copy the linklink copied!Chapter 4. The strategic framework and delivery system for SME and entrepreneurship policy in Ireland
This chapter assesses the strategic framework for SME and entrepreneurship policy in Ireland, including providing leadership for the policy area, consultation with stakeholders, and arrangements for co-ordinating policies and programmes across central government. It further examines how national SME and entrepreneurship programme resources are distributed across lines of policy action and types of SMEs and entrepreneurs as part of a policy portfolio analysis. The system of delivery for national SME and entrepreneurship support programmes is also assessed as well as the mechanisms for providing access to SMEs and entrepreneurs to these programmes. The chapter concludes with recommendations for improving the policy framework and programme delivery.
copy the linklink copied!The SME and entrepreneurship policy framework
SMEs and entrepreneurship policy documents
The government’s new Project Ireland 2040 and the National Development Plan 2018-27 both place priority on developing the local enterprise economy. This includes a policy line for “A Strong Economy supported by Enterprise, Skills and Innovation”, with a proposed budget allocation of EUR 9.4 billion. The policy line includes research and innovation initiatives specifically targeting SMEs; cluster projects geared to fostering collaboration between SMEs, multinational corporations and higher education institutions; supports geared to fostering the productivity and innovation transformation of SMEs; initiatives to assist SMEs in preparing for Brexit; and initiatives for accelerating levels of entrepreneurship and start-up performance and success, including through establishment of eHubs for entrepreneurship and start-ups in every county1 (DPER, 2018).
Enterprise 2025 Renewed (DBEI, 2018a) is Ireland’s national enterprise policy and the key document laying out the enterprise policy framework. It takes a whole-of-enterprise approach, covering all sectors of the economy and including enterprises of all sizes, origin and stages of development. Therefore, it cannot be assumed that the enterprise policy is synonymous with or tantamount to SME and entrepreneurship policy. Although there are specific policy statements targeting SME and entrepreneurship development, mostly related to fostering start-ups and promoting productivity improvements and scaling of SMEs, these references are limited and scattered across the major policy lines.
Other key national policy documents that include references to SMEs and entrepreneurship, and in some cases propose actions specifically applying to them, are Future Jobs Ireland, which is a series of annual reports setting out policy ambitions across key pillars of government action, including Improving SME Productivity, and Action Plan for Jobs 2018 (Government of Ireland, 2017), which also sets a range of key initiatives, including for Driving Enterprise Growth. Policies in favour of SME and entrepreneurship development are also integrated in the policy and strategy documents of the ministry-level departments. This includes, for example, Innovation 2020; the National Skills Strategy 2025 (DES, 2016); the National Strategy for Higher Education to 2030 (DES, 2011), the National Policy Statement on Entrepreneurship in Ireland (DJEI, 2014) due to be updated in 2019; and the National Digital Strategy for Ireland (DCENR, 2013).
However, there is not currently a distinct document laying out the full SME and entrepreneurship policy framework and the full package of SME and entrepreneurship policy across government is not immediately visible. Rather, it is necessary to derive the policy framework from strategic directions outlined across the various main national policy documents and statements.
Table 4.1 outlines the major national policy documents, indicating the more explicit intersections with SME and entrepreneurship policies.
Targets for SME and entrepreneurship policy
Targets in Enterprise 2025 are set for start-ups as per the National Policy Statement on Entrepreneurship and replicated in other policy documents (e.g. increase number of start-ups by 25%; increase the first 5-year survival rate of start-ups by 25%; improve the capacity of start-ups to grow to scale by 25%), but targets specific to SMEs apply only to:
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An increase in the percentage of all SMEs introducing product or process innovations from 45% to 50% by 2020 (Enterprise 2025 Renewed);
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An increase the percentage of innovative SMEs engaged in technological collaboration with others as a percentage of all SMEs from 31% to 45% by 2020 (Enterprise 2025 Renewed);
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An increase the number of small businesses trading online (National Digital Strategy).
Some of these targets are further taken up in Future Jobs Ireland, notably a target for the percentage of SMEs introducing product or process innovations is set at 55% for 2025, and a target for the share of SMEs with marketing or organisational innovations has been set at 60%.
Some further SME-specific targets are also set for Enterprise Ireland-assisted firms2, although this does not cover development of the overall SME population in Ireland.
Overall, specific objectives and targets for the participation of SMEs and new enterprises in the implementation of policy measures are not identified in most of the different national policy documents. When the cohort of SMEs and entrepreneurs is embedded in broader policy statements covering all enterprises and no specific targets are set for their inclusion in policy actions, or requirements to report on the share of SMEs and entrepreneurs among beneficiaries, it is difficult to measure and assess the impact of the national policy as a whole on the development and performance of SMEs and entrepreneurship per se.
The case for a more coherent policy approach for SME policy
The Small Firms Association is calling for the government to design a small business strategy for Ireland that will provide coherence in the policy approach and align all policies and schemes, and thus address the lack of clarity regarding the SME and entrepreneurship policy components in existing policy documents. The rationale for their position is that while multinational firms are thriving, the small business sector is not performing at its optimal level in many areas, including the rate of start-ups, scaling, survival, productivity and exporting, and is deserving of more focused policy support (SFA, 2018).
Also, in June 2018, the Seanad Public Consultation Committee issued a notice for a public consultation on how to improve the promotion, enhancement and success of SMEs, requesting submissions from interested stakeholders on the topic. The follow-up consultations with SMEs and SME stakeholder organisations took place in November 2018. The goal of the consultation process was to gather views leading to the development of an integrated national strategy proposal document for fostering the growth and sustainability of indigenous Irish SMEs and report to ministerial level.3
In the meantime, the Irish Government could address the lack of an integrated SME and entrepreneurship policy framework document by pulling together the threads of SME and entrepreneurship-specific and targeted policies embedded in the various national level policy framework documents and presenting them in a stand-alone policy document. This would provide clarity on the government’s support and overall strategy for this segment of the economy.
A policy focus on the digitalisation of micro-enterprises and SMEs would be particularly timely given the government’s process of developing a new national digital strategy. Currently, Irish SMEs are assessed as having a low digital intensity, and only 30% of SMEs sell online. A directed policy focus to help SMEs improve their level of digital intensity, including addressing skills and technological gaps, is needed in order to prepare them for the accelerated demands of the digital economy.
The National Policy Statement on Entrepreneurship (NPSE)
The National Policy Statement on Entrepreneurship (NPSE) is a stand-alone policy designed to be effective from October 2014 to October 2019. As part of any reformulation of the NPSE, the Irish Government could take the opportunity to reframe it as the National Policy on SME and Entrepreneurship Development, and incorporate policy directions, objectives, targets, lines of action, and performance indicators for micro-enterprises and SMEs, as well for entrepreneurship and start-ups.
In doing so, consideration should be given to addressing the main challenges identified in Chapter 2 on SME and Entrepreneurship Characteristics and Performance, being:
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Increase the productivity of “small” and “medium” size band SMEs.
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Increase the business start-up rate and business dynamism.
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Ensure equal opportunities for entrepreneurship across the population and address gaps in the self-employment and entrepreneurship activity rates of women, youth and migrants.
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Scale up micro-enterprises, particularly indigenous locally-trading and non-exporting enterprises, and increase the cohort of medium-sized enterprises (50-259 employees).
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Increase SME access to foreign markets, including non-United Kingdom markets.
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Address spatial disparities in entrepreneurship by strengthening local entrepreneurship ecosystem conditions for start-up and scale-up entrepreneurship across the whole country.
Dealing with Brexit and preparing SMEs for the implications is also a huge policy challenge for the government. This should also be reflected in the reframed policy document.
The Malaysian experience in developing an SME Masterplan could provide inspiration for Ireland in crafting a more integrated strategic approach to SME and entrepreneurship policy (Box 4.1).
Description of the approach
In Malaysia, the highest policymaking body for setting a long-term strategic direction for government policies on SME and entrepreneurship development is the National SME Development Council (NSDC). This was formed in 2004 to support greater policy coherence and co-ordination among ministries and agencies working towards a common goal in this area. Its original composition was 13 ministries and agencies, the Chief Secretary to the Government, the Director-General of the Economic Planning Unit, and the Governor of the Central Bank. The Secretariat to the NSDC is the Small and Medium Enterprise Corporation (SME Corp. Malaysia), located under the Ministry of International Trade and Industry. SME Corp. is the central government agency tasked with the formulation of SME policies and co-ordination of programme implementation across all related ministries and agencies.
Malaysia is currently implementing the NSDC’s first long-term SME Masterplan (2012-20), launched to enhance the contribution of SMEs to Malaysia’s Vision 2020, the national development framework. The Masterplan’s vision is to “create globally competitive SMEs that enhance wealth creation and contribute to the social well-being of the nation” (NSDC 2012, p. 35). The macro targets set for the SME sector in the SME Masterplan are to raise the SME share of GDP to 41% by 2020 (from 32% in 2010), its employment share to 65% (from 59%); and its share of exports to 23% (from 19%).
The plan has four broad strategic goals, covering targets for new start-ups, high-growth and innovative firms, SME productivity, and formalisation, and six focus areas to support achievement of those strategic goals, which, based on evidence, were the major forces driving SME performance.
The Masterplan also identified six High Impact Programmes (HIPs): 1) Integration of Business Registration and Licensing; 2) Technology Commercialisation Programme (for innovation); 3) SME Investment Programme (for early-stage financing); 4) Going Export Programme; 5) Catalyst Programme (to promote home-grown champions); and 6) Inclusive Innovation (to empower the bottom 40%).
The SME Masterplan is an organic document that is implemented through annual action plans. SME Corp. meets annually with relevant ministries and agencies to collect information on entrepreneurship and SME development programmes and publishes the Annual SME Integrated Plan of Action (SMEIPA). The annual action plans are flexibly fine-tuned to adjust to environmental and structural changes.
SME Corp. is responsible for progress updates on the implementation of the SME Masterplan, including how programmes are advancing and stacking up against quantitative targets and milestones, i.e. it takes on the monitoring and evaluation co-ordination role for the SME and entrepreneurship development programmes implemented by the different ministries and agencies. This co-ordinated roll-up enables the government to measure the collective performance of SMEs in terms of their contribution to GDP, employment and exports on an annual basis.
Success factors
The establishment and progressive work of the NSDC is a key success factor in the development of a national government-wide SME policy, while the existence of a central co-ordinating body, SME Corp., ensures the effective implementation and monitoring of SME policies across various ministries and agencies.
The SME Masterplan and annual action plans make it very clear that resulting initiatives and programmes are directed at enterprises falling within the SME definition, so there is no confusion or lack of clarity about the impact on macro level targets of performance improvements in the SME sector, including start-ups.
The launch of the SME Masterplan document and the annual SMEIPA publication has enabled the government to enhance collaboration and reduce duplication, foster greater synergies across ministries and agencies and optimise funding allocations.
Obstacles and responses
There are challenges in adopting a cross-government approach to SME and entrepreneurship policy. In Malaysia, 16 ministries and over 60 agencies implement SME programmes. This was dealt with in Malaysia by forming the inter-ministerial council, the NSDC, with responsibility for crafting and governing the implementation of the national masterplan. As the scope of SME policy issues has expanded, so has the membership representation of the NSDC. As of 2016, membership was broadened to include other relevant ministries with a view to being more inclusive of entrepreneurship and entrepreneurial initiatives across targeted groups.
Co-ordination of the SME strategy is a key challenge, requiring extensive co-ordination resources. To execute this co-ordination function, SME Corp. was allocated additional resources.
Collecting timely information from participating ministries and agencies on programmes and progress can be a challenge as it requires a commitment from a number of ministries and agencies to co-operate. This is facilitated in Malaysia through the annual SMEIPA process.
Relevance for Ireland
Ireland could draw inspiration from Malaysia in preparing a document like the SME Masterplan, that comprises all government policy measures supporting SMEs and entrepreneurship with the aim of improving overall clarity regarding the national SME and entrepreneurship policy framework, its governance structure, and performance metrics.
Sources for further information
NSDC (National SME Development Council) (2012), SME Master Plan 2012–2020: Catalysing Growth and Income, Kuala Lumpur, http://www.smecorp.gov.my/images/flippingbook/SME-masterplan/PDF/SMEMasterplan2012-2020.pdf/.
copy the linklink copied!Policy co-ordination across departments and agencies
The Government of Ireland takes a whole-of-government approach to the development and oversight of policy initiatives in order to ensure coherence, co-ordination and streamlining of strategy implementation. This applies to SME and entrepreneurship policy as well as other policy areas. The DBEI has the key role for implementing enterprise policy and co-ordinating SME and entrepreneurship policies across government departments.
In its co-ordination role, the DBEI consults broadly with other departments on policy directions and actions. For example, in formulating the Enterprise 2025 policy document, the DBEI collaborated with senior officials from other departments of government to achieve a cross-departmental perspective. This included the Taoiseach’s office, the Department of Finance, the Department of Agriculture, Food and Marine (DAFM), Department of Public Expenditure and Reform (DPER), Department of Foreign Affairs and Trade (DFAT), Department of Transport, Tourism and Sport (DTTAS), Department of Education and Skills (DES), and Department of Rural and Community Development (DRCD). The final policy document was underpinned with extensive research and analysis of global trends impacting on the Irish economy, performance of enterprises over the past decade, and review of progress against metrics in the earlier Enterprise 2025 document. As a second example, the DBEI chairs an Implementation Group established to govern the implementation of Innovation 2020 policy. The governance structure includes the Chief Scientific Advisor to the Government and high level representation from research funding departments and agencies. The requirement for annual reporting on progress to the Cabinet Committee ensures accountability for effective and co-ordinated implementation.
The DBEI also has the policy lever for many of the enterprise support agencies, such as Enterprise Ireland, the Local Enterprise Offices (LEOs), the Science Foundation Ireland (SFI), InterTradeIreland, the National Standards Authority of Ireland (NSAI), the Industrial Development Authority (IDA), and the Irish Patents Office, all of which report through the DBEI. The DBEI also has responsibility for the policy levers of the Microenterprise Loan Fund, managed by Microfinance Ireland, as well as oversight of the Strategic Banking Corporation Ireland (SBCI). This enables a high degree of departmental policy co-ordination.
Within the DBEI, the Indigenous Enterprise, Digital and Finance Division (IEDFD) has the responsibility for coordination with relevant stakeholders to ensure the appropriate supports are in place to promote and develop entrepreneurship, to help new businesses start and existing businesses to scale and export, and to advocate across the wider system for a supportive business environment (e.g. tax policy, skills availability, etc.).
The Enterprise Strategy, Competitiveness and Evaluations Division (ESCED) leads on the development of Ireland’s enterprise policy including designing, executing and evaluating enterprise and jobs strategies, with policy input across all Divisions of the Department. The ESCED leads the development of the Future Jobs Ireland initiative and publishes the annual plans, working together with all government Departments and Agencies to establish clear actions and targets to help create positive conditions for job creation, including through enterprise support. The ESCED also supports the work of the National Competitiveness Council (NCC) and the Expert Group on Future Skills Needs (EGFSN) by providing research and secretariat support. Both are advisory bodies to the government, the NCC on competitiveness issues facing the Irish economy and the EGFSN on skills needs impacting on enterprise and employment growth.
Despite these arrangements the co-ordination function for SME and entrepreneurship policy and measures could be strengthened further. To achieve this, the DBEI is advised to establish an SME and Entrepreneurship Policy Working Group, headed by the IEDFD division and with representation from across DBEI divisions, and consisting of designated SME/entrepreneurship focal points in relevant departments and agencies, including Microfinance Ireland, the SBCI and the SFI. It may be necessary for the DBEI to ensure the division is structured adequately to carry out this enhanced co-ordination function.
copy the linklink copied!Policy dialogue with the private sector and stakeholders
Ireland illustrates good practice in broad stakeholder consultation processes when new or updated policy documents or proposals are being considered by government. For example, in preparation of Enterprise 2025 Renewed, led by the DBEI Strategic Policy Division, consultations were carried out, on the basis of a discussion document, with the heads of industry associations, the members of the Irish Exporters Association, the British/Irish Chamber of Commerce, the American Chamber of Commerce, the Irish Business and Employers Confederation (IBEC) and other stakeholders. Similarly, the Chairs of all nine of the Steering Committees of the Regional Enterprise Plans are from the private sector and were instrumental in delivering these new Plans.
At the same time, Irish business associations are proficient in their role as advocates to the government in favour of policies and supports to meet the needs of their members, including the submission of policy proposals and inputs to the annual budgeting process. This includes the Small Firms Association and the Irish Small and Medium Enterprise Association.
With respect to formal and regularised consultations with SME representative bodies, the Advisory Group on Small Business (AGSB), chaired by the Minister of State for Trade, Employment, Business, EU Digital Single Market and Data Protection, was established in 2011 to provide a platform for structured engagement between SMEs, their representative bodies and the minister with a view to influencing policy. Its role is to provide policy advice for onward reference to government on the key issues affecting the SME sector and the actions to best address them. AGSB members also use their experience and expertise in business to raise key issues requiring government action, advise on the impact of government proposals on small business, and assist government in identifying areas where further work may be required. The membership is broad, including representatives of the major business associations4, and representatives of Enterprise Ireland and the LEO Centre of Excellence.
Currently the AGSB meets every two months, but in its current role is a consultative body only to the DBEI, which serves as secretariat to the group, while at the same time, other government departments are clearly involved in formulating policies affecting entrepreneurs and SMEs. In many OECD countries, a formal advisory body such as this would advise the government at an interdepartmental level. Thus, it is recommended that the consultative role of the AGSB be extended across departments involved in SME and entrepreneurship development. This (formal or informal) interdepartmental committee on SMEs and entrepreneurship, chaired by the Minister, would logically include ministerial counterparts from the DES, Department of Finance, DCCAE, Department of Rural and Community Development (DRCD), and possibly the Central Bank of Ireland, among others. In addition, the AGSB membership could be modified to include more SME owners, in addition to the representative bodies already represented.
copy the linklink copied!The policy mix and portfolio
The portfolio analysis of SME and entrepreneurship policy
National government expenditures on enterprise supports in the 2017 budget amounted to about 2% of the total EUR 53 billion (of which about EUR 4.5 billion was allocated to gross capital expenditures to deliver programmes versus day-to-day spending). About EUR 855 million was allocated to the DBEI for distribution through its agencies, an increase of 10% over 2016. However, there is no information of what percentage of the total government budget is allocated to support for entrepreneurship, start-ups, micro-enterprises and SMEs, suggesting that adopting an SME and entrepreneurship policy portfolio approach would be helpful in analysing trends and developments over time across these different targets.
An SME and entrepreneurship policy portfolio approach consists of an analysis of the distribution of government spending by main policy area (e.g. entrepreneurship and management training, access to finance, market and export development, innovation, etc.) and by main targeted populations (e.g. potential and nascent entrepreneurs, new start-ups, micro-enterprises, high-growth firms, innovative SMEs, etc.). It is helpful in understanding whether government spending on SME and entrepreneurship policy is balanced, reflects government priorities, and addresses the main development challenges faced by existing small businesses and entrepreneurs. Used in conjunction with programme evaluation, a portfolio approach can help channel funding into measures with the greatest social and economic benefits. A possible approach to an SME policy portfolio analysis is outlined in Box 4.2.
Description of the approach
The basic framework for the policy portfolio approach entails an analysis of all SME and entrepreneurship policies and measures by policy categories and by the stages of entrepreneurship and SME development. Focusing on the entrepreneurship/enterprise life cycle allows development of an integrated set of supports to take “would-be” entrepreneurs from the pre-nascent stage to start-up, expansion and internationalisation, with business support systematically addressing market failures in key areas of each life cycle stage. These might include education and training, advice and counselling, finance, and technology upgrading, as common examples, with tailored policy responses to address the specific needs of each life cycle target. Combined with budget detail, the policy portfolio is a useful tool for managing the distribution of spending across projects and programmes in line with the government’s policy priorities for SME and entrepreneurship development.
The first step would be to prepare a description of all relevant policy measures and programmes, with each policy/programme assigned to a main policy focus and a stage, or stages, of enterprise development that the policy measure appears to target (see table below). Budget figures would then be allocated to the cells, based on the list of projects and budgets from all programmes. Thus, the total for cell 1A would represent the total budget for all programmes/projects providing education or training to pre-nascent entrepreneurs. The subsequent analysis would, in principle, help to identify where there are relative gaps in programme activity, and where a reallocation of resources could improve performance of the whole policy portfolio. Nevertheless, a policy portfolio analysis should recognise that different interventions have different objectives and that, according to government priorities, certain objectives may be worthy of greater spending than others.
If coupled with an impact evaluation of government programmes, the policy portfolio analysis can help assess not only the distribution of government spending across policy areas and by targeted segment of SME population, but also its effectiveness, i.e. whether government spending is more effective in certain policy areas for certain target groups than others. Indeed, the policy portfolio categorisation can also help clarify which market failures policy funding is intended to address. Once policy measures and programmes have been evaluated (preferably through cost-benefit analysis of the actual impacts of the interventions on, for example, job creation, business start-up rates, SME growth, increases in productivity, etc.), it becomes possible to assess the relative success or usefulness of the measure, identify gaps in policy support, and determine areas where a reallocation of resources could improve the performance of the whole budget portfolio.
Factors of success
The policy portfolio categorisation enables more precise identification of the target segments (such as start-ups) being supported and identifying policy/programme gaps, thus producing a more informed approach to the design and implementation of national SME and entrepreneurship policy measures.
A policy portfolio analysis undertaken in the framework of the OECD Review of SME policy in Thailand in 2011, for example, revealed that two-thirds of the SME budget expenditures (excluding financial assistance programmes) was directed to existing SMEs, with gaps in funding to address the needs of start-up and growth-stage enterprises. It also revealed that the bulk of the Office of SME Promotion’s total project budget (excluding finance measures) was spent on education and training, with considerable gaps in internationalisation, and technology/innovation support (OECD, 2011). The gaps identified as requiring further attention by the government have since been responded to.
Obstacles and responses
Preparing the initial inventory of all SME and entrepreneurship policy measures/programmes is one of the biggest initial challenges in adopting the policy portfolio approach, followed by performing a proper categorisation of the policy measures by type (focus area) and enterprise target group, and quantifying the total budget allocations (across ministries and agencies) according to these categorisations. These challenges can be overcome by assigning the ministry or office responsible for SME and entrepreneurship policies with the leadership role in collecting and sorting the necessary input information with co-operation and input from all relevant ministries and agencies.
Determining the appropriateness of the budget allocation across the portfolio is also a challenge. This can be overcome by collecting information on the costs and benefits of programmes and projects for each policy category and each enterprise segment and, through evaluations of their effectiveness (i.e. comparisons of whether the benefits actually exceed the costs), inform decisions about the balance of effort across the portfolio and where shifts in spending might deliver a higher economic return on a given investment. In this regard, undertaking ex-ante and ex-post evaluations of the impact of different programmes will inform the policy analysis about the benefits of different interventions and the actual effectiveness of budget expenditures.
Relevance to Ireland
Adopting this approach would assist Ireland with a holistic design of policy that takes into account the distribution of activities across focus areas and enterprise segments. It would aid in identifying and correcting any policy gaps across departments and agencies, and determining the appropriate balance of policy expenditures to meet the perceived needs of the SME sector and the government’s overall strategic objectives.
A full-fledged SME and entrepreneurship policy portfolio analysis for Ireland is complicated by two main factors. Firstly, the government budget is distributed across a large number of departments and agencies in the broader context of “enterprise policy”, with only some instances of measures explicitly targeting SMEs and entrepreneurship. Secondly, because in many cases the amount of the budget allocation per programme is not broken out to reflect the amount spent on the SME segment, data is not available on the actual amount allocated to SMEs.
Assessing the distribution of resources across the policy framework
While a full portfolio analysis is hindered by the above-mentioned deficiencies, a preliminary analysis is presented in Table 4.1. Although incomplete (for reasons indicated in the notes section below the table), the analysis indicates that innovation/R&D supports make up the largest component of expenditures (36.0%)5, followed by access to finance (33.4%).
The smallest share of expenditure is for market access/export development (12.3%). Of this amount, 41% is from Enterprise Ireland programmes to client firms and 7.6% from InterTradeIreland (Acumen and Elevate programmes) for cross-border trade development and assistance, while 16.4% is for Trading Online Vouchers from the LEOs (paid for by the DCCAE). The LEOs also have a small Technical Assistance for Micro Exporters Programme (comprising less than 3% of the total). This may suggest a gap in supporting the market access needs of non-exporters (e.g. strengthening their capacity to serve and expand in local markets) and an opportunity to increase the number of Trading Online Vouchers (1 188 issued by the LEOs in 2017).
In terms of target groups, established SMEs were beneficiaries of almost 40% of the budget/expenditures and start-ups for another 32.3%. High-growth potential firms benefited from 5.0% of the expenditure (all of it for EI-assisted SMEs), which is likely reasonable given their share of high-growth firms in the SME population. The majority of the expenditure on established SMEs is on innovation/R&D programmes (62.5%), followed by investments in their management skills and capacity (18.1%). The majority of the finance programmes (grants, etc.) are directed to start-ups, with Enterprise Ireland grants to high potential start-ups comprising about 70% of the total. About 73% of the finance to micro-enterprises comes from LEO grant programmes (making up just over a third of the LEO programme budget).6
There are no obvious imbalances in the distribution of resources across different categories of policy intervention and enterprise group. However, there may be potential for increasing impact by rebalancing resources in certain ways, for example towards programmes for market access and towards established SMEs not eligible for Enterprise Ireland support as exporters or potential exporters and not included in their client group. Before such decisions can be taken, a more accurate and complete policy portfolio analysis should be made – also covering SME and entrepreneurship policy expenditures by other government departments – and complemented with additional information on differences in levels of client demand and needs and evaluation evidence on policy impacts across different policy areas and target groups. An important consideration to identify potential imbalances between supply and demand is the excess capacity of programmes. For example, while some support programmes from other agencies have excess capacity, ITI programmes are often oversubscribed, sometimes by four times the current capacity, indicating an unmet demand for programmes to support cross-border trade from this organisation. Chapter 8 of this publication offers more insights.
copy the linklink copied!Evaluation of policy impact
The Irish Government is proficient in monitoring and evaluation at the programme level. Monitoring is undertaken against targets set in the Action Plan for Jobs, Enterprise 2025 and other policy documents, as well as Departments’ strategic plans. Primary among the indicators is job creation and each department/agency reports on the number of gross new jobs and net jobs created by government-assisted enterprises.
The DBEI’s Enterprise Programmes and Policy Evaluations Unit applies an evaluation framework informed by international best practice, as guidance to the core principles and methodologies of enterprise evaluation. The Unit carries out evaluations of its major agency expenditures on a regular basis, attempting to quantify the cost-benefit, deadweight and additionality of the supports, and where possible conducting control group counterfactual impact assessments (DJEI, 2015; Moloney, 2018).
The evaluation reports place emphasis on market failures and rationale for government intervention, e.g. financing gaps, information asymmetry, capability gaps, spill-over effects, and risk aversion. As well, Enterprise Ireland has developed ex-ante and ex-post evaluation processes for its internal programmes. Evaluation reports are published on the DBEI website or at minimum an executive summary with conclusions and recommendations, demonstrating a high degree of transparency. Other public agencies, such as the SFI, also commission independent evaluations of their various programmes, and Microfinance Ireland produces quarterly performance reports, which are published on the DBEI website, and also undertakes an annual job survey of its clients to measure the ongoing impact of its lending (net of business failures). With an entrenched evaluation culture, Ireland could be considered a good practice country in this regard.
Measurements are made of the impact of government programmes on client-firm performance, based on the expected outcome, e.g. growth, R&D investment, return for each Euro invested, etc. This may include evaluating the impact on SMEs of specific policy interventions, where appropriate (Forfás, 20147; DJEI, 2015; Moloney, 2018). While SMEs are not identified in most of the performance targets of national policy documents this gap does not exist so much at the agency level. For example, Enterprise Ireland8, the LEOs and Microfinance Ireland, carry out evaluations of programme impact on clients, who are predominately micro-enterprises and growth-oriented SMEs.
copy the linklink copied!Policy delivery arrangements
This section examines the delivery arrangements for SME and entrepreneurship programme actions in Ireland, i.e. the organisations involved in delivering the measures and the different implementation arrangements. Detailed descriptions and assessments of the entrepreneurship and SME support programmes are presented in Chapter 5.
The main actors in delivering SME and entrepreneurship policies.
The major SME and entrepreneurship support programmes are delivered by entities under the purview of the DBEI, i.e. Enterprise Ireland, the LEOs, Science Foundation Ireland (SFI), InterTradeIreland and Microfinance Ireland. Table 4.2 provides a non-comprehensive overview of the major delivery structures categorised by type of policy support. Each one has distinct objectives for developing the enterprise base, including start-ups, micro-enterprises and SMEs.
Enterprise Ireland (EI), with 10 regional offices in Ireland and 33 abroad, is responsible for delivering policy support to high potential start-ups and innovative SMEs in manufacturing and tradeable services with exporting potential. It also has a mandate to stimulate research, development and innovation (RD&I) collaboration between Irish-owned (and foreign-owned) companies and research institutes through the commercialisation of research and seed and venture funding, and assisting firms with their internationalisation efforts.
The 31 Local Enterprise Offices (LEOs) are the first stop for micro and small enterprises. The main client base is start-ups and micro-enterprises with fewer than 10 employees with scope in manufacturing and tradeable services (e.g. exporting potential). One of their objectives is to provide a pipeline of potential clients for Enterprise Ireland (once the micro-enterprise grows to 10 or more employees and meets the criteria for one of Enterprise Ireland’s programmes). Small enterprises not meeting the remit of Enterprise Ireland may continue to receive support from the LEOs, including training, advice, mentoring and referral to other support providers.
Science Foundation Ireland (SFI) is the national foundation for investment in scientific and engineering research. It does not deal directly with SMEs but invests in researchers and research teams likely to be generating new knowledge, leading edge technologies, collaborative research engagement with enterprise including SMEs, and spin-outs driven by science, technology, engineering and math (STEM fields). SFI has funded 17 National Research Centres since the programme was established, and funded a number of Strategic Partnership awards offering RD&I collaboration opportunities for Irish enterprises, including SMEs. The SFI Industry Fellowship Programme enhances industry-academia collaborations (including SMEs) via the temporary placement of academic researchers in industry, and of industry researchers in academia, supporting collaborative industry-academia research projects and stimulating excellence through knowledge exchange and training of engineers and scientists. In addition, the Technology Offices and Institutes of Technology offer technological expertise to SMEs and Knowledge Transfer Ireland provides assistance with commercialisation of innovations.
InterTradeIreland is a cross-border trade and business development body set up under the Good Friday Agreement and funded by the DBEI and the Department for the Economy in Northern Ireland. It supports small businesses to take advantage of North-South co-operative opportunities to improve capability, drive competitiveness, growth and jobs. It provides practical cross-border business funding, business intelligence, programmes of direct innovation and trade support, as well as meaningful contacts to SMEs across the Island looking to explore new cross-border markets and grow their businesses. Further support is provided to SMEs on access to finance and public sector tendering, with much recent support on helping small enterprises deal with the Brexit issues.
Bord Bia (The Irish Food Board), the Irish state agency responsible for promoting sales of Irish food, drink and horticulture products in Ireland and export markets, acts as a link between Irish producers and their customers worldwide and supports its client companies in identifying new and existing business development opportunities enabling the growth and sustainability of producers.
The Department of Education and Skills (DES) and the Higher Education Authority (HEA) have the lead on integrating entrepreneurship education in schools and higher educational institutions. Skillnet Ireland works with businesses in Ireland to address their current and future skills needs. Of the 16 500 businesses in their learning networks, 56% are micro-enterprises, 26% are small enterprises (total of 79%) and 13% are medium enterprises and 5% are large companies. With an estimate of over 240 000 micro and small enterprises in Ireland, only a small share is availing of the Skillnet training and skills development programmes. The Regional Skills Fora engage with SMEs on their skills needs, aiming to help employers better understand and access the full range of services available across the education and training system and enhance links between education and training providers in planning and delivering programmes. About 75% of this engagement in Q1 2018 was with SMEs.
Governments can deliver SME financing programmes by using incentive systems to encourage private sector financial institutions to channel more credit into SMEs or directly through centrally-managed agencies and funds. Ireland uses both approaches. First, two structures are in place to incentivise banks to lend to SMEs. The Strategic Banking Corporation of Ireland (SBCI), established in 2014 as a state-owned bank, provides low cost and flexible finance to SMEs through banks and non-bank lending institutions. The SME Credit Scheme (guarantee scheme, guaranteeing up to 80% of the loan granted by a partner bank) also encourages banks to lend to SMEs. At the microfinance level, the government supported the establishment of Microfinance Ireland (MFI) as a not-for-profit (direct) lender to deliver the government’s Microenterprise Loan Fund. This fund supports start-ups and micro-enterprises that have not been able to secure commercial bank financing.
Other financing is delivered by various government agencies in the form of grants to support strategic activity of enterprises, such as export development, or R&D and innovation projects (e.g. Enterprise Ireland, the LEOs, InterTradeIreland, and the SFI). Enterprise Ireland, in supporting the Seed and Venture Capital Scheme, makes use of independent private sector fund managers, and a co-investment model. It also provides partnership funding to the Halo Business Angel Network for co-investments. The co-investment model reduces risk and helps attract private sector investment, also reducing their risk.
The network of incubators and start-up accelerators is well developed across Ireland. The majority of these structures are located in universities and Institutes of Technology and were funded in their establishment by Enterprise Ireland. Enterprise Ireland currently enters into agreements with some of the incubators to deliver special pre-incubation and incubation programmes (e.g. New Frontiers, Female Founders), and encourages the incubators to refer high potential incubatees to Enterprise Ireland programmes.
Partnerships with private sector consultants and mentors
Developing partnerships with private sector consultants and mentors can be considered a good practice for businesss advice interventions, as it incentivises demand for external professional services and avoids crowding-out of private sector consultancy services. This is very much the approach adopted in Ireland. Enterprise Ireland maintains a database of consultants and mentors, which is shared with the LEOs, each of which has a panel of local consultants and mentors that it uses for referral to its start-up and micro-enterprise clients under various programmes. InterTradeIreland, Fáilte Ireland (tourism sector), and Bord Bia (food sector) also provide policy supports to micro-enterprise and SME clients. In some cases, they work through the LEOs to facilitate mentoring services to their clients. Microfinance Ireland also makes use of the LEOs to provide guidance and mentoring to its microfinance borrowers. These co-operative policy delivery arrangements between public service providers reduce the possibility of parallel entities providing duplicative services and make more effective use of public resources.
Management of the LEO system
The Government established LEOs in 2014 to streamline and increase the coherence and accessibility of SME and entrepreneurship support for smaller firms. This involved a reorganisation of the former County Enterprise Boards into more consistent LEO offers. Although the LEOs are overseen by Enterprise Ireland, they are operated by the Local Authorities in a relationship governed by Service Level Agreements laying out the nature of the services, delivery standards, performance expectations, and reporting requirements.
The LEO Centre for Excellence in Enterprise Ireland issued a LEO Procedures Manual outlining the roles of the tripartite parties; control procedures; funding arrangements agreed to by Enterprise Ireland and the DBEI; management information systems and reporting requirements; branding guidelines; regulations for administering grants to microenterprise clients and for providing business supports, such as training and advisory/mentoring support; and annual submission of a Local Enterprise Development Plan and metrics to the DBEI and the LEO Centre of Excellence.
Enterprise Ireland also develops and trains LEO staff to ensure maintenance and improvement of core enterprise support skills, sets targets for progression of high potential companies from the LEO network to Enterprise Ireland, and undertakes performance evaluations. Through this new arrangement the government is able to offer micro-enterprises and SMEs easier access to a wider range of supports and provide a clearer pathway for micro-enterprises in manufacturing and tradable services to move up to the Enterprise Ireland client base.
To further ensure co-ordination of policy delivery at the local level, Enterprise Ireland has entered into a formal agreement with the National Association of Community Enterprise Centres (NACEC) to streamline the first stop services between the LEOs and the Community Enterprise Centres (CECs) nationally. The CECs are located in more communities across Ireland than the LEOs and reach into the rural areas where micro and small firms may not have easy access to the LEO services and networking activities. Implementing the local protocols across the country will ensure the LEOs are more fully integrated into the enterprise development plans of each county and promote complementarity of services provided by both entities to the benefit of the clients they mutually serve. The key role of the NACEC is to engage local stakeholders in building a local ecosystem of support for start-ups and micro and small enterprises and facilitate regional exchange of experience and information. Useful in this regard is an assessment of the entrepreneurial and business support ecosystem/landscape at the local level to identify gaps in support, as well as opportunities for designing a coherent pathway for new entrepreneurs to access the right supports to help them progress through development and growth stages with a higher degree of success.
In addition, the DBEI and the Department of Rural and Community Development (DRCD) have put into place a formal protocol regarding the facilitation of agreements at the local level between the LEOs and Local Action Groups (LAGs) and other partners involved in delivering the EU LEADER (Liaisons Entre Actions de Development de l' Economie Rurale/Links Between Actions for the Development of the Rural Economy) programme for rural development policies. The purpose of the protocol is to ensure the key players reach agreement in relation to co-operation and collaboration in line with their respective mandates to support local enterprise development.
It should be noted that geographical distances between LEO offices sometimes act as a limiting factor to engage in local networks, particularly in rural areas. This can impede for example the frequency and intensity with which enterprises can participate in LEO events or supports (Cork Chamber of Commerce 2018).
Raising awareness of the policy offer
A common challenge facing the delivery of SME and entrepreneurship policies is creating awareness of the policy offer among the intended beneficiaries and ensuring that access to programmes is simple and inexpensive. This is especially important in the case of small business policy measures because the costs of search and access are proportionally higher for smaller enterprises. The launch in 2014 of the searchable “Supporting SMEs Online” tool, a new cross-governmental guide, helps entrepreneurs and micro and small enterprises identify which of the over 170 government supports (funding, programmes, business support initiatives) is appropriate for their business needs. In Q1 of 2019, the Online Tool was updated to include an SME events calendar and a latest news section along with an upgraded search function. The website is now located at www.supportingsmes.gov.ie. With some improvements (see Chapter 8 on business advisory services in Ireland), the complementary benefit of this online service is that it may serve as a first-stop information source for all SMEs, regardless of sector or stage of development, and help ensure that all segments of the SME population are directed to appropriate services, even where they might otherwise not be picked up in the outreach of the LEOs and Enterprise Ireland.
copy the linklink copied!Policy recommendations
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Draft a unified SME and entrepreneurship strategy document integrating all the relevant SME and entrepreneurship policy objectives and actions identified in high level policy documents across government.
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Publish an annual report on the state of SMEs and entrepreneurship in Ireland.
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Establish an interdepartmental committee on SMEs and entrepreneurship (informal or formal), chaired by the DBEI Minister, and including relevant ministerial counterparts, and extend the consultative role of the Advisory Group on Small Business (AGSB) to this broader group of departmental entities.
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Establish an inter-departmental SME and Entrepreneurship Policy Working Group consisting of senior officials working as SME and entrepreneurship focal points.
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Undertake an in-depth policy portfolio assessment of the distribution of government resources across different types of policy support and enterprise target groups.
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Fully implement the local protocols between the LEOs and the National Association of Community Enterprise Centres (NACEC) across the country to promote complementarity of services and the reach of LEO services into rural areas.
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Foster the further development of “ecosystem support hubs” through more collaboration at the local level between LEOs, CECs, incubators, accelerators, business innovation centres, research centres, Technology Development Offices, and other support providers.
References
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Notes
← 1. The goal is to achieve a one-third increase in levels of entrepreneurship and survival of start-ups that are trading in all regions through eHubs, mentoring and other collaborative initiatives at the sectoral level (DPER, 2018, p. 60).
← 2. These include: an increase in scale (based on level of out-of-country sales) of Enterprise Ireland-assisted firms, the number of assisted firms active in research, development and innovation (RDI) by sales volume, growth in the number of High Potential Start-ups supported by Enterprise Ireland, and increased employment in client firms.
← 3. https://www.oireachtas.ie/en/press-centre/press-releases/20181112-seanad-public-consultation-committee-to-consider-ways-of-assisting-and-promoting-smes/
← 4. These include the Small Firms Association, the Irish Small and Medium Enterprise Association, the Design and Crafts Council of Ireland, the Irish Hotels Federation, the Irish Farmers Association, Chambers Ireland, Retail Excellence Ireland, the National Association of Community Enterprise Centres, plus the Irish Tax Institute, CPA Ireland, and The Digital Hub.
← 5. The innovation/R&D expenditure included the EUR 22 273 137 reported from Enterprise Ireland, InterTradeIreland Fusion and Challenge programmes (just over EUR 3 million) and an estimated EUR 11.6 million from the SFI Collaborative Research programmes (although it is not clear that all this funding was directed to SMEs).
← 6. Microfinance Ireland gives financial support to small indigenous microenterprises and start-ups in Ireland irrespective of whether they are considered to have export potential. The product is a repayable microfinance loan. The amount of loan portfolio is not included in this analysis. However, the cost of defaults is built in because that is paid out of the government purse. For the sake of this analysis, the default rate was estimated at about 9% of the loan portfolio.
← 7. https://dbei.gov.ie/en/Publications/Publication-files/Forf%C3%A1s/Evaluation-of-Enterprise-Supports-for-Start-Ups-and-Entrepreneurship.pdf/
← 8. For example, an annual business survey is conducted with EI client firms to measure growth in jobs, exports, investment, etc., which produces longitudinal data on the impact of EI supports.
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