International Business Report 2013: Looking out not in

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


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


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


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%


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%


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%


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%


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


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


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


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.


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


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

© 2013 Grant Thornton. All rights reserved.

Member of Grant Thornton International Limited Authorised by the Institute of Chartered Accountants in Ireland to carry on investment business.

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International Business Report 2013: Looking out not in

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