Executive summary

SMEs and entrepreneurship are central to Ireland’s challenge of generating a broad-based growth and prosperity that builds on and extends its successes in attracting high quality foreign direct investment. This report examines how to strengthen SMEs and entrepreneurship across the economy. It covers the characteristics and performance of SMEs and entrepreneurship, the business environment, the framework for policy formulation and delivery, national programmes for SMEs and entrepreneurs, the role of local bodies and interventions in tailoring policy to spatial differences, the productivity performance of SMEs, and the design and delivery of business development services.

The report identifies a number of challenges for policy. These include increasing productivity growth in SMEs, increasing the business start-up rate and business dynamism, facilitating entrepreneurship among women, youth and migrants, scaling up micro-enterprises and generating more medium-sized firms, and increasing SME activity on foreign markets. A number of recommendations are provided to help meet these challenges.

Key findings

Increasing business dynamism and SME productivity growth are priorities

Ireland is a successful generator of high-growth firms and its SMEs are innovative. Attitudes toward entrepreneurship are also positive overall. However, business dynamism and the start-up rate are relatively low, Irish SMEs are not very active in international markets, and SME productivity growth is stagnant. There are also weaknesses in SME management skills, capital investment levels and technology adoption.

The overall business environment is strong but there are priorities in skills and finance

Ireland offers a favourable regulatory environment, low taxation, extensive R&D support and good physical infrastructure. However, access to finance remains problematic and incentives could be strengthened for investment in SMEs and entrepreneurship. Skills shortages are also rising, implying a need to monitor the success of recent apprenticeship and skills development policies. SME engagement in the design of business regulation policies could also be strengthened.

A unified national SME and entrepreneurship policy would be valuable

Ireland has good arrangements for the co-ordination of SME and entrepreneurship policies across government, including for policy monitoring and evaluation. However, the country lacks a unified SME and entrepreneurship policy document that could show in one place the full range of support that is provided for SMEs and entrepreneurship together with the related objectives, activities, targets and budgets. This would be an important guide for future policy development and monitoring.

SME and entrepreneurship programmes could be upscaled and refined in some areas

Ireland has a comprehensive and solid set of support programmes for SMEs and entrepreneurship. However, there is a danger of some traditional SMEs falling between the support offers of the Local Enterprise Offices (LEOs), which mainly focus on smaller enterprises, and Enterprise Ireland, which primarily targets firms demonstrating export potential. The remit of the LEOs could be expanded to address this concern. Some areas of programme support also merit upscaling and refinement. There is scope to strengthen programmes for microcredit and credit guarantees and increase support for financial literacy in businesses. Innovation support could also be made more SME-friendly, in particular when it comes to tax credits for SME innovation. Support for SME internationalisation could be strengthened, especially for markets beyond the United Kingdom. There is also potential to strengthen the use of enterprise-led networks for the delivery of business support and to strengthen enterprise network management bodies. Increased dedicated support for migrant entrepreneurship is also a priority.

Local Enterprise Offices have an important role to play

There are large spatial variations in conditions for SME and entrepreneurship activity within Ireland. The LEOs play an important function in providing tailored support for SMEs and entrepreneurship in their areas in collaboration with other bodies working locally and regionally. However there is potential to enhance local level policies to build local networks of enterprises working on common skills and innovation projects, particularly in local industry clusters. Approaches are also needed to connect SMEs and entrepreneurs in remote regions with broader entrepreneurship ecosystems in urban centres and larger cities.

A multi-pronged approach is needed to increase SME productivity growth

Ireland has many SMEs with low productivity compared to the frontier firms in their industry. The causes include prolonged use of low-productivity techniques, underinvestment in capital, weak management practices, insufficient digital technology adoption and limited direct entry into export markets. A range of policy initiatives need to be applied to address this multifaceted issue. They include increasing take up by SMEs of Skillnet Ireland management training programmes, expanding vouchers for digitalisation processes in SMEs, integrating international standards adhesion in SME development programmes, and increasing SMEs take up of R&D incentives.

There is scope to strengthen business advisory services

Business advisory services can play an important role in helping SMEs and entrepreneurs to see how to address their challenges and in increasing the effective use of business support programmes by improving the match between firm needs and support taken. While there is a reasonable supply of business development services in Ireland, in particular through the LEO network and Enterprise Ireland, and while SMEs and entrepreneurs have good access to mentoring opportunities, there remains scope for improvement. A business diagnostic tool could be used more widely as an entry point to business development services, management training programmes and financial support for consultancy expanded, training and guidelines for external mentors improved and potential gaps in the provision of services assessed.

Selected recommendations

A broad range of detailed recommendations are offered in the report. They include the following:

• Draft a unified national SME and entrepreneurship strategy document to increase policy visibility.

• Expand the use of online business diagnostic tools as entry points into the business advisory services system.

• Simplify the approval procedure for R&D tax credits to facilitate the participation of SMEs in this initiative.

• Encourage SME involvement in innovation collaborations to increase their knowledge absorption capacities.

• Create a network of regional enterprise network managers to identify local cluster challenges and broker joint responses involving a range of public sector and private sector actors.

• Increase support for international standards adhesion by SMEs as an additional lever for encouraging upgrading to international best practice business management approaches.

• Scale up current SME internationalisation initiatives to increase SME direct exporting and expand the range of markets addressed.

• Expand current access to credit initiatives for SMEs, particularly to segments of the enterprise population with the greatest access to financing challenges.

• Develop an action plan for financial education to strengthen the financial skills and financial management of small business owners and managers.

• Introduce a tax relief for non-domiciled new hires by Irish SMEs to increase access to international talented labour.

• Ramp up support for the digitalisation of SME business processes to address low digital skills and awareness among SMEs and increase SME take up of key digital technologies.

Executive summary