From Wood Panels to Mobile Phones: Strategic Diversification at Sonae Group

Case study: This article tells the story of growth and diversification at Sonae, now Portugal’s largest company. 

65SylviaRightupdownleft482x271Publicly quoted but still majority-controlled by its longstanding Chairman and CEO, Belmiro de Azevedo, it was founded in 1959 in the wood products business. It expanded from the 1980s to become the largest retail group in Portugal and has recently taken on the two incumbents in Portugal’s mobile telephony market. It won the third license auction in 1997 and achieved a 22% market share within three years. As the biggest part of Sonae’s technology investments, the move into mobile telephony played a big part in launching the Sonae share price on a roller-coaster path that has only recently steadied. The Sonae story illustrates the potential importance of long-term charismatic leadership and strategic vision by one person. It also provides insights into the factors that can help diversification to work.

“The analysts, the bankers, they all said we were crazy. Every third entrant to have tried to take on the established mobile network players in national markets in Europe up to that time had failed. They told us that we could only hope to have 30,000 customers at the end of the first year, and that we would never break even. But they underestimated the strength and drive of Sonae people.” – Belmiro de Azevedo, CEO and Chairman, Sonae SGPS.

Sonae was founded in 1959, in Maia, Portugal, in the wood products business and more specifically the production of high-pressure decorative laminates. During its first twenty years of existence, it developed as a small-to-medium size enterprise (SME), focussed on the area of wood derivatives. During the 1980s, it began to grow rapidly, coinciding with Portugal’s entry into the EU. During this period, Sonae diversified into retailing, launching the first hypermarkets in Portugal. The creation of Sonae Real Estate sub-holding in 1991 represented a natural progression, its main objective being the construction of shopping centres anchored on Sonae hypermarket stores. Sonae also invested in many other areas such as communication, information technology (IT), leisure and tourism.

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