McCann Fitzgerald Corporate Outlook Report For Ireland 2014
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McCann Fitzgerald Corporate Outlook Report For Ireland 2014

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This report was published by McCann Fitvgerald on 14 January 2014 and the original report can be found here http://bgn.bz/mcfreport ...

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 Document Transcript

  • 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. 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
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. 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
  • 8. 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
  • 9. 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
  • 10. 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.
  • 11. 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
  • 12. 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
  • 13. 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
  • 14. 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%
  • 15. 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
  • 16. 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
  • 17. 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
  • 18. 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
  • 19. 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
  • 20. 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
  • 21. 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
  • 22. 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
  • 23. 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
  • 24. 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
  • 25. 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
  • 26. 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
  • 27. 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
  • 28. 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
  • 29. “ ...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
  • 30. 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.
  • 31. 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
  • 32. 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%
  • 33. 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
  • 34. 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
  • 35. “ ...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
  • 36. 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.
  • 37. 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
  • 38. 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.
  • 39. 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
  • 40. This document is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed. 2014 © McCann FitzGerald. All rights reserved.
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