Watch the launch of Strengthening FDI and SME Linkages in Portugal, held on 12 January 2022, featured opening remarks by by H.E. Pedro Siza Vieira, Minister of State for the Economy and Digital Transition, Portugal, and Yoshiki Takeuchi, Deputy Secretary-General, OECD. The event also featured expert contributions from the OECD, European Commission and Portuguese government officials. The report found that while Portugal has a framework in place to encourage foreign firms and local SME collaboration, this now needs to be evaluated and also supported by regionally tailored approaches. Explore the report at www.bitly.com/portugal-fdisme

1. STRENGTHENING FDI AND SME LINKAGES
IN PORTUGAL: AN OECD REVIEW
Sandrine KERGROACH, Head of SME&E Performance, Policies and Mainstreaming unit
Stratos D. KAMENIS, Junior Policy Analyst
OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE) and
OECD Directorate for Financial and Enterprise Affairs (DAF)
High-level Launch Webinar – 12 January 2022 12:30-13:30 CET

2. Supporting EU countries and regions in building stronger
FDI-SME linkages for productivity and innovation
The Portugal review is the first outcome of a multi-year EC/OECD project
aiming to provide governments with a policy toolkit and policy
recommendations on how to boost productivity and innovation in EU
countries and regions through stronger FDI-SME linkages.
2
 Particularly timely in the context of a post-COVID recovery (resilience? possible reconfiguration of GVCs?):
SME role in smart specialisation strategies and multinationals’ optimisation strategies (OECD
SME&E Outlook 2021), and
Growing attention to sustainable investment and how FDI could contribute to SDGs (OECD FDI
Qualities Policy Toolkit).
 Unique by bridging the investment and SME policy communities, through the OECD Investment Committee
and the OECD Committee on SMEs and Entrepreneurship, with consultation of the OECD Regional
Development Policy Committee. And support of the EC DG REGIO.
This project is
co-funded by the
European Union

3. FDI-SME linkages and enabling conditions for
productivity and innovation spillovers
Pol
Technical
assistance
Regulatory
incentives
National strategies and
action plans
Information &
facilitation services
Collaborative
networks
Policy mix
Financial support
schemes
Investment
promotion
policy
Regional
development
policy
SME&E
policy
Innovation policy
FDI-SME diffusion channels
channels
Value chain linkages
Strategic partnerships
Labour mobility
Competition - imitation
This project is
co-funded by the
European Union
3
Source: EC/OECD (forthcoming), Enabling FDI-SME linkages and productivity and innovation spillovers in EU countries and regions: Towards a Policy Toolkit.

4. Enabling conditions and FDI-SME spillover
channels in Portugal : a diagnosis
4

5. 5
The potential for FDI spillovers in Portugal is strong
 FDI has been on the rise, in particular in export-
oriented high-technology manufacturing.
 FDI is concentrated in sectors with higher average
labour productivity and higher R&D intensity levels.
 Foreign firms exhibit important productivity premia
over domestic firms.
 Potential for further FDI growth given lower stocks
compared to peers.
Notes: Labour productivity = value added per employee; R&D intensity = R&D expenditures per unity of value
added. Source: OECD FDI Qualities Indicators based on Financial Times’ fDi Markets database, 2020, OECD
National Accounts and OECD MSTI database, 2020.
0
0.5
1
1.5
2
A. Is FDI concentrated in sectors with higher labour productivity?
(yes if value > 0; no if value < 0)
-0.5
0
0.5
1
1.5
2
USA MEX BEL AUT ESP PRT CZE HUN IRL DEU ITA DNK SVN FRA POL NLD GBR FIN NOR
B. Is FDI concentrated in more R&D intensive sectors?
0%
20%
40%
60%
80%
100%
120%
C. Labour productivity premium of FDI versus domestic firms

6. 6
The domestic SME and entrepreneurship sector
shows good absorptive and adaptation capacities
 Portuguese SMEs are relatively more innovative than those in many other EU countries – also more engaged
in international trade (especially long value chains).
 Its dynamic start-up and entrepreneurial ecosystem, as reflected in increasing firm creations and good
regulatory framework conditions, can support resource reallocation towards high-performing firms.
 However, the country counts a large population of low-productivity micro-firms with more limited capacity to
scale up performance, and SME access to finance remains challenging.
0
20
40
60
80
100
120
140
160
180
200
Slovak
Republic
Czech
Republic
Ireland Lithuania Portugal
A. SME product/process innovations
(index)
0
20
40
60
80
100
120
140
160
180
200
Slovak
Republic
Czech
Republic
Ireland Lithuania Portugal
B. SME marketing/organisational
innovations (index)
Source: OECD (2021), “Portugal” in OECD SME and Entrepreneurship Outlook 2021; OECD (2019), “Portugal” in OECD SME and Entrepreneurship Outlook 2019; and OECD Data Lake on SMEs and
Entrepreneurship and Policies, based on (Eurostat 2020) Community Innovation Survey CIS-11 (fig A and B) and OECD TEC database (2021) (fig C).
0
10
20
30
40
50
60
Czech
Republic
Slovak
Republic
Ireland Lithuania Portugal
C. SMEs as exporters (% trade value)

7. Value chain linkages:
 Foreign affiliates source more extensively from local suppliers
in Portugal compared to affiliates in other OECD countries.
Strategic partnerships:
 Technology licensing partnerships are widespread among
manufacturing firms – SME integration in innovation networks
remains, however, limited.
Labour mobility:
 Frequent mobility from domestic to foreign firms enabled by
wage differential – limited spillover potential.
Competition and imitation:
 Concern over low productivity micro firms – FDI involves
increased competitive pressure on SMEs with lower
absorptive capacities.
7
Domestic SMEs have built value chain linkages and
strategic partnerships with foreign investors
0%
10%
20%
30%
40%
50%
60%
Portugal Lithuania Slovak RepublicCzech Republic Luxembourg Ireland
A. Foreign affiliates sourcing from domestic firms (% of inputs)
0%
10%
20%
30%
40%
50%
Portugal Lithuania Slovak Republic Czech Republic Luxembourg Ireland
B. Foreign affiliates' output used locally by domestic firms
(% of output)
Source: OECD Analytical AMNE database, 2019

8. The governance framework and policy mix for
FDI spillovers on Portuguese SMEs
8

9.  4 Ministries and 4 agencies => higher risks of information
asymmetry, rising transaction costs, and trade-offs.
 Cross-ministerial coordination is ensured by 3 high-level
councils – questions over capacity and resources.
 Inter-agency collaboration on FDI and SME policies is
strong (e.g. committees, working groups, joint programming).
9
Several line ministries and implementing agencies are
involved in FDI-SME diffusion policies
The institutional setting in Portugal vs. Slovenia
Portugal
Slovenia
 Multilevel governance => subnational governments have been
given significant responsibilities for the implementation of
business support policies (e.g. smart specialisation) => to be
matched with appropriate resources.
 Evaluation of policy impacts is less systematic – although
efforts to establish comprehensive Monitoring&Evaluation
frameworks have intensified in recent years.

10.  Ensure that high-level government councils have sufficient financial and human resources to support cross-
ministerial coordination and policy dialogue with FDI and SME stakeholders.
 Continue efforts to encourage inter-institutional collaboration on investment promotion and SME development
policies, including at the subnational level.
 Undertake policy impact evaluations systematically, and focus on measuring results/impacts rather than
implementation targets.
 Strengthen the analytical and data collection capacities of implementing agencies involved in investment
promotion and SME development through the provision of specialised training.
 Expand the use of the Consultalex Portal to consult on broader policy initiatives and national strategies in
addition to laws and regulations.
10
Recommendations on the governance framework

11. 11
Developing SME absorptive capacities, value chain linkages
and strategic partnerships is the primary focus of policy action
 Several policies to foster value chain linkages and
strategic partnerships (e.g. Supplier Clubs, collaborative
R&D incentives, matchmaking platforms, etc.)
 Investment promotion policies consistently target
knowledge and technology-intensive FDI.
 Financial support to business R&D and innovation (e.g.
tax credits, grants) currently above the OECD average.
 Progress in the quality of the knowledge transfer
infrastructure – however not all regions equally benefit
from technology transfer services for SMEs.
 Emphasis on improving SME access to finance (e.g.
National Promotional Bank).
Source: EC/OECD Survey on Policies and institutions enabling FDI–SME spillovers (2021).

12. 12
Recommendations on the policy mix
 Structure FDI promotion policies into clearly articulated support packages that target different types of FDI
(e.g. large investors, start-ups, R&D, etc.).
 Leverage the new National Promotional Bank to promote access to equity capital and alternative financing
instruments for SMEs.
 Expand the presence of knowledge transfer organisations to less developed regions, and ensure that they
have adequate financial and human resources to implement SME support activities.
 Expand supplier development programmes to additional sectors of strategic importance for the Portuguese
economy, and prioritise the selection of innovative foreign affiliates in the collaborative R&D incentive
schemes.
 Broaden the range of policies available to encourage labour mobility (e.g. corporate spin-outs, payroll tax
incentives for highly skilled workers etc.)

13. Applying a regional lens to FDI-SME diffusion:
the Norte and Alentejo regions
13

14. 14
Spillovers may be low outside of Lisbon due to limited
FDI flows and high FDI-SME performance gaps
 FDI mainly concentrated in the Lisbon area and the Norte region, limiting spillover potential in other regions.
 Significant heterogeneity of the business fabric: Norte has stronger connections to global knowledge networks
compared to Alentejo – high productivity gaps between foreign and domestic firms in both regions.
 Regional characteristics explain disparities in FDI attraction and SME development – i.e. economic geography,
demographics, level of development, economic structure and specialization.
 Tailored policy approaches that take into account regional heterogeneity are key to maximizing the benefits of FDI-
SME linkages for local economies.

15. THANK YOU
Martin.Wermelinger@oecd.org
Stratos.Kamenis@oecd.org
Sandrine.Kergroach@oecd.org
Contacts:
Jenny.Vyas@oecd.org
Chiara.Petroli@oecd.org