This report was published by McCann Fitvgerald on 14 January 2014 and the original report can be found here http://bgn.bz/mcfreport
It has been published here to accompany an article relating to the digital trends referenced in the report - read the article here http://bgn.bz/mcf14
The research was undertaken for McCann Fitzerald and Irish law firm by Amárach Research by a telephone survey of 250 senior business decision makers in Ireland ranging from SMEs to corporates
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McCann Fitzgerald Corporate Outlook Report For Ireland 2014
1. Corporate Outlook: Ireland 2014
Half full?
Half empty?
An objective perspective on corporate prospects for 2014,
based on a survey of Irish business leaders.
2. Corporate Outlook: Ireland 2014
Contents
Foreword from John Cronin page 5
Key Findings page 6
Performance & Prospects page 8
Overseas Expansion page 14
Job Creation page 20
Capital Expenditure page 24
Mergers & Acquisitions page 28
Innovation & Digital Strategy page 33
The Business View
Christoph Mueller, Chief Executive Officer of Aer Lingus plc page 13
Dr. Paul Duffy, Vice-President of Pfizer page 19
Rose Hynes, Chairman of Shannon Airport Authority plc,
Bord Gáis Éireann and Irish Water page 23
David Duffy, Chief Executive Officer of AIB Group
& President of the Irish Banking Federation page 26
Brian O’Cathain, Chief Executive Officer of
Petroceltic International plc page 32
Gene Murtagh, Chief Executive Officer of Kingspan Group plc page 38
Conclusions page 39
About the Research page 40
3.
4. Foreword from John Cronin
Chairman, McCann FitzGerald
The Irish economy is poised for recovery and growth, with signs of
increased activity and momentum from Irish businesses. A real sense
of hope and opportunity (based on economic realities) that has been
absent for the last five/six years now exists.
As advisors to Ireland’s leading companies
and businesses, McCann FitzGerald
commissioned Amárach Research to carry
out a survey of some 250 senior Irish
business leaders and decision makers at
this time and to report their findings. We
are pleased to share this report with you,
our clients and contacts. The report is very
frank about Irish businesses’ ambitions,
prospects, risks and impediments. Of
course, business people are naturally
optimistic so a positive outlook is not
unexpected or even unusual and there is,
still, fragility in the Irish economy and the
eurozone. However, it is very clear that
business leaders do see real prospects for,
and even have expectations of, recovery
and growth and are planning accordingly.
The creation of jobs is also something that
many anticipate this year – building on a
recovery in the labour market in 2013.
At the EU level, the eurozone area has
emerged from recession and progress is
being made towards a banking union.
Our natural inclination for business with
Britain and the USA means that we are
better positioned than most to benefit from
the strengthening of those economies.
We cannot take the recovery or growth
for granted – nor do any of the business
leaders surveyed or their businesses do
so. However, the report does support the
view that Irish businesses are entering a
new growth phase, one that will in time
bear fruit in terms of confidence, economic
success and job creation over the remainder
of this decade.
Thank you, and I hope that you will find
this report of interest to you and your
business.
Encouragingly, and importantly, the
growth momentum is not just from our
large multi-national and export companies
but Ireland’s own indigenous firms are
also optimistic about their contribution to
economic growth in 2014.
|5
5. Key Findings
Poised for Growth
Key Findings main stat
Ireland’s economy will experience relatively balanced
growth in 2014, with consumer spending, trade and
investment driving GDP and GNP growth in the year
ahead. Only public spending is expected to contract
A survey of
further.
250
This McCann FitzGerald survey1 of 250 senior decision
senior decision
makers
makers in Irish business has found a genuine alignment
between the macro-economic outlook and the microeconomic intentions of firms. Thus, businesses expect
to grow their sales overseas (driving trade), increase
their capital expenditure (driving investment) and
increase their staff levels (driving consumer spending).
Performance & Prospects
Key Findings
The majority of businesses expect a better performance in 2014,
with 44% expecting their growth rate to be higher than in 2013.
One in five businesses didn’t experience any growth last year,
44%
54%
29%
while the rest averaged 11% growth year-on-year. For 2014, just
expect growth rates
to be higher than
in 2013
13% expect no growth - the rest expect average turnover to rise by
of businesses
of exporters Cost competitiveness still remains the number one
just under 13%. expect
expect to hire more
further growth
businessthis year for the year ahead. Over staff in 2014
priority
a third of firms expect
new products and services to drive their growth. The majority (63%)
39%
of firms anti
increases in c
expenditure b
foresee rising costs as the biggest threat to their growth ambitions,
while 58% worry about a lack of finance inhibiting growth.
Overseas Expansion
40%
Key Findings
44%
54%
expect growth rates
to be higher than
in 2013
63%
59%
of SMEs expect to
expect social media
of M&A deals are
undertake M&A activity
to be relevant to
likely to be located in
in the UK
their business
Ireland in 2014
One in five businesses in our survey expect to expand abroad in 2014.
of exporters expect
further growth
this year
29%
39%
60% of the companies surveyed already have overseas sales with 40%
of their total sales generated in export markets. The majority of those
of businesses
exporters have seen sales grow in the of firms anticipate and 54%
past twelve months,
increases in capital
expect to hire moregrowth in 2014. The UK and USA have been the
expect further export
expenditure budgets
staff in 2014
source of much of the recent growth, though looking ahead the rest of
25%
Europe is expected to provide more opportunities than previously.
foresee
wage pressures
40%
63%
59%
1 See ‘About the Research’ (page 40) for further details on the research methodology
6|
of SMEs expect to
expect social media
of M&A deals are
63%
foresee rising costs
6. Job Creation
Businesses have been cautious about hiring - roughly equal
54%
es
n
proportions have increased their staff numbers as have reduced
29%
39%
them in the past year. However, all that is about to change - 29%
expect to hire more staff in the year ahead, only 10% anticipate
of firms anticipate
a reduction in headcount. However, staff retention and supply
increases in capital
expenditure budgets
problems are rapidly emerging - over a quarter of firms see wage
of businesses
expect to hire more
staff in 2014
of exporters expect
further growth
this year
pressures (especially for skilled workers) making it harder to keep
their staff or too expensive to hire more.
Capital Expenditure
40%
of SMEs expect to
ndertake M&A activity
in the UK
63%
29%
54%
63%
capital expenditure in 2014 with corporates and micro-firms more
likely to increase their budgets than SMEs. However, 19% expect a
reduction in capital expenditure.
39%
of firms anticipate
increases in capital
expenditure budgets
of businesses
foresee
expect to hire more
wage pressures in 2014
staff
Mergers & Acquisitions
63%
59%
expect social media
to be relevant to
their business
ty
39%
25% 29%
porters expect
rther growth
this year
ings
59%
of M&A deals are
foresee rising costs
likely to be located in
as a threat
Ireland A growing share (39%) of firms anticipate growth in the budget for
in 2014
of firms anticipate
increases in capital
expenditure budgets
of businesses
expect to hire more
staff in 2014
ct
%
expect social media
to be relevant to
their business
63%
44%
63%
months, 16% of firms expect to buy or sell a business - just a small
uplift. However, they do anticipate large changes in the location of
M&A deals -risingIreland (some 59% up from 35%) accounting for
foresee with costs
as a threat
most, followed by the rest of Europe (outside the UK). Funding will
of M&A deals are
likely to be located in
Ireland in 2014
54%
largely be via cash reserves, etc, however 27% expect to require bank
29%
finance. Not all activities will take the form of traditional M&A and
39%
joint ventures and partnerships are expected to play a bigger role in
delivering expansion.
of firms anticipate
of businesses
increases in capital
expect to hire more
expenditure budgets
staff in 2014
of exporters expect
further growth
this year
25%
landscape and opportunities for consolidation. Over the next 12
59%
expect social media
to be relevant to
their business
ures
pect growth rates
o be higher than
in 2013
63%
Only costs
foresee rising12% of the firms surveyed have bought or sold a business in
as a the past 3 years. Transactions were driven by changing competitor
threat
of M&A deals are
likely to be located in
Ireland in 2014
Innovation & Digital Strategy
foresee
wage pressures
Every business now has to have a digital strategy – even if it is not a
digital business. In 2013, nearly half the businesses surveyed didn’t
40%
63%
of SMEs expect to
undertake M&A activity
in the UK
expect social media
to be relevant to
their business
59%
63%
generate any sales online. In 2014, this number is expected to fall
dramatically to a little over a third. However, when asked about
the importance of social media, very fewforesee rising costs this
businesses expect
of M&A deals are
likely tosales channel but understand itsas a threat
be located in
to work as a
role for managing
Ireland in 2014
corporate reputation. In fact, 63% expect social media to be
relevant to their business in 2014 with business decision makers
already quite sophisticated users of these channels.
25%
foresee
wage pressures
|7
7. part one
Performance & Prospects
With the majority of those surveyed expecting a better performance
for their businesses in 2014 versus last year, the overall outlook
from this study is generally positive. Survey participants indicate
that growth momentum in 2014 will be more broadly based than
in recent years and so too the drivers of growth. However, after
more than five years of weak growth or even contraction, nobody
expects the path to recovery to be plain sailing with a number of
risks and impediments identified including those of rising costs
and access to finance. But the key difference going into 2014 is that
Ireland’s indigenous firms are optimistic about their contribution
to economic growth in the year ahead.
8 | Section Title
8. This optimism carries through into
the outlook for individual businesses. While
optimists outnumber pessimists by 5 to 1, the
ratio changes considerably across different
sectors and categories:
Ireland’s
Your Industry
in 2014
in 2014
Consensus Outlook for 2014
Economy
or Sector
Ireland’s economy in 2014
Better than
it is today
• Corporates are more optimistic than
SMEs (defined as employing between 11
and 100 staff in our study)
“
growth momentum
in 2014 will be more
broadly based than in
recent years
“
51%
• Those in the hospitality and
construction sectors are optimistic
about their prospects on average
The sa
as it is
Worse than
it is today
Worse
than t
Don’t know
Don’t
36%
43
16
12%
• There is little difference between Irish
and foreign-owned businesses, or
between domestic-focused and exportfocused
A better outlook should mean more
growth. Indeed, a large minority – 44% of businesses in our survey expect their
growth rate to be higher in 2014 than
41%
The same
as it is today
• Those in the manufacturing and
professional services sectors tend to be
less optimistic than average (though still
optimists on balance)
These findings are important because they
indicate that growth momentum in 2014
will be more broadly based than in recent
years (which tended to see growth led by
exporters, larger corporates and foreignowned businesses). Moreover, just as
growth looks likely to be broadly based, so
also the drivers of growth are expected to be
quite diverse – and therefore more resilient
than, say, a strategy based on just one or
two initiatives.
Better t
it is tod
1%
0%
in 2013. Only 13% expect a lower rate.
Unsurprisingly, growth expectations are
not evenly distributed – exporters are less
optimistic about their growth prospects
than those focused on the domestic
market. The weakness in Ireland’s trade
performance in the second half of 2013 is
probably one reason for such caution.
Growth expectations are highest among
larger corporates and micro-firms otherwise there are few significant
differences between exporters vs domestic
focused businesses, or between Irish-owned
vs foreign-owned.
Expectations for Growth in 2014
Expectation for growth in 2014
% Higher than 2013
% Same as 2013
44 41 13
46 39 12
Total
Corporate
% Lower than 2013
37 43 18
SME
46 42 10
Micro
|9
9. Average Growth Rates in 2013
Growth Rate
O%
1-10%
11-20%
21% 57% 12%
Mean Score
11%
Estimated Growth Rates in 2014
Growth Rate
O%
1-10%
11-20%
13% 58% 17%
“
The focus on costs
that all businesses
learned during the
recession will remain
dominant
“
Mean Score
13%
We asked respondents to put a number
on their growth performance and
expectations. As the charts above show,
most have experienced single digit growth
in 2013 (and 21% experienced no growth),
while the average was some 11%. Looking
ahead, average growth is expected to
be higher (13%), driven partly by fewer
expecting no growth next year.
As for the key growth drivers themselves
(see chart across), clearly innovation
is expected to play a major part in the
recovery. A third of businesses foresee new
products and services as their top growth
driver in 2014. Marketing and branding
will also play an important role – and 1 in 7
anticipate the need for additional staff to
deliver growth.
Not surprisingly, for different businesses
and sectors, growth drivers change
depending on their current circumstances
and market expectations:
• Half of SMEs expect new products to
deliver growth compared to just 15% of
corporates
• Likewise, half of retailers and
wholesalers are focused on new products
and services, with a quarter expecting
digital channels to also play a key part
(more than any other sector)
• Domestic market expansion is still a
However, there is also a degree of
preferred route to growth for microcontinuity going into 2014. We see from the
businesses and SMEs, while professionals
chart “Business Priorities in 2014” that the
also prioritise this route
focus on costs that all businesses learned
during the recession will remain dominant.
Some will look to improve margins in an
expanding market, but holding
on to existing customers and
Business Priorities in 2014
market share will be just as
Business Priorities in 2014
important. Better prospects also
%
look set to drive a renewed focus
on marketing and branding –
Margin Recovery / Cost Competitiveness / Cost Reduction
areas that suffered during the
%
recession due to cutbacks and
Business Retention / Survival
price competition. Another sure
%
sign of improving prospects is
Expansion (Domestically)
the fact that staff retention is one
31
29
29
of the top five priorities for 2014
– again boding well for the jobs
market.
As for expansion overseas, 1 in 10
firms in our survey selling mostly
to the domestic market intend to
develop their overseas channels –
recognising, perhaps, that export
markets promise greater growth
opportunities than a still flat
domestic market.
10 | Performance & Prospects
25%
Marketing / Brand Building
21%
Staff Retention
18%
Expansion (Overseas)
17%
Online Strategy
10. Growth Drivers in 2014
Growth Drivers in 2014
36%
New Products / Services
27%
Marketing & Brand Positioning / Building
24%
Expansion (Domestically)
20%
Expansion (Overseas)
14%
Acquire Skills / Experienced Staff
14%
Improvement in Wider Economy
The McCann FitzGerald view
David Lydon, Partner - Head of Corporate
We believe that as recovery takes hold it will be ‘evenly distributed’
with a wide range of sectors and sizes of firms benefiting from growth.
This is a very positive change for a number of reasons:
•
For those selling to SMEs e.g. banks, utilities and telcos, the prospect of a more uniform
recovery means that their B2B sales performance in 2014 should see a marked improvement;
•
For banks in particular, improving growth prospects for SME customers should - other things
being equal - reduce both the risk of lending as well as the pool of firms still struggling with
debts and other boom time legacies.
However, while B2B opportunities will drive growth for larger firms selling to SMEs and others, we
do not expect B2C opportunities to be quite as strong. Yes, the consensus among forecasters is that
2014 will see a return to growth in consumer spending. Even so, the rate of growth will lag that for
B2B players in general, and for exporters in particular.
We should not, however, lose sight of the very real constraints that remain in place going into 2014.
Rising costs, limited access to finance and intense competition all mean that businesses cannot
take growth for granted simply because there is a pick-up in demand. This is especially true for
those businesses that still need to put the right financial structures in place to fund growth and
expansion during the recovery phase.
Firms will also need to focus on customer retention as well as recruitment through their marketing
and loyalty strategies. This in turn will mean a greater focus on IT, CRM and data practices that are
fit for purpose.
| 11
11. MainRisks & & Barriersbusiness growthGrowth in 2014
Main Risks Barriers for for Business in 2014
63%
Rising Costs
58%
Access to Finance
46%
Lack of Consumer / Client Demand
40%
Global Economic Shock
23%
Political Uncertainty e.g. Brexit
After more than five years of weak growth
or even contraction, nobody expects the
path to recovery to be plain sailing. And a
number of risks and barriers lie ahead for
the majority of businesses in our survey.
The top barrier to growth is that of rising
costs.
Seven in ten firms selling to consumers
(B2C) identify rising costs as their main
challenge, as do those operating in the
hospitality and professional sectors. Access
to finance is also a potential barrier for
most – rising to two thirds of micro-firms
in our survey.
Another way of exploring growth prospects
is to examine the different ways in which
businesses can expand – beyond top line
Business Expansionplan to expand in 2014
How does your business Plans in 2014
60%
Growth Within Existing Markets
32%
New Market Entry (Overseas)
31%
Diversify Current Product / Service Offerings
31%
Innovation
31%
Online
19%
Overseas Merger / Acquisition
1%
Other
12 | Performance & Prospects
sales improvements. Indeed, more than half
of the businesses in our survey do expect to
expand in 2014, using a variety of means.
Top line sales growth will naturally
dominate expansion in 2014. However, it
is interesting to see the other means for
expansion that significant minorities are
planning for. New market entry overseas is
an important driver of export performance.
So also are new channels such as online,
alongside innovation.
Furthermore, one in five firms are looking
to overseas mergers and acquisitions as an
effective way to secure expansion.
Our findings are consistent with the wider
economic outlook for Ireland in 2014 and
beyond. Most economic forecasters expect
Ireland’s recovery to be driven by three
of the four drivers of economic growth,
i.e. continued export growth, capital
investment, and a modest improvement
in consumer spending. The fourth
driver – government spending – is the
only economic ‘engine’ not expected to
contribute to growth.
Nevertheless, our survey suggests that the
business sector will deliver a more balanced
type of growth than heretofore. Larger
corporates and foreign-owned firms will
continue to grow as they have in recent
years. But the key difference going into 2014
is that Ireland’s indigenous firms – micro
and SMEs in particular – are also optimistic
about their contribution to economic
growth in the year ahead.
12. The Business View
Christoph Mueller, Chief Executive Officer of Aer Lingus plc
Most forecasts for 2014 assume a recovery in consumer spending and
investment which in turn will drive the domestic economy. That said,
exports will continue to play a significant role in driving growth in the
year ahead. At Aer Lingus we already sell the majority of our seats in
international markets, with domestic demand still some 30% below the
peak, despite some recent improvements.
Business people across all sectors understand the
importance of exports in a flat domestic market
and are acting accordingly. SMEs can and must
play a part in increasing exports since they create
most of the jobs that provide the incomes and
spending power that fuels the domestic market.
However, with our banks still constrained this
might prove a barrier to the contribution of
international trade by our SMEs.
“I believe that
a danger of the
post-Troika era is
that confidence
will give way to
complacency.
We no longer
have a safety net,
so we’ve got to
make it work. ”
I believe that a danger of the post-Troika era is
that confidence will give way to complacency.
We no longer have a safety net, so we’ve got to
make it work. A lot of tough decisions have been
avoided or fudged. The cost of living in Ireland
is still alarmingly high relative to many major
economies.
Beyond the cost of living, there is an emerging
mismatch between labour demand and labour
supply. We also see a clear difference emerging
between Dublin and the rest of the country.
Indeed, one reason so many companies are
recruiting abroad for workers to come to Ireland
is the lack of certain skills in the domestic labour
market. To address this we need more vocational
training better fitted to the needs of indigenous
companies and particular industry sectors. As
an example, Aer Lingus is piloting a training
scheme that will certify mechanics in order to
meet the needs of businesses in Ireland, as well
as our own recruitment needs for the future.
Another issue is innovation. People confuse
it with invention. Ireland is a small country
so one of our advantages is that we are agile.
That’s why we need to be bold about innovating
new ways of solving old problems. It also
means ensuring that we don’t govern ourselves
in ways that are unnecessarily complex or slow.
Ireland faces risks in the years ahead. We
still have to resolve the legacy of debt issues,
including NAMA’s presence in the hotel
sector and all that it means for tourism. Youth
unemployment is a time bomb that should be
addressed as a matter of urgency to avoid an
entire generation being lost to society and to
the economy.
But Ireland’s problems are not insurmountable.
We need to put in a few more years of hard
work, focusing on job creation to ensure
domestic market expansion and a balance
between Dublin and the rest of the country.
Emigration is one of the negative side effects of
the unemployment problem but we should use
emigration as a tool for growth, for example
in the form of ‘learn and return’ schemes so we
send our best and brightest abroad to acquire
the skills needed for the future, and train
others back in Ireland as well.
We’ve achieved a lot but we need to regain the
hunger and ambition we had early in the Celtic
Tiger. So avoid false promises, and don’t say it
will be easy.
| 13
13. part two
Overseas Expansion
While it appears we can look forward to an improving domestic
market trend in the years ahead, the reality is that exports in
general and the trade performance of Irish businesses in particular,
will play a fundamental part in the story of Ireland’s recovery. In
this section, we take a closer look at the nature and scale of exports
and overseas growth for Irish businesses.
14 | Section Title
14. One in five businesses in our survey expect
to expand abroad in 2014. The majority
(60%) of the companies in our survey are
already active in international markets.
Among the exporters, overseas sales
accounted for about 40% of turnover in
2013 (with strong polarisation between a
minority with a very low share and those
with a very high share).
Just as Ireland has enjoyed continued
growth in its exports in recent years even as
the domestic market suffered, businesses
have enjoyed expanding overseas sales. Half
of those selling abroad saw sales growth
between 2012 and 2013. Moreover, a larger
majority (54%) expect their overseas sales
in 2014 to be higher than in 2013.
Once again, our survey reveals a reassuring
spread of optimism about overseas sales
growth across different business types.
Roughly similar proportions of exporting
micro-firms and SMEs expect international
sales growth in 2014 as do large corporates.
The retail and hospitality sectors are
especially optimistic about overseas sales,
though foreign-owned exporters are
somewhat more optimistic than Irishowned exporters (60% vs 52%).
Has your firm seen its turnover from overseas business in the la
Change inHas yourGenerated from turnover from overseas business in the
Turnover firm seen its Overseas Business
2013
Stayed the same
Increase
51%
51%
Increase
Don’t
know
2%
2%
38
38%
9%
9%
%
Stayed the same
Decrease
Decrease
Don’t
know
Anticipated Change in Turnover Generated from Overseas Business
Will your firm see its turnover from overseas business in 2014:
2014
Will your firm see its turnover from overseas business in 2014
Stay the same
Increase
54%
54%
Increase
Don’t
know
1%
1%
Don’t
know
38%
38%
Stay the same
Decrease
6%
6%
Decrease
| 15
15. Despite fifteen years of the eurozone,
Irish businesses are overwhelmingly
reliant on trade with the UK for their
export performance. Half of those in our
survey have sold to the UK in the past
year, followed by the rest of Europe and
the United States. Looking ahead to 2014,
expectations are not uniform:
• Manufacturers and construction
companies anticipate a bigger role for
China in their success in 2014
• Half of SMEs still expect the UK to be
their dominant trade market
• A fifth of micro-firm exporters are
looking to the USA for growth
In some respects these findings point
to a continuing ‘flaw’ in Ireland’s trade
performance. Although reliance on our
largest neighbour is inevitable (inside
or outside the eurozone), the low weight
given to the BRIC economies and other
fast growing parts of the world indicates a
possible longer term problem if we fail to
link Ireland’s economic prospects to the
new global growth drivers.
Of course, we should not be too critical –
the reality is that both the UK and the USA
will enjoy a higher level of growth in 2014
than the eurozone as a whole, favouring
Irish exporters (assuming a relatively weak
euro).
Overseas Markets for Irish Exporters
2013
In what overseas markets do you see expansion for your business in 2014
Russia
USA
20%
Europe
UK
50%
36%
3%
China
India
2% 22%
Asia
Middle East
Brazil
2%
16 | Overseas Expansion
5%
9%
16. Expected Overseas Markets for Irish Exporters
2014
Russia
4%
USA
17%
Europe
46%
UK
37%
3%
8%
India
2%
Middle East
Brazil
China
10%
As we see overleaf, among those businesses
expecting to expand overseas via mergers
and acquisitions and/or entry into new
export markets, it is clear that the UK will
still be the dominant focus, followed by the
rest of Europe.
There are quite significant differences
between different sectors and size of firms
in relation to their expansion/acquisition
focus in 2014. The larger corporates are
as likely to see Asia as a target market as
the UK, while SMEs and micro-firms are
skewed much more towards the latter.
Asia
22%
When the story of Ireland’s recovery
comes to be written, the success of
Ireland’s exporters will play a key part
in it. This report provides encouraging
signs that our future export performance
will be relatively broad based, and
hopefully robust.
| 17
17. Expected Markets for Overseas Expansion
2014
In what overseas markets do you see expansion for your business in 2014
Russia
7%
Europe
UK
USA
33%
51%
40%
Middle East
7%
Brazil
5%
China
13%
Asia
22%
The McCann FitzGerald view
Michael Ryan, Partner - Head of Tax and FDI
If overseas trade is to play a key role in delivering growth in 2014 - and
it must - then it is vital that those firms expanding abroad are equipped with the skills to manage the
inevitable complexities that trade brings with it.
Financial management is perhaps the most obvious skill - for example, in relation to foreign
exchange and creditor arrangements - but just as important is the management of intellectual
property. Protecting and enforcing IP rights is increasingly important to service and digital
companies which may not have any physical assets to protect or sell. In our experience, this is a
potential vulnerability for Irish firms expanding outside of anglophone markets, and in particular,
to Asia.
Likewise, linguistic and negotiating skills will become increasingly important as trade outside of
the UK and USA grows in line with the projections in our survey. A significant minority of firms
expect to expand via acquisitions and mergers, bringing with it many complexities in terms of
cross-border tax treatment, legal jurisdiction and so on.
In our view, the rewards from successful expansion abroad can be substantial, for shareholders and
customers alike. However, there is a risk that management can be spread ‘too thinly’ in an overambitious attempt to expand international sales. It may be better to focus and learn in just one or
two overseas markets first, before widening the scope for trade-led growth.
18 | Overseas Expansion
18. The Business View
Dr. Paul Duffy, Vice-President of Pfizer
We are still experiencing a two-tier economy in Ireland. The multi-national sector
that I work in is doing relatively well, especially those firms plugged into faster
growing markets around the world. But looking at the situation from the viewpoint
of other sectors it is clear that the domestic economy is still under immense pressure. The large number of empty units in many shopping centres in Ireland are
testimony to that.
A fundamental problem is that unemployment in
some families is becoming multi-generational.
Even with the Government’s commitment to
halving the unemployment rate by the end of
the decade - which I welcome - we may still have
hundreds of thousands on the live register. The
pharma sector in Ireland employs some 25,000
people. That looks likely to remain stable in
future, but it also means that the creation of
large numbers of new jobs will have to come
from elsewhere.
“Irish exporters
need to lock-on
to emerging
markets... in
order to secure
long-term
growth.”
Dublin is clearly enjoying an improvement
to its economic fortunes. The new wave of
multinationals are creating thousands of well
paid jobs requiring office space and creating in
turn demand for good quality accommodation.
This extra spending power is helping lift Dublin
out of recession ahead of the country, though the
rest will follow.
It has been the multinationals who have kept
the economy growing during the domestic
market downturn. They will continue to do so.
As an American company, we already see the
bullish performance of the US economy. But
Irish exporters need to lock on to emerging
markets such as China, Brazil, India, Argentina
and others in order to secure long-term growth.
Some Western economies are ageing, and in
some cases their populations are shrinking, so
long run growth rates will be lower than was the
case in previous decades.
on its manufacturing costs, hence the significant
reduction in plant numbers worldwide. Our Irish
operations are increasingly focused on the higher
value-added products and processes where
we can reliably deliver high quality outputs at
competitive costs.
Indeed, in Ireland with the use of smart
technology we can now manufacture certain
types of products at the same price or less than
traditional low-cost locations. Fortunately we
are also seeing increased productivity from R&D
with a number of the newer medicines being
manufactured in Ireland. This helps to further
improve the productivity and utilisation levels
of our plants in the country. This bodes well for
our manufacturing presence here and ongoing
contribution to exports and to employment.
My advice for any Irish business looking to
expand abroad is to have a presence on the
ground in your target markets. For most this will
mean local partners – you may have to divide the
rewards for success but at least you’ll be more
likely to enjoy some success. A DIY approach to
overseas expansion can be time consuming and
expensive.
The pharma sector is affected by some of these
trends. We have seen a lot of consolidation in
recent years as the growth provided by past
innovations eases. These days, manufacturing –
not R&D - is the biggest operating cost for many
pharmaceutical businesses. Pfizer is very focused
| 19
19. part three
Job Creation
Most people will only believe in recovery when it translates into
job creation and shrinking dole queues. Our survey found a mixed
performance with broadly similar proportions having increased
their staff numbers in 2013 as decreased them (though this doesn’t
necessarily equate to the same ‘number’ of jobs). However, all
that is about to change with 29% of firms expecting to hire more
staff in the year ahead. Despite this positive indicator a note of
caution is to be made with staff retention and supply problems
emerging as over a quarter of firms see wage pressures (especially
for skilled workers) making it more difficult to keep their staff or
too expensive to hire more.
20 | Section Title
20. Looking ahead to 2014, the picture is more
positive – for every firm in our survey
expecting to reduce their staff numbers
there are three expecting to increase
numbers.
Staff numbers fluctuation
Staff numbers fluctuation
Staff Numbers Fluctuation
2013
Increase
Increase
23%
56%
21%
Remain Constant
Remain Constant
Decrease
Decrease
2014
Increase
Increase
29%
61%
10%
Remain Constant
Remain Constant
Decrease
Decrease
There is a reassuringly broad mix of
firms seeking to hire more staff in the
year ahead:
• 37% of SMEs expect to increase
their staff numbers
• 46% of construction sector
companies expect to increase
staff
• Equal proportions of Irishowned and foreign-owned
firms expect to hire more staff
in 2014
• 49% of those expecting their
turnover to grow in 2014 expect
to hire more staff
These are very encouraging findings. In
recent years, the link between growth
(especially export performance) and job
creation has been relatively weak (not least
because of large numbers of job losses
in the domestic economy). But looking
ahead we anticipate a closer alignment
between business growth and job creation,
especially because of the diverse nature of
the growth and hiring trends.
However, despite our still high
unemployment level, businesses are
cautious about their abilities to recruit the
right staff in the right numbers. In terms
of their main recruitment challenges,
some still feel constrained about their
ability to afford more staff, while a similar
proportion feel that pay levels are already
becoming uncompetitive.
Such concerns are common across all types
of businesses in our survey, though up to
40% of SMEs feel that they can’t compete
with wages elsewhere even where they want
to hire more staff. Nor are staffing issues
confined to recruitment. Staff retention
is also a growing challenge as recovery
gathers momentum and certain skills are
in increasing demand. Upward pressure on
wages from competitors is the number one
concern, followed by emigration of skilled
employees seeking better prospects abroad.
Both micro-businesses and SMEs feel under
more pressure from wage competition than
corporates (who may indeed be driving
up wage levels in some sectors beyond
Main Barriers to Recruitment
Main Hiring barriers
Cutbacks in Budget / No Recruiting Budget
Decreased Ability to Pay Competitive Wages
26%
25%
20%
Difficulty Getting Right Graduate Recruits
13%
Unable to Match / Provide Benefits
13%
Cutbacks in Budget / No Training Budget
12%
Lack of Career Prospects Within the Sector
| 21
21. levels that smaller firms can afford).
Furthermore, retailers and professional
service providers are among those sectors
under the most pressure from wage trends.
Meanwhile those in the hospitality sector
believe they are the most vulnerable to
having staff ‘poached’ by competitors.
Staff Retention Issues
Staff retention issues
34%
Decreased Ability to Pay Competitive Wages
26%
Employees Emigrating for Better Positions
19%
Unable to Match / Provide Benefits
No Current Issues in Retaining Staff
Nevertheless, these are certainly ‘nice
problems’ to have after many years of simply
not generating sufficient jobs to meet
demand. It is inevitable that there will be a
degree of ‘pent up’ labour market movement
after such a long period of high and rising
unemployment. Still, it is of concern it
may harm Ireland’s growth prospects as
a whole if Irish businesses are suddenly
confronted with labour supply constraints
after a prolonged supply glut. It is one thing
for growth to translate more directly into
job creation, but that doesn’t necessarily
mean the jobs will be created if insufficient
numbers of workers with the right skills – at
the right wage levels – frustrates the hiring
plans of Irish businesses.
14%
13%
Cutbacks in Budget / Training Budget
13%
Low Morale Due to Financial Uncertainty
The McCann FitzGerald view
Valerie Lawlor, Partner - Corporate
The alignment between recent employment forecasts and the plans of
the firms in our survey is one of our most encouraging findings. For
much of the recession it was large firms that sustained and even grew employment in Ireland. Finally,
Irish SMEs look set to do their part in creating jobs and reducing unemployment in the coming years.
Taking on new recruits is a welcome initiative by any company, large or small. It sends a signal to
existing staff that the business is on a sound footing and set to benefit from recovery and growth. But
it may also create tensions as wage levels start to rise in first some sectors and then in many others.
Now is the time to ensure that employment contracts, bonus structures and incentive schemes are all
aligned with the new direction the business is taking. It may also mean re-structuring the business to
maximise the potential for growth, which could mean redundancies or redeployment for some staff
even as overall numbers rise.
In our experience, managing employment contracts, pensions, etc can be just as challenging when a
firm is expanding as when a firm is contracting. Sometimes even more so.
22 | Job Creation
22. The Business View
Rose Hynes, Chairman of Shannon Airport Authority plc,
Bord Gáis Éireann and Irish Water
The Government set a new strategic direction for Shannon by granting it independence in January 2013 and giving it the freedom to determine its own future. The
decision also involved the combination of the airport with a restructured Shannon
Development.
Separation was a game changer for Shannon.
The immediate priority was to arrest the decline in passenger numbers and then reverse
this trend. There is no silver bullet here and
we had to find innovative ways of addressing
the problems. To start with, we significantly
improved how we engage with stakeholders
bringing some ‘joined-up thinking’ across the
region. We have now reversed the decline in
passenger numbers and are in growth mode.
The United States is a hugely important
market for the region and, in addition to
activities for The Gathering, we conducted
an award-winning marketing campaign leading to a 40% increase in transatlantic visitor
numbers in 2013. Shannon has a strong brand
internationally and it is important not to
underestimate this.
The airport is part of the jigsaw but it’s not
all of it. There is potential for Shannon to be
not just a successful and sustainable airport
“There are green
shoots but there
needs to be greater
confidence… Working
in partnership is key
to success”
but also a major global aerospace industry
cluster, attracting jobs which would otherwise not come to Ireland. Aircraft leasing is
a global business, and Ireland punches well
above its weight. But it’s also a very mobile
business. Part of our mission is the development of a global aviation industry cluster,
the International Aviation Services Centre at
Shannon. An important part of the role of
the International Aviation Services Centre is
to give leasing companies further important
business reasons to stay in Ireland, to make
sure it remains easier for them to do business
here than anywhere else.
We’re under no illusions. We have a lot of
work in front of us, and the road is not all
smooth, but we believe there is a real opportunity to make Shannon successful and
sustainable. I want to see a reinvigorated
Shannon returning to a place in the forefront
of global aviation, not just as an airport but as
a broader centre of aviation excellence.
Exiting the bailout was a good thing and
making a clean exit by not going for an extra
credit line, sent out a clear and strong message. There are green shoots but there needs
to be greater confidence. The long term unemployment rate is very slow to come down
and this is having a bearing on confidence.
We need to encourage more innovation, new
ways of doing things and we need to collaborate to achieve greater results. Working in
partnership is key to success.
| 23
23. part four
Capital Expenditure
Most firms have recurring needs for capital expenditure, whether
simply refurbishing existing capital infrastructure and/or
expanding their capital resources. Capital expenditure has been
hard hit by the recession. However, with investment expected
to contribute to growth in 2014, it is reassuring to see that the
balance of capital budget trends – in 2013 and 2014 – has been
positive, with those increasing expenditure numbering more than
those contracting spending.
24 | Capital Expenditure
24. In particular we see:
• Micro-firms and corporates will be
considerably more likely to increase
their capital budgets in 2014 than SMEs
• Retailers and professional service
providers are among the sectors with
the highest percentages expecting to
reduce their capital budgets
• Foreign-owned firms are significantly
more likely to increase their capital
expenditure in 2014 than Irish-owned
firms (45% vs 36%)
Capital Expenditure Budget 2013
Capital Expenditure Budget 2013
Capital Expenditure Budget 2013
Stays the Same
Stays the Same
Decrease
0%
16%
16%
Decrease
Don’t Know
0%
40%
43%
Capital Expenditure Budget 2014
Capital Expenditure Budget 2014
Capital Expenditure Budget 2014
39%
38%
Increase
Increase
Stays the Same
Stays the Same
Decrease
Don’t Know
40%
43%
Increase
Increase
Don’t Know
Once again, our survey indicates a
reassuring alignment between macroeconomic forecasts and micro-economic
firm level ambitions. The over-hang from
over-investment in property during the
boom is gradually being resolved. As
the shadow of poor investment recedes,
businesses will once again be prepared
to invest in the capital equipment and
resources necessary to sustain growth both
at home and abroad.
4%
19%
Decrease
Don’t Know
4%
19%
39%
38%
The McCann FitzGerald view
David Byers, Partner - Corporate
Circumstances require that corporates be open to new ways to fund capital expenditure. New
equity, corporate bonds and even ‘vendor finance’ arrangements can all play a part in meeting
pent-up demand for capital spending in relation to replacement, refurbishment and expansion.
In our experience, the right approach to significant capital investments can secure tax and other
benefits that can multiply the standard ROI metrics used to evaluate investment decisions. Such
benefits can and do arise in international initiatives and not just those concentrated in Ireland.
| 25
25. The Business View
David Duffy, Chief Executive Officer of AIB Group
& President of the Irish Banking Federation
Ireland remains one of the most open economies in the world. Our fortunes are
crucially dependent on Europe for growth. Therefore, we need to recognise what
we can control - and what’s beyond our control. Where we do have control in areas
such as domestic fiscal planning we must remain disciplined and in areas where
we do not have direct control, especially at a policy-making level in Brussels and
Frankfurt, then it is vital that we use our influence to support European policies
that promote growth and that benefits us in Ireland as well as the rest of Europe.
“For the first time
in years, the three
vital elements of the
economy, to which I
refer, are all pointing
in the right direction
albeit developing at
different rates.”
Domestically we still have to tackle the
legacy of debts accumulated during the
boom years. Our debt/income ratio on some
measures is still above acceptable long
term sustainable levels so de-leveraging
still has a way to go, especially in terms
of the household balance sheet. What
is happening in Ireland has happened
elsewhere before, and we are following an
historic pattern that will continue to play
out over the next few years. The result is
that we will continue to see net reductions
in lending in Ireland because the amounts
AIB and the other banks lend to borrowers
will be exceeded by the nominal value
of debt repayments by consumers and
businesses for the foreseeable future.
Nevertheless, we are getting to a tipping
point. The borrowing/repayment dynamic is
influenced by a combination of factors such
as house prices and unemployment levels.
Stabilising prices and job numbers across the
country will help confidence, which in turn
will help the housing and job markets.
I also expect to see a turnaround in consumer
spending, which will be good news for SMEs
serving the domestic market. Furthermore,
2014 will finally see a drop in arrears as
real progress is achieved on resolutions for
personal and business borrowers.
The SME sector is one of what I call the ‘three
legs’ of the economy. Those SMEs that have
survived the recession are, for the most
part, well run businesses that have figured
out how to diversify, cut costs and sustain
growth. In many different sectors including
troubled areas - such as hotels and pubs - the
key is to re-structure legacy property debts in
a manner that helps the successful survivors
to grow and create jobs.
The other two legs of the economy are
Foreign Direct Investment (FDI) and the
export driven economy. My concern is
that the model for FDI success in the past
- affordable, well educated labour and a
good telecoms infrastructure - has left us
complacent about the future. We face real
26 | Capital Expenditure
26. skills shortages and the challenge is to
equip our school leavers and graduates
with the skills that will be demanded by a
tech-based economy. We must continue to
invest in our physical infrastructure.
It isn’t all about technology of course. Our
export performance has seen real success
for indigenous companies in sectors as
diverse as agri, pharma, software and even
industrial goods. Growth in Europe is a
key driver, but economic recovery in the
UK will also help Ireland’s exporters given
its fundamental importance as a trading
partner. Back home, the end of quotas
for farming also represents an enormous
opportunity for indigenous suppliers
to grow and to secure higher levels of
productivity - following the example of
New Zealand - which in turn will drive
export growth.
For the first time in years, the three vital
elements of the economy, to which I refer,
are all pointing in the right direction
albeit developing at different rates. All
three are creating a positive dynamic that
was absent before.
These developments bode well for the
financial sector in Ireland. We have just
seen the State successfully borrow on
the open market in the new, post-bailout
environment. Likewise, AIB and Bank
of Ireland have also benefited from the
improved perceptions of Ireland and our
financial sector. The main banks have
recently raised unsecured funds on the
open market at an interest rate lower than
that for secured funds just a year ago.
The pillar banks in Ireland are expected to
return to profitability during 2014-15, and
should be adequately capitalised to meet
ECB and other criteria unless there are
changes to the rules at a European level.
The issues of arrears, capital adequacy and
profitability will all effectively be resolved
for Ireland’s banking sector in the next
two years.
It is vital that the business of banking is
normalised sooner rather than later. Take
mortgages, for example. At the peak, banks
in Ireland were lending €40 billion a year.
A normal market level is closer to €8€10 billion. But right now due to limited
demand, banks are lending about half that
level. With the banks returning to health,
we will see the share of cash buyers in the
housing market decline and first time
buyers have access to mortgages they need.
This in turn will support the construction
sector. Again we need to get a more
normalised market, which means
building 12-18,000 houses a year in line
with demographics and growth, as well
as appropriate commercial property
developments.
Looking around the country, we don’t see
many big regional differences in terms of
business customer performance, as each
regional economy is built around its own
strengths to a certain extent.
Nevertheless, it is important to avoid any
worsening of regional imbalances. Dublin
has become a European technology hub,
which is to the country’s benefit. But we
also need greater synergies between the
universities, IDA , banks and other parties
to build attractive propositions outside of
Dublin for future investment.
To sum up, there’s a lot of goodwill towards
Ireland as the first European country to
exit a bailout. It is imperative that we keep
that goodwill by maintaining our fiscal
discipline. We must leverage that goodwill
in Europe to systematically make our
voice heard in relation to pan-European
regulations and legislation that will
increasingly shape all our futures, and not
just in banking.
| 27
27. part five
Mergers & Acquisitions
Our research points to a number of significant shifts in M&A
activities among Irish businesses. For most, the decision to
pursue M&A activity relates to economies of scale (changing the
competitive structure) and simple business expansion (via access to
new markets, locations, etc). Financial motivations (using surplus
cash and/or supporting share prices) are a distant third. However,
a growing proportion will seek to do M&A deals in the Irish market
where a key challenge will be to ensure that debt finance options
are sufficient to resource viable merger and acquisition activities
that promise to deliver growth and jobs over the rest of the decade.
28 | Section Title
28. 12% of all firms surveyed bought or
sold a business in the past 3 years.
Transactions were driven by changing
competitor landscape and opportunities
for consolidation. In 2014, just 16% of
firms plan to buy or sell a business – a
small uplift. However, the pattern of M&A
activity in terms of location is expected to
shift significantly, as illustrated below.
M&A Locations Over the Past 3 Years
M&A locations over the past 3 years
M&A locations over the past 3 years
Europe
Europe
35% 26% 16% 13% 6%
35% 26% 16% 13% 6%
Ireland
Ireland
UK
UK
Asia
Asia
USA
USA
M&A locations Over the Next 12 Months
M&A Locations over the next 12 months
M&A locations over the next 12 months
Ireland
Ireland
UK
UK
Europe
Europe
59% 20% 22% 5%
59% 20% 22% 5%
USA
USA
| 29
29. Funding for M&A activities
Funding futureFuture M&A Activities
Existing Resources
Bank Debt
Combination
Shares
Investor
27%
22%
17%
15%
34%
One sure sign of a positive outlook for the
Irish economy is the fact that more than
half those planning M&A activity over the
next 12 months plan to do so in Ireland.
Moreover:
• One in five SMEs expect to undertake
M&A activity
• Three in ten of those in the hospitality
sector anticipate M&A activity
• One in five of those expecting higher
growth in 2014 will undertake M&A
activity over the next 18 months
• Two fifths of SMEs expect to undertake
M&A activity in the UK
• Three quarters of corporates will focus
on Ireland
Given such a significant change in
M&A plans, and the generally positive
implications for business finance and
expansion, a key question concerns the
likely sources of funding for planned
mergers and acquisitions. Crucially, the
top resource is anticipated to be reserves or
‘own resources’, reflecting the significant
‘war chests’ accumulated by many
businesses during the recession.
“
...more than half
those planning M&A
activity over the next
12 months plan to do
so in Ireland
“
The McCann FitzGerald view
Barry Devereux, Partner - Head of Corporate Finance
The expected shift in the focus of M&A activity shown in our survey
should not be surprising. After several years in which domestic
markets have been ‘frozen’, it is inevitable that improving growth prospects, stronger cash flows
and (with some caveats) better access to funding should all combine to encourage greater interest in
doing deals that make sense in the context of recovery.
We are seeing a growing number of innovative, more flexible arrangements between businesses
that range from IP sharing to joint ventures to fully fledged acquisitions. With a growing number
of overseas parties focused on Ireland due to more realistic valuations and cheaper funding abroad,
we would expect both domestic and foreign-owned companies to be heavily involved in deal flows in
the coming years.
30 | Mergers & Acquisitions
30. “
...not all activities
will take the form of
traditional M&A...
joint ventures and
partnerships are
expected to play a
bigger role
Bank debt is also expected to play a key
role while equity issues and new investors
will be of subsidiary importance. Not
surprisingly, there are major differences by
company type in relation to M&A funding
ambitions. Corporates overwhelmingly
expect to fund activities from their own
resources. Micro-firms and SMEs, on the
other hand, will look for a greater role for
bank debt. Therein lies a potential problem,
of course, since a focus on M&A activity
in Ireland funded by bank borrowings
immediately raises the issue of the
capacity and willingness of our indigenous
banks to fund such efforts. One question
unanswered is whether the new entrants to
the Irish lending market e.g. private equity
firms, will lend for coporate acquisition
purposes.
However, not all activities will take the
form of traditional M&A. Indeed, joint
ventures and partnerships are expected to
play a bigger role in delivering expansion
over the next three years. This may in
turn limit the need for finance, opening
up more potential for those firms lacking
endogenous resources to self-fund
activities.
Changing Deal Structures Next Year
Changing Deal Structures Next Year
Changing Deal StructuresNext Year
Joint Venture / Partnership
Joint Venture / Partnership
Traditional Merger & Acquisition
Traditional Merger &Partnership
Minority Investment Acquisition
Minority Investment Partnership
None
None
22%
22%
14%
14%
11%
11%
54%
54%
A quarter of micro-firms and SMEs plan
going down the joint venture route to
secure their business deals
•
One in five SMEs expects to take on a
minority investor partner
•
A quarter of construction sector firms
are looking to joint ventures to deliver
expansion
•
“
•
A third of those anticipating expansion
in 2014 will rely on joint ventures
Our research points to a number of
significant shifts in M&A activity among
Irish firms, and potential problems.
Overall, more will look to M&A to deliver
expansion and growth over the medium
terms. However, a growing proportion will
seek to do M&A deals in the Irish market.
A key challenge will therefore be to ensure
that debt finance options are sufficient
to resource viable merger and acquisition
activities that promise to deliver growth
and jobs over the rest of the decade.
Changing Deal Structures Next Years
Changing Deal StructuresNext 3 3 Years
Changing Deal Structures Next 3 Years
Joint Venture / Partnership
Joint Venture / Partnership
Traditional Merger & Acquisition
Traditional Merger &Partnership
Minority Investment Acquisition
Minority Investment Partnership
None
None
24%
24%
16%
16%
12%
12%
49%
49%
| 31
31. The Business View
Brian O’Cathain, Chief Executive Officer of
Petroceltic International plc
Our business is conducted overseas so we are very externally focused but our
headquarters is based in Dublin and we use Irish based services such as McCann
FitzGerald for legal services.
In 2012, Petroceltic acquired Melrose
Resources Plc in a share for share offer with
a value of $200m. This was a huge fillip for
our business. We focus on two main paths
to growth, organic exploration and stepchange acquisitions. In our industry, there
is a continuous need for investment and
growth as we may have twenty projects in
progress and only one or two of these will
work. We are not large enough to sustain
the level of exploration project investment
that is needed to guarantee growth so we
also have to grow through acquisitions.
“We focus on two main
paths to growth, exploration
and acquisition”
32 | Mergers & Acquisitions
The outlook for 2014 is very positive.
However, I believe more could be done to
help Irish businesses expand overseas. We
need ‘Team Ireland’ with a private sector
focus and some ‘joined-up’ thinking that
includes various State and private sector
players working together to promote Irish
companies in overseas markets.
32. part six
Innovation & Digital Strategy
At the height of the boom in 2007, fewer than half of all Irish adults used
the internet. At the beginning of 2014, despite long years of domestic
market stagnation, more than 80% of adults are online. And now a
second revolution is underway: 2013 saw half the population of Ireland
own a smartphone for the first time. Over the next couple of years that
figure will likewise rise to 80% of the population – continuing higher
thereafter. Every business therefore has to have a digital strategy – even
if they are not a digital business.
McCann FitzGerald ¦ Corporate Outlook: Ireland 2014 | 33
33. Our survey examined the share of online
sales in total revenues for Irish businesses
in 2013. Nearly half didn’t generate any
sales online. Among those who did, over a
quarter of their overall sales were digital.
Looking ahead to 2014 the key message is
that the share of ‘offline’ businesses (with
no online sales) will fall dramatically to
a little over a third by the end of the year.
While those expecting a higher proportion
of their sales to be online will grow
significantly.
Will the digital revolution be evenly
distributed among Irish businesses? It’s
possibly too early to tell, but nevertheless
there are some reassuring findings from
our survey about the broad-based nature of
the digital trajectory for Ireland:
sales to be online in 2014 than corporates
• A third of sales in the hospitality sector
will be online
• Two fifths of sales by those selling
mostly overseas will be online
• Broadly similar proportions of Irishowned and foreign-owned sales will be
online in 2014
Beyond eCommerce, social media has
also revolutionised the ways businesses
communicate with their customers and
their staff. The vast majority of firms
expect social media to be relevant to their
business in 2014, especially to advertising
and brand communications, and customer
service generally.
• Both micro-firms and SMEs (already
trading online) expect a larger share of
Percentage of Revenue from Online Sales
in 2013
Expected Percentage of Revenue from
Online Sales in 2014
Percentage of revenue from online from in 2013?
Percentage of revenue sales online sales in 2013?
Expected percentage of revenue from online fr
Expected percentage of revenue sa
0%
0%
47%
1-10% 1-10% 22% 22%
11-20% 11-20%
10% 10%
21-30% 21-30%
4%
4%
31-40% 31-40%
5%
5%
41-50% 41-50%
4%
4%
51-60% 51-60%
2%
2%
61-70% 61-70%
3%
3%
71-100%
71-100%
4%
4%
0%
0%
1-10% 1-10% 14%
11-20% 11-20%
13%
21-30% 21-30%
6%
31-40% 31-40%
6%
41-50% 41-50%
6%
51-60% 51-60%
2%
61-70% 61-70%
2%
71-100%
71-100%
7%
34 | Innovation & Digital Strategy
47%
35% 3
14%
13%
6%
6%
6%
2%
2%
7%
34. Somewhat relevant
38%
Very relevant
25%
Relevance of Social Media to Business
Neither/nor
Somewhat relevant
17%
Very relevant
Somewhat
%
irrelevant
25
10%
If relevant, why?
38%
To advertise
a brand/product
Very irrelevant
Neither/nor
17% 10%
40%
Communicate
with customers
Somewhat
irrelevant
10%
To advertise
It’s
a brand/product the
way forward
Very irrelevant
10%
24%
40% 20%
Communicate
with customers
Sales channel
It’s
Networking the
way forward
6% 20%
Do you allow staff access social media?
24
13% %
Sales channel
13%
Networking
Very few, however, expect social media to
Another related factor is that of staff
Yes, at
Yes, all the time work as a sales channel per se – which tends % access to social media. Two thirds of
designated times
to be the view of most commentators on the
firms provide access, though with some
%
%
Yes for
business impact of social media. However,
restrictions.
certain staff only
corporate reputation in the digital world is
Yes, on
Smaller firms are generally more ‘liberal’
a growing challenge for many businesses
%
personal devices
about letting staff access social media
No Yes, for
as customers – happy and unhappy – can
in our survey. That said, as the issue of
theywithblocked for
are others,
business use only
%
freely share their views
online reputation becomes more pressing,
better or for worse.
%
%
18
5
15
6
17
10
18
No rule in place
14%
Employee Access to Social Media During Work Hours
Yes, at
designated times
Yes, all the time
No, they
are blocked
17%
18%
Yes, for
business use only
15%
18 %
Yes, on
personal devices
10 %
No rule in place
14 %
Yes, for
certain staff only
6%
| 35
35. the impression created by staff usage of
social media – at work or otherwise – will
become an important one for firms of all
sizes in future.
Which in turn suggests that they will be
in a strong position to respond quickly
and positively to the opportunities and
challenges opened up by social media and
digital technology generally.
Indeed, the business decision makers
we surveyed are themselves quite
sophisticated users of social media.
How often do you use social media?
Current Use of Different Social Media by Business Leaders
19%
37%
Daily
14%
Daily
15%
Have account
but not active
Weekly
Daily
Monthly
7%
Have account
but not active
Weekly
22%
16%
Monthly
18%
Have account
but not active
Weekly
12%
10%
Monthly
10%
12%
Do not
have an account
26%
Do not
have an account
28%
Do not
have an account
50%
The McCann FitzGerald view
Paul Lavery, Partner - Head of Technology & Innovation
We are only at the beginning of the digital revolution for businesses.
Already, we have seen new opportunities emerge to sell, serve and
retain customers that would have been impossible (or prohibitively
expensive) even in the recent past.
But we should not be blind to the challenges that the digital future will bring. Whether in terms of
managing intellectual property, adapting to innovative technologies, or implementing privacy by
design, the businesses in our survey may not yet be fully prepared.
In our Technology & Innovation group, for example, we have seen data protection issues become a
top priority for both private and public sector clients in the past few years. For some, unfortunately,
this has been due to risks that have manifested themselves. Others have taken a more proactive stance
in terms of installing the processes and procedures that protect customers, protect staff and protect
corporate reputations at a time of unprecedented change.
36 | Innovation & Digital Strategy
36. “
...the new realities
of digital technology –
and its rapid adoption
by consumers in
particular – require a
clear, strategic business
response
Looking ahead, all businesses need to
future-proof themselves against new
and emerging technological changes. We
explored a number of potential changes
in our survey that firms could make. Most
haven’t yet made investments relating to
technological change from among those we
listed.
Nevertheless, a third have invested in data
storage solutions such as cloud computing,
while a quarter have hired staff with
specific digital skills they deem necessary
to respond to the new realities:
43% of corporates have hired specific
digital skills
•
A fifth of SMEs have invested in cloud
computing solutions
•
“
•
Digital trends represent a structural
rather than a cyclical source of change
for Irish businesses. No matter what
stage of the economic cycle we find
ourselves at, the new realities of digital
technology – and its rapid adoption by
consumers in particular – require a clear,
strategic business response. Our survey
provides both grounds for optimism
and for pessimism in relation to the
digital revolution in the Irish business
landscape. Realising the ambitions for
growth, trade and recruitment noted in
earlier sections will demand a credible
and successful approach to the challenge
of the digital future.
But six in ten micro-firms haven’t
invested in any of the changes listed
Have you made investments to future proof against chang
Have you made investments to future proof against chang
Have you made investments to future proof against changes?
Have you made investments to future proof against changes?
Investments Made by Business to Future-Proof for Technological Change
f against changes?
f against changes?
made investments to future proof against changes?
made investments to future proof against changes?
Investing in Data Storag
Investing in Data Storag
Investing
such asin Data Storage
such as Cloud Computin
Cloud Computin
such as Cloud Computing
Investing in Data Storage
%%
such as Cloud Computing
34
34%
34
Infrastructure
%
29
29%
29%
Infrastructure
%
Infrastructure
Infrastructure
ng in Data Storage
ng in Data Storage
Investing in Data Storage
Cloud Computing as Cloud Computing
such
Cloud Computing
%
Investing in Data Storage
Hiring Dedicated
Hiring Dedicated
Hiring Dedicated
Digital Employees
Digital Employees
Digital Employees
%
Hiring Dedicated
ucture
ucture
%
None
%
None
%
%
%
%
34
34%
29%
such as Cloud Computing
Infrastructure
Infrastructure
29%
25 %
25%
25
41
41%
41 %
Digital Employees
None
None
%
| 37
37. The Business View
Gene Murtagh, Chief Executive Officer of
Kingspan Group plc
Based in Kingscourt, Co. Cavan, Kingspan Group plc is a building materials company
that is recognised throughout the construction industry for its commitment to
innovation, design, quality and technical expertise. With approximately 700
employees in Ireland and 7,000 worldwide, Kingspan has manufacturing and
distribution operations throughout Europe, the Far East and the United States.
In our industry the only route to growth
is through innovation. At Kingspan,
we spend a significant amount on
R&D so that we continue to develop
products that differentiate us from our
competitors. At a policy level, I believe
more should be done to incentivise
innovation and promote investment in
education. We can sometimes find that
there is a shortage of technical talent
which is required to support innovation
led businesses like ours.
“At a policy level, I
believe more should
be done to incentivise
innovation”
38 | Innovation & Digital Strategy
Irish business (and supporting State
agencies) need to increase their focus in
Asia. Not only as a market for the goods and
services that we produce but as a source
of investment. This is particularly true of
China.
A large part of Kingspan’s business is
overseas but we don’t just export products,
we export business ideas, for instance
we try and replicate what we are doing
in Ireland in overseas locations, from
production to sales.
Ireland’s reputation has improved
dramatically in recent months. We are
positively perceived internationally for how
we managed the recession and rebuilt our
economy. In reality though, we have a lot
more work to do and the main priorities
should be to reduce unemployment and
increase consumer confidence.
38. Conclusions
The McCann FitzGerald Corporate Outlook: Ireland 2014 report
has captured a picture of corporate Ireland at a crucial stage
in our economic recovery. We have seen clear evidence for a
“
...the weight of
expectations is clearly
balanced towards a
positive outlook, one
comprised of more
than mere business
optimism
“
healthy alignment between the macro and micro dimensions of
Ireland’s economic and business performance. This bodes well
for Ireland’s economic growth in 2014 as businesses play a crucial
role in driving investment, trade and even consumer spending
through job creation.
We are seeing a strengthening relationship
between Irish firms’ growth prospects and
their hiring intentions. Moreover, growth
itself is aligned with those economies –
especially the UK – that look set to enjoy
the best prospects, at least in the western
hemisphere.
Our insights into plans for merger and
acquisition activities indicate a growing
willingness to invest in expansion and
for the long term, to drive the overall
contribution of investment in economic
recovery. Finally, our overview of digital
activities in Irish firms indicates that many
have already benefited from the digital
revolution, with more planning to do so in
the near future.
It would be wrong, however, to simply
paint a positive picture and leave it at that.
Our survey also highlights a number of key
obstacles in the way of growth and recovery
– some old and some new. Perhaps the most
important is the capacity of our banking
sector to play its part in the growth
ambitions of Irish firms, especially SMEs.
More surprisingly, perhaps, is the finding
that many businesses are already facing
serious problems both recruiting staff with
the right skills and holding on to those staff
that will be essential to the delivery of their
growth ambitions.
Nevertheless, the weight of expectations is
clearly balanced towards a positive outlook,
one comprised of more than mere business
optimism. 2014 looks like being the year
recovery finally gets underway for the
majority of Irish businesses.
| 39
39. About the Research
Amárach Research conducted a national
telephone survey of 250 senior business
decision makers – responsible for planning
and strategy in their organisations – in
November/December 2013. The sample
comprised a cross section of businesses by
size (measured by number of employees
and ranging from SMEs to corporates),
location and sectors (excluding the
public sector). Three quarters of the
firms surveyed are Irish-owned, the rest
are foreign-owned. The majority (70%)
generate most of their revenues in Ireland,
the balance overseas.
Most of the firms (63%) have been in
business for over ten years, with more than
a third in business for less than ten years.
Broadly equal proportions of the sample
sell mostly to businesses (B2B) and mostly
to consumers (B2C).
Throughout this report we have referred
to micro-firms (employing up to 10
employees), SMEs (employing 11-100) and
corporates (employing more than 100
staff ). In our survey, the average microfirm employs 3 staff and has a turnover
of €277,000 per annum; the average SME
employees 43 staff and has a turnover
of €6.6mn; and the average corporate
employees 548 staff and has a turnover of
€117mn.
40 |
In some instances respondents were
allowed to select more than one option
hence some totals may add to more than
100%. Similarly, some findings may not
add up to 100% as some smaller categories
have been excluded from the report.
To supplement the survey, Amárach
conducted a number of in-depth interviews
with the following senior business figures
in Ireland to capture their own views on the
prospects for growth, and the key drivers:
•
David Duffy, Chief Executive Officer
of AIB Group and President of Irish
Banking Federation
•
Dr. Paul Duffy, Vice-President of Pfizer
•
Rose Hynes, Chairman of Shannon
Airport Authority plc, Bord Gáis
Éireann and Irish Water
•
Christoph Mueller, Chief Executive
Officer of Aer Lingus plc
•
Gene Murtagh, Chief Executive Officer
of Kingspan Group plc
•
Brian O’Cathain, Chief Executive
Officer of Petroceltic International plc
We are very grateful to all the interviewees
and survey participants for their valuable
time and insights.
40. About McCann FitzGerald
With over 450 people, including over
300 lawyers, McCann FitzGerald is one
of Ireland’s premier law firms. We are
consistently recognised as being the market
leader in many practice areas and our preeminence is endorsed by clients and market
commentators alike.
We provide the highest quality legal advice
and representation to Irish and overseas
clients who are principally in the corporate,
financial and business sectors. We also advise
many clients in the State and semi-State
sector.
McCann FitzGerald has extensive experience
in advising on corporate and commercial
transactions, often with a cross-border
element. We have advised on many of the
major corporate transactions in Ireland,
including some of the most complex and
innovative M&A transactions and equity
offerings.
Within our Corporate Group our lawyers
bring specific experience from a wide
range of industry sectors, including
energy, communications, technology,
pharmaceuticals, life sciences, food/agri, and
the public sector. These industry specialisms
are supplemented with expertise in dedicated
practice areas such as competition and
regulation, pensions, employment, data
protection and freedom of information.
For further information contact:
John Cronin
Chairman
ddi +353-1-607 1284
email john.cronin@
mccannfitzgerald.ie
About Amárach
Amárach Research is an independent
market research agency, providing a full
range of research services to its Irish and
international clients. Amárach specialises
in turning information into insight;
and insight into foresight. Amárach’s
experienced team of directors and
executives manage online, face-to-face
and cati surveys (through its call centre);
as well as qualitative research including
focus groups, in-depths and ethnographic
studies. The agency also delivers a world
class field-only service to universities and
international agencies.
For nearly 25 years, Amárach has pioneered
innovative research techniques and
reported on digital and technology trends
since the earliest days of the Internet.
Amárach invests heavily in understanding
current Irish consumer and business
trends, and shares numerous free reports
and presentations via its blog, twitter and
slideshare sites, linked via its main website:
www.amarach.com
| 41