already
contacted and is trying to find more companies willing to do this type of agreements.
The company is still on process of certification while its competitors already obtained it.
Concerning financing MPG has a disadvantage, it does not have Government support
and it does not fulfill the requirements to apply to innovation programs like QREN.
An important contribution to MPG’s efficiency is its planning process. Before start
producing, every step of the process is analyzed and given timelines to be finished.
There are also timelines for payments and for inputs acquisition. The aim is to avoid
stop production, due to lack of money or inputs, and avoid differences in the final price.
It is difficult to measure if competitors honor delivery dates. The truth is that: a number
of shipbuilders do not honor compromises; and, it is a source of reputation for MPG to
have recommendation letters from Norwegian clients once they are very demanding and
create industry’s standards. Thus, it is possible to conclude that MPG’s planning is its
most important resource being its competitive advantage. It may seem simple, but it is
costly to follow and its success depends on employees’ understanding and commitment.
Figure 5 presents the SWOT analysis of the European market:
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Figure 5 – SWOT Analysis applied to the European market
To overcome its weaknesses, MPG should continue looking for partnerships in order to
acquire knowledge and increase its brand awareness. Other possible way to increase
brand awareness is through association with other shipbuilder. This association may
even allow the company to meet the requirements to apply for innovation programs, and
to achieve a better position in the market.
In Africa, viable countries are Angola and Nigeria. Following a suggestion from MPG,
the analysis is focused on Angola. It has good relations with Portugal. “It is the
Portuguese fourth biggest commercial partner in a global level and the biggest partner
outside the European Union.” (Francisco Telles, 2010)1. From 2005 to 2008 Angola’s
GDP growth/year was between 13.2% and 20.6%. (The World Bank, 2010). Angola is
the second biggest oil producer in Sub-Saharan Africa and it is 15th
place in the oil
1 Angop – Agência Angola Press. (acessed October 10, 2010)
http://www.portalangop.co.ao/motix/pt_pt/noticias/politica/2010/6/28/Angolanos-portugueses-estudam-
formas-para-facilitar-fluxos-migratorios,1693acb7-9bf0-4713-b5de-31ae5e2279ee.html
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proved reserves by country ranking. (CIA, 2010) Moreover, Angola has big offshore
reserves of natural gas that is going to start exporting in 2012.
The environmental context in Angola is similar to the European, previously mentioned.
Additional political factors are the government’s level of corruption, bureaucracy and
domain of the economy, and OPEC decisions since, as a member, Angola’s level of oil
production is determined by OPEC; additional economic factors are the difficulty to get
credit, the volatility of Kwanza exchange rate, the difficulty to transfer money abroad
and the risk of bad debt; additional social factors are the lack of facilities and education;
and in technological terms the lack of technological developments in the country.
Angola’s shipbuilding industry is undeveloped. The few existent shipbuilding
companies are specialized in small boats and there are no companies building offshore
vessels. There are two recently built shipyards in South Kwanza: Porto Amboim
Estaleiro Naval (PAENAL), which produces equipment to the on- and offshore oil and
gas industry; and another one that is a support shipyard for the oil industry, which
produces offshore platforms. However, these shipyards do not produce supply vessels.
The Porter’s Five Forces analysis for the Angolan market is similar to the one presented
earlier. Although, barriers to entry may be higher given that it is difficult to obtain credit
in Angola, a national company may be able to get clients more easily since local ship
owners may prefer a national supplier, especially ship owners that are partly State-
owned due to a government policy of import reduction. This may allow economies of
scale, building two or more vessels for the same client with the same characteristics.
Barriers to exit seem to be lower in Angola than they are in other countries since there
are few shipyards in the country and, given the importance of the offshore industry,
foreign companies operating in this activity may be willing to invest in Angola, like it
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happened recently in South Kwanza. In conclusion, internal rivalry in the shipbuilding
industry does not seem to be as high in this country as it is in European countries.
Internal Scanning
Due to the lack of local producers, this analysis is based on shipbuilders that have built
supply vessels for Angola: Metalships & Docks (Spain), West Contractors (Norway)
and Shipyard de Hoop (The Netherlands). The table in Appendix 2 compares MPG with
these companies. Concerning technology MPG has a clear disadvantage, competitors
have a much higher level of technological knowledge. However, it is important to note
that the company has a different value proposition for Angola, which is to build the
entire vessel instead of producing only hulls as it currently does. For this reason, it is
crucial for the company to develop its processes and to gain the knowledge it misses.
In terms of certification, MPG is still in process to obtain it, while Metalships and West
Contracts are already certified and Shipyard de Hoop has, apparently, no certification.
Concerning Government subsidies Spain is the only country that has them. Regarding
planning, MPG seems to have an advantage over two of the shipyards. However, in the
case of Metalships & Docks, the company’s advantage is not so obvious.
According to this analysis, MPG Shipyard’s competitive advantage in the Angolan
market seems to be its very rigorous planning process but it is difficult to assess if it is
better than Metalships’ plan. Another possible competitive advantage, in case MPG
creates an Angolan company, is to become a national player in the Angolan market.
An additional way to gain competitive advantage is to find strong partners. For instance,
Sonangol would be a good one. First, it is the most powerful Angolan company, which
is state-owned and can make Government relationships easier. Second, it has two ship
owner companies: Sonasurf and Sonatide; and shipping companies have some insights
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about outfitting, the final step of the shipbuilding process in which MPG has no
experience. As Sonangol is now focusing more on the oil sector and it intends to
alienate its businesses in other areas this situation is even more likely. (AICEP, 2010)
Summarizing, company’s strengths and weaknesses in Angola are similar to the ones in
Europe. An additional strength is the good relationship between Portugal and Angola.
Opportunities in this market are the growth of the offshore sector, the non existence of a
local producer of offshore vessels, the creation of the Angola LNG project to export
natural gas and the growing trend in the economy. The main threats are the high level of
corruption and bureaucracy, the risk of bad debt, and the lack of infrastructures.
To overcome these threats the company should definitively enter in Angola with a
strong local partner that knows the market and has influence on it. Moreover, MPG
should rely on a good lawyer and try to solve eventual issues in a friendly way avoiding
going to court. In case of physical presence in Angola, MPG needs to choose its
location carefully taking into account the ability to receive inputs and the existence of
facilities for the employees. Regarding opportunities, MPG should try to take advantage
of the oil sector growth and of the start of the Angola LNG project to get orders.
From this analysis, it is possible to conclude that, in relation to expand its presence in
Europe, internationalize to Angola is a better choice for MPG. Internal rivalry is lower
than it is in Europe, the offshore industry is growing, as well as the economy, and the
company has the possibility to be the first local producer.
Criteria of country selection
The choice of Angola is supported by facts and insights. It is a Portuguese ex-colony
that has become an emergent economy. The oil sector is strategic in Angola,
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representing around 60% of the GDP and 98% of exports. The country has reserves of
13.5 billion barrels. (BP, 2010) In fact, in the period from 2003 to 2008 Angola is fourth
in the volume of oil and gas found. (OGX, 2010) The majority of reserves are offshore,
onshore extraction is limited since infrastructures were destroyed in the civil war.
According to the news, there were six offshore oil discoveries in Angola in 2010. These
discoveries create the need for new vessels. Each offshore platform needs around 15
platform supply vessels. (Paulo Paz, 2010) So, this is an opportunity for MPG.
Do business in Angola
Despite the opportunities it is not easy to do business in Angola, it is ranked 163 out of
183 countries in the topic. It can take up to 263 days to start a foreign-owned company
and 6.2 years to close it. (The World Bank, 2010) Moreover, investments above
US$100,000 require Government’s approval. (Lei de Bases do Investimento Privado,
2003) According to the Constitution, all land belongs to people, so they are managed by
the State and, it cannot be bought, people can only ask for a concession to use the land.
Import and export are long and bureaucratic processes that take around 50 days. (The
World Bank, 2010) Bribes are common: “Overall firms spend on average 3.1% of their
annual sales on informal gifts or payments.” (World Bank, 2007). The Angolan justice
does not work properly, the Parliament and the Supreme Court have little power.
In terms of labor regulation, companies should rely firstly on Angolan workforce except
when skilled labor is not available, which is common. To reverse this trend, the
government encourages the “Angolanization”, which consists in transferring knowledge
to Angolans in order to decrease the need for expatriates.
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The minimum wage in Angola is less than $100 but the average wage for a man is much
superior. An important issue is absenteeism: “44% of firms report high absenteeism due
to sickness and 26% due to HIV/AIDS.” (World Bank, 2007)
Transport of inputs by road is not advisable since they may get damaged or be stolen.
Electricity is untrustworthy and power outages are common. “Unreliability of electricity
costs on average 4.6% of sales to a typical Angolan firm.” (World Bank, 2007)
Less negative aspects are that Angola is considered to protect investors with strength of
5.7 out of 10 (The World Bank, 2010), there is a New Private Investment Law assuring
equality between Angolan and foreign investors, some goods are free of customs tariffs,
as it is the case of raw materials and capital equipment, and the Government welcomes
Foreign Direct Investment, this holds especially in case the company is located outside
the big urban centers in order to help relocating people who sought refuge in the main
cities during the war.
To conclude, entering in the Angolan market without a local partner is a considerable
risk. Companies should have a responsible present in Angola or visiting it frequently.
Analysis of the Mode of Entry
As the shipbuilding industry is undeveloped in Angola and there is no builder of
offshore vessels there, MPG should select Greenfield in collaboration with a local
partner as its method to do Foreign Direct Investment and create a new company with
new facilities instead of acquire an existent shipbuilding company.
The advantages of a Greenfield are that the company has the opportunity to create a
corporate culture and that the facilities can be built according to the needs. The
disadvantages are that the company does not benefit from the technological knowledge
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of an existent shipbuilder, not even from its equipment, relationships with clients and
suppliers and reputation, if it is positive. (Daniels, 2007)
MPG should select Joint Venture as its mode of entry, thus, creating a new company
whose ownership is divided with an Angolan partner. There is not a minimum equity for
the partner but it is likely to want 51% of the company.
One of the advantages of this mode of entry is the ability to decrease risk. Having a
local partner the internationalization becomes easier since the partner knows the market,
and knows potential clients, or at least it is easier for him to get in contact with them.
Moreover, the partner increases company’s reputation since he is a national. This may
be a further advantage if clients prefer national suppliers. (Daniels, 2007)
The disadvantages are that MPG will not have total control. The partner may have
different perspectives and expectations and MPG may feel that the partner is not
committed to achieve success. Besides that, being from different countries, MPG and its
partner have different ways of doing business. (Daniels, 2007)
For the joint venture to be successful, MPG and its partner should make clear, before
doing it, how will they contribute to its success and what are their expectations. They
should agree on control issues, defining what each one should deal with and what are its
responsibilities. This should be stated in a detailed contract.
To choose an appropriate partner, MPG should consider some possibilities and analyze
them in terms of what they can give to the company and their willingness to cooperate.
A possible partner that is in other joint venture gives a proof it is able to deal with MPG.
The best way to identify possible partners is to visit Angola and have contact with
players. Be present, or visit, trade fairs are a good opportunity to do it. There is not a
specific trade fair for this industry in Angola. The most important is FILDA (Feira
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Internacional de Luanda) a multi-sector fair. It is the biggest international event in
Angola and it has the presence of foreigners that want to do business in this country.
MPG should also be present in other international shipbuilding and offshore trade fairs
since ship owners operating in Angola may also visit these fairs looking for a supplier.
Implementation Plan
The implementation plan is presented trough the 4 M’s methodology, which is based on
the needs regarding human resources (Men), capital (Money) and time (Minute), on the
company’s objectives and on its respective measures (Memo). The numeric information
presented here is only a summary, it is presented in detail in the secondary appendixes.
Men
Build a platform supply vessel involves in average 400 people. The company will have
some permanent workers but the majority will be temporary workers. In the beginning,
permanent employees will be mainly expatriates given that these are key functions.
Later, these tasks may be performed by locals. By the time the company starts the
shipbuilding process of the first vessel, it will need more expatriates to give on the job
training to temporary employees since they are likely to have no skills in this area. After
3 months, these expatriates will return to Portugal and they may come back if needed.
Some tasks are not performed often, as it is the case of design, which is only performed
when there is a new project. In these cases, a Portuguese architect can travel to Angola
in order to understand client’s needs and to do the design of the vessel. After client’s
approval he can return to Portugal. Sporadic activities are not susceptible to be
performed in Portugal because they need to be performed close to the client and close to
the production place. Other tasks can be outsourced, as it is the case of a lawyer.
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Money
Costs with salaries of permanent employees are presented in Table 1. Salaries were
calculated based on an assumption of the salary in Portugal plus a foreign service
premium of 30% and a goods and services differential.
Table 1- Salaries of Permanent Employees
Costs with temporary employees are not possible to calculate since the number of
employees may vary greatly. The average salary for these workers is $300/month.
Costs with training and other human resources costs in the first year are presented in
Table 2.
Table 2 – Human Resources Costs (excluding salaries of permanent employees)
Description Annual cost
(USD)
Expatriates to give on the job training
(5 people*3 months) 42405
Other expenses with trainers 47615
Other expenses with expatriates 205668
Total 295688
Costs with expatriates’ training are not possible to calculate. It depends on their need to
improve English skills. Costs with social security, which represent 8% of local
employees’ salaries, are not possible to calculate as well since they depend on the
Position N. of
workers
Monthly
salary (USD)
Annual Salary
(USD)
Chief of operations 1 9424 131936
Project manager 1 9424 131936
Supervisors 2 4712 131936
Administrative
employee 1 2450 34300
Local administrative
employee 1 500 7000
Local salesperson 1 700 9800
Total 7
446908
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number of temporary workers. The same holds for other taxes, because the amount to
pay depends on sales. Actually, in the first years the company is exempted from
industrial tax, customs duties (except “imposto de selo”) and taxes over profits.
Focusing on the total investment for the joint venture, it is divided into initial
investments, presented in Table 3, and current expenses, which are presented in Table 4
and Table 5, divided into annual expenses and monthly expenses, respectively. It is
important to note that these values do not correspond to MPG’s investment. This is the
total investment, which is going to be divided between the two parts of the Joint
Venture, according to their percentage of equity.
Table 3 - Initial Investments
Description Total cost
(USD)
3 initial trips (flights, accommodation, other expenses) 49497
Create the company 860
Facilities 200000000
Office furniture, website, opening 18000
Expenses with expatriate trainers 90020
Expatriates' trips 8055
Total 200166432
In the above table, the cost of the facilities is an assumption based on the previous
investments made by SBM Shipyard (Single Buoy Moorings Inc.) and Heerema Marine
Contractors in the construction of shipyards to support the offshore industry in Angola.
Table 4 - Monthly expenditures
Description Monthly cost (USD) Annual cost (USD)
Salaries 31922 446908
Expatriates’ accommodation 15000 180000
Total 46281 626908
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Table 5 - Annual expenditures
Description Total cost (USD)
Expatriates trips and visas 17615
Trade fairs (FILDA) 16068
Advertising 50000
Total 83683
Minute
Table 6 shows what the company needs to do before starting operations in Angola.
Table 6 – Tasks to Perform Before Entering the Market
Description Dependency of activities
Activity 1 Pre-study of the Angolan market
Activity 2 Contact AICEP, CCIPA, others
Activity 3 Be present, or visit, trade fairs
Activity 4 Visit the market Activity 1
Activity 5 Select a partner
Activity 6 Agree on a strategy Activity 6
Activity 7 Do the joint venture Activity 6
Activity 8 Assess employees' English skills
Activity 9 Hire a salesperson
Activity 10 Access salesperson need for training
Activity 11 Give training if necessary Activities 8 and 10
Activity 12 Contact temporary work companies
Activity 13 Select the place to build the shipyard
Activity 14 Get a concession for the place Activities 8 and 13
Activity 15 Build an office Activity 14
Activity 16 Contact potential clients
Memo
Figure 6 presents the company’s objectives, the tools to measure them, reference to
what is the target and to what is the company going to do to achieve it.
Strategic Theme Objectives Measurement Target Initiative
Financial
Increase sales,
get new
customers,
keep profitability
Sales volume,
number of new
clients
Get a contract in
the 1st year of
operations, get
contracts from 2
new clients in the
first 3 years
Joint Venture
with Angolan
company
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Customer
Create awareness
among potential
clients, supply a
quality product in
time and at the
agreed price
Number of
potential clients
that contact the
company after a
first approach or
after see its
advertising,
questionnaires to
clients
Be contacted by
50% of the
potential clients
in the Angolan
market in the first
3 years,
80% of clients
satisfied with
product quality,
delivery time and
final price
Contact potential
clients, be present
in trade fairs,
advertise in
specialized
magazines, keep
a very rigorous
planning process
Internal
Give training
when needed,
find a local
skilled
salesperson
Evaluate
expatriates’
English skills,
evaluate
salesperson’s
English,
marketing and
sales skills
Give training to
expatriates in
Portugal, find the
salesperson
during the first
trips or right after
doing the Joint
Venture
English business
course and
training in
marketing and
sales when
necessary
Learning
Gain
technological
know-how
(outfitting), do
partnerships with
suppliers
Number of
partnerships with
suppliers
Master the
technology in 5
years
Explain suppliers
the opportunities
of the Angolan
market, visit
trade fairs where
suppliers are
present
Figure 6 – Objectives of the company
A timeline for this process is presented in Figure 7.
Figure 7 - Timeline for the internationalization process
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Conclusion, risks and suggestions
According to the performed analysis performed in this work project, enter the Angolan
market is a better opportunity for MPG Shipyard to develop its operations than focus on
the European market. Internal rivalry is high in Europe, the biggest players operate there
and the company is a very small player. In Angola, there are no local producers, there is
a considerable demand for offshore supply vessels, the oil sector is strategic and new
opportunities have been arising.
However, it is advisable to enter in Angola together with a local partner due to the
specificities of the market. On one hand, by having a partner the company assures the
help of someone who knows the Angolan reality, but on the other hand, it loses part of
its autonomy. Therefore, the partner has to be carefully selected and the joint venture
needs to be well planned. A good partner would be Sonangol, which is a powerful
Angolan group in the oil sector who is state-owned and has two ship owner companies.
If not, not reputed and less solid companies could imply risks to MPG, like for example,
bad debts, which will have as consequence provisions, meaning a percentage of sales, or
company and business control issues.
Regarding MPG’s performance, it became clear the company needs to improve its
technological knowledge in order to comply with its value proposition of building the
entire vessel. Without this it will be difficult for the company to improve its
competitiveness. Alternatively, MPG can focus on a consultancy service, advising ship
owners on the type of vessel they need and following the shipbuilding process, which
would be a cheaper and faster way to improve competitiveness but, anyway,
technological knowledge is crucial.
23
The fact that the company has an agreement with Rolls-Royce is a positive point but it
needs to keep trying to get agreements with other suppliers since it is a fast and cheap
way to acquire knowledge and, at the same time, recognition from potential clients.
Finally, be present in shipbuilding and offshore trade fairs is also very important in
order to have contact with both suppliers and potential clients.
References
Aicep (Agência para o Desenvolvimento e Comércio Externo de Portugal). 2010.
“Angola Dossier de Mercado”. July 2010.
AIN (Associação de Indústrias Navais). 2010. Interview conducted to Eng. José
Ventura de Sousa (in September 30, 2010)
Lei de Bases do Investimento Privado. 2003. Lei nº11/03.
http://www.anip.co.ao/ANIP/LEI_INVEST_PRIV.PDF
BP (British Petroleum). 2010. BP Statistical Review of World Energy.
Cemre Shipyard. 2010. Cemre Engineering & Shipyard Ind. & Trade. Ltd.
http://www.cemreshipyard.com/ (access October 4, 2010).
CIA (Central Intelligence Agency). 2010. Central Intelligence Agency.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2178rank.html
(accessed October, 2010)
Daniels, J.D., Radebaugh, L.E. and Sullivan. 2007. International Business: Environment
and Operations. Pearson, Prentice Hall.
Deep Sea Supply. 2010. Deep Sea Supply PLc.
http://www.deepseasupply.no/downloads/DESSC%20Q110%20Complete%20Version.p
df (accessed September 30, 2010)
24
ECORYS, Research and Consulting. 2009. Study on Competitiveness of the European
Shipbuilding Industry. Rotterdam.
FILDA (Feira Internacional de Luanda). 2010. Dossier de Expositor.
Gdansk Shipyard. 2010. Gdansk Shipyard. http://www.stocznia.gda.pl/ (accessed
October 4, 2010).
Maritim Shipyard. 2010.Maritim Shipyard. http://www.maritim-shipyard.pl/ (accessed
October 4, 2010).
Metalships. 2010. Metalships & Docks S.A.U.. http://www.metalships.com/ (last
accessed October 30, 2010).
MPG. 2010. Manuel Pires Guerreiro, LDA. http://www.mpg.com.pt/ (last access
January 4, 2011).
MPG. 2010. Interview conducted to Paulo Paz (in October 12, 2010)
OGX. 2010. “Apresentação Institucional”.
http://ogx.infoinvest.com.br/ptb/623/OGXApresentaoInstitucionalv11.pdf
Santierul Naval Constanta. 2010. Santierul Naval Constanta S. A.
http://www.snc.ro/first_page.php (accessed October 4, 2010).
Shipyard de Hoop. 2010. Shipyard de Hoop. http://www.dehoop.net/ (accessed October
30, 2010).
The World Bank. 2010. Doing Business 2011 – Angola.
http://www.doingbusiness.org/~/media/fpdkm/doing%20business/documents/profiles/co
untry/db11/ago.pdf (accessed November , 2010).
Westcon. 2010. West Contractors AS. http://www.westcon.no/ (accessed October 30,
2010).
World Bank. 2007. Angola – Investment Climate Assessment.
25
Appendices
Appendix 1 – Competitive Assessment in the European market
Characteristic Company
MPG Maritim
(Poland)
Gdansk
Shipyard
(Poland)
Santierul
Naval
Constanta
(Romania)
Cemre
Shipyard
(Turkey)
Dock Size
(meters) 420*75 172.25*37.2 280*36 350*58 150*30
Lifting
Capacity (tons) 500 100 150 480 80
Technology Low Medium Low Medium Low
Certification
In process to obtain
ISO 9001,
ISO14001,
OHSAS
18001
ISO 9001
ISO 9001,
PN-N
18001:2004
ISO 9001,
ISO 14001,
OHSAS
18001
ISO 9001,
ISO
14001,
OHSAS
18001
Governmental
subsidies (in
the country)
No Yes Yes Yes Yes
Scale 3 3 2 4 3
Source: Based on information from the websites of the companies
Appendix 2 - Competitive Assessment in the African market
Characteristic Company
MPG
Metalships
& Docks
(Spain)
West
Contractors
(Norway)
Shipyard de
Hoop (The
Netherlands)
Technology Low Medium Medium Medium
Certification
In process to obtain
ISO 9001,
ISO14001,
OHSAS
18001
ISO
9001:2000,
ISO
14001:2004,
OHSAS
18001:1999
ISO
9001:2008
No
certification
Governmental
subsidies
(in the country)
No Yes No No
Scale 3 4 2 2
Source: Based on information from the websites of the companies
26
Secondary
Appendices
27
Appendix A – Organogram of the company
Appendix B – Cost Structure of MPG Shipyard
Description % of Total Costs
Materials
Steel 30
Propulsion 5
Other Purchases 15
Others 10
Overhead Costs 25
Direct Labor 15
Total 100
28
Appendix C - Volume of Sales
Appendix D – Main Clients
29
Appendix E – Declaration of process to obtain ISO certification
Appendix F - Oil discoveries in Angola in 2010
February – Block 15/06, wells Nzanga-1 and Cinguru-1
April - Block 15/06, wells Nzanga-1 and Cinguru-1
30
July – Block 15/06, well Cabaça Sudeste 1
September – Block 15/06, well Cabaça Sudeste 2
October – Block 15/06, well Mpungi-1; Block 15/06, well Cabaça Sudeste 2
Appendix G – Oil production in Angola
31
Appendix H - Business indicators for the Angolan market
Topic Ranking (out of 183)
Ease of Doing Business 163
Starting a Business 164
Employing Workers 178 (data from 2009)
Registering Property 174
Protecting Investors 59
Getting Credit 116
Trading Across Borders 166
Closing a business 147
Source: The World Bank, 2010
Appendix I – Description of secondary employees
Type of Employee Task
Marine Engineer Building process
Shipbuilding technician Building process
Mechanical Engineer Assemble propulsion systems
Locksmith Build metal structures
Electrician Electrical installation
Welder Weld or join materials
Painter Painting the vessel
Fitter Responsible for the outfitting
32
Appendix J – International trade fairs the company can be visit or be present
“Construction & Shipping Industry” (Gorinchem, The Netherlands) where main
exhibitors are shipbuilding companies and suppliers of the industry;
On & offshore (Gorinchem, The Netherlands) with the presence of companies involved
in the offshore industry;
Nor shipping (Oslo, Norway) which is going to have a special day dedicated to the
offshore shipping industry in the edition of 2011;
Baltexpo (Gdansk, Poland) with the presence of shipbuilding companies and suppliers
of the industry;
Brasiloffshore (Macaé, Rio de Janeiro, Brazil) which is the 3rd
biggest offshore trade
fair in the world.
Appendix K – Detailed cost analysis
Initial Investment
Business trips to Angola (3 trips, 4 days each, 3 people in each trip)
3 trips*3 people = 9 flights
Flight Lisbon-Luanda-Lisbon in Executive = €3000 $4026
Cost of flights = 9*$4026 = $36234
3 people*3 nights*3 trips = 27 nights
Accommodation = $300/night
Cost of accommodation = 27*$300 = $8100
33
3 people*4 days*2 meals/day*3 trips = 72 meals
Meals = $50/person
Cost of meals = 72*$50 = $3600
3 trips*4 days = 12 days
Rent a car = $90/day
Cost with rent a car = 12*$90 = $1080
Business Visa = 60€ (data from 2004) $80.5
The visa allows 2 trips to Angola in the 60 days after being issued
3 people*2 visas= 6 visas
Cost with visas = 6*$80.5= $483
Create the company and start operations
Creation of a company in Angola = $860
Facilities = $200000000
This cost is based on the previous investments made by SBM Shipyard (Single Buoy
Moorings Inc.) and Heerema Marine Contractors in the construction of shipyards to
support the offshore industry in Porto Amboim, South Kwanza, Angola.
Office furniture and materials = $15000
34
Opening Event = $2500
Create a website = $500
Expatriate’s Trainers (5 people to give training for 3 months)
Salary = $2827
Cost with salaries = $2827*5 people*3 months = $42405
Accommodation = 2 houses
Accommodation price = $5000/month
Cost with accommodation = 2 houses*$5000*3 months = $30000
Work visa = 225€ $302
Cost with work visas = 5 visas*$302 = $1510
5 trips
Cost of one trip = €2400 $3221
Costs with trainers’ trips = 5*$3221 = $16105
Initial trip for the 5 expatriates (permanent employees) = 5*$1611 = $8055
Total Initial Investment = $200166432
Periodic Expenses
Monthly Expenses
Salaries of permanent employees
Considering expatriate employees, their salaries were calculated as follows:
35
Description
Base monthly
salary in the
home country
(EUR)
Base monthly
salary in the
home country
(USD)
Foreign
service
premium
(30%)
Goods and
services
differential
(10,43%)
Total
Chief of
operations 5000 6711 2013 700 9424
Project
manager 5000 6711 2013 700 9424
Supervisors 2500 3355 1007 350 4712
Administrative
employee 1300 1745 523 182 2450
Trainers 1500 2013 604 210 2827
The base salary in Euros was converted to US Dollars and it was added a 30% foreign
service premium (as suggested by Daniels, 2007) and a goods and services differential.
This differential is considered to be 10.43% based on the International Cost of Living
Comparison of 2009. The study compares the cost of living between New York and
several countries in the world, being New York fixed at an index of 100. Given that
Portugal has an index of 92.84 and Angola has an index of 103.27, the differential
between these two countries is 10.43%.
Thus, costs with salaries of permanent employees are the following:
Position N. of
workers
Monthly
salary
(USD)
Annual Salary
(USD)
Chief of
operations 1 9424 131936
Project manager 1 9424 131936
Supervisors 2 4712 131936
Administrative
employee 1 2450 34300
Local
administrative
employee
1 500 7000
Local
salesperson 1 700 9800
Total 7 27210 446908
36
Other costs with expatriates
Accommodation = 3 houses for expatriates, considering that the chief of operations and
the project manager want to bring their family with them to Angola, once they will
perform medium/long-term assignments, and the remaining 3 expatriates can share a
house.
Accommodation price = $5000/month
Cost with accommodation = 3 houses*$5000 = $15000/month
Total monthly expenses/year = $446908+15000*12 = $626908
Annual Expenses
Trips
One trip per year for each of the expatriates = 5 trips
Cost of one trip = €2400 $3221
Costs with trips = 5*$3221 = $16105
Work visa = 225€ $302
Cost with work visas = 5 visas*$302 = $1510
Trade fairs – FILDA
Enrollment = $200
Space for the stand = 18 square meters
Price of the space = $176/square meter
37
This price is for stands with 3 fronts. The stand should have 3 fronts in order to be an
open space where visitants feel welcomed to go and walk around.
Cost with space = 18*$176 = $3168
Electricity = $100
Water = $100
Stand = $5000 (forecast)
Posters and miniatures of vessels = $5000 (forecast)
Since it is not possible to have the final product in the stand, it is crucial to have big
images of vessels and some miniatures. Potential clients should be able to understand
what is the core business of the company when they see the stand so they may decide to
visit it.
Catalogs/flyers = $2000 (forecast)
It is important to give catalogs or flyers to visitors. In this way, people have some
information about the company they can analyze in detail later on.
Other expenses (like rent furniture for the stand) = $500
Total costs with the trade fair = $16068
The cost with the stand may be an annual expense or not, it depends on the company’s
decision. The company may prefer to use the same stand more than once, or it may
decide to do a new stand or some exchanges every year in order to have a fresh
appearance every year. Moreover, the stand may seem a bit expensive but the company
should really invest on a creative and attractive stand, in order to attract visitors, rather
than on a standard one.
Advertising = $50000
38
Besides approaches from the salesperson the company should advertise its operations in
specialized media, like, publications of the shipping and oil industry.
Total annual expenses = $83683
Total periodic expenses/year = Monthly expenses/year + Annual expenses =
$626908+$83683 = $710591
Other costs are not possible to calculate, as it is the case of costs with accountant, legal
counsel, meals, water, electricity and transportation costs since they may vary greatly.
For example, transport costs from Lisbon to Angola vary from $4322 to $6200 per
container but the final costs depends on the number of containers the company receives
and on the number of days they are in the port, since the company needs to pay a fee for
each additional day the container is there.
Note: The €/USD conversion was made with the reference rate of 1€ = $1.3421,
available on the website of the European Central Bank in January 4, 2011.
39
Appendix L – Steps to create a company in Angola
Description
Cost
(USD) Time (days)
1 Declaration to constitute the company 13 8
2 Name of the company 218 immediate
3 Tax card emission 0 immediate
4 Tax to start the activity Varies immediate
5
Register the beginning of commercial
activity 105
30 (from 48 hours to 8
days if urgent)
6
Register the company in Instituto
Nacional de Estatística 58 8
7 Publication in Diário da República 59 90
8
Opinion of urban suitability and economic
interest 105 10
9 Licensing for the activity 87 5
10
Registration of workers in Instituto
Nacional de Segurança Social 2 immediate
11 Propose of national investment 0 immediate
12 Final register of the company 213 30
Total (excluding step 4) 860 151
Source: Revista Executivo nº16, Ano 3, 2007
Appendix M – First interview with MPG Shipyard
Meeting with Carlos Costa and Paulo Paz, from Manuel Pires Guerreiro, Lda.
September 23, 2010
Interviewers: Good afternoon. Thanks for meeting us in such short notice. We brought
the syllabus of the thesis so you can have an idea of what the project is and what we
need from your company. The thesis is an internationalization plan for your company,
so we will need some information about MPG, a product and a country where you are
planning to enter with this product in the future. About the company’s information the
40
faculty has a confidentiality agreement, that we can bring next meeting, it says that the
information you give us will only be used to thesis purposes.
Carlos Costa: I think the confidentiality agreement is a very good idea. Now, as you
already know we repair and build ships, but our core business, in international market,
is to build Supply Vessels, which are support ships to offshore oil platforms. Actually,
the majority of our clients are not from Portugal, they are mainly from Norway,
Belgium and The Netherlands. In 2009, exports represented 86% of our sales. We are
negotiating, and we already signed the agreement to build 2 productions sites in Brazil.
Deloitte did the market study and we are following the plan they presented, and so far
everything is going well, so we do not need another study on that market. Recently, we
had an opportunity to develop a project in the Middle West, which can be a possibility
for a study, like Africa, which is also in our plans. Let me tell you, I do not consider
exportation as a mode of internationalization. To me, internationalization requires a
Greenfield operation or acquiring a company in that country.
Interviewers: We did not find MPG’s mission and vision in the company’s website.
Can you tell us what they are?
Carlos Costa: Well, the website is still under construction. It would be a good idea if
you create them for the company.
Pedro Paz: Our mission and vision do not express our new perspective for the future of
the company. They were created 5 years ago when we started the naval operation, we
need to update them.
Interviewers: What are your strategic objectives for the next 5 years?
Carlos Costa: In 5 years we expect to have the shipyard of Santa Catarina, Brazil,
working at 100%, and the shipyard of Pernambuco at the same pace in 7 years. Then
41
Angola and later S. Tome and Principe. As you know it has oil, so it is a possibility in,
maybe, 10 years.
We want to be present in the “Golden Triangle”, which is Brazil, Africa and Gulf of
Mexico; there we have oil, and the possibility to sell our product, supply vessels. In
Brazil, Petrobras is the company that manages oil extraction. It defines the requirements
of offshore ships, and rents them to ship owners but the ones that do not meet the
requirements are excluded from the process. Recently, we signed a cooperation
agreement with Rolls-Royce, it knows the technology and can meet Petrobras’
requirements easily. Petrobras already approved Roll-Royce’s proposal. For the next
years we will have access to high technology and this is a learning opportunity.
Moreover, these shipyards in Brazil will give us access to credit for shipbuilding and to
export from there to other countries, like Angola for example. We do not have this aid
in Portugal, is easier for us to sell ships in Angola exporting from Brazil. Since Brazil is
closed to ship imports, it supports the domestic industry. We are going first to Brazil
and then to Angola. However, because of the closed market, building ships is more
expensive in Brazil than in Portugal. Having the shipyard in Portugal is an advantage in
this case.
Interviewers: We already read some information about the history of the company, in
the website and in some presentations we found online. But we would like to hear it
from you.
Carlos Costa: The Company’s name is the same of our founder, as you noticed. He
started a metal-mechanic company that supplied the miner industry and produced
machinery for agriculture. After his died its hirers sold the company in 2000 and it
focused on the construction of metal structures. In 2005, the naval department, of ship
42
building and repair, was added to the company. MPG uses a division of LISNAVE
shipyards. This space belonged to SETENAVE, the company was established in the
80’s and used to build and repair big tankers.
At that time, CEE paid Portugal to close SETENAVE’s activity as ship constructor
because there were quotas for big tankers production. SETENAVE kept the ship repair
activity and the space for ship building was left empty. When MPG started its naval
operations, the company did an agreement with LISNAVE, which is the actual owner of
the shipyard, since SETENAVE had been integrated in LISNAVE, to be able to use tha
ship building area that was empty.
Interviewers: How and when did MPG’s naval operations started?
Carlos Costa: MPG was focused only on the metal-mechanic industry but in the first
years of 2000s this industry had some problems and the company decided to diversify
instead of simply wait for a better scenario in metal-mechanic. At the time, I worked on
a shipyard on the North of Portugal and MPG contacted me asking if I was interested in
the project. This activity started in the end of 2005 and in January of 2006 we signed the
first contract with a client. And now we are in the middle of certification to ISO 9001,
14001 and 12001. We have been growing at a good rate since the beginning. MPG sales
were around €3 or €4 million in 2006, €20 million in 2007 and we were expecting sales
of €30 million in 2008 and €50 million and €100 million in the following years. But the
financial crisis in 2008 did not allowed these forecasts to become true.
When the crisis arose, orders from Norway went down to zero and other projects were
cancelled. This was one of the reasons for us to consider Brazil as a first country to
internationalize for. It is growing at around 5,6% of the GDP and it is one of the
countries that are growing more at the moment.
43
Besides the fact that the number of orders went down, we are facing competitors that
decreased their prices drastically. These are the cases of Romania, Poland and Turkey,
for example. In Poland, prices decreased approximately 50% and it is thought that they
are doing dumping.
Our objective now is to focus on the clients that give us some margin and wait for the
economic scenario to become better.
Interviewers: How many employees does the company have? And how are they split
between the two activities?
Carlos Costa: MPG has around 200 employees and from those around 160 are in the
naval activity. In this activity we have direct employees, the ones that work directly in
construction and repair. The number of direct employees is quite flexible, depending on
the number of orders we have in the moment. We also have indirect employees who do
not work directly on the final product; they are chiefs, administrative staff and
operations managers for example.
In theory, 14% to 15% of the work force should be composed by indirect employees.
But at the moment, they represent 20% to 25% of MPG’s employees. This happens
because we reduced the number of direct employees due to the lack of orders but the
indirect staff cannot be reduced and its cost is becoming higher than it should be.
Interviewers: Can you tell us how the order process is?
Carlos Costa: First we promote the company, some clients arise from our approach to
them and others contact us directly. We analyze what are the clients’ needs, the type of
requirements the ship has to fulfill. Then we make a proposal, discuss it with the client
and if it is approved we signed a contract with him.
44
After signing the contract we do a general plan of the work, it contains a detailed plan
for the production process, with deadlines for each phase, deadlines to acquire
materials, deadlines for installments and a detailed treasury plan to make sure that we
do not have to stop production due to lack of money and, that the final price for the
client is not higher that what was established in the contract.
Then we build the ship, in the end we ask for the clients’ approval of the work. If he
approves the work we do a protocol of delivery and assure 1 year of warranty from that
moment on. After the delivery, if the client is satisfied with the ship he writes us a
recommendation letter. These letters are important for us, since they are a proof of the
quality of our work.
Clients can also go to a classification society to classify the ship. There are different
classes and according to the class, the ship has a higher or lower insurance premium.
Interviewers: Besides the recommendation letters, what else can distinguish MPG from
its competitors? In other words, what is your competitive advantage?
Carlos Costa: In Portugal we have a big competitive advantage that is our facilities. We
have a dry dock with 420*75 meters, there is only one dry dock like this in Europe, and
we also have a platform for wind energy in offshore with 63 meters width that, as the
dry dock, there is only 1 like ours in Europe. With these conditions, we have capacity to
transform 35 thousand tons of steel per year.
All the planning we do before starting to build the ships is also very important.
Interviewers: We found a report from IAPMEI about the naval industry in Portugal, and
it was stated there that one of the problems for ship builders in Portugal is to get
financing since these companies do not have tangible assets to give as a guarantee. Do
you feel this problem?
45
Carlos Costa: No, not at all. We do not have any problem to get financing. We do not
need to give our assets as a guarantee. We just need to show the contracts we signed
with our clients and a proof that the clients will pay us in the end of the work. So far, we
have not had any problems. The problem may be the bank not to have liquidity to
finance us. It did not happen yet but we are afraid if it happens.
Interviewers: Regarding innovation, there are innovations in the sector? Do you adopt
these innovations?
Carlos Costa: There is not much innovation; the innovation that exists is more in terms
of equipments not in terms of the product itself. There are innovations in welding, new
equipments arise all the time and we adopt them. There are also innovations in robot
cut, in oxy cut and plasma cut that allow us to have a big capacity of steel cut.
Other point of big innovation is software to plan the work and we try to have the newest
versions.
Besides this, there are few innovations. Some of the equipments we have are not new
but the newest have exactly the same functions, the only thing that may differ is
capacity, but in some cases it is not profitable to make a big investment just to have a
little bit more capacity. For example, we have a panel line with 14 meters that allows us
to curve steel panels of 12 meters, this equipment is old but it is still very good, a panel
with 12 meters is very big, is very advantageous for us to have the capacity to do this.
Moreover, there has been a high level of innovation in the work planning. For us, it is
the most important innovation in the sector and we try to adopt it.
Interviewers: What is the average life cycle of a ship?
Carlos Costa: It is about 25 years; it may last longer but in average 25 years.
Interviewers: Tell us a bit more about your activity in the domestic market.
46
Carlos Costa: We have these 2 departments that in some projects work together, and
that is usually a great advantage, because this situation allows us to decrease costs. Our
industrial department is very strong and keeps the company financially balanced,
because the naval market is cyclic, and sometimes we do not have projects. Now, our
industrial department is part of consortiums to the TVG project and to build the 3rd
Tejo’s bridge.
Interviewers: In your opinion, what are the reasons for the naval construction market to
be cyclic?
Carlos Costa: I do not know, but I think that governmental regulation has a great impact
in the market, for example: in 1974 there was a big accident with a ship and after that
regulation about ship security increased, increasing the need of new and different ships.
Regulations over fishing activities in EU decreased the need of fishing ships in
Portugal. World economy has probably the greatest impact, the construction market has
the same behavior as the economy.
Interviewers: What are the main materials you use to build the ships?
Carlos Costa: We divide it in 2 types: steel and equipment. A ship has more than 25000
items. When we talk about supply vessels or fishing ships 70% is equipment. In the case
of cargo ships, 60% is steel.
Interviewers: How is your relationship with suppliers? Do you have negotiating power?
Carlos Costa: There are a lot of suppliers, so we have some negotiating power.
Interviewers: And what about your clients?
Carlos Costa: In that case, the negotiating power depends on the quantity of the order
and on the competitors in the market.
Interviewers: Can you tell us, what are your profit margins?
47
Carlos Costa: Depends on the client, but we can say that it is between 12 and 30%.
Interviewers: We read that the main players in the market are Japan and China. Is that
true?
Carlos Costa: Yes, Japan, Korea and Singapore and recently India are very strong, but
we are in a different market, we build different ships.
Interviews: Thanks for your time and all the information provided.
Appendix N – Second interview with MPG Shipyard
Meeting with Carlos Costa and Paulo Paz, from Manuel Pires Guerreiro, Lda.
October 12, 2010
Interviewers: Good morning. While we were doing the project we had some questions
we did not know the answer. Regarding mission and vision, which is one of the crucial
points for the project, we did a mission and a vision as a suggestion. The mission is
based on information we got from your website, you may recognize these statements.
The vision is more personal, we did this suggestion but we need your input to adapt it.
This one is very generic, it needs a reference to specific timelines and markets. What
would be your vision? What is your objective?
Paulo Paz: It is not so focused on ship repair, it is more connected with ship building.
Interviewers: Do you do ship repair as a Lisnave’s subcontracted company?
Paulo Paz: No, we do not. In fact, we do very little ship repair. Lisnave only does ship
repair and we cannot collide with their business given that we are using the ship
building part of their shipyard.
48
Interviewers: Ok. What would be MPG’s objective?
Paulo Paz: The objective is to become a reference.
Interviewers: In what time?
Paulo Paz: It is difficult in the short run.
Interviewers: In which market?
Paulo Paz: Like we told you in the previous meeting, we can be a reference due to the
easiness we have.
Interviewers: This easiness is about the dry dock?
Paulo Paz: Yes, it is. It is about the physical resources we have, equipments…
Interviewers: Why is the length of the dry dock so important? In fact, we saw the
website of companies that also build platform supply vessels and their dry docks are
really smaller than yours. What is the advantage that it brings to you?
Paulo Paz: This dry dock enables us to build big vessels. We can enter a niche market
where few companies are able to compete.
Interviewers: It is not in terms of supply vessels, since they do not have big dimensions,
right?
Paulo Paz: Right, it is not about supply vessels. It is about bigger vessels.
Interviewers: So, the objective is to diversify?
Paulo Paz: No, it is not. The objective was to build big vessels taking advantage of our
facilities. However, sometimes there are no projects to build big vessels. So, we have to
build supply vessels or others. We talk about supply vessels because of the Brazilian
market. They are building oil platforms as they find new reserves and each new
platform needs 14 or 15 platform supply vessels. However, the Brazilian market is not
49
able to build all of these vessels. It is an opportunity for us and that is why we are
focusing on this type of vessels.
Interviewers: So, the idea for the future is to become a reference?
Paulo Paz: Yes, it is.
Interviewers: In which market and in how many time? This is the objective that you are
trying to achieve, it does not mean you will achieve it exactly as it is stated.
Paulo Paz: It is not easy to give a timeline, but between 5 and 10 years.
Interviewers: For the Brazilian market?
Paulo Paz: Yes.
Interviewers: This would be the vision for the naval unit and what about MPG as a
whole?
Paulo Paz: At the moment, the business in the industrial unit is not going well. We are
using this unit as a support for shipbuilding.
Interviewers: Is this the objective for now?
Paulo Paz: It depends on the market. If we have many work in the naval unit and very
few in the industrial, it will close or integrate the naval unit. To build a vessel we need a
lot of inputs this unit can supply us, like structures.
Interviewers: Is the industrial unit your only supplier in that type of structures?
Paulo Paz: Yes, it is.
Interviewers: It represents 30% of the vessel, right?
Paulo Paz: Yes, it does.
Interviewers: Regarding the industrial unit, at the moment, the majority of its
production is for the naval unit, right?
50
Paulo Paz: Yes, it is. There is no demand for this unit, not only in Portugal but also in
Europe, it is very difficult. We have to specialize in a certain product to be able to
survive.
Interviewers: These were our questions about mission and vision. We do not know if
you agree with the suggestions.
Paulo Paz: I can keep them and show them to the administration.
Interviewers: Other question is about the company’s foundation. The information in
your website is that it was in the 1950s, can you tell us exactly in which year?
Paulo Paz: I think it was in 1956.
Interviewers: Which were the companies that bought MPG in 2000?
Paulo Paz: They are the current MPG’s administrators: Mr. António Sousa Amaral, Mr.
Matos and a company called SETH.
Interviewers: When you decided to diversify, why did you choose the shipbuilding
industry?
Paulo Paz: Because one of the current administrators has a lot of experience in the
shipbuilding industry, he is more connected with production. The other administrators
are more connected to the administrative part. He has a lot of experience, knows the
industry and people that work on it. He realized that the industrial unit was declining
and started looking for projects in the area he had experience.
Interviewers: On the last meeting we talked about supply vessels and then we found
references to platform supply vessels. Are they the same thing?
Paulo Paz: Supply vessel is a general term, and then there is a specific name for each
type of supply vessel. Supply vessel is a support vessel, the different names correspond
to specific function each vessel has.
51
Interviewers: Ok. The ones that you build are platform supply vessels, right?
Paulo Paz: Yes, it is. The ones that we want to build for Brazil are platform supply
vessels.
Interviewers: Are these the vessels you want to internationalize with?
Paulo Paz: Yes, we want to internationalize producing PSV’s (Platform Supply Vessels)
and also AHTS’s (Anchor Handling Tug Supply) that have similar characteristics.
Interviewers: You told us that a vessel has a big number of inputs and, consequently, a
big number of suppliers. Can you give us the name of some of them? Like the name of
the most important suppliers.
Paulo Paz: For example, in the case of propulsion engines the suppliers are MAN,
Rolls-Royce, … Do you want me to send you an email with the main suppliers?
Interviewers: Yes, we do. Because we need to draw an industry map. Regarding the
supply vessels that you already built, did you built the entire vessel or only the hull?
Paulo Paz: We built only the hull and the rest of the vessel was built somewhere. It may
be in a shipyard where the ship owner has a participation or in a shipyard where he has a
contract to build the rest of the vessel.
Interviewers: Do you work as a subcontracted company of a shipyard, or do you work
directly to the ship owner?
Paulo Paz: Usually, we are contacted by the ship owner. The ship owner may decide to
do the hull in one shipyard, another part in other shipyard, and even other in a different
one. It is not good to have it split in many places but usually it is split in 2 places. We
are very competitive in terms of the hull but when it comes to other parts of the vessel
we are not as competitive as, for example, Norwegians are. So, clients contact us to
build the hull and then build the rest of the vessel in Norway.
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Interviewers: We found some references that big shipyards are more focused on the
technological part and they subcontract other companies to do simpler tasks, as the hull.
Paulo Paz: Yes, it also happens. Big shipyards are more specialized and more
developed.
Interviewers: Is this the future for you?
Paulo Paz: We wanted it to be but it not easy.
Interviewers: This agreement with Rolls-Royce is a step on that direction.
Paulo Paz: Yes, it is. It is difficult to start operations today and in 5 or 10 years have a
brand of engines. The easier is to do partnerships with existing brands that have brand
recognition, know the market, the technology and have the know-how, and learn from
them in order to develop our operations.
Interviewers: Who do you consider as your direct competitors? Companies like STX are
big players in the offshore industry..
Paulo Paz: Our direct competitors are shipyards like ours.
Interviewers: Smaller shipyards?
Paulo Paz: Yes. STX is a big group and we are only a small shipyard. I do not recall
names but, our competitors are shipyards in Vigo, in Turkey and Romania. Norway
does not compete with us in terms of steel but competes in terms of final assembling.
Interviewers: Regarding Brazil, do you want to do turnkey projects?
Paulo Paz: Yes, we do. The idea is to give our experience in terms of working the steel
and find technological partnerships to conclude the projects. We have this partnership
with Rolls-Royce and we are looking for more partnerships.
Interviewers: Regarding MPG’s value chain, we tried to represent it here, starting with
Marketing, Design, Planning, Building and, finally, Customer Service.
53
Paulo Paz: Between the first and the second phases you have to consider the
commercial and contractual phases. The rest is right.
Interviewers: We wanted to know the margins of each one of the phases and who are the
suppliers in each one of them.
Paulo Paz: We create value when we buy steel and transform it.
Interviewers: In which phase is it?
Paulo Paz: It is between planning and building the vessel. We create added value in this
task.
Interviewers: It would represent around 30% as you told us? Is it going to be the same
in Brazil?
Paulo Paz: No, in Brazil it is going to be less because margins are smaller and there are
more competitors.
Interviewers: Here you are in Lisnave’s shipyard, how is it going to be in Brazil?
Paulo Paz: In Brazil we are going to have our own shipyard. We have 2 options: buy an
existent shipyard where we have to accept the design and facilities it has, what limits us,
or we can build our own shipyard.
Interviewers: Regarding the value chain, we need to understand what is your cost
structure and which is the percentage of added value in each phase.
Paulo Paz: I am going to try to find some information to help you.
Interviewers: Last interview you told us that 86% of your sales comes from exports.
Does it represent the sales of the company as a whole or only MPG shipyard’s sales?
Paulo Paz: It represents the sales of the company as a whole. In 2008 we have a
turnover of €30 million, I do not have information about 2009 but it was less than that.
54
Interviewers: Last time you told us about a platform of 63 meters to offshore wind
energy. Is this related to the dry dock?
Paulo Paz: Yes, it is related to the dock’s dimension, and since there is no other dock
like this one in Portugal, we can do it with lower costs than the other shipyards.
The wind platform has three floatation structures: a foundation, one tower and the
turbines. We do everything except: the turbines, the equipment and the final assembly.
We work with an American company, with a large experience, to do those parts.
Interviewers: What do you consider as your competitive advantage, comparing to your
direct competitors?
Paulo Paz: The dry dock allows us to have lower costs. In the case of the wind platform,
it is less expensive to do the whole work in the same place and the dimensions of the
dock allow us to do it.
We also have other advantages: experience, know-how, good relations with banks.
Interviewers: What you do not have is a great governmental support like your
competitors have, right?
Paulo Paz: Yes, we have almost no support, everything we have been doing is done with
our own means.
Interviewers: What is the probability of another shipyard to build a similar dock in
another place?
Paulo Paz: In order to build a dry dock, a shipyard needs to take environmental impact
into account, it must have large financial resources and analyze if the existent market
demand will compensate for initial investment.
Interviewers: Is there any project that gives you recognition in the industry?
55
Paulo Paz: Every project done to Norwegian companies give us more recognition
because they are the best in shipbuilding, the most developed ones and they are very
demanding in terms of quality.
Interviewers: What do you do best?
Carlos Costa: Probably, the management is better than our competitors’, which is
reflected in lower costs and customer satisfaction.
Interviewers: Is this what differentiates your company from the competition?
Carlos Costa: Yes, it is. The delivery time and the quality, but not the cost… If the
client is more interested on the cost, a company from other market with cheaper labor
cost wins: Poland, Romania, Turkey and obviously China.
Interviewers: Are not they in a different segment?
Carlos Costa: No, they are not. Now they are operating in this segment too. The major
shipbuilders are the Koreans and the Japanese, but they are in different segments. The
Chinese entered this segment, recently, but they have a very low quality. They have
incomparable prices. A Chinese shipyard with good quality and that delivers the vessels
in time, wins everything. In Europe our direct competitors are from Poland, Romania
and Turkey.
Interviewers: Is it common for shipyards to do not comply with the delivery time and
costs?
Carlos Costa: Yes, it is. Some shipyards use the events that may happen during the
construction to increase the price of the vessel. This is happening in Europe, there are
dumping practices during the bidding: shipyards win contracts, and then they try to
justify increases on costs or simply say they do not have enough money to finish the
vessel.
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Interviewers: Is this a way to differentiate shipyards?
Carlos Costa This is a non-continuous activity, if we build a vessel for a client, he
requires another vessel after 10 years but, obviously, when a shipyard does this it builds
its own reputation.
Recently, we lost 3 contests that were bid 40% cheaper than ours and it is impossible to
present such prices. Wages in Poland are similar to ours, in Romania they are 15%
cheaper and in Turkey they are 20% less. Steel is a commodity, we can buy it at the
same prices and the equipment is international. So the big difference is in the cost
structure and in the labor cost.
Usually, we include an 18% margin in our bids, now we have been including only 10%
and we still have this huge difference.
Interviewers: Do the other companies have the steel transformation as you do?
Carlos Costa: Yes, the activity is similar.
Interviewers: You buy the steel and it goes to the industrial department, right?
Carlos Costa: No, each department has its needs, and does its own transformation. The
industry department may act like a complement of the shipyard, because the vessels
need metal equipment, stairs and doors that we can manufacture in Beja, but the margin
is not significant.
Interviewers: That is all for now, thanks for your time. We will keep in touch.
Appendix O – Third interview with MPG Shipyard
Meeting with Paulo Paz from Manuel Pires Guerreiro, Lda.
November 17, 2010
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Interviewers: Good afternoon. We have some questions to ask you.
In the first meeting, you told us the internationalization objectives of the company.
What are the other objectives, like commercial or financial? For example, in terms of
turnover. Do have any expectation for the next years regarding growth? Is there any
objective?
Paulo Paz: No, there is not.
Interviewers: Like increase of sales.
Paulo Paz: We have been building our expectations according to the demand we face.
The situation in the industry is not good and we are trying to survive.
Interviewers: So, the idea is, at least, to keep the current sales?
Paulo Paz: Yes, it is.
Interviewers: Another doubt we have is regarding the people who bought MPG. In the
last meeting you told us that one of these people had experience in the shipbuilding
industry. Can you tell us what type of experience he has?
Paulo Paz: He had a ship repair company that operated next to Lisnave. The company
also did some shipbuilding but it was in a very small scale. It was a small company.
Interviewers: When you do not have orders to build new vessels what do you do?
Paulo Paz: We have our core employees: chiefs, project managers and operations
managers. All the other employees are subcontracted, so when we have less orders we
have fewer employees. If we have no orders we have no subcontracted workers at all.
Interviewers: You also build other things like metal structures and platforms for
offshore wind energy but these are short term projects that allow you to balance the lack
of demand for vessels, right?
58
Paulo Paz: Yes. We try to get these small projects to survive when there are no orders to
build new vessels.
Interviewers: What about services?
Paulo Paz: We can do ship repair.
Interviewers: In the last meeting, Eng. Carlos Costa told us that MPG cannot do ship
repair to do not collide with Lisnave’s activities.
Paulo Paz: Yes, it is true. We cannot compete with Lisnave but we can hand workers
over to it.
Interviewers: Is it the only service you do?
Paulo Paz: Yes, it is.
Interviewers: Regarding suppliers, you sent us a list with some of them but it did not
include any steel supplier. Can you tell us the name of a steel supplier?
Paulo Paz: FAFE is a company from Palmela and it is our main steel supplier. There are
also other suppliers but this one is almost exclusive. We work with this company for
many years and we have a good relationship with it.
Interviewers: Other question we have is that in the first meeting you told us it is not
difficult for MPG to get financing. Why does it happen?
Paulo Paz: This happens because we give our bank a bank guarantee, issued by our
client’s bank, showing that it is able to pay us.
Interviewers: Regarding your investment in Brazil, we saw on the news that it is an
investment of €140 millions.
Paulo Paz: €140 million is not enough it may be 3 times that amount.
There is a fund to construction in Brazil. The problem is that it takes a while to pay
companies. What we expect is to get a financing to be able to start building but we have
59
not got it yet. Since we do not have contracts yet we cannot go to the bank and ask for
this amount.
Interviewers: The part of the platform supply vessel that you build is not very
technological, right?
Paulo Paz: Yes, that is why we did the agreement with Rolls-Royce.
Interviewers: They do the vessel’s design and supply the engines, right?
Paulo Paz: Yes, they supply the engines, transfer the technological knowhow and give
us privileged times of delivery.
Interviewers: Do the engines become cheaper for you? Do you have exclusivity with
Rolls-Royce now?
Paulo Paz: No, we have not exclusivity.
Interviewers: So the prices are the same for you and for other companies.
Paulo Paz: Exactly.
Interviewers: Is the agreement valid for any market where you operate?
Paulo Paz: Yes, it is.
Interviewers: This is an advantage for you, besides the fact that Rolls-Royce do these
agreements with other companies.
Paulo Paz: Yes, the advantage for Rolls-Royce is to sell more engines.
Interviewers: From our research we understood that offshore vessels have high
technology and build them requires a huge technological knowhow but this is not the
case of the hull. So, the part that you use to build can be done by any company?
Paulo Paz: Yes, it can.
Interviewers: Is this the difference between MPG and a Norwegian shipbuilder? Are the
technological equipments what add value to the vessel?
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Paulo Paz: Yes, are the technological equipments.
Interviewers: Is this what Norwegians do? Would you be able to do it if you had the
right suppliers?
Paulo Paz: Norwegians are not competitive in building hulls. In this topic we are much
better, they are very expensive. Norwegians are better than we in technological terms.
Interviewers: This agreement with Rolls-Royce is not enough for you to build the entire
vessel, right?
Paulo Paz: No, it is not.
Interviewers: With what suppliers would you need to have an agreement to be able to do
it?
Paulo Paz: We would need to do agreements with suppliers of communication and
navigation, dynamic positioning, tubing, electricity, accommodation and others. We
already know some companies that may be willing to transfer the knowhow and go
along with us. It was important to do the first agreement with Rolls-Royce to show
other companies that we have an agreement regarding the most important input of the
vessel that is the engine. Rolls-Royce is one of the strongest companies in the world
supplying engines. There are lots of other companies selling engines but they do not
have the same influence and prestige Rolls-Royce has.
Interviewers: So, the advantage of Norwegian companies is that they have developed
their knowledge regarding these equipments, right?
Paulo Paz: Norwegian shipbuilders have the knowhow of all the phases in shipbuilding.
Interviewers: If you have the right agreements, can you be more competitive than
Norwegians? For example, you have cheaper labor costs than them.
Paulo Paz: Yes, we can.
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Interviewers: In your internationalization process to Brazil, the idea is to find the right
suppliers to do agreements with so that you can build the entire vessel, right?
Paulo Paz: Yes, it is.
Interviewers: Regardless of where you internationalize to the idea is to build the entire
vessel?
Paulo Paz: Yes, it is. Contrarily to what happens in Norway, there are markets where it
would not make sense to do only hulls. Norwegian shipbuilders do not do hulls because
they are not competitive in this task, their labor is too expensive. It is much cheaper to
order them from China, Portugal or Turkey.
We have done some projects to Norway. There is this company called Havyard to
whom we have been working.
Interviewers: How does it work in terms of guarantee? The hull has a quality guarantee,
right?
Paulo Paz: Hulls are classified by a classification society. They have rules that we need
to follow during the building process. Some of these rules are worldwide accepted and
these societies make sure we follow them.
Usually, in the delivery moment, the ship owner has with him a team from one of these
societies to check if the shipbuilder is following the rules. We also have one of these
teams following the shipbuilding process to do not have surprises at the delivery
moment.
Interviewers: Are these teams different?
Paulo Paz: Usually they are, but the ship owner may have an agreement with the
shipbuilder and the classification society and the same team works for both parts.
62
Interviewers: What is the price of a supply vessel? We found a reference that prices in
the offshore segment decreased 25% in the past year, is it true?
Paulo Paz: Yes, it is. Prices depend on the technology of the vessel but they can vary
between €40 million and €80 million.
Interviewers: How much are you willing to spend in the internationalization process?
Paulo Paz: This is a very difficult question that I need to ask to the administration.
Interviewers: Ok. We will also need to know what turnover you expect from these
investments.
Regarding labor costs, you told us that differences between costs in Portugal and Poland
or Turkey are not very significant, but we found big differences, like half the costs.
Paulo Paz: For what type of workers?
Interviewers: In general, we did not find values for the shipbuilding industry.
Paulo Paz: The shipbuilding industry is very specific. It is not very easy to find people
to work on it. So the ones that are able and willing to work are less than what companies
need and, consequently, have high salaries.
Interviewers: Following the subject of labor, maybe it is not so difficult to find skilled
workers in Qatar but, how would it work in Angola? Would you need to have mainly
expatriates or is it easy to train Angolans?
Paulo Paz: The idea is to have core employees and then train Angolans.
Interviewers: How many people are involved in a project?
Paulo Paz: It depends on the project, there are projects that involve 400 people for 1
year or 1 year and a half. We would expatriate around 50 people. Then we would train
locals and keep the best people working with us.
Interviewers: Would it be easy to train locals?
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Paulo Paz: Yes, it would be easy to train Angolans.
Interviewers: Does it require a special training?
Paulo Paz: No, it does not but, we need to keep there people we trust in. Moreover, we
believe that there are some people in Angola with knowledge in this activity.
Interviewers: The small shipyards that are used to build fish vessels do not have the
required dimensions to build a supply vessel, right?
Paulo Paz: No, they have not.
Interviewers: Regarding the activities, is there any activity that needs to be performed in
Portugal and cannot be performed in Angola or Qatar? For example, the project can be
done in Portugal, right?
Paulo Paz: We need to compare where it is cheaper to perform the activities and what is
better for us. You are right, the project can be done here in Portugal, we do not need to
pay people to be there doing it. Everything that is not physic can be done here. I am
trying to think in other activities besides the project but…
Interviewers: If you were able to find the right partners, would it be possible to build the
hull here and then do the outfitting in the other country? Or is it non sense?
Paulo Paz: In the case of Angola it has no sense.
Interviewers: I asked this question because in Qatar it seems to be a good idea.
For now it is all. Thank you for receiving us.
Appendix P – Interview to AIN (Associação de Indústrias Navais)
Meeting with José Ventura de Sousa and Filipe Duarte from Associação das Indústrias
Navais
64
September 30, 2010
Interviewers: Good morning, thanks for meeting us. We are doing a thesis for the
internationalization of a shipbuilding company and we are trying to understand how is
this market in Portugal. We thought that, as you are the representative association of the
companies that are connected to the shipbuilding industry, you would be the right
person to give us some insights about it. We already met the representative of the
company we are doing the study for, which is MPG, but we thought it would be useful
to listen someone with a different view of the sector.
J. V. Sousa: I can start by showing you this map. Our association is composed by
shipyards of shipbuilding and ship repair. There are shipyards of different dimensions,
from very small to big ones. The biggest is Lisnave’s shipyard. It is like the jewel of the
crown. In this activity area, it is the biggest in Europe and one the 5 biggest shipyards in
the world. Ships of big dimensions can be repaired there. Our associates work on every
type of material since wood, especially in Póvoa do Varzim, in Figueira da Foz
companies work predominantly in aluminum and the shipyard from Viana do Castelo
works especially with steel. It is the best known shipyard, the biggest shipyard of
shipbuilding and it is a medium dimension shipyard. More to the South we have
Peniche shipyard, Almada, some small repair shipyards in Tejo’s estuary. We also have
a shipyard in Sarilhos Pequenos dedicated to traditional boats, they work only with
wood and build traditional boats from Tejo river. There are more shipyards in Algarve,
along the coast until Guadiana’s mouth river where is Nautiber. This company works
with fiberglass. We also have an associated that had belonged to the Portuguese Navy
65
but nowadays is an anonymous society. It is the Arsenal do Alfeite, situated in Almada.
It still does the maintenance of Navy’s ships but it is about to enter new markets.
These are our associates, there is no other association like ours in Portugal for the
shipbuilding sector. However, our associates are not only shipbuilding and repair
companies. There are also other associates connected to the ship building and repair
activity, especially in terms of search and development like Instituto Superior Técnico,
Instituto de Soldadura e Qualidade, Tecnoveritas and other companies regarding
projects. Other example is Lisnave Internacional that has a vast experience in planning
and management of big dimension shipyards in the Persian Gulf and Dubai, for
example. Other associates are suppliers, classification entities and maritime operators.
Some of the shipyards have small units that work for the big shipyards. This is the case
of MPG that is in Lisnave’s shipyard and makes small works to it. When it does not
have its own orders it builds modules to Lisnave. There is also other company in the
same shipyard that is Menaval.
Interviewers: Is it usual this type of co-operations?
J. V. Sousa: This is a difficult question. You are young people and you are used to work
in team, you get used to it in university. In the case of older people, like me and the
people that manage the shipyards, there is a big difficulty to co-operate, but it is crucial
to be able to respond to big projects, like the increasing demand of ship building in
Brazil. There is a big demand and it could be a good opportunity for the shipyards, it is
time for them to co-operate with each other. We created a questionnaire in other to
understand if the shipyards are willing to co-operate. This co-operation could have
many forms, keeping the different companies, through a fusion or any other form. So far
the only type of co-operation in the Portuguese market is outsourcing. Big companies
66
outsource from smaller companies. Sometimes associates ask us information about
other companies, but then they contact the companies by themselves, we only make the
information available. The managers of these companies are not ready and/or willing to
join efforts, capabilities and knowhow in other to respond to new markets.
Interviewers: Is the Portuguese market very limited?
J. V. Sousa: Some of the companies I was telling you about were focused on building
boats to the fishing sector, but the demand in this market almost disappeared. There is
still some market in this area, for example Nautiber still has orders for the sector, but it
is not for the mainland, it is for Azores. Azores have a different legislation and because
of that there is still market for ship build in the fishing sector there.
Other shipyards had to look for other markets. It is the case of Estaleiros de Peniche that
looks for clients in Angola, Guinea, Algeria, Nigeria and France.
The market is limited. The biggest shipyards work mainly for foreign clients, as it is the
case of Estaleiros de Viana do Castelo. Except in the case of the Portuguese Navy that is
a privileged client of this shipyard, but this client does not provide enough demand, the
shipyard has excess capacity.
Interviewers: Did excess capacity become common? Was it the reason why some of the
companies were not able to survive?
J. V. Sousa: Yes, there was a period when the European Commission forbade the
renewal of the fishing fleet. The shipyard had done some investments and then they
were not able to recover them. This happened from 2006 to 2009.
Interviewers: Can it be affirmed that the offer is differentiated from company to
company? For example, can we say that Estaleiros de Peniche do not offers the same
product that Navalria does? Is there internal a rivalry between the shipyards?
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J. V. Sousa: There is internal rivalry between the companies, even between the two that
you referred. At the beginning, Navalria was only focused on ship repair, namely on the
maintenance of tugboats from Sines, Lisboa and from some places in the North of
Europe. Now, with a new management, the company lost part of the foreign market it
had. This shipyard was bought by a big group that is Martifer, the group acquired it to
work as a metal-mechanic unit to build big modules to use in the wave energy
exploration. The group changed the shipyard from a ship repair to a shipbuilding one.
In terms of modules for the wave energy exploration, the company built a prototype but
now there is no demand for more prototypes so it focused on shipbuilding to take
advantage of the investment that was done. Both shipyards, Peniche and Navalria
competed to build the ferries that Transtejo wanted to order and Navalria won the
contest. It is obvious that Peniche had better equipments and experience to do it. There
must have happened something. Maybe a better price, less time to delivery or better
terms, but we do not know.
Interviewers: It would be assumed that as Peniche has the learning curve and more
experience in the planning process, it would be more capable to do this order…
F. Duarte: Estaleiros de Peniche is specialized in steel and in composites. Navalria is
only specialized in steel but it offered best terms and won the contest. It entered in the
national market.
J. V. Sousa: There is also other example, a ferry that was built on this shipyard that
eventually should be built in Viana do Castelo. It was a ferry for Douro Azul. These two
shipyards participated on the contest and Navalria won once again.
F. Duarte: Estaleiros de Viana do Castelo is a public company. In this case a private
company won over a public one.
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Interviewers: Does the fact of being a public company influence its position on the
contests? Is it an advantage?
J. V. Sousa: It is a 100% public company.
Interviewers: Does it have a private management?
J. V. Sousa: No, it does not. The management is chosen by a public holding that is
called Prodep.
F. Duarte: It does the same in Arsenal do Alfeite.
J. V. Sousa: These shipyards play in the market as other companies do, they do not have
subsidies since it is not permitted by law. Anyway, the shipyard has a negative income
that sooner or later is covered by the government in the form of a capital increase. But,
since the shipyard competes in the international market the Portuguese market is not
affected by these practices. It is the other way around because there are small industries
located close to the shipyard that supply it, they are called auxiliary industries, and as
they operate only with this shipyard they depend highly on it. So, these practices are
strategic for the survival of the auxiliary companies, but I am not sure if it is profitable.
The same happens in Setúbal with Lisnave, in the past the company had 10 000
employees, nowadays it has only 350 employees but there are around 2500 people
working there every day, they are outsourced and have a precarious job. This was the
company’s strategy to have a low break-even and positive income. Then, the problems
of the market are reflected in the outsourced companies.
Interviewers: So, Lisnave outsources these workers but it also has its own employees…
J. V. Sousa: When Lisnave has a ship to repair, part of the work is done by its
employees, namely the planning part that is done by managers, other parts are done by
outsourced workers. When there are big projects of ship repair, the company may
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outsource workers from the other big shipyards, like MPG and Menaval. Or when there
are very specific tasks to do. In general, the company outsources more from temporary
work companies.
Interviewers: Engineer Carlos Costa told us that the market is cyclic but he was not able
to explain why does it happen..
J. V. Sousa: The market is cyclic but it depends if we refer to the shipbuilding market or
to the ship repair market, they are different. World economy is cyclic, when it is
growing there are lots of transport. In these periods there is high demand and freight
rates are high. Ship owners have money because they have liquidity so they can invest.
When the market is in the top of the cycle, ship owners make new orders, expecting the
market will not go down very much since they already know that it will go down,
anyway. The problem is that sometimes the market goes down more than what ship
owners were expecting it to go. When the economy achieves its negative peak,
shipyards are still building ships according to the orders they had received in the
positive peak. The cycles of ship building are like the economic cycles, they follow the
same pattern, but may be less intense and they have a delay of 1,5 years.
There are several factors that influence the world economy, like elections in the USA. In
the year before the elections there is always a stimulus in the market, the USA economy
grows up, and in consequence there is an increase in imports, exports and the world
trade increases. Nowadays, it does not have so much impact, because the USA are not
the only main player anymore, China has an increasing influence on the world
economy.
In the naval industry the situation is similar, but there are also other factors. Some ships
like oil ships have now a smaller life cycle. They are inspected every 4 or 5 years, and
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the 5th
reparation is too expensive. It is like what happens in the automobile industry.
Some time ago, even when the oil ships where old, ship owners thought it was worth to
repair them so, there were big project repairs. Nowadays, due to the European
legislation regarding security, the life cycle of oil ships is limited to 20 years and
inspections are very rigorous. Because of this legislation the average age of the fleet has
decreased and, in consequence, the average cost of ship repair decreased. When I
worked at Lisnave, we used to repair around 130 or 140 ships per year, the average cost
of repair was $1 million. Nowadays, the average cost is $600 thousand or $500
thousand since the repair is less extensive.
Ship repair is not as cyclic as shipbuilding is. Even when shipbuilding is low there is
still some work in ship repair. As the freight rates are low now, there is no money to big
repairs but there are small repairs, which are mandatory in order to assure security
aboard.
In this way, cycles of ship repair are less intense than cycles of shipbuilding. You can
now explain engineer Carlos Costa that this is related with the world economy cycle.
When I was professor at Instituto Superior Técnico my students did a study about this.
They tried trough linear and multiple regressions to find which is the correlation
between these two cycles. They found correlations with big significant, with R2 around
90%, and it increased if they join other factors.
Interviewers: Is this the reason why the majority of the shipyards do ship repair? Is it
risky to do only shipbuilding?
J. V. Sousa: Most of the shipyards do ship repair because in this moment there are big
problems in the shipbuilding activity. For example, Viana do Castelo is having
problems with shipbuilding because the market failed. At the moment, the company has
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25% of its operations in ship repair. It is easier to sell ship repair than shipbuilding and
the labor value for the ship repair is higher. The focus of the shipyard is not ship repair
but at the moment, it is worth for the company to do it.
Shipbuilding is always a complementary activity, there are some shipyards like Samuel
& Filhos that now are working only on repair. There is also the example of Jaime Costa
that only makes traditional boats, his main clients are city councils that offer boat trips
to schools and other inhabitants in the summer. In the winter he has a lot of work to do
in the maintenance of these boats but in the summer there is no demand. So he has to
have some shipbuilding activities to be able to survive during these months.
Interviewers: We were wondering, in the case of these companies, if they want to exit
the market, they have big costs to do it. In this way, it seems better to have the
complement of shipbuilding in order to survive. Since otherwise, exit costs with
employees and the shipyard would be very high.
J. V. Sousa: It is true. But a shipyard focused on ship repair does not need the same
investments that a shipbuilding one needs. Usually, when a shipyard is built it has to
have specific equipments for its focus.
Interviewers: Is this only a question of initial investment?
J. V. Sousa: For example, Lisnave’s shipyard was built to be a ship building one.
Nowadays, Lisnave’s operation has changed, the company only does ship repair and, for
this activity the shipyard is not efficient. If it was built to be a repair shipyard it would
have a different layout. Because the workshops are very far from each other, there
should have a bigger concentration in the buildings. When doing a repair, workers have
to go from the workshop to the dock and they are far from each other. The time spent in
this travel is a waste. The way the company found to eliminate these travels was to put
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containers with equipment on the ship. At the lunch time, workers have to go to the
canteen that is also far from the docks.
In a small shipyard there is also this problem but the inefficiencies are not so big
because distances are smaller. In terms of equipment, if the shipyard was intended to
focus on repair it lacks some specific equipment for shipbuilding.
Interviewers: In this case, they can rely on outsourcing…
J. V. Sousa: There is an advantage for the shipyards that have both shipbuilding and
repair. Shipyards that have a construction component, even if it is small or of small
ships, are able to develop new technologies that are useful for ship repair.
The shipyard evolves more in technological terms when it has a shipbuilding
component. For example, if the company has only a ship repair component, there are
some tasks that, usually, it does not need to do except in the case of big repairs. Because
of that, employees lose the experience and the technology regarding these tasks and
when they have to be performed it is very complex to them. This is my opinion. There is
a tendency to lose quality when the shipyard only does ship repair.
Interviewers: Can a synergy between companies cover this problem? For example,
MPG operates in Lisnave’s shipyard and from what we know its core business is
shipbuilding and some of its workers work for Lisnave when it is needed. Can it be a
synergy to share the knowhow between companies?
J. V. Sousa: We are talking about different things. MPG is specialized in the building of
offshore vessels that have small dimensions, supply vessels. In the case of Lisnave, we
are talking about oil ships, which have big dimensions.
F. Duarte: If MPG was specialized also in big dimension ships it would make sense to
create a synergy but I do not think the companies would do it. Because Lisnave
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outsources mainly labor and its knowhow comes from inside the company. And the
synergies would be a type of co-operation. It is possible but we do not know. They have
their own engineers.
J. V. Sousa: During the conception of your business plan you have to think about the
product, in the case, supply vessels and make a market research, Venezuela is an option
to MPG, probably Carlos Costa refer to it.
F. Duarte: You can use a real case, AIN had some meetings with the associates, AICEP
(Agência para o Investimento e Comércio Externo de Portugal) and DHE to talk about
the internationalization to Brazil, and MPG was there. So, we are interested to study and
enter in Brazil. It all depends on the internationalization strategy; probably MPG has a
different strategy from the other Portuguese shipyards, I think that they want to buy
some shipyards there.
J. V. Sousa: They have “intention letters” signed in Brazil.
F. Duarte: In that case, the market is already identified; it will depend of the capacity of
the shipyard they acquire there. The business plan is easy to do, in that case, because
they already identified the market, and know what they want to purchase.
J. V. Sousa: Let me tell you, we can have another meeting, because we would like you
to do a good job and we can take benefits from that.
F. Duarte: The last people we met, and with whom we have been collaborating to give
this type of information to market research were from Spain. It is unusual to have a
Portuguese university studying this sector.
Interviewers: Are there any differentiation in the Portuguese market between
companies? You already told us about Martifer increasing the competition.
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J. V. Sousa: Yes, there are. Some companies build steel ships, others build fiber glass
ships or fishing ship…
F. Duarte: In the case of construction of fishing ships to Azores, there are two shipyards
competing, but with they build different types of ships. Nautiber builds fiber glass ships
while União Naval builds aluminum ships. There are also different segments that
usually do not compete, but sometimes they do it.
Interviewers: It looks like competition is low, because the companies are in different
segments trying to survive and avoiding competition.
J. V. Sousa: Competition is good, if the “weapons” are the same!
Interviewers: What are the most important fixed costs in this industry, are they wages?
J. V. Sousa: Yes, the most important costs are wages and the shipyard.
Interviewers: Considering these costs, usually, what makes the company less
competitive or more vulnerable to changes in the market?
J. V. Sousa: In the case of ship repair it is the workforce, probably. Now it is less
challenging due to the increase of subcontracting. In shipbuilding, the dock and
equipment are more relevant.
F. Duarte: You can find that information in the financial statement of the companies. It
is easier to know precisely. Recently, a yard was to rent, but no one wanted it, because
the price was too high, and that is a fixed cost. Every yard in Portugal is a concession
from the state. And this can be a barrier when it comes to open a new business, it is a
high fixed cost, and all yards me be already rented. The business, even when we talk
about investments depends for how long is the concession. For example, Lisnave has a
concession for 30 years.
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Interviewers: We read in a study that Portuguese shipbuilding companies have
difficulties to get financing and the reason is that they do not own the shipyard, so they
do not have guarantees to give to the banks. Is this true?
F. Duarte: Yes, this is the main problem. It is not the only one, but it is the biggest.
Interviewers: However, MPG told us that they do not have this problem. Can you tell
us, what are the reasons for that?
J. V. Sousa: They may have an advantage. I think they pay a small rent for the use of
the space and equipment to Lisnave. It also depends on the market where they operate,
in the case, the offshore market. Moreover, they do build the whole vessel, they just
build the hull as a subcontracted company.
F. Duarte: We are not talking about building a whole ship, and they do not give the
same guarantees to clients as the other shipyards do when they build a 20 million euros
vessel. In Portugal, access to guarantees is not easy to get and it is not adequate to the
industry needs. Spain already solved this problem, but Portugal did not. If MPG does
not have this problem is because it has other solutions. Moreover it does not deliver the
supply vessel fully equipped.
To build the entire vessel, MPG needs to give guarantees, and it does not have the
infrastructure. It may have a big financial group that support the company, but if it is
like the other shipyards in Portugal, that is almost impossible.
Interviewers: Some of the Portuguese shipyards belong to a group of companies, right?
We found ENVC as an example.
J.V. Sousa: There are two cases: ENVC, Alfeite and Rocha belong to a holding, and
there is another shipyard in this situation. All the other shipyards are individual
companies.
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Interviewers: What are the expectations for the next years for this sector of shipbuilding
and ship repair?
J.V. Sousa: It is difficult to predict, but in the case of shipbuilding, it depends on your
ability to enter in specific segments: ferries, mega yachts and so on. These are very
difficult and risky markets, but they have some opportunities that ENCV is trying to
capture. The small/ medium shipyards will focus on small vessels and merchant vessels.
Demand will be the same as it is today. In the case of ship repair it will maintain the
cyclicality, and we expect a recovery in 2011, but it depends on the economy. Shipping
data is a good way to access the evolution of the market, I despair every time I see the
freight rate fluctuating but it stays always very cheap. If the forecast of WTO (World
Trade Organization) really happens we expect a better year.
F. Duarte: In the case of MPG the perspectives are very good because of the Brazilian
market.
J.V. Sousa: It is a specific market, with investments in the oil market to produce 4
million barrels/day until 2020, Brazil is going to demand more vessels. In Portugal the
situation is completely different.
Interviewers: We found several studies about the Portuguese industry, with
recommendations, and it seems that nothing is happening.
F. Duarte: Yes, everything is going to the drawer.
J.V. Sousa: There is a new player, President Cavaco Silva, which supports the industry,
and who is driving the public attention for the importance of shipbuilding in order to
develop the whole maritime industry.
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Interviewers: Is the most recent information about the industry in the presentation you
gave in Sociedade de Geografia de Lisboa? We contacted Instituto Nacional Estatística
and they told us that the most recent data they have is from 2008.
J.V. Sousa: Yes, it is the most recent data. We are now trying to understand the
expectations of the shipyards for the next years but we are still in the beginning of this
study.
Interviewer: Most European reports state that the future is the increase of more
technological vessels, and can see that Instituto Superior Técnico is your partner, is that
the path for the Portuguese industry?
F. Duarte: Well, my master’s thesis was a cleaner vessel, using solar energy. The
Peniche shipyard liked the project and tried to get finance from QREN to develop the
project. At first it was not considered innovative but then it gained support. However, 3
years have passed since the application to QREN’s support, 6 years have passed since
the beginning of the project… The investment plan exists, but QREN’s commission cut
some rubrics, and then everything must be redone. Moreover, there are no private
companies willing to finance these prototypes.
When we see the automotive industry investing heavily in new technology, we should
be ready and have solutions to enter the market and compete. If this is the future for the
Portuguese industry… Well, only a few shipyards have capacity to develop these
projects, most of them are more focused on ship repair. The international market is
extremely competitive and we have to enter with low prices to gain projects, losing in
quality or try segments that pay for quality.
In the Portuguese industry, the biggest shipyards will only invest in technology when
the European Union imposes a reduction in emissions and in the use of fuel.
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Interviewers: We think it is all. Once more, thanks very much for meeting us. It was
very helpful.
Appendix Q – Interview with Isabel Santos from CCIPA (Câmara do Comércio e
Indústria Portugal-Angola)
Meeting with Isabel Santos from Câmara de Comércio e Indústria Portugal-Angola
November 18, 2010
Sara: Good morning. Thanks for meeting me. I am doing a thesis that is an
internationalization plan of a Portuguese company to the Angolan market. It is a
shipbuilding company that builds supply vessels for offshore oil platforms and I would
like you to answer some questions about Angola and its shipbuilding market.
Isabel Santos: Ok.
Sara: From my research I was able to understand that the shipbuilding industry is little
developed in Angola.
Isabel Santos: It is right. There is very little shipbuilding activity in Angola.
Sara: I found references to some companies like Soconal but any of them produces this
type of vessels.
Isabel Santos: For many years there was a company called ENAVE that was the
Estaleiros Navais de Luanda, the company belonged to Porto de Luanda and it used to
do ship repair. In other words, the company did not build vessels, it only repaired the
existent vessels. ENAVE tried to retake its activity… Note that Angolan big companies
were created in the colonial period, then they had a break period and in the beginning
and mid 1990s there was an attempt to retake their activity. This happened to ENAVE, a
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management contract was signed with LISNAVE but due to the market environment
and the lack of foreign exchange (on that time Angola had to supply the war industry
besides worrying about the economic development and consequently the majority of the
money was used to finance the war) ENAVE never reached the objectives LISNAVE
had set for the company. There was also a problem with the Portuguese companies
operating in Angola through management contracts. (Usually there was a management
contract and then it evolved to privatization.) The objectives of the companies, their
operation and their rules were defined by the headquarters in Portugal, located 7000
kilometers away, and frequently the objectives, margins and procedures were defined by
people that did not know the Angolan reality and did not have contact with this country
that shares the language with us but sometimes it is the only thing it shares. The way of
doing things in Angola is completely different from what it is in Portugal.
There were also other companies that were located near the harbor but they were more
focused on ship repair instead of shipbuilding. For example, in the case of fishing ships,
Estaleiros Navais de Viana do Castelo sold some ships to Angola to be used in offshore
fishing.
In general, shipbuilding industry in Angola is very scarce. There may be some cases of
shipbuilding but it is very rare, and it is not even one of the priorities the Government
defined for investment in Angola.
Sara: Recently there were some news about foreign companies that built shipyards in
Angola but their activity is focused on spare parts to the platforms.
Isabel Santos: It is natural. The oil sector is very big, it has a very specific demand and a
usual vessel is not able to serve this activity properly. As The Netherlands is one of the
countries that invests in the oil area in Angola it is natural that these companies are
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working there. Actually, the publication of contracts in Diário da República de Angola
to supply different types of vessels to Angola has been frequent in the last months.
What I mean is that the vessel is bought to other countries. There is not a tendency to
import raw materials and then built it in Angola. Vessels are bought to Spanish as well
as Chinese companies. Some of them (few) are bought to Portuguese companies. There
was an expectation from Estaleiros Navais de Viana do Castelo to sell one or two
vessels to Ministério das Pescas de Angola but it is always an imported vessel.
It does not mean that it is not feasible to enter in this industry in Angola. The problem in
Angola, regardless of the industry, is the lack of raw and subsidiary materials and the
lack of skilled labor. If a company is able to join these resources together and then
compare the costs with the cost of an imported vessel, the imported vessel is cheaper.
A project like this would need government support, namely with the creation of special
regulation for this activity area.
Sara: So that the national vessel would be cheaper than an imported vessel.
Isabel Santos: Exactly. The problem is that, as it happens with many Angolan products,
it is cheaper to import than to produce internally.
Sara: Are there restrictions to raw materials imports?
Isabel Santos: No, there is not. In the case of shipbuilding, it is a considerable
investment. So, the company will probably enter the Angolan market under the Lei de
Bases do Investimento Privado, and it will benefit from some exemptions and benefits
that are defined in a complementary law called Código dos Benefícios Fiscais e das
Isenções Aduaneiras ao Investimento Privado.
What happens is that when a company negotiates its investment with ANIP (Agência
Nacional de Investimento Privado) or with the Council of Ministers, depending on the
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value of the investment (if it is of $5 million it is decided by the Council of Ministers,
ANIP has no power to decide anymore), both entities, the company and ANIP, or the
Council of Ministers, establish their own requirements for the investment. So, when the
investor submits the investment process to ANIP (it is always submitted to this entity,
regardless of the investment’s amount and ANIP power to decide) it can, at the same
time, ask at the tax office to evaluate the possibility of the project to be under the
Código dos Benefícios Fiscais e das Isenções Aduaneiras ao Investimento Privado.
From this law, the investor may obtain exemption of duties regarding imports of raw
materials and equipments and a percentage reduction in the industrial tax, which is
equivalent to the Portuguese IRC, for a determined period.
The period of exemption and the percentage of discounts vary according to location.
Note that Angola has 18 provinces, some of them almost did not feel the impact of the
war. It is the case of coastal provinces: Kwanza Norte, Bengo, Luanda, Kwanza Sul,
Benguela and Namibe. They are more developed than the other ones. The objective of
these benefits is to influence companies to be located in the other provinces.
Of course that in the case of a shipbuilding company it makes no sense to be located in
the other provinces. Since shipbuilding is a very specific activity the company should
negotiate explaining that it cannot be located away from the coast, thus besides being in
a region which assures lower benefits it could have an exception and the company
would be granted more benefits.
The exemption of duties regarding imports of raw materials and equipments is almost
automatic. The Angolan tariff of import duties states the usual benefits and the further
benefits that are applicable to an investment project, the variable benefits are the tax
benefits that depend on the location and the activity of the company.
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Sara: Regarding the construction of a shipyard, does it work like in Portugal where the
coastline is managed by the State through maritime institutes?
Isabel Santos: Yes, it is managed by the several captaincies. For example, in the coastal
area of Luanda it is the captaincy of Luanda and then each captaincy is responsible for
its part of the coastal area. There are “planos de ordenamento” of the coastal area that
state which constructions are allowed in each place. Investors cannot choose a random
place that seems good to build their facilities and just do it. They need to have
permission from the provincial government and the respective captaincy.
Sara: It is possible to buy that place? Or is it only a concession?
Isabel Santos: According to the Angolan Constitution all land belongs to the Angolan
State. In other words, all land belongs to the Angolan people and their representative is
the State. Usually concessions are valid for a period of 70 years, but no one expects that
after this period there will not have a renewal of the concessions. The sale itself is not
fictitious but it has some peculiarities.
Sara: Does it hold for all the territory?
Isabel Santos: Yes, it does. It holds for everything that implies land occupation and
extraction from the sub soil, to assure that the minerals on the sub soil are not from the
companies who extract them but from the State. A company cannot operate in sub soil
without State intervention through Ministério da Geologia e Minas, Ministério da
Agricultura e do Desenvolvimento Rural or Ministério dos Petróleos.
Sara: From what I understood there are iron mines in Angola but the iron is not enough
to cover its demand, at least in terms of steel transformation..
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Isabel Santos: The problem is that transformation of raw materials is not enough. There
are minerals, they are the country’s potential, but a company need to do big investments
to be able to transform them.
Companies are not focused to do this type of investments. Moreover, in the case of a
Portuguese company, it is 7000 kilometers away from Angola what is a considerable
distance. To do this, the company would need to have or built an access to the place
where the mineral is, the company would have to extract it and then transport it to the
place where it is to be transformed.
For example, Angola is rich in tropical woods, namely in the area of Cabinda. However,
there is no wood transformation. The country exports wood logs and then imports
furniture and other finished products.
There is no local transformation. A company needs to be able to reach the forest, then
cut the wood, transport it and finally transform it. These projects require a big
investment. Moreover, Angola still does not guarantee energy, water and
telecommunications’ supply to all the territory. For example, if a company builds a
factory in the forest to transform wood it has to work with a generator all the time.
Furthermore, the company needs to build an access to the factory that enables it to
transport wood logs with big dimensions.
There is a recent study from an association, which I cannot recall the name, related with
wood and wood furniture, and the cheapest project was an investment of $ 50 million.
The problem in Angola is not the lack of potential, the problem is the cost a company
needs to incur to take advantage of that potential. The supply of subsidiary materials is
not guaranteed.
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Sara: Regarding the creation of a company, in the case of a Joint Venture, is there a
maximum percentage of equity for the Portuguese company?
Isabel Santos: No, there is not. Until 1997, a company had to have an Angolan partner
who had to own the majority of the company’s equity. This law was revoked so in this
moment a foreign investor does not need to have a national partner.
The point is that it is advantageous to have a local partner, because the majority of
foreign investors do not know Angola, they do not know how to do things there, what
are the common procedures, how are the payments of “gasosas” and gratifications….
Many of the foreign investors do not even know how to do a contract with Angola
Telecom, with the energy supplier or with EPAL, the water supplier.
The percentage of equity owned by this local partner is decided between the partner and
the company.
Despite being not compulsory, it is advantageous to have a local partner. It helps the
company, serves as a professor for the initial period and guarantees a positive
acceptance by the Angolan market. Because Angola welcomes foreign investment but it
is expected from investors to integrate Angolan labor on the development of the
projects.
Sara: Do foreign investors need to hire a determined percentage of Angolan labor?
Isabel Santos: No, they do not. It only holds in two situations: in construction and public
works there are quotas for local labor, in which the higher the position the smaller the
quotas; and in representative offices where half of the workers have to be Angolans.
What happens is that, Angola created an Angolanization policy that in the beginning
was only applicable to the oil activities. However, as the unemployment rate is very
high in this country, the government tried to generalize this principle to the other
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industries. At the moment, it is preferable for companies to have a high number of local
workers. The foreign investor is perceived as a trainer in financial terms as well as in
terms of technology, technical assistance and training.
Generally, companies replace expatriates for locals after some time. When the investor
delivers the proposal to start the company, the director of the foreign company is given
a privileged visa as well as 2, 3 or 4 work visas depending on the dimension of the
company. However, these visas have an expiration date and the trend is to employ local
workers when the visas expire.
Usually, when investors deliver the proposal for the investment they also deliver a
proposal for the development of the project. It includes the company’s accounts of the
last 3 years and a forecast of the project growth according to the needs of the Angolan
market.
If it is an individual that is going to invest in Angola, he/she has to deliver his/her
criminal record. In the case of a company it is different. Companies need to prove they
have no Social Security or government debts.
Anyway, all the required documents to start a company in Angola, regardless of the
type of company, have to be certified by the Angolan consulates in Portugal.
Sara: Is there any big issue for foreign companies when they internationalize their
activities to Angola?
Isabel Santos: Yes, there is. The big issue, which concerns most of the companies, is the
repatriation of dividends. Some companies go to Angola with medium term projects
while others go with long term projects. Depending on the position of the companies
regarding the length of investments they are more or less concern with this question.
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Companies with a short or medium term have the objective to repatriate dividends.
They can do it after the capital being fully paid, all debts to the Social Security and to
the Angolan government are paid and with a permission from Banco Nacional de
Angola. In case of companies that has a long term project in the country, they invest
there and the objective is to reinvest the dividends.
Usually, the big question is this one. Note that Portugal is a country of small and
medium companies and when these companies go to Angola they do not know if they
will stay there for 1, 5 or 10 years. It depends on their performance in the country. So
the big concern is: is it possible to repatriate dividends? It is possible as long as the
company meets the requirements established by Angolan authorities.
For example, in this moment, repatriation of dividends is unlikely to be allowed.
Because Angola is having problems with foreign exchange, the country does not have
as much foreign currency as it should have, according to what was established as the
minimum level. So, the country might not allow the repatriation of dividends since that
foreign currency is necessary to pay old debts that date back to 2008 and 2009. In other
words, all the foreign currency that enters in Angola at the moment, being it $ or €, has
a fixed destiny.
Sara: They are not doing the exchange between Kwanza and the foreign currencies…
Isabel Santos: It is not exactly that. Kwanza is not convertible and people cannot leave
the country with this currency. What companies do is to convert their profits in $ or €
and take them out of the country. At the moment, as Angola has lack of foreign
currency it does not allow the companies to take it out of the country.
All bank transfers to a foreign supplier or other foreign entity beyond $300 000/year
need permission from Banco Nacional de Angola. So, companies need an authorization
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to be able to pay to foreign entities. This situation is a way to avoid interference with
the balance of capitals.
There were several problems that gave origin to the Angolan crisis in the international
market. These problems were the decrease in oil prices, the decrease of oil production in
response to instructions given by OPEC and the problems with international oil
reserves.
Angola had a budget based on an oil price of $160/barrel and a daily production of 2
million barrels and, suddenly, the oil was at $30/barrel and the production was reduced
to 1.6 million barrels/day. So the country did not receive the foreign currency it was
expecting to and, at the same time, it had to comply with international commitments
that had been established before this change, in order to assure the supply of essential
goods for the Angolan people. It is important to note that imported goods represent 90%
of Angolan consumption. Moreover, the government had to ensure the continued
rehabilitation of infrastructure.
Sara: Regarding partners for the company, do you have any advice?
Isabel Santos: What we use to say to all the companies that want to enter the Angolan
market is to book a flight and go to Angola in order to study the market, get to know it,
learn how things are done and find out what opportunities are there. After this visit,
companies should think if they really want to enter the market.
However, before going to Angola, companies should study as much as they can about
the market and contact people that know the market from the inside.
Then, the company is able to make a decision but, it should not forget that Angola is
7000 kilometers away from Portugal and go there is not something that can be done
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right after taking the decision. Companies must make sure that this is the market they
want to work with.
Sara: I think this is all I wanted to ask. Once more, thank you for meeting me.
