Committee Reports > List of Committees > Joint > 1984 > Committee on Small Businesses > Report No. 01 - Manufacturing Industry

APPENDIX

MAIN CHARACTERISTICS OF ENTREPRENEURSHIP

MARKETING, PRODUCT DEVELOPMENT AND QUALITY CONTROL

INTRODUCTION

In this chapter we look at the opportunities, limitations and problems that Marketing poses for small firms. The chapter covers the following:

1. Domestic Market

The Irish Domestic Market is characterised by:

(i)small size

(ii)low income per head compared with E.E.C. partners, with consequential lower consumer purchasing power

(iii)open nature of Economy

(iv)Less developed infrastructure

(v)comparatively high inflation

However, we believe that there is enormous untapped potential for Irish small industry in both the domestic industrial and consumer markets

The Irish Goods Council has estimated the value of expenditure on personal consumption alone for 1983 at £8,000 m.

We deal with this section under the headings of Import Substitution and State Procurement Policy.

(a)Import Substitution

We acknowledge that Ireland has a small, open and highly competitive economy and that much of the 1983 import bill of £7,400m comprises raw materials, components, and other goods that could not be sourced in Ireland. However, scope for some import substitution is self evident. This is particularly true of consumption goods which accounted for nearly £2,000m of imports.

Recommendations

Given the recent changes involving the transfer of responsibility for the Guaranteed Irish Programme from the Irish Goods Council the name of the Irish Goods Council should be changed to the Irish Marketing Board and the new Board should be given the following broad functions:-

(i)Overall co-ordination of and responsibility for indigenous marketing, including monitoring and reporting on progress of Irish industry in the Home Market.

(ii)Promotion of Irish Goods with special emphasis on the Retail Sector.

(iii)Liaison with I.D.A. in the development of marketing plans by small companies and on the appropriate type and level of assistance.

(iv) Provision of consultancy service together with marketing information and analysis to individual firms.

(v)Responsibility, in conjunction with I.D.A., for monitoring linkages between small indigenous industry and I.D.A. assisted overseas firms.

(vi)Ensuring the implementation of an Irish Standard, when needed, to ensure that inferior products are not dumped on the Irish market.

(vii)Be empowered to prosecute firms that promote relabelled imported products as being of Irish manufacture.

(viii)The relevant State Agencies should make available a comprehensive list of imported products which could be manufactured here and also a list of products that have proved to be non-viable. The Irish Marketing Board should spearhead a new emphasis in product identification and co-ordinate the activities of the other Agencies in this field.

(b)State Procurement

A dominant sector within the Domestic Market is the Public Sector. For example, non-salary expenditure by Government Departments for 1983 amounted to £3,500m.

However, it is an area that poses particular difficulties for small firms.

The problems of a small firm trying to break into this market are:-

(i)Difficulty in identifying what the product needs of the Public Sector are, given the absence of uniformity.

(ii)Lack of clarity as to the persons within the Public Sector responsible for the various purchasing requirements.

(iii)A reluctance on the part of purchasing officers to move away from suppliers with a track record of quality, delivery etc. which makes it difficult for a new untried supplier to break into the market.

(iv)A lack of discrimination in favour of the small manufacturer on the part of public purchasing bodies.

Recommendations

Given the unco-cordinated and confusing public sector procurement methods we would recommend:

(i)A comprehensive data bank on Public Sector requirements be held by the proposed Irish Marketing Board.

(ii)Simplification of tendering procedures and appropriate lengthening of time period for application.

(iii)Where sole Irish Manufacturers are concerned, field trials or pilot purchases should be allowed to see if standards can be met.

(iv)Reserving 30% of all State purchases for small business in line with E.E.C. recommendations.

(v)The Government Contracts Committee should be directed to discriminate in favour of small firms and to monitor State purchases from small firms.

2. Export Market

It is generally in the export market that small firms encounter more complex market problems. Unfamiliarity with the market place, inexperience in dealing with foreign customers and regulations, geographical remoteness from the market place, limited knowledge of foreign languages and inability to compete on level terms with multi-nationals are just some of the difficulties facing Irish small business exporters.

Particular problems of cost are posed by our peripheral location with regard to the main European export markets.

New challenges and opportunities are also being provided by the development of international traded services, a major growth sector for the future.

Recommendations

To meet these problems we recommend the following:-

(i)Improvement of Marketing Education within companies and curriculum development for foreign language skills in the long term.

(ii)Grafting marketing personnel on to existing companies, as a short term measure, through further refinement of AnCO, CTT, and institutional marketing programmes, enabling marketing graduates to get both in-company and overseas experience.

(iii)Switch in emphasis from grants for fixed assets to market development in the case of smaller firms e.g. for replacement industries or new product launches. Marketing grant assistance should be based on submission of a detailed marketing plan.

(iv)Establishment of a sales agency service in our main markets which would act as “middle man” between the market and Irish small firms, most of which cannot afford an individual market presence. We note and support CTT’s group selling schemes and the activities of the Irish Export Agency in developing countries. We feel there is scope for further development in this whole area.

(v)Grant assisting new marketing or trading companies to cover office accommodation, equipment, transport and working capital. Such companies would take over the marketing functions of client small manufacturing firms including market research, sales, distribution, and advice on new product development and packaging.

(vi)Assisting small firms in overcoming technical barriers. IIRS should provide a comprehensive specialist service in this area to small business in conjunction with CTT’s Grant Incentive Scheme which contributes to the cost of having products tested and approved by Official Testing Authorities overseas.

(vii)Greater use of Embassies and Consular services in developing Irish export marketing potential including appropriately trained personnel to provide an advisory service to small firms. Perhaps these services should take responsibility for trade missions.

(viii)Establishment of a network of warehouse facilities across Europe for products of small firms.

(ix)We note that CTT provides a higher level of grant assistance to firms with less than fifty employees and fixed assets of less than £400,000. There should be positive discrimination in favour of and higher grants to small firms as defined by the Committee.

(x)Recruitment restrictions on CTT should be lifted.

(xi)The Committee supports CTT proposals for

(xii)We also support CTT proposals to:

(xiii)In the event of CTT coping with cash shortages there should be switch in emphasis from trade missions to direct company aid.

3. Product Development

The environment for innovation is changing rapidly. New technology means that product life cycles are getting shorter. Product development is therefore becoming both more costly and more risky.

There is a problem of awareness of the impact of technology on product development across Irish industry. This is underlined by the fact that total R and D expenditure represents 0.32% of Gross Domestic Product in Ireland, compared with 1.31% in Sweden, 1.67% in Switzerland and 1.56% in the U.S.

The level of product development which is taking place in Ireland without reference to the market place is a cause for concern. Ireland is an open market, and as such, is open to competition. Irish companies, whether they are exporting or not, must be fully aware of the changes in competitors products in the internation market place. Companies which are not actively examining changes overseas will find themselves vulnerable to competition both at home and abroad.

Far more State and company investment is needed with a strong emphasis in market information gathering and research (see recommendations regarding Market Research).

Recommendations

We therefore recommend the following to meet these problems:-

(i)Third level institutions should be specifically responsible for obtaining and disseminating information on new developments in technology. The wealth, talent, expertise, experience and facilities of these institutions in every industrial discipline should be made available for the benefit of industry. A framework should be introduced on a pilot basis to develop active partnership between third level institutions and manufacturing industry, to use third level skills and experience in raising industrial performance and improving technology, to train graduates for careers in industry and to provide teaching staff with direct industrial experience on a continuing basis.

(ii)The creation of a new awareness of the need for product development through seminars, promotions and full use of the national media to ensure small firms are fully informed of changes and trends in technology with the full co-operation of the I.D.A., National Board of Science and Technology and Third Level Institutions.

(iii)I.D.A. Research and Development Grants and Feasibility Study Grants and CTT grant assistance should be increased from 50% to 75% in the case of small firms.

(iv)As an optional alternative to (iii) 25% of the increase in R and D expenditure over a base amount should be allowed against a company’s corporate tax bill.

(v)The provision of awards in Science and Technology to support post graduate students in co-operative research projects between third level institutions and companies or organisations in either the Private or Public Sectors. A sum of £40,000 would fund a pilot scheme of ten awards.

(vi)Funds should be made available to bring student ideas up to the stage where a proposal could be considered under the Feasability Study Grants Scheme. Students must be encouraged to seriously consider the possibility of starting their own businesses as an alternative to seeking employment in the traditional fashion.

4. Quality Control

Poor quality control has damaged the potential of small Irish manufacturers to service markets at home and abroad.

Proper Quality Control in a company is essential for its continued successful operations because of the effect it has on

a)customer satisfaction - where customers are not satisfied with the quality of products supplied they will obviously drop the supplier thereby cutting off repeat orders to the manufacturer.

b)production costs - the absence of Quality Control will increase production costs due to the waste of materials and man hours in correcting poor quality production. The competitiveness of such companies is then affected, making it difficult for them to survive in open market competition.

c)international experience - it has been demonstrated that high quality goods can command a premium price and higher market share.

While the immediate results of the above impact directly on the company involved, the more damaging aspect is the effect it has on the reputation of other Irish manufacturers.

Recommendations

(i)Before any grant assistance is given to new projects, or increased grant assistance given to existing projects, there should be an insistence that grant applicants have proper quality plans in place. A grant package scheme specifically for quality control should be introduced.

(ii)Increased training specifically related to quality control measures. This would be provided by in-company programes with particular emphasis on assisting companies to introduce quality circles.

(iii)A nationwide system for “Quality Approved” stamping of all Irish manufactured products should be introduced. The system should be controlled by a properly qualified agency such as the Irish Quality Control Association. The aim of such a system would be to give an official stamp of approval to those manufacturers who maintain proper quality control standards.

Manufacturers who attain the stamp of approval should receive positive discrimination from the public sector and all State agencies.

STATE AGENCIES

INTRODUCTION

This chapter does not attempt to look at the State Agencies but rather at the manner in which the services offered by the various State Agencies is perceived by the Small Business. The recommendations are aimed at bringing the perceptions of small firms closer to what we would accept as being the reality in most instances.

1. THE STATE AGENCIES

The chart outlined in Appendix I summarises the various services offered to small firms. The size of the chart itself reflects the foundation for many of the comments made by small firms in submissions to the Oireachtas Committee.

2. THE PROBLEM

Two recent studies, one carried out by the Small Firms Association (S.F.A.) of the C.I.I. during 1983 and the other by AnCO during 1982, highlighted the particular problems small firms perceived in their dealings with the State Agencies. The following are brief summaries of the main points from each of the studies:-

(i)Small Firms Association

Sample of comments of companies reaction to development agencies:

“Too much bureaucracy, too many agencies, too little understanding of what it takes to run a small business”.

“No personal contact with our company”.

“In many instances structures of assistance fragmented”.

While the Agencies are clear about their role and functions, the entrepreneur or small firm is not always clear as to:

(ii)The AnCO study carried out during 1982 covered small firms, the State Agencies, County Development Officers etc. Its findings are summarised in Chart in Appendix II. It can be seen that approximately 57% of small firms had problems or difficulties dealing with State Agencies.

3. THE REQUIREMENT

The requirement is that the totality of State Agencies must develop a co-ordinated total business approach to:

While the need to encourage the formation of new small businesses is paramount it is essential that much more emphasis be placed on detailed assessment of new projects prior to the provision of State aid and that the progress of new ventures be monitored with a view to taking corrective action when necessary. Particular attention should be paid to:

(i)Finance, financial planning and control.

(ii)Marketing strategy, research and implementation.

(iii)Operation and quality control.

(iv)Long term planning and assessment of growth potential.

(v)Industrial relations.

There has been increasing concern to streamline and integrate the development effort. One of the factors which has contributed to Ireland’s success in attracting foreign investment is the basic “one stop agency” status of the I.D.A. This essentially acts as a broker between the respective multi-national investor and other agencies. Experience and research shows that a similar situation is desirable with regard to the development of indigenous industry, particularly in the provinces.

The small firm or business requires to have on hand locally a “one stop shop” where advice and assistance can be obtained in a “Total Business” Approach, i.e. Business Development; Marketing; Capital and Training Grants; Manpower; Training and Development; Technology etc. All these areas are vitally interlinked and it is shortsighted to attempt to offer advice or assistance in any one area without the others being addressed at the same time.

4. PROPOSED SOLUTION

We would accept that the Stage Agencies themselves have identified and accepted many of the perceptions of small firms outlined above. These include IDA Walk-in-Centre and AnCO Hotline.

We are aware that consideration is being given to an expansion of these proposals and welcome this move.

The Committee feels that informal co-ordination such as the Hotline is insufficient and the co-ordination at local level has failed to provide the necessary service e.g. County Development Officer and County Development Team.

While we would accept that the initiatives outlined above will go a long way towards improving the service to small firms in the areas where they operate, they are very much based on Dublin and Cork.

We recommend that the following initiative should be piloted in seven county locations and in one of the new Dublin satellite towns for a period of two years, with emphasis on areas of high unemployment.

Small Business Centres

(i)A local “one stop” office be established where information and advice on all State services to small firms is available on a personalised basis.

(ii)This office would be manned by personnel redeployed from existing State Agencies and would be responsible for the following functions:-

(iii)The person appointed in each office would have total local autonomy within his functional area.

(iv)The existing work of the County Development Teams and Local Authorities would integrate with the Small Business Centres.

In our opinion, the above community based initiative can be implemented on a pilot basis with the minimum of cost with the co-operation of the State Agencies, particularly IDA, AnCO and the County Development Officers.

(See Appendix III)

5. ADVANTAGES

A re-organisation along the lines outlined would greatly simplify the situation for the small businessman with limited time to devote to searching out the advice and assistance available. Small businesses would have a single reference point and have access to a wide range of services.

The proposed re-organisation would provide a less structured and more integrated approach focused on building confidence within companies or available to them “on call” in a clear form in order that the client company can better meet all competitive challenges.

The proposals would not only be cost effective, it would have the beneficial effect of:

(i)Improving the immediacy of contact.

(ii)Providing an integrated mechanism for channelling the range of State support services available at a national level, and

(iii)Facilitating a total business approach to small enterprises.

“A DEVELOPMENT EFFORT AIMED TOWARDS NEW INDIGENOUS INDUSTRY MUST BE RE-ORGANISED TO EMPHASISE THE BUILDING OF STRUCTURALLY STRONG IRISH COMPANIES RATHER THAN STRONG AGENCIES TO BUILD WEAK COMPANIES”.

Telesis Report, September 1981.

Organisations providing assistance to Small Firms

WHO GIVES WHAT