Consultation on the Reform of the National Micro and Small Business Support Infrastructure' - Submission from Irish Exporters Association To ...

Submission from Irish Exporters Association
To Department of Jobs, Enterprise and Innovation

Reference:
‘Consultation on the Reform of the National Micro and Small
Business Support Infrastructure‘

Dated: January 2013

Contents

1. Introductory Statement

2. CEB existing structure transfer

3. Key Deliverables
       Centre of Excellence and linkage to Local Enterprise Offices
       Increase number of start-ups
       Survival rate improvement
       Incubators and linkages to University/Institutes
       Increase exports from micro and small business
       Increase R&D and innovation

4. Conclusions and Recommendations

1.     Introductory Statement

The Irish Exporters Association welcomes the opportunity to submit this brief review
of the proposal by the Department of Jobs, Enterprise and Innovation to dissolve the
County and City Enterprise organisation and create a new and enhanced support
model for small business.

These are challenging times with economic growth below expectation in 2012 and
forecasted to continue to grow at just over 1% in 2013. The situation is particularly
difficult for the small to medium-sized businesses that trade mainly on the home
market. It is also difficult for small businesses that export mainly into the markets of
the UK and the rest of the EU as those markets are threatening to dip into recession
again. As a consequence, SMEs in Ireland continue to struggle to recover to pre-
crisis levels of value added and employment. The picture is very similar across many
parts of the EU.

However, recent EU studies have shown that economies such as Germany and
Austria recovered fastest and best from the recession because of the strength of
their SME sectors. The SME sectors in these countries are:

              Strong in hi-tech, medium tech manufacturing and knowledge intensive
               services
              Have high productivity levels
              Have higher investment levels, and
              Higher export levels

The EU report also states;

‘There is a group of countries, including a number of countries undertaking severe
anti-crisis reform programs such as Ireland, Slovakia, Estonia and Portugal where a
massive fall in SME employment was partially mitigated by a considerable increase
in labour productivity hinting at an increase in competitiveness.’

The Irish Exporters Association (IEA), accepts that there have been some gains in
competitiveness in the SME sector over the past few years, but also maintains that
Ireland still faces an important challenge to boost the competitiveness of its SME
sector. In the long term the competitiveness gain must come through productivity
growth, in which innovation in terms of technological upgrading, product and process
innovations and export promotional skills upgrading will be necessary if long term
sustainable employment generation is to be achieved.

The ability of SMEs to innovate and export is important because it improves not only
their own competitiveness, but also through linkages and knowledge spill-overs with
other firms, the entire industry and local economy improves.

The IEA advises that any reform of the National Micro and Small Business Support
infrastructure must focus on a number of areas. They include improvement in
competitiveness, continued investment in economic and human capital, ensuring the
availability of adequate credit, policies to support growth in key enterprise sectors
with export potential and tax policies which are favourable to entrepreneurship,
investment and work.

We believe that this approach is consistent with the objectives of the Europe 2020
Strategy. It is clear that the challenges now faced by Ireland and our European
Union colleagues mean that an acceleration of the necessary reforms is now more
important than ever.

The IEA believes that Ireland is increasingly a knowledge driven economy and it is
therefore crucial the proposed Local Enterprise Offices (LOEs) understand the role
of SMEs in this knowledge economy and how knowledge intensity, R&D and
innovation can have an impact on productivity growth, especially in SMEs. In this
regard the role of knowledge intensive services must be fully understood and
supported, as their role in improving competitiveness is crucial. These knowledge
intensive services companies function as facilitators and carriers or sources of
innovation. The growing role of services and its complementarity with the more
traditional manufacturing sectors must be fully understood by the LOEs and
nurtured.

The IEA further advises that close attention should be paid to the extent to which
(high-tech) manufacturing is relocating, as this will have an impact on the evolution
of the knowledge-intensive service sectors. But co-location may also be important for
the emergence and development of knowledge intensive and high-tech firms. This
would especially be the case when knowledge spill-overs are important. In this
context, the extent to which new knowledge-intensive and high-tech SMEs emerge
as spin-offs from research institutions and universities may be a key driver of
productivity growth that should be of high policy relevance to the DJEI for targeted
measures for the LOEs.

The existence of backward and forward linkages between small and large firms
within and between sectors must be nurtured by the LOEs. The IEA believes that
such an approach will generate additional triggers which will assist in enhancing
productivity and employment growth beyond the individual firm, extending to the
entire region or macro economy.

2.   CEB Existing Structure

The existing structures have many positive features, inclusive of a supervisory
linkage through to Enterprise Ireland. It is essential to review the success of the
existing CEB structure in terms of number of start-ups supported, the number of five
year survivals as well as the other measures that the new LEOs are asked to
address in order that that real and meaningful measures of progress can be
established under the new LEO structure. It is important to note that there was no
great up swell of local or national business opinion to suggest that the existing CEB
structure was inefficient and not supporting local enterprise in preparing companies
for export and introduction to the EI or Bord Bia support measures for exporting
companies.

The IEA have for several years worked extensively with CEBs around the country in
providing clinics to those clients who wished to get into or expand their export
activity. The Emerging Exporter of the Year award scheme run by the IEA with the
CEBs, has been successful in identifying and showcasing the rising exporters in the
sector. Also the creation of the Dublin Food Chain developed with the four Dublin
City and County Enterprise Boards, has successfully supported 800 small
businesses to look at import substitution and new product development as routes to
competitive local growth and export expansion.

However, the IEA were aware of the other County Council enterprise support
activities –such as business parks etc.—which were not under the CEB structure
remit.

The IEA recommend that the new LOEs structure must ensure all the County
Council enterprise facilitation should be controlled by the LOEs, with fragmentation
avoided.

We are still very much in recovery mode as we try to exit the recession. SMEs were
much more heavily affected than large corporations. Hence, it is important that the
process of change over from the current structure is carried out expeditiously as
there is a certain element of uncertainty affecting the extent to which CEB chief
executives can execute their current duties. The new terms of employment must be
such as to allow the new mandate for the former chief executives of the CEBs to be
put in place rapidly to enable them to proceed with the LOE mandate.

3. Key Deliverables

The IEA wish to comment on the key deliverables that have been set out for the new
national network of Local Enterprise Offices as follows;

      The Centre of Excellence and LEOs
       The IEA recommend that each region should look at its businesses’ strengths
       and third level education and institutions to determine if it has any natural
       advantages that should form the focus of its LEO and what to centre its
       excellence on. This may indicate that Fingal, as an example, should have a
       centre of excellence focused on horticulture start-ups and export support,
       whereas South County Dublin should have a centre of excellence focused on
       Software.

       Each LEO should – we agree with the consultation document – have a
       standard structure of basic start up support information. We strongly
       recommend the dovetailing of activities of any Third Level institution in the
       region to match that of the Centre of Excellence. Supporting hi-tech spin offs
       from the third level institutes should be a major focus of attention by the
       LEOs, as these are most likely to create exportable goods and services, and
       improve the competitiveness and long term sustainability of SMEs in the
       region, as outlined in the introduction to this submission.

       We are a small country and with easy road access from one area to another,
       it will be counterproductive to try and meet all sectors support needs equally
       in each LEO around the country.

       Any incubation spaces available or business parks available by the County
       Council should be dovetailed to the Centre of Excellence for the region.
       There are enough private sector commercial building providers available
       across the country; hence the County Councils should not be in the business
       of providing standalone office/warehouse space for rent.

      Survival Rate of SMEs
       There is much long term evidence that SMEs survive longest when:
       a) They are well-funded at start up; and
       b) They create a good home sales base, but
       c) Also have a good focus on expanding sales progressively in international
          markets; and
       d) Know the life cycle of their product or service and innovate to end the life
          of the product, or create new products.

To improve the long term survival rate of SMEs, the IEA recommend that
    LEOs and the support from EI must ensure good access to finance is made
    available to finance the start–ups. We also recommend a panel of
    mentors/non-executive directors be utilised to support these companies. The
    IEA are prepared to offer an export mentor board to support LEOs and their
    centres of excellence, to nurture SMEs who are close to export trading.

   Incubators structure
    Pre start up incubators are necessary to support entrepreneurs with a
    business idea. These should again be located to support third level
    institutions, where hi–tech start-ups are most likely to arise. These
    entrepreneur centres – if correctly promoted will attract like-minded
    individuals and encourage collaboration and leadership in particular business
    sectors. Effectively creating clusters of would be start uppers in specific
    disciplines.

   Export increase in micros and small business
    There is an excessive local focus in many micro and small business. As a
    consequence less than 1% of SMEs in Ireland export. In the current
    economic climate, with the home market depressed, increasing the number
    of micros and small businesses which export therefore offers major
    opportunities for growth in sales, added value and employment.
    To create the conditions to enable more micros and small businesses to
    export will need the LEO structure to provide:
    a) Access to finance to support the longer term cycle involved in achieving
    international sales success.
    b) Ability to conduct market research in niche target markets and then
    develop/modify the product or service to meet the foreign buyer market niche.
    c) Management skill set to sell internationally.

    This is not an easy task and not something that will happen overnight. The
    most effective approach has come in the IEA experience from dedicated
    export mentor support. Also significant success has come from start-up
    companies with the vision of selling internationally from the very beginning.
    Effectively we need to get entrepreneurs to start with a global mind-set for
    their business. Being born globally is now much more within the grasp of
    small business with the pervasive and low cost access to international
    markets available over the internet. There are models in other small
    countries which can be accessed, such as Denmark, where large sectors of
    SME businesses have traditionally moved into international trade at an early
    stage and succeeded in long term sales and employment growth.
    Existing small business can also be turned into successful exporters with the
    right advice and mentor support. This may be partly assisted by the Export

Outreach programme that EI has started to roll out, but a private-public
    partnership arrangement with organisations such as the IEA will be
    necessary if substantial success is to be had, allowing for the limited
    resources of EI in the current climate.

    The IEA can provide export support and advice to LEOs and their clients to
    enable more small companies to get into exporting at an early stage and
    provide sustained support to enable them to overcome the wide range of
    issues that can act as barriers to long term success in selling internationally.

   R& D and Innovation amongst micro and small business
    Many of the most successful small businesses to emerge in recent years
    have come from research based, or campus companies.
    The LOEs must ensure that links are created with the Universities or third
    level institutions in their catchment area, to tap into the research emanating
    from these institutions and act as catalysts to help commercialise on as much
    of this as possible. Partnerships are often the best way to link entrepreneurs
    and researchers, and in the process ensure a much higher rate of
    commercialising of good research and innovation emanating from third level
    institutions.

4. Conclusions and recommendations

The IEA urge a speeding up of the process of changeover from the existing CEB
structure to the new LEO structure, as economic conditions are particularly
severe and small business urgently needs support to restructure and expand into
export markets.

Small business must be adequately funded if they are to succeed past the first
few years. They must also have a competitive advantage both locally and
internationally for long term success. This is best achieved by basing their
business on new technology and supported by the latest software support
systems for their business. Hence, focusing on research based new products or
services must be nurtured and supported.

The success of the new structure to support micro and small business and
increase their level of export activity and expand their job creation in the process,
will very much depend on ensuring a clear division of the LEOs into regional
centres of excellence, focused on the underlying capabilities already in place,
including the incubation facilities, the office and manufacturing space, the third
level institutions, the clusters of businesses in the region and the skillsets that
they have developed. It will depend on linking up the third level institutions with
the LEOs and ensure the Centre of Excellence focus is supported by these third

level institutions. If correctly structured this will go a long way to overcoming the
operational barriers to micro and small business as they try to set up or expand
their businesses. But it will also ensure that scarce resources are grouped
together to support these businesses in areas of most potential in terms of
international market success.

The success of the new LOEs, however, will also depend on helping small
business with strategic problems associated with start-up or expansion into
international markets. Strategic problems will not be resolved with a ‘quick fix’ but
will require time and effort. Operational issues are usually fairly easily resolved
by the provision of information. The role of the LOE must be to ensure that this is
provided in an easily accessible format, and that it is relevant and specific.

Strategic issues on the other hand require the owner/manager to personally
invest time and effort in processing the information and directing the research of
markets, products or processes. Dedicated knowledgeable mentors will be critical
to support this strategic phase. Hence, the public private partnership approach
will be critical to the success of the new structure, ensuring the necessary
specialists and brought into the system.

The IEA are ready to support the roll out of the LOE structure, and would
welcome further interaction with the DJEI on the matter.

END