Job prospects strong for next 12 months: ISME
Employment prospects are strong for the next 12 months, with 26% of small companies expecting to increase employment in the next year, according to ISME's quarterly business trends report.
Other headline points in the report are:
* SMEs continue to increase investment.
* High cost environment the biggest threat to future development, competitiveness and growth.
* ISME calls for the immediate implementation of the Expert Group on Enterprise in order to address 'high cost culture'
The trend in business confidence continues to rise, according to the report, with 42% of companies more optimistic about business prospects than 12 months ago, representing a net 9% increase on the previous quarter and a 67% increase year on year, a marked turnaround in the last 12 months.
In comparison to this time last year, there has been a relatively-high increase in employment in the SME sector, with almost one-third (30%) increasing their employment number in comparison to 21% who reduced staff levels.
The overall net 9% increase is a significant improvement on the corresponding period last year, when a net 15% of companies reported job losses and is indicative of the considerable improvement in the economy in the interim.
The overall increase in employment was also reflected in the manufacturing sector, which recorded a net increase in employment for the first time in three years
Moving forward, employment prospects continue to be positive, with a quarter (26%) of companies expecting to employ more in the next 12 months, with a net 19% increase in services and 23% in distribution.
Manufacturing, however, continues to significantly lag behind other sectors, with only a net 1% expecting to employ more in the next 12 months. This is significantly down on the previous quarter when a net 16% of Manufacturers had anticipated creating new jobs.
In response to the rise in business confidence and positive employment prospects, almost one in two companies (47%) expects to increase their levels of investment over the next 12 months in comparison to only 7% who are planning a decrease.
The levels of overall turnover have increased in the last quarter and remains significantly above comparison figures from last year, with a net 22% of companies reporting an increase.
While not as significant as in previous quarters, 27% of respondents have sales/order books below normal for this time of year. This can be partly attributed to cancellation of orders, which was experienced by 16% of respondents down from 20% in the last quarter. Cancellations were from locally-based multinationals (22%), export destinations (19%) and indigenous firms (59%).
In comparison to 12 months ago, 29% of respondents confirmed that the credit period being taken is longer, with only 6% stating that they get paid faster. Credit delays remain a significant impediment to small business with a lack of cash flow identified as a major impediment to company growth and in some cases the significant factor in company closure.
52% of all respondents are engaged in exporting. Of those, one fifth (21%) reported that the value of their exports was more than at the same period last year in comparison to 18% who experienced a reduction. The figures are consistent with the last quarter but are a significant improvement on export activity in the second quarter of 2003.
Business costs continue to be problematic for SMEs, with increases of 10% recorded in rents, wages, raw materials and insurance. Other costs identified as causing particular difficulties included transport, electricity, postal costs and local rates.
While there is a general level of optimism among SMEs, there continues to be considerable concern at the cost inputs of running a business in Ireland. For instance, the biggest concern identified by SMEs was labour costs, confirmed by 24% of respondents with 15% concerned at Insurance costs. The impact of increased competition particularly from China, the Far East and Central and Eastern Europe together with the rising cost environment has resulted in 16% of SMEs indicating 'erosion of competitiveness' as their biggest immediate concern.
Commenting on the results, Mark Fielding, ISME Chief Executive said: "While overall the results are positive, from an SME perspective there is no doubt that the cost environment represents the biggest threat to the future development and growth of small business".
"With labour costs and erosion of competitiveness being identified as the two biggest immediate threats to business, it is vitally important that the dramatic increase in production costs witnessed over the last number of years is brought under control or else we run the risk of pricing ourselves out of the market," he said.
"In the last three years alone, SMEs have experienced 27% increases in electricity, 26% in postal services, 21% in commercial rates, 260% in Insurance, 21% in labour costs, and 16% in water charges, to name but six. It should be noted that in the same three year period the increase in inflation was 10% and factory gate prices reduced by 1.9%.
"As the Government belatedly talks about addressing competitiveness, small business continues to suffer through incessant, interminable increased costs, many of which are Government driven or sanctioned, which are undermining that competitiveness."
"SMEs are all in favour of moving up the value chain in order to compete, the reality is that this becomes an impossible task if the resources are not available to invest in innovation, Research & Development and marketing, because they are used to meet rising business costs. Many companies, particularly those involved in Manufacturing, are at breaking point in attempting to control their cost environment."
Fielding called for the immediate implementation of the Expert Group on Enterprise, proposed by the Enterprise Strategy Group, with their first task being to tackle the high cost environment for businesses in Ireland.
