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Case study • REGEPE Entrep. Small Bus. J. 13 (1) • Jan-Apr 2024 • https://doi.org/10.14211/regepe.esbj.e2451   copy

Portugal, ora pois! Internationalization strategies of a small family business

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Objective:

This teaching case aims to expose undergraduate and graduate students to the business problems of decision-making in the development of internationalization strategies.

Dilemma:

This teaching case addresses the dilemmas of a small Brazilian family business when making the decision to internationalize in the Portuguese market. A small family business, which operates in the architecture, decoration, and construction sector, in the production of customized works in ornamental stones, which is faced with the opportunity to serve customers in the Portuguese market, after a long period operating only in the national market.

Relevance/originality:

The case presents itself as an original and real opportunity for the professor to work on internationalization strategies, revitalizing concepts of value proposition, decision-making, adequacy of products and markets and is indicated for application in strategy disciplines in undergraduate and graduate courses.

Keywords:
Entrepreneurship; Strategy; Internationalization; Small Business

Resumo

Objetivo:

Este Caso de ensino tem como objetivo expor alunos de graduação e pós-graduação às problemáticas empresarias de tomada de decisão no desenvolvimento de estratégias de internacionalização.

Dilema:

Este caso de ensino aborda os dilemas de uma pequena empresa familiar brasileira ao tomar a decisão de internacionalização no mercado português. Uma empresa familiar de pequeno porte, que atua no setor de arquitetura, decoração e construção, na produção de obras personalizadas em rochas ornamentais, que se depara com a oportunidade de atender clientes no mercado português, depois de um longo período atuando apenas no mercado nacional.

Relevância/originalidade:

O caso se apresenta como uma oportunidade original e real para o professor trabalhar estratégias de internacionalização, revitalizando conceitos de proposta de valor, tomada de decisão, adequação de produtos e mercados e é indicado para aplicação em disciplinas de estratégia em cursos de graduação e pós-graduação.

Palavras-chave:
Empreendedorismo; Estratégia; Internacionalização; Pequena Empresa

INTRODUCTION

It was a Monday in January 2021 and, not just Brazil, but the entire world was amidst confronting the Covid-19 pandemic. Silvia received a call from a former client, who informed that she was no longer operating in the Brazilian market, as she had moved to Portugal. In addition to the news, the client commented on the challenges she faced executing her projects in Portugal, as her network of contacts there was limited, suppliers were not flexible in meeting project demands, and the materials were very different from Brazilian ones.

The client's call aimed to ask Silvia for recommendations of Portuguese suppliers that would cater to projects "more in the Brazilian style". However, for Silvia, one of the partners of the company A Itaarte, that call was an invitation to venture into new oceans.

"Paula, why can't you find a supplier there? What are you doing? Are you renovating or building?"

“Silvia, there's no space here for new constructions. The cities are already built; the houses are old. Everything is beautiful. It's like living centuries of history! So, our market is basically renovations. Brazilians living here want the comfort, practicality, and modernity of our designs. You know, having a spacious, beautiful bathroom with a great shower? A functional kitchen, American-style, that gourmet kitchen? The suppliers here sometimes don't understand why we want to change things. It's always a dilemma between preserving history and adapting the property to the needs of a 21st-century citizen. Can you help with that? You know so many people!"

"Indeed, I know a lot of people! But to meet your demand in Portugal, it would have to be someone up for that challenge. Most of my contacts are focused on the domestic market and some cater to Latin America, but I can't recall anyone specifically serving the European market. I need to check carefully, Paula."

"Silvia, it would be great if you could take on this challenge yourself!" Paula said enthusiastically, reiterating the market features. "We're already so used to working together. Could you try to help me? I believe it could be good for A Itaarte as well. With the expertise you guys have, other projects would soon come up around here."

Upon hearing Paula's description of the Portuguese market, Silvia became quite thoughtful. Renovations require a different work process, much different from what the company was used to when catering to the North American external Market.

“"Paula, I understand your concerns, and I see that there's a business opportunity there in Portugal. I just don't know if that opportunity fits our company's profile. I need to discuss this with Mário. Doing renovations in São Paulo, close to our factory, is one thing. You must remember how our team had to go back to the site multiple times to finalize details after other contractors. I have doubts about the feasibility of doing renovations in another country. Can we talk again soon?"

A Itaarte, a Brazilian company that executes projects in ornamental stones, has already had successful experiences in the international market. Their primary market was the United States, to which they supplied large-scale projects using Brazilian granites. The company provided standardized bathroom and kitchen countertops, as well as counters in large volumes for hotel chains and residential condominiums. However, due to the crisis in the American real estate market that erupted in 2008, the company gradually turned back to the domestic market. The company had to develop new strategies for attracting clients in Brazil to compensate for the loss of its niche in international sales. That's when the company focused on providing personalized service to architects and interior designers in the Greater São Paulo region. However, both Silvia and her business partner and husband, Mário, never let go of the entrepreneurial spirit of being connected with the world. Discovering new cultures and maintaining business with other countries has been in the company's DNA from the start.

Thus, very excited about the new perspective, Silvia spent several weeks researching information about the ornamental stones sector in Portugal. In addition to identifying some differences in serving the market, she noticed an increase in the number of Brazilian architects who, during the Covid-19 pandemic, migrated to the country. Her client seemed not to be an exception. This fact made her consider the scenario that more architects might be facing obstacles with Portuguese suppliers. With some data gathered, Silvia talked to Mário, her business partner, presenting him with the data on the ornamental stones sector in Portugal and sharing her thoughts on resuming exports.

“Mário, I did some research and found that the Portuguese market for architecture, decoration, and construction accounts for about 10% of the Brazilian market in terms of professionals. Here in Brazil, we have 212,000 practicing architects and urban planners, while there are only 23,000 there. That's a big difference, isn't it? On the other hand, the Association of Civil Construction and Public Works Industrialists of Portugal indicates that housing is the most significant component of the Portuguese urban rehabilitation plan, with an investment of 1.583 billion euros. Out of those 1.5 billion, 1.150 billion are for urban rehabilitation programs in renovations. That's a lot, don't you think?"

The data presented by Silvia highlight how the Portuguese government recognizes the progressive deterioration of buildings and outdoor spaces, as well as factories that are abandoned daily. There's a mismatch of urban and residential spaces concerning the new lifestyles of the population. In this regard, there is a joint effort from the private sector and public policies encouraging investment in the construction sector with a focus on the country's real estate adaptation. In 2021, the business volume was around 23 million euros, with the participation of 53,000 companies and 320,000 people providing services. Of these, 98.54% are micro and small businesses that account for 57.78% of the business volume.

"Mário, did you see the business growth? It more than doubled!" Silvia exclaimed enthusiastically.

Mário, however, didn't show much enthusiasm and focused his attention on the weaknesses of the Portuguese sector, such as: small market, sensitive to economic crises, fragmented sector, focus on renovations, distinct profile from the Brazilian one, and a low import rate, in addition to the low profitability potential in the civil construction sector.

"Silvia, don't be fooled. The Portuguese bank showed that even though the growth was positive, the profitability of 40% of the companies, especially those our size, was negative."

Renovations, in Mário's view, require more physical presence from construction managers, as there are events that arise outside of plans. In the case of new constructions, those involved in the building process follow validated plans and can execute their products remotely with small margins of error. For Mário, this venture posed a high financial risk for A Itaarte.

"Silvia, we're getting older, is it worth facing so many challenges? We've acquired good clients here in Brazil. I know exporting is excellent both for the company's fiscal balance and for risk management, that is, diversifying our revenue sources, but we'd need to train the employees again for this global venture. Give me some time to think," Mário said calmly.

Two days later, after conducting a careful analysis of the data Silvia brought from the Portuguese market, Mário called his business partner to discuss exporting to the country and said:

“Silvia, do you remember when we were researching the foreign market and we made that SWOT table? Well, I started making one about where we are today. I outlined some points about our workforce qualification. The machinery and raw materials are fine. Documentation etc. too. But I have doubts. For example, how are we going to approach the clients? Are you going to travel or should I? Or should we use the Apex agency or commercial representatives, trades, what do you think? ´

Mario continued the conversation with his assessment of the Portuguese market information, comparing it to the current scenario of the Brazilian market. One of the points made by Silvia is that almost half of the companies in Portugal are not profitable. Mario contrasts this with Brazilian data that shows companies operating in the Brazilian renovation market have an average profitability of 30% (CAU, 2021; Oliveira, 2021Oliveira, G. (2021, May 14). Na pandemia, mercado de reformas torna-se boa opção de investimento. Casa Vogue. https://casavogue.globo.com/Casa-Vogue-Estate/noticia/2021/05/na-pandemia-mercado-de-reformas-torna-se-boa-opcao-de-investimento.html
https://casavogue.globo.com/Casa-Vogue-E... ). Moreover, the sector has been growing at 10% in 2021 and 2022, driven by an increase in renovations. Silvia listened, took some notes, but didn't respond. What should A Itaarte do at this moment? Could resuming exports truly be a profitable path?

THE ORNAMENTAL STONES MARKET.

The global production of ornamental stones has been showing an increasing trend since 2015. Between 2015 and 2019 (the last year with available data for global production), production grew by 10.4%, reaching one hundred and fifty-four million five hundred thousand tons (Montani, 2020Montani, C. (2020). XXXI Rapporto Marmo e Pietre nel mondo 2020. Carrara: Aldus. https://abirochas.com.br/wpcontent/uploads/2020/12/impaginato_XXXI
https://abirochas.com.br/wpcontent/uploa... ). Of the total produced globally in 2019, 37.2% was destined for the foreign market. It's worth noting that the dynamics of the global trade in ornamental stones, during this analysis period, was paralleled by Brazilian exports. Between 2018 and 2019, Brazilian exports in the segment grew by 2.3%, above the average. According to the XXXI Report Marble and Stones in The World, an expansion of 2.8% in global trade is expected in the world market by 2050.

In the global market, the predominant use of ornamental stones is for civil construction (75% of the volume in square meters). Of this percentage, thirty percent (30%) of global consumption is for floor covering. The projection for the consumption of ornamental stones in civil construction by 2050 is two billion and fifteen thousand square meters. Brazil is the fifth largest producer in the segment (Table 1) and holds the greatest geological variety in the world, also being the fourth largest consumer of the segment (fifty-eight million and eight hundred thousand square meters). In 2019, the country used three hundred and fourteen (314) square meters of ornamental stones for every thousand inhabitants.

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Table 1
Worldwide Production of Ornamental Rocks between 2015 and 2019 - in thousand tons

The Portuguese scenario also has a strong production of ornamental stones, being this an important economic activity in the country. This production in Portuguese territory is among the top ten globally. Portugal ranks ninth among the most important exporters. According to the mineral resources association ASSIMAGRA (Cunha, 2016Cunha, P. (2016). Pedra portuguesa no mundo. Associação Portuguesa dos Industriais de Mármores, Granitos, & Afins - Assimagra. https://www.assimagra.pt/images/publicacoes/LIVRO-PEDRA-PORTUGUESA-NO-MUNDO-versao-final.pdf
https://www.assimagra.pt/images/publicac... ), Portugal has unique stones, productive tradition, and accumulated know-how. Its marbles are exported to one hundred and sixteen (116) countries (ANIET, 2017). In the north of the country, there is the highest concentration of companies in the sector. However, the vast majority of these companies are small in size and have limited capacity to incorporate technology into their business model. Due to its small territory and a restricted market, Portugal has a history of much larger volumes in the export of stones compared to imports. According to data from the Bank of Portugal, the ornamental stones market in Portugal generates about 643 million euros in sales and services provided, of which 56.75% (365 million euros) corresponds to consumption in the domestic market, and the rest is earmarked for exports. As for purchases, about 343 million euros correspond to the domestic market, and only 78 million to imports.

Furthermore, during the years 2020 and 2021, there was a significant increase in Brazilian immigration to Portugal. Among these immigrants are architects and interior designers setting up their offices in different regions of the country, which could contribute to an increase in the domestic demand for ornamental stones. Given the significant increase of these professionals on Portuguese soil, as well as these Portuguese professionals in Brazil, in July 2022, CAU (Conselho de Arquitetura e Urbanismo do Brasil, Brazilian Council of Architecture and Urbanism our translation) and AO (Order of Architects) signed a memorandum of understanding on the practice of these professionals between the two countries, aiming to remedy the ineffectiveness of the previous agreement that lasted from 2014 to 2019 and legitimizing the work of these professionals in foreign territory.

In 2022, 1,219 companies were identified in the field of "code: 237 - Cutting, shaping and finishing stones" (Banco de Portugal, 2022). As Figure 1 shows, almost 73.9% of these companies are over 10 years old, and about 85.0% of the business volume belongs to these same companies; suggesting that such companies hold a significant portion of the customer base.

Figure 1
Characterization of Marble Extraction in Portugal

From a study conducted by Ricardo Botelho Marketing for A Itaarte in the early 2000s, the company gathered valuable insights on how to relate to professionals in architecture and interior design. Regarding the degree of importance for the client of the items in an architecture and interior design project, ornamental stones finishes emerged as the top priority for the project beneficiaries. Among the criteria that professionals consider when choosing suppliers are: quick problem-solving, integrity, design, technical support, knowledgeable sales representatives, provision of samples, product variety, partnership duration, manufacturing technology, and market presence. The consultancy suggests that the best approach to attract and retain architecture and interior design professionals is personalized service with regular visits. Ricardo, the leader of the organization, always reminds his clients: "Out of sight, out of mind." Based on this concept, the consultancy outlines stages of relationship-building with architects and interior designers to ensure that contacts result in closed orders. After all, the return of orders and successfully completed projects is what enables the ongoing relationship between architecture and interior design professionals and companies.

EXPOSURE OF THE CASE: A ITAARTE AND ITS INTERNATIONAL EXPERIENCE

A Itaarte is a Brazilian family business of small size that operates in the sector of architecture, decoration and construction producing custom works in ornamental stones. The company was founded at the end of 1985 with the goal of bringing professionalism and a focus on transforming the best of nature into genuine works of art within the ornamental stone market. It also pioneered the establishment of a presence in the United States for the sale of Brazilian granites in the late 1980s. The company was the first importer of Spanish marbles. In the domestic market, the company's focus is on serving architects and designers. A Itaarte not only invests in processes but also in technology. It is one of the ten companies in Brazil to have computerized machines (CNC) and to have implemented total quality management. The costs of obtaining and maintaining the ISO 9001 certification were not accessible, but the procedural manual served as a reference for many leading construction companies in São Paulo to achieve their ISO 9001 (ABNT NBR ISO 9001, 2015) certification. With the best human and technological resources, the company was responsible for taking Brazilian ornamental stones to large enterprises in the American market, such as the Hard Rock Hotel in Hollywood - Florida, and the Four Seasons Emerald Bay, the National Congress and Ritz Carlton Hotel - Chile, Tiffany and Meliá Hotel - São Paulo, in addition to ornamentating several houses in Brazil, Puerto Rico and the United States

The internationalization model adopted by A Itaarte for the North American Market

In 1987, A Itaarte expanded its operations beyond Brazil. Seizing an opportunity to work on international projects, the company embarked on the endeavor of undertaking construction projects in the United States. An important project they completed was for the Hard Rock Hotel in Hollywood, Florida. During this project, the experience of collaborating with the project's architect and the supplier of the cladding and installation to meet the site's demands contributed to their know-how in American market projects, opening doors to new horizons for the company. In this internationalization process, A Itaarte employed different customer engagement strategies. In the initial phase, the partners embarked on a 30-day journey and, even without scheduled visits, engaged in conversations with individuals from companies selling granite in the city of Miami. In a second phase, when the focus shifted to selling customized projects, the company's strategy involved participating in surface covering trade shows in the United States under the Brazilian flag. In this approach, the key partner was Apex, the Brazilian export agency. A Itaarte invested in booth spaces to allow the target customers to see the products they would receive. A fully assembled bathroom, a crafted sink-these elements allowed customers to visualize a project they could purchase. Additionally, A Itaarte's sales representatives had printed materials with illustrations and spreadsheets that demonstrated the sales and manufacturing process, from receiving a project to the shipment of the container from the factory. All of this was done to concretize abstract aspects. These elements attracted the target customers and enabled A Itaarte to close deals during trade shows. This final phase can be exemplified by the description of the Hard Rock Hotel project. In this case, A Itaarte's client was a cladding installation company that they connected with during a surface covering trade show in Orlando. For this project, as reported by the contracting company, the architects desired to use a yellow granite that they believed had Italian origins. Upon receiving this specification, A Itaarte selected a range of samples of the Brazilian granite called Giallo Veneziano. It's important to note that the production of this granite was 99% exported to Italy, rather than being of Italian origin, as the American architects had initially believed. A Itaarte sent samples to the American architects along with a proposal to supply the pieces already cut according to the architectural design. In addition to meeting the specifications and pricing requirements, the manufacturing and assembly processes played a crucial role in enabling the Brazilian company to outperform the competition.

During the project, each piece was labeled with the apartment number of the hotel, and A Itaarte provided the installation company with a drawing containing identifications for each box within the container. The container was placed at the construction site, and each box was sent to the specific floor. This process resulted in a 20% cost savings for the cladding and installation company in terms of logistical expenses for the project. Figure 2 illustrates the stages of the project from inception to completion.

Figure 2
Stages of the Hard Rock Project in Florida, USA

Following this success, other large-scale projects were carried out for developments such as the Four Seasons Emerald Bay, the Ritz Carlton Hotel and the Nacional Congress in Chile. Additionally, A Itaarte adorned numerous residential properties in Puerto Rico and the United States. Starting in 2005, the company began to notice a decrease in budgets for new projects in the North American market. The return on investment from A Itaarte's participation in the American surface covering trade show, "Coverings," and the Brazilian Stone Fair in Vitória in 2006 was not sufficient to cover the costs of both events. These results raised a red flag in the planning of future actions for the business in the international market. In the following years, due to the crisis in the real estate and construction market in the United States, the company gradually lost its international clients. The last container shipped for a project in the state of Texas was in the first half of 2009.

Should A Itaarte venture into the international market again?

In early 2021, Silvia saw the potential of taking the company's know-how to Europe to meet the new demand from Brazilian architects and interior designers living in Portugal. Besides recently obtaining her Portuguese citizenship, Silvia identified some similarities between Brazil and Portugal that could greatly facilitate A Itaarte's entry into the Portuguese market, including the language.

During the years 2020 and 2021, there was a significant increase in Brazilian immigration to Portugal, driven by the COVID-19 pandemic. Simultaneously, there was an observed rise in Brazilian architects in that country (Imóvel Magazine, 2021; Sanches, 2020Sanches, C. (2020, dezembro 27). Arquiteto em Portugal: saiba como trabalhar no país sendo brasileiro. Euro Dicas. https://www.eurodicas.com.br/arquiteto-em-portugal/
https://www.eurodicas.com.br/arquiteto-e... ). However, as reported by Silvia's client, these Brazilian architects did not find stonemasonry businesses in Portugal accustomed to meeting the needs of their projects due to the differences between the Portuguese and Brazilian markets. According to this client, the focus is on carrying out small renovations, adapting old properties to the needs of Brazilians living in Portugal.

Furthermore, the business model structured by the company for exportation is geared towards large-scale projects involving standardized products and high-volume projects with specific characteristics. In this regard, some of the decision-making criteria for purchasing may differ from the projects mentioned by Silvia's client, who is undertaking renovations in Portugal. Within this business model, profitability lies in the service rather than the product, which necessitates a different pricing structure. Instead of calculating costs per square meter and linear meter as typically done by A Itaarte's estimators, the company would need to establish a price for the service provided or per day of work. The entire packaging and shipping logistics would also need to be developed. The company would have to consider the potential breakage of small pieces rather than supplying a few extra countertops.

In this regard, customer engagement strategies can vary. In the domestic market, A Itaarte has a relationship program with architecture and interior design professionals that includes social events, factory tours, surprise visits, business lunches, and partnerships for architecture exhibitions, to mention a few activities. However, how could they develop such a program overseas? What would be the cost? Who would they handle it?

Silvia, despite being older, still possesses the same entrepreneurial and adventurous spirit when it comes to exploring new territories. She loves to travel and experience different cultures. On the other hand, Mario has always been the compass and anchor in their relationship - a natural-born entrepreneur with a strong sense of practicality. Despite his adventurous side, he doesn't like to take incalculable risks. Mario has always been responsible for precisely calculating costs and assessing profitability. Thus, the partnership between Mario and Silvia has proven to be successful due to the complementarity of their competencies and skills. On one hand, Silvia, with her personal characteristics, looks for opportunities; on the other hand, Mario, more cautious, cannot ignore the dual risk of approaching a new country and a new audience - that of renovations.

Considering the company's value proposition for the international market, which is to deliver projects of Brazilian ornamental stones already cut, meeting international quality standards, and enhancing the economic viability of projects, how can this proposition be connected to the strong point of the Portuguese renovation market? And how can the successful strategies developed by the company for the Brazilian market, which involve personalized service to architects and interior designers, be leveraged in the Portuguese market? To deliver this value, the company intends to continue investing in technology and workforce training, as well as in logistics processes. However, being close to the customer is one of the fundamental characteristics for the company to be able to deliver projects that meet its customers' demands. Can the know-how from previous exports to other countries, such as the USA, contribute to A Itaarte facing this new challenge? Does the demand from Brazilian architects established in Portugal truly represent an internationalization opportunity for the company? In the end, what do you recommend to A Itaarte?

REFERÊNCIAS

Edited by

Editor-in-Chef1 or Adjunct2:

1 Dr. Edmundo Inácio Júnior https://orcid.org/0000-0003-0137-0778
Univ. Estadual de Campinas, UNICAMP

Associate Editor:

Bradley University

Executive1 or Assistant2 Editor:

1 M. Eng. Patrícia Trindade de Araújo

Data availability

https://minio.scielo.br/documentstore/2965-1506/v3fwJfgVvyfbLrPMskPLfxN/73f70dd0cff51d8eef998da7cd3c2b4b457a30dc.pdf

Publication Dates

  • Publication in this collection
    29 July 2024
  • Date of issue
    Jan-Apr 2024

History

  • Received
    23 Aug 2022
  • Accepted
    17 Apr 2023
  • Published
    10 Nov 2023
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