Small firms regard geopolitical volatility as a major risk

Chief executive of Azets Ireland Neil Hughes said: 'Larger firms have the scale to absorb these shocks. Smaller businesses don’t.'

The ongoing geopolitical volatility has been seen as the primary risk to the future of a majority of small and micro-sized businesses due to their limited capacity to absorb sustained cost increases, a new report by business advisory group Azets Ireland has found.

Azets Ireland's latest quarterly barometer shows that 53% of small firms, with between 10 to 49 employees, and 50% of micro firms, under 10 employees, identified geopolitical volatility as their primary risk.

Azets Ireland said that larger businesses rank geopolitical risk fifth among their concerns, indicating greater resilience to ongoing disruption. However, smaller firms appear particularly exposed, with limited capacity to absorb sustained cost increases or hedge against volatility.

In response to the uncertainty, 66% of firms report increasing digitalisation, 60% said they plan to increase overall investment in operations, while 58% are investing in automation and AI.

Chief executive of Azets Ireland Neil Hughes said the findings of the report show that “we are in the early stages of a cost shock that has not yet fully worked its way through the system”.

“For many SMEs, that impact is only starting to be felt. 

Larger firms have the scale to absorb these shocks. Smaller businesses don’t. 

"And unless there is a near-term easing in geopolitical tensions, the reality is that conditions are likely to become more challenging in the months ahead,” he said.

Increased competition is now the second highest concern among Irish businesses, rising sharply in recent months, while inflation and high interest rates are ranked third.

The report also identified labour costs as a “significant challenge” for many firms with 36% of company leaders reporting an impact on operations.

“Recent increases in the minimum wage and the introduction of pension auto-enrolment are adding further strain,” the report said. This was most pronounced in manufacturing and construction with 50% and 46% of companies citing labour costs as their top concern.

Meanwhile, more than half, 58%, of firms in the hospitality and retail sectors plan to pass rising costs on to customers.

Future outlook

Despite these concerns, business confidence remains relatively strong with Irish firms rating their economic outlook at 6.9 out of 10.

Looking ahead, 63% of firms expect turnover to increase over the next 12 months, while 60% anticipate further price rises.

The findings of the report were based on a survey of 222 firms conducted between February and March this year