State ‘should build ties’ between SMEs and multinationals

Closer economic integration between multinationals and small businesses should be facilitated by the State to ensure productivity growth isn't left solely to large companies operating here, the National Competitiveness Council has argued.

In its national productivity statement, the organisation said global risks including Brexit, international tax reforms, and anti-globalisation and protectionist sentiments mean economic growth and productivity should not rely solely on multinationals.

Productivity growth is a key economic metric which effectively enables companies to facilitate output to be produced more efficiently. Improvement in living standards, a sustainable wage level, and the State’s ability to finance public services are all driven by productivity.

And even though growth in our productivity is driven by large companies, there is evidence that the domestic economy is performing well. Figures from the Central Statistics Office (CSO) show that between 2000 and 2017, the annual average growth rate of labour productivity in the foreign-owned multinational sector was 9.3 per cent, compared with 2.3 per cent in the domestic sector. However, that was higher than the EU average of 1.3 per cent.

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Specific sectors

“Much of the strong performance can be attributed to the operations of large firms in specific sectors which continue to show productivity levels well above the euro area average,” the NCC said, adding that productivity in the State remains difficult to measure.

“While there is clear evidence about the direct contribution made by a highly productive and concentrated group of multinationals to the Irish economy, there is less clarity about the productivity performance of an increasingly diverse domestic sector, where both high performing and low-performing sectors and SMEs seem to co-exist.”

On that basis, they argued, policies facilitating closer economic interaction between SMEs and multinationals – through trade linkages, research collaboration and labour mobility – could help raise the SME productivity level.