I add my word of congratulations to Senator Dooge on his appointment to the important EEC Committee. I wish him well in his important task. I welcome the First Report of the Joint Committee on Small Businesses on manufacturing industry and I am pleased to participate in a debate on the report in Seanad Éireann. It is the first occasion on which we have had an opportunity to debate such a report and I will try to touch on the salient points of the report in my speech.
The report covers all the main areas of concern to the small industrialist: (i) Business environment; (ii) Finance; (iii) Management; (iv) Marketing; (v) State Agencies; (vi) Taxation, and (vii) Legal problems.
Through the sixties and seventies the emphasis was placed on the attraction of foreign industry, a strategy which, though successful, is suggested, in the light of hindsight and changing circumstances to be insufficient and inadequate in meeting the employment needs of the country. While considerable emphasis has been and will continue to be placed on the attraction of overseas industry, the development of a strong indigenous small industry sector has not been neglected.
The IDA's small industry programme was launched in 1967 and extended nationwide in 1970. An attractive package of industrial incentives has been made available to the small industrialist under this programme including capital and training grants and rent subsidies, and ready-to-move-into factory accommodation was provided at a wide range of locations throughout the country.
The State aids and support systems for small industry have been continuously modified and adapted to reflect the needs of the small industrialist in changing economic circumstances.
The IDA enterprise development programme was launched in 1978. This programme was specially designed to encourage small business and professional people with the necessary business skills who had not previously owned a business to set up a business of their own. SFADCo were given responsibility in 1978 for the promotion and development of small industry in the mid-west region. Their mandate was to develop and test concepts and systems which would lead to dramatic growth of small indigenous industry in the mid-west region and to do so in a manner which would pioneer future national policies. More recently an enterprise centre was set up in Dublin, another is planned for Cork and a programme for the construction of incubator units for the typical small industry start-up project is under way.
The report identifies the importance of the small industry sector in the economy. There are over 5,000 small manufacturing firms operating in the economy, which account for 90 per cent of units of the total number of manufacturing firms, 40 per cent of total manufacturing employment, 30 per cent of total manufacturing output, and 25 per cent of total industrial exports.
It is interesting to note that, as pointed out in the report, small indigenous industry compares very favourably with foreign industry on the criteria both of durability and the ability to survive. The small industry sector is also the seed bed for new indigenous medium- and large-scale companies There are now 8,000 people employed in 153 large grant-assisted companies which were grant aided under the IDA's small industries programme over the past ten years. It is arguable that in the absence of State support given to small firms many Irish owned companies would not have developed exporting capability.
The report points to the need for a clear and unambiguous national policy on small business development and for identifying and disposing of constraints and contradictions that exist. The recently published White Paper on Industrial Policy fills this vacuum and sets out a comprehensive set of initiatives designed to stimulate the small industry sector, and the creation of strong internationally trading companies.
I am satisfied that the major concerns of the committee have been reflected in the new policies for small industry in the White Paper.
Regarding the business environment, the Government are determined to create an economic environment which will be conducive to industrial development and provide reward for risk takers. The system of grants and incentives helps small firms with the cost of starting up, expanding and modernising capacity. Many firms, however, are not regularly in a position to benefit from these arrangements.
The Government have already taken an important initiative in the area of industrial costs by establishing an industrial costs monitoring group whose role is to monitor and assess the implications of movements in all industrial cost elements including those arising from changes in Government policy. The group's first report is nearing completion and will provide an analysis of the structure of industrial costs and a framework for the future work of the group.
In 1983 a major review was initiated into the electricity industry aimed at identifying areas where economies could be achieved and recommending measures which would enable electricty prices to be brought more into line with other countries. This review too is now nearing completion.
The committee have identified the availability of finance as one of the major problem areas facing small manufacturing companies. The tendency in this country has been for such companies to rely heavily on loan capital with a minimum of equity. This type of high gearing can result in disastrous problems for industry particularly in times of recession when interest rates rise and cash flow dries up rapidly. As outlined in the White Paper on Industrial Policy, the Government are anxious to encourage the provision of a greater level of private risk capital to the traded sectors of the economy and particularly to small and medium sized enterprises. The Minister, Deputy Bruton, has met with the major banks, the Stock Exchange, the pension fund companies and representatives of the insurance industry in order to enlist their views and support in diverting a greater amount of investment to productive enterprises. This dialogue will continue in order to seek actively solutions to the problem.
A major vehicle to encourage the provison of risk capital to industry was introduced in this year's Finance Act. The scheme, which is often referred to as the business expansion scheme, allows individuals who invest in new shares in certain manufacturing and service companies to write off their investment, up to a maximum of £25,000 per annum, against their liability to income tax. As envisaged by the Joint Committee, the Finance Act provides that such investments may be made either individually in specific companies or through designated investment funds. Such funds allow individuals to obtain a fair spread of the risk associated with their investment as well as providing them access to the expertise of fund managers.
Other methods of encouraging investments at institutional level will be examined actively in the foreseeable future. In this context, obviously, the recommendations of the Joint Committee will be seriously considered.
The proposed national development corporation will be a major vehicle for direct State involvement in industry. The corporation will act as a State investment company in existing or new private sector enterprises or in joint ventures with the private or co-operative sectors particularly in the advance technology and natural resources areas. The corporation will assist indigenous industry in building up its capital base and will liaise closely with private venture capitalists in order to ensure that the maximum number of new project opportunities are encouraged.
The Government will be actively encouraging greater flexibility and availability in the context of financing small industry. This will require the encouragement of a change of attitude on the part of entrepreneurs themselves who are very often reluctant to give up part of the ownership of their company in return for equity investment. In addition, the major institutions including the Stock Exchange will be encouraged to examine their existing structures in order to identify how they might best be adapted to suit the needs of small indigenous industry. It must be recognised also that there already exists a generous and comprehensive incentive package for manufacturing industry and that there cannot be any further real increases in the level of Exchequer funding for projects in the immediate years ahead.
Government financial resources are limited and as set out in the White Paper the approach will be one of greater selectivity for grant aiding companies in the small industry programme in order to maximise the use of the limited funds available. The major objective will be to promote the establishment of new firms or the expansion of existing firms which have the capability to develop their operations to the standards to export competitively or to meet the sub-supply requirements of existing large industry. The major shift will be from fixed assets investment to technology acquisition and export marketing.
Under the heading of management, research on business success and business failure reaches a universal conclusion that effective management is the key ingredient of success and weak or inadequate management is the primary cause of failure. While the basic management functions are the same for small and large businesses, the smaller business must rely on one person to carry out the wide range of managerial tasks and is, therefore, totally dependent on that person's skill, energy and commitment.
Improving the quality of management in small business therefore, essential as it is, poses problems of its own, not the least of which is that of the manager taking time away from his business. For this reason the bias in the recommendations in the report towards the provision of training on a regional basis is to be welcomed together with the emphasis on follow-up in the forum of counselling and coaching services to ensure implementation of what has been learned at management training courses.
Emphasis is given too, to the need for State agencies such as AnCO, IMI and IPC to come together in jointly organising and undertaking training courses for small businesses. These recommendations are, of course, closely in line with the plans outlined in the White Paper on Industrial Policy as indeed is the recommendation which would place greater emphasis on the assessment of management capability prior to approval of grant aid. Industrial training has an important role to play in industrial development. AnCO's sectoral approach is a particularly valuable asset in this area. The considered response of the industrial training services to industrial development needs will be set out in the forthcoming White Paper on Manpower Policy.
Regarding second level education, the report's concern for more relevant business curricula in second level education is one I share. There is an urgent need to bring schools and industry closer together. Our future prosperity depends upon the wealth created in the productive sector of the economy. Innovative thinking and a positive approach to risk-taking must be encouraged. This reality must be foremost in the minds of educators. Increased emphasis must be placed on the preparation of young high achievers for careers in the productive sector. I want to see students at second and third level education institutes encouraged to think about going into business themselves and to seek out opportunities to set up their own enterprises.
The Joint Committee have commented on the particular difficulties experienced by small firms in regard to State procurement. The difficulties experienced by Irish firms generally in this area formed part of the agenda at a conference with the chairmen, chief executives and directors of the commercial State-sponsored bodies in the industrial and energy fields held under the chairmanship of the Minister, Deputy Bruton, in June 1983. I have subsequently met on an individual basis with the chief executives of these companies. The object of the discussions was to examine how mechanisms could be put in place within State companies to give Irish firms and suppliers every opportunity to compete for their business. Rather than asking the State companies involved to reward non-competitiveness or to establish a "Buy Irish" ethos for the sake of buying Irish, emphasis was placed on the positive advantages which exist in seeking out local suppliers who may potentially be in a position to offer a better deal.
Specific initiatives being examined include development contracts, where State companies would work with potential suppliers and possibly bear or share the cost of development work. The scope for longer periods for contracts and the possibility of splitting up large contracts to enable local suppliers to compete are other areas being examined. I am hopeful that the initiatives taken by the bodies themselves together with follow-up action by my Department and the Irish Goods Council will lead to increased opportunities for Irish firms in the future. In addition, existing procedures in relation to the award of public contracts are under review by an inter-departmental committee and I am confident that the committee's recommendations in this area will be among the issues considered.
One of the main recommendations of the Joint Committee in relation to domestic marketing is that the Irish Goods Council would be reconstituted as a new Irish Marketing Board. Whether this would be merged with the Export Marketing Board — Córas Tráchtála — is not mentioned in the report. However, the merits or otherwise of a merger between the Irish Goods Council and CTT have already been considered by the Government and the agencies themselves with the conclusion that such a merger would not be in the interests of industrial development. The activities of the Irish Goods Council are complementary to, and do not duplicate, those of CTT or other organisations. The task of the IGC is to assist firms, through the development of marketing skills, to increase sales on the Irish market, where over half of manufacturing output is sold. If the IGC was merged with CTT then it is likely that as part of the Irish Export Board there would be a reduction in the focus on the domestic market which could result in lost sales.
Since its establishment in 1978, the council's name and activities have become widely known to the public and throughout industry. The council is particularly well known to the small business sector, to which much of its programmes are directed. The Sectoral Development Committee in its report on industry noted that "within its limited resources the Irish Goods Council achieves much. By firms, it is regarded as down-to-earth, practical and in no way distant. Their walk-before-run approach has great relevance to the needs of small Irish non-exporters". The council, understandably, would not welcome a change in its name as it would effectively have to rebuild its image and reputation in industry.
With the handing over of the Guaranteed Irish Scheme to private industry, the IGC has been able to devote more attention to the urgent task of assisting industry in indigenous marketing. The council is already engaged in many of the areas of marketing and promotion recommended in the Joint Committee's report. For example, the council has over the years initiated and developed a number of group marketing schemes whereby firms within the same product sector are brought together under the auspices of the council to share some of their marketing activities. As economies of scale are secured, the cost to the individual firm is reduced.
These schemes serve as a basis for introducing firms to the benefits of marketing activities and the firms benefit from being part of a dynamic marketing group. Participating firms also benefit substantially from the group's professional corporate image and are assisted by the council in obtaining national media coverage and increased sales orders resulting from trade fairs and exhibitions. The council is very anxious to develop more joint marketing groups and would welcome more support and co-operation from industry, particularly small firms.
The committee has recommended that the IGC should provide a marketing consultancy service together with marketing information and analysis to individual firms. The marketing support service which the council provides broadly meet this recommendation. These services include test marketing, product promotion, print and promotional design, and market research and information.
One of the most important initiatives outlined in the White Paper on Industrial Policy is the proposed development of a National Linkage Programme. The IDA have been given responsibility for the development and implementation of this programme. The National Linkage Programme, launched in November 1983, has the following major elements:
(i) a comprehensive data base containing details of the raw material and component requirements of large industries together with a capability register of subcontractors and suppliers. This data base will be integrated fully with the existing IIRS information service;
(ii) selective promotion and development of the programme around firms and individuals who have been clearly identified as having potential for success; and
(iii) co-ordination of State support and assistance for marketing, product and process development, and quality control during the critical initial business development period.
Initially the National Linkage Programme will be concentrated on the electronics sector, which is the fastest growth sector of Irish industry. It has annual raw material-component requirements of £400 million of which only 16 per cent are supplied by Irish firms. The programme will be extended to other sectors at a later stage.
To complement the efforts of IDA, a unit with specific responsibility for linkage has been established with the IIRS. IIRS staff are being assigned to IDA's major overseas offices to promote technology acquisition. They will also foster linkage opportunities. The IDA will work closely with the Irish Goods Council and SFADCo in developing this programme.
Regarding quality control, the Institute for Industrial Research and Standards has been assigned a much more active developmental role in the process of improving the productive potential of indigenous SMEs, small and medium size enterprises. This new role will put the institute into a position to respond to many of the concerns of the Joint Committee. The main focus of the work of the institute will be in helping firms to upgrade their product and production processes and thereby compete effectively on international markets.
The institute has prepared a comprehensive programme to improve the level of quality awareness in Irish industry. This programme is aimed particularly towards the small Irish manufacturer who requires familiarity with quality assurance techniques to become a supply source to large international companies in Ireland and abroad. Irish industry will have to take greater account of quality. It is in every company's interest to implement a quality control programme.
The Irish Quality Control Association plays a very important role through its quality mark and quality control award schemes. If Irish industry is to continue to compete successfully on the home and export markets, "made in Ireland" must become synonymous with quality. As announced in the White Paper on Industrial Policy, in order to ensure a greater awareness of the need for proper quality control the IDA, SFDACo and CTT will not in future pay grants to companies unless they are satisfied the company is operating effective quality control procedures. I see this, rather than the introduction of a grant package scheme specifically for quality control, as the key to greater participation by Irish firms in quality control matters.
I would now like to turn to the marketing area which I feel the committee quite rightly dealt with in detail in its report. Most of the items under this heading in the report have, as I am sure Senators are aware, been dealt with in Chapter 6 of the White Paper on Industrial Policy and proposals for their implementation are already being put in train. These initiatives are designed to address identified weaknesses and to help raise the level of export performance in the following areas: (i) Market entry and development; (ii) Market research; (iii) Group marketing for small exporters; (iv) Building marketing strength in firms; (v) Export services; (vi) Warehousing; (vii) Distributor support programmes. However, there are some points which are not specifically dealt with in the White Paper and it is to these in particular that I would like to turn my attention.
The committee in recommendation (iii), page 27, state that marketing grant assistance should be based on the submission of a detailed marketing plan. I would not wish this recommendation to be interpreted by intending exporters, particularly the smaller ones, as another bureaucratic stumbling block which could cost time and money. We all recognise that in the present climate it is essential that the best use be made of the limited resources available and to this end it is sensible that public money be provided only where there is a reasonable expectation of a return on that investment. In this context an acceptable marketing plan must be a prerequisite for grant assistance. I can assure all those concerned, however, that CTT will be only too pleased to provide advice and assistance, at no cost to the exporter, in the preparation of such a document.
The committee also referred to the setting up of a sales agency service. This idea is one that has been given quite an amount of consideration in recent times. I am confident that the proposals contained in Chapter 6.9 of the White Paper regarding group marketing schemes for small exporters will meet many of the problems referred to by the committee and will serve to provide small exporters with a launching pad for their products in foreign markets. I am satisfied that the group marketing scheme is the best mechanism for small exporters to gain entry to foreign markets. A sales agency service, apart from the cost involved, could cause confusion and duplicate much of the services now being provided by CTT.
Recommendation (v) of the report relating to grant assistance for new marketing or trading companies is one which I would have serious doubts about. The whole thrust of the proposals in the White Paper for Industrial Policy is to build marketing strengths within exporting firms themselves. While this does not rule out the establishment of specialised marketing firms, I am inclined to think that the optimum benefit for State funds will be got from pursuing those proposals rather than grant assisting specialised marketing firms. Again there is the danger that in many cases, these might serve to duplicate activities and services already provided by CTT.
Recommendation (vii) deals with the increased use of embassies in the export promotion effort. This, of course, is a good general approach and is followed where practicable. It will be appreciated that it has to be departed from frequently because of differences in qualifications and experience of personnel. Moreover, as the different State agencies involved in our export efforts go about their own business it may not be necessary to involve the embassy.
The proposal that embassies should assume responsibility for trade missions, which is the second element of this recommendation, is, in my opinion, not necessarily the best appoach. The existing arrangement is that trade missions are organised by CTT in direct contact with exporters and can cater for their suddenly changing needs. This approach has proven satisfactory and, might I add, very successful down all the years. I see no reason for a change.
My final comment in relation to the recommendations on marketing relates to recommendation (xiii) on page 29 which states that there should be a switch in emphasis from trade missions to direct company aid. I feel that direct aid to companies should not be effected at the expense of trade mission activity. Both are essential ingredients in any genuine programme of assistance to small companies and both in their own way reap real benefits for the community at large.
One point which relates to exports but is not dealt with in the marketing section of the report is the recommendation on export finance and insurance. The committee recommend more flexible adaptation of existing export credit finance and insurance schemes for the needs of small businesses. I would like to point out that the Export Credit Advisory Committee was established recently in my Department with a view to seeking for appropriate improvements in these schemes.
The ECAC is examining this matter in detail and has asked the Insurance Corporation of Ireland to identify areas where greater flexibility may be introduced particularly in such areas as selection of markets and range of turnover offered for insurance. The ICI is examining this matter and will be reporting back to the Export Credit Advisory Committee shortly.
I am satisfied that the White Paper proposals for the Regionalisation of State Services to Small Industry adequately reflect the concerns of the committee in regard to the need to ensure more effective co-ordination among the State agencies dealing with the small industry sector.
The IDA are at present fully regionalising their services to small industry. Primary responsibility for the administration of the programme is being devolved to the regional offices. The regionalisation of these services will be achieved not by additional staff but by re-allocating existing IDA staff. The small industrialist is often confused by the large number of State agencies offering advice and assistance. From now on, the IDA will have the responsibility of co-ordinating the whole range of State agencies offering advice and assistance to small firms both on a national and regional basis — with the exception of the mid-west and west and south-west Offaly for which SFADCo have responsibility and of the Gaeltacht for which Údarás na Gaeltachta have responsibility.
In order to provide a more co-ordinated service, IIRS technology specialists are being located in all of the regions and they will work in association with the IDA's regional managers. Small industries boards representative of both the public and private sectors will be established to decide on small industry grants in each of the IDA regions.
The regionalisation will be undertaken in two phases commencing with the south-west, south east, Donegal, and east regions in January 1985. The second phase will be extended to the remainder of the country in the spring of 1985. In the future, a selected regional office will act as a "one-stop shop" for State advisory and support services, including training, for small industries. Work on the establishment of these shops has been started by the Management Committee on Industrial Policy.
I should mention also that SFADCo, as part of their role for the development of small indigenous industry, have been given a responsibility in the White Paper for conducting a pilot project on the development of the food processing sector. The emphasis will be on developing and testing initiatives and programmes in consumer products and the development of a quality based, market oriented secondary processing sector.
Recent years have seen an increasing number of Irish companies collapsing often in dubious circumstances. There has been a growing concern at the extent of malpractice in companies and particularly in the widespread abuse of limited liability status. The Minister, Deputy Bruton, has already stated in the Oireachtas that he is examining a substantial Bill the objective of which is to reform company law in order to deal with abuse of limited liability status. The Minister expects to get the approval of the Government as quickly as possible for the formal drafting of the provisions involved.
While, of course, it would not be appropriate to disclose the details of the Bill at this stage, I can say that it will deal with the major abuses of limited liability which have been highlighted in recent years, including, for example, the activities of unscrupulous company directors.
I hope that, in my relatively brief contribution to the debate, I have been able to reflect Government thinking and the thinking of my Department on small industry and on small and medium sized businesses. I hope, too, that I have responded in some measure to the points made in the committee's report. It is an unusual debate in so far as I am not concluding, but if there are points of principle or other points which Senators wish to have clarified I undertake now to respond positively to such queries from Senators.
