Address by Minister Martin at the Annual Conference of Small Firms Association, Dublin Castle

Address by Micheál Martin, Minister for Enterprise, Trade and Employment, at the Annual Conference of Small Firms Association“ACCESS ALL AREAS”on Tuesday 3^rd October 2006 in Dublin Castle

Ladies and Gentlemen:

I am delighted to have been asked here today to address your annual Conference.

It is a good time to be in business. We have full employment and strong growth appears to be in prospect for some time to come. Our recent economic success does provide a platform for future growth - provided we proceed wisely. However, it does not guarantee that growth. That guarantee lies in our own hands and the choices we make as a society to encourage enterprise, entrepreneurship and business development.

Despite the broadly favourable conditions, Irish businesses are facing new and increasingly difficult challenges. These include the competition associated with greater globalisation, sharply higher business costs and a considerably tighter labour market. Irish companies – whether trading locally or in foreign markets – will increasingly face competition from major international players with highly sophisticated business models, coupled with economies of scale in every aspect of their operation. These challenges are even more intense for small businesses. In that context, I am delighted to see that your conference is focussed in a very positive way on helping small businesses seize the opportunities that the more open global markets offer as well as helping them face the challenges.

When I established the Small Business Forum, I was very conscious of the need to ensure that our policies and strategies were addressing the particular needs of small business. The small business sector had not been examined in any great detail since the Small Business Task Force reported in 1994. I wanted to be sure that we were doing the right things to help small business thrive.

The Forum’s report was published last May. I can assure you that it came as no surprise to me that the Forum found that small businesses were a key element of the whole Irish economy and were important for a whole variety of reasons. I am sure that you are probably familiar with the headline statistics that came out of that Report, viz:

• The 250,000 small businesses operating in Ireland today;
• The 800,000 people working in small businesses – more than half of all private sector employment;
• The taxes paid by small businesses – some €10 billion.

Of course, these headline figures do not capture

• The essential part small business play in the supply chain for larger firms and, in particular, their importance as a key part of the support infrastructure needed to attract and retain foreign investment in this country.
• The critical importance of the employment created to local communities throughout every corner of the country,
• And the significant contribution they make generally to the economic, social and cultural life of the entire population.

The Forum also noted that, on one hand, globalisation and international market liberalisation has opened many foreign markets up to Irish business while, on the other hand, they have also resulted in a greater international presence in the Irish locally traded market, where the great majority of Irish businesses currently trade. Local businesses in Ireland now have to compete with some of the world’s biggest international chains in every sector: from retail and entertainment, to tourism and the professions, attracted by the increased local demand from Ireland’s increased population and wealth.

Those Irish businesses which are trading internationally are competing against companies that can often produce products and deliver services at a much lower cost, have globally-focused business models and operate with economies of scale unavailable to smaller players. To compete in this global market, Irish businesses need to stay up to date across a range of developments and innovations – standards, regulations, management practices, technologies and markets. They need to offer superior levels of innovation, service and quality.

The Internet has played a significant role in changing business models and consumer behaviour in a variety of ways. Some of these changes work to the advantage of small businesses that can use the technology to address much wider geographical markets for specialised products and services. It can also enable them to source supplies more efficiently and more competitively from around the world. However, large companies with global distribution capabilities are often better placed to derive the benefits the internet can deliver. Consumers are also now routinely using the Internet to compare prices and share information on product quality and back-up service. This makes it more important then ever that suppliers, no matter what their size, are competitive in all respects with the best in the world.

In an increasingly competitive world, it is becoming ever more clear that a greater proportion of the country’s wealth creation will in the future have to be generated by indigenous companies. Whereas, in the past, Irish indigenous companies have tended to start small and remain small, a new generation of indigenous companies is already beginning to emerge – companies with the potential to grow, and in some cases grow rapidly, to conquer international markets.

I firmly believe that the small business sector in Ireland must be the incubating ground for these companies. Some of them will be technology-based companies, who will exploit the State’s substantial investment in R&D and help to assert Ireland’s position as a knowledge creator and innovator. Others will be in services reflecting the growth internationally of the services sector. These will have to use highly innovative business models to grow and deliver internationally services that were previously the preserve of small companies trading locally. The majority, however, will continue to deliver local services and to play their important role in the sub-supply chain of larger companies.

Small business owners and managers with the ambition, ability and potential to grow their companies into strong internationally trading entities must be empowered to reach this potential; those that continue to trade locally largely determine the cost base for both consumers and other businesses, and these must be encouraged to innovate in other ways, in order to maximise their efficiency, quality of product and service, and productivity.

A blueprint for the development of indigenous industry was set out in the report of the Enterprise Strategy Group (“Ahead of the Curve – Ireland’s Place in the Global Economy”), which I published last year. This report set out, in some detail, the actions which need to be taken to secure and build on Ireland’s position as a developed economy. Arising from that report I arranged for Enterprise Ireland to carry out a full review of its mission to assist and support the growth of indigenous Irish companies. This has resulted in a new strategy which is designed to give Ireland a long-term competitive edge in world markets.

The key elements of the new strategy include initiatives such as:

• Structural reorganisation - In line with the ESG report, all Enterprise Ireland’s export activities and personnel are now structured into a single corporate division, providing a clearer and more coherent approach as well as ensuring an increased focus by the Agency on export and sales development.

• New funding offer: Enterprise Ireland has simplified its funding offer and has introduced a new Fund called the Productivity Improvement Fund which is aimed at increasing participants’ productivity by 20%.

• A key finding of the ESG Report stressed the need for greater expertise in individual sectors and programmes aimed at sectors. In line with this, EI has now established three new major Sectoral Divisions within the organisation. Its strategy also targets an increase in group interventions to assist sectoral development.

• They have also developed pilot programmes with other agencies on increasing Ireland’s pool of marketing graduates and internationally experienced professionals and pilot programmes in support of Business-Directed Networks to further enable the development of regional and sectoral agendas.

I firmly believe that this new Strategy repositions the agency to serve the changing needs of indigenous companies more effectively. Central to the strategy is a sharp focus on growth opportunities, both for individual companies and for targeted new growth sectors. Delivering on this strategy will however require an optimum combination of one-to-one company activity together with sectoral and group initiatives.

Access to finance is a perennial issue for businesses, particularly small businesses. Under the current the National Development Plan 2000 – 2006, 15 Venture Capital funds have already been established under which have made more than €400 million available for investment. The State, through Enterprise Ireland, has directly committed an investment of almost €100 million. Earlier this year, I announced a further scheme for the post-2006 period, earmarking €175m of investment by the State. It is estimated that this investment by the State will leverage €1 billion for VC investment.

Reshaping the operations of Enterprise Ireland so that it helps Irish companies internationalise their operations with greater ease has been a major achievement. Getting our response to globalisation right and being able to guide companies into new markets is an enormous challenge. From earlier stages in companies’ growth cycles, most firms must build the means to do business at an international level. They must have the skills to win international sales and reputations, while establishing an overseas presence in core markets.

The Report of the Small Business Forum complements the actions being taken on foot of the ESG Report in a very important way. It provides us with a set of recommendations that specifically address the needs of small business. My Department and agencies are currently developing new programmes and initiatives in response to the Report. I have also asked my cabinet colleagues to consider the recommendations addressed to their areas of responsibility. When the Report was published, I confirmed that I would meet with the Forum twice a year to review progress on the implementation of the Report. I am confident that I will be in a position to report significant progress at our first meeting which will be taking place in November. I would like to take this opportunity to acknowledge the significant contribution made to the work of the Forum by your representative, Mr Des Cummins. The positive input from Des and the other members was critical to it success.

I would like to conclude by wishing you every success in your deliberations here today. It is important that the challenges small businesses face are addressed in an open and positive manner and that the experiences of those of your members who are already exporting on a significant scale are shared. In this way, we can work together to ensure that the small businesses sector not only survives but, more importantly, thrives in the years to come.

Thank You.

ENDS

ETE 1634