Irish SMEs too dependent on home market, Europe warns
Irish home-grown companies are overly dependent on the domestic market leaving them particularly vulnerable, the European Commission has said.
The Brussels-based body also warned of the high interest costs for SME loans in Ireland.
In a wide-ranging new report focusing on the SME sector, the Commission said the Government needs to do more to ensure that small and medium-sized businesses are consulted on business-related legislation.
Overall, however, the Commission said Ireland has one of the most friendly environments for SMEs in Europe.
The Minister for Small Business, Ged Nash, said Ireland is one of the top performers in Europe. "But, we won't be resting on our laurels and as the Minister with responsibility for SMEs I want to ensure that we remain at the top," Mr Nash said.
"We are already examining the areas where the Commission have suggested we need to do more work, such as access to finance and prompt payment and procurement.
"In order to maintain this leading position our SMEs must continue to be paramount in our minds in everything that we do."
The Commission noted that the SME sector in Ireland was one of the hardest hit by the financial crisis, but that there has been a "significant and sustained" recovery since 2011.
But it said employment and value added were not back to pre-crisis levels.
The report notes that Ireland's performance is above the EU average in six categories graded, and that it is the top performer on the continent when it comes to internationalising business and ensuring entrepreneurs who end up in bankruptcy emerge quickly.
But it also flagged up areas where improvement is required.
While the report said that Ireland features the highest proportion of SMEs exporting to and importing from overseas markets, it noted the figures may include a considerable number of foreign-owned firms.
It said the strong overall surge in export activity in Ireland largely reflects the impact of contract manufacturing outside Ireland, and cited a report from Forfas in 2014 which stated that Irish-owned companies accounted for just 9.2pc of total exports.
"Irish indigenous businesses are overly dependent on domestic demand," the report states.
"This makes them especially vulnerable to changes in market demand, a fact that became very evident in the aftermath of the economic crisis."
The report said progress has been made in supporting Irish business wishing to export or expand internationally, in particular through the enhancement and extension of the Foreign Earnings Deduction.
"However, much more is needed to help educate and change the mindset of Irish companies so as to encourage them to internationalise their horizons, ambitions and client base," the report said.
The Commission said one of the areas where Ireland had made the least progress was in consulting SMEs on business-related legislation.
It said all new proposals for such legislation should involve input from SMEs from the outset, to ensure the proposed laws are correct for the majority of businesses. Other issues include late payments to SMEs, in particular by large private sector companies, to SME suppliers.
"Late payments to SMEs... remain a considerable challenge," the Commission said.