Foreign Investment vs. Local Growth

Portugal has established itself as a rising star in the European digital economy. With a skilled workforce, competitive costs, and an attractive quality of life and security, the country has attracted a wave of Foreign Direct Investment (FDI), especially in the Information Technology (IT) sector. International companies have established Business Service Centers (BSCs) and/or acquired several Portuguese companies, transforming the local landscape.

While this influx of foreign capital brings undeniable benefits in terms of employment, international exposure, and economic resilience, it also raises important questions. Are we doing enough to support the growth of local, Portuguese-owned and -managed companies? And what are the long-term implications of becoming a hub for foreign operations without maintaining decision-making power or reinvesting the economic benefits into the national economy?

This article explores the necessary balance between welcoming FDI and fostering the growth of Portuguese companies in the software and IT services sector.

The Success of FDI in Portugal

Over the past decade, Portugal has become a prime destination for international IT operations. It is estimated that the country currently has over 100,000 software development professionals. In addition to the constant acquisition of Portuguese companies by foreign counterparts or investment funds, Lisbon and Porto have emerged as hubs for global companies seeking to establish BSCs in competitive geographies.

This growth has undoubtedly been driven by the linguistic diversity of Portugal's workforce, high-quality academic institutions, the economic competitiveness of our salaries, the excellent recruitment efforts of AICEP, and the increase in the skilled workforce through immigration.

According to the Business Service Centers in Portugal 2025 report by IDC and AICEP, around 100,000 people work in BSCs in Portugal, with IT and software development functions present in around ¾ of these centers.

Portugal's reputation as a nearshoring destination has also been consolidated, with service centers exporting the vast majority of their services (typically to domestic customers).

In addition to these new BSCs, it is worth noting that the large international (technology) consultancies with a previous presence in Portugal have, in some way, reoriented their local activities in order to position themselves as intra-group BSCs rather than focusing solely on exploring opportunities in the Portuguese market.

Benefits of FDI: Exposure to Talent and Economic Integration

Foreign Direct Investment has brought significant benefits to the IT sector (and beyond) in Portugal, notably by exposing Portuguese professionals to international work environments, advanced methodologies, and cutting-edge technologies. By joining global organizations, local talent has access to better prospects for professional development, cross-border collaboration, and projects of a complexity and scale that would be out of reach if they were focused solely on projects for the small domestic market.

Furthermore, these companies export a large portion of their services, contributing positively to the country's trade balance and strengthening its integration into the global digital economy.

The FDI has also stimulated the demand for specialized skills, encouraging universities and training institutions to align their programs with international standards. This, in turn, improves the quality and preparation of the Portuguese workforce.

The risks: erosion of local ownership and strategic autonomy

Despite the clear benefits, the dominance of foreign entities poses risks to the long-term sustainability of Portugal's IT ecosystem. As international companies acquire Portuguese firms such as PHC, Primavera, Vision-box, SISCOG, Noesis, Bold, BI4All, Link, and many others, the number of relevant locally owned and managed companies continues to decline.

This phenomenon has several implications. First, decision-making power is increasingly concentrated outside Portugal. Local subsidiaries often function as technical centers, while strategic and commercial functions are managed from abroad. This limits the ability of Portuguese professionals to influence the direction of business and reduces the reinvestment of profits in the national economy, in addition to weakening the country's ability to build competitive, locally rooted companies.

Finally, the absence of strong local companies reduces market diversity and resilience and makes the few resilient companies less attractive to professionals in the field, who will tend to prefer foreign-owned companies or simply work remotely for companies without a physical presence in Portugal. A healthy ecosystem requires a mix of foreign and domestic companies, each contributing to innovation, employment, and economic growth.

Why it's important to support local growth

Supporting the growth of Portuguese-owned IT companies is not just a matter of national pride; it's a strategic necessity. Local companies are more likely to reinvest profits in the country, maintain decision-making centers and retain employees in Portugal, and establish lasting relationships with local institutions and communities.

Furthermore, they play a crucial role in fostering innovation. Startups and growing companies often explore market niches, develop emerging technologies, and innovate business models. Their agility and proximity to local needs make them valuable in the digital transformation of Portuguese society.

Countries like Israel offer an inspiring example. Despite its small size, Israel has cultivated a vibrant technology ecosystem, with strong local ownership, global reach, and an entrepreneurial culture. Government support, access to venture capital, and close connections between academia and industry have enabled Israeli companies to grow internationally while maintaining the value created within the country.

Unsurprisingly, Israel is known as a Startup Nation, with its technology sector accounting for around 18% of GDP and 50% of exports, contributing to Israel's enormous technological advancement and consequent creation of economic value.

Portugal can learn from this model by creating a more favorable environment for the growth of local IT companies.

Policy Recommendations: Finding the Right Balance

To ensure a balanced and sustainable (IT) ecosystem, Portugal must pursue a dual strategy: continue attracting high-quality FDI while simultaneously actively supporting the development of local companies. Some recommendations include:

Access to Capital: Expand venture financing programs, seed investment, and public-private partnerships to help startups grow.

Tax and R&D incentives: strengthen tax benefits and research subsidies for local companies that invest in innovation and internationalization.

Talent development: promoting professional growth within Portuguese companies through training, mentoring, and leadership programs.

Innovation Hubs: Strengthen technology clusters and incubators that connect startups, universities, and companies.

Export support: helping local companies enter foreign markets through trade missions, branding initiatives, and partnerships with international entities.

Opening public entities to local innovation: encouraging public bodies to test, support, and promote services and solutions developed by Portuguese companies, while naturally respecting national and European public procurement rules.

Leveraging defense sector innovation to drive civilian technology growth: encourage structured collaboration between the defense sector (which must be significantly strengthened in the coming years) and the civilian technology ecosystem, promoting the transfer of technology developed in military research projects to commercial applications. This could include creating innovation labs within the Armed Forces, supporting the creation of spin-offs, and fostering partnerships between military R&D teams and startups.

Promoting collaboration between Portuguese companies: creating a favorable environment for cooperation between Portuguese companies in approaching international projects and opportunities. This collaboration can take the form of partnerships, consortia, joint ventures, or mergers and acquisitions, allowing them to gain scale and compete with external operators, which are typically larger.

These measures can help Portugal retain more value from its digital economy, empower local entrepreneurs, and build a resilient and future-proof IT sector.

Conclusion

Portugal's recent success in attracting Foreign Direct Investment is a testament to its talent, infrastructure, and openness to the world. But to ensure long-term prosperity and strategic autonomy, the country must also invest in its own capacity to innovate, lead, and grow. By supporting Portuguese-owned and -managed (IT) companies, alongside foreign investment, Portugal can build a balanced and dynamic ecosystem where opportunity, value creation, and strategic autonomy coexist.