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Why Irish small businesses are keen to stay at their current size

Analysis: that's one of the findings from a new report on the sector which makes up 90% of Irish businesses and employs over 400,000 people

The Irish Government has ambitious plans of increasing the productivity of small and medium sized enterprises (SME) by 1% per year to 2025. Given the productivity gap between the large, foreign-owned multinationals in Ireland and the smaller, usually indigenous, firms, it is sensible to dedicate one of the five pillars of the Future Jobs Ireland 2019 strategy to improving SME productivity.

While the multinationals are making considerable strides with respect to productivity, our small firms are lagging behind. Policy should always be based on evidence, but there is a considerable knowledge deficit in Ireland with respect to an important section of the business economy, that is, micro-businesses.

Micro-businesses with between one and nine employees constitute 90% of Irish businesses and employ over 400,000 people. In fact, microbusinesses account for almost 20% of all Gross Value Added in the Irish business economy. These firms are critical to future productivity and job growth, but as they are often excluded from national and international surveys, we know little about their growth aspirations and personal motivations. Do micro-businesses share the governments’ ambition of productivity gains? How innovative are Irish micros? How do they compare internationally with respect to digitalisation?

Our report, Microbusinesses in Ireland: From Ambition to Innovation, presents new information on Irish micro-businesses. The purpose of this survey-based project is to study the ambitions, growth aspirations and levels of innovation among established micro-businesses in Ireland, the UK and the United States, and to help us understand what drives their growth and productivity. Data was collected from 1,500 micro-businesses over three years old in Ireland, as well as 6,200 in the UK  and 2,000 in the US.

Micro-businesses are based in every county and sector in Ireland. These businesses play an important role in all of our lives. They are our plumbers, our builders, our hairdressers and our mechanics. They are also our architects, designers, artists, lawyers and accountants. Our survey data reveals that most Irish micro-businesses are mature, with the average firm age being 25 years. Around half are home-based, while two-thirds are family-owned. More than 40% of Irish micro-businesses export their goods and/or services to international markets.

Our report on Irish micro-businesses reveals that over 70% of small business owners want to keep their business similar to how it operates now. This is not particularly surprising, as most micro-businesses start small and stay small. However, some micros will be the test-bed for a new business idea or innovation or the launchpad for scale-up. In fact, the fast-growing firms of the future will most likely start as micros.

If many micro-businesses seem to shun high-growth, then where do their ambitions lie? One in two small business owners want to increase the social and environmental benefits of their business, as well as creating a culture of employee engagement. The benefits of being your own boss are of particular importance to Irish small business owners, with most emphasising "freedom and autonomy" and "flexibility for personal and family life" as key personal motivators. Many want to be able to retire or have a business to hand on to family.

A key deliverable from Future Jobs Ireland 2019 is to initiate a new six-year strategy for female entrepreneurship. Our report shows that female business owners are just as ambitious as their male counterparts. Personal motivators such as greater flexibility for personal and family life and freedom to adapt own approach to work are of particular importance to female micro-business owners, as well as developing a culture of employee engagement and increasing the social and environmental benefits of the business. Strategies to encourage female entrepreneurship must take account of the intrinsic and extrinsic motivators of female business owners.

Future Jobs Ireland 2019 also identifies the need to incentivise SMEs to invest in new technologies. This is in line with the OECD’s The Future of Productivity report which states that digital technology adoption, process innovations and best practice diffusion are all important drivers of productivity in small businesses.

From a relatively low base in 2012, diffusion of digital technologies by micro-businesses in Ireland is strong and growing, and uptake is comparable to the UK. Some digital technologies such as cloud computing and web-based accounting software are now being used by 40% of micro-businesses. However, adoption of artificial intelligence and machine learning remain low. On average, micro- businesses adopt 1.7 digital technologies, approximately one in four micro-businesses have not adopted any digital technology and and there is little variation in this figure across the Irish regions. 

Levels of innovation in Irish micro-business in Ireland are higher than those in the UK and US, with 40% of micro-businesses introducing a new product or service in the previous three years. However, innovation activity varies across Ireland and this figure is lower in peripheral regions, particularly the South East and Border regions. In addition, one in four micro-businesses in Ireland introduced new business models or forms of organisation.

So while many micro- businesses in Ireland do not place high-growth top of their list of ambitions, many are implementing technologies and best practice changes which are crucial to improved productivity. However, uptake is not uniform across sectors or regions. Our research indicates that strong networks and collaborations are particularly important for small businesses when deciding to adopt new technologies, as well as prior levels of sectoral adoption. Key to achieving the Future Jobs Ireland 2019 SME productivity targets will be identifying strategies to encourage digital technology adoption and best practice diffusion within small businesses.

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