copy the linklink copied!Chapter 5. SME and entrepreneurship programmes in Ireland

Credit Guarantee Scheme (CGS)

Ireland’s Credit Guarantee Scheme was launched in October 2012 and provided a 75% guarantee to banks against losses on loans to eligible SMEs with a value ranging between EUR 10 000 and EUR 1 million. It thus aimed to facilitate lending to SMEs with a viable business model but inadequate collateral. SMEs making use of the CGS were requested to pay a maximum premium of 2% per annum to the Department of Business, Enterprise and Innovation (DBEI). Up to the end of Q1 2019, 669 facilities have been sanctioned for a total value of EUR 107 million.

In March 2017, following a review of the scheme, an updated Credit Guarantee Scheme was established. The main differences with the previous scheme are:

• An increase in the level of risk the State will take to 80% of individual loans;

• An extension of the scope to cover other financial product providers, like lessors, invoice discounters etc.; and

• An extension of the definition of loan agreements to include non-credit products and overdrafts.

Surveys among beneficiaries report that insufficient collateral represents the most important reason for using the credit guarantee, rather than securing a credit facility through the traditional commercial lending route (with 444 out of 487 respondents stating this as their primary reason). Around two-thirds of all CGS facilities were for working capital needs (SBCI, 2018).

Comparisons with other CGSs around Europe indicate that the Irish scheme is modest in size and outreach. In Flanders for example, a region of around 6.5 million inhabitants, slightly more than EUR 300 million in guarantees were disbursed in 2017 alone. In Denmark and Finland, countries with a population somewhat above Ireland’s, the corresponding 2017 number is around EUR 185 million (DKK 1.377 billion) and EUR 560 million respectively (OECD, 2019). The relatively low take-up of the CGS in Ireland is surprising given the high collateral requirements imposed by financial institutions and the lingering difficulties of small firms to access finance compared to most other EU28 countries. This might possibly be related to insufficient awareness of the existence and benefits of the credit guarantee scheme among potential beneficiaries.

The CGS in Ireland has not been subject to an impact evaluation, which would shed light on the reasons behind the relatively low take-up of its activities as well as on its economic impact and additionality. A recent survey conducted by the European Commission and the OECD indicates that such schemes are commonly evaluated, albeit with large variations in frequency and evaluation methods (Schich et al., 2017). Ireland could conduct an evaluation of its revised credit guarantee scheme, and consider further additional revisions to increase the take-up.

Local Enterprise Office (LEO) grants

Local Enterprise Offices (LEOs) can offer direct financial grants to micro-firms (10 employees or fewer) in the manufacturing and internationally traded services sectors. The latter requirement is there to ensure that financially supported firms have a potential to develop into indigenous export firms, which is in accordance with Enterprise Ireland’s (EI) overall mission.1

There are three main categories of grants under which direct financial assistance is provided:

• Feasibility Grants (investigating the potential of a business idea);

• Priming Grants (to part-fund a start-up);

• Business Development Grants for existing businesses that want to expand.

There is also a Technical Assistance Grant available for eligible micro-exporters who are seeking to explore alternative markets for their product or service. The most recent impact report shows that LEOs in 2017 approved financial grants to a total value of EUR 16.6 million for 1 131 applications. The vast majority (> 80 %) were attributed to grants for business development and feasibility.2

Strategic Banking Corporation of Ireland (SBCI)

The SBCI, a state-owned bank, began operations in March 2015. It does not provide financing directly to SMEs, but provides funding at relatively low rates to financial institutions that in turn allocate funds to SMEs. It works with seven on-lending partners, three bank and four non-bank institutions, and has a funding capacity of more than 1 EUR billion. At the end of 2017, the SBCI had lent EUR 920 million to 22 962 SMEs. EUR 391 million of loans were drawn by Irish SMEs with an average loan size of EUR 37 300 in 2017, with 80% of loans for investment purposes. The SBCI has also continued to provide low cost liquidity to a number of non-bank lenders providing a range of products (leasing, hire purchase and invoice discounting).

The SBCI launched the Brexit Loan Scheme together with the Department of Finance, DBEI and the Department of Agriculture, Food and the Marine at the end of March 2018. The scheme provides 1-3 year term loans of between EUR 25 000 and EUR 1.5 million to eligible enterprises, at a maximum interest rate of 4%. Loans of up to EUR 500 000 can be underwritten without any collateral requirements and the scheme is budgeted at EUR 300 million. It is supported by EIB Group’s InnovFin SME Guarantee Facility.

The scheme has been available from 28th March 2018 and is planned to remain open until 28th March 2020. It aims to address the need for relatively short-term credit to face working capital challenges brought about by Brexit and is therefore only available for firms up to 499 employees that can prove to be impacted by the decision of the United Kingdom to leave the European Union (and complies to the InnovFin conditions which among others, excludes firms operating in primary sectors such as agriculture). The scheme mostly supports firms with export activities to the United Kingdom.

A new Future Growth Loan Scheme announced in Budget 2019, jointly funded by the DBEI and the Department of Agriculture, Food and the Marine provides a longer-term scheme facility of up to EUR 300 million to support capital investment by business. The scheme is delivered by SBCI at competitively priced rates with better terms and conditions than currently offered in the marketplace (e.g. no security is required for loans up to EUR 500 000) and offers loan terms of 8 to 10 years. This scheme includes the primary agriculture and seafood sectors.

Microenterprise Loan Fund Scheme

The Microenterprise Loan Fund, managed by Microfinance Ireland, was set up under the Action Plan for Jobs to support economic development and to increase employment and enterprise. This is achieved through the provision of unsecured business loans of EUR 2 000 to EUR 25 000 for commercially viable proposals to micro-enterprises that cannot get funding through normal commercial channels, for working capital, equipment, start-up costs, or marketing purposes. The loan term is typically 3 years for working capital purposes and can be extended to 5 years for capital expenditures. Interest rates range from a fixed rate Annual Percentage Rate (APR) of 7.8% for direct applicants to a fixed rate APR of 6.8% for applicants through the LEO Network, Local Development Companies and banks. Between October 2012 and the end of March 2019, the Fund received 4 724 applications and approved 2 065 loans to micro-enterprises for a total value of EUR 30 million, supporting 5 028 jobs. This fund is the only direct lender to indigenous microenterprises unable to source bank lending that is active in Ireland.

In an internal DBEI Review published in March 2015, Microfinance Ireland was reviewed as moderately successful in its first two years of operation. The lower than anticipated demand for microfinance represented a weakness, in particular in some counties (Department of Jobs, Enterprise and Innovation, 2015).. Since then, the demand for its services has increased significantly with applications volumes doubling since 2014. The Fund is now receiving in excess of 1 000 applications per year and since 2014 has achieved and beaten the job target of 770 jobs per year. Applications up to September 2018 were 18% ahead of 2017 (Microfinance Ireland, 2018).

Microenterprises generally make less use of external financing instruments than their larger peers, likely reflecting the more difficult access (Kraemer-Eis et al., 2018). In Europe, the number of microfinance loans has expanded by 20% between 2015 and 2017 and volumes by 32% over the same period (European Microfinance Network, 2018). The more successful schemes in Europe appear to have a significant impact on entrepreneurship, economic growth and social inclusion. One crucial characteristic for success appears to be the availability of non-financial support such as coaching and mentoring to their beneficiaries (see Box 5.1 for the experience in France and the Netherlands). The Microfinance Loan Fund compares favourably in its reach to Qredits, a similar scheme in the Netherlands, when equalised for population size, time in existence and loan size.

A key focus of the Fund is financially vulnerable sectors such as the unemployed, females, older adults, youth and migrants. As of September 2018, 23% of loans were for beneficiaries of the “Back to Work Enterprise Allowance”, of which 26% were women and 19% non-Irish passport holders.

In Ireland, Microfinance Ireland provides mentoring support to its successful applicants. These services are paid for by Microfinance Ireland and provided through the LEO Mentor Panel. These supports consist of up to five mentoring sessions for start-up businesses and up to three for established enterprises.

Schemes to develop risk capital for innovative Irish firms

Ireland Strategic Investment Fund (ISIF)

The Ireland Strategic Investment Fund, managed and controlled by the National Treasury Management Agency (NTMA), is a EUR 8.9 billion sovereign development fund with the mandate to stimulate economic activity and employment in Ireland on a commercial basis. ISIF absorbed the EUR 7.1 billion Discretionary Portfolio of the National Pensions Reserve Fund on December 2014. To ensure the efficient delivery of funds, the ISIF targets its investments in private sector entities that interface directly with SMEs. To date, commitments have been made to a number of funds, the details of which are included below (OECD, 2019):

• SME Equity Fund – Carlyle Cardinal Ireland (CCI); ISIF committed EUR 125 million to this EUR 292 million fund focused on lower mid-market private equity investing;

• SME Credit Fund – Bluebay; ISIF committed EUR 450 million to the Bluebay SME credit fund focused on lending to large SME and mid-sized companies;

• DunPort SME Fund; ISIF completed a EUR 95 million commitment in 2018. The fund will provide a mix of Unitranche, Senior and Mezzanine debt to Irish SMEs with ticket sizes of EUR 3 million to EUR 35 million and terms of 3-5 years;

• BMS Finance Ireland: The EUR 30 million fund provides debt finance to high-growth Irish SMEs for working capital, contract wins, capital expenditure, acquisitions and MBOs;

• Causeway Capital; a EUR 60 million Dublin-based private equity fund that targets fast-growing small and medium businesses in Ireland and the United Kingdom;

• Milkflex Fund: Milkflex Fund is a EUR 100 million fund which provides loans of between EUR 25 000 and EUR 300 000 to dairy farmers;

• Finance Ireland: ISIF invested EUR 30 million in equity in Finance Ireland. whose overall strategic goal is to become Ireland’s leading broad based non-bank lender to the SME sector;

• Muzinich Pan-European Private Debt Fund: ISIF committed EUR 45 million to the Muzinich Pan-European Private Debt Fund 7 which, in turn, targeted investment of EUR 67.5 million towards Irish SMEs through sub EUR 10 million loans;

• Finistere Ventures: The Ag-Tech Fund was established with EUR 20 million to invest in technological companies in the food and agriculture sector;

• Insight Venture Partners: A commitment of USD 100 million in a global investor focused exclusively on growth stage software companies;

• BGF: An investment fund with EUR 250 million to invest as minority stakes of between 2 EUR million and 10 EUR million;

• Motive Capital: USD 29.5 million investment in a Fintech specialist private equity investor.

Few sovereign wealth funds around the globe have an explicit mandate to support economic activities and employment (and focus solely on delivering commercial returns), and ISIF thus represents an outlier in this respect. Although precise data are not available, only a small fraction of institutional investor’s funds are directed to small companies, due to regulatory restrictions, the opacity of SME markets, limited scale and exit options (Boschmans and Pissareva, 2017) (World Bank, IMF, OECD, 2015). Given the relative novelty of ISIF’s mandate, it is advisable to closely scrutinise the economic impact and return on investment.

InterTradeIreland Seedcorn

The InterTradeIreland Seedcorn competition mirrors the real life investment process in order to improve participating firms’ ability to attract investors. The competition is aimed at early and new start companies that have a new equity funding requirement and has a total cash prize fund of EUR 280 000.

WDC Investment Fund

WDC Investment Fund is a EUR 50 million Evergreen Risk Capital Fund serving the Western Region covering the counties Clare, Donegal, Galway, Leitrim, Mayo, Roscommon and Sligo. The WDC Investment Fund has a number of targeted sub-funds:

• WDC Business Investment Fund provides equity investment and loan finance to small and medium-sized enterprises (SMEs) with first round investments ranging from EUR 100 000 to EUR 1 million. The WDC’s Business Investment Fund invests across all sectors, including Lifesciences and MedTech, ICT, CleanTech, Creative Industries, Marine and Natural Resources, Food and Tourism.

• The Western Regional Audio-visual Producers (WRAP) Fund is a EUR 2 million regional fund for the audio-visual sector. It provides funding of up to EUR 200 000 for feature films, television dramas, animation and games that undertake a significant portion of their production in the WRAP area, which covers counties Clare, Donegal, Galway, Mayo, Roscommon and Sligo, and up to EUR 15 000 by way of loan for the development of feature films, television dramas, animation and games at any stage from treatment to pre-production. It is a joint initiative with Galway Film Centre and is supported by the local authorities of Clare, Donegal, Galway, Mayo, Roscommon and Sligo and Udaras na Gaeltachta.

• WDC Micro-Loan Fund for Creative Industries provides micro-loans of up to EUR 25 000 on an unsecured basis to micro-enterprises in the creative industry sector.

• WDC Community Loan Fund provides loan finance to community and social enterprises at a low interest rate. The WDC Community Loan Fund also provides bridging finance to facilitate community and social enterprises drawdown approved grant-aid.

Overall innovation framework

The DBEI, along with the Department of Education and Skills (DES), is responsible for leading National Strategic Outcome 5 – A Strong Economy Supported by Enterprise, Innovation and Skills (NSO5). In June 2018, it published an investment overview which summarises the strategic investment priorities (with a foreseen capital funding of EUR 3.16 billion to 2022 and a planned total allocation of EUR 9.4 billion to 2027), which will deliver the NSO over the period 2018-27. The Strategic Investment Priorities (see page 11 of DBEI, 2018) include investments in line with the Innovation 2020 strategy (see below) as well as new initiatives such as regional ‘Technology and Innovation Poles’ (TIPs) and regional sectoral clusters (see Chapter on the local dimension).

The Innovation 2020 strategy, adopted in 2015, is an overarching policy framework for research and innovation and is a “whole government strategy” covering the implementation of 140 actions by Enterprise Ireland (EI), Science Foundation Ireland (SFI), the Local Enterprise Offices (LEOs) and a number of other departments and agencies. Innovation also is given a prominent place in the annually updated Action Plan for Jobs (Irish Government, 2018).

Innovation 2020 aims to increase gross expenditure on R&D (GERD) to 2.5% of GNP, a significant increase on the 2014 rate (1.5%), notably by the business sector investing more in R&D. A related target is to increase the number of research personnel in enterprises by 60% to 40 000. Both these targets appear ambitious, despite a gradual growth in absolute levels of business expenditure on R&D (BERD) from 2013 to 2015 (CSO, 2018), since faster GNP growth has resulted in lower GERD and BERD intensities. A third target to increase the number of “significant business R&D performers” (spending between EUR 100 000 and EUR 1 999 999) to 1 200 enterprises is challenging (the number was 918 in 2017).

Tax incentives for business R&D and innovation

R&D tax credit

An R&D tax credit was first introduced in 2004 in Ireland and has undergone several changes since then. The most significant change was in 2015, when Ireland’s tax credit became entirely volume-based, which led to a significant increase in the implied marginal tax subsidy rates for SMEs and large firms in both profit and loss scenarios (OECD, 2018). A payable element to the R&D tax credit was introduced in 2009, which is useful for smaller loss-making firms in the development phase and beyond. The payable element is limited by reference to the company’s corporation tax or payroll tax liabilities. Moreover, expenditure on activity outsourced to third level institutes is restricted to the greater of 5% of overall spend or EUR 100 000. Likewise, expenditure on activity outsourced to third party subcontractors is restricted to the greater of 15% of overall spend or EUR 100 000. These restrictions are also subject to ‘matched’ internal expenditure requirements, which can also be a barrier (a firm can only claim EUR 100 000 of outsourced expenditure, for example, if it has spent the same amount internally). A provision was also introduced to make it possible to carry forward unused credits (for three years), again useful for smaller loss-making firms in the development phase. However, upper ceilings apply to the amount of subcontracted R&D that can be claimed through tax credits. Under the R&D tax credit, companies can receive a credit of 25% of qualifying expenditure. This expenditure is also a deductible cost for corporation tax purposes. In practice, companies undertaking qualifying R&D can thus claim a refund from the Revenue of EUR 37.50 for every EUR 100 worth of R&D expenditure.

In 2017, Ireland had the highest share of tax incentives financing BERD (0.29% of GDP) and the sixth most generous R&D tax subsidy rate of the OECD and other selected countries (Figure 5.1).

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Figure 5.1. Tax subsidy rates on R&D expenditures, 2017

Source: OECD R&D Tax Incentive Database, http://oe.cd/rdtax, March 2019.

 StatLink https://doi.org/10.1787/888934005188

The above data indicate that the current R&D support is already quite generous in an international perspective. The Irish Government may therefore consider optimising current schemes, for example by ensuring smaller companies have easier access to government support in this area, rather than further raising expenditures.

In particular, the distribution of the R&D tax subsidy to firms by size is heavily skewed to larger firms. Firms with more than 250 employees accounted for 10% of claims but 78% of the cost of the R&D tax credit in 2016. Similarly, the Large Case Division (LCD) of the Irish Revenue service handled 12% of claims but “LCD firms” (the largest corporate taxpayers) accounted for 70% of the cost of the R&D tax credit in 2017. While the statistics do not distinguish between indigenous and foreign-owned firms, these data suggest that MNEs are the main beneficiaries of the R&D tax credit. Two main reasons for the limited claims by smaller companies are:

• The cost of preparing, filing and defending a claim is too high. The criteria for making claims, recording and justifying claims and so on as laid down by Revenue are onerous for SMEs – the rules appear to have been designed with large established R&D intensive (e.g. pharmaceutical) companies in mind, where development processes are very detailed and structured. In contrast, the rules are not a good fit with, for example, new, agile software development companies, where processes are fluid and fast and documentation is less necessary.

• The risk of Revenue making a clawback of a claim, going back up to 4 years, can put SMEs off. Revenue data shows that revenue audits on R&D claims are both frequent and high yielding in terms of clawbacks of claims. SMEs may find it hard to carry a potential clawback liability and may see the risk as too high.

As noted above, efforts have been made to simplify the R&D tax credit and make it attractive to smaller (indigenous) firms. However, the data suggest that larger firms are increasingly subsidised via the R&D tax credits with a growth of close to 300% in the value of R&D tax credits compared to 14% for SMEs in the period 2011-15 (see Figure 5.2). The increase in the value of R&D credits was particularly significant from 2014 onwards. This could be due to changes to the tax credit regime with the removal of the “base year” and incremental allowable amounts from 1 January 2015.

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Figure 5.2. Share of R&D tax credit claimant numbers and total exchequer cost by firm size (number of employees)

Source: Revenue Ireland, data extracted 27/9/18, calculations author.

 StatLink https://doi.org/10.1787/888934005207

An empirical study published in 2018 investigated the impact of the R&D tax incentives by firm size as operated in France, Italy, Spain and the United Kingdom over the 2008-2009 period. In these four countries, the positive impact on firm behaviour (measured as the intensity of R&D expenses over sales) was much higher for small enterprises than for large ones. The research suggests that large enterprises, in contrast to SMEs, typically engage in R&D activities in the absence of tax incentives (Sterlacchini and Venturini, 2018). Efforts to make the Irish R&D tax credit more accessible to smaller firms would therefore likely increase its additionality and efficiency. This is especially relevant given significant deadweight of the current scheme. It has been estimated that 40% of the R&D in Ireland benefiting from the incentives would have occurred anyway (Department of Finance, 2016).

A pre-approval process for R&D tax credits would diminish the uncertainty of potentially incurring a clawback and paying penalties and encourage more take-up by SMEs. Another potential improvement is simplified and updated record keeping requirements (a reduction of the four-year period) and clearer guidance on the eligibility criteria.

In addition, with a view to increasing co-operation among businesses and with higher education, the limits on outsourcing R&D work to third parties or universities should be reviewed. This discourages collaboration and is likely to disproportionately affect SMEs as, with fewer resources, a collaborative approach may be the only way for an SME to progress.

Further, if a company does not have a tax liability in the current or immediate prior period, it can claim a repayment in cash of R&D tax credits in three equal instalments over a three-year cycle. In comparison, in the United Kingdom, SMEs can obtain refunds immediately after filing their corporation tax return. This is particularly significant for SMEs, which are more likely to be unprofitable at the R&D stage.

To provide a point of comparison, learning elements from Norway’s Skattefunn scheme, identified as a successful R&D tax credit scheme by a 2014 European Commission study are summarised in Box 5.2.3

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Box 5.2. The Norwegian experience in targeting R&D tax credits to boost SME R&D innovation

Description of the approach

Norway introduced the SkatteFUNN refundable R&D tax credit for SMEs in 2002 as a volume based tax credit with a headline rate of 20% (which has remained stable since introduction) for SMEs. Where there is insufficient tax liability, firms receive a refund of unused credits in the following year. A ceiling of NOK 25 million applies to in-house R&D (inclusive of R&D procured from entities other than approved R&D institutions) and NOK 50 million to purchased (subcontracted) R&D when purchased from approved R&D institutions. The caps on eligible costs are applicable for each individual company, meaning that if a holding company has three subsidiaries, each of the three companies may benefit from SkatteFUNN up to the cap for each company.

The tax incentive is based on R&D projects, which are approved by the Research Council of Norway within the same calendar year as the application has been filed. In practice, this procedure is an ex-ante appraisal of whether or not a project qualifies as R&D or not. In 2017, more than 7 600 projects received support under the SkatteFUNN tax deduction scheme, a 10 per cent increase from the year before. The total cost for eligible R&D projects amounted to nearly NOK 31 billion, leading to tax deductions of just over NOK 5.5 billion. The scheme is considered to be well-suited for SMEs and an important instrument for restructuring industry and boosting trade.

Factors of success

The SkatteFUNN R&D tax incentive has been evaluated several times and was found to be effective in stimulating private R&D investments. Firms that previously invested less than the cap increased their R&D more than firms that previously invested above the cap. Firms that previously did not invest in R&D were more likely to invest. Additionality effects were found to be strongest in small, low tech and low-skilled firms.

A key factor of success is the simple application process (the application form was further simplified in 2018) to apply for a deduction. The application procedure is based on a self-declaration and advice and guidance is provided throughout the application. Moreover, the Research Council of Norway, which administers the scheme, has a policy of pro-active communication with potential applicants and of educating auditors and accountants. This has resulted in a sustained year-on-year increase in applications since 2011, with almost 50% of companies applying having less than 10 employees and more than 80% with less than 50 employees. Approximately 20% of the SkatteFUNN beneficiaries each year are new and slightly less than half have no prior experience in R&D (Benedictow et al, 2018).

The 2018 evaluation found that SkatteFUNN significantly increases recipient’s investments in R&D so that for every NOK 1 of tax credit, R&D expenditure increases by more than NOK 2. Positive effects were found on increasing innovation in terms of new products and processes as well as on labour productivity. The evaluation concluded that SkatteFUNN is better suited to enhancing smaller R&D projects (in smaller firms) than other R&D grant based instruments.

Obstacles and responses

While, the SkatteFUNN scheme does not stipulate any particular obligations with regards to inter-company collaboration, a company may choose to carry out the project using internal resources or to collaborate with other companies or external R&D institutions, applying the double cap for eligible costs when sub-contracting. If more than one company is involved in an R&D project, each company is required to submit a separate SkatteFUNN application, listing its share of specific R&D activities in the project.

However, both the 2016 and 2018 evaluations have not found a strong impact on co-operation with universities, colleges and research institutes. The 2018 evaluation noted that the number of collaborative projects with R&D institutions had remained stable over 10 years, and that despite the fact that collaborative SkatteFUNN projects had increased in both duration and total budget since 2009, this is not due to the share of extramural R&D rising. The evaluation concluded that despite the specific increases in the cost cap for extramural R&D, this has not stimulated additional collaboration (yet). This led the evaluators to recommend increasing the tax credit rate to 25% for intensive collaboration (defined as projects that spend at least half the budget on purchased R&D).

Relevance for Ireland

SkatteFUNN’s ex-ante evaluation (pre-approval) process is of relevance to the Irish case as it provides a high-degree of certainty, notably to smaller firms, about the eligibility of the planned expenditure. Combined with advice to smaller firms from institutions such as Enterprise Ireland, LEOs or Technology Gateways, it can help them define a feasible R&D project, and leverage additional uptake (and volume of credits) of the R&D tax credit by Irish SMEs.

The SkatteFUNN provision that allows doubling of the maximum eligible costs in case of sub-contracting to a research institute could also be a means of enhancing R&D efforts by smaller Irish firm while strengthening co-operation within the Irish innovation system. Increasing the R&D tax credit rate for intensive collaboration while reducing the rate for non-collaborative R&D could generate a significant behavioural additionality in the Irish system, boosting co-operation between larger (foreign-owned) and smaller (Irish-owned) firms as well as between both types of firms and the Irish research and technology infrastructures and centres.

For further information: www.skattefunn.no.

Direct support to incentivise domestic owned firms to innovate

At the national level, direct innovation support is delivered mainly by Enterprise Ireland (EI). EI targets three types of firms: high-potential start-ups (HPSU), established SMEs, and large companies (over 250 employees). The latter are eligible for R&D funding and business innovation funding under the De Minimis State Aid rules from the European Union (EU), which allows small amounts of aid unlikely to distort competition.

The 2017-20 EI strategy aims to “support more Irish companies to achieve greater scale and expand into new export markets”. This includes EI support for innovation with the aim to increase business R&D spend by 50%, reach a target of EUR 1.25 billion per annum by 2020, increase the level of innovation and entrepreneurship across Irish regions and improve connections between EI client firms and “international innovation ecosystems”. To reach these objectives EI foresaw, amongst other measures, introducing new innovation supports broadening the scope of direct in-company research, development and innovation (RDI) support to new sectors and further boosting innovation-led pre-commercial procurement (see section on procurement).

Attracting foreign-owned R&D and innovation-intensive high growth firms

The government’s investment, via SFI and EI, in a range of research and technology centres (discussed below) is a key element of a strategy to attract more knowledge- and innovation-intensive FDI and to connect these investments with indigenous firms and the Irish research base. IDA Ireland, the Irish foreign direct investment (FDI) agency, also provides a number of grants to support both large and “small multinational companies” (in partnership with EI) as well as IDA managed grants for: Innovation Vouchers; Research, Development and Innovation (RD&I) Feasibility Studies; and in-house R&D.

The small multinational company category seems to be synonymous with the IDA targeting of high-growth companies that are “typically operating less than seven years and have a turnover between USD 30 million – USD 70 million.” Since 2010, over 100 high growth global companies have established their operations in Ireland. In 2017, IDA Ireland reported 50 RD&I projects and investment in these projects of EUR 905 million. In 2016, IDA reported that the total R&D in-house expenditure of domestically hosted MNEs was EUR 1.64 billion. This compares to a target of winning a cumulative EUR 3 billion in new R&D expenditure and to encourage 120 additional companies to engage in R&D across the FDI portfolio (IDA Strategy).

Policy programmes supporting collaborative R&D and innovation

Collaboration, between enterprises (including MNEs) and between enterprises and the research base, in the Irish innovation system is fostered via investment in research and technology infrastructures, managed principally by EI and Science Foundation Ireland (SFI), in partnership with the IDA for certain programmes. These centres are complemented by a number of funding programmes such as SFI Industry Fellowships, Knowledge Transfer Ireland (KTI) and InterTradeIreland’s Fusion programme (which helps firms recruit a high calibre science, engineering or technology graduate in partnership with a third level education institution).

As part of Innovation 2020, the national research prioritisation exercise (RPE) (considered as Ireland’s response to the EU’s requirement to present a ‘Smart Specialisation Strategy’) has identified 14 priority areas (after a process of consultation with stakeholders, including industry) for targeting competitively awarded research investment and funding within six broad enterprise themes (ICT, health and wellbeing, food, energy, climate change and sustainability, manufacturing and materials as well as services and business processes).

A number of research and technology ‘centres’ have been developed and the RPE is used as a guiding framework for further investment. These infrastructures include:

• SFI funded Research Centres;

• EI funded network of industry-led Technology Centres; and

• EI funded Technology Gateways.

The SFI Research Centres focus on applied and basic research combined (ABC), while the EI sponsored Technology Centres and particularly the Technology Gateways work closer to the immediate needs of firms (notably SMEs). While SFI Research Centres undertake fundamental and earlier-stage applied research, they are increasingly working with industry to support embedding and scaling of technology. SFI Research Centres also work extensively with SMEs. Some observers point to an overlap in activities and engagement with industry between SFI Research Centres and EI Technology Centres.

A further programme supporting mobility of researchers into industry is the Marie Curie Career Fit Programme, which addresses skills gaps for innovation in SMEs by sourcing highly experienced international researchers or engineers to work with sectoral challenges facing companies associated with the Enterprise Ireland Technology Centres.  It provides an opportunity for experienced researchers to develop their careers in market focused applied research in Ireland’s Technology Centres, with an enterprise secondment between 6 and 12 months during the Fellowship. 

Science Foundation Ireland Research Centres and related measures to support collaboration

SFI has funded 17 SFI Research Centres to date, with an investment of EUR 450 million by the government and a further EUR 250 million from industry collaborations (SFI, 2018). They support basic and applied research with strong industry engagement, economic, and societal impact that address critical and emerging areas of the economy. To add to the 12 Centres that existed in 2016, four new Centres were launched in 2017 in the fields of Smart Manufacturing (CONFIRM), additive manufacturing (I-FORM), neurological diseases (FutureNeuro), and the bio economy (BEACON). A 17th research centre in the field of future milk/precision agriculture (VISTAMILK) was launched in 2018 (in partnership with the Department of Agriculture, Food and the Marine). During 2018, SFI completed the review process concerning phase 2 funding for the seven research centres launched in 2012, with 6 of the 7 Research Centres funded for a second 6-year term. Cumulatively the SFI Research Centres have signed more than 750 collaborative research agreements with over 400 industrial partners representing cumulative company commitments of over EUR 180 million (> EUR 90 million in cash) and have won EUR 195 million from EU and international funding agencies (SFI, 2019).

An interim evaluation (covering the first seven centres funded from 2013) of the Research Centres programme (Indecon, 2017) concluded that the research centres had generally outperformed targets when it came to attracting cash funding from industry. Collaborations with industry were split between 45% Irish-owned and 55% foreign-owned firms. Of the firms that participate in Research Centres, one-third were large (>250 employees), and two in five (42%) small (<50 employees). The evaluation, however, emphasised the need to increase the transfer of skills from research centres to enterprises, notably through increasing the number of Master’s graduates (which fell short of target).

The SFI Research Centres Spokes programme is a complementary measure which aims to attract new partners to work with the SFI Research Centres, based on a co-funding requirement (EUR 21 495 000 grant commitment in 2017). The Spokes programme also provides a vehicle to link together, in a meaningful and relevant way, different Research Centres.

SFI also supports co-operation with industry through specific funding programmes, namely: SFI Partnership (grant commitment in 2017 of EUR 6 190 000), TIDA (EUR 4 595 000) and Industry Fellowships (EUR 1 903 000). In total in 2016, 1 603 industry collaborations were supported by SFI awards involving 399 MNEs and 491 SMEs.

The SFI Partnership programme is a flexible programme that enables companies to work with academic researchers through a joint research programme funded 50% by the company (cash) and 50% by SFI. Three awards were made in 2017. The Industry Fellowships Programme supports a post-doctoral researcher or member of staff in an Irish research organisation to go from academia to industry or an industrial researcher to spend time in an academic laboratory (full or part-time for up to 24 months). A maximum grant of EUR 100 000 is available to fund the salary and other costs of the researchers in a company. Since the launch in 2013, 145 SFI industry fellowships have been awarded (SFI, annual review 2017).

The SFI TIDA programme aims to support the commercialisation of research by enabling researchers to focus on the first steps of an applied research project which may have a commercial benefit if further developed (patents, licences or spin-out companies). A 2016 evaluation (Frontline, 2016) concluded that TIDA was an important programme as it plugged a gap in the commercialisation pipeline at the early technology readiness levels. If successful, the TIDA projects can benefit from support from other agencies, such as the EI Commercialisation Fund. This supports researchers in HEIs and research organisations to take research outputs with commercial potential to the stage where they can either be transferred to industry through a license or used to develop a new start-up company. Some observers point to a bridging gap for companies bringing technology to next level, requiring market/customer/technology validation (solving the right problem at the right price for customers) over 1-2 years and requiring funding of between EUR 500 000 and EUR 3 million.

Technology Centres

EI and IDA sponsored Technology Centres have as a mission to introduce companies to the research expertise in Irish higher education institutions with the aim of generating innovative technologies leading to job creation. The Technology Centres are collaborative entities established and led by industry enabling Irish companies and multinationals to work together with qualified researchers associated with the research institutions. Technology Centres are operating in fields such as energy research, composites, dairy processing, data analytics, manufacturing research, etc.

A Technology Centre receives, on average, State funding of the order of EUR 1 million per year over a five-year period. Continued funding depends upon a range of metrics such as increasing industry research funding, growing the numbers of companies involved, licences and the revenue from them and spin-offs, new products and processes leading to increased export sales. At the beginning of 2017, more than 420 companies (165 EI clients, 120 IDA clients and 135 other companies) were benefiting from this industry-led research programme. In total, 785 companies were involved in the Technology Centres programme at the end of 2017, of which 525 held full membership.

Technology Gateways

EI coordinates a national network of 15 Technology Gateways in partnership with 11 Institutes of Technology. It may be argued that the Institutes of Technology level of expertise is better suited to indigenous SMEs in less technologically advanced sectors. The Technology Gateways are expected to deliver technology solutions for Irish industry (all sizes) close to market needs and act as local access points to the resources available in the wider network of Irish research and innovation infrastructures. According to EI, the Gateways have completed more than 2 750 industrial projects since 2013 with a total value in excess of EUR 15 million (of which 46% from industry). In 2017, 436 projects were approved with 462 companies working on 700 projects during the year (EI annual report 2017).

The Gateways’ projects are funded through the direct funding programmes of EI and directly from companies (the funding share from companies is one of the primary metrics for the Gateways) and range from between EUR 5 000 and EUR 10 000 (e.g. innovation voucher type support) to EUR 200 000 (e.g. funded by the Innovation Partnership Programme). To optimise the potential of the network, three sector-specific clusters have been established in engineering, materials and design (six Gateways), applied internet of things (five Gateways) and food and beverage technologies (seven). A new round of the Programme involves a Government investment of EUR 26.75 million over for the period 2018-22.

InterTradeIreland support for collaboration

The FUSION Programme develops and facilitates strategic partnerships. Each project is initiated by a company which has a specific technology need. Through FUSION, the company is matched with a college or university in the opposite cross border jurisdiction that can provide the necessary expertise. A high-calibre graduate is then employed by the company to deliver the agreed project. The graduate acts as the link-agent in transferring and embedding technology and knowledge transfer from the academic into the company. This transfer of knowledge is always on a cross-border basis, with the ultimate aim of increasing overall levels of technological innovation, research and development within the participating enterprises.

FUSION has assisted over 700 partnerships since establishment in 2001. Projects can be supported for 18 months to a maximum of EUR 67 900. These are typically in new product, service or process development. 12 month projects which are typically focussed on process improvement can be supported up to EUR 47 400.

The US-Ireland R&D Partnership is a tri-jurisdictional innovation funding alliance which was officially launched in 2006. Its aim is to promote collaborative innovative research projects which create value above and beyond individual efforts. To date a total of 43 projects have been awarded funding which represents a combined investment value of EUR 67 million. The Centre to Centre funding activity is focussed on supporting industry and academic collaboration on a tri-jurisdictional scale. This element has been particularly successful at attracting the involvement of SMEs.

Disruptive Technologies Innovation Fund

To complement these existing initiatives and to support private investment in emerging and enabling technologies, in 2018 the government announced the launch of a Disruptive Technologies Innovation Fund (DTIF) which will invest EUR 500 million over 10 years. The DTIF is being implemented by the DBEI and its agencies and will seek applications for funding on a competitive bid basis. The projects selected should last up to three years and be large-scale projects in the range of EUR 5 to 10 million total cost, inclusive of enterprise co-funding, and should fit within the research priorities for 2018-23 (for the first phase of funded projects to 2022). Collaboration is an essential requirement (MNEs, research organisations, etc.), as is the participation of at least one SME and the project proposals must demonstrate they will be sufficiently “disruptive” and benefit the Irish economy (all consortium participants must be based in Ireland to receive funding, but non-Irish based organisations may participate). A first call was launched in June 2018 and 27 collaborative projects were successful with over EUR 70 million awarded up to 2021. A second call was launched in June 2019.

Innovation challenges and policy options

Innovation 2020 provides an overall policy framework for boosting the innovation potential of Irish SMEs but the traceability of progress toward objectives and readability of the Irish policy framework is reduced by the multiplicity of closely related and often inter-dependent plans (Action Plans for Jobs, Investing in Business Enterprise and Innovation 2018-2027, STEM education plan, Enterprise 2025, etc.). In addition, agency level strategies, while necessary, further diffuse the link between the stated objectives in terms of enhancing business innovation (and ultimately productivity), the existing (or planned) programmes and actual progress towards these objectives. The current progress reports are more akin to activity reports than a tracking of progress towards objectives. Overall, it would be advisable to develop a more detailed ‘theory of change’ or ‘impact pathway’ that illustrates how government interventions are expected to lead to expected objectives notably in terms of increasing indigenous SME R&D and innovation activity and outcomes.

There is a need to rebalance financial support (notably the R&D tax credits) for R&D and innovation from larger (MNE) firms towards indigenous SMEs. A stronger emphasis (in both R&D tax credits and direct funding) should be given to collaborative (beyond bilateral co-operation) projects involving groups of smaller firms working together on technology adoption as well as product development or process improvement.

It is recommended to review the R&D tax credit with a view to enhancing the share of non-R&D or ‘sporadic’ R&D active SMEs benefiting from the scheme. A 2016 evaluation noted that the “R&D tax credit demonstrates reasonable additionality, but the deadweight indicates that there may be scope to increase the “bang for buck” without materially damaging business incentives to invest in R&D”. An appropriate response would be to adjust the R&D tax credit rates so that ‘intensive collaboration’ is rewarded while a reduced rate for non-collaborative R&D would be applied. It is also recommended to introduce a pre-approval process for R&D projects of SMEs to reduce uncertainty about whether planned R&D will be eligible for a tax credit.

The Brexit challenge

Internationalisation is viewed as an increasingly critical issue given the uncertainty over the outcome of the UK’s Brexit process. As the United Kingdom is a major export market for many Irish companies, notably smaller indigenous firms which are exporting for the first time, the need to reduce “exposure” to the UK market and drive diversification of Irish exports to new markets has been given high prominence. The evidence available and most informed observers consider that there is a major threat for Brexit in terms of disruption of supply chains and loss of markets – Cross-border Trade with Northern Ireland plays a particularly important role for many Irish SMEs. For over half (51%) of Irish exporters, Northern Ireland is the destination for more than 50% of their exports, while for 26% of Irish firms, Northern Ireland is the destination for approximately 100% of their exports (InterTradeIreland, 2018).

Nevertheless, Brexit may be an opportunity for Ireland. For instance, a survey of the EOY Alumni community found that 58% think that Brexit will result in the relocation of business to Ireland (from the United Kingdom) and 32% considered that it will force their business to look at new export opportunities outside of the United Kingdom.

Main internationalisation programmes

In June 2018, the Irish Government announced the Global Ireland – Ireland’s Global Footprint to 2025 initiative, which includes a number of objectives related to exporting and internationalisation of Ireland in terms of culture, aid, etc. The exporting objectives by 2025 are aimed at accelerating diversification of exports by Enterprise Ireland clients so as to double the total value of exports of EI clients outside the UK from the 2015 baseline, double Eurozone exports and increase diversification with at least 70% of exports going beyond the UK. These targets are similar to those set for the “Expand Reach” objective of Enterprise Ireland’s 2017-20 strategy.

SBCI, a state-owned bank, launched the Brexit Loan Scheme together with the Department of Finance, Department of Business, Enterprise and Innovation (DBEI) and the Department of Agriculture, Food and the Marine at the end of Q1 March 2018. The scheme was designed to support internationalising companies and is particularly well suited for young exporters needing working capital. The programme is described in Section one of this Chapter (Strategic Banking Corporation of Ireland (SBCI)).

In the field of internationalisation, Enterprise Ireland (EI) has the main remit to support and develop Irish indigenous firms with export activities. Other agencies are also active in promoting specific sectors such as Bord Bia for the food sector.

Enterprise Ireland’s suite of activities in support of exporting firms include:

• Brexit Be Prepared Service. The advisory service and grant (up to EUR 5 000) is intended to enable exporters to hire consultants to support companies in how they can respond to threats and opportunities arising from Brexit.

• Market Discovery Grants, launched in January 2018 by EI, provides support towards internal and external costs incurred when researching new markets for products and services. Support under the Market Discovery Fund applies when eligible companies are either looking at a new geographic market for an existing product/service or an existing geographic market for a new product/service. Support can be provided over an 18-month period from project start date to project end date with a maximum grant of EUR 150 000. 157 Market Diversification grants were awarded in 2017.

• The Market Research Centre through which EI makes available to its clients market research reports purchased from leading providers. Companies can view these reports at the Market Research Centre in the Dublin office or via the LEOs. EI also produces a range of market access guides which provide companies with key information on specific markets that are of significant importance to Irish exporters;

• EI International Offices Network. In line with Global Ireland, EI’s and Bord Bia’s current network of overseas offices will be reinforced with expended presence in several EU cities;

• Trade missions & events (57 ministerial led trade events in 2017);

• Supporting export selling capabilities through three main initiatives: Graduates for International Growth (G4IG); the International Selling Programme and Excel at Export Selling workshops.

The International Selling Programme is the flagship programme designed to equip Irish companies with the necessary capability to deepen their presence in an existing international market or enter a new international market. Delivered in partnership with Dublin Institute of Technology (DIT) this practical programmes aim to improve participating companies’ ability to access new markets and grow export sales. Graduates for International Growth (G4IG) helps ambitious internationally trading companies recruit graduates with the potential to be the next generation of business development executives. Excel at Export Selling aims at rapidly embedding the proven tools of good international selling practice into the sales teams of Irish companies across all industry sectors.

In terms of outcomes, in 2017, EI reported 1 391 new overseas contracts in supported firms, 350 new overseas presences and 51 first-time exporters outside the United Kingdom. In 2017, exports in EI client companies were up by 7% on 2016 levels.

InterTradeIreland provides a suite of supports to support Irish SMEs in exporting across the border with Northern Ireland and with preparations for Brexit. InterTradeIreland supports include: sales supports and services such as the Trade Accelerator Voucher worth up to GBP 1 000 or EUR equivalents for professional cross-border advice; and Acumen which provides financial assistance to source and fund the right sales and marketing employee to help develop cross-border sales (funding of up to EUR 18 750 available). InterTradeIrelands Brexit Advisory Service has been operational since May 2017 and provides supports to businesses trading across the border including dedicated events, a tariff checker tool and the Brexit Start to Plan Voucher for professional advice in relation to Brexit.

The agro-food sector’s special position within the Irish economy and the potential for the sector to grow further, as well as its particular vulnerability to Brexit, is reflected in the adoption of the Food Wise 2025 Strategy, a 10 year plan for the sector. The Strategy reflects the importance of a deep understanding of what consumers, often in distant markets, really want, and ensuring Irish farmers and food companies are aware of those needs. The Strategy also highlights the importance of communicating key messages about what makes Irish food unique to the international market. Food Wise 2025 has identified ambitious and challenging growth projections for the industry over ten years.

The LEOs also offer support for exporters through the Technical Assistance for Micro Exporters grant, The grant covers 50% of eligible costs up to a maximum of EUR 2 500 for micro enterprises to explore and develop new market opportunities, for example by researching export markets, exhibiting at trade fairs, preparing marketing material, and developing websites specifically targeting overseas markets.

Internationalisation challenges and policy options

A key challenge facing Irish SMEs is to diversify their export bases in the face of increasing global competition and an impending “Brexit shock.” As the UK market is the first step on the export road for may smaller Irish-owned firms, and in many cases the main or only export market, the urgency to diversify their overseas market is evident. The Government and Enterprise Ireland (as well as Bord Bia for the food sector) have taken a number of measures to help businesses anticipate and prepare for Brexit. It is too early to assess whether the various initiatives launched in the last two years will be sufficient to help smaller companies export further afield.

The range of funding and advisory programmes provided to SME exporting firms are similar to those of other advanced north-western European countries (e.g. Business Finland’s suite of assistance). However, there remains a challenge related to raising ambition in the management teams of smaller firms to begin exporting (first-time exporters) or to move beyond the UK market. Expanding programmes in favour of enhanced management skills, notably in second tier management, through coaching and training support would help to increase the number of ‘export-capable’ firms amongst Irish SMEs.

Major programmes in Ireland

Conclusions and recommendations

In conclusion, despite a trend toward full employment (although there remain regional and sectoral variations) and while labour force participation rates have improved between 2016 and 2018, there are still groups and areas where there remains a need for further improvement. Ireland’s gradual transformation into a service-based economy and the challenges posed by Brexit increase the importance of skills needs anticipation, workforce skills development and training.

Regional variations in skills availability mean that MNEs considering locating or expanding in Ireland are concerned about available skills and proven capacity in the host regions, including in the Irish-owned SMEs that form part of MNEs’ supply chains. For Irish-owned SMEs that are oriented towards international markets and value chains, specific skills shortages, notably digital and industrial automation skills which are critical for a shift to Industry 4.0, remain the key challenge.

In this context, it is worth considering launching a dedicated initiative to support Irish SMEs in the transition to ‘factories of the future’ (Industry 4.0). This could be modelled on Belgian (MadeDifferent), Austrian (Plattform Industrie 4.0) or German (Mittelstand 4.0) examples where industry led platforms support awareness raising, coaching and application of digital technologies, human centred production, networked factories, circular economy, etc. The July 2018 Innovation 2020 progress report notes that DBEI, EI, NSAI, IDA Ireland, and SFI are working on the development of a new National Industry 4.0 Strategy.

The Institutes of Technology also possibly produce more work-ready graduates than the universities (whose graduates tend to be still 3-4 months from being work ready). This observation underlines the needs to get the balance right between increasing investment in specific advanced skills sets (e.g. STEM graduates) that may not fit with the needs of the broader business base (notably SMEs) versus more emphasis on industrial apprentices11 who acquire skills sets better suited to the needs of small businesses; including in management fields such as sales & marketing (with a view to enhancing export intensity of Irish-owned SMEs).

The relevance of enterprise-led networks

There is evidence that integration into networks can help SMEs to remain competitive at a time of accelerating digitalisation and shortened product life cycles. Networks can allow SMEs to tackle projects that otherwise might bind too many resources for a single enterprise and firms can benefit from peers’ experience for challenges related to innovation and internationalisation, among others. These networks can be of formal or informal nature and are typically coordinated and managed by their members. Clusters are closely related to enterprise-led networks, which are more regionally focused or specific to a certain topic or sector, and can offer similar advantages. The difference between clusters and enterprise-led networks is fluid and, in practice, these terms are often used in an interchangeable manner. Against this background, this section discusses existing supporting measures for enterprise-led networks in selected European countries (Denmark and Germany in particular) and whether similar measures should be implemented in Ireland.

The Irish approach to enterprise-led networks

Chapter 4 provides an overview of actors in Ireland providing business support. The main actors are the LEOs (on a wide range of topics), InterTradeIreland (concerning cross-border trade), Skillnet Ireland, and the Technology Centres.

The high utilisation of networks to deliver support to SMEs can be considered a strength of the Irish approach. However, the direct support of enterprise-led networks and clusters plays only a minor role on a national policy level (van Egeraat/Doyle 2018). Existing policies focus mainly on financial incentives. In this regard, the Regional Enterprise Development Fund (REDF) offers funding to major collaborative and innovative initiatives and has a dedicated clustering stream to support emerging and already established formal clusters. The REDF is a competitive scheme with applicants subject to an assessment and selection process. DBEI has also introduced through Enterprise Ireland, an Institute of Technology Clustering scheme. Previously Enterprise Ireland initiated a Pilot Clustering Programme in 2016, with the goal to support industry-led groups to undertake time-limited clustering initiatives.

While Ireland thus has taken initiatives to foster enterprise-led networks, it has not yet implemented a coherent national cluster policy, which could be a means to engage SMEs more intensively in economic development projects (Cork Chamber of Commerce 2018; Ivory 2012; van Egeraat/Doyle 2018). There is scope to learn from other countries that have introduced more forceful national policies in this respect. Canada, for instance, introduced an Innovation Superclusters Initiative (ISI) in 2017 as a way to streamline and strengthen its collaborations with enterprises, research and education. The five Superclusters are the Digital Technology Supercluster, the Protein Industries Supercluster, the Advanced Manufacturing Supercluster, SCALE.AI (AI-Powered Supply Chains Supercluster), and Canada’s Ocean Supercluster.

The German experience

A broad range of public programmes at national and regional levels in Germany promote enterprise networking through cluster initiatives, with the aim of strengthening enterprise collaborations and enterprise involvement in skills and innovation initiatives. Some of these initiatives provide funding to promote collective R&D projects, while others provide collective consulting to professionalise the enterprise management or assist in increasing the visibility and effectiveness of existing networks, for example in terms of their market visibility.

The Danish experience

In 2013, Denmark initiated their first overarching network and cluster strategy, aiming to provide a framework for innovation and growth in enterprise networks (The Danish Ministry of Science 2013). This strategy was reviewed in 2016 and the updated version was presented as “Cluster Strategy 2.0”.

A central part of the Danish approach is the “Cluster Forum”, which was established to ensure a coordinated approach of national, regional and local policy makers and government institutions to supporting clusters and networks.12 This is realised by annual meetings. A key result of this collaboration has been the support programme “Cluster Excellence Denmark”, aiming to professionalise the management of Danish clusters to foster innovation. Participating clusters get access to e.g. thematic workshops or facilitated cross-cluster exchange through knowledge exchange groups consisting of members from different clusters. The clusters host matchmaking events themselves as well. Similar to the German go-cluster initiative, participating clusters are supported to achieve ECEI quality labels via benchmarks and trained assessors. As of 2018, 41 clusters were part of Cluster Excellence Denmark.

As a whole, these clusters comprise 60 500 individual enterprises. Notable clusters with gold label according to the ECEI standards are mainly technology intensive and located in the fields of energy and environment, life sciences and robotics.

There are multiple options for clusters to receive funding on a local, regional or national level. The most notable contact for enterprises are the Innovation Networks Denmark” as they provide assistance to contact and apply for relevant funding sources. These Innovation networks are required to be a non-profit organisation (The Danish Ministry of Science 2013) and offer a broad, nationwide available range of support aimed to stimulate collaboration between SMEs and knowledge institutions.

Recommendations for Ireland

While there are several agencies available that support Irish companies through enterprise networks in different manners, only a few selected support programmes are designed to help enterprises to establish and maintain enterprise-led networks. Those that do are mainly restricted to financial incentives. In other words, Irish companies (and in consequence thereof the Irish economy) could utilise the advantages of enterprise-led networks – especially their multiplicative characteristics – to a larger degree if (further) support programmes would be initiated, following good practices from Denmark, Germany and other countries.

A national cluster strategy would help to further strengthen network structures in Ireland and to ensure a coordinated approach regarding transparency, standard quality criteria and standard funding allocations. As network organisations keep their member enterprises updated with relevant support programmes, valuable synergies could be created, for example by increasing the visibility and accessibility of already existing initiatives, such as the Regional Skills Fora and Skillnet Ireland. A key aspect should be the integration of national and regional policy makers and stakeholders as regional characteristics are a vital element of clusters. Therefore, a national cluster policy should be developed via a long-term collaborative process of national and regional policy makers, including the Department of Business, Enterprise and Innovation, Enterprise Ireland, Local Enterprise Offices, Skillnet Ireland, InterTradeIreland, company representatives (e.g. Chambers) and so on.

A central communication platform should be a key aspect as well. This platform should provide an overview about support programmes in general and existing enterprise-led networks and clusters in the immediate surroundings (see, for example, www.clusterplattform.de). At the same time, this platform increases the (inter-)national visibility of existing initiatives.

Irish policy makers could also stimulate the professionalisation of network and cluster management, as it is a key aspect to increase the capacities and effectiveness of network structures through long-term support programmes with a focus on strengthening management skills of the network and cluster organisations. Network and cluster organisations could be incentivised to aspire towards the quality label of European Cluster Excellence Initiative (ECEI). Aside from the professionalisation benefits this entails, adherence to ECEI would increase their international visibility, which in turn could strengthen international activities of the network members or initiate (international) cross-cluster collaborations. ECEI offers a proven benchmarking system, training materials and comparability within Europe.

Another takeaway for Ireland is that both go-cluster and Cluster Excellence Denmark have been able to provide effective support to foster collaboration between large enterprises and indigenous SMEs, for example via online platforms and matchmaking events and increasing the visiblity of clusters. They facilitate matchmaking within clusters and enable participating entrepreneurs to become familiar with each other’s strengths and business models. They have helped establish to to support clusters and networks with large numbers of participating businesses, including both large enterprises and SMEs (Go-cluster: 87 clusters, 10 500 SMEs, nearly 200 larger enterprises; Cluster Excellence Denmark: 60 500 individual participating enterprises of all sizes). This helps to support cooperation among small and large enterprises for mutual gains –small companies can overcome resource restrictions, while large enterprises can harness specific solutions and/or innovative product ideas.

Beyond increasing the quality of enterprise-led networks, easier access to and support for formalising network structures could also facilitate enterprise cooperation. Network contracts that define the governance, goals and liabilities of an enterprise network can reduce the perceived risks of involvement for enterprises and increase business cooperation in general. Italy, for instance, introduced network contracts in its legislation in 2010. Their approach could serve as a model for Ireland (see Box 5.5).

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Box 5.5. Network contracts in Italy

Description of the approach

In 2010, Law 30.07.2010 was passed, whereby the Italian legislator allows the formalisation of business networks, called “network contracts.” It is defined as “the contract by which two or more firms pursue the goal to increase, individually and collectively, their innovative capacity and market competitiveness. On the basis of a shared programme, the firms mutually undertake to collaborate, to exchange industrial, commercial, technical or technological information or services, or to jointly perform one or more activities.”

This provides a legal basis for companies to establish collaborations. In addition, it allows its members to apply to tax credits (suspended since 2012), get cheaper loans and become eligible for simplified administrative procedures, and to request public tenders. Network contracts have to include the strategic and operative objective of the network, specify its governance and provide performance measures. All companies are eligible, irrespecitive of their size, geographical location or sector (Tiscini and Martiniello, 2014).

The impact of the approach

Network contracts proved popular with more than 600 contracts signed between more than 3 300 firms within the first two years. By the end of 2017, more than 3 000 contracts were signed, covering around 20 000 companies in total (see Figure 5.3). 40% of participating enterprises are micro and another 44% small.

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Figure 5.3. Network contracts in Italy

Source: (RetImpresa, 2018).

 StatLink https://doi.org/10.1787/888934005226

Evidence indicates that firms that have networked perform better than a control group in terms of turnover growth, R&D activities and export status, although further research is necessary to establish a firm causal link (OECD, 2014). More recent evidence from the Italian National Institute of Statistics (ISTAT) confirms this picture. Firms that sign a network contract grow, on average, 14.4% more in terms of turnover and 12.2% more in terms of employment than the control group (RetImpresa, 2018).

Obstacles encountered

Questions can be raised about the additionality of the approach. Most of the networks have been established in the north of Italy, where businesses have a long tradition of forming networks and cooperating. Indeed, the majority of network contracts were signed by (relatively larger and profitable) companies that were part of pre-existing networks or local clusters, according to a 2013 study by the Central Bank of Italy (Bentivogli, Quintilliani and Sabbatini, 2013). A more rigourous evaluation is needed to shed light on the question of additionality, i.e. how many enterprise collaborations are created that would not have taken place otherwise.

In addition, the positive effects of entering a network vary significantly. In particular, no positive impact on firm performance could be identified for firms that are active in the construction sector, are located in the south of Italy and that were relatively unproductive when signing the network contract (RetImpresa, 2018).

Relevance for Ireland

Irish SMEs, and hence the overall economy, would benefit from stronger enterprise-led networks, especially in the area of innovation. A legal framework similar to the Italian model would benefit the creation and expansion of these networks in a cost-effective manner. In addition, these networks could be further encouraged by the provision of targeted policies, such as business advisory services, tax incentives, financial support and so on, thereby realising economies of scale in business support.

The establishment of the Office of Government Procurement

To improve efficiency and strengthen control of public procurement, the Office of Government Procurement (OGP) was established in 2014 in order to coordinate, together with four key sectors which retain a procurement function (Health, Defence, Education and Local Government), the sourcing of all goods and services on behalf of Irish PSBs. The sourcing model is broken down into 16 categories of expenditure, eight categories of common goods and services are procured by the OGP, the eight others by the four specialist’ sectors. The OGP and its sector partners have put in place framework agreements and contracts through which public sector bodies can buy goods and services. The OGP considers that the frameworks reduce the time and cost associated with procurement by offering facilities that have already been competitively and compliantly tendered.

The OGP reports to the Department of Public Expenditure and Reform (DPER). The aim of the DPER in establishing the OGP was to create “one voice” to the market for each category of expenditure, eliminating duplication and taking advantage of the scale of public procurement to best effect. In addition, the OGP also has responsibility for procurement policy and procedures. The total value of frameworks is estimated at EUR 4 billion annually or 50% of the contract values for goods and services. The OGP’s current direct share of total procurement volume is about 4-5% or EUR 450 million per year. This corresponds to the share of central procurement bodies in other EU countries. The trend is to towards a further in increase in the use of framework agreements, with a preference for multi-supplier agreements with ‘mini-tenders. Pre-commercial consultations are frequently carried out in preparation for the tenders. In 2015, 390 awards above the EU thresholds involved the establishment of framework agreements, the OGP managed 150 of these agreements across the 16 categories.

Recent improvements in public procurement policies

Circular 10/2014 (published in April 2014) sets out a set of initiatives to assist SMEs in public procurement and fast-tracked many of the measures of the EU’s Public Sector Procurement Directive, which was subsequently fully transposed into Irish law in May 2016 (the procurement regulation covers contracts above EU thresholds). The actions set out in the circular included open tendering, breaking contracts into lots, lower financial criteria (turnover thresholds, etc.), supporting SMEs to create consortia bids and requiring lower levels of insurance. For contracts below EU thresholds (approximately 76% of all contract notices, but only 11.6% by value in 2015), the national policy and guidance requires buyers to advertise goods and services contracts with an estimated value of EUR 25 000 (excluding VAT) and over on the government’s electronic tendering portal e-Tenders14. Moreover, the OGP provides guidance to buyers to encourage positive measures in favour of SMEs including prior market analysis to improve understanding of the capabilities of SMEs to respond to a tender.

All suppliers, including SMEs, are encouraged to fully utilise e-Tenders and make use of the facilities in relation to registration, e-tendering and automatic alerts. Evidence shows that, in 2015, Ireland had the highest business take-up of electronic procurement in Europe (OECD, 2015).

SMEs are encouraged to form consortia to ensure the scale or scope of services required to secure a tender. In addition, a tender advisory service providers support to SME suppliers during tendering procedures (see Box 5.6).

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Box 5.6. Ireland’s Tender Advisory Service for SMEs

The Tender Advisory Service is an informal review mechanism that can be used by suppliers free of charge to raise concerns during a live procurement process. TAS was developed in consultation with representatives of SMEs to address issues that impact on SMEs participating in the public procurement process. It forms part of a number of initiatives designed to ensure that Irish SMEs have full access to public procurement opportunities.

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TAS operated on a pilot basis from 2015 and was subject to a review process which showed that it was a positive development and should be continued. The service was formally re-launched in July 2018 to raise the profile of TAS to ensure that SMEs are fully aware of the service and what it has to offer. TAS is managed by the Policy Unit within OGP with assistance from a panel of external procurement experts.

In addition to these measures, in 2014, the OGP set up a high-level group with the aim to develop and monitor strategies for SME access to public procurement.15 The group is also part of the Government’s Action Plan for Jobs and specifically reviews actions aimed at maximising procurement opportunities for SMEs. The advisory group’s work has notably focused on devising a communication strategy to increase understanding amongst SME managers of the opportunities offered by public procurement.

A number of initiatives to improve business uptake of public procurement have been launched including web-based videos on public procurement topics, case studies of successful tenderers and industry/regional breakfast briefings delivered by InterTradeIreland through the Go-2-Tender Programme.16

In addition to OGP and Enterprise Ireland support to assist SMEs to access public procurement, InterTradeIreland provides support at all-Island level to facilitate access for SMEs to the combined public procurement markets of the south and north17 through a suite of Tendering Supports and Mentoring. The Go-2-Tender Programme, now in its 7^th phase offers participants a comprehensive 2-day training programme which aims to give SMEs the confidence, knowledge and practical skills to tender successfully for public sector contracts across the island. This training is supported by up to five days mentoring; covering assistance for companies in live tenders, strategies for accessing larger contracts, operational issues, pricing and joint ventures/consortia building.18 InterTradeIreland also works closely with the public sector buyers to deliver Meet the Buyer events, Supplier Engagement events and Category specific briefings.

According to the 2015 Public Service Spend and Tendering report, 11 of the 16 procurement spend categories are supplied predominantly by SMEs (from 96% in plant hire to 52% in professional services); while five categories tend to be served by larger firms (utilities, 92%, defence 90%, managed services, 74%, medical surgical and pharmaceutical supplies, 71% and ICT and office equipment, 58%). The relative penetration of the various categories by larger or smaller firms reflect the supplier base. As this data refers to the year after the creation of the OGP and the introduction of new measures, it will be interesting to compare the outcomes in subsequent years to understand if the enhanced focus on SMEs has led to them gaining greater shares in other categories.

Additional efforts could be made

Flynn (2018) reports on the results of a survey of procurement officials in Ireland carried out in 2015 (hence shortly after the creation of the OGP and the publication of Circular 10/14). He concluded that the policy measures requiring least exertion on the part of public buyers have the highest implementation rates e.g. specifying correct level of insurance cover. By contrast, measures requiring greater application have lower implementation rates e.g. conducting pre-tender market analysis or accepting reasonable variants to specifications. It would seem public buyers are targeting the “low hanging fruit” of SME-friendly policy while sidestepping measures that ask more time and effort.

Monitoring of the impact of measures such as prior market analysis and the leverage effect they have on assisting SMEs to tender will be important as the risk remains that with the broad application of framework contracts that SMEs with limited public tendering experience but with novel products or service are locked out of markets.

There remains work to be done on enhanced guidance on green public procurement (notably to drive innovation and encourage the development of green products and services) along with reinforcing the understanding across procurement services of the potential for innovative public procurement, so as to enhance the percentage of products or services procured that are of a ‘new to market’ nature.

In addition, to the OGP driven efforts to improve access for SMEs to public procurement markets, Enterprise Ireland manages a Small Business Innovation Research (SBIR) initiative19, a pre-commercial public procurement (PCP). A PCP is undertaken with the objective of stimulating innovation that the contracting authority or some other party may benefit from at a later stage, when goods or services are not currently available or developed from the outcomes of the research. SBIR Ireland enables public sector bodies to connect with innovative ideas and technology businesses, to provide innovative solutions for specific public sector challenges and needs.

A first pilot challenge was launched in 2014 by Enterprise Ireland in collaboration with the Sustainable Energy Authority and the Electricity Supply Board concerning smart solutions for vehicle charging. Following two further pilots, in 2017, SBIR Ireland launched seven challenges in partnership with Irish Public Sector bodies and in 2018 a further 11 challenges have been launched. Public sector partners include Irish Rail, Dublin and Cork airports, the County Councils of Cork, Dun Laoghaire Rathdown, Clare, Fingal, Limerick and Dublin City Council, Smart Dublin, the Department of Public Expenditure & Reform, the Office of Public Works and the Health Service Executive. Hence, the SBIR initiative appears to be generating interest from both national and regional/city authorities to attract SMEs to develop innovative solutions to identified needs.

Further deployment of the SBIR initiative to encourage additional counties, cities and other public agencies to make use of this method of innovative public procurement method is to be encouraged. It would be pertinent to consider an evaluation of the results, following the completion of the new round of 11 challenges, to facilitate learning within the Irish public sector on how to optimise the impact of such an initiative.

Female entrepreneurship

In Ireland, women are less likely than men to start a business. In 2016, men were three times as likely to be self-employed as women. This gap is more pronounced than in most other OECD countries (see Chapter 2). In addition, women entrepreneurs typically have less growth ambitions than their male counterparts. In response to the identified lower growth ambitions/outcomes of female run businesses, a suite of complementary initiatives has been launched to promote women entrepreneurship and growth of female managed businesses. This section provides an overview of these main policies in place, which comprise network opportunities, peer-to-peer support, training and coaching support.

Programmes for the unemployed

The “Back to Work Enterprise Allowance (BTWEA)” represents the main policy focused to assist (long-term) unemployed in setting up a business. Under this scheme, beneficiaries receive their full unemployment benefit during the 12 first months after the establishment of a business and 75% in the second year, irrespective of the performance of their business (in order to not penalise success). BTWEA can be combined with employment grants from a Local Enterprise Office (LEO) or a Local Development Company. Participants are also exempt from the requirement to satisfy the condition of genuinely seeking work to receive their weekly allowance. 23% of MFI customers were on BTWEA when loan was granted and 19% of all MFI loans are to “Non-Irish” passport holders.

In addition to income support, beneficiaries can also apply for financial support to set up business under the Enterprise Support Grant (ESG) up to a total amount of EUR 2 500 over a period of no more than 24 months and retain access to support, advice and mentoring by the DSP Case Officer and/or an Enterprise Officer in a Local Development Company (LDC).

To be eligible, one has to be:

• Setting up as self-employed in a new business that has been approved in advance in writing by a DEASP Case Officer and a Local Development Company;

• Getting Jobseeker's Benefit (JB) or Jobseeker's Allowance (JA) continuously for at least 9 months (234 days).20

This scheme has been in place since the 1993 and revised in 2009. In December 2016, there were 11 386 participants on the BTWEA and 2016 expenditure on the scheme was EUR 126.2 million. Both numbers have remained roughly stable between 2012 and 2016 (Department of social protection, 2017).

A recent review of this programme was broadly favourable. A self-assessment showed that a clear majority of surveyed beneficiaries stated that the application process was clear and they were given sufficient information. Moreover, the scheme gave beneficiaries sufficient security to set up business. A counterfactual study revealed that participants in the BTWEA scheme are much more likely to be in employment than a matched group of individuals with similar characteristics, both 6 and 18 after the payments have ceased. Relatively few thus return to welfare (Department of social protection, 2017).

Migrant entrepreneurship

Ireland has a strong entrepreneurship support system with an appropriate range of different supports for entrepreneurs in general. However, there is only a modest offering of dedicated inclusive entrepreneurship policies and programmes aimed at specific social groups and their distinct needs and delivery preferences. These dedicated supports tend to focus on women and, to a lesser extent, older people, youth and the unemployed. One of the groups that receives relatively little dedicated supports is migrants (OECD, 2017b). The Irish Naturalisation and Immigration Service facilitates attainment of residency status in Ireland for migrants who commit to creating a high potential start-up business in Ireland and connects them to Enterprise Ireland’s range of support programmes for high potential start-ups available to all types of entrepreneurs. However, this does not constitute a dedicated support programme designed to support migrants specifically in setting up their businesses and it also focuses only on migrant entrepreneurs seeking to develop high potential businesses. Some LEOs have also occasionally provided targeted training programmes to migrants, for example by working together with foreign embassies or places of worship. Laois LEO is an example of a LEO offering dedicated support for migrants, refugees and prisoners through its Start Your Own Business programmes, and was a runner up in the European Enterprise Programme Awards in 2018 in this respect. However, these types of dedicated activities appear less common across Ireland as a whole in recent years (OECD and European Commission, 2017)..

Dedicated and nation-wide entrepreneurship support programmes for migrants is common in other OECD countries. In a 2016 report, the European Commission identified 193 effective support schemes for migrant entrepreneurship throughout the European Union and beyond, with 38 selected as good examples for other countries to draw inspiration from (European Commission, 2016). Box 5.7 provides an overview of the most salient results of this study.21 As another example, the Business Development Bank of Canada provides a repayable loan of up to CAD 50 000 to eligible immigrant entrepreneurs under the New Canadian Entrepreneur Loan.

Similar tailored support programmes could be considered in Ireland. This seems especially relevant for the Irish context as migrants in Ireland show a lower propensity to be self-employed (at 18.3%) than in most other countries (22.7% as the OECD average).