aib amarach business 2020 report

Business 2020

An AIB commissioned report by Amarach Research, guiding Irish business towards real opportunities in the years ahead.

Future Opportunities for Growth

www.aib.ie/SMEresearch

Business 2020 Future Opportunities for Growth

TABLE OF CONTENTS

FOREWORD 2 Brendan O’Connor, Head of AIB Business Banking

INTRODUCTION 4

PART 1: GROWTH OPPORTUNITIES TO 2020 7

PART 2: READY STEADY GROW 21

CONCLUSIONS: BOUNCE FORWARD 27

As a provider of banking and financial services, AIB has a key role to play in ensuring the success of our customers’ business. We cannot and do not take your relationship and your custom with us for granted. That is why we have commissioned this report on behalf of all our customers. It is a demonstration of our commitment to enabling you to achieve success in your business.

It may seem obvious, but we can only succeed at AIB if our customers succeed. After five years of slow or no growth in the Irish economy, the ability to succeed is not something we can take for granted. That said,

the message we increasingly hear from our customers these days is that they have survived the recession, have taken the steps necessary to get their business into shape and now want to push on and establish their business on a growth path for the future.

Businesses are looking for the path to sustainable growth and Business 2020 has been written for Irish businesses to help guide them towards real opportunities in the years ahead. Over the rest of this decade we will witness changes driven by social, technological and environmental changes – ones as dramatic as any we experienced in the last decade. No sector will be unaffected. For every challenge there will be an opportunity and those opportunities will bring growth and increased profitability and business sustainability to those who can capitalise on them. We hope you find this report and additional information on the Business 2020 website (www.aib.ie/SMEresearch) useful as you look ahead and plan for the future of your business.

If you are feeling optimistic about the future then you are in good company – so are the vast majority of Irish business owners and managers who have

weathered the storm that has characterised the last number of years. This report will give you grounds for real optimism, and hopefully ideas for success. I hope you will find this report informative and useful to your business. If you require a financial partner to help you capitalise on the opportunities, please contact your relationship manager in AIB. We are Open for Business.

Brendan O’ConnorHead of AIB Business BankingDecember 2012

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Future opportunities for growth

Business 2020

FOREWORD


“For every challenge there will be an opportunity and those opportunities will bring growth and increased profitability and business sustainability to those who can capitalise on them”


Amárach surveyed senior decision makers in 265 Irish businesses in October 2012, representing a cross-section of small and medium enterprises and larger corporations – this report sets out the key findings.

In 2000, AIB commissioned Amárach Research to survey Irish businesses about the decade ahead. The report was called Business 2010. At the start of the last decade, businesses faced enormous uncertainties in the form of economic change (the euro would replace the punt in 2002); technological innovation (internet usage would triple over the following ten years); and unprecedented labour market pressures (the unemployment rate fell below 4% in 2001, the lowest on record). Yet it was also a decade that witnessed extraordinary growth and the emergence of new businesses (and business models) to the benefit of Irish businesses and consumers.

But we know it didn’t stop there. If the last decade – the ‘noughties’ – started on a wave of expectant optimism, it ended in a trough of unprecedented pessimism and uncertainty. And we are still dealing with the consequences.

What then about the decade ahead, now entering the ‘twenty-teens’? Should we merely extrapolate current difficulties to the end of the decade? Or might it be a mirror image of the last decade: this time moving from pessimism to optimism? To answer these and other questions, Amárach surveyed senior decision makers in 265 Irish businesses in October 2012, representing a cross-section of small and medium enterprises and larger corporations – this report sets out the key findings.

Judging from the attitudes of Irish business owners and directors, it seems that optimism is in the ascendant. Some might call it ‘survivor bias’ (“if you’ve survived the past five years you can survive anything”), but there’s more to it than that.

Whether thinking about their business, their industry or Ireland’s economy as a whole, the vast majority of Irish business people expect things to be better in 2020, and only a small minority expecting them to be worse.

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Indeed, as the chart below shows, two thirds of businesses expect both the Irish economy and their own business performance to be better than it is today:

Introduction

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13 17 10

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Ireland’s economy in 2020

Your industry or sector in 2020

Your business or organisation

in 2020

Better than it is today

Same as it is today

Worse than it is today

Don’t know

Where do you expect Ireland, your sector and your own business to be in 2020?

Better business prospects should mean more jobs, other things being equal. And they do, with businesses of all shapes and sizes expecting - on balance - to employ more people in 2020 than they do today. The table below shows the answers broken down by size of business (small ‘soho’ to large corporate), by ownership, market focus and customer type e.g. business-to-business (B2B) or business-to-consumer (B2C).

WHO IS OPTIMISTIC ABOUT THE FUTURE

Expectations for Staff Numbers by 2020

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Ow

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Dom

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Mar

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B2B

B2C

Sample 265 86 123 56 129 46 187 51 76 116

Higher than they are now

49 43 56 43 50 46 45 57 72 43

Same as they are now 30 40 26 25 30 30 33 22 21 34

Lower than they are now 18 14 16 29 18 20 20 18 5 22

Don’t know 3 3 2 4 2 4 2 4 1 2

SMEs, exporters and those selling to other businesses (B2B) are the most optimistic about future staff numbers exceeding today’s levels. Such optimism is all very well - welcome even - but we need to go further if we are to determine what are the real opportunities for growth and job creation out to 2020, and how best to respond to them.

This report is designed to be more than just a research study, as is reflected in its structure:

In Part 1: Growth Opportunities to 2020, we examine the global trends shaping global consumer and business markets today and out to 2020 and beyond, both in terms of their impact on Ireland as well as their impact on the businesses in our survey.

In Part 2: Ready Steady Grow, we explore in detail how Irish businesses are preparing for the future in terms of their strategic priorities, plus the key steps and tasks every business must take so that today’s optimism translates into tomorrow’s success.

Each section contains not only the findings from the survey, but also forecasts, resource links and summary implications for business readers. We hope you find this report useful – and even a little inspiring – as you set out on the path to 2020.

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SMEs, exporters and those selling to other businesses (B2B) are the most optimistic about future staff numbers exceeding today’s levels.

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Ireland is one of the most open economies in the world. Our exports exceed our GDP, putting us in the same league as Hong Kong, Singapore and Luxembourg. In other words: what happens globally affects us locally – more than most other nations. Irish businesses need to pay extra attention to global trends and forecasts, not least because our domestic market is so small.

The future is a big topic, and a key task of forecasting is to decide what to ignore, as well as what to heed. So to guide us through the challenges, risks and opportunities that lie ahead between now and 2020, we have used a simple STEP model to set out the key trends. STEP stands for Social, Technological, Economic and Political – summarised below:

Under social trends, we examine the impact of demographics, the growth of a global middle class, the emergence of a global market for wellness, and declining trust as key drivers of change to 2020. Under technological trends, we assess the impact of ubiquitous broadband (including mobile), distance learning, environmental technologies and new ways of doing business.

Economic trends relate to consumer focus on value for money, rising food and energy prices, burgeoning demand for dairy and meat products, and shift from West to East in global economic activity by 2020. Finally under political trends, we assess the impact of growing income inequalities as well as rising expectations for ethical behaviour by politicians and business.

In the following pages we look at a range of trends shaping the future for Ireland and for businesses to 2020. For each trend we look at key forecasts, the expectations of Irish businesses, and the implications for strategy and planning.

We begin with the key social trends.

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PART 1: GROWTH OPPORTUNITIES TO 2020

Social

Technological

Economic

Political

STEP: To guide us through the challenges, risks and opportunities that lie ahead between now and 2020, we have used a simple STEP model to set out the key trends. STEP stands for Social, Technological, Economic and Political.

2020: Social Trends

Business 2020

Technological Economic PoliticalSocial

Business 2020


An Ageing Population

Future Fact: by 2020, the world’s population will be well on the way to over 1 billion people aged 60 and over. 1

Growing old is a fact of life, for people as well as for businesses. The shift in the world’s population from one dominated by younger people to one dominated by older people will also entail a shift in business priorities and practices. The ageing of the world’s population will be with us for decades to come – far beyond 2020.

But smart businesses are already addressing the needs of older consumers in anticipation of even bigger shifts ahead. This will create demand for new products and services, and not just in developed countries. Meanwhile, Ireland will still have the youngest population in Europe, as we continue to enjoy a ‘demographic dividend’ for ten or more years.

Decision makers in Irish businesses are uncertain about the impact of an ageing population. The percentage of business people who expect the ageing of populations in developed and developing countries to have a very or fairly positive impact on Ireland’s future and that of their own businesses; as well as the percent expecting a very or fairly negative impact. Though the trend is expected, on balance, to have a negative impact on Ireland, expectations are neutral for the business impact.

IMPACT OF AGEING POPULATION ON IRELAND’S FUTURE

Global ageing of populations

Impact on Ireland by 2020

Impact onbusiness by 2020

Positive 23 28Negative 45 29

Net Impact -22 -1

2020 Planner:• Ensure your product and service range is ‘age friendly’ – older consumers are probably your customers already, so ask them for feedback.• Don’t forget your older employees – they will have insights to share as older consumers too.• Optimise your channel strategy.

The Global Middle Class

Future Fact: The number of middle class people in the world will more than double over the next twenty years to nearly 5 billion. 2

A former leader of the Chinese Communist Party once declared that ‘to get rich is glorious’. We’re a little more circumspect about such things in Ireland, but the fact remains that the world is getting richer – especially the developing world.

This is one of the most exciting trends for anyone in business today. As people become more affluent their tastes in food, leisure and transportation change fundamentally. With billions of people becoming more affluent over the rest of the decade, entire new markets for luxury and premium goods and services will open up.

Irish manufacturers and service providers (from tourism to education) will benefit from a richer world.

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How do decision makers in Irish businesses view a more middle class world? In a word, positively. The table again shows the percentage of business people who expect the emergence of a large middle class in the developing world to have a very or fairly positive impact on Ireland’s future and that of their own businesses; as well as the percent expecting a very or fairly negative impact. Clearly the trend is expected, on balance, to have a positive impact on Ireland and businesses.

IMPACT OF EMERGING GLOBAL MIDDLE CLASS ON IRELAND

Emerging global middle class Impact on Irelandby 2020


Positive 54 50Negative 18 10Net Impact 36 40

2020 Planner:• Look back to plan ahead: which of your products and services benefited most from Ireland’s burst of affluence – and think how it might apply globally.• Use the web to generate awareness, consideration and conversion – and explore the potential for remote selling and fulfillment partners.• Sell the Irish: there is considerable goodwill towards Ireland and the Irish in many developing countries, so leverage the historical connections to create future opportunities.

“Our parent company sells more luxury brands in Asia now then in Europe”

- Manufacturer, Leinster

The Wellness Boom

Future Fact: The global wellness market will exceed $2 trillion in the next few years, combining spas, anti-ageing products, complementary and other therapies. 3

Health services in many countries are under pressure. Citizens are responding by taking greater responsibility for their own health and wellbeing. This is fuelling what some are calling the wellness market – referring to a range of treatments, products and lifestyles that are designed to keep consumers well and to avoid illness.

This in turn is creating a growing demand for medical tourism, preventative medicine, ‘nutraceuticals’ and even cosmetic surgery in developed and even developing countries. Ireland is well placed to meet this growing demand for wellness related products and services in the decade ahead.

Irish business leaders agree. The table again shows the percentage of business people who expect increasing expenditure on health and wellbeing throughout the world to have a very or fairly positive impact on Ireland’s future and that of their own businesses; as well as the percent expecting a very or fairly negative impact.

Clearly the trend is expected, on balance, to have a positive impact on Ireland and businesses.

IMPACT OF INCREASING EXPENDITURE ON HEALTH & WELLBEING

Increasing expenditure on health and wellness

Impact on Irelandby 2020



2020 Planner:• The tourism sector is already ahead with this trend – see what ways your business can partner with the sector to create a new channel for sales of your products or services.• Ireland starts with a reputation for being green and healthy – explore whether your brand or brands can leverage that reputation further in relation to wellness needs.• Look for ways to ‘cross-fertilise’ your 2020 planning with responses to related trends, e.g.: ageing and the global middle class.

“Our sales of cosmetics have been remarkably buoyant, despite the recession”

- Pharmacist, MunsterOutside the Circle

Future Fact: By the end of the decade, most homes in the UK and other major economies will have smart meters, making it easier to switch energy, water and telecoms suppliers. 4

Business is outside the ‘circle of trust’ as far as consumers are concerned. One of the key tasks between now and 2020 will be getting back inside the circle. But it won’t be easy.

The Internet has made it easier to shop around and to get better deals. The emerging ‘Internet of things’ will connect our homes, cars, workplaces and more to an intelligent web of technologies that will monitor, regulate and advise us.

“We ask people for their email addresses so we can send them notices about deals etc, but you have to be very careful not to abuse it”

- Restaurateur, Dublin

However, this will lead to even greater willingness to switch between providers, especially if businesses have failed to restore trust. Alongside using smart technologies for sales and customer communications, businesses will have to invest in restoring trust – and keeping it when they’ve won it back. Declining trust – and increased switching – is an issue for Ireland and for Irish businesses. The table shows the expected impact of further decline between now and 2020 on Ireland’s future and that of their own businesses; as well as the percent expecting a very or fairly negative impact. Not surprising the trend is expected to be negative on balance for Ireland and for businesses (though positive, perhaps, if you are a challenger hoping to switch customers away from the incumbent!)

IMPACT OF DECLINING CONSUMER TRUST

Declining trust in business and greater willingness to switch



Positive 33 27Negative 37 32Net Impact -4 -5

2020 Planner:• Decide if switching is on balance good for your business or bad for it – then decide on the key messages that will resonate with distrustful consumers.• Make sure your customer information gathering is compliant with data protection legislation – especially online – and ensure your customers feel in control.• Consider sponsorship as a route to restoring trust – the goodwill that exists towards sports and arts organisations, for example, can rub off on your brand if you support them, and their fans, in ways that are transparent and credible.

2020: Technology Trends

Speeding Up

Future Fact: The Digitial Agenda for Europe plans broadband download speeds of 30Mbps for all Europeans by 2020, and 100Mbps for at least half of all households. 5

Back in 2007, fewer than half of Irish adults used the Internet. Today 80% use the net to shop, bank, work and relax. Looking ahead to 2020, we can expect to see even greater changes. Smartphones, touch pads and smart TVs will all make it easier for consumers to buy online, to choose providers, and to share their experiences with other consumers. The trends are not unique to Ireland – the global population of internet and mobile phone users is growing exponentially, such that already there are more mobile phone users than people with electricity!

Irish businesses are clearly excited about the potential impact of the global market facilitated by access to high speed broadband and cheap mobile services – both for Ireland’s future and for their own. As summarised in the following table, the balance of expectations is hugely positive, though not uniformly so. Some may feel they have grasped the opportunity already, while others may fear the consequences for older ways of working:

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Business 2020


Business 2020


IMPACT OF HIGH-POWERED BROADBAND & MOBILE SERVICES

Widespread availability of very high speed broadband andaccess to mobile services




2020 Planner:• Better, faster communications channels work both ways – look at the competitive threat higher broadband and mobile might bring and have your defences in place.• Learn from the leaders – some markets are already very advanced in relation to digital technologies (e.g.: South Korea), see what lessons might apply back home.• Don’t forget the human touch – everyone likes the convenience of technology, but all still want the feeling of being looked after by people who care.

“Five years ago we didn’t sell anything online, today 20% of our sales come from the web.”

- Retailer, Connaught/Ulster

Servers and Scholars

Future Fact: The worldwide market for self-paced eLearning is forecast to reach $52 billion by 2016, $8 billion of which will be spent in Western Europe.6

From the age of the Book of Kells onwards, Ireland has been a destination for students from all over the world. Over the rest of the decade, an extraordinary opportunity will open up to once again ‘teach the world’ – this time using the talents of Irish educationalists in combination with global communications technologies.

The expansion of eLearning and the success of Massive Online Open Courses (MOOC) – such as Khan Academy – illustrate the potential scale.

Nor will opportunities be confined to incumbent providers such as Irish universities – developers of apps, continuous professional development (CPD) specialists, and even aspects of cultural tourism will all benefit from the global thirst for education and training.

Education is a positive sum game, which is perhaps why Irish businesses are so positive about the growing demand for education and training delivered via the internet to millions in developing and even developed countries.

The balance of expectations is extremely positive, not least because greater access to education generally results in more affluent customers and more productive employees:

IMPACT OF ONLINE LEARNING ON IRELAND & BUSINESSES

Growing demand for education and training delivered via the Internet


Impact onBusiness by 2020


2020 Planner:• Focus first on the internal opportunity – have you fully exploited the potential for eLearning to improve staff performance?• Partner with the likely beneficiaries – what do you produce or provide that your local university, Institute of Technology or college could repackage as part of their own response to the eLearning opportunity?• Again, don’t forget the personal touch in the midst of the digital revolution – what can you offer (alone or with partners) to create a learning and training experience that will motivate customers to come to Ireland?

“Our staff gets their on-the-job training now from our European head office via the company’s intranet”

- Accountant, Dublin


Green Tech

Future Fact: Over the next decade, the global market for green business is expected to double in size, from 1.6 trillion Euro in 2010 to 3.2 trillion Euro in 2020. 7

While the recession and economic travails in Europe have taken attention away from environmental issues, once economic growth returns so also will attention to the ‘green agenda’. Indeed, investment in green technologies continues to grow steadily on a global scale and may well accelerate in the years ahead. Irish businesses will benefit from growing innovation in relation to energy efficiency, water management and recycling - and some may even lead certain sectors. Green tech promises to create opportunities for many businesses, and to provide cost savings for all businesses in the run up to 2020.

Green tech is seen as one of the most positive trends shaping the future for Ireland and for businesses. On balance, most expect the development of new technologies and other innovations in response to climate change to be a positive influence. This itself indicates the ‘pent up’ demand for green innovations and green solutions. Legislation will also be a key driver of business responses to environmental factors, for example in relation to smart meters and carbon emissions - which is a reminder that Irish businesses have no choice but to take on board higher environmental standards.

IMPACT OF GREEN TECHNOLOGIES ON IRELAND AND BUSINESSES

Development of new technologies in response to climate change




2020 Planner:• Many businesses have ‘parked’ capital spending during the recession - now may be the time to look at upgrading to more energy efficient processes and practices in preparation for recovery.• Ireland has been at the forefront when it comes to implementing EU legislation on energy and environmental standards - there’s more to come and so there may be significant opportunities in anticipating the impact of future requirements.• Ireland has a reputation for being ‘green and clean’: seek out customers and partners in the BRIC economies (Brazil, Russia, India, and China) and other developing markets who will be attracted to Ireland’s still unique distinction in the minds of many around the world.

“Cutting our energy costs has been crucial to getting through the recession and to keeping us competitive.”

- Manufacturer, Munster

2020: Economic Trends

Business 2020


Business 2020


Go East

Future Fact: China will have the largest economy in the world by 2025, and will experience growth of 16% by 2020. 8

The rise of the BRIC economies - Brazil, Russia, India and China - has continued apace, despite the economic difficulties in Europe and the United States Already, the Republic of Ireland’s exports to China are almost double the value of those to Northern Ireland, a reversal of the situation just ten years ago. Other indicators tell us that the Eastward shift of global economic activity is set to continue apace to the end of the decade and beyond - signaling a long term trend that Irish businesses will have to respond to, if they haven’t already.

Change is often uncomfortable, and change of the unprecedented global nature we are living through is bound to be challenging. Irish businesses are ambivalent at best about the impact of significant shift in global economic activity from West to East as China and India grow. Which may be why, on balance, they expect the impact of the Eastward shift to be slightly negative for Ireland, but slightly positive for Irish businesses.

IMPACT OF GROWING IMPORTANCE OF ASIAN MARKETS

Significant shift in economic activity from West to East



Positive 35 31Negative 38 27Net Impact -3 4

2020 Planner:• The global middle class will grow fastest in the BRIC economies - especially China and India - creating an increasingly affluent market for premium products and services.• Many Irish businesses are already exploring opportunities in the East, so there may be potential partners for you to work with who can re-sell or co-sell what you have to offer.

“I see China and India as the biggest opportunity and the biggest threat for my business, so the one option I don’t have is to ‘do nothing’.”

- IT Professional, Dublin

Valuing Value

Future Fact: By the end of the decade, 45% of all products sold by Western European retailers will be ‘own label’ - nearly double today’s share. 9

Everyone in business these past few years has learned the importance of value for money - as a buyer or seller. Our customers are more careful than ever about spending their hard-earned euro and cents.

Nor is there any prospect of a return to the more profligate habits that characterised the boom any time soon (or, perhaps, ever). But the formative experience of meeting the needs of customers focused on value will stand to Irish businesses. The rest of the decade will see continuing growth in demand

for value lines of goods and services - as indicated in the growth of retailer own brand share of sales. One clear ‘benefit’ of the recession has been to sharpen the ability of Irish businesses to deliver value for money to their customers. They had no choice. The benefit lies in expectations about the future - as a growing number of consumers emphasise value for money in their spending choices then Irish businesses will be there to meet their demands. Hence expectations for the future impact of the value for money ‘boom’: it is considered to be both a positive thing for Ireland and also for Irish businesses. The Celtic Tiger has become the Celtic Fox:

IMPACT OF VALUE-SEEKING CONSUMERS FOR IRELAND AND BUSINESSES

Greater emphasis on value for money by cash -strapped consumers

Impact on Ireland by 2020


Positive 45 38

Negative 29 21

Net Impact 16 17

2020 Planner:• Ireland has become a cheaper place to do business, which is good news for Irish exporters - what cost advantage do you have that could open up opportunities in the UK and across Europe?• Don’t forget: price is what you pay, value is what you get - so look for ways in which your products and services can provide extraordinary value for consumers in developed countries, at a price they can afford and that makes sense for you.• Typically 70-80% of our buying decisions are emotional rather than rational - which means that value isn’t always about things we can measure, it can also be about the way a product or service makes us feel: what ‘feeling’ do you sell?

“In the old days customers were almost embarrassed about buying the cheapest products, now they make a beeline straight to this week’s special offer” - Retailer, Munster

Feed the World

Future Fact: By 2020, the value of Irish food exports - across dairy, meat, fish and other categories - will have reached 12 Billion Euro , an increase of 42% on their value in 2009. 10

The world’s population is expected to reach 8 billion in the early 2020s. That, combined with rising affluence, will translate into surging demand for food - a demand Ireland is well positioned to help meet. Nor will demand be confined to the ‘basics’: as people become more affluent they increase their consumption of protein in the form of meat and dairy products.

Likewise in developed markets: as consumers loosen their purse strings so we will see greater consumption of food and drink outside the home. Irish businesses operating in the food sector - or supporting those who do - can expect to see the world’s growing appetite feed through to increased sales opportunities not just to 2020, but well beyond it.

Not surprisingly, most of the businesses we surveyed think the opportunity to feed the world is one that will clearly be good for Ireland. But most are not in the food sector, so only a minority feel that they will be impacted positively from the trend itself.

Nevertheless, the indigenous food sectors is of enormous importance to Ireland’s economy, and the multiplier effect of increasing demand for Irish food exports will undoubtedly create added demand for ancillary services, domestically and internationally:

IMPACT OF INCREASING DEMAND FOR IRISH FOOD EXPORTS

Growing demand for meatand dairy products in developing countries




2020 Planner:• We have considerable cost advantages in Ireland thanks to grass-based meat and dairy production – so explore those markets where price sensitivity is keenest.• But it isn’t just about cost advantages – the quality of Irish food produce, both in terms of inputs and outputs, will enable Irish businesses to create premium brands targeting more affluent consumers around the world• Nor is it just about farming and processing – if you are an Irish retailer (or entrepreneur) what can you do via the web and social media to create demand for uniquely Irish food across a demanding, global market?

“The dairy sector is fiercely competitive, but we are still seeing our sales grow throughout the Middle East and Asia” - Manufacturer, Leinster

Price Pinch

Future Fact: By 2015, more cars will be sold in India than in France, the UK or Germany, and by 2020 India will be in the top three markets globally (with China and the USA). 11

We noted earlier the significant impact of growing populations and growing incomes on the demand for food. But rising demand assumes rising supply - and that doesn’t necessarily follow, at least not without potential hitches.

As the world experiences unprecedented demands for food and energy we can expect to see instances of rising prices - even price hikes - for oil, grain and other commodities as the global economy works out how to feed and fuel a bigger, more affluent world. Irish businesses will undoubtedly be affected by both rising demand and rising prices - and many will benefit, even if some will face cost pressures as well.

The prospect of a ‘price pinch’ from rising food and energy prices is considered to be one of the biggest threats in the run up to 2020. We have already seen spikes in oil and grain prices in the past five years alone - though both have abated as either falling demand or rising supply mitigates some of the increases.

Still, businesses are more negative about the impact of the price pinch on Ireland’s economy than its impact on their own operations.

This may simply reflect the fact that most businesses have had to be agile in response to price rises and cost shocks - especially in relation to energy - these past few years, so they may well feel ‘ready, willing and able’ to respond as necessary to more of the same:

IMPACT OF RISING FOOD & ENERGY COSTS FOR IRELAND AND BUSINESSES

Rising prices for food and energy due to growth in population and economies





2020 Planner:• Get your ‘retaliation’ in first - what can you do now to reduce your consumption of commodity inputs into your production of goods and services E.g. through focused investment to unleash added efficiencies?• Look to long-term contracts with suppliers of key inputs where price volatility looks set to return in the years ahead.• Be the alternative - what aspect of your product or service offering could help customers and potential customers respond to the ‘price pinch’ in a way that increase your ‘share of wallet’ in the years ahead?

“We’ve finished a major efficiency drive in response to continued rises in energy prices”

- Professional Service, Leinster

2020: Political Trends

Business 2020


Business 2020


Income Inequality

Future Fact: The transition from developing to developed economies will see a rise in income inequality in several countries even as average incomes continue to rise. 12

Although global economic growth is driving opportunities for Irish businesses in the form of an emerging middle class (see above), the benefits of growth are not uniform. This has led some economists to focus on ‘the bottom billion’ - those still living at or below the poverty line around the world. And there are opportunities for those businesses (such as the food sector) that can deliver basic (and often vital) goods and services to those on low incomes in an efficient manner (sometimes in partnership with NGOs operating in developing regions). Expect also more instances of ‘reverse innovation’, i.e.: the adoption of very low cost solutions created in developing countries to cash-strapped developed countries.

The balance of expectations for the future impact of growing income inequalities in some developing and developed countries is understandably negative for Ireland, though less so for Irish businesses, partly because of the long lead time for their effects to be felt:

IMPACT OF GROWING INCOME INEQUALITIES FOR IRELAND AND BUSINESSES

Growing income inequalities in developing and developed countries




2020 Planner:• If you are a manufacturer or international service provider, who can you partner with to provide a ‘stripped down’ version of your products to the bottom billion?• In our increasingly cost cautious age, what innovations are happening in poorer nations that could meet the needs of cash-strapped consumers here?• Irish charities operating in developing countries have considerable experience of the needs of the bottom billion - find out what they are doing and explore the potential for co-developing solutions that will work for you and for the people whose lives they are seeking to improve.

“One of our CSR projects encourages staff to come up with new healthcare ideas in developing countries”

- Manufacturer, Leinster

Reputation Nation

Future Fact: One of the biggest drivers of future success for nations, as well as for businesses, will be the global level of trust their reputations inspire - which is relatively low for Ireland at present. 13

The collapse of trust in political, financial and religious organisations in recent years has been extreme. And not just in Ireland. Around the world, consumers and citizens are re-assessing traditional sources of authority, and in some instances trust is at an all time low.

We noted earlier the importance of getting back inside ‘the circle of trust’. Building a trustworthy reputation is a key part of that task - for nations as well as businesses.

Just as the recession has given Irish businesses a new appreciation for the importance of value for money, so also has the wider fallout given them a strong appreciation for the importance of reputation. Behaving in a trustworthy, ethical manner is no longer something that is ‘nice’ to do (if it ever was), rather businesses understand the vital necessity of attaining and retaining customers’ trust.

The very good news arising from all this is that Irish businesses expect an increasing emphasis on ethics and reputation to be something that will be overwhelmingly to Ireland’s benefit, and to theirs:

IMPACT OF INCREASING CONSUMER EMPHASIS ON REPUTATION & ETHICS

Increasing emphasis on reputation and ethics by consumers




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2020 Planner:• Don’t leave reputation to chance - monitor (or have specialists monitor) the 24/7 ‘chatter’ of customers about your products and brands on social media and be ready to respond as necessary (to positive as well as negative commentary).• Take domestic commentary about Ireland’s reputation abroad with a pinch of salt - there is considerable goodwill towards Ireland, which is something we must both maintain and enhance in our day-to-day interactions with foreign customers, suppliers and partners.• Lead by example - each employee is an ambassador for your brand and your reputation, so make sure you behave in the way you would want them to behave when engaging with customers.

“Ireland’s reputation as a place for doing business will have a huge influence on Foreign Direct Investment over the next few years, as we’ve seen already”

- Manufacturer, Munster

Irish businesses clearly anticipate that the next five years will be better than the last, projecting an average growth rate of 15% into the future

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PART 2: READY STEADY GROW

Feeling Bullish

We’ve seen in Part 1 just some of the opportunities ahead to 2020. So how will your business perform over the next few years? As we noted in the Introduction, two thirds of businesses in our survey expect their performance to be better in 2020 than it is today. The table below shows the answers broken down by size of business (small ‘soho’ to large corporate), by ownership, market focus and customer type (business-to-business or business-to-consumer):

SECTORAL EXPECTATIONS OF BUSINESS PERFORMANCE IN 2020

Expectations for your own business or organisation performance by 2020

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Sample 265 86 123 56 129 46 187 51 76 116

Higher than they are now 68 57 72 75 64 85 62 82 64 58

Same as they are now 18 24 15 18 21 4 22 6 11 23

Lower than they are now 10 14 10 5 11 9 15 10 3 15

Don’t know 4 5 4 2 4 2 4 2 3 4

Larger businesses, those that are foreign owned and exporters are more optimistic. But the difference is relative - smaller businesses, Irish owned and non-exporters are also predominantly optimistic. So no matter what size or type of business you are running, it’s likely that the majority of your peers are bullish about the future - despite the very real challenges of the present.

PART 2: READY STEADY GROW

Growth Expectations

Can optimism deliver growth? Yes it can. Most have experienced some growth over the past five years, at an average rate of 11%. The next table tells us that smaller businesses have seen higher growth rates than larger businesses, though that likely reflects their business ‘lifestage’ (growth is often fastest at the start from low levels, but harder to sustain at higher levels of turnover as businesses mature). The average, it should be noted, is just that - some have experienced higher rates of growth these past few years, while others have experienced low, no or even negative growth over the same period.

SECTORAL EXPECTATIONS OF GROWTH IN COMING YEARS

Growth Trends & Prospects

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Sample 265 86 123 56 129 46 187 51 76 116

Mean % growth past 5 years 11 13 11 9 12 8 12 10 12 11

Mean % growth next 5 years 18 24 15 18 21 4 22 6 11 23Growth pick up: Percentage Points 10 14 10 5 11 9 15 10 3 15

But back to optimism: what are the current expectations for future growth? Irish businesses clearly anticipate that the next five years will be better than the last, projecting an average growth rate of 15% into the future, as shown in the table. SMEs and exporters anticipate the biggest ‘boost’ in growth, as indicated by the measure of ‘growth pick up’.

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This is very positive, but growth potential doesn’t stop there. In fact, Irish business owners and managers can imagine potentially higher growth and job creation if certain barriers are lifted. Right now they expect to grow despite Ireland’s economic difficulties. But asked to imagine by how much more they could grow if the economy returned quickly to growth and most anticipate cumulative growth a third higher than it will otherwise be. Likewise, they anticipate the numbers they employ growing by a third more than they will grow otherwise.

Potential for Additional Growth in Different Scenarios

If Ireland’s economy returned quickly to a strong and steady growth rate

If business had access to optimum amount of financial resources to expand (including loans and equity)

If business had ideal mix of technology in place in terms of operations, sales and skills

Growth Impact (% extra)

Job Impact (% extra)

32

25

22

33

24

19

Similarly access to the optimum amount of financial resources (loans and/or equity) would also unleash a bigger boost in growth and jobs - as would implementing the ideal mix of technology.

Priorities for Success

What are the crucial tasks and challenges facing Irish businesses if they are going to respond to the opportunities set out in Part 1, and to deliver the growth ambitions noted above? We have summarised the key priorities for success under three headings, illustrated below, as Markets & Marketing, Innovation & Technology, and People & Partnerships.

Markets & Marketing

People & Partnerships

Innovation & Technology

We summarise the main insights from our survey into future strategy under each heading in the following commentary.

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2020: Markets & Marketing

If finance is about the bottom line then marketing is about the top line. Revenue growth options typically fall into one of four options:

- sell more of your existing products to existing customers- sell more of your existing products to new customers- sell new products to existing customer- sell new products to new customers

Each option is progressively more difficult - and more risky - than the previous option. But sometimes there is no other option but to take the risk, like the times we are in today. As summarised in the table below, the top marketing priority for 78% of Irish businesses to 2020 is finding new customers for existing products and services in Ireland. A close second is developing new products also for existing customers in Ireland:

PRIORITIES OF IRISH BUSINESSES TO 2020

Markets & Marketing % Important*

Finding new customers for your existing products and services in Ireland

78

Developing new products and services for your existing customers in Ireland

76

More closely monitoring what customers, competitors and others are saying about your business, brands and reputation online

73

Developing new products and services for your existing customers outside of Ireland

60

Finding new customers for your existing products and services outside of Ireland

59

Switching a bigger share of your marketing and advertising budget from traditional media (such as press and TV) to newer media (such as social networks and mobile)

59

* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between now and 2020, and 7 is ‘extremely important’.

“One of the biggest challenges will be to identify overseas customers for our products as growth in the domestic market will remain slow”

- Accounting Services, Dublin

Although most Irish businesses are not exporters, it is encouraging to note that clear majorities expect to either find new customers outside of Ireland for their existing products (59%) or to develop new products for new customers outside of Ireland (60%).

Irish businesses are clearly alert to the importance of trust and reputation - with 73% considering it very important to future success to monitor what customers, competitors and others are saying online. This may also explain why 6 in 10 (59%) expect to switch a bigger share of marketing and advertising budgets from traditional media to newer media over the rest of the decade.

With Ireland returning (albeit slowly) to a growth path, Irish businesses will seek to invest and reinvest in marketing, branding and other top line growth strategies, not as they have before but in smarter, more measurable ways to deliver success.

2020 Planner:• It has never been easier – or cheaper – to research international markets: now is the time to size the opportunity for your products and services in potential markets, for example, using online surveys.• Most advertising and PR agencies offer ‘reputation monitoring’ services – check out what they can deliver and explore the growing range of services now available.• You don’t have to develop new products and markets on your own – there may be others in your industry – or key suppliers – who have ideas and resources you can share together.

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2020: Innovation & Technology

Irish businesses are digital optimists. The lesson they have learned these past few years is that technology does not wait for recovery and that those businesses that seek to exploit the benefits of technology soonest (the Digital Leaders 14 ) often reap the greatest benefits.

Though it’s not too late. The business leaders and decisions makers in our survey clearly perceive the benefits of digital technology - which bodes well for their capacity to exploit the technology-led opportunities outlined in Part 1.

As summarized in the table below, digital technology is considered important by a large majority of businesses in helping to deliver:

- better customer service- lower operating costs- new product and service innovations

IMPORTANCE OF INNOVATION AND TECHNOLOGY TO FUTURE GROWTH

Innovation & Technology % Important*

Exploiting digital technologies to deliver better customer service

71

Exploiting digital technologies to reduce the main costs of doing business

69

Using real time data from customers and other sources to be more profitable in terms of what you sell and how you price your products and services

66

Exploiting digital technologies to create new products and services you don’t sell already

62

Adopting new types of digital currencies and other payment innovations such as mobile payments alongside existing currency arrangements

60

* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between now and 2020, and 7 is ‘extremely important’.

The potential for digital technologies to 2020 doesn’t stop there. Two thirds are open to the potential use of customer data (‘Big Data’ as it is sometimes called) to micro-manage customer interactions and product pricing so as to protect and enhance profits even in an environment of rapid change.

One measure of the potential contribution of innovation and technology to future success is summarized in the table above. Online sales account for 15% of total sales on average for Irish businesses right now (ranging as high as 21% among exporters). Looking ahead five years, the average share is expected to jump to 26%, with the biggest percentage increases anticipated by smaller companies and by those selling directly to consumers:

As the ‘twenty-teens’ progress, the majority of businesses also anticipate new types of currencies and payment innovations - such as mobile phone enabled transactions - which they in turn are set to embrace in the decade ahead.

2020 Planner:• Start with your customers – what are they doing, saying and spending online already, and what is your ‘share of wallet – then ask some of them for ideas on how you can deliver better value online, they’ll be happy to give you feedback.• Don’t forget mobile phones – we will rely on them more and more to help us work, rest and play – so explore how you can deliver value via mobile (apps etc) and build trust and a reputation that will boost your ‘repeat business’ quotient.• Use what you’ve got already – you may be sitting on a goldmine of data, information and knowledge about your customers that could unlock sustainable growth opportunities – again there are many specialists out there who can help you maximize the potential from ‘BigData’, and even ‘small data’…

“We’ve revamped our website recently and decided to support content in several languages to drive sales overseas”

- Professional Services, MunsterPage 25

2020: People & Partnerships

We sometimes fall into the trap of seeing the future entirely in terms of technology and other advances, forgetting the importance of people to delivering success. But the business owners and managers in our survey have not forgotten. In fact, increasing the skills of existing staff - and hiring new staff with the right skills - is a priority for the vast majority of businesses as they look ahead to 2020.

“I have a big concern about where we’re going to find the people with the right skills as we expand, especially IT skills”

- Professional Services, Dublin

Over two thirds of businesses anticipate a need to increase the skills of existing staff in order to future-proof their strategy for growth - and a similar proportion expect to hire new staff with different or complementary skills to those of existing staff:

IMPORTANCE OF PEOPLE & PARTNERS FOR FUTURE GROWTH

People & Partners % Important*

Increasing the skills of your existing staff in terms of selling, service, and getting the most from digital and other new technologies

69

Hiring new staff with different skills in terms of selling, service, and getting the most from digital and other new technologies

66

Developing partnerships with suppliers, customers and even competitors in order to share costs, deliver innovations and open up new markets

65

* Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1 is ‘extremely unimportant’ between now and 2020, and 7 is ‘extremely important’. * Percentage who answered 5, 6, or 7 on a scale of 1 to 7 where 1

But staff relations are not the only ones that count towards success. Relations with partners are considered just as important to strategy over the rest of the decade - including partnerships with suppliers, customers and even competitors where opportunities exist to co-create, co-share or co-manage elements of the business that are too big, too expensive or too complex to manage alone.

There isn’t a ‘right mix’ of marketing, technology and HR strategies to deliver growth for every business in Ireland out to 2020. But it is clear from our study that Irish businesses are busy figuring out the mix that works best for them - which bodes well indeed for our growth prospects over the rest of the decade.

2020 Planner:• Too many businesses have postponed training and skills development in their businesses these past few years – identify the key skills gaps that need to be closed as a matter of priority, but also plan to develop the skills that will be a crucial part of your longer term success.• There are many talented people out there looking for jobs – graduates, interns and participants in Job Bridge – now’s the time to recruit the next generation of talent in your business.• Talk to your competitors, especially if they are indigenous companies operating mainly in Ireland – there may be costs, products and export opportunities you can resource together that would be too much for each of you individually.

PART 2: Ready Steady Grow

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Conclusions: Bounce Forward

Optimism Warranted

The optimism of Irish businesses appears warranted. They are open to the opportunities that will emerge over the rest of the decade, and are ready to put in place the marketing, technology and HR practices necessary to exploit the same opportunities.

Fewer than 1 in 10 Irish businesses considers their current business structure to be completely appropriate for the future. The vast majority think it will have to change a little, and over a 1 in 4 expect it will have to change a lot - and quite soon at that. No one type of business or sector is immune from the need to change, learn and develop as summarized in the table below:

EXPECTATIONS FOR CHANGEING BUSINESS STUCTURES

Is your business structure appropriate for how the market will evolve over the next five years?

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Sample 265 86 123 56 129 46 187 51 76 116

Yes - No change required 8 10 8 4 10 0 9 4 8 7

Yes - Little change required 58 50 63 61 56 67 55 67 59 62

No - No immediate change needed

9 9 11 7 10 7 10 12 7 10

No - But will need to change soon 19 21 15 57 19 22 19 18 24 17

Not sure 5 9 4 2 5 4 7 0 3 3

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Bounce Forward : The optimism of Irish businesses appears warranted

All Changed

Indeed, business leaders anticipate far-reaching changes to Ireland’s business landscape - and not just to their own businesses - out to 2020. For example, the majority consider it highly likely that companies will employ ‘virtual workforces’ thanks to digital technology (see chart), while most expect women to become more involved in running and starting-up Irish businesses:

As encouraging is the fact that most anticipate the emergence of a new type of business culture in Ireland that avoids the mistakes of the past and leads to more sustainable growth for our economy in the future. Back to trust, ethics and reputation again.

A growing number of businesses will employ ‘virtual workers’ operating from home or even other countries rather than cummuting to the office

A growing number of new businesses in Ireland will be started by women

A growing number of existing businesses will be managed by women

A growing number of businesses in Ireland will be started by young

people straight out of university of even as school leavers

A new type of business culture will emerge in Ireland that avoids the mistakes

of the past and leads to more sustainable growth for our economy

A growing number of new businesses in Ireland will be started

by people close to retirement age or already retired

“Extremely Unlikely”

“Extremely Likely”

25 27 23

27

26

25 1817

21 17

19 14

25 14 16

25 11 8

302

532

633

953

758

1355

(1) (2) (3) (5) (6) (7)

Likelihood of Changes to Future Business Landscape

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Seize the Future

Someone once defined resilience as the ability to bounce back from adversity. Irish businesses are a resilient lot: they’ve survived many tough years of difficult trading conditions and massive uncertainty, accompanied by a digital revolution that continues to gather pace.

Now Irish business owners, managers and leaders are ready to bounce forward to growth and success. So we hope you have found the insight and inspiration in our report to help you take the next steps along the road to 2020, and to build your business against a background of rapid and continuous change.

As we said at the end of the earlier Business 2010 report:

It is up to you to seize the future.

1 Ageing in the 21st Century: http://www.helpage.org/resources/ageing-in-the-21st-century-a-celebration-and-a-challenge/ - see also European Commission 2012 Ageing Report: http://ec.europa.eu/economy_finance/publications/european_economy/2012/2012-ageing-report_en.htm

2 World Bank report: http://siteresources.worldbank.org/EXTABCDE/Resources/7455676-1292528456380/7626791-1303141641402/7878676-1306699356046/Parallel-Sesssion-6-Homi-Kharas.pdf

3 SRI report: http://www.sri.com/work/publications/spas-and-global-wellness-market-synergies-and-opportunities

4 See Cntrl-Shift – the timeline for the personal data landscape: http://ctrl-shift.co.uk/timeline

6 Ambient Insight reports: http://www.ambientinsight.com/News/Ambient-Insight-2011-2016-WesternEurope-eLearning-Market.aspx

7 Roland Berger: http://www.rolandberger.com/expertise/industries/engineered_products_high_tech/long_lifecycle_products/environmental_technology/

14 See, for example, the UPC report on Ireland’s Digital Future: www.upc.ie/digitalindex

11 Booz & Co: http://www.booz.com/media/uploads/BoozCo-India-Automotive-Market-2020.pdf

10 Food Harvest 2020: http://www.agriculture.gov.ie/agri-foodindustry/foodharvest2020/

8 Frost & Sullivan: http://www.frost.com/prod/servlet/press-release.pag?docid=26887651

9 Roland Berger: http://www.rolandberger.at/news/2012-10-15-Western_European_Retailers_en.html

5 Digital Agenda for Europe scoreboard: http://ec.europa.eu/digital-agenda/en/scoreboardne

13 Edelman Trust Barometer 2012: http://www.edelman.ie/index.php/insights/trust-barometer/

12 See Euromonitor report: http://blog.euromonitor.com/2012/03/special-report-income-inequality-rising-across-the-globe.html

ENDNOTES:

An AIB commissioned report by Amarach Research; guiding Irish business towards real opportunities in the years ahead. Produced Dec 2012.

Allied Irish Banks, p.l.c. is regulated by the Central Bank of Ireland. Registered Office: Bankcentre, Ballsbridge, Dublin 4, Ireland. Registered in Ireland, No. 24173.

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