Published in 2019 covering the period 2020 to 2025, the government’s last industrial strategy paper left little doubt as to the future vision for the Irish manufacturing sector. Carrying the title ‘Industry 4.0 Strategy’, the document is an ode to the merits of industrial digitisation, setting out a vision “that by 2025 Ireland will be a competitive, innovation-driven manufacturing hub at the frontier of the fourth industrial revolution.”
As we approach the end of the period covered by that document, it’s fair to say that its mission has been accomplished. Despite the ravages of a global pandemic, soaring inflation and significant supply chain disruptions triggered by widespread geopolitical instability, Ireland’s already robust manufacturing sector has emerged in even stronger shape than it was five years ago.
Near-continuous manufacturing growth throughout that period has been achieved thanks in no small part to Ireland’s high-tech, high-skill economy. As the government anticipated back in 2019, Ireland’s status as a global tech hub with a stellar cast of multinational software and ICT companies locating to its shores has given its manufacturers a helping hand in embracing digitisation ahead of global competitors.
Still, digital transformation does not happen automatically. Innovation and change require resources to invest and a readiness to take on and manage risk in order to be successful. Through a period of such major economic volatility, it can be argued that the resilience of manufacturing in Ireland is in no small part down to smart and prudent financial management.
The goal of transitioning to a digitised ‘industry 4.0’ model may be all but complete. But with technological evolution continuing apace and no signs of global economic volatility slowing down, the question now is what the manufacturing sector has to do to continue its upward path. Here are three areas of potential challenge, and how the right approach to financial management can continue to support success.
Funding innovation
One of the biggest challenges of digital transformation is keeping it going. There’s no ‘end’ to technological evolution, so once you start on the digitisation journey, you are committing to a continuous cycle of improvement and innovation. Many manufacturers might have ticked off introducing networked IoT systems and advanced ERP planning platforms to drive process efficiencies. But now AI in all its various guises is waiting in the wings to take data-led planning and automation to new levels.
This creates a demand for continuous investment in innovation. According to Ibec, 29% of Irish manufacturing businesses expect to increase investment in R&D going forward. That’s another cost pressure in a high-cost market. How you fund innovation, with the risks it carries, needs careful consideration at the heart of financial strategy, including how to take full advantage of support measures such as the R&D tax credits regime.
Operating in global markets
The economic strength of Ireland’s manufacturing industry is built on exports. As per Ibec again, in the decade to 2022, export sales from Irish-owned manufacturing businesses surged by 76%, while overseas firms manufacturing in Ireland saw a 66% increase in exports. In 2022, Ireland exported a record €208 billion in goods.
Exporting brings its own unique financial challenges, from fluctuations in exchange rates to accessing trade finance to navigating different tax regimes. Going forward, multinational operators face tighter compliance regimes in how they manage tax efficiencies across markets with the introduction of Pillar Two anti-base erosion measures across the OECD.
Compliance
Finally, compliance in general is a major consideration for Irish manufacturers. Around two thirds of all manufacturing output comes from the food, chemical and pharmaceutical sectors. These are all highly regulated industries with demanding compliance burdens that create additional resource pressures.
Looking forward, there will be opportunities to leverage emerging technologies like AI to make compliance and governance regimes more efficient and cost-effective, helping to protect manufacturers from penalties and sanctions while also protecting operating margins.At Xeinadin, we have a dedicated team of manufacturing specialists who offer decades of industry knowledge and experience to go with our usual tailored, client-specific approach to financial management.
Speak to an expert
To talk more about securing the future success of your business, get in touch with us today.
