Why small firms need more help to take part in recovery
The latest (Q2 2015) IntertradeIreland Quarterly Business Monitor has been published and as always it makes for interesting reading. As the survey is carried out every quarter and the sample size is 750 across the island of Ireland it is an invaluable insight into the issues facing businesses across a range of sectors and sizes.
Looking at the overall results (see tables) the mood is one of cautious optimism. More than a third (36%) of Northern Ireland firms were in growth mode, compared to 40% in the Republic of Ireland, with a further 51% stable compared to 41% in the Republic. The number of firms reporting an increase in employment fell, as did the number expecting an increase in the forthcoming year.
This moderation of growth is consistent with other surveys such as the PMI which also demonstrate continued, albeit modest, growth in 2015. Perhaps the political situation in NI or global concerns over China or the eurozone are still weighing heavily but 22% of firms reported greater caution over investment than a year previous, compared to 17% reporting less caution.
The survey provides excellent tracking of business issues over time. Many of the major issues have been subsiding over the last 24 months, particularly 'rising energy costs' and 'cash flow concerns'. 'Rising costs of overheads' still features high on the risk register. This varies by firm size and by firm sector but nevertheless it does highlight an important area for policy focus. What costs are within our control to influence (rates being the obvious one) and are we ensuring our insurance, property and logistics markets are as competitive as they possibly can be?
Understandably given the numbers involved the business headlines are dominated by announcements (positive or negative) in Northern Ireland's largest firms.
Smaller firms may find it harder to get their voices heard but the data clearly suggests they face a different set of economic conditions and challenges and they are not sharing in the recovery to the same extent. Different policy actions are likely to be required as smaller firms report different problems and issues and recognise different deficiencies in their skills sets.
Just a third of small firms had increased export sales over the last five years compared to over 60% of large firms. Though a healthy 81% of small firms were stable or growing, this is much smaller than the striking 98% of larger firms. Just 14% are expecting to increase employment in the coming year, compared to 30% of larger firms. Looking at investment patterns smaller firms are consistently less likely to be investing across all categories with less than a fifth intending to increase the level of staff training, compared to nearly 70% in larger firms. Less than one in three small businesses has a written strategy or plan, often a pre-requisite for accessing funding. Having said that just over 40% of small firms intend to grow in the immediate future, compared to 86% of larger firms. R&D levels are very low in smaller firms and the skills profile of management staff (often just the owner in the smallest firms) is less graduate-focused. Over 90% of management team staff in larger firms are graduate level compared to under 40% for smaller firms. The contrasts are striking across almost every metric in the survey. Interestingly firms in the 11-49 size band are more closely aligned in many performance and behavioural metrics to the larger firms than the smaller ones, suggesting the under 10 employee group of firms operate in a very different sphere to their larger siblings.
Throughout the survey the performance metrics of exporters outstrip those of non-exporters, an unsurprising finding. They are generally more optimistic, a greater number have plans to recruit and to invest and more of them are in growth mode compared to non-exporters (46% compared to 35% across the island). Interestingly the most common reason (47%) for firms entering new markets was not through careful research and a targeted marketing and sales plan but as the result of an unsolicited call from a potential customer. They did not find the business - it found them! This is a slightly unfair characterisation as perhaps the call came as an existing customer recommended them or the client saw general marketing material but it does suggest there is likely to be untapped export potential in the business base.
This will be welcome for the Department of Enterprise, Trade and Investment, which is working on the Export Action Plan and exports are likely to feature heavily in the forthcoming Programme for Government and the subsequent refreshed Economic Strategy.
The impasse over welfare remains unresolved and the debates over the merits or otherwise of the Conservative austerity policy continue to rage but a survey such as the IntertradeIreland Business Monitor reminds us is that all the while firms are just going about their business - selling, buying, employing people and generally trying to make a living.
It is useful to reflect on this as we comment on the direction or progress of economic policy - economies do not operate in a vacuum and firms cannot fail to make decisions and press ahead.
So, maybe we can learn from them.
Neil Gibson is director of the Northern Ireland economy policy centre, Ulster University
Neil would like to thank IntertradeIreland for making their full dataset available to compile the statistics quoted in this paper.