Innovation is key for Irish SMEs

26 May 2005

After delivering one of the most eagerly awaited strategy documents of the past year and certainly the most momentous of his career, Enterprise Ireland (EI) chief executive Frank Ryan leans forward in his chair at Dublin’s Merrion Hotel and without missing a beat demands to know why Ireland doesn’t have more Irish companies such as CRH, Glen Dimplex, Xsil or Trinity Biotech. He knows why, he just wants to reinforce his point.

Since taking the helm of EI more than 18 months ago, Ryan hasn’t allowed himself to be in the public eye, instead spending the time formulating a major re-organisation of the state agency and its role in shaping the future of Irish industry for the next five to 10 years. At the heart of Ryan’s strategy is his belief that the indigenous industry in Ireland is, at best, disproportionate in size and turnover to the large multinational community and that Irish SMEs lack the scale to compete effectively overseas in target industries such as food, technology and life sciences.

“We witnessed unprecedented economic growth over the past 10 years,” says Ryan. “However, the next 10 years will not be a rerun of the past 10 years. Serious transformation of our economy will be required. Some Irish companies have made this transformation — just look at Xsil and Trinity Biotech — but economic growth over the next 10 years will be driven by growth in the indigenous sector. Our new strategy is aimed at transforming SMEs and accelerating their development by making them more market focused and innovative with an in-depth understanding of their customers.

“This is not just about high-tech companies, but is applicable across all industrial sectors. The business models of the Nineties are no longer sustainable. To be market focused and innovation led — that’s the new sustainable business model.”

Ryan’s views on what it takes to grow an economy cannot be taken lightly as he played a central role in setting the stage for Ireland’s remarkable economic achievements in the late Nineties as head of IDA Ireland’s electronics division. He led the IDA team that
influenced Intel’s decision to build a microprocessor plant in Leixlip, which went on to yield unprecedented fruit in the form of subsequent
multibillion investments and now employs 5,000 people. A born salesman, Ryan has been known to recall how he deliberately flew Intel executives by helicopter over new road and housing developments to drive home the point that this was a nation on the march.

Ryan’s plan to accelerate the development and internationalisation of Irish-owned businesses will see EI engaged in the seeding and funding of more than 200 new high-potential start-up companies, 300 productivity and competitiveness projects by 2007 and the doubling of Irish companies engaged in research and development (R&D) (spending in excess of €100k each) to 1,050 companies by 2010.

To underpin this strategy, EI has created a new €20m productivity fund aimed at encouraging existing Irish businesses to engage in R&D and internationalisation of their products. “We want to see an R&D department in every company in our portfolio. We want an R&D department to be as common in an Irish company as a procurement department,” Ryan says.

As part of the restructuring, EI has established three new major sectoral divisions: food and retail consumer markets; software, services and emerging sectors; and industrial and life sciences markets. Within each of these divisions will be 65 sub-groups with dedicated budgets, for example in software [there will be budgets[ covering areas such as e-learning, mobile and IT security.

“Ten years ago, exports of software by indigenous companies amounted to €57m. Last year exports in this sector reached €1.3bn. Prepared consumer foods now account for exports of €600m from a standing start only five years ago. Increasingly, Irish companies through their ingenuity creativity, knowledge and expertise in developing new products and services are securing major contracts in overseas markets.

But the overriding problem and the most relevant to Ireland’s indigenous IT sector is the need to bring companies to the scale that would make them relevant in the eyes of overseas buyers; ideally companies to the scale of 250 employees and an annual turnover of €20m instead of hundreds of 10 or 20-employee firms with a turnover of between €1m and €3m. “We have been talking to the Irish Software Association, for example, about consolidating companies in order to get them to a mass and scale suitable for export markets. The sub-groups we are establishing will define, for example, what trade fairs to participate in that would best suit indigenous companies.”

Another key aspect of what Ryan is proposing is the internationalisation of Irish companies and preparing them to sell both inside and outside Ireland. “We will be offering incentives aimed at supporting companies that wish to embed a supply chain management competence in their companies as well as R&D.”

Ryan also argues the point that Irish IT firms must make more of the multinational presence in this country and use this as a lever to sell into overseas markets. Hewlett-Packard (HP), which employs more than 3,000 people in Leixlip, has sales alliance partner programmes that enabled Irish tech firms Ambeo and Vordel to secure major deals. E-security firm Vordel, for example, played an instrumental role in enabling HP to win a CAN$2bn outsourcing deal with the Canadian Imperial Bank Corporation. Other firms such as Dublin-based Cúram Software are forging partnerships with US and Asian technology players geared to securing major
e-government deals and Cúram’s technology is currently helping the US State of Utah to boost the efficiency of its human resources programmes.

Ryan explains: “Collaboration with substantial companies overseas is vital. Eontec, which was bought last year for €130m by Siebel, never sold 100pc of a contract to anyone. It pitched in with other companies such as HP that would have been responsible for 25pc of a contract.”

In terms of boosting R&D amongst Irish companies, Ryan says the new plan “will see EI spend €400m on applied research amongst SMEs and high-potential start-ups over the next three years”. To put this in context, Ryan says Science Foundation Ireland has spent €200m on applied research since its inception.

Ryan’s strategy has been endorsed by Enterprise Minister Micheál Martin TD who qualified: “Irish industry and entrepreneurship are of
paramount importance to the Irish economy and to Irish society — not least because of the critically important regional economic spin off that Irish companies create. In 2004, for example, Irish companies generated €17bn in payroll and expenditure, with every county in Ireland benefiting.”

Ryan’s strategy has also won the admiration of Opposition member Phil Hogan TD, Fine Gael’s enterprise spokesman who also supports the removal of barriers to entry for entrepreneurs establishing businesses. “There are some 170,000 SMEs in Ireland, employing 600,000 people. We want to see a reduction in the amount of red tape and a reduction of the costs associated with establishing a small business in this country and we will be putting forward our proposals on the matter in the context of the next general election to achieve those objectives.”

Hogan’s assertion on red tape and establishing companies in regions outside of Dublin are matters close to Ryan’s heart. “A key element of the new strategy is making more use of our regional offices as well as alliances with FÁS and the county enterprise boards in meeting the needs of entrepreneurs in the regions. I’m banking on some 200-plus new sustainable companies being created over the next three years with the majority of these being outside a 50-mile radius of Dublin.”

So far, Ryan explains, at least 15 of the 65 sub-groups in EI’s sectoral restructure are in place and will form part of its new international operation whereby staff in overseas offices will be aligned by sectoral expertise that matter to Irish exporters. “For example, in London we will have people involved in the software and life sciences sectors and in California we’d have people with expertise in mobile phone software. In the past we’d have people deployed by geography without taking into account sectoral expertise. Under the new structure we will be standing shoulder to shoulder with the companies we are representing.”

In other words, in future EI staff members whether regional or based out of Shanghai are not there to be advisors but to help get the global deals that Irish companies need. “The acid test for this new strategy will be how many contracts will be won overseas for Irish companies in the years ahead,” Ryan concludes.

By John Kennedy