New products and markets key to export growth

April 04, 2017

News
Competitiveness, Trade and FDI

Note: Links to publications launched at this conference are available at the end of this article. 

The ESRI will host a conference today (4 April 2017) to launch the findings of a research programme on “Enterprise Exporting, Innovation and Productivity” undertaken in cooperation with Enterprise Ireland and the Department of Jobs, Enterprise and Innovation. Research findings from the programme highlights that diversifying export products and markets plays a major role in driving growth for domestic firms and that investing in knowledge-based capital can help firms increase productivity performance.

Dr. Orlaigh Quinn, Secretary General of the Department of Jobs, Enterprise and Innovation welcomed the launch of the reports today:
“The Department of Jobs, Enterprise and Innovation has a strong track record in evidenced-based policy development and, through the Civil Service Renewal Programme, is committed to more open approaches to policy making. I therefore welcome our cooperation with the ESRI on research that will contribute to policy development in areas of long-term strategic importance to the Department and its agencies.”

The CEO of Enterprise Ireland, Julie Sinnamon, also welcomed the publication of the reports today:“Enterprise Ireland welcomes the publication of this research today. The research reflects Enterprise Ireland’s experience that the number of Irish-owned firms exporting to international markets has grown over recent years, with our client exports totalling €20.6bn in 2015. The output of this exercise has already helped inform the development of our organisational strategy for the period 2017-2020: Building Scale: Expanding Reach and will no doubt continue to inform our approach to supporting our clients to innovate, win international sales and create jobs across all the regions of Ireland.”

As part of a major research programme carried out over two years with the support of Enterprise Ireland and the Department of Jobs, Enterprise and Innovation, researchers at the ESRI have examined extremely detailed information from the CSO on firm exporting activity and investment patterns, particularly focusing on intangible or knowledge-based capital at the firm level.

Background

  • The export sector as a whole is a major contributor to Irish economic performance.
  • The number of Irish-owned firms participating in exporting has grown steadily over recent years, both in absolute terms and as a share of exporters.
  • Domestically owned exporters are more embedded in the local economy and more regionally dispersed than multinational firms. They are therefore an important component of sustainable, balanced and resilient economic growth.
  • The research undertaken on manufacturing exports examines how firms launch, adapt, diversify and grow their exports with the aim of providing insights into the opportunities, risks and challenges of operating in the global marketplace.
  • Although services exports have been growing rapidly, information on firm activities in this sector is less extensive. The research on services exports therefore uses survey data from the Annual Services Inquiry and focuses on trade participation and differences between exporters and non-exporters.
  • Internationally, there has been growing evidence showing that innovation and productivity growth are underpinned by investment in knowledge-based capital (KBC) but no previous research has looked in detail at Ireland’s enterprise investment in this area.
  • Knowledge-based capital includes a broad range of intangible assets such as: computer software, and data sets; research and development (R&D); intellectual property assets, brand equity; organisational know-how; and employees’ skills.

Key findings

  • Exporting is highly concentrated in a relatively small percentage of firms and is rarer in services than in goods.
  • Most exporters sell a small number of products to few markets.The UK accounts for more than 40 percent of exports for Irish-owned firms.  Eleven percent of highly globalised firms (exporting more than 20 products to over 20 destinations) account for 46 percent of the exports of Irish-owned firms.
  • Exporting is extremely dynamic. Exporting firms continually adjust product and market mixes.However, there is a high degree of riskiness to entering a new market or launching a new product with the greatest probability of exit occurring in the first year.
  • Export growth is largely driven by product and market changes.While in the short and medium run export volumes may be largely explained by the sales of existing products to their current markets, in the long run, the drivers of export growth are expansion of market and product portfolios.
  • The international evidence indicates that investment in KBC is sizeable and it has increased over time in many advanced economies, including Ireland.
  • Investment in KBC is an important driver of labour productivity in Ireland’s enterprises. The evidence shows that the impact is substantial with a 10 per cent increase in investment in knowledge-based capital per employee found to increase firm productivity by 2 per cent.
  • Investments in various types of KBC have different effects on productivity across Irish and foreign-owned firms. The largest productivity gains for Irish-owned firms are found for investment in R&D intangible assets and in organisational capital. For foreign-owned firms, the largest productivity increases are linked to investment in non-R&D intangible assets such as computer software, intellectual property assets and organisational capital.

Implications

  • Specialisation amongst exporters can be a positive strategy if the specialisation is in areas of high current demand and future growth prospects and the research provides evidence that the current concentration patterns of Irish-owned firms are well chosen.  However, changes in the external environment must be monitored to ensure firms are well placed to take advantage of new opportunities and to mitigate any potentially negative movements.
  • The pattern of many firms exporting a small number of products to few destinations shows that there are costs associated with each new product introduced and new market entered. This is important from a policy perspective because it demonstrates a need for on-going support for firms.
  • Incentivising further investment in knowledge-based capital could lead to stronger enterprise innovation and productivity performance. This new evidence highlights that while policy measures aimed at incentivising investment in R&D are important to foster productivity growth, a comprehensive approach is needed to also foster investments in other intangible assets such as computer software, copyrights, patents and licences, as well as firm-specific human capital and organisational capital.

Associated publications: