Economy

HSBC Round Table Discussion: Developing Irish exports

Eolas-Round-Table-HSBC-17

The participants

Alan-Duffy Alan Duffy, Managing Director and Ireland Head, HSBC Corporate Banking
Alan joined HSBC in July 2006 from ING Bank N.V. where he was Head of Wholesale Banking, based in Dublin. Alan also held the position of Head of Lending with Banque Bruxelles Lambert. Prior to that he spent five years at Scotiabank (Ireland) Limited.
ananth Ananth Krishan, Head of Trade and Supply Chain, Ireland, HSBC Corporate Banking
Ananth joined HSBC Dublin in February 2009 after working in HSBC in India for 17 years. He works with clients to understand their trade cycle, designs trade solutions and financing structures whilst minimising the risks of cross-border business.
cathal Cathal Fitzgerald, Financial Director, Irish Dairy Board
Cathal graduated with a bachelor of commerce from UCD in 1989 and became a member of the Institute of Chartered Accountants in 1993. He joined the Irish Dairy Board as Internal Auditor in 1997, having spent a number of years with Price Waterhouse. Cathal held the position of European Financial controller  from 1998 to 2004. He was appointed Finance Director of the IDB in 2004.
breiffini Breiffini Kennedy International Markets Manager, Bord Bia
Breiffini has recently returned to Dublin from China where he had been Asia Manager for nearly four years. In that role he was responsible for assisting Irish food and beverage companies build their export sales to markets across Asia. Prior to moving to China Breiffini was Business Development Manager for Dairygold Food Ingredients in the UK.
mcsweeney John McSweeney, Head of Innovation, ESB
John previously served as Acting Executive Director of ESB Energy International in 2011. A physics graduate and mechanical engineer, John joined ESB in 1992 and managed ESB Asset Development, Engineering and Facilities at ESB International and ESB IT Solutions and Telecoms. Prior to his career in the energy sector, he held senior positions in the Irish Industrial Development Authority including Director Germany, and is a former Irish Army officer.
sinnamon Julie Sinnamon, Head of Global Business Development, Enterprise Ireland
Julie leads a team of staff across all key sectors of Irish industry including food, manufacturing industry and international services. She holds a primary degree in business studies from the University of Ulster, has an MBA in international business from Fordham University and has completed the Stanford Executive Program.
whelan John Whelan, Chief Executive, Irish Exporters Association
John also chairs the Institute of International Trade of Ireland and has published many papers on international trade matters. He has presented as a guest lecturer of the UN International Trade Centre in Geneva. He has acted on many Irish Government taskforces, including the Trade Advisor Council, Revenue Customs Consultative Committee and the National Development Plan.

With the value of Irish exports increasing to an eight year high, HSBC brought together key stakeholders across the export sector to discuss the challenges facing Irish exports and their future prospects in international markets.

What sectors are performing well?

John Whelan

Services exports have increased by 11 per cent in the first half of this year, compared to the same period last year, while goods have been flat.

Business services is the largest of our export activities and increased with the expansion of activities by  global players such as  Google, LinkedIn, Facebook and Twitter. Computer software companies  represent the second largest element of our services exports and this is heavily dominated by the multinational companies such as Microsoft  and SAP. However there is a strong cluster of Irish owned mobile technology companies  who are also growing rapidly, such as Ezetop.

On the goods exporting  side of the economy,  food and drink has done very well  with growth of 25 per cent  over the past two years. It is important to note that 75 per cent of that growth has come from commodity price growth and only 25 per cent of growth is coming from  increased volume of sales. The underlying trend of solid growth is expected to  continue for agri-food as restrictions on dairy production are eliminated by the EU under their quota scheme,  and global demand continues its rapid  increase.

Ananth Krishnan

The aircraft leasing industry has been doing well on the services side. Ireland is well recognised for the excellent companies located here. When we speak to our clients in this industry, we see that their expansion plans are very robust. They are aggressively marketing all over Asia.

On the goods side, clearly food and drink will continue to be our flag bearer. Chemical and related products have also been doing quite well.

Cathal Fitzgerald

Harvest 2020 predicts that milk production will increase by 50 per cent by 2020 as quotas are relaxed. The industry is gearing itself up to prepare for that expansion. World consumption is growing by between 1.5 and 2 per cent so there is a market to feed that into. Our dairy products are of good quality so there will be demand for this growth in output.

Julie Sinnamon

Exports of all sectors of Irish industry grew in 2011. The highest growth sector for Ireland was engineering which grew at 30 per cent, bringing export sales higher than domestic market sales for the first time, supported by our improved competitive position.
On the newer technology side there was continued strong growth with, for example, clean tech growing by 19 per cent.

Breiffini Kennedy

Food and drink is Ireland’s largest indigenous industry with exports valued at almost €9 billion in 2011, representing  an increase of 12 per cent, or €1 billion in 2010.

There is a momentum and excitement around the agri-food sector at the moment. This enthusiasm was highlighted by the industry’s recent trade mission to China led by Minister Coveney.  There was a tanglible level of intensity and energy during the mission and afterwards in terms of companies following up business leads.

It is now important to build on the growth opportunity offered by the  food and drink and the Food Harvest 2020 roadmap provides us with an opportunity to do so.

John McSweeney

Electricity demand has stabilised again after several years of demand destruction which would indicate that we are back on a growth path.

There are two economies: a vibrant export economy and a sluggish domestic economy. That’s borne out by the demand for electricity and the move towards services from traditional manufacturing which isn’t as electricity dependent.

On the international side we have a new strategy to double our international revenues. We are putting a huge effort into South Africa. We are also working in Malaysia, Pakistan and Vietnam.

We are not in China on the basis that it’s a very long term decision and takes a long time to build up. We are concentrating significantly on Turkey, which is probably the second largest growth economy in the world at the moment.

In my new role, putting ESBI into the same business unit as Ecars, ESB telecoms and Novusmodus, there’s a strong opportunity to look at various external opportunities other than pure engineering.

What are Ireland’s target markets at the moment?

Alan Duffy

Within HSBC our global footprint has moved beyond the traditional BRIC countries. We have coined a new term: CIVETS. These are the markets we see as having the next potential: Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

We very much regard the BRIC countries as no longer developing. They are developed.

The key markets outside China are Vietnam and Indonesia.

Breiffini Kennedy

Within Asia, Vietnam and Indonesia offer strong potential, particularly for the Irish dairy sector.  With the abolition of dairy quotas in 2015 and an increase in production of 50 per cent forecast, it is imperative that the industry find and secure new markets. Bord Bia has been working closely with the industry and in conducting extensive research to explore all potential opportunities.

In terms of other emerging markets, in South Africa, we saw 43 per cent growth as a result of increased dairy exports. Securing growth for Irish food in new and emerging markets will play a key role in broadening our export reach.

Alan Duffy

It’s very easy to look at these emerging markets and say they present enormous opportunity, which indeed they do, but logistically, how does a small company access these markets?

The larger corporates that we deal with in HSBC have the resources to do it but the challenge is that these markets are long-term plays, mainland China in particular. They are fraught with socio-political, economic and exchange rate issues.

Linking up with an entity such as HSBC, which has an identity in these regions, is very beneficial.

John McSweeney

Very interestingly, IDA pictures Ireland as the gateway to Europe whereas Vietnam pictures itself as the gateway to Asia. They have been quite successful in attracting American investment, thereby increasing the engineering possibilities for ourselves.

Breiffini Kennedy

The benefits of Irish companies working together, particularly on American and international markets, is extremely important.
Through work that Bord Bia has done with Harvard Business School and our ‘co-opetition’ initiative, Irish companies that typically would not have taken advantage of strategic opportunities of working together, are now doing just that.

Julie Sinnamon

The BRICS still provide significant growth opportunity for Irish companies.

In some markets, such as in the Gulf countries, there’s potential for further growth. The new diaspora are a key resource to help us access such countries.  There are a growing number of people in senior positions in these countries who have been educated in Ireland and are strong Irish advocates. The growth in international education for Ireland helps us to further develop this network of new diaspora which will be critical going forward.

Ananth Krishnan

From an Irish exporter’s point of view, mapping opportunities to our strengths is important.

When you look at the consumer pattern in India, 20 years back there was no brand or quality consciousness. Now, the middle class is really growing. They go to the supermarket and look for branded products and it’s the same in China and other emerging markets.
Food and drink is a major strength for Irish exporters. There is some difficulty getting into international markets, but once you get in, you will reap rich rewards.

Cathal Fitzgerald

Russia is a massive importer of dairy products, particularly cheese, so we have to start to build a presence there. We would anticipate that we will export a decent volume in Russia over time. The legal work involved is a huge task and something that we didn’t anticipate.
Historically, 80 per cent of our exports were within the EU, close to 30 per cent to Britain. That arose due to the protection of European markets through the Common Agricultural Policy and consequently world markets weren’t developed as much. This is now changing and we will have to find new international markets for the anticipated increase in milk output. The future product mix will have an influence on the markets we target. Cheese and powdered milk are going to be large components of this growth in output. Vietnam and Indonesia are on our radar but our primary focus is the Middle East, sub-Saharan and South Africa and southern Europe, where milk production has reduced in Spain and Italy. There are opportunities with multi-nationals who are concerned with security of supply and quality.

What are the main barriers to exporting?

Julie Sinnamon

Despite our improved competitive positions, competitiveness is still an issue.
In international markets, customers are looking for a product that is competitively priced and innovative. Interestingly, a number of the companies who had outsourced manufacturing outside Ireland are bringing it back home due to Ireland’s improved competitiveness and the hidden costs of outsourcing.

John McSweeney

One of the practical difficulties we are finding is that instead of just finding a job for one person overseas, we now have to find jobs for their spouse too. It’s quite difficult.

John Whelan

Getting people into new markets is a real challenge. We’ve been pumping Enterprise Ireland to get more of its staff overseas. We’ve also asked the Department of Foreign Affairs and Trade to get more staff into the embassies abroad.

Access to finance is still a big problem. We’ve been making a strong case for government intervention in the area. Last year, the Government agreed the Partial Loan Guarantee Scheme which is geared to assist 1,600 exporters. Under the scheme provision has been made for €450 million in new lending to be guaranteed over three years, with  75 per cent of risk will be guaranteed by government and 25 per cent by the banks. But as yet the scheme has not been released to export industry, and continues to slow down the goods export growth.

The UK has managed to roll out their Loan Guarantee scheme  two years before Ireland, and is opening up added competition for exporters here in the home market.

We have approximately  14,000 SMEs with sales turnover exceeding €10 million and employing 447,000 people but very few of them export. Enterprise Ireland have 1,700 exporting SMEs on its database of exporting companies. That gives you an idea of the potential if you can switch these guys onto exporting.

Julie Sinnamon

Enterprise Ireland has set up a new potential exporters division and are working with a group of companies focused on the domestic market to encourage them to export and help make them export-ready. We also have a market research grant to help companies research potential new export markets. This can be expensive and such support is really valued by clients.

John McSweeney

Letters of credit are becoming much more difficult. We would have a facility with our relationship banks for several million in terms of letters of credit but we are finding it more difficult to extract the bonds after we have cleared the guarantee period. People like the comfort of holding onto the bonds as long as possible and that is a problem.

Ananth Krishnan

Credit insurance continues to be an issue in the market, coupled with a lack of government schemes, whereas in the UK and other places, there is a clear government scheme which encourages exporters and protects them from buyer-defaults.

Government measures make it easier for financial partners to link in and provide facilities. From an Irish perspective on letters of credit or bonds, the credit ratings of issuing bank is deemed important by beneficiaries in Asia and the Middle East, which impacts the Irish exporters ability to bid for key contracts due to the falling of Irish credit ratings.

The US and UK markets may not seek these kinds of arrangements, whereas the Middle East and Asia will look for guarantees and they would not know the local Irish banks well enough.

What’s also important is how sophisticated you partners are i.e. your bank or audit firm, in terms of providing alternative solutions and advice for trading internationally.

HSBC has encountered confusion in this regard and we spend hours on the phone advising companies as to what’s required. For example, the Middle East normally regulates that unless the beneficiary returns the original guarantee back, you cannot cancel it at the bank.

Alan Duffy

The advice we always give to customers is that by not doing anything, you are speculating. It is prudent to take a view, with a financial institution, as to where your main currency crosses are going, whether it’s sterling, euro, dollar etc.

This is a big learning curve for SEMs. For sophisticated entities such as IDB and larger internationally active corporates, it’s a component part of your day-to-day operations. Hedging and forex are often areas which are pushed to the back in SMEs.

Cathal Fitzgerald

In terms of forex, we tend to keep it simple. With respect to funding, the larger corporates do find it easier, but even within that context, the changing environment we are in means that you need a funding structure that suits your business model.

Ours is a low margin business. We would deem it low risk because we are financing commodities that are readily saleable in an international market that has a demand for those products and we are 50 years in the business. However, when we looked at scenarios in 2009, our access to capital was quite low which meant we had to restructure and incorporate supply chain financing solutions which mirror the cycles within your business.

Having a platform of banks, of which HSBC was one, that understand the international dimension of what you are doing and what is the true risk of your business model allowed us to build our growth platform safely.

John Whelan

As we move towards a more high tech exporting country, air freight becomes critical. There’s a significant gap in the availability of good quality air freight connections out of Ireland.

Ryanair won’t handle air freight. If they took over Aer Lingus, the main air freight  connection to the US would most likely be eliminated. 52 per cent of all exports to the US go by air. You need a solid and daily connection to service both the ins and outs to the US which continues to be our largest market.

Also, if we want to service the Asian food market satisfactorily, a good air freight service is essential. China has a huge appetite for brown  crab which is found in plentiful supply around the Irish coast. The challenge is  to get them out to China alive. There’s no direct flight to China so by the time the crab is transferred to London and arrives in China, they are dead. Delicate blast  freezing the crab, thereby putting them to sleep so they will stay alive for the long journey and stop-over in Heathrow  is providing some options  but  there are still a lot of mortalities en route. Direct flights from Ireland to China are the ideal long-term solution.

The pharmaceutical companies also  rely heavily on airfreight to get the products to global markets, and as many of their products are now biologic products  with critical  temperature control requirements along the supply chain, direct air-flights are increasingly  of  importance for these companies.

The whole supply chain area and the role of airfreight is badly understood. It is essential  that we   cut out the number of stop points to end market, if we are to fully exploit the potential of our hi-tech and niche value product offerings.

As an island nation, getting good quality air freight is a national strategic issue therefore Aer Lingus must be looked after like a jewel.
Identify one area which would boost Ireland’s export potential.

Breiffini Kennedy

Within the food sector specifically, emerging markets provide exciting potential.  For instance, the dairy sector’s potential for growth in production and the opportunities that it will provide in terms of the breadth of markets.

Julie Sinnamon

A continued focus on innovation is critical.  If companies have innovative products they will get access to international markets. Having leading edge products and services is what is going to drive Ireland’s success going forward. There are strong supports available to help companies develop innovative products; either by themselves or in collaboration with other companies. I would encourage companies to avail of these supports to strengthen their innovative capability.

Cathal Fitzgerald

Capital structure within the dairy sector, right down to farmer level. That area needs to be looked at and supported with new and innovative solutions. With the growth in output of cheese, powder and butter, there will be pressure on cold storage and there is currently a shortage in chilled containers.

John McSweeney

A continued focus on mathematics is hugely important because there’s a global shortage of engineers. It’s going to get more difficult to place our skilled engineers in good jobs and if we don’t get a focus on mathematics right from primary level up, we are going to lose our crop of engineers, meaning we won’t be able to offer the range of international services that we do at the moment.

Alan Duffy

I would be a strong advocate of companies using a financial institution such as HSBC that has a legacy of facilitating international trade and understanding not only the economic dimensions of accessing markets, but also the cultural issues.

Ananth and his team do a huge amount of hand-holding. There are very few international markets that we don’t have an intimate knowledge of. Last night we were advising three Irish companies on movements in Brazilian real, Turkish lira and Chinese renminbi. We are very happy to share that market intel.

John Whelan

Creating more distinguishable brands. There are very few good Irish brands recognised internationally. Kerrygold is a good one. We’ve lost Waterford Crystal. In the long-haul strong brands will boost Ireland’s international status, and enable clusters of similar companies to trade on the back of the brand image created.

Ananth Krishnan

Public private partnership. Due to the recession, the Irish Government has its own problems. But at least in terms of assisting exporters, there should be very clear goals. PPP schemes similar to export credit agencies in some countries around Europe are absolutely essential for some of these companies to start thinking positively.

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