Annual Business Survey of Economic Impact 2005

Annual Business Survey of Economic Impact 2005

Table of Contents Executive Summary 3 1. Introduction 11 2. Irish-Owned Manufacturing and Internationally Traded Services 13 3. Foreign-Owned Manufacturing and Internationally Traded Services 23 Appendix A - Real Growth Figures (Accounting for price changes) 32 Appendix B - Detailed Survey Results of Irish-owned Manufacturing and Internationally Traded Services 33 Appendix C - Detailed Survey Results of Foreign-Owned Manufacturing and Internationally Traded Services 42 Appendix D - Detailed Survey Results of All Manufacturing and Internationally Traded Services 51 Annual Business Survey of Economic Impact 2005 2

Executive Summary Introduction This report presents the results of the Annual Business Survey of Economic Impact (ABSEI) for 2005. 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 2005. The main findings of the survey are presented below in respect of Irish-owned and Foreign-owned firms. 1. Annual Business Survey of Economic Impact - Selected Indicators for Irish & Foreign owned Agency Assisted Clients Irish Owned Foreign Owned 2004 2005 All Manufacturing Int. Traded Services All Manufacturing Int. Traded Services Sales 6.4 4.8 12.3 4.8 4.0 6.8 Exports 6.0 4.6 11.3 5.8 4.9 7.8 Value Added 6.2 2.2 14.0 8.2 3.7 20.2 Direct Expenditure in Irish Economy 6.1 5.4 8.9-2.6-1.7-4.3 Note: Please see Appendix A for real growth figures that account for price changes Annual Business Survey of Economic Impact 2005 3

Irish-Owned Manufacturing and Internationally Traded Services 2. Annual Business Survey of Economic Impact - Selected Indicators per Annum All Manufacturing Int. Traded Services All Manufacturing Int. Traded Services Sales 6.4 4.8 12.3 2.2 0.9 7.3 Exports 6.0 4.6 11.3 1.2-0.2 7.9 Value Added 6.2 2.2 14.0 5.0 2.4 11.0 Direct Expenditure in Irish Economy 6.1 5.4 8.9 1.9 1.3 5.0 Sales Total sales of Irish-owned agency assisted companies operating in the manufacturing and internationally traded services sectors amounted to 25bn in 2005. Manufacturing sectors account for 19.3bn of this total with the remaining 5.7bn coming from internationally traded services. The food and drink sector continues to account for the largest share of indigenous sales ( 11.3bn or 45 percent), followed by basic and fabricated metal products and non-metallic minerals sectors, accounting for 5.9 and 5.8 percent of total sales among indigenous companies, respectively. Overall, sales in manufacturing and internationally traded services grew at a rate of 6.6 percent in nominal terms between 2004 and 2005. Total sales in the internationally traded services sector grew by around 12.3 percent between 2004 and 2005, whereas the manufacturing sectors recorded a five percent growth. Time series analysis reveals that sales growth has averaged over 2.2 percent per annum over the period ; most significant increases happening in 2004 and 2005. The share of sales accounted for by the internationally traded services sector grew significantly over the period 1990-2005. This sector now accounts for nearly 23 percent of all sales, as opposed to around five percent in 1990. Exports Total exports of Irish-owned manufacturing and internationally traded services firms amounted to 9.6bn in 2005, with a nominal growth rate of six percent between 2004 and 2005. Manufacturing sectors accounted for 7.6bn (79percent) of this total and 2bn comes from software development and other internationally traded services. Food and drink exports continue to account for the largest share of indigenous manufacturing exports ( 5.2bn or 54 percent). Annual Business Survey of Economic Impact 2005 4

The overall export intensity of Irish manufacturing and international services sectors has averaged around 40 percent over the period 1990-2005. Value Added Value Added (sales less the cost of materials and services) of Irish-owned manufacturing and international services amounted to 8.9bn in 2005, which grew by 6.2 percent in nominal terms. Value added grew by 8.7 percent per annum in nominal terms between 2000 and 2005 among indigenous companies. Value added per person employed (a standard measure of labour productivity) amounted to 72,900 in 2005, which equates to a nominal increase of 8.7 percent per annum during the period. Value added per person employed is higher in internationally traded services activities ( 116,100) compared to manufacturing activities ( 60,200). Expenditure 3. Expenditure in the Irish Economy by Irish-owned Manufacturing & Internationally Traded Services 1990-2005 m 18,000 Payroll Irish Materials Irish Services 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total expenditure by Irish-owned manufacturing and internationally traded services in the Irish economy amounted to 16.8bn in 2005, which consists of 4.7bn on payroll costs, 8.9bn on Irish produced raw materials and 3.2bn on Irish services. Total expenditure by Irish-owned firms peaked in 2001 and followed a downward trend until 2004 where it has recorded 3 percent growth, followed by a 6.1 percent growth in 2005. Annual Business Survey of Economic Impact 2005 5

The total spend of the indigenous enterprise base in the domestic economy equates to just over 67 percent of sales in 2005. The share of Irish economy expenditure accounted for by raw materials has decreased from 62 percent in 1990 to around 53 percent in 2005, whereas the Irish economy expenditure accounted for by services increased from 15 percent in 1990 to 19 percent in 2005 reflecting structural change in economic activity 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 22.7 percent in 1990 to 28 percent in 2005. Direct Expenditure as a percentage of GNP In 2000, direct expenditure in the Irish economy by Irish-owned companies was 17.2 percent of GNP. The ratio to GNP has declined to 12.4 percent in 2005. This represents a 1.9% increase in nominal terms for the period. The combined effect of the slow down in growth of direct expenditure by Irish-owned companies coupled with the increase in GNP that has been fuelled by growth in the construction sector in the same period, has led to a decline in the percentage contribution to GNP of Irish-owned client companies. 4. Direct Expenditure as a percentage of GNP Direct Expenditure in the Irish Economy by Indigenous Companies as a of GNP* 2000 2005 All 17.1 12.4 Manufacturing 14.3 10.0 Int. Traded Services 2.8 2.3 Direct Expenditure in Irish Economy is calculated as the sum of: (Payroll costs + Irish-sourced raw materials + Irish-sourced services) Annual Business Survey of Economic Impact 2005 6

Value Added as a percentage of GNP Over the five year period from there is evidence of a convergence between the levels of Value Added made by Manufacturing and Internationally Traded Services. Manufacturing has decreased from 5.6 percent to 4.1 percent while Internationally Traded Services have increased from 2.1 percent to 2.3 percent which shows the increasing importance of the Internationally Traded Services sector 5. Value Added as a percentage of GNP Total Value Added in Indigenous Companies as a of GNP* 2000 2005 All 7.8 6.5 Manufacturing 5.6 4.1 Int. Traded Services 2.1 2.3 Total Value Added is calculated as Sales less (All raw materials + all services) Notes: GNP @ current market prices [2000 = 89b] [2005 = 136b] Source: CSO National Income & Expenditure tables Foreign-owned Manufacturing and Internationally Traded Services 6. Annual Business Survey of Economic Impact - Selected Indicators All Manufacturing Int. Traded Services per Annum All Manufacturing Int. Traded Services Sales 4.8 4.0 6.8 3.7 2.5 6.7 Exports 5.8 4.9 7.8 4.6 3.5 7.7 Value Added 8.2 3.7 20.2 4.2 2.5 8.9 Direct Expenditure in Irish Economy -2.6-1.7-4.3-0.3-0.3-0.4 Annual Business Survey of Economic Impact 2005 7

Sales Total sales of agency assisted foreign-owned companies operating in the manufacturing and internationally traded services sectors grew by around 4.8 percent in nominal terms between 2004 and 2005 and amounted to 84bn in 2005. Manufacturing sectors accounted for 58bn of this total with the remaining 25bn coming from internationally traded services. Having witnessed double digit growth in the 1990s, sales growth in foreign owned companies slowed down to 3.7 percent per annum in nominal terms between 2000 and 2005. There are considerable differences across the individual sectors behind the overall figures. Food (6.8 percent), chemicals (6.3 percent) and medical devices sectors (11.7 percent) have continued to perform strongly during the same period while electronics industry (-2.1 percent) has been in decline. The internationally traded sector grew faster than the manufacturing industry in nominal terms between 2004 and 2005 and this sector now accounts for over 30 percent of all sales and 27 percent of employment, as opposed to 9% of sales and employment in 1990. Exports Total exports in foreign-owned manufacturing and internationally traded services amounted to 79bn in 2005 with manufacturing accounting for 55bn (70%) of this total and the internationally trading services sector contributing 24bn (30%) the balance. Overall, exports in foreign-owned manufacturing grew by 5.8 percent between 2004 and 2005. 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 2005, nearly 94 percent of the goods and services produced by foreign-owned firms were exported. Annual Business Survey of Economic Impact 2005 8

Value Added Value added (sales minus the cost of materials and services) of foreign-owned firms amounted to 39bn in 2005, growing at a rate of 4.2 percent per annum in nominal terms from 2000 to 2005. Value added per person employed (a standard measure of labour productivity) equated to 283,400 in 2005, representing a 7.5 percent per annum increase in nominal terms between 2000 and 2005. The chemicals sector and the software sector record particularly high levels of value added per employee, averaging 632,800 and 578,300 respectively. 7. Expenditure in the Irish Economy by Foreign-owned Manufacturing & Internationally Traded Services, 1990-2005 m 20,000 Payroll Irish Materials Irish Services 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total expenditure by foreign firms in the Irish economy amounted to 17.3bn in 2005, a decrease from 17.8bn in 2004. This comprises 6.4bn on services purchases in Ireland, 4.3bn on materials produced in Ireland, and 6.6bn on payroll costs. Total direct expenditure in the Irish economy by foreign-owned firms as a percentage of sales was 20.6 percent in 2005. There has been a downward trend in this ratio since 1990 when direct expenditure equated to 36.5 percent of sales. Annual Business Survey of Economic Impact 2005 9

Direct Expenditure as a percentage of GNP In 2000, direct expenditure in the Irish economy by foreign-owned companies was 19.8 percent of GNP. The ratio to GNP has declined to 12.7 percent in 2005. This represents a decrease of 0.3 percent in nominal terms for the period. The combined effect of the decrease in direct expenditure in the Irish economy by foreign-owned companies coupled with the increase in GNP that has been fuelled by growth in the construction sector in the same period has led to a decline in the percentage contribution to GNP of foreignowned client companies. 8. Direct Expenditure as a percentage of GNP Direct Expenditure in the Irish Economy by Foreign-owned Companies as a of GNP* 2000 2005 All 19.8 12.7 Manufacturing 13.2 8.5 Int. Traded Services 6.6 4.2 Direct Expenditure in Irish Economy is calculated as the sum of: (Payroll costs + Irish-sourced raw materials + Irish-sourced services) Value Added as a percentage of GNP Over the five year period from there is evidence of a convergence between the levels of Value Added made by Manufacturing and Internationally Traded Services. Manufacturing has decreasing from 27.6 percent to 20.5 percent while Internationally Traded Services has remained at 8.8 percent. Total Value Added in foreign owned companies is twice that of their Direct Expenditure in both sectors. Direct Expenditure for Manufacturing companies was 8.5 percent of GNP while their Value Added amounted to 20.5 percent. The figures for Internationally Traded Services amounted to 4.2 percent and 8.8 percent of GNP respectively. 9. Value Added as a percentage of GNP Total Value Added in Foreign-Owned Companies as a of GNP* 2000 2005 All 36.3 29.3 Manufacturing 27.6 20.5 Int. Traded Services 8.8 8.8 Total Value Added is calculated as Sales less (All raw materials + all services) Notes: GNP @ current market prices [2000 = 89b] [2005 = 136b] Source: CSO National Income & Expenditure tables Annual Business Survey of Economic Impact 2005 10

1. Introduction 1.1 Background This document presents the results of the Annual Business Survey of Economic Impact (ABSEI) for 2005. 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. 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 survey is used extensively by Forfás and the participating agencies for a number of purposes, some of which are listed below: Each of the participating agencies obtains aggregated information relating to its own client base and this information is used to assess the achievement of internal goals and targets. The firm-level data compiled in the survey is used by each of the agencies, and by Forfás, to add to its knowledge of individual companies, and also to feed into numerous policy/sectoral studies where information is required on different grouping of companies. The information collected in the survey is used in the "Value for Money Indicators" project along with other information from the employment survey and information from development 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 1990-2005. 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. Annual Business Survey of Economic Impact 2005 11

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. Annual Business Survey of Economic Impact 2005 12

2. Irish-Owned Manufacturing and Internationally Traded Services 10. Sales and Sales Growth in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2005 Total - All Sectors 22,421,245 23,314,015 23,169,162 22,460,050 23,486,604 24,986,929 6.4% 3.7% 8.8% 2.2% Manufacturing 18,422,077 19,020,303 18,705,272 18,058,397 18,424,945 19,301,682 4.8% 3.5% 7.7% 0.9% Food/Drink/Tobacco 10,694,807 11,074,914 11,006,564 10,661,774 10,900,613 11,291,978 3.6% 2.8% 5.2% 1.1% All Other Manufacturing 4,579,322 4,793,947 4,824,605 4,471,890 4,636,434 4,827,814 4.1% 4.8% 9.0% 1.1% All Engineering Sectors 3,147,949 3,151,442 2,874,104 2,924,733 2,887,898 3,181,890 10.2% 3.7% 15.4% 0.2% Internationally Traded Services 3,999,168 4,293,712 4,463,890 4,401,653 5,061,659 5,685,247 12.3% 8.5% 22.5% 7.3% Software Development 1,135,270 1,343,815 1,032,412 1,006,203 1,117,584 1,252,445 12.1% 23.3% 42.2% 2.0% All Other Services 2,863,898 2,949,897 3,431,478 3,395,450 3,944,075 4,432,802 12.4% 6.3% 17.4% 9.1% The overall sales of Irish-owned manufacturing and international services amounted to approximately 25bn in 2005. This figure has remained fairly static over the period 2000-2003; however it has showed an increasing trend since then, with sales growth of 2.2 percent per annum in nominal terms over the period. This is still lower than the experience of the indigenous enterprise base in the second part of the 1990s when sales growth averaged 8.8 percent per annum in nominal terms. On the other hand, sales growth of 6.4 percent was recorded in 2005. The table also highlights some interesting aspects of the structural change that has been taking place in the indigenous enterprise base. Sales growth in the internationally traded services sector continues to outpace manufacturing performance between 2000 and 2005; with 7.3 percent growth in internationally traded services and just less than one percent growth in manufacturing per annum in nominal terms. However the level of total sales in manufacturing is still around four times the level of sales in internationally traded services among indigenous firms. A detailed sectoral breakdown of these sales 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 international 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 2005 13

11. Composition of Irish-Owned Manufacturing and Internationally Traded Services, 1990-2005 Sales Employment 1990 1995 2000 2005 1990 1995 2000 2005 % % % % % % Total - All Sectors 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Manufacturing 95.3% 94.0% 82.2% 77.2% 94.3% 92.6% 79.3% 77.1% Food/Drink/Tobacco 59.4% 55.7% 47.7% 45.2% 33.1% 30.5% 30.3% 31.3% All Other Manufacturing 25.7% 27.0% 20.4% 19.3% 42.8% 41.6% 28.4% 25.9% All Engineering Sectors 10.2% 11.2% 14.0% 12.7% 18.4% 20.5% 20.6% 19.9% Internationally Traded Services 4.7% 6.0% 17.8% 22.8% 5.7% 7.4% 20.7% 22.9% Software Development 0.5% 1.0% 5.1% 5.0% 1.2% 1.9% 6.6% 7.3% All Other Services 4.2% 5.0% 12.8% 17.7% 4.5% 5.5% 14.1% 15.5% Note: 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. Table 11 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 2005. The share of sales accounted for by manufacturing has dropped from 95.3 percent in 1990 to 77.2 percent in 2005, 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 international services has increased from 4.7 percent in 1990 to 22.8 percent in 2005, 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 45.2 percent of the output of Irishowned industry in 2005, it accounts for around one third of the employment (31.3 percent). All Other Manufacturing sector has witnessed its share of Irish-owned employment drop from 42.8 percent in 1990 to 25.9 percent in 2005, while the Engineering sector has experienced a small increase from 18.4 percent to 19.9 percent 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 percent in 1990 to 22.9 percent in 2005. Annual Business Survey of Economic Impact 2005 14

12. Exports and Exports Growth in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2005 2004-2005 Total - All Sectors 9,060,551 9,113,071 8,824,483 8,849,171 9,091,039 9,634,773 6.0% 6.0% 8.0% 1.2% Manufacturing 7,647,600 7,539,521 7,415,638 7,291,977 7,235,517 7,569,676 4.6% 6.0% 7.2% -0.2% Food/Drink/Tobacco 5,000,760 4,903,479 4,954,433 4,909,308 5,040,080 5,247,234 4.1% 5.6% 5.4% 1.0% All Other Manufacturing 1,220,638 1,326,360 1,323,282 1,176,597 1,122,933 1,171,036 4.3% 8.0% 7.7% -0.8% All Engineering Sectors 1,426,202 1,309,682 1,137,923 1,206,072 1,072,504 1,151,405 7.4% 4.7% 13.9% -4.2% Internationally Traded Services 1,412,951 1,573,549 1,408,845 1,557,194 1,855,522 2,065,097 11.3% 6.6% 21.4% 7.9% Software Development 754,374 981,103 657,677 647,107 726,112 827,229 13.9% 4.1% 42.3% 1.9% All Other Services 658,577 592,446 751,168 910,087 1,129,410 1,237,868 9.6% 7.4% 12.6% 13.5% Table 12 provides an overview of the export performance of Irish-owned manufacturing and internationally traded services sectors over the 1990-2005 period. Overall, exports of Irish-owned manufacturing and internationally traded services companies amounted to 9.6bn in 2005. The food and drink sector which accounts for 54 percent of all exports, witnessed 4.1 percent export growth in 2005. All Engineering sector exports increased by 7.4 percent in 2005, the highest growth rate since 2000. All Other Manufacturing category recorded a 4.3 percent export growth during 2005. Performance of the internationally traded services sector in relation to export growth continues to outpace that of the manufacturing sector, with an 11.3 percent growth rate in 2005 as opposed to 4.6 percent growth in the manufacturing exports. Export growth of 1.2 percent per annum over the period has been lower than the 2.2 percent per annum growth in total sales (Table 2.1) among indigenous companies. Export growth has been much higher in internationally traded services sectors compared to the manufacturing industries on a per annum basis between 2000 and 2005. In nominal terms, manufacturing exports are still three times larger than exports in internationally traded services sector. Annual Business Survey of Economic Impact 2005 15

13. Exports as a of Total Sales in Irish-Owned Manufacturing and Internationally Traded Services, 1990-2005 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 Engineering Sectors All Other M anufacturing 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 13 shows that the total export intensity of indigenous industry has hovered from 38 percent to 43 percent throughout the period 1990-2005. 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 particularly since 1998, from 52.1 percent to 36.2 percent in 2005. 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 25 percent of output in 2005. Annual Business Survey of Economic Impact 2005 16

14. Value Added of Irish-Owned Manufacturing and Internationally Traded Services, Total Value Added Value Added as % Sales Value Added per Person Employed 2000 2005 2000 2005 2000 2005 k k % % % k k % Total - All Sectors 6,908,021 8,836,449 5.0% 30.8% 35.4% 48.1 73.0 8.7% Manufacturing 5,004,026 5,625,587 2.4% 27.2% 29.1% 43.9 60.2 6.5% Food/Drink/Tobacco 2,255,111 2,457,851 1.7% 21.1% 21.8% 51.8 64.8 4.6% All Other Manufacturing 1,619,438 1,903,948 3.3% 35.4% 39.4% 39.7 60.7 8.9% All Engineering Sectors 1,129,477 1,263,787 2.3% 35.9% 39.7% 38.1 52.3 6.5% Internationally Traded Services 1,903,995 3,210,863 11.0% 47.6% 56.5% 64.0 116.1 12.6% Software Development 700,988 861,581 4.2% 61.7% 68.8% 73.9 97.5 5.7% All Other Services 1,203,007 2,349,281 14.3% 42.0% 53.0% 59.4 124.8 16.0% 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 8.8bn in 2005, which equates to just over 35 percent of the sales figure of 25bn. Table 14 shows that total value added is estimated to have grown by five percent per annum in nominal terms over the period. Manufacturing sector continues to account for the majority of value added ( 5.6bn or 64 percent) in 2005; with an increase of 2.4 percent per annum in nominal terms between 2000 and 2005. Total value added in the internationally traded services sector increased by 11 percent 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 21.8 percent of sales in this sector. In other manufacturing sectors, value added equates to approximately 40 percent of total sales. Value added in internationally traded services sectors equates to over 56 percent of the value of sales. Across all Irish-owned manufacturing and internationally traded services sectors, value added as a percentage of sales has increased from 23 percent in 1990 to 35.4 percent in 2005. This trend suggests 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 internationally traded services is estimated at 72,900 in 2005, an increase of 8.7 percent per annum in nominal terms since 2000. Value added per person employed is higher in internationally traded services activities ( 116,100) compared to manufacturing activities ( 60,200). Annual Business Survey of Economic Impact 2005 17

15. Payroll Costs of Irish-owned Manufacturing and Internationally Traded Services, Total Payroll Payroll as % of Value Added Payroll Costs per Employee 2000 2005 Per Annum 2000-2005 2000 2005 2000 2005 Per Annum 2000-2005 k k % % % k % Total - All Sectors 4,001,651 4,698,161 3.3% 57.9% 53.2% 27.9 38.8 6.9% Manufacturing 2,983,816 3,345,337 2.3% 59.6% 59.5% 26.2 35.8 6.5% Food/Drink/Tobacco 1,226,118 1,366,094 2.2% 54.4% 55.6% 28.2 36.0 5.0% All Other Manufacturing 1,017,557 1,123,232 2.0% 62.8% 59.0% 24.9 35.8 7.5% All Engineering Sectors 740,142 856,011 3.0% 65.5% 67.7% 25.0 35.5 7.2% Internationally Traded Services 1,017,835 1,352,824 5.9% 53.5% 42.1% 34.2 48.9 7.4% Software Development 421,490 477,032 2.5% 60.1% 55.4% 44.4 54.0 4.0% All Other Services 596,345 875,792 8.0% 49.6% 37.3% 29.5 46.5 9.6% Table 15 shows that the total amount paid by Irish-owned manufacturing and internationally traded services on payroll costs (including taxes etc.) was approximately 4.7bn in 2005. Based on the survey data, total payroll costs have increased at a rate of 3.3 percent per annum in nominal terms over the period. Manufacturing firms account for 3.3bn 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 38,800 in 2005, representing an increase of 6.9 percent per annum over the period. The broad manufacturing sectors have rather uniform average payroll costs per employee, approximately 36,000 in each of the sectors, compared to the internationally traded services sector which has an average payroll cost per employee of 48,900 in 2005. The rate of increase in payroll costs per employee has been higher in internationally traded services sectors than in manufacturing sector, with 7.4 and 6.5 percent, respectively between 2000 and 2005. Annual Business Survey of Economic Impact 2005 18

16. Materials and Services Purchases of Irish-Owned Manufacturing and Internationally Traded Services, 2005 Materials Purchases 2005 Services Purchases 2005 Total Materials Irish Materials Irish as % Total Total Services Irish Services Irish as % Total k k % k k % Total - All Sectors 12,423,548 8,876,217 71.4% 3,726,932 3,234,588 86.8% Manufacturing 11,000,471 7,906,420 71.9% 2,675,624 2,334,218 87.2% Food/Drink/Tobacco 7,233,766 6,062,894 83.8% 1,600,360 1,410,742 88.2% All Other Manufacturing 2,258,861 1,272,361 56.3% 665,005 583,965 87.8% All Engineering Sectors 1,507,843 571,165 37.9% 410,259 339,512 82.8% Internationally Traded Services 1,423,077 969,798 68.1% 1,051,307 900,370 85.6% Software Development 140,327 76,890 54.8% 250,537 179,671 71.7% All Other Services 1,282,750 892,907 69.6% 800,771 720,699 90.0% Table 16 provides detailed information on the purchases made by Irish owned manufacturing and internationally traded services firms. Total raw materials purchases amounted to 12.5bn in 2005, of which 8.9bn (71.4 percent) was sourced in Ireland. Most of the raw materials purchases of indigenous firms relate to the food and drink sector, with 6bn spending on Irish raw materials in 2005. In addition to raw materials, Irish-owned manufacturing and internationally traded services firms spent a further 3.7bn on services in 2005 with the vast bulk of these (86.8 percent) sourced in Ireland. Annual Business Survey of Economic Impact 2005 19

17. Irish Sourced Materials as a Share of All Materials Purchases by Irish- Owned Manufacturing Industry, 1990-2005 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 17 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 percent over the period 1990-2005. The food and drink sector, which purchased around 84 percent of its materials requirements in Ireland in 2005, 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 percent in 1999 to around 37 percent in 2005. Annual Business Survey of Economic Impact 2005 20

18. Total Direct Expenditure in the Irish Economy by Irish-Owned Manufacturing and Internationally Trading Services, 1990-2005 m 18,000 Payroll Irish Materials Irish Services 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Figure 18 summarises the total expenditure in the domestic economy by Irish-owned manufacturing and internationally trading services firms throughout the period 1990-2005. In total, Irish-owned firms spent 16.8bn in the domestic economy in 2005, comprising 4.7bn on payroll costs, 8.9bn on Irish raw materials, and 3.2bn on Irish services. This direct expenditure has increased from 8.0bn in 1990, representing a nominal increase of 4.7 percent per annum over the period. The share of total direct expenditure accounted for by purchases of services has increased from 15.4 percent in 1990 to 19.2 percent in 2005, with payroll costs accounting for 28 percent of direct expenditure in 2005 compared to 22.7 percent in 1990. On the other hand, the share accounted for by materials purchases has decreased from 62.0 percent in 1990 to 52.8 percent in 2005. The proportion of direct expenditure accounted for by the internationally traded services companies increased from 3.8 percent in 1990 to 19.1 percent in 2005, reflecting the increased importance of internationally traded services sectors in the economy. Annual Business Survey of Economic Impact 2005 21

19. Total Direct Expenditure in the Irish Economy as a percentage of Sales in Irish Owned Manufacturing and Internationally Traded Services, 1990-2005 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 19 shows the trend in direct expenditure in the economy as a percentage of sales for all Irishowned firms and for the broad aggregated sectors. Total direct expenditure as a percentage of sales has remained fairly static and has moved within a range of 65 percent to 73 percent between 1990 and 2005. The food and drink sector has the highest share of direct expenditure as a percentage of sales and this share has picked up since the downturn in 2001. On the other hand, the broadly defined engineering sector has the lowest share and after an increase in the ratio between 2000 and 2003, it declined since then. The internationally traded services sector has shown a gradual increase in direct expenditure in the economy as a proportion of sales until 2001, however there is decline since then. Annual Business Survey of Economic Impact 2005 22

3. Foreign-Owned Manufacturing and Internationally Traded Services 20. Sales and Sales Growth in Foreign-Owned Manufacturing and Internationally Traded Services, 1990-2005 Total - All Sectors 70,286,941 74,325,116 78,293,676 78,878,182 80,276,063 84,164,885 4.8% 11.4% 21.1% 3.7% Manufacturing 52,037,380 54,467,824 58,140,291 56,284,761 56,658,694 58,951,935 4.0% 9.6% 17.4% 2.5% Food/Drink/Tobacco 3,953,345 4,101,662 4,242,538 5,890,011 5,199,483 5,494,682 5.7% 4.9% 6.6% 6.8% Chemicals/Pharmaceuticals 16,566,941 18,070,424 24,526,004 21,758,336 23,041,308 22,509,064-2.3% 19.6% 22.4% 6.3% Electrical & Electronic Equipment 23,067,003 22,711,918 19,887,434 18,666,795 18,296,349 20,744,265 13.4% 10.1% 20.7% -2.1% Medical Devices/Instruments 3,421,214 4,485,316 4,786,617 5,432,164 5,715,186 5,961,064 4.3% 12.1% 19.0% 11.7% All Other Manufacturing 5,028,878 5,098,504 4,697,698 4,537,455 4,406,369 4,242,860-3.7% 2.9% 9.7% -3.3% Internationally Traded Services 18,249,560 19,857,292 20,153,385 22,593,421 23,617,369 25,212,950 6.8% 26.7% 39.5% 6.7% Software Development 12,347,701 13,562,271 14,055,709 15,585,940 16,940,503 17,778,709 4.9% 45.9% 29.8% 7.6% All Other Services 5,901,859 6,295,021 6,097,676 7,007,481 6,676,866 7,434,241 11.3% 7.0% 60.7% 4.7% Total sales of agency assisted foreign-owned manufacturing and internationally trading services companies grew by 4.8 percent in nominal terms and amounted to 84.1bn in 2005. Manufacturing sectors accounted for 58.9bn of this total, which equates to 70 percent of all sales in foreignowned companies. Foreign-owned manufacturing and international services base experienced double digit sales growth during the 1990s, particularly in the second half of the decade when the overall rate of increase amounted to 21.1 percent 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 2000-2005 (3.7 percent per annum in nominal terms) is caused by some sectors witnessing a decrease (the electronics sector in particular) and this is being compensated for by increasing sales levels in some other sectors chemicals/pharmaceuticals (up 6.3 percent per annum between ) and the medical devices/instruments sector which grew at a rate of 11.7 percent 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. Annual Business Survey of Economic Impact 2005 23

21. Composition of Foreign-Owned Manufacturing and Internationally Traded Services, 1990-2005 Sales Employment 1990 1995 2000 2005 1990 1995 2000 2005 % % % % % % % % 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% 70.0% 92.0% 88.9% 76.5% 73.4% Food/Drink/Tobacco 20.9% 14.7% 5.6% 6.5% 13.9% 11.5% 7.2% 6.9% Chemicals/Pharmaceuticals 17.7% 22.6% 23.6% 26.7% 11.7% 14.1% 13.6% 15.4% Electrical & Electronic Equipment 25.7% 30.9% 32.8% 24.6% 18.4% 22.8% 26.7% 20.7% Medical Devices/Instruments 4.8% 4.4% 4.9% 7.1% 7.4% 8.4% 10.0% 15.7% All Other Manufacturing 22.1% 14.1% 7.2% 5.0% 40.6% 32.2% 19.0% 14.8% Internationally Traded Services 8.8% 13.4% 26.0% 29.4% 8.0% 11.1% 23.5% 26.6% Software Development 3.5% 10.1% 17.6% 21.1% 2.9% 4.8% 9.3% 10.1% All Other Services 5.4% 3.3% 8.4% 8.3% 5.2% 6.3% 14.2% 16.5% Table 21 traces the evolution of the foreign-owned manufacturing and internationally traded services base over the period 1990-2005. In terms of sales, the relative importance of manufacturing activity has decreased, from accounting for 91.2 percent of all sales in 1990 to 70 percent in 2005. The balance is contributed by the international services sector which now accounts for 29.4 percent 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 accounting for 26.7 percent 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 2005, 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 26.7 percent of the reported sales but only 15.4 percent of the employment in foreign-owned companies in Ireland. By contrast, the all other services area (which includes activities such as shared services) accounts for 16.5 percent of employment but generates less than 10 percent of the sales of foreign-owned industry in Ireland. This pattern is also reflected in the Medical Devices/Instruments sector where 15.7 percent of employment generated 7 percent of sales. Annual Business Survey of Economic Impact 2005 24

22. Exports and Exports Growth in Foreign-Owned Manufacturing and Internationally Traded Services, 1990-2005 Total - All Sectors 63,162,769 68,481,820 72,466,585 73,443,349 74,871,940 79,192,967 5.8% 11.5% 21.8% 4.6% Manufacturing 46,691,677 50,053,280 53,854,363 52,188,155 52,737,293 55,340,397 4.9% 9.5% 17.8% 3.5% Food/Drink/Tobacco 2,629,031 2,891,731 2,814,384 4,538,915 4,038,605 4,356,077 7.9% 3.1% 6.1% 10.6% Chemicals/Pharmaceuticals 15,902,845 17,576,183 24,155,979 21,300,970 22,520,026 22,061,976-2.0% 20.1% 22.9% 6.8% Electrical & Electronic Equipment 21,186,954 21,215,973 18,467,735 17,611,277 17,331,932 19,934,926 15.0% 8.8% 20.5% -1.2% Medical Devices/Instruments 2,987,601 4,276,248 4,655,516 5,214,115 5,486,185 5,727,382 4.4% 11.8% 18.5% 13.9% All Other Manufacturing 3,985,246 4,093,145 3,760,749 3,522,878 3,360,545 3,260,037-3.0% 2.5% 7.4% -3.9% Internationally Traded Services 16,471,092 18,428,540 18,612,223 21,255,194 22,134,647 23,852,570 7.8% 27.8% 41.0% 7.7% Software Development 11,684,303 13,179,136 13,566,738 15,111,309 16,314,712 17,302,139 6.1% 48.4% 30.1% 8.2% All Other Services 4,786,789 5,249,404 5,045,485 6,143,885 5,819,935 6,550,431 12.6% 6.7% 68.9% 6.5% Table 22 provides information relating to exports by foreign-owned companies in Ireland. The exports of foreign-owned companies in Ireland at 79bn equate to 94 percent of the reported sales by these firms. Manufacturing sectors accounted for 69 percent of all exports in foreign-owned companies in Ireland in 2005. The growth in manufacturing exports by foreign companies has been largely driven by the food/drink, chemicals and medical devices industries during the period. Exports accounted for 94.1 percent of total sales in foreign-owned manufacturing companies in 2005 with companies in the internationally traded services exporting 94.6 percent of their total sales. Annual Business Survey of Economic Impact 2005 25

23. Value Added of Foreign-Owned Manufacturing and Internationally Traded Services, 2000-2005 Total Value Added Value Added as % Sales Value Added Per Person Employed 2000 2005 2000 2005 2000 2005 k k % % % k k % Total - All Sectors 32,403,805 39,872,879 4.2% 46.1% 47.4% 197.0 283.4 7.5% Manufacturing 24,571,904 27,860,094 2.5% 47.2% 47.3% 195.4 269.6 6.7% Food/Drink/Tobacco 1,657,451 2,120,721 5.1% 41.9% 38.6% 140.5 219.5 9.3% Chemicals/Pharmaceuticals 10,838,634 13,514,766 4.5% 65.4% 60.0% 484.4 623.8 5.2% Electrical & Electronic Equipment 8,377,681 7,485,406-2.2% 36.3% 36.1% 191.2 257.0 6.1% Medical Devices/Instruments 1,896,558 2,919,146 9.0% 55.4% 49.0% 115.0 132.1 2.8% All Other Manufacturing 1,801,581 1,820,054 0.2% 35.8% 42.9% 57.6 87.6 8.7% Internationally Traded Services 7,831,902 12,012,785 8.9% 42.9% 47.6% 202.5 321.5 9.7% Software Development 5,381,866 8,217,026 8.8% 43.6% 46.2% 350.9 578.3 10.5% All Other Services 2,450,035 3,795,759 9.2% 41.5% 51.1% 105.0 163.9 9.3% 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 are 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 39.8bn in 2005, which equates to 47.4 percent of the gross output/sales. Although total value added grew at a rate of 4.2 percent per annum in nominal terms over the period, the aggregate figures mask important sectoral patterns. The strong growth in chemicals and medical devices for example is partially offset by the decline in the electronics sector. Based on this survey, value added per person employed was 283,400 in 2005, which represents a nominal increase of 7.5 percent per annum since 2000. Value added per person employed is higher in international services ( 321,500 in 2005) compared to manufacturing ( 269,600 in 2005) 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 2005 26

24. Payroll Costs of Foreign-Owned Manufacturing and Internationally Traded Services, Total Payroll Costs Payroll as % of Value Added Payroll Costs per Employee 2000 2005 2000 2005 2000 2005 k k % % % % Total - All Sectors 5,772,355 6,572,517 2.6% 17.8% 16.5% 35.1 46.7 5.9% Manufacturing 4,321,779 4,735,845 1.8% 17.6% 17.0% 34.4 45.8 5.9% Food/Drink/Tobacco 426,386 484,256 2.6% 25.7% 22.8% 36.1 50.1 6.8% Chemicals/Pharmaceuticals 878,684 1,177,252 6.0% 8.1% 8.7% 39.3 54.3 6.7% Electrical & Electronic Equipment 1,570,603 1,343,961-3.1% 18.7% 18.0% 35.8 46.1 5.2% Medical Devices/Instruments 467,951 834,707 12.3% 24.7% 28.6% 28.4 37.8 5.9% All Other Manufacturing 978,154 895,668-1.7% 54.3% 49.2% 31.3 43.1 6.6% Internationally Traded Services 1,450,576 1,836,672 4.8% 18.5% 15.3% 37.5 49.2 5.6% Software Development 690,261 823,747 3.6% 12.8% 10.0% 45.0 58.0 5.2% All Other Services 760,315 1,012,925 5.9% 31.0% 26.7% 32.6 43.7 6.1% Table 24 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 6.5bn in 2005 with manufacturing accounting for 4.7bn and services contributing the remaining balance of 1.8bn. While payroll costs account for around 50 percent of value added in indigenous industry, they account for 16.5 percent of the reported value added of foreign manufacturing and international services. Total payroll costs per person employed averaged 46,700 in 2005, representing an increase of 5.9 percent per annum in nominal terms over the period. Payroll costs per employee are higher in international services compared to the manufacturing sector; averaging 49,200 and 45,800 respectively in 2005. The chemicals/pharmaceuticals sector has higher average payroll costs per capita 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 (C6) 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 percent per annum from ; 5 percent per annum from ; and 5.9 per annum since 2000. Annual Business Survey of Economic Impact 2005 27

25. Materials and Services Purchases of Foreign-Owned Manufacturing and Internationally Traded Services, 2005 Materials Purchases 2005 Services Purchases 2005 Total Materials Irish Materials Irish as % Total Total Services Irish Services Irish as % Total k k % k k % Total - All Sectors 24,263,060 4,336,800 17.9% 20,028,946 6,441,718 32.2% Manufacturing 20,748,675 3,123,002 15.1% 10,343,166 3,728,986 36.1% Food/Drink/Tobacco 1,292,278 727,078 56.3% 2,081,683 526,915 25.3% Chemicals/Pharmaceuticals 4,936,859 805,945 16.3% 4,057,439 1,523,406 37.5% Electrical & Electronic Equipment 10,527,360 762,000 7.2% 2,731,499 834,479 30.6% Medical Devices/Instruments 2,257,143 289,951 12.8% 784,775 375,782 47.9% All Other Manufacturing 1,735,036 538,029 31.0% 687,771 468,403 68.1% Internationally Traded Services 3,514,385 1,213,798 34.5% 9,685,780 2,712,732 28.0% Software Development 1,698,644 971,319 57.2% 7,863,040 1,383,959 17.6% All Other Services 1,815,741 242,479 13.4% 1,822,740 1,328,773 72.9% Table 25 provides an overview of the value of purchases made by foreign-owned manufacturing and services companies in 2005 in addition to the share of these purchases made in Ireland. In overall terms, foreign-owned industry spent 24.2bn on raw materials, of which 4.3bn or 17.9 percent relates to materials produced in Ireland (either by indigenous suppliers or other foreign-owned multinationals in the country). In addition to its raw materials requirements, foreign-owned companies spent a further 20bn on services purchases with 6.4bn or 32.2 percent of these being sourced in Ireland. Annual Business Survey of Economic Impact 2005 28

26. Irish Sourced Materials as a Share of All Materials Purchases by Foreign-Owned Manufacturing Industry, 1990-2005 80.0% 70.0% IEE Series 1990-1999 ABSEI 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) Food/Drink/Tobacco Chemicals/Pharmaceuticals Electrical & Electronic Equipment Medical Devices/Instruments All Other Manufacturing Figure 26 depicts trends in the share of materials purchases sourced in Ireland. The average for all foreign-owned manufacturing and international services has decreased from around 30 percent in 1990 to around 18 percent in 2005. Food and drink sector has continued to source the majority of its materials requirements in Ireland. While the percentage of materials sourced in Ireland in this sector decreased from around 66 percent in 1990 to approximately 56 percent in 2005, 2005 saw an increase in the purchase of Irish materials of 4 percent in 2005. The chemicals/pharmaceuticals sector is one of the largest sectors in absolute terms with purchases of over 805m in 2005 representing a 4.8 percent increase on last years figures. The electronics sector was the largest purchaser of materials in Ireland in absolute terms in 2000 accounting for 17 percent of their overall materials but this percentage has dropped to 7 percent in 2005. Annual Business Survey of Economic Impact 2005 29