Time for small businesses to grow up

BUSINESS OPINION: Another week, another whinge from the small business lobby. As sure as night follows day some time this week the fax machine will whirr into action and out will come some stridently worded fax from the Irish Small and Medium Enterprises Association or their rivals the Small Firms Association. It is too early in the week to speculate about the content of these faxes, but one thing is for certain, they will not be celebrating the success of Irish small business, writes John McManus.

The two organisations have put out something like eight press releases between them since Christmas. The SFA led the charge at the start of January with a call on the Government not to tighten up its cheap workers, sorry, immigration policies. Next out of the traps was ISME warning of dire consequences of the proposed new partnership agreement, an important issue for small firms you would think, but not one that the IBEC-run SFA choose to condemn.

However, both organisations were united in their condemnation of the CIÉ workers demonstration that brought busses and trains to a halt in mid January. The SFA then proceeded to have a go at the Government about its failure to tackle inflation while ISME followed up with a quick whinge about the lack of regional air services following the collapse of Euroceltic before getting stuck into local authorities about rate increases, which they argue are being forced though to pay benchmarking increments for council workers.

The two organisations activities in January are a pretty good reflection of their output over the past 10 years or so. For those who do not follow such things ISME is a breakaway organisation from IBEC - a sort of IBEC lite if you will. Since going its own way in the mid-1990s, ISME has been engaged in a battle for the hearts and minds of small business with the SFA. The tactics employed are not very sophisticated and seem to boil down to whoever is complaining loudest is doing the most for small business.

Quite what all this whinging has achieved in real terms is hard to quantify, but it has certainly created a widespread acceptance that Irish small business gets a pretty raw deal from the Government, the banks, Europe and just about everybody else. Small businessmen are pictured as the unsung heroes of the Celtic Tiger, quietly going about their not very profitable business with quiet dignity.

What then are we to make of some rather interesting figures that come our way courtesy of the Irish Bankers Federation, the bête noire of the small firms lobby? It seems somebody at the IBF took the time to read a rather dull report from an organisation called the Observatory of European SMEs, which must deserve a prize for a pretty daft name even by European Union standards.

The report was entitled SMEs in Europe, including a first glance at EU candidate countries. It is just the sort of report that you would expect deserves an all-singing all-dancing press release from ISME or the SFA, but to best of my knowledge its release last year went pretty much unremarked upon by both organisations.

The reason for this might well lie in a table on page 28 of the report, which compares the profitability of SMEs across the EU, and some of the accession states. The table shows that Irish SMEs had the second highest rate of profitability growth in the period between 1988 and 2001.

THE survey uses a fairly technical definition of profitability; namely "the difference between value added and labour costs, adjusted for the imputed wage of the self employed, as a percentage of value add". It found that the profitability of Irish SMEs grew by 2.1 per cent a year on average during the period in question. The only country where the sector did better was Portugal where profitability grew by 2.6 per cent. In the UK profitability grew by 0.2 per cent year on average while in the EU as whole it was 0.5 per cent.

All in all it is quite an impressive performance by Irish companies employing less than 250 people - the EU definition of an SME. Particularly when you remember that the period in question takes in the early 1990s when the sector faced some very real difficulties including the currency crisis.

No doubt ISME and the SFA can and will produce a range of other figures that contradict the one quoted above. They will also be able to argue that the broad definition of SMEs used in the study captures companies that are not really small business in the Irish sense. But such a bias - if it is significant - will skew the figure for all the counties in the survey.

For a lot of people the survey will go a long way to explaining one the great modern Irish business conundrums, which is: If small business really is as hard up as ISME and the SFA maintain, then why is the car park outside the ISME annual jamboree routinely stuffed with top of the range merc and jags?

More importantly it may signify time for a change of tack for these two organisations as they set about representing their members interests as they face into the very real threats posed by inflation, the strong euro and general economic uncertainty.

jmcmanus@irish-times.ie