International Business Report 2013: Looking out not in
International business report 2013
Executive summary
The latest data from the International Business Report
(IBR), which surveys business leaders across the globe
from 12,000 listed and privately held businesses in 44
economies, shows that 36 per cent of Irish senior
executives are slightly or very optimistic about the
country’s economic prospects in 2013, an increase of 6 per
cent year-on-year and 15 per cent on 2011.1 Irish
businesses are ranked the 5th most optimistic of the 10
Eurozone countries surveyed with a net percentage balance
of -2 per cent2 (2012: -12 per cent) i.e. those business
leaders optimistic (36 per cent) about the economy’s
outlook in 2012 less those who are pessimistic (38 per
cent). Globally Ireland remains 29th out of the 44
economies in 2013 (see figure 1).3
Successful organisations sustainably and responsibly
identify and exceed customer needs. In doing so, successful
companies create many opportunities in their community
such as employment, taxes, talent development and
innovation. Successful organisations unfortunately alone
cannot solve all economic woes. IBR 2013 shows the clear
and widening gap between the outlook for the macro
economy and the outlook for those trading in Ireland.
Ireland and therefore the customers of many Irish
businesses have endured severe financial and emotional
stress following several years of austerity budgets. The
stress on the country and as a result for Irish businesses
who focus solely on Ireland for its market will continue due
to the following three key challenges:
i balancing the government budget;
ii dealing with the oversized debt burden – public,
personal and corporate; and
iii funding the public sector pensions deficit.
1 2011’s IBR surveyed Privately Held Businesses exclusively
2 Balance percentage between those businesses that are optimistic and those that are
pessimistic 3 44 countries surveyed in 2013 compared to 40 in 2012. Holding for the 40 economies
surveyed in 2012, Ireland would have climbed from 29th to 25
th and from 7
th to 4
th out of the EU
countries in 2013
Figure 1: Balance percentage of optimism/pessimism 2013 Balance percentage of those indicating optimism against those indicating pessimism over the next 12 months
Source: IBR 2013
While the Irish outlook improves, IBR 2013 suggests that
the on-going Eurozone crisis at -22 per cent (2012: -16 per
cent) and United States fiscal cliff at -4 per cent (2012: +1
per cent) continue to undermine global growth prospects,
with the balance percentage of business leaders optimistic
less those pessimistic in both economies decreasing in
2013. Globally business optimism stands at a net
percentage balance of +4 per cent (2012: 0 per cent).
Relative to our Eurozone counterparts, only Germany
(+21 per cent), Denmark (+14 per cent), Belgium (+12 per
cent) and Estonia (+18 per cent) are more optimistic about
their economic outlook in 2013. The continued decline in
business sentiment across European economies suggests
that businesses leaders are now adjusting their outlook due
to the difficult process of fiscal and structural reform
across the zone.
International Business Report 2013 – Ireland 3
Economic uncertainty typically elicts a ‘wait and see’ policy
from many businesses. In Ireland those that continue to
wait, have seen their competitiveness erode or face ever
decreasing returns.
After five years of toil, Irish businesses are more cost
efficient and lean, with senior executive sentiment in these
organisations reflecting this trend. Those organisations that
have survived this challenging trading period are now
investing in long-term growth and competitiveness, as the
key financial indicators of revenue, profitability, selling
prices and exports continue to stabilise (see figure 2).
Figure 2: Economic Indicators Balance percentage 2007-2013
Source: Grant Thornton IBR 2013 * Note 2007-2011 includes PHBs exclusively
As a small open economy, dependent on the external
market Irish businesses have felt every change in the global
economy over the last few years. It appears they have
adapted to downside risk stemming from the uncertain
Eurozone outlook, especially trading partner demand,
through a forward thinking strategy - analysing the
competitive landscape in the market, understanding the
opportunities not only in their sector but their sub-sector,
and by investing in the future of their company – moving
from survival model to revival and indeed growth through
exports.
This is reflected in IBR 2013 key findings:
• Irish businesses are investing in talent with 92 per cent
of businesses expecting employment to increase or
remain the same in 2013 (2012: 68 per cent), while
Ireland ranks 1st in the world for the availability of a
skilled workforce for the second consecutive year;
• Financial indicators continue to stabilise reflected by 54
per cent of business leaders expecting profit to increase
(2012: 30 per cent) and 48 per cent expecting turnover to
increase (2012: 39 per cent) in 2013;
• Ireland ranks 4th out of the 44 countries surveyed
regarding export growth expectations (+36 per cent),
behind 3 of the fastest growing emerging markets of
Turkey (+50 per cent), mainland China (+44 per cent)
and India (+41 per cent);
• Irish senior executives are increasing investment in
R&D, plant and machinery and buildings, expecting
increased productivity and export led growth in 2013
(see figure 3):
Figure 3: Irish business investing in growth as uncertainty prevails Percentage change of businesses expecting investment to increase or remain the same from 2012 to 2013
Source: IBR 2013
Profit is the difference between income and costs. Profit
protection was achieved mainly in the last five years
through a strong focus on costs. It appears profit
improvement will be driven by a continued cost efficiency
model coupled with greater returns from customers as
growth strategies start to deliver.
At Grant Thornton we believe Irish businesses are
driving growth as they:
• think customer - relentlessly focusing on customer
needs
• think talent - rewarding people to deliver
• think smart - embedding smart technology and
processes across the business
Successful Irish businesses are looking out not in, with
customers, talent and the opportunities that smart
technology and processes provide being the sharp end of
the pencil when it comes to driving growth.
Patrick Burke Partner
2013 84% 70% 70% 92%
2012 62% 42% 65% 68%
Investment
in plant &
machinery
Investment
in new
buildings
Investment
in R&D
Investment in
employment
/talent
4 International Business Report 2013 - Ireland
International Business Report results
Contents 05 Irish businesses, getting on with it 09 EU and US, our traditional trading partners 12 Global results and emerging economies focus
International Business Report 2013 - Ireland 5
Section 1 Irish businesses, getting on with it
Figure 4: Levels of business optimism versus predicted 2013 GDP growth Balance percentage*
Source: IBR 2013, International Monetary Fund 2012 * Countries circled in blue denote EU members
The challenging domestic economy and continuing
uncertainty in the Eurozone shows Irish business
expectations to be delicately balanced for 2013. 38 per
cent (2012: 42 per cent) of businesses remain slightly
or very pessimistic about the economic outlook in
2013 (globally 35 per cent and EU 10 per cent). 36 per
cent (2012: 30 per cent) of Irish businesses were
slightly or very optimistic for the economy for the
next 12 months (globally 38 per cent, EU 27 per cent).
Figure 4 highlights how business optimism and
Gross Domestic Product (GDP) growth expectations
rank on a global scale for 2013. Improved business
sentiment, as well as modest growth expectations in
2013, places Ireland in the lower left quadrant with
GDP growth forecast, according to the International
Monetary Fund (IMF), to be 1.1 per cent in 2013.
Irish businesses are ranked the 5th most optimistic
of the 10 Eurozone countries surveyed and are 9
percentage points above the EU average (27 per cent)
for those that are slightly or very optimistic, at 36 per
cent in 2013.
This suggests that Irish business leaders have been
successful in adapting to the continued wave of crisis’s
faced by the Eurozone. Challenging market conditions
over the last number of years have forced Irish
companies to become more competitive and
ambitious, looking out not in.
The nature of the recovery in Ireland, however,
continues to be two speed with exports in the main
6 International Business Report 2013 - Ireland
driving corporate growth. The weakening of the euro
in 2012 - decreasing 9 per cent against the dollar and 7
per cent against the British pound – has given Irish
exporters a strong competitive boost.4 The currency’s
movement has helped to boost exports, which are
expected to have grown by 4.5 per cent in 2012, while
the domestic economy remains flat. 5
IBR 2013 ranks Ireland 4th in the world for export
expectations in 2013 at +36 per cent – a marked
strengthening on 2012 +25 per cent.
Figure 5: Export expectations – 2005-2013
Percentage balance of businesses
* Note 2005-2011 includes PHBs exclusively Source: IBR 2013
While there are signs that most sectors of the Irish
economy are stabilising (see figure 2), with Irish
outward looking businesses ‘getting on with it’; a
number of challenges in the macro economy remain
ahead.
Irish debt levels (public, personal and corporate)
continue to diminish the prospects of a macro
recovery. Spending cuts and tax hikes have seen
consumer spending remain depressed with the
domestic economy expected to have contracted by 1.5
per cent in 2012.6
Although recent economic data (e.g. retail sales,
Exchequer returns, manufacturing/services,
Purchasing Managers Indexes) on the Irish economy
have been positive, domestic demand is expected to
continue to remain flat on the back of sustained
household and public sector deleveraging and weak
labour markets, with demand expected to fall by 2.2
per cent in 2012 and by 0.6 per cent next year.7 This
trend is expected to continue with no sustained uplift
in personal consumption from 2007-2015 (see figure
6).
4 Bloomberg Businessweek, November 2012
5 National Irish Bank, December 2012
6 Central Statistics Office (CSO), Davy Stockbrokers, December 2012
7 Davy Stockbrokers, December 2012
Figure 6: Irish consumer income & expenditure 2007-2015 €billion - Current Prices
Source: CSO, ERSI, Amarach 2012
The challenges faced by the government relative to
the fiscal deficit and debt – public, personal and
corporate, have been well discussed and documented.
The issue of the public sector pension reserve which
started in 2001, through the establishment of the
National Pension Reserve Fund is likely to dominate
discussions on government finances. The office of
Comptroller and Auditor General in 2009 identified
the liability to be €116bn.8 €116bn references the
present value of the cash payments that fall to be met
over the next 60 years in respect of pensions earned at
31 December 2009. The assets presently to fund this
liability stand at €14bn.
Assets outlined below (see figure 7) have reduced
over the last three years due mainly to the
recapitalisation of our banks totalling €8.0bn.
Public sector pensions now account for 14 per cent
of the government’s total pay and pension bills. The
pension bill has increased 44 per cent since 2008. The
cost of funding this position will continue to depress
consumer spending in the long-term and likely
determine the success or otherwise of government
efforts to stabilise the fiscal position. 9
8 Comptroller and Auditor General, Reports on the Accounts of the Public Services
2011, September 2012 9 Department of Finance: Analysis of the Exchequer Pay and Pensions Bill, 2007-2011
International Business Report 2013 - Ireland 7
Figure 7: National Pensions Reserve Fund asset allocation, 2009 compared to 2012
According to the latest statistics from the Central Bank, loans to Irish households decreased at a rate of 3.7 per cent in the year ending October 2012, unchanged from the rate of decrease recorded at the end of August and September. Lending for house purchase was 1.9 per cent lower on an annual basis in October, while lending for consumption and other purposes and to businesses decreased by 8.6 per cent and 4.2 per cent respectively. 10
However the challenge of accessing credit is not
uniquely an Irish one as the western world comes to
term with those three words – too much debt.
Interestingly, most of our European counterparts see
access to credit as a far bigger hurdle than here in
Ireland (see figure 8).
Figure 8: EU access to finance
Balance percentage of respondents indicating access to finance to be more or less accessible, 2012 compared to 2013
Source: IBR 2013
The days of light touch regulation and inexpensive and
easy access to credit are gone. As the banking sector
rebuilds itself, credit is less ‘freely’ available and more
expensively priced. Sourcing finance is essentially a
creditor-debtor relationship that needs to be worked
out with an understanding of mutual dependency. By
understanding a bank’s business model and the
competitive landscape in which it operates, Irish
businesses can develop a value proposition that will
10 Central Bank Statistics, October 2012
ensure the best opportunity of securing funding.
Attracting equity is similarly important.
Securing access to credit and equity in the ‘new
normal’ will be about having:
• an ability to grow turnover regardless of the general
economic environment, either through adapting to
technology and processes changing consumer
buying behaviour, the relative market strength of
the business or through exposure to high growth
markets;
• strong balance sheets and sustainable cash
management. Balance sheet performance is
becoming as important as operating performance;
• the ability to generate returns on capital above its
costs and create long term economic value
continuously improving product and service
offerings - moving up the value chain.
Ireland as a place to run and locate a business is
unquestionable. Ireland’s tax rates, innovation and
talent mean it ranks 2nd in the world out of 50
countries for its business operating environment in
Grant Thornton’s 2012 Global Dynamism Index
(GDI). The IDA’s recent announcement of the
creation of 12,722 smart jobs in 2012 supports
Ireland’s ranking on the index.
Ireland has the highest availability of a skilled
workforce, with Irish business leaders expecting
employment to increase by 38 per cent in 2013 (2012:
15 per cent), with 54 per cent expecting it to stay the
same (2012: 53 per cent).
The findings of Grant Thornton’s research is
positive, but one of the key measures of how a
country is doing is its level of unemployment which
currently stands at 14.6 per cent in Ireland. The labour
market remains very weak despite the recent fall in the
live register. Enterprise Ireland supported companies
recorded a net jobs gain of 3,804 last year - the highest
increase since 2006 – encouraging as these indigenous
export led companies create employment in Ireland,
while growing overseas.
Talent management and skills development will be
key to the delivery of successful business goals. Ireland
has an innovative, well educated workforce that
compares favourably internationally. However, more
must be done to ensure that the right kind of
workforce is available for key roles, particularly in
growth sectors such as food, technology and life
science.
Assets Sept
2012 (€m)
Assets Sept
2009 (€m)
Total discretionary
portfolio (e.g. equity,
financial assets,
alternative assets)
5,977 13,857
Total directed portfolio
(investment in banks)
8,057 7,000
Total fund 14,034 20,857
Source: National Pension Reserve Fund, 31 September 2012 & 2009
8 International Business Report 2013 - Ireland
For Irish businesses with an instinct for growth,
transacting in the local economy, alone, is
unsustainable. Irish businesses that adapt their
business model for the enduring impact of the
European sovereign debt crisis, high growth markets,
credit, technology and talent management will
successfully grow domestically and overseas in the
next decade.
The message is clear; follow the customer and lead
your people.
Figure 9: Key indicators for business growth
* PHB exclusively 2011
** Balance percentage of those indicating optimism against those indicating pessimism
Source: IBR 2013
2011* 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013
ROI ROI ROI
UK UK UK EU EU EU
US US US
Global Global global
Outlook for the economy
over the next 12 months
-45% -12% -2% -8% -35% -3% 22% -17% -17% 23% 1% -4% 23% 0% 4%
Businesses expecting an
increase in exports
42% 31% 38% 26% 21% 22% 32% 27% 24% 20% 20% 19% 25% 22% 23%
Balance percentage** 41% 25% 36% 24% 18% 20% 29% 20% 18% 19% 18% 14% 22% 18% 19%
Businesses expecting an
increase in selling price
19% 25% 18% 36% 29% 33% 33% 29% 30% 44% 38% 35% 40% 35% 35%
Balance percentage -7% 7% 4% 21% 13% 20% 20% 11% 12% 38% 24% 23% 28% 18% 20%
Businesses expecting an
increase in profitability
45% 30% 54% 58% 41% 58% 50% 35% 38% 53% 51% 46% 54% 48% 51%
Balance percentage 19% 15% 42% 41% 22% 50% 37% 13% 19% 44% 40% 28% 40% 31% 35%
Businesses expecting an
increase in revenue
42% 39% 48% 65% 48% 58% 60% 43% 42% 68% 59% 52% 65% 56% 57%
Balance percentage 16% 15% 38% 55% 34% 49% 51% 25% 25% 60% 48% 38% 56% 43% 45%
International Business Report 2013 - Ireland 9
Section 2 EU & US, our traditional trading partners
Figure 10: Outlook for the economy over the next 12 months – EU, US and Eurozone members Balance percentage of businesses indicating optimism against those indicating pessimism
Ranking Very optimistic
Slightly optimistic
Neither optimistic nor pessimistic
Slightly pessimistic
Very pessimistic
Don’t know
Balance Y-o-Y change
1 Germany 8 39 27 26 - - 21 - 25
2 Estonia 2 42 30 22 4 - 18 -*
3 Denmark - 26 60 10 2 2 14 + 14
4 Belgium 6 38 20 24 8 4 12 + 34
5 Latvia - 34 40 22 4 - 8 -*
6 Lithuania 2 28 38 22 6 4 2 -*
7 Ireland 2 34 26 28 10 - -2 + 10
8 United Kingdom 2 32 29 30 7 - -3 +32
9 Poland 2 18 46 30 4 - -14 - 26
10 Sweden - 15 54 29 2 - -16 - 8
11 Italy 2 20 32 38 8 - -24 -4
12 Greece - 12 34 32 22 - -42 0
13 Netherlands 2 14 26 46 12 - -42 -2
14 France - 13 24 47 15 1 -49 -3
15 Finland - 12 24 60 2 2 -50 -2
16 Spain 1 11 8 48 31 1 -67 -5
Eurozone 3 23 25 38 10 1 -22 -6
EU Average 3 24 28 35 9 1 -17 0
United States 7 29 24 29 11 - -4 -5
Global Average 8 31 26 25 10 - 4 +4 * First year in survey Sources: Grant Thornton IBR 2013
The European Union and the United States are
Ireland’s two largest trading partners representing
approximately 59 per cent and 20 per cent of total
Irish goods exports.11 The protracted negotiations
over how to resolve both the sovereign debt crisis in
the Eurozone and the fiscal cliff in the United States
have significantly eroded business confidence in both
economies. Weakening trading partner demand is
expected to weigh more heavily on Ireland’s external
sector during 2013, which together with the lack of
support from the domestic economy is forecast by the
IMF to result in moderate GDP expansion of 1.1 per
cent.
According to the European Commission, GDP is
set to contract by 0.3 per cent in the EU and 0.4 per
cent in the Eurozone in 2012, with a gradual return to
GDP growth in 2013 at 0.4 per cent in the EU and 0.1
per cent in the Eurozone.12 Unemployment in the EU
is expected to remain high in 2013. Eurostat’s October
11
Central Statistics Office – January to October 2012 12
European Commission Autumn Forecast 2012
2012 survey of unemployment in the Eurozone found
that the recession had pushed unemployment up to a
record 11.7 per cent. The figures also revealed that no
fewer than 20 EU states have recorded increases in
unemployment compared to a year earlier.13
While the short-term outlook for the EU remains
fragile, growth and business expectations diverge
markedly between countries (see figure 10).
Businesses in Germany, Estonia and Denmark are the
most optimistic in the EU at +21 per cent (2012: 46
per cent), +18 per cent14 and +14 per cent (2012: 0
per cent) respectively. While optimism in Spain
remains the lowest in Europe at -67 per cent (2012: -
62 per cent) exacerbated by the highest unemployment
in Europe at 25 per cent and youth unemployment
levels heading towards 60 per cent.15
However, those businesses that were slightly or
very optimistic about business expectations in
13
Eurostat, October 2012 14
First year in the IBR 15
Eurostat, November 2012
10 International Business Report 2013 - Ireland
Germany have fallen significantly year-on-year, down
15 per cent to 47 per cent, indicative that the trend
towards recession is hitting core European countries
and industries – debtors need creditors too. The on-
going travails of the Eurozone, and the slowdown in
high growth markets such as Brazil and India and only
tentative signs of re-emergence of China’s economic
growth engine, are having a major impact on business
confidence in the 2nd biggest export economy globally
(export expectations in Germany have fallen 19 per
cent to +15 per cent in 2013).
Business outlook in the EU countries constitutes 7
out of the bottom 10 of Grant Thornton’s Global
Optimism Index (see figure 1), with only four
(including Ireland) of the EU countries surveyed in
IBR 2013 registering an increase in the balance
percentage of those that are optimistic over those that
are pessimistic year-on-year.
In contrast, there are signs that the US economy is
improving. In December 2012, employers added
155,000 new workers; encouraging considering the
looming government budget crisis that many feared
would bring recession in 2013 if not resolved. This
concern was reflected in IBR 2013 findings, with
business outlook decreasing 5 per cent to -1 per cent
for 2013.
In addition, an improving housing market is
buoying consumers’ spirits and giving the economy its
biggest lift since the real estate boom with economists
revising up its expectations that the US economy may
grow by 2.0 per cent in 2013 (see figure 11).16
The United Kingdom has seen the largest percentage
rise in business expectation year-on-year in the UK
from -35 per cent to -3 per cent in 2013. Improving
business sentiment was reflected in December 2012,
when British factory activity jumped unexpectedly to
grow at its fastest rate since September 2011,
according to the Markit/CIPS manufacturing
Purchasing Managers’ Index (PMI).17
16
Wall Street Journal, January 2012 17
The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI), December 2012
Figure 11: Estimated effect of housing on year-on-year US real GDP growth
Sources: S&P Dow Jones indices (prices), Goldman Sachs (GDP), The Wall Street Journal
New orders rose at the fastest rate since March 2011,
driven by domestic demand. Business confidence,
however, remains fragile in the UK and could easily be
derailed by any further setbacks in key export markets,
notably any resurgence of the Eurozone debt crisis.
Britain’s economy also faces headwinds from a
long-term government austerity programme and
inflation that has proven slower to fall than the Bank
of England had forecast, eroding consumer spending
power. The latest Bank of England forecast for 2013
GDP growth stands at 1 per cent, with any recovery
likely to be slow and protracted.18 This echoes the
comments of the Governor of the Bank of England
Sir Mervyn King in June 2012, when he said: “When
the crisis began in 2007 and 2008, most people
including ourselves did not believe that we would be
still right in the thick of it, in the middle of it, quite
this late. All the way through, I’ve said ………that I
don’t think we are yet half-way through.”
Europe at best is expected to face a sustained
period of low growth, austerity and lack of unity.
Many economists believe that Europe may face a lost
decade or two similar to that which occurred in Japan
in the 1980s and 1990s. If this is the case, Irish
business leaders need to maximise their resources
effectively and target consumer segments with the
most disposable income and the highest possible
margin growth.
Dynamic Irish businesses will always find value, by
understanding the market, sector or subsector they are
trading to – in terms of regional demand, shifting
demographics, urban consumption centres and
technology adaptation (m-technology and e-
commerce).
18
Bank of England, November 2012
International Business Report 2013 - Ireland 11
Changes in consumer and business trends are
occurring rapidly. Segmenting your target market by
income, demographics, new customer needs and
competition can enable growth, where unemployment
is high and domestic demand subdued.
Across western society, an ageing population (see
figure 12) combined with low fertility rates is creating
significant challenges and opportunities in the
marketplace.
Figure 12: Age demographics across (selected) EU27 countries 2011*
*EU27 figures 2010 Source: Eurostat
This demographic shift will require entirely new
approaches on the part of both policy makers and
business leaders. Western governments will have to
tackle societal issues (e.g. rising healthcare expenses,
public sector pension deficits, and older age
dependency ratios), while business leaders will need to
be opportunistic when devising new product strategies
that cater to this demographic. By 2060, 30 per cent of
all EU citizens are forecast to aged 65 years or over.
In contrast, Ireland is presently experiencing a baby
boom, and by 2060 is predicted to have the lowest
percentage of over 65s, and the highest child and
working age population in the European Union.
Figure 13 provides an outlook on the dependency
ratios in selected EU economies in 2010.
Irish businesses need to have a sustainable business
model to ensure that they meet changing customer
needs. Considering the changes in demographics (e.g.
age, distribution of income, household size and
intergenerational households), Irish senior executives
need to consider whether to invest a large proportion
of research and development and marketing
expenditure on younger age groups (0-18 & 18-30),
older age cohorts or both. The underlying economic,
social and demographic changes occurring in Europe
mean businesses will need to relentlessly think
customer.
The working age population in Europe and North
America is declining. The average working ages
continue to rise, with the war for talent becoming
global. Talent is no longer a commodity: increasingly
competitive global markets, skill shortages and
demographic trends, mean businesses need to think
talent to execute strategy.
Innovation increasingly will be focused on the
needs of different generations. Those in the middle
(30-49 demographic) are saddled with household debt
and negative equity. Business leaders will continue to
face lower revenues and weaker order books (see
figure 14), if they are unable to adapt to the
opportunities that smart technology and process
provide in segmenting their customer in traditional
overseas markets.
Figure 13: EU (selected) median age and age dependency ratios, January 2010
Source: Eurostat, Amarach Research
Median
age
Dependency ratio Population aged 80 or over
Young age Old age Total
EU - 27 40.9 34.8 28.4 63.2 4.7
Denmark 40.5 41.2 27.5 68.8 4.1
Germany 44.2 31.0 34.1 65.1 5.1
Spain 39.9 31.3 26.6 57.9 4.9
Ireland 34.3 44.9 18.5 63.4 2.8
France 39.9 41.5 28.6 70.2 5.3
Italy 43.1 31.2 33.3 64.5 5.8
Netherlands 40.6 38.9 25.1 64.0 3.9
Sweden 40.7 40.1 31.0 71.0 5.3
12 International Business Report 2013 - Ireland
Section 3
Global results and emerging economies focus
Figure 14: Expectations of order books versus revenues Balance percentage*
Source: IBR 2013 * Countries circled in blue denote EU members
At a global level, using purchasing power parity,19
the share of emerging markets in world GDP is to
surpass 50 per cent in 2013.20 As a result, businesses
in many emerging economies look well placed for
increased demand and higher revenues. Figure 14
illustrates the relationship between revenue and
demand in the 44 economies surveyed. In spite of
revised downward GDP growth in many emerging
economies in 2012, both economic indicators
remain strongest in these markets, reflecting strong
19
The differences in cost of living 20
IMF’s World Economic Outlook 2011
business confidence for 2013 – the top right hand
quadrant.
Weaker order books and higher revenues in
China indicate that falling property prices, banking
impairments, decreasing exports and an economy
driven by investment rather than consumption
continue to weigh heavily on business leaders
minds.
A hard landing for China’s domestic economy is
now seen as increasingly unlikely. After GDP
growth had slowed for seven consecutive quarters,
growth picked up in the final quarter of 2012.
International Business Report 2013 - Ireland 13
However, the country is on track for its weakest
economic expansion in more than a decade, with
economists predicting growth of less than 8 per
cent in 2012.
The gradual recovery in global business optimism is
largely been driven by emerging and developing
economies. The shift of economic power flowing
toward high-growth emerging markets has
intensified with the world’s largest mature
economies increasingly dependent on the strength
of the economies in Asia, Latin America, the Middle
East and Africa for the health of the global
economy. Regional optimism levels in Latin
America +69 per cent (2012: +61 per cent),
BRIC+39 per cent (2012: +34 per cent) and APAC
ex. Japan +28 per cent (2012: +23 per cent) has
improved year-on-year, remaining robust in spite of
the challenging economic conditions in Europe and
North America.
Figure 15: Business outlook 2013 compared to 2012
Balance percentage of optimism/pessimism by region
Source: IBR 2013
IBR 2013 shows that international expansion is no
longer a one-way street. Increasingly cash-rich
businesses in emerging economies are looking for
expansion opportunities in mature markets, whether
through opening up premises or buying distressed
assets. Businesses in Turkey (59 per cent), Russia
(37 per cent), India (33 per cent) and China (27 per
cent) are looking at opportunities in Western
Europe; while 33 per cent of Latin American
businesses are looking at North America.
Figure 16 illustrates exports to emerging markets
(2000-2011) as a percentage of GDP demonstrating
the low exposure of weaker European economies to
external growth and their reliance on internal and
Eurozone demand. It is clear that Irish trade
diversification needs to increase from the traditional
markets of the UK, US and Western Europe, as
Ireland’s exports as a share of GDP have declined
in the 2000-2011 period for Asia, Middle East,
Africa, and Latin America.
Figure 16: Percentage of GDP exports to emerging markets (selected EU countries)
Source: Citi Research, IMF
These regions represent future global growth, and
are also the regions that are more suited to a
number of our indigenous exports, which success
has a significant economic multiplier effect in
creating jobs, demand and consumption in the
domestic economy (e.g. agri-food sector, clean
technology).
Therefore, it remains an on-going concern that
approximately 4 per cent of Irish exports are going
to the BRIC economies (see figure 17).21 High
growth markets, as well as other developing
economies, constitute 8 out of the top 10
economies in Grant Thornton’s Global Business
Optimism Index 2013 (see figure 1).
Figure 17: Irish exports of good to BRIC countries
Percentage of grand total by value
Source: Irish Exporters Association 2011
Both growth and interest rates remain low in
mature economies, and many businesses in
emerging markets are looking for foreign direct
investment that provides technology, process, skills
21
IEA end of year trade statistics 2011
14 International Business Report 2013 - Ireland
and knowledge transfers - all growth opportunities
for high value Irish exports.
However, it is encouraging to see that Irish
businesses as well as the Irish government have
turned their direction to fast growing emerging
markets. Trade missions to China, Brazil and South
Africa in 2012 has helped to gain traction for Irish
businesses in these markets.
Ireland has the capacity for high value exports to
these markets (e.g. food and agriculture, clean
technology and financial services). Overcoming
legislative/regulatory hurdles in these markets, as
well as securing access to finance will remain the
core challenges for Irish businesses if they are to
capture a slice of these high growth markets.
According to the Irish Exporters Association
Survey and International Trade Finance Review
2012, 71 per cent of Irish exporters are targeting
new markets. 2013 IBR finds that 21 per cent of
Irish businesses expecting to grow their business
internationally are considering expanding into
Eastern Europe/Middle East, 15 per cent into
China and India and 6 per cent into Russia and
Brazil (see figure 18). Facing weak growth rates at
home, it is positive to see business leaders in Ireland
looking for international expansion opportunities in
higher growth economies.
Figure 18: Top 10 markets for Irish exporters 2013
Source: IBR 2013
Emerging markets continue to adopt western
products and lifestyles as their middle class explodes
in size and potential.
The issue for businesses to capitalise on this
opportunity is that they generally need three assets:
• time;
• money and;
• an established brand/product
While the opportunity is large new markets
require significant investment in time, talent,
resources and effort to reap the rewards.
Country /Region Percentage
Western Europe 39%
North America 21%
Eastern Europe/Middle East 21%
China 15%
India 15%
Australia/New Zealand 10%
South Africa 6%
Russia 6%
Brazil 6%
Other Africa 6%
The Grant Thornton International Business Report (IBR) is a quarterly survey of around 3,000 senior executives
in privately-held and listed businesses all over the world. Launched in 1992 in nine European countries the report
now surveys more than 12,000 businesses leaders in 44 economies on an annual basis providing insights on the
economic and commercial issues affecting companies globally.
To find out more about IBR and to obtain copies of reports and summaries please visit:
www.internationalbusinessreport.com. The site also allows users to complete the survey and benchmark their
results against all other respondents by territory, industry type and size of business.
Participating economies Argentina Lithuania Armenia Malaysia Australia Mexico Belgium Netherlands Belarus Norway Botswana New Zealand Brazil Philippines Canada Poland Chile Peru Mainland China Russia Denmark Singapore Finland South Africa France Spain Germany Sweden Georgia Switzerland Greece Taiwan Hong Kong Thailand India Turkey Ireland United Arab Emirates Italy United Kingdom Japan United States Latvia Vietnam
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