Annual Business Survey of Economic Impact 2004

Annual Business Survey of Economic Impact 2004

Table of Contents Executive Summary... 3 Introduction... 3 Irish-Owned Manufacturing and Internationally Traded Services... 3 Foreign-owned Manufacturing and Internationally Traded Services... 5 1. Introduction... 7 1.1 Background... 7 1.2 Methodology... 7 1.3 Results... 8 2. Irish-Owned Manufacturing and Internationally Traded Services... 9 3. Foreign-Owned Manufacturing and Internationally Traded Services...20 Appendix A...30 Detailed Survey Results of Irish-owned Manufacturing and Internationally Traded Services...30 Appendix B...39 Detailed Survey Results of Foreign-Owned Manufacturing and Internationally Traded Services...39 Appendix C...48 Detailed Survey Results of All Manufacturing and Internationally Traded Services...48 Annual Business Survey of Economic Impact, 2004 2

Executive Summary Introduction This report presents the results of the Annual Business Survey of Economic Impact (ABSEI) for 2004. ABSEI covers the client base of Enterprise Ireland, IDA Ireland, Shannon Development and Údarás na Gaeltachta. The findings are presented alongside results of the former Irish Economy Expenditure survey in order to provide trend information for a number of time periods between 1990 and 2004. The main findings of the survey are presented below in respect of Irish-owned and Foreign-owned firms. Annual Business Survey of Economic Impact - Selected Indicators- % Irish- Owned Foreign-Owned All Manufacturing Int. Traded Services All Manufacturing Int. Traded Services Sales 5.6 3.4 14.5 3.3 2.8 4.4 Exports 6.3 5.0 12.6 4.0 3.4 5.5 Value Added 6.2 2.9 13.4 5.9 8.4-0.5 Direct Expenditure in Irish Economy 5.3 3.4 13.8-2.9-2.0-4.7 Irish-Owned Manufacturing and Internationally Traded Services Sales Total sales of Irish-owned agency assisted companies operating in the manufacturing and international services sectors amounted to 23.7bn in 2004. Manufacturing sectors account for 18.7bn of this total with the remaining 5bn coming from internationally traded services. The food and drink sector continues to account for the largest share of indigenous sales ( 11bn or 46 per cent), followed by non-metallic minerals and basic and fabricated metal products sectors. Overall, sales in manufacturing and internationally traded services grew at a rate of 5.6 per cent in nominal terms between 2003 and 2004. Total sales in the internationally traded services sector grew by around 14.5 per cent between 2003 and 2004, whereas the manufacturing sectors recorded a 3.4 per cent growth. Time series analysis reveals that sales growth has been fairly static over the period, averaging 0.7 per cent per annum in nominal terms, which is in sharp contrast to the nominal average annual growth rates of over 8 per cent experienced during the 1990s. In nominal terms total sales are still below their levels of 2001. The share of sales accounted for by the internationally traded services sector grew significantly over the period 1990-2004. This sector now accounts for 21 per cent of all sales, as opposed to roughly 5 per cent in 1990. Annual Business Survey of Economic Impact, 2004 3

Exports Total exports of Irish-owned manufacturing and internationally traded services firms amounted to 9.4bn in 2004, with a nominal growth rate of 6.3 per cent between 2003 and 2004. Manufacturing sectors accounted for 7.6bn (80 per cent) of this total and 1.8bn comes from software development and other internationally traded services. Food and drink exports continue to account for the largest share of indigenous manufacturing exports ( 5bn or 66 per cent). The overall export intensity of Irish manufacturing and international services sectors has averaged around 40 percent over the period 1990-2004. Value Added Value Added (sales less the cost of materials and services) of Irish-owned manufacturing and international services amounted to 8.3bn in 2004, which grew by 6.2 per cent in nominal terms between 2003 and 2004, much higher than the average growth rate of 2.4 in nominal terms per annum between 2000 and 2004. Value added per person employed (a standard measure of labour productivity) amounted to 69,200 in 2004, which equates to a nominal increase of 7.0 percent per annum during the period. Value added per person employed is higher in internationally traded services activities ( 103,200) compared to manufacturing activities ( 59,600). Expenditure in the Irish Economy by Irish-owned Manufacturing & Internationally Traded Services 18,000,000 Payroll Irish Materials Irish Services 16,000,000 14,000,000 12,000,000 000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Annual Business Survey of Economic Impact, 2004 4

Total expenditure by Irish-owned manufacturing and internationally trading services in the Irish economy amounted to 16.2bn in 2004, which consists of 4.5bn on payroll costs, 8.6bn on Irish produced raw materials and 3.1bn on Irish services. Total expenditure by Irish-owned firms peaked in 2001 and followed a downward trend until 2004 where it has recorded a 5.3 per cent growth. The total spend of the indigenous enterprise base in the domestic economy equates to just over 68 percent of sales, and this ratio has held constant over the period 1990-2004. The share of Irish economy expenditure accounted for by raw materials has decreased from 62 percent in 1990 to 53 percent in 2004, whereas the Irish economy expenditure accounted for by services increased from 15 per cent in 1990 to 19 per cent in 2004 reflecting structural shift from manufacturing sectors to internationally traded sectors where raw material inputs are not as significant in their output as in the manufacturing sectors. The share of payroll costs in overall Irish economy expenditure increased from 22 per cent in 1990 to 28 per cent in 2004. Foreign-owned Manufacturing and Internationally Traded Services Sales Total sales of agency assisted foreign-owned companies operating in the manufacturing and internationally traded services sectors grew by around 3.3 per cent in nominal terms between 2003 and 2004 and amounted to 81.6bn in 2004. Manufacturing sectors accounted for 57.9bn of this total with the remaining 23.7bn coming from internationally traded services. Having witnessed double digit growth in the 1990s, sales growth in foreign owned companies slowed down to 3.8 per cent per annum in nominal terms between 2000 and 2004. There are considerable differences across the individual sectors once we go behind the overall figures. Chemicals (7 per cent) and medical devices sectors (4.2 per cent) have continued to perform strongly during the same period while electronics industry (-0.1 per cent) has been in decline 1. The internationally traded sector grew faster than the manufacturing industry in nominal terms between 2003 and 2004 and this sector now accounts for over 29 percent of total sales, as opposed to 8.8 per cent in 1990. Exports Total exports in foreign-owned manufacturing and internationally traded services amounted to 76.5bn in 2004 with manufacturing accounting for 54bn of this total and the internationally trading services sector contributing the balance. Overall, exports in foreign-owned manufacturing grew by 4 per cent between 2003 and 2004. In line with the trends observed in the total sales figures, the contribution of the internationally traded services sector to this overall export growth has been higher than the rate observed in the manufacturing sectors. In 2004, nearly 94 per cent of the goods and services produced by foreign-owned firms were exported. 1 There has been a considerable decline in product prices in this sector which might have contributed to lower sales figures even though the actual production may have increased in terms of units produced. Annual Business Survey of Economic Impact, 2004 5

Value Added Value added (sales minus the cost of materials and services) of foreign-owned firms amounted to 38.2bn in 2004, growing at a rate of 5.9 per cent per annum in nominal terms from 2000 to 2004. Value added per person employed (a standard measure of labour productivity) equated to 267,100 in 2004, representing a 7.9 percent per annum increase in nominal terms between 2000 and 2004. The chemicals sector and the software sector record particularly high levels of value added per employee, averaging 613,100 and 516,900, respectively. Expenditure in the Irish Economy by Foreign-owned Manufacturing & Internationally Traded Services, 1990-2004 20,000,000 18,000,000 Payroll Irish Materials Irish Services 000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total expenditure by foreign-owned companies in the Irish economy may be viewed as a more appropriate measure of the contribution of foreign-owned multinationals to the economy, as it is known that sales and value added can overstate the contribution of foreign-owned firms. Total expenditure by these firms amounted to 17.9bn in 2004, a decrease of 2.9 per cent between 2003 and 2004. This comprises 6.7bn on services purchases in Ireland, 4.8bn on materials produced in Ireland, and 6.4bn on payroll costs. Total direct expenditure in the Irish economy by foreign-owned firms as a percentage of sales was 22 percent in 2004. There has been a downward trend in this ratio since 1990 when direct expenditure equated to 36.5 per cent of sales. Annual Business Survey of Economic Impact, 2004 6

1. Introduction 1.1 Background This document presents the results of the Annual Business Survey of Economic Impact (ABSEI) for 2004. The survey covers the client base of Enterprise Ireland, IDA Ireland, Shannon Development and Údarás na Gaeltachta, and the population comprises all manufacturing and internationally traded services firms in Ireland with 10 or more employees. The document provides aggregated estimates for all Irish-owned and Foreign-owned firms across a range of variables and provides an overview of the evolution of manufacturing and internationallytraded services sectors over recent years. The present survey replaced the Irish Economy Expenditure (IEE) Survey undertaken by Forfás up to 1999 when the latter was amalgamated with Enterprise Ireland s Annual Business Survey. This survey has now replaced four previous surveys undertaken by Forfás and the agencies which are: Enterprise Ireland and Shannon Development s Annual Business Survey Forfás Irish Economy Expenditure Survey Forfás Corporation Tax Survey National Software Directorate s Annual Survey of Software Companies 1.2 Methodology An inter-agency group comprising Forfás and a representative from each of the participating agencies has been established to manage the implementation of the survey in a harmonised manner. The group meets on a regular basis to review progress in respect of survey fieldwork, and to consider issues of methodology, coverage and questionnaire content. The target population for the survey is the combined databases of the four industrial development agencies with companies employing more than 10 people; in the 2004 survey this amounted to 3,805 companies being included in the survey. The implementation is done by using a mixed mode approach involving a combination of: self-completion and postal return by the firms along with a telephone follow-up. In addition project executives from each development agency follow up a subset of their client base. The unit used for recording and analysing the data is at the enterprise level where a single questionnaire is used for a multi-plant enterprise. Annual Business Survey of Economic Impact, 2004 7

The response rate to the 2004 survey was 56.7 per cent with respondents accounting for 71.4 per cent of all employment across agency supported companies. 2 Accordingly, the results are statistically adjusted to provide population estimates which account for non-response. To ensure comparability of data series over time, the re-weighting of the data is based on a standard ratio reweighting approach. This involves comparing the effective or completed sample with the population along various dimensions, which are known to be strongly related to the main parameters of interest. This involves using a weighting scheme based on a combined index of industrial sector; size of company; Foreign/Irish and region. Employment levels of the companies are used as a proxy for size of the company. The survey data from 1990 to 1999 that are presented in this report are based on a re-working of the data recorded in the former IEE survey so that the results correspond as closely as possible to the population covered by the new ABSEI which replaced it. The data from 2000 to 2004 are based on the new ABSEI which is administered by the ESRI on behalf of Forfás and the participating agencies. 1.3 Results The results of this year s survey are presented alongside a re-working of the historic IEE data so as to provide trend information for the period 1990-2004. The data from are based on the new ABSEI. Although every attempt has been made to reconcile the two datasets; including the use of a consistent weighting methodology to account for survey non-respondents, it has proven difficult to completely reconcile the two datasets due to differences in population bases. For the purposes of this paper therefore, we have segmented the results into a number of distinct time periods roughly corresponding to the pre (), mid () and post () Celtic Tiger phases of the economy. This not only ensures that results are internally consistent (i.e. that we are not making inferences concerning growth rates across different surveys), but also allows us to examine the performance of the Irish enterprise base over recent years. In the few instances where it has proven necessary to show trend information over the entire period, as in the case of exports intensity, the discontinuity between the two series is clearly marked. The document provides a commentary on key results in respect of Irish-owned manufacturing and internationally traded services (Section 2) and Foreign-owned manufacturing and internationally traded services (Section 3). Detailed tabular data are provided in the appendices on the basis of All Irish-owned Firms, All Foreign-owned Firms, and All Firms Combined. Survey questionnaires are available from Forfás upon request. 2 The response rate increases to 59 per cent, accounting for 79 per cent of employment among agency-assisted companies, when some of the non responses are estimated by relevant project officers in development agencies in the relevant sectors. Annual Business Survey of Economic Impact, 2004 8

2. Irish-Owned Manufacturing and Internationally Traded Services Table 2.1: Sales and Sales Growth in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2004 Per Annum Per Annum Per Annum Per Annum Total - All Sectors 23,099,894 24,008,515 23,397,518 22,460,050 23,707,931 5.6% 3.7% 8.8% 0.7% Manufacturing 19,100,726 19,714,803 18,933,628 18,058,397 18,669,932 3.4% 3.5% 7.7% -0.6% Food/Drink/Tobacco 11,373,456 11,769,414 11,234,920 10,661,774 11,025,653 3.4% 2.8% 5.2% -0.8% All Other Manufacturing 4,579,322 4,793,947 4,824,605 4,471,890 4,601,754 2.9% 4.8% 9.0% 0.1% All Engineering Sectors 3,147,949 3,151,442 2,874,104 2,924,733 3,042,525 4.0% 3.7% 15.4% -0.8% Internationally Traded Services 3,999,168 4,293,712 4,463,890 4,401,653 5,037,999 14.5% 8.5% 22.5% 5.9% Software Development 1,135,270 1,343,815 1,032,412 1,006,203 1,244,217 23.7% 23.3% 42.2% 2.3% All Other Services 2,863,898 2,949,897 3,431,478 3,395,450 3,793,782 11.7% 6.3% 17.4% 7.3% The overall sales of Irish-owned manufacturing and internationally traded services amounted to 23.7bn in 2004. This figure has remained fairly static over the period with sales growth of 0.7 per cent per annum in nominal terms reflecting the general downturn experienced in the Irish and global economy. This is in contrast to the experience of the indigenous enterprise base in the second part of the 1990s when sales growth averaged 8.8 per cent per annum in nominal terms. On the other hand, there is some indication that the economy is starting to recover as evidenced by sales growth of 5.6 per cent in 2004. The table also highlights some interesting aspects of the structural change that has been taking place in the indigenous enterprise base. There has been a marked difference in growth rates in manufacturing and internationally traded services over the period 1990-2004, with sales growth in the indigenous internationally traded services sector outpacing that of manufacturing industry. This trend was most significant in the second part of the 1990s when sales in the internationally traded services sector grew at a nominal rate of 22.5 per cent per annum compared to 7.7 per cent for manufacturing. Sales growth in the internationally traded services sector continued to outpace manufacturing performance between 2000 and 2004; however growth rates are much less than the rates observed in the 1990s. A detailed sectoral breakdown of sales data is provided in the appendices (A1). To highlight broad trends, the various manufacturing sectors have been amalgamated into a smaller number of groups Food/Drink/Tobacco, All Other Manufacturing (textiles, printing, wood products, chemicals, rubber and plastics, non-metallic minerals, manufacturing n.e.c.) and All Engineering Sectors (general machinery, fabricated metal products, electrical and electronic equipment, professional goods, transport equipment). For the purposes of this report, the internationally traded services sector is divided into two groups Software Development and All Other International Services (which includes engineering services, educational services, and other computer related activities outside pure software development content, digital media etc ). Annual Business Survey of Economic Impact, 2004 9

Table 2.2: Composition of Irish-Owned Manufacturing and Internationally Traded Services, 1990-2004 3 Sales Employment 1990 1995 2000 2004 1990 1995 2000 2004 % % % % % % % % Total - All Sectors 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Manufacturing 95.3% 94.0% 82.7% 78.7% 94.3% 92.6% 79.3% 78.0% Food/Drink/Tobacco 59.4% 55.7% 49.2% 46.5% 33.1% 30.5% 30.3% 30.6% All Other Manufacturing 25.7% 27.0% 19.8% 19.4% 42.8% 41.6% 28.4% 26.8% All Engineering Sectors 10.2% 11.2% 13.6% 12.8% 18.4% 20.5% 20.6% 20.5% Internationally Traded Services 4.7% 6.0% 17.3% 21.3% 5.7% 7.4% 20.7% 22.0% Software Development 0.5% 1.0% 4.9% 5.2% 1.2% 1.9% 6.6% 7.3% All Other Services 4.2% 5.0% 12.4% 16.0% 4.5% 5.5% 14.1% 14.7% Table 2.2 provides an overview of sales and employment across a number of broad industry groups to illustrate how the composition of Irish-owned industry has changed between 1990 and 2004. The share of sales accounted for by manufacturing has dropped from 95.3 per cent in 1990 to 78.7 per cent in 2004, with the food and drink sector accounting for most of the decrease over the period. On the other hand, the share of sales accounted for by internationally traded services has increased from 4.7 per cent in 1990 to 21.3 per cent in 2004, highlighting the increasing importance of this sector. Overall employment shares of manufacturing and internationally traded services show a similar picture over the same period; however there are significant differences at the individual sector level. While the food and drink sector accounted for around 46.5 per cent of the output of Irishowned industry in 2004, it accounts for less than one third of the employment (30.6 per cent). All Other Manufacturing sector has witnessed its share of Irish-owned employment drop from 42.8 per cent in 1990 to 26.8 per cent in 2004, while the Engineering sector has experienced a small increase from 18.4 per cent to 20.5 per cent over the same period. The internationally traded services sector has seen its share of Irish-owned employment increase almost fourfold over the period, from 5.7 per cent in 1990 to 22 per cent in 2004. 3 Employment shares in this table are calculated on the basis of data from the ABSEI and are not directly comparable with the results of the Annual Employment Survey. Annual Business Survey of Economic Impact, 2004 10

Table 2.3: Exports and Exports Growth in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2004 Per Annum Per Annum Per Annum k k k k k % % % Per Annum Total - All Sectors 9,060,551 9,113,071 8,918,854 8,849,171 9,406,617 6.3% 6.0% 8.0% 0.9% Manufacturing 7,647,600 7,539,521 7,510,009 7,291,977 7,653,777 5.0% 6.0% 7.2% 0.0% Food/Drink/Tobacco 5,000,760 4,903,479 5,048,804 4,909,308 5,220,301 6.3% 5.6% 5.4% 1.1% All Other Manufacturing 1,220,638 1,326,360 1,323,282 1,176,597 1,241,468 5.5% 8.0% 7.7% 0.4% All Engineering Sectors 1,426,202 1,309,682 1,137,923 1,206,072 1,192,007-1.2% 4.7% 13.9% -4.4% Internationally Traded Services 1,412,951 1,573,549 1,408,845 1,557,194 1,752,840 12.6% 6.6% 21.4% 5.5% Software Development 754,374 981,103 657,677 647,107 777,475 20.1% 4.1% 42.3% 0.8% All Other Services 658,577 592,446 751,168 910,087 975,365 7.2% 7.4% 12.6% 10.3% Table 2.3 provides an overview of the export performance of Irish-owned manufacturing and internationally traded services sectors over the 1990-2004 period. Overall, exports of Irish-owned manufacturing and internationally traded services companies amounted to 9.4bn in 2004. The food and drink sector which accounts for 55 per cent of all exports, witnessed 6.3 per cent export growth in 2004. The data suggests, however, that food and drink exports have been relatively stable since 2000 and future growth potential may be limited to some sub-sectors within the overall sector. All Engineering sector exports declined by 1.2 per cent in 2004 as opposed to the All Other Manufacturing category which recorded a 5.5 per cent growth over the same period. Performance of the internationally traded services sector in relation to export growth continues to outpace that of the manufacturing sector, with a 12.6 per cent growth rate in 2004 as opposed to 5.0 per cent growth in the manufacturing exports, mainly driven by the software industry. Analysis of export growth over different time periods show that indigenous manufacturing and internationally traded services sectors experienced dramatic growth in exports during the 1990s. This growth was most pronounced between when exports were increasing at a nominal rate of 8.0 per cent per annum compared to 6.0 per cent per annum between 1990 and 1994. As pointed out in relation to total sales, export growth of 0.9 per cent per annum over the period reflects the difficult trading conditions impacting the indigenous export market as a consequence of the global downturn. However, internationally traded services sectors seem to be less affected by this downturn compared to the manufacturing industries. Annual Business Survey of Economic Impact, 2004 11

Figure 2.1: Exports as a of Total Sales in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2004 60.0% 55.0% IEE Series 1990-1999 ABSEI 50.0% 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total - All Sectors Food/Drink/Tobacco All Other Manufacturing All Engineering Sectors Internationally Traded Services Linking the data on sales and exports allows us to make an assessment in relation to the export intensity of Irish-owned industry (i.e. exports as a percentage of sales). Figure 2.1 shows that the total export intensity of indigenous industry has hovered from 38 per cent to 43 per cent throughout the period 1990-2004. The food and drink sector has a big impact on the overall proportions, as illustrated by the close relationship between the trend lines. The broadly defined engineering sector has tended to export the highest share of its output, but the data suggest that its export intensity has been in decline since 1998. The internationally traded services sector shows a high degree of volatility in export intensity, which may be due to the fact that it is a relatively new sector and therefore more likely to show instability compared to some of the more established industries. The All Other Manufacturing category (comprising sectors such as textiles, printing, wood products etc.) has the lowest export intensity of the sectors examined with exports accounting for less than 30 per cent of output in recent years. Annual Business Survey of Economic Impact, 2004 12

Table 2.4: Value Added of Irish-Owned Manufacturing and Internationally Traded Services, Total Value Added Value Added as % Sales Value Added per Person Employed Per Annum Per Annum 2000 2004 2000 2004 2000 2004 k k % % % k k % Total - All Sectors 7,586,670 8,347,314 2.4% 32.8% 35.2% 52.8 69.2 7.0% Manufacturing 5,682,675 5,601,832-0.4% 29.8% 30.0% 49.9 59.6 4.5% Food/Drink/Tobacco 2,933,760 2,616,957-2.8% 25.8% 23.7% 67.4 70.9 1.2% All Other Manufacturing 1,619,438 1,763,284 2.2% 35.4% 38.3% 39.7 54.5 8.2% All Engineering Sectors 1,129,477 1,221,591 2.0% 35.9% 40.2% 38.1 49.5 6.7% Internationally Traded Services 1,903,995 2,745,482 9.6% 47.6% 54.5% 64.0 103.2 12.7% Software Development 700,988 842,805 4.7% 61.7% 67.7% 73.9 95.5 6.6% All Other Services 1,203,007 1,902,677 12.1% 42.0% 50.2% 59.4 107.1 15.9% Value added represents the total output (sales) of firms less the cost of materials and services purchases. It provides a measure of the specific contribution of firms/sectors in terms of economic activity. The total value added of Irish-owned manufacturing and internationally traded services is estimated at 8.3bn in 2004, which equates to just over 35 per cent of the sales figure of 23.7bn. Table 2.4 shows that total value added is estimated to have grown by 2.4 per cent per annum in nominal terms over the period. Manufacturing sector continues to account for the majority of value added ( 5.6bn or 67 per cent) in 2004; however there was a decrease of 0.4 per cent per annum in nominal terms between 2000 and 2004. On the other total value added in the internationally traded services sector increased by 9.6 per cent per annum in nominal terms during the same period. Examined as a share of sales, the value added of the food and drink sector equates to 23.7 per cent of sales in this sector. In other manufacturing sectors, value added equates to approximately 40 per cent of total sales. Value added in internationally traded services sectors equates to approximately 55 per cent of the value of sales as these activities are less likely to be based on large purchases of raw materials. Across all Irish-owned manufacturing and internationally traded services sectors, value added as a percentage of sales has increased from 23 per cent in 1990 to 35 per cent in 2004 suggesting a shift towards higher value added activities within individual sectors or a shift towards sectors where value added contribution is higher. Value added per person employed in manufacturing and international services is estimated at 69,200 in 2004, an increase of 7 per cent per annum in nominal terms since 2000. Value added per person employed is higher in internationally traded services activities ( 103,200) compared to manufacturing activities ( 59,600). Annual Business Survey of Economic Impact, 2004 13

Table 2.5: Payroll Costs of Irish-owned Manufacturing and Internationally Traded Services, Total Payroll Payroll as % of Value Added Payroll Costs per Employee 2000 2004 Per Annum 2000 2004 2000 2004 Per Annum k k % % % k % Total - All Sectors 4,001,651 4,491,530 2.9% 52.7% 53.8% 27.9 37.2 7.5% Manufacturing 2,983,816 3,194,718 1.7% 52.5% 57.0% 26.2 34.0 6.7% Food/Drink/Tobacco 1,226,118 1,277,503 1.0% 41.8% 48.8% 28.2 34.6 5.3% All Other Manufacturing 1,017,557 1,123,619 2.5% 62.8% 63.7% 24.9 34.7 8.6% All Engineering Sectors 740,142 793,596 1.8% 65.5% 65.0% 25.0 32.1 6.5% Internationally Traded Services 1,017,835 1,296,812 6.2% 53.5% 47.2% 34.2 48.8 9.2% Software Development 421,490 479,929 3.3% 60.1% 56.9% 44.4 54.4 5.2% All Other Services 596,345 816,883 8.2% 49.6% 42.9% 29.5 46.0 11.8% Table 2.5 shows that the total amount paid by Irish-owned manufacturing and internationally traded services on payroll costs (including taxes etc.) was 4.5bn in 2004. Based on the survey data, total payroll costs have increased at a rate of 2.9 per cent per annum in nominal terms over the period. Manufacturing firms account for 3.2bn of total payroll costs and internationally traded services firms account for the remaining 1.3bn. Payroll costs per employee in Irish-owned manufacturing and internationally traded services sectors averaged at 37,200 in 2004, representing an increase of 7.5 per cent per annum over the period. The broad manufacturing sectors have rather uniform average payroll costs per employee (approximately 34,000 in each of the sectors, other than All Engineering Sectors ) compared to the internationally traded services sector which has an average payroll cost per employee of 48,800 in 2004. The rate of increase in payroll costs per employee has been higher in internationally traded services sectors than in manufacturing sector, with 9.2 and 6.7 per cent, respectively between 2000 and 2004. Annual Business Survey of Economic Impact, 2004 14

Table 2.6: Materials and Services Purchases of Irish-Owned Manufacturing and Internationally Traded Services, 2004 Materials Purchases 2004 Services Purchases 2004 Total Materials Irish Materials Irish as % Total Total Services Irish Services Irish as % Total k k % k k % Total - All Sectors 11,794,861 8,660,219 73.4% 3,565,756 3,049,582 85.5% Manufacturing 10,445,376 7,684,284 73.6% 2,622,724 2,214,653 84.4% Food/Drink/Tobacco 6,649,170 5,519,937 83.0% 1,519,153 1,269,426 83.6% All Other Manufacturing 2,171,161 1,328,720 61.2% 667,310 590,939 88.6% All Engineering Sectors 1,426,065 652,558 45.8% 394,869 315,792 80.0% Internationally Traded Services 1,349,485 975,936 72.3% 943,032 834,929 88.5% Software Development 146,427 104,522 71.4% 254,985 195,665 76.7% All Other Services 1,203,058 871,414 72.4% 688,047 639,264 92.9% Table 2.6 provides detailed information on the purchases made by Irish owned manufacturing and internationally trading services firms. Total raw materials purchases amounted to 11.8bn in 2004, of which 8.7bn (73 per cent) was sourced in Ireland. Most of the raw materials purchases of indigenous firms relate to the food and drink sector, with 5.5bn spending on Irish raw materials in 2004. In addition to raw materials, Irish-owned manufacturing and internationally traded services firms spent a further 3bn on services in 2004 with the vast bulk of these (85.5 per cent) sourced in Ireland. Annual Business Survey of Economic Impact, 2004 15

Figure 2.2: Irish Sourced Materials as a Share of All Materials Purchases by Irish- Owned Manufacturing Industry, 1990-2004 100.0% 90.0% IEE Series 1990-1999 ABSEI 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total Manufacturing (incl. Primary Sector) All Other Manufacturing Food/Drink/Tobacco All Engineering Sectors Figure 2.2 maps out the share of total materials sourced in Ireland by Irish-owned manufacturing firms and shows that, for all manufacturing sectors combined, the proportions have remained fairly static at around 70 per cent over the period 1990-2004. The food and drink sector, which purchased around 83 per cent of its materials requirements in Ireland in 2004, dominates this picture. The broadly defined engineering sector purchases the lowest share of its materials requirements in Ireland; however the share of Irish sourced materials in total materials purchases in this sector increased from 30 per cent in 1999 to around 46 per cent in 2004. Annual Business Survey of Economic Impact, 2004 16

Figure 2.3: Total Direct Expenditure in the Irish Economy by Irish-Owned Manufacturing and Internationally Trading Services, 1990-2004 18,000,000 Payroll Irish Materials Irish Services 16,000,000 14,000,000 12,000,000 000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Figure 2.3 summarises the total expenditure in the domestic economy by Irish-owned manufacturing and internationally traded services firms throughout the period 1990-2004. In total, Irish-owned firms spent 16.2bn in the domestic economy in 2004, comprising 4.5bn on payroll costs, 8.7bn on Irish raw materials, and 3.0bn on Irish services. This direct expenditure has increased from 8.0bn in 1990, representing a nominal increase of 5.2 per cent per annum over the period. The share of this total direct expenditure accounted for by purchases of services has increased from 15.4 per cent in 1990 to 18.6 per cent in 2004. The share accounted for by payroll costs has increased from 22.7 per cent in 1990 to 28.7 per cent in 2004. On the other hand, the share accounted for by materials purchases has decreased from 62.0 per cent in 1990 to 52.7 per cent in 2004. This changing pattern in the direct expenditure of Irish-owned firms in the economy reflects the gradual evolution to more service based activities and the increased importance of internationally traded services. Indeed, the proportion of direct expenditure accounted for by the internationally traded services base increased from 3.8 per cent in 1990 to 19.2 per cent in 2004. Annual Business Survey of Economic Impact, 2004 17

Figure 2.4: Total Direct Expenditure in the Irish Economy as a percentage of Sales in Irish Owned Manufacturing and Internationally Traded Services, 1990-2004 100.0% 90.0% IEE Series 1990-1999 ABSEI 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total - All Sectors Food/Drink/Tobacco All Other Manufacturing All Engineering Sectors Internationally Traded Services Figure 2.4 shows the trend in direct expenditure in the economy as a percentage of sales for all Irish-owned firms and for the broad agglomerated sectors. Total direct expenditure as a percentage of sales has remained fairly static and has moved within a range of 65 per cent to 75 per cent throughout the period. The food and drink sector has the highest share of direct expenditure as a percentage of sales (varying between 75 per cent and 80 per cent over the period 1990-2004), whereas the broadly defined engineering sector has the lowest share (within the range from 50-60 per cent over the same period). The internationally traded services sector has shown a gradual increase in direct expenditure in the economy as a proportion of sales until 2001, however it declined since then. Annual Business Survey of Economic Impact, 2004 18

Table 2.7: Investment in Formal, Structured Training by Irish-Owned Manufacturing and Internationally Traded Services, Proportion of Firms with Expenditure on Formal Training Cost of all Structured Training as % of Payroll Cost of all Structured Training Per Person Employed Per Annum 2000 2004 2000 2004 2000 2004 % % % % k k % Total - All Sectors 68.0% 72.0% 1.6% 1.2% 0.44 0.43-0.6% Manufacturing 66.1% 72.2% 1.5% 1.1% 0.38 0.38 0.0% Food/Drink/Tobacco 66.5% 76.4% 1.2% 1.1% 0.35 0.39 2.7% All Other Manufacturing 72.6% 72.5% 2.0% 1.3% 0.51 0.40-5.9% All Engineering Sectors 60.7% 69.4% 1.3% 1.0% 0.33 0.34 0.7% Internationally Traded Services 73.6% 71.4% 1.9% 1.3% 0.66 0.62-1.6% Software Development 77.5% 68.4% 2.6% 1.1% 1.14 0.59-15.2% All Other Services 70.9% 73.8% 1.5% 1.4% 0.44 0.64 9.8% Table 2.7 provides details on investment in formal, structured training (as opposed to on the job training). Almost three quarters (72 per cent) of all indigenous companies claim to have some expenditure on training in 2004 a figure that is fairly consistent across all the broad sectors. Expenditure on formal, structured training equated to 1.2 per cent of payroll costs in 2004. The survey data compiled over the period suggest that training budgets have been quite static over the period; however there is a significant decrease in expenditure on structured training per person employed in the software industry. Annual Business Survey of Economic Impact, 2004 19

3. Foreign-Owned Manufacturing and Internationally Traded Services Table 3.1: Traded Services, 1990-2004 Sales and Sales Growth in Foreign-Owned Manufacturing and Internationally Total - All Sectors 70,313,672 74,464,485 78,374,012 79,006,407 81,612,015 3.3% 11.4% 21.1% 3.8% Manufacturing 52,045,658 54,476,694 58,140,291 56,284,761 57,879,494 2.8% 9.6% 17.4% 2.7% Food/Drink/Tobacco 3,961,623 4,110,533 4,242,538 5,890,011 5,727,877-2.8% 4.9% 6.6% 9.7% Chemicals/Pharmaceuticals 16,566,941 18,070,424 24,526,004 21,758,336 23,289,705 7.0% 19.6% 22.4% 8.9% Electrical & Electronic Equipment 23,067,003 22,711,918 19,887,434 18,666,795 18,647,320-0.1% 10.1% 20.7% -5.2% Medical Devices/Instruments 3,421,214 4,485,316 4,786,617 5,432,164 5,660,280 4.2% 12.1% 19.0% 13.4% All Other Manufacturing 5,028,878 5,098,504 4,697,698 4,537,455 4,554,312 0.4% 2.9% 9.7% -2.4% Internationally Traded Services 18,268,015 19,987,791 20,233,721 22,721,646 23,732,521 4.4% 26.7% 39.5% 6.8% Software Development 12,347,701 13,562,271 14,055,709 15,585,940 16,773,876 7.6% 45.9% 29.8% 8.0% All Other Services 5,920,314 6,425,520 6,178,012 7,135,707 6,958,645-2.5% 7.0% 60.7% 4.1% Total sales of agency assisted foreign-owned manufacturing and internationally traded services companies grew by over 3 per cent in nominal terms and amounted to 81.6bn in 2004. Manufacturing sectors accounted for 57.9bn of this total, which equates to 71 per cent of all sales in foreign-owned companies. Foreign-owned manufacturing and internationally traded services base experienced double digit sales growth during the 1990 s, particularly in the second half of the decade when the overall rate of increase amounted to 21.1 per cent per annum in nominal terms. Sales growth has slowed in recent years and the sectoral data behind this aggregate total shows that the modest performance from (3.8 per cent per annum in nominal terms) is caused by some sectors witnessing a decrease in absolute sales levels (the electronics sector in particular 4 ) and this is being compensated for by increasing sales levels in some other sectors chemicals/pharmaceuticals (up 8.9 per cent per annum between ) and the medical devices/instruments sector which grew at a rate of 13.4 per cent per annum over the same period. The decline in the sales growth during the period compared to the 1990s has been higher in the internationally traded services sector than in the manufacturing sectors. 4 There has been a considerable decline in product prices in this sector which might have contributed to lower sales figures even though the actual production may have increased in terms of units produced. Annual Business Survey of Economic Impact, 2004 20

Table 3.2: Services, 1990-2004 5 Composition of Foreign-Owned Manufacturing and Internationally Traded Sales Employment 1990 1995 2000 2004 1990 1995 2000 2004 % % % % % % % % Total - All Sectors 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Manufacturing 91.2% 86.6% 74.0% 70.9% 92.0% 88.9% 76.4% 74.0% Food/Drink/Tobacco 20.9% 14.7% 5.6% 7.0% 13.9% 11.5% 7.2% 7.4% Chemicals/Pharmaceuticals 17.7% 22.6% 23.6% 28.5% 11.7% 14.1% 13.6% 15.7% Electrical & Electronic Equipment 25.7% 30.9% 32.8% 22.8% 18.4% 22.8% 26.6% 20.6% Medical Devices/Instruments 4.8% 4.4% 4.9% 6.9% 7.4% 8.4% 10.0% 14.7% All Other Manufacturing 22.1% 14.1% 7.2% 5.6% 40.6% 32.2% 19.0% 15.6% Internationally Traded Services 8.8% 13.4% 26.0% 29.1% 8.0% 11.1% 23.6% 26.0% Software Development 3.5% 10.1% 17.6% 20.6% 2.9% 4.8% 9.3% 9.1% All Other Services 5.4% 3.3% 8.4% 8.5% 5.2% 6.3% 14.3% 16.9% Table 3.2 traces the evolution of the foreign-owned manufacturing and internationally traded services base over the period 1990-2004. In terms of sales, the relative importance of manufacturing activity has decreased, from accounting for 91.2 per cent of all sales in 1990 to 70.9 per cent in 2004. The balance is contributed by the internationally traded services sector which now accounts for 29.1 per cent of sales with software making up the largest component. The share of sales accounted for by foreign-owned food and drinks companies has declined sharply since 1990, while the chemicals/pharmaceuticals sector now accounts for 28.5 per cent of the reported output of sales a share that has been steadily increasing over the years. The electronics sector accounted for around a quarter of all sales in 2004, but this actually represents a drop in its share of the overall output of foreign-owned companies compared to the situation in the late 1990s. Other manufacturing activities outside the key sectors identified have decreased in importance over the years and this reflects the decline in traditional sectors such as textiles and general engineering. In terms of employment, the same general picture emerges although it is interesting to note that there are some areas where sales and employment levels are disproportionate. The chemicals/pharmaceuticals sector for example, accounts for 28.8 per cent of the reported sales but only 15.7 per cent of the employment in foreign-owned companies in Ireland. The all other services area by contrast (which includes activities such as shared services) accounts for 16.9 per cent of employment but generates less than 10 per cent of the sales of foreign-owned industry in Ireland. 5 Employment shares in this table are calculated on the basis of data from the ABSEI and are not directly comparable with the results of the Annual Employment Survey. Annual Business Survey of Economic Impact, 2004 21

Table 3.3: Traded Services, 1990-2004 Exports and Exports Growth in Foreign-Owned Manufacturing and Internationally Total - All Sectors 63,179,608 68,581,443 72,507,458 73,537,693 76,496,214 4.0% 11.5% 21.8% 4.9% Manufacturing 46,691,677 50,053,280 53,854,363 52,188,155 53,982,020 3.4% 9.5% 17.8% 3.7% Food/Drink/Tobacco 2,629,031 2,891,731 2,814,384 4,538,915 4,511,723-0.6% 3.1% 6.1% 14.5% Chemicals/Pharmaceuticals 15,902,845 17,576,183 24,155,979 21,300,970 22,810,938 7.1% 20.1% 22.9% 9.4% Electrical & Electronic Equipment 21,186,954 21,215,973 18,467,735 17,611,277 17,732,936 0.7% 8.8% 20.5% -4.4% Medical Devices/Instruments 2,987,601 4,276,248 4,655,516 5,214,115 5,414,540 3.8% 11.8% 18.5% 16.0% All Other Manufacturing 3,985,246 4,093,145 3,760,749 3,522,878 3,511,882-0.3% 2.5% 7.4% -3.1% Internationally Traded Services 16,487,931 18,528,163 18,653,096 21,349,537 22,514,194 5.5% 27.8% 41.0% 8.1% Software Development 11,684,303 13,179,136 13,566,738 15,111,309 16,336,656 8.1% 48.4% 30.1% 8.7% All Other Services 4,803,628 5,349,026 5,086,358 6,238,228 6,177,539-1.0% 6.7% 68.9% 6.5% Table 3.3 provides information relating to exports by foreign-owned companies in Ireland. The exports of foreign-owned companies in Ireland at 76bn equate to 94 per cent of the reported sales by these firms. Manufacturing sectors accounted for 71 per cent of all exports in foreign-owned companies in Ireland in 2004. The growth in manufacturing exports by foreign companies has been largely driven by chemicals and medical devices industries during the period. Exports accounted for 93 per cent of total sales in foreign-owned manufacturing companies in 2004 whereas companies in the internationally traded services export 95 per cent of their total sales. Annual Business Survey of Economic Impact, 2004 22

Table 3.4: Services, Value Added of Foreign-Owned Manufacturing and Internationally Traded Total Value Added Value Added as % Sales Value Added Per Person Employed 2000 2004 Per Annum 2000 2004 2000 2004 Per Annum k k % % % k k % Total - All Sectors 32,423,000 38,296,286 4.2% 46.1% 46.9% 197.0 267.1 7.9% Manufacturing 24,580,181 28,331,888 3.6% 47.2% 48.9% 195.4 267.1 8.1% Food/Drink/Tobacco 1,665,728 3,017,497 16.0% 42.0% 52.7% 141.2 283.0 19.0% Chemicals/Pharmaceuticals 10,838,634 13,775,962 6.2% 65.4% 59.2% 484.3 613.1 6.1% Electrical & Electronic Equipment 8,377,681 6,603,520-5.8% 36.3% 35.4% 191.2 223.5 4.0% Medical Devices/Instruments 1,896,558 2,864,759 10.9% 55.4% 50.6% 115.0 136.1 4.3% All Other Manufacturing 1,801,581 2,070,149 3.5% 35.8% 45.5% 57.6 92.6 12.6% Internationally Traded Services 7,842,819 9,964,399 6.2% 42.9% 42.0% 202.2 266.9 7.2% Software Development 5,381,866 6,758,597 5.9% 43.6% 40.3% 350.9 516.9 10.2% All Other Services 2,460,952 3,205,801 6.8% 41.6% 46.1% 104.9 132.2 5.9% As stated in Section 2 of the report, Value Added is total sales less the cost of bought-in materials and services. In the case of foreign-owned multinationals, this measure may not reflect the real contribution of the Irish-owned operation, as much of the bought-in materials and services can be bought from other parts of the same enterprise group and can be distorted by transfer pricing arrangements. The total value added of foreign-owned manufacturing and international services is estimated at 38.2bn in 2004, which equates to 46.9 per cent of the gross output/sales. Although total value added grew at a rate of 4.2 per cent per annum in nominal terms over the period, the aggregate figures mask important sectoral patterns. The strong growth in food and drink and chemicals for example is partially offset by the decline in the electronics sector. Based on this survey, value added per person employed was 267,100 in 2004, which represents a nominal increase of 7.9 per cent per annum since 2000. Value added per person employed is lower in international services ( 266,900 in 2004) compared to manufacturing ( 267,100 in 2004) activities. It is important to note that aggregate value added per person employed figures for broad categories of manufacturing and internationally traded services are significantly affected by one or two individual sectors, such as chemicals in manufacturing and software in internationally traded services. Annual Business Survey of Economic Impact, 2004 23

Table 3.5: Services, Payroll Costs of Foreign-Owned Manufacturing and Internationally Traded Total Payroll Costs Payroll as % of Value Added Payroll Costs per Employee 2000 2004 Per Annum 2000 2004 2000 2004 Per Annum k k % % % % Total - All Sectors 5,775,992 6,390,300 2.6% 17.8% 16.7% 35.1 44.6 6.2% Manufacturing 4,321,779 4,620,491 1.7% 17.6% 16.3% 34.4 43.6 6.1% Food/Drink/Tobacco 426,386 509,714 4.6% 25.6% 16.9% 36.1 47.8 7.2% Chemicals/Pharmaceuticals 878,684 1,226,986 8.7% 8.1% 8.9% 39.3 54.6 8.6% Electrical & Electronic Equipment 1,570,603 1,258,502-5.4% 18.7% 19.1% 35.8 42.6 4.4% Medical Devices/Instruments 467,951 734,055 11.9% 24.7% 25.6% 28.4 34.9 5.3% All Other Manufacturing 978,154 891,235-2.3% 54.3% 43.1% 31.3 39.9 6.3% Internationally Traded Services 1,454,213 1,769,809 5.0% 18.5% 17.8% 37.5 47.4 6.0% Software Development 690,261 753,392 2.2% 12.8% 11.1% 45.0 57.6 6.4% All Other Services 763,952 1,016,417 7.4% 31.0% 31.7% 32.6 41.9 6.5% Table 3.5 presents payroll details of all foreign-owned manufacturing and internationally traded services companies in Ireland. The total payroll bill of foreign-owned firms amounted to 6.3bn in 2004 with manufacturing accounting for 4.6bn and services contributing the remaining balance of 1.7bn. While payroll costs account for almost 60 per cent of value added in indigenous industry, they account for around 17 per cent of the reported value added of foreign manufacturing and international services. Total payroll costs per person employed averaged 44,600 in 2004, representing an increase of 6.2 per cent per annum in nominal terms over the period. Payroll costs per employee are higher in internationally traded services compared to the manufacturing sector; averaging 43,600 and 47,400 respectively in 2004. The chemicals/pharmaceuticals sector has higher average payroll costs per employee than other manufacturing sectors; however it has the lowest ratio of payroll cost as a percentage of value added. The detailed data in the appendices (B6) point to some acceleration in payroll costs per employee over the time period examined. Across all foreign-owned companies, payroll costs per employee increased at a nominal rate of 4.8 per cent per annum from ; 5 per cent per annum from ; and 6.2 per annum since 2000. Annual Business Survey of Economic Impact, 2004 24

Table 3.6: Materials and Services Purchases of Foreign-Owned Manufacturing And Internationally Traded Services, 2004 Materials Purchases 2004 Services Purchases 2004 Total Materials Irish Materials Irish as % Total Total Services Irish Services Irish as % Total k k % k k % Total - All Sectors 23,660,949 4,824,283 20.4% 19,654,780 6,751,178 34.3% Manufacturing 19,705,249 3,607,787 18.3% 9,842,357 3,636,233 36.9% Food/Drink/Tobacco 1,231,110 827,487 67.2% 1,479,269 508,092 34.3% Chemicals/Pharmaceuticals 4,715,226 685,807 14.5% 4,798,517 1,400,492 29.2% Electrical & Electronic Equipment 9,698,147 1,157,710 11.9% 2,345,652 858,633 36.6% Medical Devices/Instruments 2,249,925 306,724 13.6% 545,596 404,205 74.1% All Other Manufacturing 1,810,840 721,604 39.8% 673,322 464,811 69.0% Internationally Traded Services 3,955,700 1,216,496 30.8% 9,812,423 3,114,944 31.7% Software Development 2,084,836 957,790 45.9% 7,930,443 1,656,757 20.9% All Other Services 1,939,715 258,706 13.3% 1,652,288 1,458,188 88.3% Table 3.6 provides an overview of the value of purchases made by foreign-owned manufacturing and internationally traded services companies in 2004 in addition to the share of these purchases made in Ireland. In overall terms, foreign-owned industry spent 23.6bn on raw materials, of which 4.8bn relates to materials produced in Ireland (either by indigenous suppliers or other foreignowned multinationals in the country). In addition to their raw materials requirements, foreign-owned companies spent a further 19.6bn on services purchases with 6.7bn or 34 per cent of these being sourced in Ireland. Annual Business Survey of Economic Impact, 2004 25