Bibby Financial Services Ireland. Irish Exporting Landscape Report 2012

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2 Preface So much emphasis continues to be placed on the role SMEs have been asked to play in the return to a stabilised Irish economy, with SME export in particular hoped to be a key driver for Ireland s future growth. As such, in 2011 Bibby Financial Services Ireland sought to examine attitudes among Irish businesses across a range of issues related to potential and on-going export activities in order to benchmark how businesses were positioned in terms of funding. This research looks at if and how attitudes and activities have changed in the past year. A questionnaire was developed and included in the Behaviour & Attitudes Business Barometer which uses a nationally representative sample of 350 business owners/managers. The findings of the survey are reported herein, and more specifically details: General confidence levels Level of contact and interest in international markets Regional shifts in export business levels The types of incentives that might improve levels of interest in export markets Financial services being used and those being considered 2

3 Executive Summary I am delighted to introduce our Irish Exporting Landscape Report 2012 which explores attitudes among Irish business owners across a range of exporting issues. This is the second such report we have commissioned looking at Irish businesses appetite for export in general, how businesses are funding export activity and the type of support or incentives they require to export. As we approach 2013, trends show that concerns remain among the Irish business community. Many business owners are still cautious with nearly half of all companies witnessing lower levels of business activity in the second quarter by comparison to the same period last year. This trend of lower activity persisted across 2011 but the figures suggest that the floor has been reached and it is hoped that activity will now start improving. Indeed, in looking forward, businesses are more positive than last year, suggesting that the operating environment has eased marginally and some pressure is finally being alleviated. This is certainly the case for those involved in exporting with more respondents believing their business levels will be higher in the third quarter of the year compared to before, indicating signs of stabilisation in the export marketplace. A significant number of companies are also reporting higher export volumes compared to the first half of last year and interestingly, most of this growth seems to have emanated from outside the Eurozone and BRIC countries. While there has been no major change in the proportion of companies exporting, there is some good news in that 5% more business owners are now considering exporting than before. Despite the views of some that the Eurozone crisis is having a smothering effect on Irish business export performance, there is a high degree of expectation for growth with twice as many exporters anticipating growth in the Eurozone in coming years compared with now. The most marked shift in the volume of exports predicted is to the BRIC countries with the report showing that three and a half times more exporting companies are expecting growth in the BRIC nations over the next five years. Although economic policy is focused, even dependent, on Irish exporters driving forward recovery, the fact that Irish businesses need help to access crucial flexible funding and require additional support if we are to see some real growth seems to be being ignored. Of those surveyed who considered themselves to have the potential to export, 65% claim that better access to finance and loosening of lending criteria would encourage their involvement in export markets, with a similar number citing that more information from government or other bodies on trading within the EU would motivate them to export. Similarly, 61% believe that there needs to be more on the ground support from government bodies to help evaluate prospects. Among those already involved in exporting, evidence suggests that the use of formal funding has declined overall while worryingly, reliance on credit cards has increased slightly and continues to be a key source of finance. However, a wider range of finance options are likely to be considered by exporters as they look forward over the next 12 months. On the whole, business activity seems to be showing tentative signs of improvement which is encouraging for many Irish businesses considering expanding into overseas markets. Our research clearly shows that many of our SMEs are prepared to make the necessary steps to help get our economy back on track however, it is evident that they can t do it alone. As a specialist in export invoice finance, we intend to play our part to continue to fully support Irish SMEs in providing flexible funding to support both domestic and overseas activity. Graham Byrne Bibby Financial Services Ireland, Managing Director 3

4 GENERAL BUSINESS ACTIVITY Looking back In order to establish the context in which current export specific attitudes are based, overall business performance in the second quarter of 2012 was compared with the first quarter of the year and with second quarter of Our study reveals that whilst the distinctly tough business environment that has endured during 2011 and 2012 continues, it has eased slightly compared with this time last year. Given that Ireland is arguably in its fifth year of recession, this slight shift for businesses in Ireland will be welcomed. Still 43% of all companies have seen lower levels of business activity in the second quarter by comparison with the same period in 2011 and this trend of lower activity persisted across last year. In the final quarter of 2011, one anticipated that the floor had been reached. Both tracking periods this year suggest that it has. How has your business performed in the second quarter of this year compared to the first quarter? And to the second quarter of last year? Base: All companies Higher 1 st Qtr 2011 Vs 1 st Qtr 2010 (353) nd 2 Qtr 2011 Vs 2 nd Qtr 2010 (351) 1 st Qtr 2012 Vs 1 st Qtr 2011 (353) nd 2 Qtr 2012 Vs 2 nd Qtr 2011 (351) The Same Lower Gap (Pos vs Neg)

5 BUSINESS ACTIVITY - INDIGENOUS V EXPORT Looking back Delving into this a little deeper, very notably, those in the exporting world are faring considerably better than their indigenous only counterparts. Moreover, at this point those exporting seem to have increased their activity levels when compared with last year notwithstanding problems in Europe (-13% Vs +1%). How has your business performed in the second quarter of this year compared to the first quarter. And to the second quarter of last year? Base: All companies Indigenous Only Any Export (244) (247) (103) (95) 2011 % % 2012 Higher The Same Lower Gap (Pos vs Neg)

6 BUSINESS ACTIVITY INDIGENOUS V EXPORT Looking ahead Looking ahead to the the third quarter, 7 in 10 Irish businesses believe that their company performance in quarter three of 2012 will be at a similar level (31%) or worse (40%) than for the same period of Companies that are exporting (exclusively and in combination), are in a more positive position, with slightly more believing their business levels will be higher for the third quarter of the year compared with the third quarter last year, good news as an export driven growth is key to current economic policy. Looking ahead to the third quarter do you think your performance will be higher, lower or the same as the third quarter of Base: All companies Indigenous Only Any Export 2nd & 3rd Qtr 2nd & 3rd Qtr 2nd & 3rd Qtr 2nd & 3rd Qtr % % % % Higher The Same Lower Gap (Pos vs Neg)

7 BUSINESS PRIORITIES GOING FORWARD Not surprisingly, business priorities for the remainder of 2012 remain much the same as last year, with keeping sales/business coming in the far out leader. Keeping costs to a minimum and ensuring working capital and cash flow were maintained also again featured heavily, indicative of the credit restrictions businesses are facing. Encouragingly, attracting new customers and expanding the business is also a priority for an increasing number of businesses, whilst fewer are concerned about survival. As you face the remainder of 2012, what are your key priorities? Spontaneous Reponses Base: All companies That we keep sales/business coming in That we keep costs to a minimum Survive/stay in business That we have sufficient working capital Retain/take on more staff/employment Maintain/increase profit margins Attract new customers/expand customer base Improve/maintain quality of products/service st Qtr nd Qtr % 48% 61% 29% 26% 29% 19% 11% 12% 19% 20% 17% 17% 15% 13% 14% 13% 14% 14% 18% 13% 8% 8% Manage to get the finance we need to grow the business 12% 10% 9% Develop new areas of business/growth/ expansion/grow customer base Increased/better marketing/advertising 13% 13% 18% 8% 5% 8% (All other answers less than 5%) Other 6% 11% 15% 7

8 INTERNATIONAL MARKETS Regards exporting to international markets, there is no major change evident in comparison to last year, with almost 7 in 10 companies reporting that their business is exclusively indigenous and will continue to be so despite the retraction in the Irish market. However, there is some good news in that there are now more business owners thinking about export opportunities than there were last year. Still, only 15% of companies appear to be exporting currently. Which of the following statements best describes your level of interest and/or contact with International markets since Ireland has been in recession? Base: All companies Our interests are exclusively indigenous (pre and in current recession) Downturn has not changed the way we operate, always exported and will continue to optimise sales The downturn in Ireland has galvanised us to be more proactive in export markets The downturn has caused us to move into export markets for the first time Downturn has made us think more about exports but we have not yet managed to make this happen 71% 68% 10% 7% 6% 5% 2% 2% 12% 17% 8

9 INCENTIVES TO EXPORT In terms of motivating an interest in exports, the drivers are multi-faceted with access to finance, more information from Government on trading and bursaries all likely to encourage further interest. This is a very clear indication of the lack of support for exporting that our SMEs are receiving, despite vocal government reliance on SME export to help stabilise the economy. What would encourage you to consider overseas opportunities? Base: Those with goods and services that could be exported Access to finance/loosening of lending criteria/credit availability More information from the Government or other bodies on trading within the EU More Government support - bursaries to encourage trading On the ground support from Government bodies to help evaluate prospects On the ground support/assistance with practicalities target export market (e.g. distribution, resourcing, in the market research, language translation etc.) More information from the Government or other bodies on trading outside the EU Other 69% 62% 56% 56% 49% 45% 19% Indigenous Onl 79 % EXPORTING VOLUME TRENDS On balance, there are slightly more companies claiming higher volume exports compared with the first half of last year. Would you say the volume of your exports for the first half of 2012 has increased, decreased or stayed much the same when compared with last year? Base: All exporting companies st Half 2011 vs. 1st Half 2012 Increased Stayed much the same 28 Decreased

10 REGIONAL CHANGES ANTICIPATED Given both the current crisis in the Eurozone and the publicised anticipation of the growth of the BRIC countries (Brazil, Russia, India, China) the survey looked at how business owners anticipated their exporting to these and other areas have performed in the first half of the year and how they predicted that would change over the next five years. Looking forward, there does appear to be a high degree of confidence expectation for growth in the volume for all exports market - with the most marked shift in ratio terms being a growth to BRIC countries (while still operating below levels expected in Eurozone and elsewhere). Comparing once again the first half of 2012 with 2011, would you say you are you more or less likely to export to the following areas? And looking forward to the next five year, how do you expect your exporting might change to these areas, if at all? Base: All exporting companies - 43 More The same Less Don t Know or does not export to this market EUROZONE 1st Half Expect over next 5 years Over twice as many exporting companies (20% vs 49%) expecting growth in Eurozone compared with now BRIC 1st Half Expect over next 5 years Three and a half times more exporting companies (8% vs 29%) expecting growth in BRIC countries compared with now ELSEWHERE 1st Half Expect over next 5 years Twice as many exporting companies 22% vs 42%) expecting growth elsewhere compared with now 10

11 EXPORT FUNDING OPTIONS USED When reviewing the funding used for export in the last year, the findings indicate that businesses continue to face problems in accessing cash for export. Bank loans remain at quite a low level for export and whilst still one of the most popular funding options, the percentage of companies using overdrafts has reduced significantly. Whether these findings are due to bank led restrictions or the business owners own preference is unclear, although reports in the media would certainly suggest the former. Most alarmingly, the high percentages using credit cards for their export business has increased further, the popularity of this expensive funding option suggesting they are becoming the only ones. Personal savings have dropped significantly, although given the context, this is as likely to indicate that personal savings have all but dried up, as it is to indicate that businesses have seen the risk and short-termism of this option. Which, if any of the these funding options have you used in the last year for export? Base: All companies CURRENTLY EXPORTING Difference Base: % % % Bank overdraft Credit cards Personal savings Bank loan Financial Assistance from friends/family 6 6 = Invoice Finance Government funding initiatives Export invoice finance Other (please specify) ANY USED IN PAST 12 MONTHS

12 EXPORT FUNDING OPTIONS CONSIDERED Encouragingly, 32% of business owners believe they may apply for funding over the next 12 months for export markets suggesting there may be more energy placed on export markets in the short term future. However, bank loans, overdrafts and credit cards still feature highly one would hope that should those businesses make steps to export and find those avenues closed will look elsewhere as others are, at the alternative and viable funding options out there. Which, if any of these funding options might you consider applying for over the next 12 months for export? Base: All companies Those currently involved in Any Export Business Those Considering Exporting Base: * Bank overdraft Bank loan Government funding initiatives Personal savings Credit cards Invoice Finance Assistance from friends/family Export invoice finance Other (please specify) ANY MIGHT CONSIDER IN NEXT 12 MONTHS % % *small cell size 12

13 FIELD WORK Interviewing was conducted through Behaviour & Attitudes Computer Aided Telephone Interviewing Unit (CATI) at Milltown House in Dublin. Interviews were conducted with the owner/ Chief Executive of each selected company. Fieldwork on the project was conducted between the 30th July 7th August All interviewing was centrally supervised and quality control verification was conducted on 15% of interviews undertaken. 13