Growing exports key for firms seeking to expand
The patent issue has had a dramatic impact on the value of chemical and pharmaceutical exports over the past couple of years and from month to month one never knows what the number is going to be like. This issue will eventually work its way through the system and when it does it will become very apparent that the Irish export model is purring very smoothly despite serious issues in some of our main export markets, particularly in the eurozone.
Last year the total value of exports out of the country reached €184bn, which represented growth of just 0.9% on 2012 levels. Merchandise exports, or physical stuff we sell, declined by 5.4%, while service exports expanded by 7.9%. The sharp decline in merchandise sales was primarily due to the patent issue, but its real economic impact in terms of important variables such as employment was pretty modest, because the business models of the affected companies had been adjusted in advance and new investments and new business activities were developed. Other export sectors such as food did very well, expanding by over 10%.
One of the notable features of Ireland’s export structure in recent years has been the growth in the importance of service exports. Last year these exports accounted for just over 50% of the total. It is not particularly easy to get a real handle on what is happening on the service side. Incoming tourists to the country is the easy bit to understand. Nearly 7m overseas tourists visited Ireland last year, representing growth of 6.7% on the previous year. Other service exports include royalties and licenses, insurance, financial services, computer services and other business services. Many of these activities are focused on IFSC type companies and are really difficult to interpret and evaluate their real economic contribution. Personally I prefer to focus in on tourism and the exports of physical goods. Earlier this week the CSO released the merchandise trade numbers for May. They were pretty good. During the month we sold €7.8bn in goods to overseas customers, which was more than 9% higher than the same month last year. Interestingly, the value of exports from the chemical and pharmaceutical sector was almost 12% higher than May of last year. This is reassuring, and is particularly good news for the cluster based around the Cork area. Exports of food and live animals expanded by 7.9%.
For the first five months of the year the value of exports at just over €36bn, was 0.3% higher than the same period last year. Chemicals and related products were 1% lower than last year; machinery and transport equipment, which includes output from the IT sector declined by 10.2%; but food and live animals expanded by 10.7%.
All in all, Ireland’s export model is still functioning very well, but there are certain strains and structural changes occurring that will have to be monitored and managed very carefully.
It will be vital to maintain cost competitiveness in the face of a recovery in the labour market in particular.
It would be unwise to allow the economic recovery to erode cost competitiveness, but all other costs of doing business will also have to be managed very carefully.
The multinational sector will remain a major part of the export model, as will the large food companies such as Dawn Meats, Glanbia and Kerry. However, a major challenge will be to continue to strive to build up the export capability of the smaller indigenous companies. This is not an easy task, but the reality is that it would prove very difficult to grow an indigenous company to a large scale by focusing on the small domestic market.
Export growth will have to be the key focus for those companies who want to get big.
