CEOs are less confident than last year, but recognise that the fundamentals of Ireland’s economy remain strong

Irish CEOs believe that the fundamentals of Ireland’s business environment remain strong, despite less favourable views on the outlook for our economy compared to previous years. This is according to PricewaterhouseCoopers’ latest CEO Pulse Survey. The survey provides a snapshot of the views of over 170 business leaders on Ireland’s economic and operating environment. Headline findings in the survey include:

• The mood of Ireland’s CEOs is less bullish compared to last year with less than a fifth (14%) of survey respondents indicating they are favourable about the outlook for Ireland’s economy in the next 12 months, albeit they continue to strongly drive forward their businesses:
• The majority of Irish CEOs felt that revenues (71%), profits (60%) and capital investment (54%) will continue to grow;
• 88% reported satisfaction with Ireland’s corporate tax regime;
• The majority of CEOs were satisfied with the availability and quality of labour but three quarters (77%) were unhappy with labour costs;
• Ireland continues to compete well in the Foreign Direct Investment (FDI) space with the majority (71%) of MNC CEOs indicating that Ireland remains capable of attracting certain specific types of investment;
• Three quarters of Irish business leaders are unhappy with the general cost of doing business in Ireland with transport infrastructure causing particular dissatisfaction, and
• Only 6% of CEOs believe that the business community is sufficiently well informed about the proposed Common Consolidated Corporate Tax Base (CCCTB).

Launching the Report, Tánaiste and Minister for Enterprise, Trade & Employment, Mary Coughlan said:

“Solid, pro enterprise policies have been a benchmark of our enterprise strategy. I am pleased to see that this report highlights Irish CEOs’ continuing confidence in our business growth fundamentals, our corporate tax regime and our ability to continue to attract FDI. The Government has made firm commitments to facilitate our pro-enterprise environment by investing in entrepreneurship, R&D and infrastructure and by improving the business environment and widening and deepening the skills of our people.

This Survey provides us with the views of Irish CEOs on a range of key business issues and helps to bring greater insight to the complex policy issues that lie behind today’s enterprise and competitiveness challenges.”

Speaking at the launch, Ronan Murphy, Senior Partner, PwC said:

“While the survey reveals a less robust outlook for Ireland’s economy than in previous years, it also highlights CEOs’ continuing confidence in our business growth fundamentals, our corporate tax regime and our ability to continue to attract foreign direct investment.

This solid foundation, combined with a renewed focus by CEOs on competitiveness and cost control, will ensure that Ireland remains an attractive location in which to invest and to conduct business.”

Ann O’Connell, Partner, Strategy Advisory Services added:

“In addition to controlling costs, a fresh focus on the strategic development of new markets will help drive sustainable business growth success. The majority of survey respondents are indicating they are likely to enter new product areas while exploiting opportunities to expand abroad also features high on their agendas.”

Upbeat mood on investment in Ireland

The survey reveals that the growth and investment fundamentals for Ireland’s economy remain strong. For example, the majority of Ireland’s business leaders expect revenue (71%) and profit growth (60%) to continue. An overwhelming majority (88%) expressed satisfaction with Ireland’s corporate tax regime.

The survey also finds continued positive sentiments for future investment. Nearly three quarters (74%) of Irish indigenous CEOs reported that Ireland will form part of their future expansion plans. Sentiments for future FDI investment are also strong with the majority (71%) of MNC CEOs believing that Ireland is well placed to attract certain forms of this investment going forward. An overwhelming number (93%) of MNC CEOs agreed that the incentives offered by the Irish Government for the attraction of FDI compare favourably with those of most developed economies.

Proposed Common Consolidated Corporate Tax Base (CCCTB)

Our special topic this year relates to the CCCTB.

The stated objective of the Common Consolidated Corporate Tax Base (CCCTB) proposal is to reduce cross border tax obstacles and tax compliance costs. The survey revealed that only 6% of CEOs believe that the business community is sufficiently well informed about the CCCTB proposals. Two thirds of CEOs (66%) are unsure about the potential impact of the CCCTB on their own business.

This is an issue which PwC believes will move increasingly onto the agendas of CEOs and policy makers alike.

Colm Kelly, Senior Tax Partner, PwC commented:

“This is a serious concern, given that the CCCTB proposals have the potential to have a very serious and negative impact on the tax strategies of businesses with operations both in Ireland and elsewhere in the EU. Business needs to understand how the CCCTB proposals might impact on their position, and to participate in the debate as to the merits or otherwise of the proposals on that basis.”

On a related note, survey findings concerning the Total Tax Contribution (TTC) included:

• Only 11% of businesses take all business taxes into account when calculating their effective tax rate, and only half of CEOs believe that there is an awareness at senior management level of what is the full quantum of business taxes actually paid;
• At the same time, 81% of CEOs believe there is insufficient understanding by stakeholders of the Total Tax Contribution (TTC) of their business.

Colm Kelly concluded:

“There is clearly a big opportunity for business to better understand what is their Total Tax Contribution, and to better communicate this to stakeholders.”

ENDS

Notes to the Editor:

Other key findings in the PwC 2008 CEO Pulse survey included:

Inward and outward investment

• 74% of CEOs of Irish headquartered companies stated that Ireland forms part of their future expansion plans. In addition, 81% of these CEOs indicated that they are not considering relocating Irish activities overseas;
• Similar to last year, just under two-thirds of CEOs of multinational companies indicated that additional Irish investment is being considered and approximately three quarters believe that Ireland is still well placed to attract certain investment going forward;
• An overriding majority of MNC CEOs (93%) agreed that investment incentives offered by the Irish Government compare favourable with those of most developed economies, and
• Two-thirds of MNC CEOs are of the opinion that tax is an important influencing factor in the decision to continue to operate in Ireland, with over half of those describing it as “very important.”.

Liam Diamond, Tax Partner, Inward Investment Leader noted:

“Ireland has benefited from the policies of successive forward-thinking Governments since the 1950s. These have attracted inward investment by creating an outward looking pro-business economy. Ireland continually updates its tax regime to maintain pace with changes in the global economy and emerging business models. It is this agility which will continue to be a critical factor in our success as an attractive investment location.”

Performance improvement on top of Ireland’s corporate agenda

With a renewed focus on competitiveness and cost control, our survey indicates that Irish business is well placed to exploit the opportunities presented by a more challenging operating environment. For example, the majority of survey participants reported using important performance metrics such as regular cost appraisals, outsourcing and talent management measurements. Irish CEOs indicated that:

• 64% will enter new product markets;
• 68% intend to or have already looked at outsourcing;
• 69% conduct ‘root and branch’ cost appraisals annually;
• 86% use ‘Key Performance Indicators’ to drive performance, and
• 91% use candid performance feedback to develop talent.

When looking at growth opportunities in new markets, Irish indigenous CEOs favoured markets closer to home such as the UK (22%) and the EU (18%) - Poland being a strong contender. MNC CEOs, however, showed a greater appetite to invest in Asia (China and India being favourites).

It is interesting to note that Irish companies (57%) lag behind their multi-national counterparts (78%) in terms of willingness to outsource. It is likely that more Irish companies will consider outsourcing in the future in response to cost containment pressures.

Ciaran Kelly, Partner, Advisory, Performance Improvement, commented:

“Given that we are enduring more challenging economic conditions, it is now prudent for CEOs to rigorously review their cost base. Approaching any cost reduction programme is not without risk. However, careful examination of cost drivers and cost reduction strategies is vital. By applying this methodology, CEOs can help sustain and build corporate value.”

Developing Talent

Less than one fifth (18%) of CEOs reported only using all four recommended development techniques for cultivating talent, when a multiple-track solution is advisable. Only half of survey respondents use formal mentoring – representing a missed opportunity for developing key talent, particularly in the technology/ICT sector, where only a third used this approach. The survey reveals the following combination of talent development techniques used:

• 18% use one technique;
• 29% use two techniques;
• 30% use three techniques; and
• 23% use four techniques.

The increasingly recognised link between high levels of employee commitment and bottom-line results means business leaders are exploring engagement metrics. Companies now have the tools to establish how satisfied their workforce is, and once established, they can increase employee engagement and boost performance.

Ciara Fallon, Associate Director, Strategy Advisory Services commented:

“A talent management strategy should reflect the needs of the business and its environment – only then will the talent portfolio be aligned with customer needs, shareholder interests and market strategy. It is considered good practice to have a mix of techniques in the organisation’s talent development repertoire. There is no doubt that an organisation’s success will benefit greatly by the effective management of key talent.”

About the survey

To obtain copies of the survey report please call Johanna Dehaene on 01 792 6547 or email: johanna.dehaene@ie.pwc.com

173 Irish CEOs participated in the 2008 PwC CEO Pulse Survey. It was carried out amongst Ireland’s top 800 CEOs in February/March 2008. Participants were asked their views on Ireland’s business operating environment in four key areas:

• Business confidence
• Inward and outward investment plans
• Preparing for the future: growing the business; controlling the cost base and improving efficiency; developing talent
• CCCTB and Total tax contribution

Key survey data:

Business confidence

Outlook for the Irish economy (% – all CEOs)

Anticipated growth of Irish operations

The credit crunch

Satisfaction with the Irish business environment

Inward and outward investment plans
Irish headquartered companies (% respondents who disagree)

Countries in which Irish headquartered companies are likely to invest in, if Ireland not to feature strongly in their investment plans:

FDI

Subsidiaries with multi-national corporations (MNCs)

Countries in which MNCs are most likely to invest in, if Ireland is not to feature strongly in investment plans

Tax - FDI

• 93% of Irish MNC CEOs agreed that the incentives offered by the Irish Government for the attraction of FDI investment compare favourably with those of most developed countries (2007: 88%)
• 66% of Irish MNC CEOs said that tax is an important influencing factor in the decision to continue to operate in Ireland, with over half of those describing it as ‘very important’.
• 36% of Irish MNC CEOs said that the tax ‘holding company regime’ and/or the availability of Research & Development tax credits helped to promote Ireland as a place for business within the group

Preparing for the future

CCCTB/Total Tax Contribution

• Only 6% of Irish CEOs believe that the business community is sufficiently well informed about the CCCTB proposals;
• Two thirds of respondents are unsure about the potential impact of CCCTB on their own business;
• Only 11% of businesses take all business taxes into account when calculating their effective tax rate;
• 53% of Irish CEOs believe that there is an awareness at senior management level of what is the full quantum of business taxes actually paid; and
• 81% of CEOs believe that there is insufficient understanding by stakeholders of the Total Tax Contribution (TTC) of their business.

Tax Strategy – Does the company have a tax strategy:

PricewaterhouseCoopers is proud to have achieved the following:

• First place in the ‘Best Companies to Work for’ in Ireland 2008;
• One of the Top 10 Best Workplaces in Europe 2008; and
• Won the gradireland ‘Most Popular Graduate Recruiter’ 2008;

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