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AIB Amarach Business 2020 Report


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A report on opportunities for Irish businesses over the rest of the decade.

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AIB Amarach Business 2020 Report

  1. 1. An AIB commissioned report by Amarach Research,guiding Irish business towards real opportunities in theyears ahead. Business 2020 Future Opportunities for Growth
  2. 2. Business 2020Future Opportunities for GrowthTABLE OF CONTENTSFOREWORD 2Brendan O’Connor, Head of AIB Business BankingINTRODUCTION 4PART 1: GROWTH OPPORTUNITIES TO 2020 7PART 2: READY STEADY GROW 21CONCLUSIONS: BOUNCE FORWARD 27
  3. 3. FOREWORD As a provider of banking and financial services, AIB weathered the storm that has characterised the last number of years. has a key role to play in ensuring the success of our This report will give you grounds for real optimism, and hopefully ideas for customers’ business. We cannot and do not take your success. relationship and your custom with us for granted. That is why we have commissioned this report on I hope you will find this report informative and useful to your business. If you behalf of all our customers. It is a demonstration of require a financial partner to help you capitalise on the opportunities, please our commitment to enabling you to achieve success in contact your relationship manager in AIB. We are Open for Business. your business. It may seem obvious, but we can only succeed at AIB if our customers succeed. After five years of slow or no growth in the Irish economy, the ability to succeed is not something we can take for granted. That said, Brendan O’Connor the message we increasingly hear from our customers these days is that Head of AIB Business Banking they have survived the recession, have taken the steps necessary to get their December 2012 business into shape and now want to push on and establish their business on a growth path for the future. Businesses are looking for the path to sustainable growth and Business 2020 has been written for Irish businesses to help guide them towards real opportunities in the years ahead. Over the rest of this decade we will witness changes driven by social, technological and environmental changes – ones as dramatic as any we experienced in the last decade. No sector will be unaffected. For every challenge there will be an opportunity and those opportunities will bring growth and increased profitability and business Business 2020 sustainability to those who can capitalise on them. We hope you find this report and additional information on the Business 2020 website (www.aib. ie/SMEresearch) useful as you look ahead and plan for the future of your business. If you are feeling optimistic about the future then you are in good company – so are the vast majority of Irish business owners and managers who have Future opportunities for growthPage 2
  4. 4. “For every challenge there will be anopportunity and those opportunities willbring growth and increased profitabilityand business sustainability to those whocan capitalise on them”
  5. 5. Amárach surveyed senior decisionmakers in 265 Irish businesses inOctober 2012, representing a cross-section of small and medium enterprisesand larger corporations – this reportsets out the key findings.Page 3
  6. 6. IntroductionIn 2000, AIB commissioned Amárach Research to survey Irish businesses about Indeed, as the chart below shows, two thirds of businesses expect both thethe decade ahead. The report was called Business 2010. At the start of the last Irish economy and their own business performance to be better than it isdecade, businesses faced enormous uncertainties in the form of economic today:change (the euro would replace the punt in 2002); technological innovation(internet usage would triple over the following ten years); and unprecedented Where do you expect Ireland, your sector andlabour market pressures (the unemployment rate fell below 4% in 2001, thelowest on record). Yet it was also a decade that witnessed extraordinary growth your own business to be in 2020?and the emergence of new businesses (and business models) to the benefit of Your Ireland’s Your industryIrish businesses and consumers. business or economy or sector organisationBut we know it didn’t stop there. If the last decade – the ‘noughties’ – started in 2020 in 2020 in 2020on a wave of expectant optimism, it ended in a trough of unprecedentedpessimism and uncertainty. And we are still dealing with the consequences.What then about the decade ahead, now entering the ‘twenty-teens’? Shouldwe merely extrapolate current difficulties to the end of the decade? Or might 66 62 68 Better than it is todayit be a mirror image of the last decade: this time moving from pessimism tooptimism? To answer these and other questions, Amárach surveyed seniordecision makers in 265 Irish businesses in October 2012, representing a cross-section of small and medium enterprises and larger corporations – this report 18 Same as it is today 18 18sets out the key findings. Worse than it is today 13 10Judging from the attitudes of Irish business owners and directors, it seems 17that optimism is in the ascendant. Some might call it ‘survivor bias’ (“if you’ve 4survived the past five years you can survive anything”), but there’s more to it Don’t know 3 3than that.Whether thinking about their business, their industry or Ireland’s economy asa whole, the vast majority of Irish business people expect things to be better in2020, and only a small minority expecting them to be worse. Page 4
  7. 7. Better business prospects should mean more jobs, other things being equal. This report is designed to be more than just a research study, as is reflected inAnd they do, with businesses of all shapes and sizes expecting - on balance - to its structure:employ more people in 2020 than they do today. The table below shows theanswers broken down by size of business (small ‘soho’ to large corporate), by In Part 1: Growth Opportunities to 2020, we examine the global trends shapingownership, market focus and customer type e.g. business-to-business (B2B) or global consumer and business markets today and out to 2020 and beyond, bothbusiness-to-consumer (B2C). in terms of their impact on Ireland as well as their impact on the businesses in our survey.WHO IS OPTIMISTIC ABOUT THE FUTURE In Part 2: Ready Steady Grow, we explore in detail how Irish businesses are Small/Home Office (SOHO) preparing for the future in terms of their strategic priorities, plus the key steps Domestic Market Focus and tasks every business must take so that today’s optimism translates into Export Market Focus tomorrow’s success. Expectations for Staff Foreign Owned Numbers by 2020 Irish Owned Each section contains not only the findings from the survey, but also forecasts, Corporate resource links and summary implications for business readers. We hope you find this report useful – and even a little inspiring – as you set out on the path Total SME B2B B2C to 2020. Sample 265 86 123 56 129 46 187 51 76 116 Higher than they are 49 43 56 43 50 46 45 57 72 43 now Same as they are now 30 40 26 25 30 30 33 22 21 34 Lower than they are now 18 14 16 29 18 20 20 18 5 22 Don’t know 3 3 2 4 2 4 2 4 1 2SMEs, exporters and those selling to other businesses (B2B) are the mostoptimistic about future staff numbers exceeding today’s levels. Such optimismis all very well - welcome even - but we need to go further if we are todetermine what are the real opportunities for growth and job creation out to2020, and how best to respond to them. Page 4Page 5
  8. 8. SMEs, exporters and those selling to otherbusinesses (B2B) are the most optimisticabout future staff numbers exceeding today’slevels. Page 6
  9. 9. PART 1: GROWTH OPPORTUNITIES TO 2020 Economic trends relate to consumer focus on value for money, rising foodIreland is one of the most open economies in the world. Our exports and energy prices, burgeoning demand for dairy and meat products, and shiftexceed our GDP, putting us in the same league as Hong Kong, Singapore and from West to East in global economic activity by 2020. Finally under politicalLuxembourg. In other words: what happens globally affects us locally – more trends, we assess the impact of growing income inequalities as well as risingthan most other nations. Irish businesses need to pay extra attention to global expectations for ethical behaviour by politicians and business.trends and forecasts, not least because our domestic market is so small. In the following pages we look at a range of trends shaping the future forThe future is a big topic, and a key task of forecasting is to decide what to Ireland and for businesses to 2020. For each trend we look at key forecasts, theignore, as well as what to heed. So to guide us through the challenges, risks and expectations of Irish businesses, and the implications for strategy and planning.opportunities that lie ahead between now and 2020, we have used a simpleSTEP model to set out the key trends. STEP stands for Social, Technological, We begin with the key social trends.Economic and Political – summarised below:Under social trends, we examine the impact of demographics, the growthof a global middle class, the emergence of a global market for wellness, anddeclining trust as key drivers of change to 2020. Under technological trends,we assess the impact of ubiquitous broadband (including mobile), distancelearning, environmental technologies and new ways of doing business.Page 7
  10. 10. STEP: To guide us through thechallenges, risks and opportunitiesthat lie ahead between now and 2020, Politicalwe have used a simple STEP model toset out the key trends. STEP stands forSocial, Technological, Economic andPolitical. Economic Technological Social Page 8
  11. 11. 2020: Social Trends IMPACT OF AGEING POPULATION ON IRELAND’S FUTURE Global ageing of Impact on Impact on populations Ireland by 2020 business by 2020 Business 2020 Positive 23 28 Negative 45 29 Net Impact -22 -1 2020 Planner: Social Technological Economic Political • Ensure your product and service range is ‘age friendly’ – older consumers are probably your customers already, so ask them for feedback. • Don’t forget your older employees – they will have insights to share as older consumers too.An Ageing Population • Optimise your channel strategy. Future Fact: by 2020, the world’s population will be well on the way to over 1 billion people aged 60 and over. 1 The Global Middle Class Business 2020Growing old is a fact of life, for people as well as for businesses. The shift in the Future Fact: The number of middle class people in the world will more thanworld’s population from one dominated by younger people to one dominated double over the next twenty years to nearly 5 billion. 2by older people will also entail a shift in business priorities and practices. Theageing of the world’s population will be with us for decades to come – far A former leader of the Chinese Communist Party once declared that ‘to getbeyond 2020.Social Technological Political rich is glorious’. We’re a little more circumspect about such things in Ireland, Economic but the fact remains that the world is getting richer – especially the developingBut smart businesses are already addressing the needs of older consumers anticipation of even bigger shifts ahead. This will create demand for newproducts and services, and not just in developed countries. Meanwhile, Ireland This is one of the most exciting trends for anyone in business today. As peoplewill still have the youngest population in Europe, as we continue to enjoy a become more affluent their tastes in food, leisure and transportation change‘demographic dividend’ for ten or more years. fundamentally. With billions of people becoming more affluent over the rest of the decade, entire new markets for luxury and premium goods and services willDecision makers in Irish businesses are uncertain about the impact of an open up.ageing population. The percentage of business people who expect the ageingof populations in developed and developing countries to have a very or fairly Irish manufacturers and service providers (from tourism to education) willpositive impact on Ireland’s future and that of their own businesses; as well benefit from a richer the percent expecting a very or fairly negative impact. Though the trend isexpected, on balance, to have a negative impact on Ireland, expectations areneutral for the business impact.Page 9
  12. 12. How do decision makers in Irish businesses view a more middle class world? The Wellness BoomIn a word, positively. The table again shows the percentage of business peoplewho expect the emergence of a large middle class in the developing world to Future Fact: The global wellness market will exceed $2 trillion in the nexthave a very or fairly positive impact on Ireland’s future and that of their own few years, combining spas, anti-ageing products, complementary and otherbusinesses; as well as the percent expecting a very or fairly negative impact. therapies. 3Clearly the trend is expected, on balance, to have a positive impact on Irelandand businesses. Health services in many countries are under pressure. Citizens are responding by taking greater responsibility for their own health and wellbeing. This isIMPACT OF EMERGING GLOBAL MIDDLE CLASS ON IRELAND fuelling what some are calling the wellness market – referring to a range of Emerging global middle class Impact on Ireland Impact on treatments, products and lifestyles that are designed to keep consumers well by 2020 business by 2020 and to avoid illness. Positive 54 50 This in turn is creating a growing demand for medical tourism, preventative Negative 18 10 medicine, ‘nutraceuticals’ and even cosmetic surgery in developed and even Net Impact 36 40 developing countries. Ireland is well placed to meet this growing demand for wellness related products and services in the decade ahead.2020 Planner: Irish business leaders agree. The table again shows the percentage of business• Look back to plan ahead: which of your products and services people who expect increasing expenditure on health and wellbeing throughout benefited most from Ireland’s burst of affluence – and think how it the world to have a very or fairly positive impact on Ireland’s future and that of might apply globally. their own businesses; as well as the percent expecting a very or fairly negative• Use the web to generate awareness, consideration and conversion – impact. and explore the potential for remote selling and fulfillment partners.• Sell the Irish: there is considerable goodwill towards Ireland and Clearly the trend is expected, on balance, to have a positive impact on Ireland the Irish in many developing countries, so leverage the historical and businesses. connections to create future opportunities. IMPACT OF INCREASING EXPENDITURE ON HEALTH & WELLBEING Increasing expenditure on Impact on Ireland Impact on health and wellness by 2020 business by 2020 “Our parent company sells more luxury Positive 54 48 brands in Asia now then in Europe” Negative 24 13 Net Impact 30 35 - Manufacturer, Leinster Page 10
  13. 13. 2020 Planner: The Internet has made it easier to shop around and to get better deals. The• The tourism sector is already ahead with this trend – see what ways emerging ‘Internet of things’ will connect our homes, cars, workplaces and your business can partner with the sector to create a new channel for more to an intelligent web of technologies that will monitor, regulate and sales of your products or services. advise us.• Ireland starts with a reputation for being green and healthy – explore “We ask people for their email addresses so we can send whether your brand or brands can leverage that reputation further in them notices about deals etc, but you have to be very careful not to abuse it” relation to wellness needs. - Restaurateur, Dublin• Look for ways to ‘cross-fertilise’ your 2020 planning with responses to related trends, e.g.: ageing and the global middle class. However, this will lead to even greater willingness to switch between providers, especially if businesses have failed to restore trust. Alongside using smart technologies for sales and customer communications, businesses will have to invest in restoring trust – and keeping it when they’ve won it back. “Our sales of cosmetics have been remarkably Declining trust – and increased switching – is an issue for Ireland and for Irish businesses. The table shows the expected impact of further decline between buoyant, despite the recession” now and 2020 on Ireland’s future and that of their own businesses; as well as the percent expecting a very or fairly negative impact. Not surprising the trend is expected to be negative on balance for Ireland and for businesses (though - Pharmacist, Munster positive, perhaps, if you are a challenger hoping to switch customers away fromOutside the Circle the incumbent!)Future Fact: By the end of the decade, most homes in the UK and other major IMPACT OF DECLINING CONSUMER TRUSTeconomies will have smart meters, making it easier to switch energy, water Declining trust in business and Impact on Ireland Impact onand telecoms suppliers. 4 greater willingness to switch by 2020 business by 2020 Positive 33 27 Negative 37 32 Net Impact -4 -5 2020 Planner: • Decide if switching is on balance good for your business or bad for it Business is outside the ‘circle of trust’ – then decide on the key messages that will resonate with distrustful as far as consumers are concerned. One of consumers. the key tasks between now and 2020 will be • Make sure your customer information gathering is compliant with getting back inside the circle. data protection legislation – especially online – and ensure your But it won’t be easy. customers feel in control. • Consider sponsorship as a route to restoring trust – the goodwill that exists towards sports and arts organisations, for example, can rub off on your brand if you support them, and their fans, in ways that are transparent and credible.Page 11
  14. 14. 2020: Technology Trends IMPACT OF HIGH-POWERED BROADBAND & MOBILE SERVICES Widespread availability of very Impact on Ireland Impact on high speed broadband and by 2020 business by 2020 Business 2020 access to mobile services Positive 75 64 Negative 7 6 Net Impact 68 58 2020 Planner: Social Technological Economic Political • Better, faster communications channels work both ways – look at the competitive threat higher broadband and mobile might bring and have your defences in place. • Learn from the leaders – some markets are already very advanced Speeding Up in relation to digital technologies (e.g.: South Korea), see what lessons might apply back home.Future Fact: The Digitial Agenda for Europe plans broadband download • Don’t forget the human touch – everyone likes the convenience of speeds of 30Mbps for all Europeans by 2020, and 100Mbps for at least half of technology, but all still want the feeling of being looked after by all households. 5 people who care. Business 2020Back in 2007, fewer than half of Irish adults used the Internet. Today 80% usethe net to shop, bank, work and relax. Looking ahead to 2020, we can expectto see even greater changes. Smartphones, touch pads and smart TVs will “Five years ago we didn’t sell anything online,all make it easier for consumers to buy online, to choose providers, and toshare their experiences with other consumers. The trends are not unique to today 20% of our sales come from the web.”Ireland – the global population of internet and mobile phone users is growing Social Technological Economic Politicalexponentially, such that already there are more mobile phone users thanpeople with electricity! - Retailer, Connaught/UlsterIrish businesses are clearly excited about the potential impact of the globalmarket facilitated by access to high speed broadband and cheap mobileservices – both for Ireland’s future and for their own. As summarised in thefollowing table, the balance of expectations is hugely positive, though notuniformly so. Some may feel they have grasped the opportunity already, whileothers may fear the consequences for older ways of working: Page 10 Page 12
  15. 15. Servers and Scholars 2020 Planner: • Focus first on the internal opportunity – have you fully exploited theFuture Fact: The worldwide market for self-paced eLearning is forecast potential for eLearning to improve staff performance?to reach $52 billion by 2016, $8 billion of which will be spent in Western • Partner with the likely beneficiaries – what do you produce or provideEurope.6 that your local university, Institute of Technology or college could repackage as part of their own response to the eLearning opportunity?From the age of the Book of Kells onwards, Ireland has been a destination for • Again, don’t forget the personal touch in the midst of the digitalstudents from all over the world. Over the rest of the decade, an extraordinary revolution – what can you offer (alone or with partners) to createopportunity will open up to once again ‘teach the world’ – this time using the a learning and training experience that will motivate customers totalents of Irish educationalists in combination with global communications come to Ireland?technologies.The expansion of eLearning and the success of Massive Online Open Courses “Our staff gets their on-the-job training now(MOOC) – such as Khan Academy – illustrate the potential scale. from our European head office via the company’sNor will opportunities be confined to incumbent providers such as Irish intranet”universities – developers of apps, continuous professional development (CPD) - Accountant, Dublinspecialists, and even aspects of cultural tourism will all benefit from the globalthirst for education and training.Education is a positive sum game, which is perhaps why Irish businesses are sopositive about the growing demand for education and training delivered via theinternet to millions in developing and even developed countries.The balance of expectations is extremely positive, not least because greateraccess to education generally results in more affluent customers and moreproductive employees:IMPACT OF ONLINE LEARNING ON IRELAND & BUSINESSES Growing demand for education and Impact on Impact on training delivered via the Internet Ireland Business by 2020 by 2020 Positive 64 50 Negative 13 10 Net Impact 51 40Page 13
  16. 16. PART 1: GROWTH OPPORTUNITIES TO 2020Green Tech 2020 Planner: • Many businesses have ‘parked’ capital spending during the recession Future Fact: Over the next decade, the global market for green business is - now may be the time to look at upgrading to more energy efficient expected to double in size, from 1.6 trillion Euro in 2010 to 3.2 trillion Euro in processes and practices in preparation for recovery.2020. 7 • Ireland has been at the forefront when it comes to implementing EU legislation on energy and environmental standards - there’s more to While the recession and economic travails in Europe have taken attention come and so there may be significant opportunities in anticipating the away from environmental issues, once economic growth returns so also will impact of future requirements.attention to the ‘green agenda’. Indeed, investment in green technologies • Ireland has a reputation for being ‘green and clean’: seek out continues to grow steadily on a global scale and may well accelerate in the customers and partners in the BRIC economies (Brazil, Russia, India, years ahead. Irish businesses will benefit from growing innovation in relation and China) and other developing markets who will be attracted to to energy efficiency, water management and recycling - and some may even Ireland’s still unique distinction in the minds of many around the lead certain sectors. Green tech promises to create opportunities for many world.businesses, and to provide cost savings for all businesses in the run up to 2020.Green tech is seen as one of the most positive trends shaping the future for “Cutting our energy costs has been crucial toIreland and for businesses. On balance, most expect the development of getting through the recession and to keeping usnew technologies and other innovations in response to climate change tobe a positive influence. This itself indicates the ‘pent up’ demand for green competitive.”innovations and green solutions. Legislation will also be a key driver ofbusiness responses to environmental factors, for example in relation to smartmeters and carbon emissions - which is a reminder that Irish businesses have - Manufacturer, Munsterno choice but to take on board higher environmental standards.IMPACT OF GREEN TECHNOLOGIES ON IRELAND AND BUSINESSES Development of new technologies Impact on Impact on in response to climate change Ireland business by 2020 by 2020 Positive 72 56 Negative 7 7 Net Impact 65 49 Page 14
  17. 17. 2020: Economic Trends IMPACT OF GROWING IMPORTANCE OF ASIAN MARKETS Significant shift in economic Impact on Ireland Impact on activity from West to East by 2020 business by 2020 Positive 35 31 Business 2020 Negative 38 27 Net Impact -3 4 2020 Planner: • The global middle class will grow fastest in the BRIC economies Social Technological Economic Political - especially China and India - creating an increasingly affluent market for premium products and services. • Many Irish businesses are already exploring opportunities in the East, so there may be potential partners for you to work with who can re-sell or co-sell what you have to offer.Go EastFuture Fact: China will have the largest economy in the world by 2025, andwill experience growth of 16% by 2020. 8 “I see China and India as the biggest opportunity and the biggest threat for myThe rise of the BRIC economies - Brazil, Russia, India and China - has continued business, so the one option I don’t have is to ‘doapace, despite the economic difficulties in Europe and the United States nothing’.”Already, the Republic of Ireland’s exports to China are almost double the valueof those to Northern Ireland, a reversal of the situation just ten years ago. - IT Professional, DublinOther indicators tell us that the Eastward shift of global economic activity is setto continue apace to the end of the decade and beyond - signaling a long term Valuing Valuetrend that Irish businesses will have to respond to, if they haven’t already. Future Fact: By the end of the decade, 45% of all products sold by WesternChange is often uncomfortable, and change of the unprecedented global European retailers will be ‘own label’ - nearly double today’s share. 9nature we are living through is bound to be challenging. Irish businesses areambivalent at best about the impact of significant shift in global economic Everyone in business these past few years has learned the importance of valueactivity from West to East as China and India grow. Which may be why, on for money - as a buyer or seller. Our customers are more careful than everbalance, they expect the impact of the Eastward shift to be slightly negative for about spending their hard-earned euro and cents.Ireland, but slightly positive for Irish businesses. Nor is there any prospect of a return to the more profligate habits that characterised the boom any time soon (or, perhaps, ever). But the formative experience of meeting the needs of customers focused on value will stand to Irish businesses. The rest of the decade will see continuing growth in demandPage 15
  18. 18. for value lines of goods and services - as indicated in the growth of retailer Feed the Worldown brand share of sales. One clear ‘benefit’ of the recession has been tosharpen the ability of Irish businesses to deliver value for money to their Future Fact: By 2020, the value of Irish food exports - across dairy, meat, fishcustomers. They had no choice. The benefit lies in expectations about the and other categories - will have reached 12 Billion Euro , an increase of 42%future - as a growing number of consumers emphasise value for money in their on their value in 2009. 10spending choices then Irish businesses will be there to meet their demands.Hence expectations for the future impact of the value for money ‘boom’: it is The world’s population is expected to reach 8 billion in the early 2020s.considered to be both a positive thing for Ireland and also for Irish businesses. That, combined with rising affluence, will translate into surging demand forThe Celtic Tiger has become the Celtic Fox: food - a demand Ireland is well positioned to help meet. Nor will demand be confined to the ‘basics’: as people become more affluent they increase theirIMPACT OF VALUE-SEEKING CONSUMERS FOR IRELAND AND BUSINESSES consumption of protein in the form of meat and dairy products. Greater emphasis on Impact on Impact on value for money by cash - Ireland by 2020 business by 2020 Likewise in developed markets: as consumers loosen their purse strings so strapped consumers we will see greater consumption of food and drink outside the home. Irish Positive 45 38 businesses operating in the food sector - or supporting those who do - can expect to see the world’s growing appetite feed through to increased sales Negative 29 21 opportunities not just to 2020, but well beyond it. Net Impact 16 17 Not surprisingly, most of the businesses we surveyed think the opportunity to2020 Planner: feed the world is one that will clearly be good for Ireland. But most are not in• Ireland has become a cheaper place to do business, which is good the food sector, so only a minority feel that they will be impacted positively news for Irish exporters - what cost advantage do you have that could from the trend itself. open up opportunities in the UK and across Europe?• Don’t forget: price is what you pay, value is what you get - so look for Nevertheless, the indigenous food sectors is of enormous importance to ways in which your products and services can provide extraordinary Ireland’s economy, and the multiplier effect of increasing demand for Irish value for consumers in developed countries, at a price they can afford food exports will undoubtedly create added demand for ancillary services, and that makes sense for you. domestically and internationally:• Typically 70-80% of our buying decisions are emotional rather than rational - which means that value isn’t always about things we can IMPACT OF INCREASING DEMAND FOR IRISH FOOD EXPORTS measure, it can also be about the way a product or service makes us Growing demand for meat Impact on Ireland Impact on feel: what ‘feeling’ do you sell? and dairy products in by 2020 business by 2020 developing countries “In the old days customers were almost Positive 67 35 embarrassed about buying the cheapest products, Negative 13 13 now they make a beeline straight to this week’s Net Impact 54 22 special offer” - Retailer, Munster Page 16
  19. 19. 2020 Planner: Price Pinch• We have considerable cost advantages in Ireland thanks to grass-based meat and dairy production – so explore those markets where price Future Fact: By 2015, more cars will be sold in India than in France, the UK or sensitivity is keenest. Germany, and by 2020 India will be in the top three markets globally (with• But it isn’t just about cost advantages – the quality of Irish food China and the USA). 11 produce, both in terms of inputs and outputs, will enable Irish businesses to create premium brands targeting more affluent We noted earlier the significant impact of growing populations and growing consumers around the world incomes on the demand for food. But rising demand assumes rising supply -• Nor is it just about farming and processing – if you are an Irish retailer and that doesn’t necessarily follow, at least not without potential hitches. (or entrepreneur) what can you do via the web and social media to create demand for uniquely Irish food across a demanding, global As the world experiences unprecedented demands for food and energy we market? can expect to see instances of rising prices - even price hikes - for oil, grain and other commodities as the global economy works out how to feed and fuel a bigger, more affluent world. Irish businesses will undoubtedly be affected by both rising demand and rising prices - and many will benefit, even if some will “The dairy sector is fiercely competitive, but we face cost pressures as well. are still seeing our sales grow throughout the The prospect of a ‘price pinch’ from rising food and energy prices is considered Middle East and Asia” to be one of the biggest threats in the run up to 2020. We have already seen spikes in oil and grain prices in the past five years alone - though both have abated as either falling demand or rising supply mitigates some of the - Manufacturer, Leinster increases. Still, businesses are more negative about the impact of the price pinch on Ireland’s economy than its impact on their own operations. This may simply reflect the fact that most businesses have had to be agile in response to price rises and cost shocks - especially in relation to energy - these past few years, so they may well feel ‘ready, willing and able’ to respond as necessary to more of the same: IMPACT OF RISING FOOD & ENERGY COSTS FOR IRELAND AND BUSINESSES Rising prices for food and Impact on Ireland Impact on energy due to growth in by 2020 business by 2020 population and economies Positive 23 24 Negative 59 34 Net Impact -36 -10Page 17
  20. 20. PART 1: GROWTH OPPORTUNITIES TO 20202020 Planner: 2020: Political Trends• Get your ‘retaliation’ in first - what can you do now to reduce your consumption of commodity inputs into your production of goods and services E.g. through focused investment to unleash added efficiencies? Business 2020• Look to long-term contracts with suppliers of key inputs where price volatility looks set to return in the years ahead.• Be the alternative - what aspect of your product or service offering could help customers and potential customers respond to the ‘price pinch’ in a way that increase your ‘share of wallet’ in the years ahead? Social Technological Economic Political “We’ve finished a major efficiency drive in response to continued rises in energy prices” Income Inequality Future Fact: The transition from developing to developed economies will - Professional Service, Leinster see a rise in income inequality in several countries even as average incomes continue to rise. 12 Although global economic growth is driving opportunities for Irish businesses in the form of an emerging middle class (see above), the benefits of growth are not uniform. This has led some economists to focus on ‘the bottom billion’ - those still living at or below the poverty line around the world. And there are opportunities for those businesses (such as the food sector) that can deliver basic (and often vital) goods and services to those on low incomes in an efficient manner (sometimes in partnership with NGOs operating in developing regions). Expect also more instances of ‘reverse innovation’, i.e.: the adoption of very low cost solutions created in developing countries to cash-strapped developed countries. Page 18
  21. 21. The balance of expectations for the future impact of growing income Reputation Nationinequalities in some developing and developed countries is understandablynegative for Ireland, though less so for Irish businesses, partly because of the Future Fact: One of the biggest drivers of future success for nations, as welllong lead time for their effects to be felt: as for businesses, will be the global level of trust their reputations inspire - which is relatively low for Ireland at present. 13IMPACT OF GROWING INCOME INEQUALITIES FOR IRELAND AND BUSINESSES Growing income inequalities in Impact on Impact on The collapse of trust in political, financial and religious organisations in recent years has been extreme. And not just in Ireland. Around the world, consumers developing and developed Ireland business by 2020 and citizens are re-assessing traditional sources of authority, and in some countries by 2020 instances trust is at an all time low. Positive 22 23 We noted earlier the importance of getting back inside ‘the circle of trust’. Negative 52 30 Building a trustworthy reputation is a key part of that task - for nations as well Net Impact -30 -7 as businesses.2020 Planner: Just as the recession has given Irish businesses a new appreciation for the• If you are a manufacturer or international service provider, who can importance of value for money, so also has the wider fallout given them you partner with to provide a ‘stripped down’ version of your products a strong appreciation for the importance of reputation. Behaving in a to the bottom billion? trustworthy, ethical manner is no longer something that is ‘nice’ to do (if it ever• In our increasingly cost cautious age, what innovations are happening was), rather businesses understand the vital necessity of attaining and retaining in poorer nations that could meet the needs of cash-strapped customers’ trust. consumers here?• Irish charities operating in developing countries have considerable The very good news arising from all this is that Irish businesses expect an experience of the needs of the bottom billion - find out what they increasing emphasis on ethics and reputation to be something that will be are doing and explore the potential for co-developing solutions that overwhelmingly to Ireland’s benefit, and to theirs: will work for you and for the people whose lives they are seeking to improve. IMPACT OF INCREASING CONSUMER EMPHASIS ON REPUTATION & ETHICS Increasing emphasis on reputation Impact on Ireland Impact on “One of our CSR projects encourages staff and ethics by consumers by 2020 business by 2020 to come up with new healthcare ideas in Positive 64 55 developing countries” Negative 8 7 Net Impact 56 48 - Manufacturer, LeinsterPage 19
  22. 22. 2020 Planner:• Don’t leave reputation to chance - monitor (or have specialists monitor) the 24/7 ‘chatter’ of customers about your products and brands on social media and be ready to respond as necessary (to positive as well as negative commentary).• Take domestic commentary about Ireland’s reputation abroad with a pinch of salt - there is considerable goodwill towards Ireland, which is something we must both maintain and enhance in our day-to-day interactions with foreign customers, suppliers and partners.• Lead by example - each employee is an ambassador for your brand and your reputation, so make sure you behave in the way you would want them to behave when engaging with customers. “Ireland’s reputation as a place for doing business will have a huge influence on Foreign Direct Investment over the next few years, as we’ve seen already” - Manufacturer, Munster Page 18
  23. 23. Irish businesses clearly anticipate that the next five years will be better than the last, projecting an average growth rate of 15% into the futurePage 21
  24. 24. PART 2: READY STEADY GROWFeeling Bullish Growth ExpectationsWe’ve seen in Part 1 just some of the opportunities ahead to 2020. So how Can optimism deliver growth? Yes it can. Most have experienced some growthwill your business perform over the next few years? As we noted in the over the past five years, at an average rate of 11%. The next table tells us thatIntroduction, two thirds of businesses in our survey expect their performance smaller businesses have seen higher growth rates than larger businesses,to be better in 2020 than it is today. The table below shows the answers broken though that likely reflects their business ‘lifestage’ (growth is often fastest atdown by size of business (small ‘soho’ to large corporate), by ownership, the start from low levels, but harder to sustain at higher levels of turnover asmarket focus and customer type (business-to-business or business-to- businesses mature). The average, it should be noted, is just that - some haveconsumer): experienced higher rates of growth these past few years, while others have experienced low, no or even negative growth over the same period.SECTORAL EXPECTATIONS OF BUSINESS PERFORMANCE IN 2020 SECTORAL EXPECTATIONS OF GROWTH IN COMING YEARS Export Market Focus Domestic Market Domestic Market Focus Foreign Owned Micro Business Expectations for your own Export Market Focus Irish Owned business or organisation Corporate performance by 2020 Foreign Owned Micro Business Growth Trends & Prospects Focus Total SME Irish Owned B2B B2C Corporate Sample 265 86 123 56 129 46 187 51 76 116 Total SME B2C B2B Higher than they are now 68 57 72 75 64 85 62 82 64 58 Same as they are now 18 24 15 18 21 4 22 6 11 23 Sample 265 86 123 56 129 46 187 51 76 116 Lower than they are now 10 14 10 5 11 9 15 10 3 15 Mean % growth past 5 years 11 13 11 9 12 8 12 10 12 11 Don’t know 4 5 4 2 4 2 4 2 3 4 Mean % growth next 5 years 18 24 15 18 21 4 22 6 11 23 Growth pick up: Percentage Points 10 14 10 5 11 9 15 10 3 15Larger businesses, those that are foreign owned and exporters are moreoptimistic. But the difference is relative - smaller businesses, Irish owned andnon-exporters are also predominantly optimistic. So no matter what size or But back to optimism: what are the current expectations for future growth?type of business you are running, it’s likely that the majority of your peers are Irish businesses clearly anticipate that the next five years will be better than thebullish about the future - despite the very real challenges of the present. last, projecting an average growth rate of 15% into the future, as shown in the table. SMEs and exporters anticipate the biggest ‘boost’ in growth, as indicated by the measure of ‘growth pick up’.PART 2: READY STEADY GROW Page 22
  25. 25. This is very positive, but growth potential doesn’t stop there. In fact, Irish Priorities for Successbusiness owners and managers can imagine potentially higher growth and jobcreation if certain barriers are lifted. Right now they expect to grow despite What are the crucial tasks and challenges facing Irish businesses if they areIreland’s economic difficulties. But asked to imagine by how much more they going to respond to the opportunities set out in Part 1, and to deliver thecould grow if the economy returned quickly to growth and most anticipate growth ambitions noted above? We have summarised the key priorities forcumulative growth a third higher than it will otherwise be. Likewise, they success under three headings, illustrated below, as Markets & Marketing,anticipate the numbers they employ growing by a third more than they will Innovation & Technology, and People & Partnerships.grow otherwise. Potential for Additional Growth in Different Scenarios Markets & Growth Impact Job Impact Marketing (% extra) (% extra)If Ireland’s economy returned quicklyto a strong and steady growth rate 32 33If business had access to optimumamount of financial resources to 25 24expand (including loans and equity) Innovation & People &If business had ideal mix of Technology Partnerships 22 19technology in place in terms ofoperations, sales and skillsSimilarly access to the optimum amount of financial resources (loans and/or equity) would also unleash a bigger boost in growth and jobs - as wouldimplementing the ideal mix of technology. We summarise the main insights from our survey into future strategy under each heading in the following commentary.Page 23
  26. 26. 2020: Markets & Marketing “One of the biggest challenges will be to identifyIf finance is about the bottom line then marketing is about the top line. overseas customers for our products as growth inRevenue growth options typically fall into one of four options: the domestic market will remain slow”- sell more of your existing products to existing customers- - sell more of your existing products to new customers sell new products to existing customer - Accounting Services, Dublin- sell new products to new customers Although most Irish businesses are not exporters, it is encouraging to note that clear majorities expect to either find new customers outside of Ireland for theirEach option is progressively more difficult - and more risky - than the previous existing products (59%) or to develop new products for new customers outsideoption. But sometimes there is no other option but to take the risk, like the of Ireland (60%).times we are in today. As summarised in the table below, the top marketingpriority for 78% of Irish businesses to 2020 is finding new customers for existing Irish businesses are clearly alert to the importance of trust and reputationproducts and services in Ireland. A close second is developing new products - with 73% considering it very important to future success to monitor whatalso for existing customers in Ireland: customers, competitors and others are saying online. This may also explain why 6 in 10 (59%) expect to switch a bigger share of marketing and advertisingPRIORITIES OF IRISH BUSINESSES TO 2020 budgets from traditional media to newer media over the rest of the decade. Markets & Marketing % Important* With Ireland returning (albeit slowly) to a growth path, Irish businesses will Finding new customers for your existing products and 78 seek to invest and reinvest in marketing, branding and other top line growth services in Ireland strategies, not as they have before but in smarter, more measurable ways to Developing new products and services for your existing 76 deliver success. customers in Ireland 2020 Planner: More closely monitoring what customers, competitors 73 • It has never been easier – or cheaper – to research international and others are saying about your business, brands and markets: now is the time to size the opportunity for your products and reputation online services in potential markets, for example, using online surveys. Developing new products and services for your existing 60 • Most advertising and PR agencies offer ‘reputation monitoring’ services customers outside of Ireland – check out what they can deliver and explore the growing range of services now available. Finding new customers for your existing products and 59 • You don’t have to develop new products and markets on your own – services outside of Ireland there may be others in your industry – or key suppliers – who have Switching a bigger share of your marketing and 59 ideas and resources you can share together. advertising budget from traditional media (such as press and TV) to newer media (such as social networks and mobile)* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between nowand 2020, and 7 is ‘extremely important’. Page 24
  27. 27. 2020: Innovation & Technology The potential for digital technologies to 2020 doesn’t stop there. Two thirds are open to the potential use of customer data (‘Big Data’ as it is sometimes called)Irish businesses are digital optimists. The lesson they have learned these to micro-manage customer interactions and product pricing so as to protectpast few years is that technology does not wait for recovery and that those and enhance profits even in an environment of rapid change.businesses that seek to exploit the benefits of technology soonest (the DigitalLeaders 14 ) often reap the greatest benefits. One measure of the potential contribution of innovation and technology to future success is summarized in the table above. Online sales account for 15%Though it’s not too late. The business leaders and decisions makers in our of total sales on average for Irish businesses right now (ranging as high as 21%survey clearly perceive the benefits of digital technology - which bodes well for among exporters). Looking ahead five years, the average share is expectedtheir capacity to exploit the technology-led opportunities outlined in Part 1. to jump to 26%, with the biggest percentage increases anticipated by smaller companies and by those selling directly to consumers:As summarized in the table below, digital technology is considered importantby a large majority of businesses in helping to deliver: As the ‘twenty-teens’ progress, the majority of businesses also anticipate new types of currencies and payment innovations - such as mobile phone enabled- better customer service transactions - which they in turn are set to embrace in the decade ahead.- lower operating costs- new product and service innovations 2020 Planner: • Start with your customers – what are they doing, saying and spendingIMPORTANCE OF INNOVATION AND TECHNOLOGY TO FUTURE GROWTH online already, and what is your ‘share of wallet – then ask some of them for ideas on how you can deliver better value online, they’ll be Innovation & Technology % Important* happy to give you feedback. • Don’t forget mobile phones – we will rely on them more and more Exploiting digital technologies to deliver better customer 71 to help us work, rest and play – so explore how you can deliver value service via mobile (apps etc) and build trust and a reputation that will boost Exploiting digital technologies to reduce the main costs of 69 your ‘repeat business’ quotient. doing business • Use what you’ve got already – you may be sitting on a goldmine of Using real time data from customers and other sources to 66 data, information and knowledge about your customers that could be more profitable in terms of what you sell and how you unlock sustainable growth opportunities – again there are many price your products and services specialists out there who can help you maximize the potential from Exploiting digital technologies to create new products and 62 ‘BigData’, and even ‘small data’… services you don’t sell already Adopting new types of digital currencies and other 60 “We’ve revamped our website recently and payment innovations such as mobile payments alongside existing currency arrangements decided to support content in several languages* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between now to drive sales overseas”and 2020, and 7 is ‘extremely important’. - Professional Services, MunsterPage 25
  28. 28. PART 2: Ready Steady Grow2020: People & Partnerships But staff relations are not the only ones that count towards success. Relations with partners are considered just as important to strategy over the rest ofWe sometimes fall into the trap of seeing the future entirely in terms of the decade - including partnerships with suppliers, customers and eventechnology and other advances, forgetting the importance of people to competitors where opportunities exist to co-create, co-share or co-managedelivering success. But the business owners and managers in our survey have elements of the business that are too big, too expensive or too complex tonot forgotten. In fact, increasing the skills of existing staff - and hiring new staff manage alone.with the right skills - is a priority for the vast majority of businesses as they lookahead to 2020. There isn’t a ‘right mix’ of marketing, technology and HR strategies to deliver growth for every business in Ireland out to 2020. But it is clear from our study that Irish businesses are busy figuring out the mix that works best for them - “I have a big concern about where we’re going which bodes well indeed for our growth prospects over the rest of the decade. to find the people with the right skills as we 2020 Planner: expand, especially IT skills” • Too many businesses have postponed training and skills development in their businesses these past few years – identify the key skills gaps that need to be closed as a matter of priority, but also plan to develop - Professional Services, Dublin the skills that will be a crucial part of your longer term success. • There are many talented people out there looking for jobs – graduates, interns and participants in Job Bridge – now’s the time to recruit the Over two thirds of businesses anticipate a need to increase the skills of existing next generation of talent in your business.staff in order to future-proof their strategy for growth - and a similar proportion • Talk to your competitors, especially if they are indigenous companies expect to hire new staff with different or complementary skills to those of operating mainly in Ireland – there may be costs, products and export existing staff: opportunities you can resource together that would be too much for each of you individually.IMPORTANCE OF PEOPLE & PARTNERS FOR FUTURE GROWTH People & Partners % Important* Increasing the skills of your existing staff in terms of 69 selling, service, and getting the most from digital and other new technologies Hiring new staff with different skills in terms of selling, 66 service, and getting the most from digital and other new technologies Developing partnerships with suppliers, customers and 65 even competitors in order to share costs, deliver innovations and open up new markets* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between nowand 2020, and 7 is ‘extremely important’. * Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where1 Page 26
  29. 29. Conclusions: Bounce ForwardOptimism WarrantedThe optimism of Irish businesses appears warranted. They are open to theopportunities that will emerge over the rest of the decade, and are ready toput in place the marketing, technology and HR practices necessary to exploitthe same opportunities.Fewer than 1 in 10 Irish businesses considers their current business structure tobe completely appropriate for the future. The vast majority think it will have tochange a little, and over a 1 in 4 expect it will have to change a lot - and quitesoon at that. No one type of business or sector is immune from the need tochange, learn and develop as summarized in the table below:EXPECTATIONS FOR CHANGEING BUSINESS STUCTURES Is your business structure appropriate for how the market Domestic Market Focus Export Market Focus will evolve over the next five years? Micro Businesses Foreign Owned Irish Owned Corporate Total SME B2B B2C Sample 265 86 123 56 129 46 187 51 76 116 Yes - No change required 8 10 8 4 10 0 9 4 8 7 Yes - Little change required 58 50 63 61 56 67 55 67 59 62 No - No immediate change 9 9 11 7 10 7 10 12 7 10 needed No - But will need to change soon 19 21 15 57 19 22 19 18 24 17 Not sure 5 9 4 2 5 4 7 0 3 3Page 27
  30. 30. Bounce Forward : Theoptimism of Irish businessesappears warranted