Irish business can use size to its advantage and weather the storm

THE GLOBAL economic climate has changed. The reality is that Ireland’s economy is still healthy despite global changes in the business environment, but in order to remain that way we need to acknowledge those changes and to plan accordingly.

Ireland, although a small economy, is not a “cork on the sea” and we can do a lot to mitigate any consequences this new reality may bring.

The good news is that the Celtic Tiger has left the Irish economy in a healthier position post-crunch than, for example, the US or G7. The Mazars Business Environment Health Index, which scores the health of an economy on five criteria (unemployment, growth, inflation, growth in private consumption expenditure and level of government debt) shows Ireland scoring 76 out of a possible 100, where the US and G7 economies scored only 60.

Of note to our public policy- makers is that we are in a particularly healthy position regarding our Government debt, which means we have the capacity to borrow comfortably. Used correctly, this borrowing could fund investment in the areas which will help us to weather the storm.

At a more local level, now is the time to re-evaluate your business, to undertake activity-based costing analysis and, where necessary, to align cost bases with likely future revenue levels under the new market conditions.

Unless you can clearly demonstrate otherwise, assume your current market is unlikely to grow in real terms in the next 12 to 24 months.

Recently, Bank of England governor Mervyn King formally gave the British government his quarterly professional assessment of prospects in the UK economy. His view? It was, he said, “travelling along a bumpy road”. There might be one or two quarters of falling output, while inflation was set to continue rising in the near term; household incomes would remain under pressure. While he stopped short of forecasting recession, he noted that “the balance of risks to growth . . . is on the downside.”

Undoubtedly we are not as dependent on the British economy as we once were. On the other hand, many SMEs do have a British trade and they face the twin impacts of slowdown in Britain and competitive pressures as a result of a weak sterling.

There are challenges domestically, with the fall-off in housing output, rising unemployment, and significant prospective increases in energy costs being flagged for the autumn. However, given the strength of the Irish economy pre-credit crunch, we are not in bad shape in comparison to some of the other major western economies.

In order to steer through this storm though, we must acknowledge that the good years are behind us – for the present and for some little time to come – or so we should prudently assume.

It is true that Ireland is a small and very open economy in a truly global world. It has neither the critical mass nor the standing to act unilaterally to counter the present phase of the business cycle. Things like manipulating the interest rate and the exchange rate are off-limits with membership of the euro zone and the ECB’s focus is on inflation and squeezing it.

Our size, however, is something that we can use to our advantage in the current climate. Being smaller, we can be more agile.

We have strong businesses here and an existing strong economy to support them. We can look at the huge pie that is the emerging markets for new opportunities to help sustain us through this period, and add more geographic balance to reduce our overdependence on US/UK markets.

If we focus our energies on those opportunities which offer reward, we can and will get through this phase of volatility.

This is not a prescription for thoughtless cost-cutting, including payroll. The opposite is the case, actually. Prioritise the protection of your most profitable customers, activities, people and teams while also identifying those activities in the business that have no potential to yield a positive business result for the foreseeable future (the point of business after all). On that basis, don’t be afraid to make the hard decisions. I don’t see this as callous, rather it is prudent.

We need to extend the geography of our ambitions. If we operate within a town or region, we need to look nationally, and if we work nationally, we need to look internationally. As we have relatively small companies in Ireland working in a relatively small market, we need to focus on the few things we can all be good at.

Finally, we do need some kind of public address to Government (and to all of us) from an authority, much like the formal system that underpins the quarterly letter from the governor of the Bank of England to the British government of the day.

I call it a “national dashboard” that would give citizens, businesses, workers and politicians a clear indication of the current phase of the economic cycle, based on timely data, domestic and international. It could be published quarterly (as in Britain) and would provide a basis for informed debate (including by legislators) and comment as well as rational decision-making by consumers, business and government.

Joe Carr is managing partner at Mazars