Irish companies can continue to grow by setting their sights on thriving overseas markets such as China – so long as they do their research first, writes OLIVE KEOGH
THE BOUNCE IN exports is one of the bright spots in an otherwise gloomy economic landscape. In the final quarter of last year, exports grew 18 per cent, driven primarily by expansion in the manufacturing and agri-food sectors.
“There were clear signs throughout the year that the manufacturing and agri-food sectors were repositioning themselves, shedding costs, moving up the value chain and exploiting renewed growth in global markets with a clear shift away from dependence on the UK in favour of export developments in North America, South America and Asia,” says John Whelan, chief executive of the Irish Exporters Association.
While the export boom is being led by larger companies, small and medium-sized enterprises (SMEs) are also performing well. In 2009 the value of SME exports was €12.9 billion. This grew to €13.8 billion last year. Whelan says that if the predicted growth pattern continues, the sector is on course for export sales of about €14.8 billion this year. Food and drink top the table but sales of software and high-tech services are close behind.
“Over 40 per cent of food and drink products are exported to the UK, where they are subject to currency fluctuations and a highly competitive marketplace. Food and drink exports dipped in 2008/2009 whereas software and high-tech did not,” Whelan says.
“Irish food companies are still very dependent on the UK. For about 80 per cent of them, it’s their only export outlet,” Whelan continues. “But it’s a high risk market with the possibility of your margins vanishing overnight with the exchange rate. It’s no longer the automatic first port of call for would-be exporters.
“The euro zone is more challenging because of differences in language and culture and the added complications of distribution, but if a company does its research properly and is prepared to invest sufficiently then the rewards are potentially very good.”
Whelan says companies that are prepared to look farther afield can also do very well, particularly if they can capture a slice of the huge Chinese market, for example.
“It’s obviously a lot more expensive to get established. There would be little change out of €5,000 to make an initial short visit to check it out so companies interested in developing in places like Asia or the Far East will need quite deep pockets,” he says.
Exporting is a necessity for Irish companies that want to grow. Being successful requires the alignment of several key factors, the most important of which is a clearly differentiated product or service. Without that, there is no point even leaving home.
“Doing the market research is the boring bit but it is absolutely vital and its importance can’t be over stated,” says Galway-based marketeer Bridgette Brew, who mentors SMEs on exporting on behalf of Enterprise Ireland, Bord Bia and Fáilte Ireland.
“To succeed in an overseas market, you need a product or service that fills a need for your would-be customer. If it’s a ‘me too’ product, forget it. The only way you will know if there is a need and how to meet it is by doing market-specific research. Organisations such as Enterprise Ireland have fantastic databases, but there’s no substitute for getting on a plane. See who the competitors are, look at how a product or service is presented, think about the best channel to market and keep coming back to what defines your product or service as different.”
Brew also advises companies not to over-stretch. “I applaud the mindset of young people in business today who think globally,” she says. “But global is a big nut to crack. Better to take it landblock by landblock.”
Building an export business can lead to rapid sales growth and increased profitability. For companies in manufacturing, it can also provide economies of scale difficult to achieve in the small Irish market.
“Exports of food products are now growing faster to continental Europe (14 per cent in 2010) than to the UK (4 per cent in 2010),” says Michael Murphy, director of markets at Bord Bia.
“But whichever market you choose, the key thing is having an added-value product coupled with a very good understanding of your segment. The next thing to appreciate is that it can cost quite a lot to develop an export market and can take time to see any pay-back. On consumer products, for example, the return will typically be in the medium to long term.
It’s also important to understand the differences between markets, he continues. “For example, if a company is selling to Tesco in the UK, the most important thing will be to ensure that deliveries are always there and always on time,” he says. “For a company selling in France, the critical thing will be to find a good local partner to access the market effectively.”
To help companies speed up their entry to overseas markets, Bord Bia has a fellowship scheme to support SMEs that may not have the resources to send someone abroad. “We have a panel of postgraduate students who do assignments for client companies in overseas markets,” Murphy says. “We run this in partnership with the master’s programme at the Smurfit Business School and are currently helping about 80 companies.”
CASE STUDY FIRST IRELAND SPIRITS
Tweaking its portfolio of recipes to suit the tastes of each new market has helped First Ireland Spirits to become a thriving business selling its drinks in 36 countries around the world
The name First Ireland Spirits will not be familiar to most Irish consumers. But the Abbeyleix-based company has been producing cream liqueurs almost exclusively for the export market since 1993. The company's main focus is own label products for retailers and distributors, and 95 per cent of its output is sold in 36 countries world wide. The company's export sales grew by 6 per cent last year.
When Baileys became a runaway success in the 1980s, big retailers started looking for their own alternatives. The founders of First Ireland Spirits, who all had backgrounds in the drinks business, decided to fill the gap.
Today, the company has more than 50 recipes in its portfolio, which it tweaks to suit the tastes of individual markets. For example, its product for France has dark chocolate top notes while its product for Scandinavia has a more pronounced alcohol flavour because that is what consumers prefer there. The US is a big market for the company and tastes vary within the US, says sales and marketing manager, Sean Hanifin. "In the south they like a sweet product, whereas on the west coast they prefer a lighter taste. Basically every customer is different and we treat them as such," he says.
"I'd advise any company thinking of exporting to look very closely at what's on the shelves in the market they are targeting. Just look at how much space is being devoted to a particular type of product or to a particular flavour. To us it may seem surprising but it will tell you a lot about the local tastes," he says.
First Ireland Spirits is the second largest producer of cream liqueurs after Baileys. The company employs 50 people and produces about 800,000 cases a year. Up to now, the UK and US have been its biggest markets but the emphasis is shifting to developing euro zone, eastern European and Asia/Pacific markets more comprehensively.
"About 60 per cent of our turnover is accounted for by the UK and US and there are ongoing issues around currency," Hanifin says. "We now feel the time has come to focus on building euro zone sales."
In addition to its contract and own label manufacturing, First Ireland Spirits also has a number of its own brands. It launched its Dubliner Irish Whiskey Liqueur just over a year ago and is about to kick off a major marketing drive for the product which is already selling in Germany, the US and Australia.
"My advice to companies with exporting aspirations might seem a bit strange," Hanifin says. "But I'd suggest they start by thinking about exporting because the Irish market is only ever going to generate a certain amount of business. So rather than trying to bend a product made for the Irish market for overseas markets it would be better to design a product for that market from the outset based on researching what that market needs."
Key questions for would-be exporters
Is there an overseas demand for my product or service?
Will my product still be cost-effective with exporting costs added?
If I am selling to the UK, can I cope with the constant downward pressure on food prices and with any currency fluctuations?
Which is the best country or region to start with?
Do I fully understand my competition, such as local producers that may have a loyal following?
How will I get my product to market?
Should I use an agent, a distributor or some other method?
Are there any legal requirements to be met before I can start exporting my product or service?
Do I know what export documentation is required and how to fill it out correctly?
