copy the linklink copied!Chapter 1. Overall assessment and recommendations

This chapter summarises the findings and recommendations of the OECD SME and Entrepreneurship Policy country review of Ireland.

    

copy the linklink copied!SME and entrepreneurship characteristics and performance

SMEs are a critical pillar of the Irish economy

There were approximately 250 000 active enterprises in Ireland in 2016, virtually all of them SMEs. Some 92% of enterprises had less than 10 employees (micro), 6.8% had between 10-49 employees (small), 1.2% had 50-249 employees (medium), and only 0.2% had 250 or more employees (large). The share of micro-enterprises is slightly above the OECD average and the share of medium-sized firms somewhat lower than the OECD average. Furthermore, SMEs account for as much as 56% of manufacturing employment and 74% of services employment in Ireland, roughly in line with the OECD averages.

Alongside this substantial SME activity, Ireland has a strong concentration of large firms in capital-intensive and globalised activities, such as manufacturing of computers or pharmaceuticals, as well as in international financial services and software development.

SME productivity growth has been stagnant overall

There are several indications of a problem with lack of productivity growth among established SMEs in Ireland. Figure 1.1 shows the evolution of multifactor productivity for the median firm in Ireland. It shows that the majority of firms experienced declining productivity in the period 2006-2014. Furthermore, the productivity dispersion between firms at the 90th percentile and firms at the 10th percentile of the labour productivity distribution is higher than in the OECD average, implying that firms lagging behind have large scope for catch up (Belingieri et al. 2017 and Papa et al, 2018). Other evidence shows that medium-sized firms in particular, in both manufacturing and services sectors, have had relatively poor productivity growth in the period 2005-2016 (OECD SDBS database). SME productivity issues are addressed further later in this chapter.

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Figure 1.1. Median firm productivity (Index 2006 = 100)
Figure 1.1. Median firm productivity (Index 2006 = 100)

Notes: The firm level analysis uses the OECD MultiProd database. The figure above shows multifactor productivity (using the Solow method) of the median firm in the productivity distribution at each point in time. These results are consistent with labour productivity estimates based on both micro and macro data.

Source: (OECD, 2018c) OECD Economic Surveys: Ireland 2018, p70.

 StatLink http://dx.doi.org/10.1787/888934004295

Business entry-exit dynamism should be strengthened

Ireland is very successful in generating high-growth firms, which are a key driver of employment, innovation, and productivity growth in the economy. Ireland’s share of high-growth firms was 12.3% in 2014, above the average of 10% for the EU-28 (Eurostat, 2016). The average number of employees in Irish high-growth firms is also above the OECD average (Figure 1.2). Looking more broadly, the survival rate of start-ups is high. In 2015, the five year survival rate of new business starts in Ireland was 66.9%, well above the OECD average of 50%.

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Figure 1.2. Average employment in high-growth enterprises
Average number of employees per enterprise by sector, 2014, or latest available year
Figure 1.2. Average employment in high-growth enterprises

Note: Data refer to enterprises with 10 employees or more

Source: OECD SDBS database

 StatLink http://dx.doi.org/10.1787/888934004314

While a high start-up survival rate demonstrates a good capacity of new firms to enter the market successfully, it is also illustrative of a low business churn rate1, a commonly used proxy for entrepreneurial dynamics. Indeed, in 2015, among OECD countries, Ireland had one of the lowest employer enterprise churn rates (Figure 1.3). This may adversely affect productivity growth through a low rate of resource reallocation and competitive spur, if characterised by a low level of entry of new innovative firms and low rate of exit of the least productive firms (OECD, 2016a).

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Figure 1.3. Employer enterprise churn rate, total economy
Percentage values, 2015 or latest available year
Figure 1.3. Employer enterprise churn rate, total economy

Note: The churn rate is defined as the sum of the employer enterprise birth and death rate.

Source: OECD SDBS database.

 StatLink http://dx.doi.org/10.1787/888934004333

Part of the issue of low business dynamism in Ireland is a low start-up rate. Internationally, after a period of decline in business births in the aftermath of the global financial crisis, the number of firm creations has been recovering since 2013-2014, reaching (or even surpassing) pre-crisis levels in many countries (OECD, 2017c). Ireland has not followed this general trend. While the total start-up rate (employer and non-employer) stood at 10.4% in 2007, it had dropped to 7.3% in 2015, around 3 percentage points lower than the OECD average of 10% (OECD, 2017c). The share of employer enterprise start-ups was 3.5% in 2015, significantly below the OECD average (Figure 1.4).

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Figure 1.4. Share of start-ups and their employment, business economy
As a percentage of all employer enterprises and of employment in all employer enterprises, 2015
Figure 1.4. Share of start-ups and their employment, business economy

Note: Employer start-ups include all employer enterprises that are up to two years old, i.e. the newly-born enterprises plus those that are one and two years old.

Source: OECD Structural and Demographic Business Statistics (SDBS) (database).

 StatLink http://dx.doi.org/10.1787/888934004352

A high proportion of Irish SMEs engage in innovation activities

SMEs in Ireland to participate in mixed modes of innovation than the OECD average. Furthermore, Irish SMEs display the third-highest share of new-to-market production innovation in OECD economies (Figure 1.5). The SME share of business R&D (BERD) in Ireland stood at almost 40% in 2015, above the OECD average of 35% (OECD, 2017a).

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Figure 1.5. New-to-market product innovators, by size, 2012-14
As a percentage of all businesses in each size category, within the scope of national innovation surveys
Figure 1.5. New-to-market product innovators, by size, 2012-14

Note: International comparability may be limited due to differences in innovation survey methodologies and country-specific response patterns. European countries follow harmonised survey guidelines with the Community Innovation Survey.

Source: OECD (2017) OECD STI Scoreboard 2017, based on the 2017 OECD survey of national innovation statistics and the Eurostat, Community Innovation Survey (CIS-2014).

 StatLink http://dx.doi.org/10.1787/888934004371

On the other hand this R&D and innovation activity does not translate into high levels of SME productivity growth, which could reflect a range of other issues related to human capital, physical capital, access to foreign markets, externalities and business dynamism. Furthermore, digital technology adoption rates are low in SMEs, which will also affect productivity growth. For example, Irish small firms (10-49 employees) are only around one-third as likely as large firms to be using Enterprise Resource Planning (ERP), a software platform that integrates core business processes in real-time (OECD, 2018a).

Irish SMEs are not very active in international markets

Ireland’s direct SME export levels are very low by international standards, with only about 6% of Irish SMEs directly trading across borders. Furthermore, a high share of existing SME exporters trade only with the neighbouring UK market. Although SMEs may also contribute to exports indirectly, for example by providing multinational firms with components and services, the share of SMEs in total domestic value added in exports is also relatively low (Figure 1.6).

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Figure 1.6. Domestic value added in exports
As a percentage, by firm size
Figure 1.6. Domestic value added in exports

OECD/Eurostat Trade by Enterprise Characteristics (TEC) database, OECD Structural and Demographic Business Statistics (SDBS) database, OECD-WTO TiVA database.

 StatLink http://dx.doi.org/10.1787/888934004390

Entrepreneurial attitudes are generally positive

The share of Ireland’s adult population with high regard for successful entrepreneurs is above the OECD average, whilst other indicators of entrepreneurial attitudes lie around the OECD average, as shown in Figure 1.7. On the other hand, less than half of the people (42%) who perceive opportunities believe they have the skills and knowledge required to start a business.

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Figure 1.7. Entrepreneurial attitudes in Ireland, 2017
Percentage values
Figure 1.7. Entrepreneurial attitudes in Ireland, 2017

Note: Detailed definitions for the indicators can be found in Chapter 2.

Source: OECD based on data supplied by the Global Entrepreneurship Monitor (GEM) research consortium.

 StatLink http://dx.doi.org/10.1787/888934004409

There are also variations across different parts of the population in their involvement in entrepreneurship, suggesting areas of untapped potential. In particular, the self-employment rate for women and youth were significantly below the respective EU averages in 2016 (OECD/EU, 2017b). These differences are also evident in Total early-stage Entrepreneurial Activities (TEA) rates (Figure 1.8).

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Figure 1.8. Early stage entrepreneurial activity among target groups
TEA rate (percentage values), 2012-16 average
Figure 1.8. Early stage entrepreneurial activity among target groups

Note: The Total Early Stage Entrepreneurial Activity (TEA) rate is the proportion of adults (18-64 years old) involved in setting up a business or managing a business that is less than 42 months old.

Source: OECD/EU (2017b), The Missing Entrepreneurs, based on GEM, Special tabulations of the Global Entrepreneurship Monitor adult population survey, 2012-16.

 StatLink http://dx.doi.org/10.1787/888934004428

SME and entrepreneurship performance varies spatially within Ireland

Business start-up rates vary significantly across Ireland (Figure 1.9). The start-up rates are the highest in the two core cities of the country, Dublin and Cork, and are significantly lower in the rest of the country. SME innovation rates show a similar core-periphery pattern (Crowley and McCann, 2015). These variations appear to reflect a number of differences in the quality of local entrepreneurship ecosystems across Ireland in terms of the degree to which they provide favourable institutional and access to resources conditions.

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Figure 1.9. New company formations per 10 000 population by county
Average 2015-17
Figure 1.9. New company formations per 10 000 population by county

Source: CSO.

 StatLink http://dx.doi.org/10.1787/888934004447

Some data gaps and measurement challenges affect understanding of SME and entrepreneurship issues

Certain data gaps affect the detailed assessment of SME and entrepreneurship issues in Ireland. This includes information on numbers of high-growth firms, distinctions between employer and non-employer enterprises, and information on value added generated in Ireland by multinational firms, which affects productivity comparisons with SMEs (Department of Finance, 2018; Beesley, 2017). The Central Statistics Office is working to help address these issues, such as through the production of a new Gross National Income (GNI) indicator to better account for temporary multinational flows in GDP.

Policy recommendations

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Key recommendations on SME and entrepreneurship characteristics and performance

Promote policy measures to:

  • Increase the productivity of “small” and “medium” size band SMEs.

  • Increase the business start-up rate and business dynamism.

  • Ensure equal opportunities for entrepreneurship across the population and address gaps in the self-employment and entrepreneurship activity rates of women, youth and migrants.

  • Scale up micro-enterprises, particularly indigenous locally-trading and non-exporting enterprises, and increase the cohort of medium-sized enterprises (50-259 employees).

  • Increase SME access to foreign markets, including non-United Kingdom markets.

  • Address spatial disparities in entrepreneurship by strengthening local entrepreneurship ecosystem conditions for start-up and scale-up entrepreneurship.

  • Address data gaps on SME and entrepreneurship performance, particularly on firms not assisted by government agencies, including on high growth firms, SME exports, SME productivity, and distinctions between employer and non-employer enterprises.

copy the linklink copied!The business environment for SMEs and entrepreneurship

Uncertainties in the macro-economic environment could affect SME performance

The Irish economy was badly hit by the financial crisis but has since recovered well, and GDP growth has been above the OECD average in recent years. Nonetheless, economic uncertainties remain. The planned departure of the United Kingdom from the European Union (Brexit) may adversely affect SMEs, both those trading with the UK and not.

The innovation system is supportive overall

Ireland has a good innovation performance in a range of areas – including SME innovation rates, share of the population with higher education, employment in knowledge intensive sectors and high technology exports. Areas of weakness relate to a relatively low volume of R&D expenditure by the public sector, which was scaled back in the aftermath of the financial crisis, and a low incidence of private co-funding of public R&D expenditure.

Ireland offers a favourable regulatory environment, but further improvements could benefit SMEs

Ireland ranks highly (23rd globally) on the World Bank “ease of doing business” index, scoring particularly well for regulatory ease of starting a business, paying taxes and protecting minority investors. The index suggests, however, that regulatory improvements are possible in the areas of enforcing contracts, commercial property, legal services and business failure. Furthermore, Ireland has been slow to introduce the so-called SME Test of new regulation, which has been under trial in Ireland as of the beginning of early 2019, and in reporting on the degree of usage of Regulatory Impact Assessment procedures. Ireland could also strengthen its stakeholder engagement when designing regulation, as illustrated by its relatively low score on the OECD Indicators of Regulatory Policy and Governance (iREG) (Figure 1.10), although the Irish Government has recently made improvements in this area.

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Figure 1.10. Stakeholder engagement in developing subordinate regulations, 2018
Figure 1.10. Stakeholder engagement in developing subordinate regulations, 2018

Note: Data for OECD countries is based on the 34 countries that were OECD members in 2014 and the European Union. Data on new OECD member and accession countries in 2017 includes Colombia, Costa Rica, Latvia and Lithuania. The more regulatory practices as advocated in the 2012 Recommendation a country has implemented, the higher its iREG score.

Source: (OECD, 2018[33]).

 StatLink http://dx.doi.org/10.1787/888934004466

Policy efforts are increasing lifelong learning levels

The share of the population completing tertiary education and the expected financial benefits from completing tertiary education are high in Ireland, suggesting that the higher education system is playing an important role in providing skills that are relevant to the labour market (OECD/EU, 2017a). However, the OECD Programme for the International Assessment of Adult Competencies (PIAAC) indicates that adults in Ireland have been performing below the OECD average in literacy, numeracy and problem solving in recent years (OECD, 2018b), suggesting that the Irish economy would benefit from wider participation in lifelong learning programmes.

The 2016 Action Plan for Education set out the objective of increasing the adult participation rate in lifelong learning to 10% by 2020 and to 15% by 2025. In addition, a national apprenticeship action plan has been developed and a national promotional campaign on apprenticeships launched. Ireland’s lifelong learning rate for adults 25-64 years old was 12.5% at the end of 2018, compared with an EU 28 average of 11.1%, however the participation rates fall with the age of employees (see Figure 1.11). Continued efforts are needed to further strengthen lifelong learning, including by enhancing current initiatives such as Springboard+ and EXPLORE, which support training and education among the employed and older employees.

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Figure 1.11. Participation rate in education and training by age group, last 4 weeks 2018
Ireland and the EU 28 average
Figure 1.11. Participation rate in education and training by age group, last 4 weeks 2018

Source: Eurostat adult learning statistics

 StatLink http://dx.doi.org/10.1787/888934004485

A more specific skills issue relates to skills shortages. The 2018 National Skills Bulletin points to a recent increase in difficult-to-fill (DTF) vacancies. Attracting foreign talent equipped with the relevant skills could help alleviate these issues.

Broadband connection opportunities are good

Broadband coverage in Ireland is good. Some 97.4% of small enterprises and 98.3% of medium-sized enterprises benefitted from broadband connectivity in 2016 (OECD, 2017a) and Next Generation Access (NGA Broadband) reaches more than 80% of Irish households (European Commission, 2017). Fixed broadband subscription rates in 2017 were 29.44 per 100 people compared to the OECD average of 30.60 per 100 people. To encourage even greater digital technology adoption, the Irish Government is implementing a long-term National Broadband Plan that is investing in public procurement of high speed connections to businesses that are not yet connected.

SME access to bank credit is constrained

The global financial crisis had a strong impact on Ireland, with a decline in SME lending of 23% between March 2010 and March 2015. The share of SME lending in total business loans also fell from 87% in 2010 to 67% in 2016; and the interest rate spread between SMEs and large firms increased from 1.02 percentage points in 2010 to 2.47 percentage points in 2016 (OECD, 2018d).

Moreover requests for bank loans, overdrafts and credit lines are more often turned down in Ireland than the EU average and time to process applications is relatively high (Figure 1.12).

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Figure 1.12. Loan requests are more often declined in Ireland than in most other EU 28 countries
Outcomes for credit applications, 2017
Figure 1.12. Loan requests are more often declined in Ireland than in most other EU 28 countries

Source: (European Commission, Survey on the access to finance of enterprises (SAFE): Analytical Report 2017[1]).

 StatLink http://dx.doi.org/10.1787/888934004504

SMEs also appear to have been discouraged from seeking bank lending. Half of Irish SMEs did not hold any debt in the period from March to September 2017, twice as many as in September 2013, although this could also result from a better cash flow situation. One of the issues is a high demand for guarantees by banks. Research from the Central Statistics Office reveals that 73.6% of all bank finance applications in 2014 required some form of collateral. Of these, more than half (53.9%) required a personal guarantee from the business owner. Limited financial capabilities among SME managers and entrepreneurs also represent a challenge, according to government stakeholders who provide financial services. However, there is little statistical evidence available on the extent of possible financial literacy weaknesses.

Low corporate taxation provides a platform to stimulate business

Ireland’s 12.5% corporate tax rate for active trading companies is lower than in any other OECD country except Hungary. This provides strong incentives for business investment and business activity in Ireland.

Ireland has a highly progressive personal tax regime. However, high marginal rates of personal taxation may constrain entrepreneurship as well as the attraction of talented entrepreneurial labour from abroad. Although the Special Assignee Relief Programme allows a discounted income tax rate for certain workers attracted from abroad, the structure of the relief favours multinational enterprises.

The Irish Capital Gains Tax rate of 33% is high compared to the OECD mean, which may discourage investment and entrepreneurship. The “revised entrepreneur relief” lowers the rate to 10%. However, it applies to lifetime gains of only up to EUR 1 million and tends to favour outright sales of businesses rather than partial disposals. Also, it is aimed at the entrepreneur and business angel investors cannot benefit. Ireland does not have any generalised accelerated depreciation for SMEs, unlike many OECD countries, although it has introduced accelerated depreciation for energy efficiency investments.

Openness to trade and foreign direct investment offers opportunities for SMEs and entrepreneurship

Ireland is a very open economy, exporting 61% of its domestic value added in 2016, one of the highest shares within the OECD. Ireland is also a large net recipient of foreign direct investments (FDI), which is a major driver of economic development in the country. In principle, high levels of international trade and direct investment could provide positive spillovers to Irish SMEs, however this is held back by limited SME participation in the global value chains hosted domestically. Increased linkages between multinational firms based in Ireland and indigenous Irish SMEs could be developed in a number of ways, including ensuring that programme support to potential SME exporters extends to supporting linkages with FDI value chains, supporting SME compliance with international industry standards and involving FDI in enterprise-led networks for innovation and skills development collaborations.

Policy recommendations

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Key recommendations on the business environment for SMEs and entrepreneurship
  • Adopt best practices to improve stakeholder engagement in regulatory development on a systematic basis across government departments.

  • Evaluate the impact of the promotional campaign to stimulate apprenticeships, especially with an eye to its impact on small employers.

  • Develop an action plan for financial education with an emphasis on SME business owners and entrepreneurs and strengthen the evidence base on the managerial and financial skills of small business owners and managers.

  • Broaden the tax relief of the statutory capital gains tax (revised entrepreneur relief) by making third party equity investors eligible.

  • Consider lowering the marginal tax rate on personal income for medium earners, potentially while broadening the tax base to limit the budgetary implications.

  • Consider the introduction of a tax relief for non-domiciled new hires by Irish SMEs who have not been tax resident previously, potentially through amendments to SARP relief. Set tight eligibility criteria so as to alleviate specific skills shortages.

  • Support FDI-SME linkages by ensuring that export promotion initiatives extend to helping SMEs join FDI value chains, supporting SME compliance with industry standards, and involving FDI in local enterprise-led networks for innovation and skills development.

copy the linklink copied!The strategic framework and delivery system for SME and entrepreneurship policy

A unified SME and entrepreneurship policy document would help guide and promote policy formulation, delivery and evaluation

SME and entrepreneurship development is a key priority of the Irish government, and SME and entrepreneurship policy actions are included in a range of national policy documents and statements, including the Action Plan for Jobs 2018, Future Jobs Ireland and the strategic documents of individual government departments (Enterprise 2025-Renewed; Innovation 2020; National Skills Strategy; National Strategy for Higher Education to 2030; National Policy Statement on Entrepreneurship in Ireland; National Digital Strategy for Ireland). However, an integrated policy framework for SMEs and entrepreneurship – stating policy objectives, actions and targets in this area – is not clearly articulated in a distinct national policy document, and thus appears fragmented to SME stakeholders. Enterprise 2025 Renewed, the strategy document of the Department of Business, Enterprise and Innovation (DBEI), lays out the whole enterprise policy framework, but includes large Irish-owned enterprises and foreign-owned enterprises. The National Policy Statement on Entrepreneurship (NPSE) is a stand-alone policy document, but is due to expire in 2019 and focuses on entrepreneurship rather than existing SMEs.

There are good whole-of-government arrangements for co-ordinating SME and entrepreneurship policies

The DBEI has the lead responsibility for co-ordinating SME and entrepreneurship policies across government. It consults broadly with other departments on policy directions and actions and has been effective in embedding a policy focus on SMEs and entrepreneurship in their strategies. It also benefits from having oversight control of many of the implementing agencies (e.g. Enterprise Ireland, the Local Enterprise Offices, Science Foundation Ireland, InterTradeIreland, Microfinance Ireland, the National Standards Authority of Ireland, the Industrial Development Authority, and the Irish Patents Office). However, there is no inter-departmental working group on SME and entrepreneurship policy that could involve senior government officials from different departments in aligning and promoting SME and entrepreneurship policy actions across government.

Broad stakeholder engagement processes are part of policy development

The government actively consults stakeholders including the Small Firms Association and the Irish Small and Medium Enterprise Association when developing and updating SME and entrepreneurship policies and programmes. Regular formal consultations are also held with SMEs through the Advisory Group on Small Business (AGSB), chaired by the Minister of State for Trade, Employment, Business, EU Digital Single Market and Data Protection. Currently, however, this is only a consultative body to the DBEI, whereas in many OECD countries such a body advises government at an interdepartmental level.

An in-depth analysis of resource distribution across policy lines and enterprise target groups may reveal opportunities for rebalancing

Some EUR 855 million was allocated to the DBEI in the 2017 government budget for enterprise support through its agencies, an increase of 10% over 2016. Table 1.1 seeks to present a basic ‘portfolio analysis’ for the distribution of this budget across policy lines and enterprise target groups. It suggests that innovation/R&D supports make up the largest component of expenditures (36.0%), followed by access to finance (33.4%). The smallest expenditure is for market access/export development (12.3%). Established SMEs were beneficiaries of some 40% of the expenditures and start-ups accounted for some 32%. Over 70% of the expenditure for established SMEs was directed to Enterprise Ireland-assisted firms.

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Table 1.1. Allocation of enterprise support budget for entrepreneurship and SME development (in EUR) by policy and enterprise category, 2017

 

1

2

3

4

Totals

Row % of total

 

Entrepreneurial education, training, management skills

Access to finance

Market access/export development

Innovation/R&D

A

Entrepreneurial culture/nascent entrepreneur

1 574 447

-

-

4 731 401

6 305 848

4.2%

B

Start-ups

3 827 049

33 833 823

2 808 352

7 549 611

48 018 835

32.3%

C

Micro-enterprises

9 271 112

11 141 516

3 893 176

3 164 536

27 470 340

18.5%

D

Established SMEs

10 737 387

2 936 304

8 500 241

37 047 344

59 221 276

39.9%

E

High growth potential firms

1 705 836

1 654 069

3 060 006

1 014 328

7 434 239

5.0%

Totals

27 115 831

49 565 712

18 261 775

53 507 220

148 450 537

100%

Column % of total

18.3%

33.4%

12.3%

36.0%

100%

Notes: The table is not inclusive of all expenditures targeting entrepreneurs and SMEs. For example it does not include costs to the Exchequer of various tax relief incentives for the self-employed to start businesses, Enterprise Allowance schemes, individuals investing in SMEs, etc., although these could amount to significant investments in start-up and business support, for example, the cost of the Start Your Own Business Relief was estimated at EUR 4 million in 2017. Expenditures under the Regional Action Plan for Jobs are also not included, although that plan does include policy measures to support enterprise start-ups and growth. Included are expenditures for Enterprise Ireland, LEOs, InterTradeIreland, Microfinance Ireland, the Science Foundation Ireland (SFI) (projects specifically targeting nascent and starting entrepreneurs, i.e. TIDA and SFI/NSF [email protected] Entrepreneurial Training Programme), and Credit Guarantee Scheme (estimates of default costs). Of the active collaborative research projects supported by SFI in 2017, approximately 30% involved SMEs. As SFI does not directly fund enterprise, the percentage of funding benefiting SMEs is not included in the policy portfolio analysis. The portfolio does not include budget/expenditures for entrepreneurship and SME supports delivered by the Fáilte Ireland (Irish Tourism Trade Support) and Irish Food Board.

Source: Estimates by the OECD based on information from the DBEI collated with implementing agencies, complemented by information from annual reports of policy organisations and a review of available data on SME and entrepreneurship expenditures from the 2017 budget. The table is not based on officially published data under these headings.

There are no obvious imbalances in the distribution of resources across different types of policy intervention and client group. However, there may be potential for increasing impact by rebalancing resources in certain ways, for example towards programmes for market access and established SMEs not identified by Enterprise Ireland as exporters or potential exporters and therefore included in their client group. Before such decisions can be made, a more accurate and complete policy portfolio analysis should be undertaken, including expenditures by other government departments, information on differences in levels of client demand and supply and evaluation evidence on policy impacts.

Policy evaluation is embedded

Evaluation of SME and entrepreneurship programmes is well executed by DBEI and its agencies. For example, progress to targets set in key policy documents and Departmental strategic plans is consistently monitored, a Policy Evaluations Unit applies an evaluation framework informed by international best practice, and evaluation reports are published on the DBEI website. However, more could be done to evaluate the impact of policies across government that affect SMEs and entrepreneurship, including tax policies, and to compare the effectiveness and efficiency of programmes in different parts of the policy portfolio (i.e. by lines of policy action and enterprise target groups).

Delivery of SME and entrepreneurship programmes has been strengthened

A relatively small number of agencies are involved in delivery of policy support to SMEs and entrepreneurs, often under the purview of the DBEI. Enterprise Ireland supports high potential start-ups and SMEs in manufacturing and tradeable services with exporting potential. The 31 Local Enterprise Offices (LEOs) are the first stop for start-ups and micro-enterprises, and also support larger SMEs on some programmes. Other key agencies include Science Foundation Ireland (SFI), InterTradeIreland (ITI), Microfinance Ireland, Fáilte Ireland (tourism sector), and Bord Biá (food sector).

The creation of the LEOs in 2014 has been an important reform creating more coherent pathways into the business support system for entrepreneurs and increasing synergies in the provision of support. The LEOs represented a reorganisation of the former County Enterprise Boards into more consistent offers governed by Service Level Agreements with Enterprise Ireland. They are supported by an Enterprise Ireland Centre of Excellence for LEOs and co-operation agreements between the LEOs and the Community Enterprise Centres (CECs). This system could be reinforced by encompassing a wider range of delivery partners in local co-operations led by LEOs, such as incubators, accelerators, business innovation centres, research centres, and Technology Development Offices.

The launch of the cross-government “Supporting SMEs Online” tool in 2014 further supports access of SMEs and entrepreneurs to the business support system, enabling them to identify which of over 170 government supports (funding, programmes, business support initiatives) is appropriate for their needs. In Q1 of 2019, the Online Tool was updated to include an SME events calendar and a latest news section along with an upgraded search function. The website is now located at www.supportingsmes.gov.ie.

Policy recommendations

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Recommendations on the strategic framework and delivery system for SME and entrepreneurship policy
  • Draft a unified SME and entrepreneurship strategy document integrating all the relevant SME and entrepreneurship policy objectives and actions identified in high level policy documents across government.

  • Publish an annual report on the state of SMEs and entrepreneurship in Ireland.

  • Establish an interdepartmental committee on SMEs and entrepreneurship (informal or formal), chaired by the DBEI Minister, and including relevant ministerial counterparts, and extend the consultative role of the Advisory Group on Small Business (AGSB) to this broader group of departmental entities.

  • Establish an inter-departmental SME and Entrepreneurship Policy Working Group consisting of senior officials working as SME and entrepreneurship focal points.

  • Undertake an in-depth policy portfolio assessment of the distribution of government resources across different types of policy support and enterprise target groups.

  • Fully implement the local protocols between the LEOs and the National Association of Community Enterprise Centres (NACEC) across the country to promote complementarity of services and the reach of LEO services into rural areas.

  • Foster the further development of “ecosystem support hubs” through more collaboration at the local level between LEOs, CECs, incubators, accelerators, business innovation centres, research centres, Technology Development Offices, and other support providers.

copy the linklink copied!SME and entrepreneurship programmes

There is scope to scale up SME lending support

The Government established a new credit guarantee scheme in 2017, which increased the guarantee coverage of individual loans to 80% and extended eligibility to a wider range of financial providers and products. However, the programme remains modest in scale. The Strategic Banking Corporation of Ireland (SBCI), a state-owned bank, was established in 2015 providing funding to banks and financial institutions for lending to SMEs. One of its key programmes is the Brexit Loan Scheme launched in 2018. In addition, the Action Plan for Jobs established the Microenterprise Loan Fund, managed by Microfinance Ireland. However the scheme is relatively small, having approved 2 065 loans between October 2012 and March 2019.

The Government is also supporting equity investment for innovative SMEs and entrepreneurs in Ireland. In particular, Enterprise Ireland manages the Development Capital Scheme, Innovation Fund Ireland, and the Seed and Venture Capital Scheme. Other significant initiatives are InterTradeIreland’s Seedcorn Competition and the WDC Investment Fund serving the Western Region.

Innovation tax incentives could be adjusted to better support SME innovation activity

Companies can receive a credit of 25% of qualifying expenditure under the R&D tax credit. This expenditure is also a deductible cost for corporation tax purposes. Recent revisions to the scheme include a payable element and a carry forward of unused credits, which are both helpful for small innovative enterprises in loss-making development phases. However, 78% of the tax expenditures still went to large firms in 2016. SME involvement may be held back by difficulties in understanding how to use the scheme and the costs of preparing, filing and defending claims. In addition, restrictions on credits for expenditure on third party subcontractors or universities are likely to affect SME involvement.

The Knowledge Development Box was introduced in 2016, offering a preferential tax rate on income from intellectual property resulting from R&D carried out in Ireland. Additional legislation was passed in 2017 which aimed to make the scheme more accessible to SMEs by allowing income from certain non-patented assets to qualify. However, in April 2018, fewer than 10 taxpayers had claimed tax relief under the scheme. The eligibility and administration procedures could be further examined with a view to increasing SME take up, as well as awareness of the scheme.

Several programmes support research-driven innovation

Enterprise Ireland offers a wide range of support for innovation to SMEs and start-ups in the manufacturing and internationally traded services sectors. Innovation Vouchers and an Exploring Innovation grant encourage firms to get started in planning innovation and working with external knowledge providers. An RD&I (research, development and innovation) Fund offers more substantial innovation grants, with a bonus for collaboration between two companies. Commercialisation of research is encouraged by Innovation Partnership projects, which support SMEs to work with Irish research institutes, and an Agile Innovation Fund, which helps commercialise innovations from research institutes. Leadership development and advice is also provided for innovation through the Innovation 4 Growth programme and the High Potential Start Up programme.

The public sector also makes important investments in research and technology development in priority fields for the Irish economy, hence opening up opportunities for research exploitation through entrepreneurship and research collaborations with SMEs. The effort includes sixteen Science Foundation Ireland Research Centres, a network of industry-led Technology Centres supported by Enterprise Ireland and IDA to introduce companies to the research expertise in HEIs, and fifteen Enterprise Ireland Technology Gateways to develop technology solutions for SMEs in partnership with Institutes of Technology. There is a range of support for mobility of researchers into industry (including the SFI Industry Fellowships, SFI Partnership Programme, the Innovation Partnership Programme, the Marie Curie Fit Programme and InterTradeIreland’s Fusion programme). There are also key commercialisation support initiatives for research institutions, including Enterprise Ireland’s Commercialisation Fund, the SFI TIDA and SFI/NSF [email protected] programmes, and the recently announced Disruptive Technologies Innovation Fund.

This package represents a strong set of research-driven innovation support for SMEs and start-ups. Nonetheless, there may be insufficient attention in innovation support to basic management and organisational innovation in low productivity SMEs, including for basic technology upgrading such as digitalisation of production processes.

SME internationalisation is a recognised government priority

The government recognises an urgent need to stimulate more exporting and internationalisation in the SME population, including reducing dependence on the UK market given the challenges of Brexit. In 2018, it announced the Global Ireland – Ireland’s Global Footprint to 2025 initiative, which includes a number of objectives related to business internationalisation. In addition, Enterprise Ireland has adopted an Expand Reach objective to double the total value of exports by its clients outside the UK between 2015 and 2025.

In operational terms, there are many programmes across various government departments and agencies. They are led by Enterprise Ireland initiatives including the Market Discovery Fund (for market research and market entry strategies), a Market Research Centre, an expanded network of overseas offices, trade missions and events, Graduates for International Growth (supporting SME export capabilities with graduate placements), the International Selling Programme and Excel at Export Selling (training supports). A number of further players are involved, including InterTradeIreland (for cross-border trade) and Bord Bia (for food and drink companies).

Despite these initiatives, more could be done to raise export ambition in SME management teams, notably through greater coaching and training support to second tier management to increase the number of ‘export-capable’ firms amongst smaller SMEs.

Entrepreneurship education and training have been strengthened

There is broad support from government and education industry stakeholders for entrepreneurship education and a number of significant policy initiatives are underway. For example, the LEOs run a Student Enterprise Programme in secondary schools, HEI teachers receive support from the Campus Entrepreneurship Enterprise Network and the National Forum for the Enhancement for Teaching and Learning in Higher Education, and Springboard+ has provided a range of entrepreneurship courses in HEIs since it commenced in 2011. The momentum for entrepreneurship education can be maintained with increased core as opposed to project-based funding and expansion at primary and secondary education levels.

For people outside of the formal education system, New Frontiers delivers entrepreneurship training in Institutes of Technology funded by Enterprise Ireland. In addition, Enterprise Ireland provides pre-start-up training for approximately 170 entrepreneurs per annum linked to its equity financing activities, and SFI operates boot camps for science-based entrepreneurship teams to travel to the US and engage in a six-week customer validation process. Furthermore, academic researchers who are awarded an SFI Technology Innovation and Development Award or an SFI/NSF [email protected] Entrepreneurial Training Programme award are offered entrepreneurship and commercialisation training.

There is significant programme support for SME workforce skills development

The National Training Fund (NTF) invested EUR 122 million in 2018 for apprenticeships, including access for SMEs. It also invested EUR 21.7 million in supporting Skillnet Ireland programmes. These include the Training Networks Programme (which supported 15 000 companies through over 50 enterprise groups and 66 learning networks in 2017), the Future Skills Programme (which provides seed funding for enterprise groups to develop innovative enterprise-led trainings with HEIs and private training providers) and a Management Development programme for SMEs. Nine Regional Skills Fora have been established to support regional public partners (including IDA, Enterprise Ireland and the LEOs) and businesses (structured by enterprise sectors and sizes) to identify skill needs and facilitate the creation of responses from the education and training system. The LEOs also provide a range of upskilling and training programmes to enterprises, with approximately 30 000 participants annually.

In addition to these programmes, it is worth considering launching a dedicated initiative to support Irish SMEs in the transition to ‘factories of the future’ (Industry 4.0) whereby industry-led platforms would support awareness-raising, coaching and application of digital technologies, human centred production, networked factories, circular economy approaches, etc.

Developing enterprise-led networks could increase the effectiveness of business support

Delivering policy to enterprise networks rather than individual SMEs offers a number advantages. They help SMEs to define and steer the nature of support, support peer learning among participants opportunities, and offer economies of scale in the delivery of business support that may make it efficient to deliver support that could not be offered to individual firms. The Government already operates some programmes aimed at enterprise networks. For example, LEOs provide start-ups and established SMEs with access to a variety of networks on different topics, Skillnet Ireland uses regional enterprise networks to support SME upskilling, and the Technology Centre Initiative provides an industry-led network approach to introducing enterprises to research expertise. The Regional Enterprise Development Fund also offers funding to major collaborative and innovative initiatives and enterprise clustering and the DBEI has recently launched a new Institute of Technology Clustering Programme. However, the majority of public policy initiatives aim at individual businesses rather than groups of SMEs and there is scope to expand the enterprise-led approach drawing on models from countries such as Germany and Denmark. A national cluster policy is under consideration and development and could offer a means of institutionalising this kind of support.

Public procurement is being utilised to promote SME development

An Office of Government Procurement (OGP) was created in 2014 co-ordinating public procurement for four key procurement sectors – Health, Defence, Education and Local Government. The OGP and its sector partners have put in place framework agreements and contracts through which public sector bodies can buy goods and services, with an estimated value of EUR 4 billion annually. SME participation is encouraged by sub-division of framework contracts into lots, support to form SME bidding consortia, a tender advisory service, and measures to increase the visibility of public procurement opportunities to SMEs, such as videos on public procurement and case studies of successful tenderers. National policy guidance also 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-Tenders. In addition, Enterprise Ireland manages a Small Business Innovation Research (SBIR) initiative, which is a pre-commercial public procurement approach with the objective of stimulating innovative solutions to specific public sector needs.

However, understanding of the potential for procurement of ‘new to market’ products and services could be built further across government, including the introduction of SBIR type approaches in other parts of government. Efforts are also needed to increase the uptake of policy measures that require the most time and resources from public buyers, e.g. conducting pre-tender market analysis or accepting reasonable variants to specifications, which lag behind take up of more easy to implement measures. There also remains a large number of public purchasing bodies outside of the OGP framework, and further consolidation may be appropriate in the coming years. Finally, guidance could be enhanced on green public procurement.

Programmes for migrant entrepreneurship could be boosted

There are a number of inclusive entrepreneurship programmes in Ireland that aim to promote equal opportunities in entrepreneurship across social groups. This includes a range of support for women’s entrepreneurship, and to a lesser extent support for entrepreneurship by older people, youth and the unemployed (OECD/EU, 2017b). However, there appears to be a gap in support for entrepreneurship among migrants. This group has a number of distinct needs in entrepreneurship and an overall client group size that is large enough to merit dedicated support. While some LEOs have occasionally provided targeted training programmes to migrants, these activities appear less common in recent years.

Policy recommendations

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Key recommendations on SME and entrepreneurship programmes

Financing

  • Review the effectiveness of the recently revised credit guarantee scheme and awareness of it among possible beneficiaries and consider scaling up its activities.

  • Consider more direct lending activities to segments in the population of SMEs and entrepreneurs that face particular challenges to access credit, such as micro-enterprises and start-ups.

  • Closely scrutinise the economic impact and return on investment of ISIF in light of its innovative features.

Innovation

  • Set a clear objective to increase the intensity of R&D and innovation activity by smaller Irish-owned enterprises, including additional measures to improve their knowledge absorption capacities (innovation and technological management skills, etc.);

  • Enhance co-operation between enterprises for R&D and innovation, notably smaller firms with other enterprises (clients and customers) and with the research base and other innovation relevant players (consultants, commercial labs, and so on).

  • Adapt the R&D tax credit instrument to encourage innovation collaborations by SMEs by increasing the share of subsidies that flow to smaller firms involved in outsourcing R&D tasks to research and technology organisations, and considering shifting resources to large firms for R&D undertaken with SMEs and Irish technology centres.

  • Introduce a pre-approval procedure of R&D tax credits to help reduce uncertainty for SMEs.

  • Further develop strategic collaborative R&D and innovation programmes in specific sectors through the Technology Centres programme covering strategic sectors for the Irish economy where R&D and innovation intensity is lower than could be expected, such as the food industry and the bioeconomy.

  • Consider additional targeted support for the technology validation phase for SMEs to fill a gap in the pipeline from concept to exportable product or service.

  • Assess the potential for launching a dedicated initiative to support SMEs in the transition to ‘factories of the future’ (Industry 4.0).

Workforce skills development

  • Further embed and broaden entrepreneurial education curricula at primary and secondary education levels. This could be done by generalising good practice examples within the mainstream educational system.

Enterprise-led networks

  • Place a stronger emphasis on supporting and utilising enterprise network structures in SME and entrepreneurship policy.

  • Develop a national cluster policy via a long-term collaborative process involving national and regional policy makers.

  • Create a central communication platform for the roll-out and development of a national cluster policy.

  • Support the professionalisation of network and cluster organisations, including achieving the award of the quality label of the European Cluster Excellence Initiative.

Public procurement

  • Further develop guidance on green public procurement and reinforce the understanding across procurement services of the potential for innovative public procurement.

  • Encourage more public sector bodies to participate in SBIR Ireland innovation challenges for pre-commercial public procurement.

Under-represented social groups

  • Expand dedicated programme support to assist migrants to start businesses across the country.

copy the linklink copied!The local dimension

Conditions for SME and entrepreneurship development vary spatially within Ireland

Despite its small size, Ireland experiences strong core-periphery disparities that hamper equity and growth. Economic activity is heavily concentrated in the Dublin agglomeration, where about 30% of the country’s employees reside and income per head is substantially above the rest of the country (Figure 1.13). These disparities are among the highest among OECD countries (OECD, 2016b).

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Figure 1.13. Disposable income per person by NUTS 3 region, percentage deviation from state average 2015
Figure 1.13. Disposable income per person by NUTS 3 region, percentage deviation from state average 2015

 StatLink http://dx.doi.org/10.1787/888934004523

There are also significant local concentrations of specialised industry with related skills and FDI presence. Three major sectoral concentrations of activity are Medical Devices in Galway, Pharmaceuticals in Cork and Information and Communication Technology (ICT) in Dublin, but there are also many other sub-national concentrations.

Local entrepreneurship ecosystem conditions affecting innovative start-ups, scale-ups and SME innovation also vary significantly across the country, and some regions are affected by significant bottlenecks, including problems of broadband connectivity (which is particularly important for accessing agglomeration economies in distant urban centres from low density and remote areas) and access to specialised skills.

Mechanisms for local tailoring of SME and entrepreneurship policy could be further developed

SME and entrepreneurship policy could contribute to addressing issues of regional disparity and strengthening regional and national growth by alleviating the local entrepreneurship ecosystem bottlenecks affecting start-ups, scale-ups and SME innovation. Additional focus is needed on supporting new local growth trajectories that build on existing local industry, skills, technology and research strengths and cluster potential, including diversification into “related variety” activities. The facilitation of these local emerging industries will depend significantly on promoting relevant skills development and knowledge exchanges.

The 31 LEOs have the capacity to vary the business advice and finance they provide to match their local conditions and help identify SMEs with key local cluster development potential for further Enterprise Ireland support.

In addition, nine Regional Enterprise Action Plans to 2020 (REPs) have been developed by DBEI working with regional stakeholders. The principle behind the Regional Enterprise Plans is collaboration between regional stakeholders on initiatives that can help to realise the region’s enterprise development potential. They are shaped from the ‘bottom-up’ by regional stakeholders. Each of the nine Regional Enterprise Plans have different Strategic Objectives that were formulated and agreed upon at a regional level, with guidance from DBEI to ensure coherence and aligment with national policies. The REPs are backed up by a competitive Regional Enterprise Development Fund (REDF) to support major initiatives to build on regional sectoral strengths or strengthen enterprise capability.

Nine Regional Skills Fora have also been developed by the Department of Education and Skills (DES) as part of the Government’s National Skills Strategy. They aim to facilitate collaboration between firms and the education and training system to address local skills needs, while the Spotlight on Skills programme aims to enable SMEs to identify their skill needs.

These local and regional initiatives are very promising as mechanisms for identifying and alleviating local entrepreneurship ecosystem bottlenecks, but they could be further strengthened in this role. While the LEOs in principle have significant flexibility, they tend to deliver largely a standardised national policy at local level. In addition, the combined body of these local policy tailoring systems, together with other actions such as the WDC and LEADER initiatives operating in specific parts of the country, could benefit from a stronger thrust on supporting innovative entrepreneurship and SME innovation in key local clusters to support their upgrading and diversification. This effort would benefit from better local data on entrepreneurship and clusters, including issues such as local labour flows and innovation linkages.

Regional alignment of entrepreneurship policy is strong but sub-national policy co-ordination could be extended in some fields

The enterprise agencies EI and IDA both have a regional office footprint and regional focus within their corporate plans, and EI has recently launched 'Powering the Regions', which articulates a tailoring of approach depending on particular regional circumstances. The launch of Regional Enterprise Plans and their implementation through Regional Steering Committees provides a vehicle for collaborative initiatives tailored to regional needs and opportunities, and include the Regional Skills Fora managers, the enterprise agencies and the LEOs. The structures in place could be leveraged further to drive sub-national co-ordination relevant to SME and entrepreneurship development. For example, the Global Sourcing Initiative of Enterprise Ireland and IDA does not make use of LEOs or the National Standards Authority of Ireland (NSAI) for building SME capabilities around accessing local FDI supply chains and has no apparent links to Regional Skills Fora.

Policy recommendations

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Key recommendations on the local dimension
  • Improve data and information on local entrepreneurship ecosystem conditions particularly with respect to constraints to cluster development.

  • Map and assess the functions and roles of the various agencies and organisations in the local enterprise support system and identify possibilities to reduce complexity, enhance coordination and increase opportunities for local tailoring.

  • Create a mechanism to involve the Regional Skills Fora and LEOs in new collaborations to address the challenge of raising SME innovation capacity at a regional level.

  • Set up a collaboration between LEOs, Enterprise Ireland, education providers, IDA and NSAI to organise training and awareness building of local SMEs on the role of standards and certification in growth and internationalisation.

  • Include a focus within SME and entrepreneurship policy on the further development of local and regional enterprise networks and clusters, including specialisations and capabilities.

  • Develop approaches to connect SMEs and entrepreneurs in remote regions with broader entrepreneurship ecosystems in urban centres and larger cities.

Note: There are key recommendations in other chapters that are important to consider in the context of addressing spatial disparities and SME and entrepreneurship development in the regions. These include: Regional competence centres (Chapter 7); Ecosystem support hubs (Chapter 4); Rebalancing of expenditure (Chapter 4) and Networks and cluster policy (Chapter 5).

copy the linklink copied!SME productivity in Ireland

The recent productivity growth performance of SMEs has been weak

The issue of low productivity growth among SMEs and particularly medium-sized firms is highlighted in the SME and entrepreneurship performance section of this report, and a range of SME and entrepreneurship programme interventions that can support SME productivity upgrading have been discussed in the section on national SME and entrepreneurship programmes. Figure 1.14 illustrates the productivity issue, showing that although firms with 10 to 249 employees account for 7.5% of enterprises in Ireland, which is above average in international comparison, they account for less than 20% of output, which is the lowest of all OECD countries. Furthermore, the median firm productivity level declined between 2006 and 2014.

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Figure 1.14. Share of small and medium firms and contribution to value added
As a percentage
Figure 1.14. Share of small and medium firms and contribution to value added

Note: Small and medium-sized firms refer to businesses employing between 10 and 249 employees. Micro firms (1-9 employees) are excluded.

Source: OECD SDBS database.

 StatLink http://dx.doi.org/10.1787/888934004542

Low-productivity SMEs should be a target of policy

There is wide dispersion across SMEs in productivity levels and a relatively long tail of low-productivity SMEs at the bottom end of the productivity distribution. Improving productivity in low-productivity SMEs should therefore be a key focus of SME policy in Ireland. This can be driven by adoption of good management practices, introduction of newer capital stock and production techniques and increasing the share of SMEs that export and engage in global value chains.

Management skills and practices

Figure 1.15 indicates that Irish managerial skills are weak when compared to other high-income countries such as Germany, Sweden and the United Kingdom. SMEs should be encouraged to build up their management skills, and also to apply these skills on a routine basis in order to translate them into superior management practices. This can be supported in particular by expanding Skillnet Ireland management development support to reach more SMEs and strengthening the reach of business advice and consultancy to low productivity SMEs.

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Figure 1.15. Average management skills of sampled firms in different countries, according to the World Management Survey
Figure 1.15. Average management skills of sampled firms in different countries, according to the World Management Survey

Note: The World Management Survey measures the quality of management practices in establishments across multiple dimensions, creating a management score from responses to questions regarding use of short-term targets, provision of incentives for high performance, monitoring performance data, and so on. Graph prepared using the manufacturing 2004-2014 combined survey data. See Bloom et al., (2014) for details.

Source: World Management Survey, worldmanagementsurvey.org.

 StatLink http://dx.doi.org/10.1787/888934004561

SME investment in physical capital is low

Productivity upgrading driven by embodied technology in new capital equipment is held back in Ireland by low capital investment rates by SMEs. A recent study based on survey data found that Irish SMEs have an estimated underinvestment of about 30%, given the state of the economy (Lawless et al., 2018).

SME adoption of digital technologies is low

Although Ireland’s progress in digitalisation of business processes is satisfactory overall, there is still room for improvement. For example, in 2015, Ireland ranked only 22nd among 30 mainly OECD countries in terms of use of Enterprise Resource Planning (ERP) and had the second lowest density of industrial robots in the EU-15 (excluding Luxembourg) in 2017 (OECD, 2018a). Ireland also currently has a digital skills deficit in comparison with the EU average (OECD, 2018a). There are also instances of lack of awareness among SME managers of digitalisation opportunities and their benefits (European Investment Bank, 2018).

Setting up a ‘Digital Growth Panel’, such as that operated in Denmark, would be valuable as a way of recognising the importance of digitalisation in Ireland, formulating a strategy for investing in future challenges of SME digitalisation, and being attentive to the requirement of industry regarding areas such as investment, infrastructure, and skills gaps.

Entry into export markets is limited

Ireland has a relatively low share of SME exporters in international comparison. The Government is seeking to address this issue. Grants and advice to encourage SMEs to start to export or to expand their exporting are available from InterTradeIreland (with respect to cross-border trade on the island of Ireland) and from Enterprise Ireland (with regard to all foreign markets). The latter include for example the Market Discovery Fund, providing grant supports of up to EUR 150 000. The LEOs also offer support for micro exporters.

Increased SME adoption of international standards could support productivity growth

Compliance with industry standards could help SMEs to increase quality, win contracts with foreign-owned multinationals, engage in e-commerce and develop their intellectual assets and innovation. However, there seems to be a lack of awareness among SMEs of the benefits of standards while support for standards adoption is not fully integrated into the packages of policy support offered to Irish SMEs.

Inter-firm networking can be a route to greater productivity spillovers

Ireland’s high overall productivity performance per person is driven by high value added in a small number of large foreign-owned multinationals. However, despite policy efforts to catalyse innovation diffusion to indigenous SMEs, productivity spillovers have been hard to detect. Strengthened networking between FDI and domestic SMEs could help provide better opportunities for knowledge diffusion. At the same time, opportunities for peer learning among SMEs should be further promoted through supporting SME networks for innovation, training and exchange of information on best practice techniques, e.g. through local network or cluster organisations.

Business dynamism is weak

The Irish economy has relatively low business entry and exit rates and a relatively high survival rate. Weak business demographics could hold back productivity growth, particularly if innovative start-ups are few in number. One of the means of promoting innovative start-ups that should be explored further involves facilitating their access to financing, as discussed in the sections on access to financing and CGT arrangements.

Direct support for SME innovation could be boosted

Irish-owned firms report a number of barriers to innovation including lack of funds, innovation costs, and lack of skilled employees (Figure 1.16). Innovation policies can help address some of these issues. The mix of innovation policy expenditures in Ireland emphasises tax credits (OECD, 2018c), which appear to be effective in stimulating R&D investment. At the same time, the role of more direct R&D grants and loans and loan guarantees for innovation investments could be strengthened. Innovation capabilities could also be enhanced by broad-based upskilling, such as by targeting skilled workers whose skills are in need of updating.

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Figure 1.16. Hampering factors for innovation, by ownership (2014-16)
Figure 1.16. Hampering factors for innovation, by ownership (2014-16)

Source: www.cso.ie, graph by authors.

 StatLink http://dx.doi.org/10.1787/888934004580

Policy recommendations

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Key recommendations for boosting SME productivity
  • Continue efforts to facilitate researcher access to Central Statistics Office (CSO) micro data on SME productivity to support evidence-based policymaking.

  • Encourage wider take-up of Skillnet Ireland programmes to develop management capabilities in Irish SMEs, and consider a further push to target firms that are not at the technological frontier.

  • Consider the establishment of a national panel comprising industry representatives that feeds into government decision-making and strategy formulation on SME productivity.

  • Further support digitalisation of business processes in SMEs, for example through targeted loans or vouchers and creation of a small number of regional competence centres.

  • Introduce policy initiatives to encourage the adoption of productivity-enhancing techniques such as ERP and industrial robots. A twin track approach to accelerate digital transformation via e-invoicing in Irish SMEs could be adopted, by educating via Skillnet Ireland as well as by designing appropriate Enterprise Ireland and/or LEO grant schemes.

  • Increase policy attention to the role that adopting and developing international standards can play in enhancing SME productivity. This could include increased collaborations between NSAI and SFI, EI, and IDA on incorporating standards adhesion in company SME programmes and enhanced treatment of standards in Skillnet Ireland management development programmes.

  • Increase export assistance for SMEs, for example through grants to complement existing initiatives by LEOs and EI to support would-be exporters.

  • Augment Irish industry-led business networks involving both SMEs and large firms, to support collaboration on common issues such as training and innovation and the diffusion of good practice management approaches.

  • Roll out broadband infrastructure across Ireland, in keeping with the National Broadband Plan.

  • Maintain R&D tax credits, while trying to increase their take-up by smaller enterprises by design changes and awareness raising.

  • Strengthen the offer of grants, vouchers, loans, and loan guarantees for R&D and innovation in SMEs as well as measures to facilitate risk capital markets.

copy the linklink copied!Business advisory services

Business advisory services are a key feature of policy support in Ireland

Business advisory services – in the form of information, consultancy, mentoring and management training – can play an important role in helping SMEs and entrepreneurs to understand the strengths and weaknesses of their businesses and the actions they can take to improve competitiveness. These services can play an important role in guiding SMEs and entrepreneurs to the public programmes that can support them (as discussed in the section of this report on national SME and entrepreneurship programmes). Furthermore, business development services can support Irish SMEs in understanding how to remain competitive and sustainable in the face of the challenges and opportunities brought by global megatrends (demographic change, climate change, digitalisation etc.) and how to introduce good corporate social responsibility (CSR) practice that enables businesses to take more reponsiblity for their actions on their people, the planet and the community they operate in.

The LEO network and Enterprise Ireland are key agencies offering business advisory services in Ireland. Business advisors working in the LEO offices offer a range of face-to-face services to a wide range of micro enterprises including Group Business Information Sessions and one-to-one Business Advice Clinics. Enterprise Ireland also employs Development Advisors in its head office and 10 regional offices providing a key link to the SME and entrepreneurship programmes of Enterprise Ireland and other agencies. Enterprise Ireland also funds an infrastructure of 30 incubators and accelerators offering advisory support to start-ups and early-stage growth potential enterprises in universities and Institutes of Technology.

Further agencies are also engaged in business development services aimed at specific issues or sectors. They include InterTradeIreland (for cross-border trade issues), Fáilte Ireland (National Tourism Development Agency) and Bord Bia (Irish Food Board). Skillnet Ireland supports 65 enterprise networks to diagnose, develop and deliver responses to skills needs, including business development advice to firms.

These agencies typically make significant use of third party organisations (such as the Irish Management Institute, Institutes of Technology, universities, and Technology Gateways) and private sector consultants and mentors and have strong links with incubators and start-up accelerators typically located in universities and Institutes of Technology. The relationship with third parties and consultants and mentors is commonly governed by formal agreements that lay out the nature of the services, delivery standards, performance expectations, and reporting requirements that help ensure consistency and quality of service delivery across the system.

Business diagnostic tools have further potential

Enterprise Ireland operates an online business diagnostic tool – the Company Health Check – that supports clients to benchmark themselves against competitors across different business functions and performance areas and helps identify the most appropriate support services for their needs. In addition, the Workplace Innovation Toolkit was launched in 2018 to help companies and their workforces identify where there is scope to improve their businesses and workforces, including questions about the company’s employee engagement, innovation, productivity and training approaches. However, the LEOs and other agencies do not make systematic use of a business diagnostic tool.

The ‘Supporting SMEs Online’ tool could be extended to diagnosis and advice

The ‘Supporting SMEs Online’ portal was launched by the government in 2014 providing information on 170 business supports for SMEs and entrepreneurs from 27 different government departments, agencies and initiatives. It uses simple questions to guide enterprises to appropriate support based on the kind of support they are seeking and features of their business (sector, stage of development, location etc.). However, it does not include an interactive online business diagnostic tool, online advice and mentoring opportunities or basic online information and guidance on issues such as on how to develop a business idea, start a business, grow a business, finance a business, etc.

Relatively small numbers of SMEs receive management training

Management and start-up training are offered by the LEOs and Enterprise Ireland through private trainers. SkillNet Ireland also provides management training. However, in 2017, SMEs made up less than 2% of learners on the Skillnet Management Works Programme (Indecon, 2018).

Financial support for consultancy could be extended to more firms

The LEOs, Enterprise Ireland and InterTradeIreland all operate voucher schemes that SMEs can use to acquire external consultancy from approved suppliers as well as various grant-based consultancy programmes. However, some of these schemes could be scaled up. For example, in 2018 only 558 Innovation Vouchers were redeemed and only 5 600 have been redeemed since the start of the programme in 2007, which appears to be below the level of potential demand for this type of support.

SMEs and entrepreneurs have good access to mentoring opportunities

Mentoring is widely employed in the Irish business advisory services system. The main public providers are the LEOs, Enterprise Ireland and Skillnet Ireland, but InterTradeIreland, the Food Advisory Service, Fáilte Ireland and the business incubators and accelerators are also involved. A review in 2014 reported that there were some 2 000 paid mentors to SMEs and 1 000 volunteer mentors in the public system (Forfás, 2014).

Support for mentors could be increased

The public agencies in Ireland recruit experienced staff and provide training to advisers, consultants, and mentors, such as the EI Best Practice Masterclasses and Best Practice Guide for the Mentor Network. These capacity building activities have strengthened in recent years. However, considering the widespread use of mentoring in the Irish system, there is merit in a review of training and guidelines provided to publicly-funded mentors to assess the current situation. This could potentially point to a need for a strengthened process of orientation, training and certification of mentors.

An assessment is needed of potential gaps in business advisory services provision

There has not been a comprehensive assessment of the supply and demand for business advisory services in Ireland for some years and it appears that demand exceeds supply for some services and there may also be important latent needs. In particular, SMEs of 10-249 employees may be overlooked if they are outside of manufacturing and tradable services and not demonstrating strong export ambition. This is because LEOs largely aim their support at micro enterprises, although they can also support larger firms (for example through the Lean 4 Micro programme and a range of training programmes), and Enterprise Ireland largely focuses on SMEs with potential to export. In addition, LEOs limit the number of mentoring sessions per individual client and the take up of SME management training appears insufficient compared with the importance of upgrading management skills in Irish SMEs. Regular analysis of demand for business advisory services (covering issues such as awareness of support, needs with respect to content, conditions and design, levels of participation in public and private services, and attitudes to services) would help assess the potential gaps in current supply.

Additional evaluation is needed in certain areas of the business advisory system

Although the government has required impact evaluations of many business advisory services programmes there has not been a recent rigorous impact evaluation of the business accelerator and incubator system. There is also no co-ordinated approach to collecting key performance indicator data from the accelerators and incubators at the system level. In addition, a more rigorous evaluation is required of the impact of business mentoring assistance.

Policy recommendations

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Key recommendations on business advisory and support services
  • Expand the information content on the Supporting SMEs Online portal to improve its capacity to serve as a first-stop information source for all SMEs.

  • Expand the use of online business diagnostic tools for SMEs and entrepreneurs to help them identify their challenges and provide basic guidance. Explore how to use the diagnostic results to help match the offer of business advice with the needs of individual enterprises.

  • Encourage the LEOs to collect and report information on the take-up of group information sessions, business advisory clinics and mentoring services disaggregated by type of client and enterprise and type of advice requested.

  • Make enhanced use of virtual tools to improve SME access to specialised mentors who may not reside in the local area of the LEO.

  • Increase the level of awareness and take-up by SMEs in the Skillnet Ireland training initiatives, particularly in relation to management development training in micro and small enterprises.

  • Consider the use of a voucher scheme to incentivise more micro and small enterprises to participate in management development training programmes.

  • Develop mechanisms for the tailoring and extension of relevant management development programme modules to cohorts of SMEs not currently engaging in such programmes offered by the LEOs and EI.

  • Scale up the Trading Online Voucher system by increasing the amount of the voucher or allowing micro-enterprises to apply for a second follow-on voucher.

  • Hold regular information and awareness sessions with staff and business advisors of the LEOs to ensure they are updated on the programmes and support services and act as an effective signpost. This could make use of regularly amended versions of the “Mapping of Supports” that has been produced by the DBEI.

  • Increase opportunities for business mentors to acquire professional qualifications and accreditation.

  • Develop a national incubator and accelerator policy to encourage the systematic sharing of key performance indicator data on Ireland’s publicly-funded business incubator and accelerators and to offer opportunities for sharing good practice across different incubator and accelerator providers.

  • Include information and advice on good corporate social responsibility practices in business development services offers, focused on how Irish SMEs can remain competitive and sustainable in response to global megatrends.

References

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Note

← 1. The churn rate is defined as the sum of birth and death rates of enterprises and thus provides a measure of how frequently new firms are created and existing enterprises close down.

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Chapter 1. Overall assessment and recommendations