Saturday 17 March 2018

Two megatrends for Irish businesses to watch

An emotion-reading robot, Pepper, which is compatible with android software, being unveiled recently in Japan; some sectors may fully automate their services in the future
An emotion-reading robot, Pepper, which is compatible with android software, being unveiled recently in Japan; some sectors may fully automate their services in the future
Dan O'Brien

Dan O'Brien

What are the ­changes and trends that will affect Irish businesses over the next decade? This is a huge and difficult question. Divining trends isn't easy. Predicting the future is harder still. But forward thinking is the only chance one has to grasp new opportunities and avoid potential threats to one's business.

Some of the big global changes coming down the line, or already in train, will have a limited impact on business decisions for Irish companies over the next decade. The likely continued rise of China is an example. That is because most Irish companies are focused on the domestic market, and around half of those who have foreign sales confine their export activities to Britain. As such, the often excitable talk of opportunities in emerging markets is of little relevance.

Today, rather than focus on risks, such as Brexit, the focus is on teasing out the implications of two developments that we can say with certainty will take place and will impact on Irish businesses. They are change in the country's demographics and ongoing technological changes.


For much of modern Irish history, or at least for the 120 years up to the 1960s, business in Ireland faced a continuously shrinking market as the population declined decade after decade. However, over the past 60 years (with the exception of a period in the 1980s), the State's population has registered one of the fastest rates of increase in the rich world.

With a relatively high birth rate and the likelihood of net immigration, the demographers at the Central Statistics Office (CSO) believe the Republic's population will continue to grow, rising from 4.6 million in 2015 to more than 5 million in 2026 under its central scenario (on the basis of the high scenario estimate, it could reach 5.3m, and 4.85m on the lowest estimate).

With companies in a growing number of countries facing outright population shrinkage, Irish businesses will enjoy an advantage that more and more of their counterparts elsewhere don't.

But as the age structure of the population has changed radically in recent times, and will shift again over the next decade, not all businesses will enjoy growth in the size of their domestic market.

Since 2008, for instance, the number of twentysomethings has fallen by more than a quarter of million to just over half a million. Anyone in the pub, club and general entertainment business has suffered this whammy on top of the recession.

The main reason for the huge decline was not emigration, as most assume, but the very sharp fall in births from 1980 to 1995. As that trend reversed from the mid-1990s, late 20th century baby boomers are just about to start moving into their twenties. By the middle of the next decade, the CSO expects there to be 100,000 more people of that age in the country than there are now, as the chart shows.

If the number of young adults is set to recover, the number of older ones will continue to soar. In a decade's time there will be around a quarter of a million more people aged over 65 than now. That will expand opportunities from any business servicing that demographic.

The majority of the cohort will hopefully be enjoying an active retirement, with plenty of time to spend their pensions, but a growing number will stay in employment, a trend discussed recently in this column. There will, of course, be greater demand for those requiring care and medical treatment. The healthcare and rest homes sectors have a bright future.

At the other age extreme, things look different. An ongoing, if modest fall in the birth rate since the crash should mean a smaller number of under-10s by the middle of the next decade. That will reduce demand for child-minders, toys and other kids' stuff over the next 10 years.

Technological change

While attending business-focused conferences, it is very common to hear the claim that the pace of technological change is accelerating. Whatever innovations that are making headlines at a given moment are cited as proof of this speeding up.

As it happens, there is quite a debate in the economics profession about the rate of technological change, with some arguing that it is slowing, or at least that the pace of really important, economy-impacting change is decelerating.

Of course, the future of innovation will be determined by engineers, programmers and scientists, not economists. As an optimist, my money is on an acceleration, not least because of the increase in the number of people involved in innovation of all kinds across the world (India alone, for instance, churns out 1.5 million engineering graduates a year, a three-fold increase in less than a decade).

There is little doubt that robots and other automation processes will be more involved in running our lives in the next decade. Further inroads will be made in fields as diverse as driverless cars and robotic surgery.

While process and product innovations offer businesses the chance to cut costs, many of the savings come from whittling down the pay bill. With everyone from low-skilled truck drivers to high-skilled medics facing a squeeze, there are potential downsides for employment in some sectors.

Deloitte, the accounting and consultancy firm, reckons that the wholesale, retail and transport sectors will automate faster than most others. While jobs that require creativity or a human touch, such as in healthcare and professional services, are less likely to face disruption.

A more Ireland-specific estimate comes from the OECD*. The Paris-based think tank calculates that just under 10pc of Irish jobs have a high risk of being automated, while one-third of people currently employed will face radical change in what they do in their places of work.

Automation or the threat of it may be weakening the bargaining power that employees have in certain sectors. A case study is in the United States, where in response to hikes in some states' minimum wages, some large fast-food companies have made plans to fully automate their restaurants. This may well be inevitable, but raising wage thresholds will make automation more cost-effective as it changes the relative prices of labour and capital.

These changes, however, will impact slowly and therefore probably won't cause anything like an employment shock over the next decade.

The more immediate change for business will be technologies that are already shaking things up. Most prominently, the continued rise of e-commerce. Sales carried out online increase in every survey and show no sign of slowing at home or internationally.

While this will bring disruption, bricks-and-mortar businesses will not disappear. It won't be practical to buy everything online and people still value face-to-face interaction.

But digitalisation has had a significant effect on consumer behaviour. Before purchasing a good or service, the first thing most young people (and many older ones) do is research online. A habit they will not lose over their lifetime.

Irish businesses have caught on - two-thirds of enterprises now use social media. More are also using cloud computing services, like customer relationship management software. For those that can afford it, the internet has opened up business analytics.

Related to e-commerce is the emergence of the so-called 'gig' or 'shared-economy'. Enabled by mobile apps or websites, such as Airbnb and Uber, people can offer temporary services. These platforms link supply with demand, by-passing traditional outlets, and point to an increasing number of people being self-employed.

Technological change will bring opportunities and challenges to business. Embracing the changes, notably online business, is the best bet to guard against disruptions.

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