Irish Enterprise Exporting Patterns in Goods and Services

Martina Lawless, Iulia Siedschlag

and Zuzanna Studnicka

4th April 2017 www.esri.ie

Research funded by Enterprise Ireland and

the Department of Jobs, Enterprise and Innovation

Introduction

Two reports: “Expanding and Diversifying the Manufactured Exports of

Irish-Owned Enterprises” “Services Exports and Exporters of Services”

Parts of research programme on “Exports, Innovation and Productivity” Funded by Enterprise Ireland and the Department of Jobs,

Enterprise and Innovation

Exports of both manufactured products and services are a major driver of Irish economic growth of the 1990s and 2000s.

Dominant role played by multinationals (close to ninety percent of total manufactured exports).

Expanding and Diversifying the Manufactured Exports of Irish-Owned Enterprises

Introduction

We investigate how firms launch, adapt, diversify and grow their exports.

We disentangle between growth coming from:

Entering new market destinations,

Launching new products,

Growing existing markets and/or products,

Combinations of all of these elements.

Insight into the opportunities, risks and challenges of operating on the global marketplace.

Focus on domestically owned exporters.

Research questions

How concentrated are Irish-owned manufacturing enterprises currently in terms of products and destination markets?

How flexible are they in moving from declining to expanding destination markets?

How dynamic are they in changing export products?

Is the current concentration in products and destinations with future growth opportunities?

What mix of export growth strategies do successful manufacturing enterprises use and what are the sequences of steps in their successful export growth?

Do existing (long-standing) exporters have different exporting strategies compared to new exporters?

Data sources

We merge two key sources of manufacturing firm activity:

1. Trade data (IntraStat and ExtraStat)

Highly detailed transaction level records

Very finely defined products (HS 6-digit level)

Firm values of exported products to each destination market

Limitation – does not cover firms exporting values below €635,000

This excludes many firms but not much total trade

2. Census of Industrial Production

Firm information on characteristics such as employment, ownership etc.

Data sources Between 1,000 and 1,400 firms per year.

20-year horizon (1996-2015).

47 per cent of firms, 99 per cent of total trade.

We distinguish between: Irish and foreign-owned companies,

Small, medium and large companies,

Firms exporting: food products, non-food products, both.

% Irish Non-Irish

Small 57 61 30

Medium 32 24 46

Large 11 5 23

All firms Irish Non-Irish

All 119.3 75.1 210.2

Food 75.7 72.1 124.1

Both 232.3 153.0 404.6

Non-food 103.2 61.9 180.7 Firm size distribution and

average employment

Most exporters sell a few products...

Distribution of Products Average number of products exported by an Irish owned firm in 2015 was 8.1.

Median of 4 in 2015.

Half of Irish-owned firms export fewer than five products.

Foreign firms – average of 19 products, median of 11.

Non-food firms more diversified than food firms, but firms exporting both had highest product counts.

...To a small number of markets

Distribution of Markets Exporters sell into an average

of 7.7 destinations (2015).

Median of 3 markets.

Foreign owned firms sell to on average 17.7 destinations and median of 12.

Non-food firms sell to slightly more markets (average of 6.9) compared to food firms (4.2).

Firms selling food and non-food have highest market coverage (average 14.7).

Joint Product & Destination Dimensions

Number of Products

2011-15 1 2 3-5 6-10 11-20 20+ Total

1 Market 16.93 3.90 3.51 1.64 0.86 0.08 26.91

2 Markets 1.09 3.98 5.07 2.03 1.25 0.39 13.81

3-5 Markets 0.70 0.94 5.07 5.62 3.28 2.26 17.86

6-10 Markets 0.31 0.47 2.18 4.21 3.43 3.35 13.96

11-20 Markets 0.00 0.16 0.86 2.89 4.06 4.76 12.71

20+ Markets 0.00 0.08 0.00 0.78 2.89 11.0 14.74

Total 19.03 9.52 16.69 17.16 15.76 21.84 100

Distribution of Firms by Product and Market – Irish Firms

Joint Product & Destination Dimensions

Number of Products

2011-15 1 2 3-5 6-10 11-20 20+ Total

1 Market 1.38 0.34 0.43 1.21 0.22 0.00 3.58

2 Markets 0.02 0.31 1.18 0.18 0.33 0.05 2.07

3-5 Markets 1.23 0.09 0.98 1.09 0.78 1.51 5.70

6-10 Markets 0.33 0.30 0.93 3.95 1.18 1.44 8.14

11-20 Markets 0.00 0.01 1.02 2.46 11.45 5.76 20.68

20+ Markets 0.00 0.37 0.00 3.83 9.17 46.46 59.84

Total 2.96 1.42 4.54 12.72 23.14 55.23 100

Export value by product and market – Irish firms

Importance of food

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Irish Non-Food Irish Food

Food and non-food exports by Irish firms

Top food products

HS-6

% Share of product in total Irish

Food Exports

% Irish Market

Share in Product World

Exports

% Growth of Irish Export Sales

2011-14

Product name

20130 23.3 8.32(-) 3.8 Bovine Meat – Boneless: Processed & Other

40690 4.4 0.9(+) 23.0 Other Cheese: Cheddar Cheese, Colby

40510 4.0 3.78(-) 3.2 Butter

160250 3.4 7.42(-) -0.2 Meat, Offal Meat, Blood of Bovine Animals (Prepared or Preserved)

20610 2.8 24.62(-) -8.9 Edible Offal of Bovine Animals, Fresh or Chilled of Bovine Animals, Frozen

230910 2.7 1.23(-) -1.5 Dog or Cat Food, Put up for Retail Sale

20110 2.5 5.69(+) 6.1 Carcasses and Half-carcasses, Veal, Other

190190 2.4 2.0(-) -18.4 Other Food Preparations of Malt Extract, Flour, Starch, Milk, Cream

20230 2.3 0.53(-) 5.7 Bovine animals – Boneless, Processed

20329 2.1 0.9(+) 16.1 Meat of Swine (Frozen) – Processed & Other

Total 50

Top exported food products by Irish firms

Top non-food products Top exported non-food products by Irish firms

HS-6

% Share

of

product in

total Irish

Non-Food

Exports

% Irish

Market

Share in

Product

World

Exports

%

Growth

of Irish

Export

Sales

2011-

14

Product name

350110 4.90 14.32(-) -2.1 Casein

300490 4.50 0.15(+) 1413.9 Other Medicaments (Put up in Packings for Retail Sale)

842720 2.80 1.17(+) 53.3 Other Self-Propelled Trucks

853110 2.70 2.02(+) 517.7 Burglar or Fire Alarms and Similar Apparatus

852530 2.60 0(-) new Television Cameras

330690 1.90 6.67(-) -20.4 Preparations for Oral or Dental Hygiene

390950 1.90 1.11(+) 34.6 Polyurethanes

440710 1.70 0.37(+) 11.7 Coniferous

330610 1.70 2.98(-) -24.9 Dentifrices

841221 1.70 1.46(+) 24.4 Hydraulic Power Engines and Motors, Linear Acting

Total 26

Top non-food products

Top exported products by foreign firms

Product name (HS-6) % Average share

2011-2015

1 Medicaments containing hormones, packaged 12.50

2 Heterocyclic compounds 7.11

3 Vaccines for human medicine 5.21

4 Nucleic or other heterocyclic compounds 5.00

5 Compounds containing an unfused pyridine ring 4.29

6 Other hormones and their derivatives; other steroids 4.15

7 Sulphonamides 3.91

8 Other heterocyclic compounds 2.72

9 Spectacle lenses not made of glass 2.44

10 Compounds containing a quinoline or isoquinoline ring 2.21

Total 49.52

Destination markets

Non-Food Food

% Share of

Irish Non-Food

Exports

% Average

GDP growth

2011-14

% Share of

Irish Food

Exports

% Average

GDP growth

2011-14

1 United Kingdom 41.5 2.04 United Kingdom 49 2.04

2 US 12.7 2.11 France 9.8 0.77

3 Germany 9.3 1.47 Netherlands 7.1 0.27

4 France 4.8 0.77 Germany 5.2 1.47

5 Italy 3.4 -1.12 Italy 4.6 -1.12

6 Netherlands 3.2 0.27 Sweden 3 1.47

7 Belgium 1.8 0.82 Spain 2.8 -1.00

8 Japan 1.8 0.70 China 2.2 7.74

9 Spain 1.6 -1.00 Belgium 2 0.82

10 China 1.5 7.74 Denmark 1.9 0.27

11 Poland 1.4 2.74 Nigeria 1.3 5.08

12 Australia 1.1 2.70 US 1.1 2.11

13 Sweden 1 1.47 Russia 0.9 2.37

14 Canada 0.8 2.30 Japan 0.7 0.70

15 Russia 0.8 2.37 Switzerland 0.7 1.63

Top destination markets

Irish firm exports and world demand growth

Bovine meat – boneless

Veal

Sablefish 0.0

5.0

10.0

15.0

20.0

25.0

-5.00 0.00 5.00 10.00 15.00 20.00

Share

of Ir

ish food

World growth

Food products

Irish firm exports and world demand growth

Casein Packaged medicine

Fibreboard Milk albumin Hides

Co-polymers Cement 0.00

1.00

2.00

3.00

4.00

5.00

6.00

-30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00

Share

of Ir

ish n

on-f

ood

World growth

Non-food products

Key messages – part 1

Most exporting firms sell a few products to a few destinations.

In contrast, export values are dominated by a relatively small group of export “superstars”.

11% of highly globalised Irish firms (exporting more than 20 products to over 20 destinations) account for 46% of exports.

Policy perspective: High levels of specialisation in the right products and markets may be a positive strategy for growth. But concentration also brings risk (importance of the UK).

On-going monitoring of global trends is required to keep ahead of market developments and be ready to exploit new opportunities.

Results suggest a need for on-going support to facilitate export expansion as well as entry.

Exporting risky – lots of early exits

Survival probability by firm size

Constant product dynamics...

Irish Non-Irish

Adding Dropping 1-Year Continue Adding Dropping 1-Year Continue

2005 351 393 645 602 287 327 421 410

2006 369 391 651 570 259 318 392 368

2007 335 402 669 578 257 283 366 337

2008 342 314 555 591 231 244 307 362

2009 404 322 601 609 269 232 344 344

2010 398 331 637 651 255 257 344 360

2011 434 399 727 655 249 270 355 342

2012 450 381 678 697 246 253 330 366

2013 433 408 689 732 237 263 338 355

2014 410 427 674 747 224 244 326 343

2015 742 838 330 357

Firms Changing Product Mix – Number of Firms

New products can be very short-lived

Product Survival Rates by Size (Percentage of Irish Firms)

Even for experienced exporters

Product Survival by Years of Export Experience (Percentage of Irish Firms)

Similar dynamics for new markets…

Number of Firms Changing Destinations

Irish Non-Irish

Enters Exits 1-Year Continue Enters Exits 1-Year Continue

2005 293 314 405 580 238 265 289 392

2006 313 343 433 549 208 265 260 356

2007 311 321 433 547 201 242 269 325

2008 297 284 358 559 202 198 217 342

2009 368 269 405 579 222 204 250 326

2010 383 241 448 611 237 189 247 339

2011 430 303 505 623 220 225 255 321

2012 400 330 480 681 216 207 257 345

2013 411 352 491 697 202 233 233 335

2014 405 356 497 723 194 228 228 320

2015 576 784 264 324

Similar dynamics for new markets…

Destination Survival Rates by Size (Percentage of Irish Firms)

Even for experienced exporters

Destination Survival by Years of Export Experience (Percentage of Irish Firms)

Export levels mainly due to established products and destinations

Shows total exports divided into percentage contributions of extensive

margins (number of products and destinations) and intensive margin

(average sales) using regression analysis.

All Exporters Share

Number of products 0.178***

Average exports per product 0.822***

Number of destinations 0.153***

Average exports per destination 0.847***

Regression Decomposition of Irish Firms’ Exports into

Extensive and Intensive Margins

But growth driven by entry & exit

Total Growth Continuers Entry Exit

Firm Changes

Irish 0.068 0.038 0.048 -0.018

Foreign 0.066 0.069 0.027 -0.030

Product Changes

Irish 0.068 0.031 0.093 -0.055

Foreign 0.066 0.051 0.071 -0.056

Destination Changes

Irish 0.068 0.038 0.079 -0.048

Foreign 0.066 0.055 0.056 -0.046

Percentage Contributions to Export Growth (Average 1996-2015)

Young exporters grow particularly rapidly

Total Growth Continuers Entry Exit

Product Changes

Experience 1-5 years 0.251 -0.135 0.475 -0.089

Experience 6-10 years -0.068 -0.060 0.028 -0.036

Experience >10 years 0.035 0.052 0.033 -0.050

Destination Changes

Experience 1-5 years 0.251 -0.151 0.465 -0.063

Experience 6-10 years -0.068 -0.033 0.024 -0.060

Experience >10 years 0.035 0.064 0.023 -0.053

Percentage Contributions to Export Growth (Average 1996-2015)

Key messages – part 2

Exporting is risky.

Continuing exporters are very dynamic -frequently introduce new products, drop products and enter and exit markets.

Exports sales dominated by existing product-market combinations.

However, growth is largely driven by entry of new firms and movement of exporters into new products and new markets.

Demonstrates importance of on-going support for firms taking risks moving into new product and market areas.

Support for innovation and ongoing adjustment and experimentation is a key policy takeaway for success of exporting firms

Services Exports and Exporters of Services

Introduction

International trade in services has been the fastest growing component of international trade (representing 21 per cent of world trade in goods and services in 2014).

Services formed approximately 40 per cent of total Irish exports in 2015.

Limited level of detail available in any country on services trade flows and the activities of firms exporting services.

Research questions

How important is Irish trade in services?

What are the participation rates of services firms in exporting?

How concentrated is trade in services?

What are the most important sectors?

Differences between exporters and non exporters?

Data source

Firm-level data collected through the Annual Services Inquiry (ASI) to examine the participation of non-financial services firms in exporting.

The ASI is based on a census of firms with 20 and more persons and a stratified random sample for firms with less than 20 persons.

The latest available information from the CSO indicates that about 18,000 firms were covered by the ASI.

Studied period 2008-2012.

Definition of trade in services

The General Agreement on Trade in Services (GATS) describes four modes through which services may be traded: Mode 1: Cross-border supply – the supplier in one country delivers a

service to a customer in another country remotely (e.g. via e-mail, telephone) without either supplier or customer moving location.

Mode 2: Consumption abroad – the customer travels to the country in which the supplier is located in order to avail of the service (e.g. tourism exports).

Mode 3: Commercial presence – firms supply services in another country through the presence of an affiliate in that country.

Mode 4: Presence of natural persons – the supplier travels to the country in which the customer is located in order to supply the service (e.g. business consultancy).

CSO uses this definition excluding Mode 3

Exporting is rarer in services than in goods…

Year % Share of

exporters

% Share of

serv. exp.

% Share of

goods exp.

% Share of

both exp.

2008 1.7 33.3 60.8 5.9

2009 2.0 33.1 60.3 6.6

2010 2.2 39.5 49.9 10.6

2011 2.1 38.6 50.5 10.8

2012 2.3 41.0 45.4 13.6

Shares of firms by year

And dominated by foreign firms

Total exports of services (€000s)

Year Total Foreign Irish

% Share

foreign

% Share

Irish

2008 16,794,603 13,132,846 3,661,757 78 22

2009 15,933,875 13,970,620 1,963,255 88 12

2010 34,753,887 31,528,385 3,225,501 91 9

2011 38,480,595 35,944,191 2,530,913 93 7

2012 47,106,117 43,545,699 3,560,418 92 8

What do they export?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

All Sectors Excluding retail/wholesale

Foreign Irish

Average Share of Services in Firm Exports (2008-2012)

Exports are highly concentrated…

Nace

2 Description

%

Share

of

firms

Total

exports

(€000s)

% Share

in total

exports

% Share

of exp. in

sales

Av.

Exports

by firm

(€000s)

58 &

62

Publishing activities and

computer programming 4.5 20,342,938 47.43% 71.26 5,446

46

Wholesale trade, except of

motor vehicles 8.1 11,762,272 27.43% 19.98 1,734

63 Information service activities 0.1 5,928,689 13.82% 76.94 50,031

51 Air transport 0.0 579,049 1.35% 11.43 24,905

72

Scientific research and

development 0.2 534,113 1.25% 69.70 2,915

Total 12.9 91.28%

47

Retail trade, except of motor

vehicles 17.6 224,255 0.52% 0.67 15

Total exports by sector, all firms (2008-2012)

But less amongst Irish firms Exports by sector: Irish

Nace

2 Description

%

Share

of

firms

%

Share

in total

exports

46

Wholesale trade, except

of motor vehicles and

motorcycles 7.7 33.52

58 &

62

Publishing activities and

computer programming 4.3 21.19

51 Air transport 0.0 7.52

72

Scientific research and

development 0.2 5.80

52

Warehousing and

support activities for

transportation 0.7 4.85

69

Legal and accounting

activities 7.0 4.60

Total 19.9 77.5

Nace

2

Description

%

Share

of

firms

%

Share in

total

exports

58 &

62

Publishing activities and

computer programming 11.81 51.94

46

Wholesale trade, except

of motor vehicles and

motorcycles 28.94 26.38

63

Information service

activities 0.46 16.11

71

Architectural and

engineering activities 3.73 1.10

61 Telecommunications 0.84 0.71

Total 45.8 96.2

Exports by sector: foreign

Importance of online sales

Summary statistics for online sales (€000s)

Year Ownership Exporter of services

Foreign Irish Non-Exporter Exporter

2008 Av. % share online sales 17 6 6 18

Av. online sales 10,717 1,298 1,456 18,002

2009 Av. % share online sales 14 4 4 19

Av. online sales 27,992 1,024 2,097 27,164

Number of firms 2,901 121,736 123,627 1,010

2010 Av. % share online sales 14 4 4 22

Av. online sales 31,181 1,520 1,977 52,429

2011 Av. % share online sales 13 4 4 24

Av. online sales 24,108 1,182 1,721 37,485

2012 Av. % share online sales 14 4 4 27

Av. online sales 14,069 2,004 2,373 19,019

Exporters outperform non-exporters

Export premia

Employment Productivity Wages Sales

Online

sales Investment

Exporters

All 21%*** 8.6%*** 14.1%*** 8.6%*** 37.1%*** 6%

Irish 26.5%*** 9.4%*** 17.4%*** 9.4%*** 48.7%*** 9.8%

Foreign 6.9% 7.9 2.4% 15.1%** 9.2% 44.9%***

Exporters of services

All 17.5%*** 13.1%*** 15.7%*** 13.1%*** 40%*** 6.9%

Irish 24.3%*** 8.5%*** 16.6%*** 8.5%*** 29%*** 0.8%

Foreign 12.5%*** 18.2%*** 9.9%*** 18.2%*** 55.4%*** 13.6%

Key messages

The lower participation rate in exporting suggests higher obstacles to becoming an exporter exists in the services area.

Some, but not all, of this can be explained by the non-tradable nature of some sub-sectors.

Exports of services are dominated by foreign-owned firms.

Large differences in export activity and intensity between Irish and foreign firms suggests that greater international engagement by indigenous firms is not impossible.

Key messages

In terms of the shares of exports accounted for by different sectors within services, publishing activities and computer programming dominate services exports when calculated for all firms.

However, exports are less concentrated in the top few sectors amongst Irish firms.

Expansion of the client base plays a much larger role in firm export growth for services firms than it does for goods exporters.