Domestic markets will be sluggish for some time. Although it is likely that we will see growth in Ireland in 2010 and 2011 it will be low-level growth. Irish consumers are very cautious with many facing negative equity, or more likely, they do not know the real value of their property because there are so few buyers that the market is dysfunctional and this is leading to caution. Government expenditure will be cut by €3 billion more next year, although it is likely that further large cuts in following years are less likely. That being said, 87% of the labour force is in work although many earning far less than they did three to four years ago. We may have hit the bottom but it is going to be a long hard hill to climb.

However, if we could get more Irish SME to export and develop markets abroad we could develop a lot more quickly. Every million of extra sales developed from exports create wealth, 12.5% in corporation tax, new jobs and resulting savings in social welfare payments. So from a macroeconomic level this is a no brainer. So why do our SME not do more sales abroad?

There could be several reasons to explain this. First, for many years if you had money to invest then you put it into property rather than going through all the problems of trying to develop new customers in new markets. Another issue is that it is not as simple to develop sales in a new market as saying ‘go sell in other markets’. Irish people have generally been quite bad at learning foreign languages (being spoiled by the fact that our main language of usage is English, the international language of business). But sales are built up by contacts, introductions and physical presence. Many Irish business people would not have many hard business contacts in other countries especially outside the UK. It is not as simple as you arrive in Budapest, Prague or Tirana and go knocking on doors. There are cultural differences to doing business in other countries. Language is a barrier. Outside the European Union there are legal and tariff issues. Outside the Eurozone there are currency issues. Thus, we need to help Irish business people to develop linkages abroad and give them advice on how to trade in each market. Each market is different and needs to be addressed somewhat differently.

But there are things we can do to promote international selling by Irish-owned companies…

Let us start by framing the issue of indigenous Irish exporters by drawing a pretty picture, or in this case a less than rosy one.  In 2009, according to Enterprise Ireland’s Annual Report, the value of exports traded by Enterprise Ireland-supported companies was €12,903 million, a fall of €2,103 million since 2008 (a reduction just shy of 14% in one year).  Our biggest export market was the United Kingdom with exports valued at €5,458 million with the rest of Western Europe accounting for €2,153 million.  Thus, Western Europe and the United Kingdom (what we might generally describe as the European Union, accounted for 59% of the value of EI-supported Irish exporting companies.  North America accounted for €1,341 million or 10.4% of the value of exports from EI-supported companies.  By far the largest export sector was the food sector which accounted for €7,020 million in trade or 54.4% of all EI-supported companies.  To be fair 2009 was when the full effects of the recession hit.

According to the CEO’s Report from Frank Ryan, ‘during 2009, Enterprise Ireland approved funding for a total of 1,460 companies.  Notwithstanding the challenges, we maintained our focus on the innovation agenda as evidenced by the number of new high potential start-ups and investments in R&D which exceeded expectations, indicating improved confidence as companies position themselves to take advantage of recovering markets. In 2009 Enterprise Ireland supported 73 innovative start-up enterprises and 122 client companies were approved financial support in excess of €100,000 for significant R&D projects’ (see http://www.enterprise-ireland.com/annualreport2009/ceo_report_2.html).  Incidentally, before anyone criticises EI for only supporting 73 innovative start-ups (one assumes significantly through the third-level institutions) let us remember that EI can only fund the projects put in front of it.  I repeat my comments in previous posts regarding my concern regarding the pipeline of HPSU projects.

According to Finfacts, ‘In 2005, Bank of Ireland research showed that only 3 per cent of Irish SME firms are medium size with more than 50 employees. Overseas expansion and exporting are dependant on businesses growing to a medium sized enterprise, yet the research indicated that only 7 per cent of firms intended to expand abroad in the following twelve months. This contrasted sharply with the UK where medium enterprises, which employ about 30 per cent of the workforce, are the powerhouse of the economy…’ (see www.finfacts.ie, May 4 2009).  Finfacts also reported the Irish Exporters Association’s annual report on exports noting that ‘the Irish Exporters Association (IEA) today released its year end review, with news of robust growth in services exports, but continued difficulties for merchandise exporters  Foreign-owned companies are estimated to account for over 90% of exports from Ireland but data is not officially collected.  The review will be available at the IEA website’ (see www.finfacts.ie, Jan 3 2008).

So, if we looked at Ireland in 2007, before the housing bubble burst and the international recession hit, Ireland looked like a great success story.  Large trade surpluses, budget surpluses in most of the previous ten years, high-tech industrial estates abounded.  However, most of our trade surplus was generated by foreign-owned companies.  This, actually, was a success for government industrial policy.  Going back to the Lemass/Whitaker economic plans of the 1950’s and 1960’s through the Telesis Report and beyond, Irish industrial policy was to bring in foreign-owned companies in to the country and up-skill our employees.  This went hand-in-hand with expenditure on education and infrastructure (especially since Ireland joined the European Economic Community in 1973).  We succeeded in forming one of the most impressive FDI track records in the world.  If there is a disappointment is was that the policy expected more of these high-skilled employees to become entrepreneurs and create a higher amount of ‘spin-off’ ventures.  It is not that this has not happened but we now see that the amount of these spin-off ventures is far lower than we might have hoped after the boom. 

But before we fixate on the high-tech sector let us remember that exporting is not a solely high-tech sector issue.  Any Irish business can develop exports, trade alliances, licences and agencies, especially within the single-European market (our rationale for joining) and especially within the Eurozone (our rationale for joining that also).  Why do so few of our businesspeople see the need to develop market share in countries other than Ireland.  In fact, if we take out the UK, the apparent data available indicates that Irish businesspeople seem unwilling to export or do not know how to go about exporting.  It seems to me to be a case of bringing the horse to water…given all the information and campaigns run to date many of the businesspeople I have met over the last 13 years as a business adviser seem to think that building business in other countries is beyond them or that their product cannot be exported.  Is this another example of a culture issue, a lack of ambition or do we need to address some invisible barriers faced, or perceived, by Irish businesspeople?

The HPSU Infrastructure

September 2, 2010

The one area where Ireland has invested heavily is in its third-level institutions. In most universities and Institutes of Technology there are technology transfer offices and enterprise incubation units. There are also properly funded enterprise platform programmes for potential entrepreneurs. Good work is done throughout the country in third-level institutions in promoting entrepreneurship and technology transfer.

So what can be done to sharpen the point and assist in developing the IPO culture? There are a number of things that could be considered and many of them relate to mindset issues and culture. The first thing I would suggest is that the ‘incubation’ units should be renamed to ‘commercialisation centres;. At the moment they are known by a variety of names and brands, learning and innovation centres has been used as a description of these centres. Well, learning and innovation is meant to happen in the rest of the college but these centres are purely for the commercialisation of marketable products and concepts developed within the college or by former alumnus. I fear at times that these centres are being swallowed up by the larger college bureaucracy rather than being seen as stand alone, commercially-minded specialised units. In some universities there are well developed technology transfer offices to co-ordinate activities but where this is not the case I would be inclined to establish the centres as independent trusts operating in parallel to the third-level institution with the College President being the chair of their board. No disrespect meant to my academic friends but the speed at which college administration works is simply too slow to work in the fast-paced world of HPSU, VC and technological development and commercialisation.

I would also proffer the view that the entrepreneurs should be encouraged to take a far more commercially aggressive approach to their businesses. If our entrepreneurs are going to swim with sharks like business angels, VC funds and potential trade buyers then the only way they will survive is to be sharks themselves. The commercialisation centres themselves need to take a more stringent line with the type of enterprises they let in and take the view that if the enterprise is not a potential IPO candidate then they really should be seeking support from the enterprise boards and other agencies. This may appear a little too harsh but when they leave the safety net of the institutions there will be no cotton wool being supplied by commercial funders and potential buyers.