The Irish manufacturing industry has seen fantastic growth in recent years, and here’s Brian Evans discussing why its’ a strong performing sector.
Bank of Ireland business banking saw 29pc growth in the SME mid-market manufacturing sector lending from 2017 to 2018, as well as a 37pc increase in lending in Q1 2019 over the same period last year. This is on the back of a strong growth in the manufacturing sector, as evidenced by the Manufacturing PMI which has recorded 71 consecutive months of month-on-month growth.
“We have seen an increase in working capital requirements in Q1 2019 which our clients tell us was in response to increased demand from their customers in the UK and Europe. In Q4 of 2018 and Q1 of 2019, manufacturing managers told us they were building inventory to mitigate potential supply disruptions at predictable prices in advance of Brexit at the end of March,” said Brian Evans, head of manufacturing at Bank of Ireland.
While the sector’s performance has been nothing short of very impressive, manufacturers are still faced with many challenges with international trade tensions being the biggest issue given the affect it has on supply prices and demand for products.
Brexit is also expected to have a massive impact on the sector. With the extension of Article 50 from the end March 2019 up to the end of October 2019, this has brought continued uncertainty as to the post Brexit trading relationship. However, it has also extended normal trading conditions and allows manufacturers more time to establish direct and indirect exposure to the UK market and to implement a suitable plan for post Brexit scenarios.
“In the case of a hard Brexit, with tariffs implemented, we would expect to see demand reduce immediately in the UK market.”
“In the case of a hard Brexit, with tariffs implemented, we would expect to see demand reduce immediately in the UK market and we can anticipate that Irish manufacturers of short shelf life, easy to replicate consumer products with low margins, to be impacted soonest and to the greatest extent. Other companies will have to reorganise their supply chains to avoid importation through the UK and develop new suppliers in the EU.
“Brexit will also bring opportunities for Irish companies to displace some of the £21bn of imports from the UK. We anticipate as we get closer to a UK exit later this year, some companies will tie up working capital to grow their raw materials and finished goods inventories. We are working closely with these customers helping them to manage their cash flow, spreading the cost of buying assets and developing new export market opportunities,” said Evans.
Coinciding with the challenges of Brexit, staff recruitment and retention is proving very difficult for manufactures in Ireland with four in ten Irish manufacturing SMEs stating that hiring skilled staff is a “key challenge”. Outside of Dublin, retention of production staff is a real challenge for more than one in three manufacturing companies.
“Brexit will also bring opportunities for Irish companies to displace some of the £21bn of imports from the UK.”
As companies scale up by adding more new people, new processes, new products and product ranges, new premises, increased markets and more complex service solutions, the increased complexity will generate many challenges that will need to be overcome.
Discussing scaling in the sector, Evans said; “First of all we believe that companies that are well positioned to scale are companies that have a product(s) or service(s) already developed and in the market. They are revenue generating for a number of years and are looking to achieve growth through systemising their business processes. When a business is able to scale their operations, this means that they are able to handle a growing amount of work or sales in a capable, cost-effective manner.
“We believe that companies that are well positioned to scale are companies that have a product(s) or service(s) already developed and in the market.”
Asked about advice he would give a manufacturer in 2019, he finished with four tips; “I would suggest companies to overcome the challenges to scaling up, which are:
- Systemise management processes to include the creation of strategy, process management, people management, execution of activities in daily, weekly and monthly activities.
- The engagement of your management team and extended team of employees in the management process is paramount to your success.
- Develop key employees into leadership and decision making roles.
- Ensure that cash flow is managed appropriately to support the strategic and tactical initiatives. Management need to develop their ability to predict the resources required to make the growth strategy happen.”