In the National Competitiveness Council’s December 2018 report, the NCC has singled out a worrying trend regarding the productivity of Irish businesses. While Ireland ranks well in overall productivity and competitiveness on an international level, the overall figures obscure a more precarious reality. Domestic Irish businesses are largely underperforming compared to international competitors, with just a few highly successful “frontier firms” propping up productivity figures for the entire country.
This places the Irish economy in a vulnerable position and shows that Irish businesses need better tools to drive innovation and to improve their productivity going forward. Specifically, businesses need access to financing that will enable them to grow, and to strategically improve their competitiveness going forward, allowing them to attract the investment they need to drive further development.
Rising costs are holding back Irish businesses
As Ireland’s relatively few highly successful businesses show, business competitiveness isn’t being held back by the country’s regulations. Rather, the NCC cites rising housing, transport, and energy costs as the most significant culprits behind Ireland’s productivity problems. The latter two of these directly impact the operating costs that businesses face while rising housing costs are making Ireland less attractive to foreign investors and skilled immigrants. This means businesses not only have less money to work with, but they also need to spend more to attract the talent they need.
Ireland’s decades-old policy of pursuing foreign direct investment as a driver of its economic growth has been successful in the past, but an overreliance on this has also made the country vulnerable. Ireland’s most productive businesses make excellent partners for foreign investors, but this simply doesn’t work for most other Irish businesses, particularly those who have already fallen behind. In order to draw investment, they first need to boost productivity. Rising energy costs, however, leave them with less disposable income to reinvest in their own development.
Increasing productivity is about innovation
Businesses can’t simply choose to become more productive. Rather, they need to innovate strategies to cut costs, increase efficiency, and improve their products all at the same time. This not only allows them to compete more effectively at home and abroad, but it also helps them to attract investors to fund further improvements going forward. The catch, of course, is that businesses can’t begin this cycle of innovation, self-improvement, growth, and investment, without an initial source of funding.
Less productive businesses also naturally generate less profit than more efficient competitors, further limiting the amount of investment they can put back into their own development. To address this problem, these businesses need access to financing. Because of their existing financial situations, many of these businesses won’t be able to qualify for a traditional loan. Fortunately, alternative finance has stepped up to provide the solutions businesses need.
Using alternative finance to drive innovation
Unlike traditional loans, alternative finance solutions are best suited to pursuing short term growth and development opportunities. Within a limited time frame, it allows even businesses without other financing means to make significant investments in itself, which makes it ideal for kicking off a self-sustaining cycle of growth and innovation. This is best done through a combination of invoice financing and supply chain finance, supplemented as necessary by an unsecured business loan.
Invoice finance and supply chain finance work together to allow a business to temporarily consolidate its working capital. Specifically, it works by giving a business an advance on its future revenues through invoice finance, while simultaneously freeing up existing working capital by using an investor-furnished credit fund to pay suppliers. Payments on the balance of this fund can then be deferred for a time, creating a window of several months during which a business can put those funds to other uses, such as driving innovation.
To come up with additional funds, unsecured business loans are an excellent option. These allow businesses to borrow funds without the need for security, which greatly expedites the application process.
Unlike traditional loans, all of these financing tools allow businesses to get access to the funds they need within a matter of days. This makes them perfect for taking advantage of time-sensitive growth opportunities. By strategically taking advantage of these financing options, businesses can invest in their businesses to improve their productivity, to improve their competitiveness, and to attract investors to help them further drive growth.