Firms acting to reduce Brexit exposure

The latest Export Market Watch is the third in a series of reports examining Ireland’s major export markets and the outlook for exchange rates. It identifies three key actions that companies are taking to prepare for the unknown impacts of Brexit: improving financial management, diversifying to international markets, and strengthening their UK operations.

Key findings from the Export Market Watch Manufacturing Report include:

• 66% of firms are currently sending goods to the single currency area
• Almost half of respondents currently export to non-Eurozone European markets and to the Asia-Pacific region
• The Eurozone will offer the best opportunities for growth in the near to mid-term.

In contrast to the uncertainty of Brexit and its impacts, the overall outlook for the sector is positive, supported by strong economic growth. However, other issues facing manufacturing companies are the increasing levels of digitalisation and automation, and the accelerated evolution of new technologies within manufacturing. Additionally:

• One third of Enterprise Ireland manufacturing client companies surveyed believe the input cost environment has deteriorated in the past 12 months
• On labour, a majority of firms (66%) surveyed have difficulty sourcing talent, citing accessibility to talent as ‘poor’ or ‘very poor’, while staffing costs are cited as the primary source of current cost pressures
• Automation is identified as the technological trend that will have the greatest impact on businesses in the future.

Anne Fitzpatrick, manager, engineering, Enterprise Ireland said: “Brexit and the uncertainty surrounding it is worrying for firms in this space as most of our client companies export to the UK or have operations there and Enterprise Ireland is encouraging all companies to take action to prepare. Companies are increasingly focused on enhancing competitiveness by adopting Lean business practices whilst simultaneously embracing new technologies which enable the digitalisation of their manufacturing processes and significantly enhance their capability. This approach is enabling companies to deepen relationships with existing customers and to support companies in their diversification agenda.

“While Brexit creates significant challenges, it also creates opportunities for innovative companies who are actively developing and implementing new technological trends to scale in international markets and achieve their global ambition.”

Commenting on export markets in the US, Ryan Shaughnessy, Senior VP for Industrial Technology in Enterprise Ireland Chicago said: “The US remains a strong market for Irish companies and as a result of the current climate, many are understanding the necessity to diversify into international markets. With Ireland and the US sharing a similar business culture, there are many opportunities across the Atlantic. However, it is crucial that companies get to know the market before entering or expanding in it; research their product-market fit, meet potential customers and understand the competition.”

Commenting on the current outlook and the UK market, Sean Long, Senior Market Advisor, Engineering & Electronics, Enterprise Ireland London, said: “The current overall economic outlook is dominated by the Brexit discussions and the potential outcome of these, however conditions remain buoyant particularly in the automotive and aerospace segments. The uncertainty of Brexit has not derailed the positive story of this sector in the UK, and in fact, Brexit has prompted many Irish companies to address aspects of their business in order to strengthen their operations in the UK, such as supply chain optimisation, understanding potential custom changes and currency hedging.”

Market outlook for exchange rates:

Philip O’Sullivan, Chief Economist, Investec Ireland, said that: “While the risks to global growth have intensified in recent times, on balance the outlook remains supportive for Irish exporters. We continue to envisage stable developed market growth, with our forecasts more or less unchanged since the start of the year. Within the emerging markets space, the recent bout of market volatility does not appear to be feeding through into wholesale economic weakness.

“This volatility does, however, serve as a reminder of how important it is for Irish businesses to take steps to protect their operations against sudden sharp moves in FX rates and/or commodity prices, along with avoiding being overly reliant on any one export market. With many of the leading Central Banks expected to further tighten policy in the coming quarters, now is a good time for Irish firms to review their exposures and seek ways to minimise risks.”