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Dublin: 21 °C Tuesday 22 July, 2014

Column: Betting your business on the domestic Irish market is foolish, lazy and unnecessary

Being ‘the best in Ireland’ is too limited a goal for Irish businesses today; businesses should emulate Germany’s ‘Mittelstand’ approach to drive export growth, writes Patrick Burke.

Patrick Burke

A REALISTIC FEAR during the economic crisis was that Irish companies would go into a sustained period of introspection, battening down the hatches to ensure survival rather than looking for growth and innovation. It is heartening, therefore, that for Ireland’s exporters this hasn’t been the case. Recent figures from the Irish Exporters Association show a sector on the up, with 62 per cent of exporters growing sales this year, and 80 per cent expecting to grow exports in 2014.

The robust domestic demand during the Celtic tiger era made companies over-reliant on Irish customers and adopt business models that were unsustainable when the crash came. One of the most interesting responses from the IEA’s research is that 95 per cent of exporters report sustainability of the business as one of the most important benefits of moving into markets outside Ireland.

They realise that betting all your business on the domestic Irish market is foolish, lazy and unnecessary for those with a product or service that can compete in global markets. Four million people fighting each for a slice of an ever decreasing cake makes no sense in a world of 7 billion or a continent of 500 million people.

Adapting to change

Willingness to change and embrace new markets is a defining feature of successful companies, and has defined those Irish exporters who are now growing with determination and zeal. As Darwin said it is not the strongest or the most intelligent who will survive but those who can best manage change.

We are all familiar with the big name Irish companies that have built up successful international export businesses from Smurfit Kappa Group in the paper and packaging industry, through to Kerry Group in food and ingredients.  However where the biggest opportunity to grow exports further is the level below these giants, the middle tier of Irish companies, a sector referred to in Germany as the Mittelstand.

At a recent RDS Economic Recovery Series lecture a perfect example of an Irish Mittelstand company was outlined by Gerard Keenan, Executive Chairman of farming machinery company Keenan Systems, a progressive company based in Carlow employing 250 people.

Keenans exports 90 per cent of its €50 million of turnover to customers in 30 countries around the world and is a great example of a strategy that has innovated to stay ahead of potential rivals. As Gerard Keenan put it, a successful Mittelstand company “concentrates on niches that appear tiny but which can produce huge global markets”. Keenans isn’t alone, and other examples of the Irish Mittelstand include fruit producer Keelings, Mayo-based baler manufacturer  McHales, and construction group Mercury Engineering.

Germany’s economy

Mittelstand companies account for 80 per cent of employment in Germany, and their competitiveness and focus have been a key pillar in the country’s ability to withstand the financial crisis relatively unscathed compared to Ireland.

In this context the IEA survey results – showing that 70 per cent of exporters are targeting new markets next year and 51 per cent have hired new sales and marketing staff in 2013 to drive export growth – are welcome. Of concern, however is the fact that only 45 per cent plan to up their Research and Development spend in 2014, and more than one in four encountered difficulty accessing trade finance from their bank in the past 12 months.

It is widely acknowledged that strong and localised banking relationships, combined with a willingness to make substantial investment in research and development have underpinned the German Mittelstand’s success. It is this sort of long-term planning that Irish business should strive to match, and which our troubled domestic banking sector should be retooled to support.

The call for a new bank to support the SME sector is nothing new, but yet again in this year’s survey it was a major issue identified by exporters, with 72 per cent saying that a new government backed bank to support SMEs is a necessity. Companies clearly have a hunger to make the investments needed to grow their exports, but lack the support required to implement their plans.

Being the ‘best in Ireland’ is not enough

Today, being ‘best in Ireland’ is too limited a goal for Irish businesses – the prize that matters is being best in the world in a very focused niche where the business has a competitive advantage.

It is important to remember that not all changes in the market place have been caused by the recession. Over the past decade the principles of lean manufacturing championed by Richard Keegan of Enterprise Ireland have being a significant lever for this innovation and ensuring businesses adapted to the new environment. Far from being all about cost cutting lean is about building capability and capacity which is proven by the eight percent increase in employment in companies who have embraced lean over the last three years

In its excellent publication “Making it in Ireland – Manufacturing 2020” Forfas highlights the fact that the manufacturing sectors employs 400,000 both directly and indirectly and will be a crucial player in export led growth. Critically a greater understanding of and emphasis on the importance of indigenous Mittlestand type companies is emerging with enhancing productivity and competitiveness being the first of four pillars dedicated to creating a national step change in manufacturing and therefore exports to deliver on the potential for growth.

The findings from this survey show this period of creativity and resourcefulness of Ireland businesses and export momentum has the potential to be a historic step change to create an era of entrepreneurship and a new way of doing business in and from Ireland akin to the era of change begun by T. K. Whitaker.

Businesses that invest in processes and technologies that favour human capital and managerial skill will become global leaders by creating businesses that are sustainable and which competitors  cannot easily adopt or copy. From a business perspective it’s not the greenness of your company jersey that matters but your ability to execute and innovate.

Patrick Burke is a Partner at Grant Thornton who partnered with the Irish Exporters Association to produce the “Export Ireland Survey 2013”

We’re interested in your ideas and opinions – do you have a story you would like to see featured in Opinion & Insight? Email opinions@thejournal.ie

Read: Bruton to lead 42 Irish companies and colleges on Indian trade mission

Read: Exports to lead “solid and sustainable” growth – forecast

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