The Irish Economy
72 percent of Irish CEOs are optimistic about domestic growth prospects - up from 56 percent in 2020
The Global Economy
60 percent of global CEOs are confident about global growth over the next three years — up from 32 percent in 2020
Irish CEOs top three risk concerns are cyber security, disruptive technology and supply chain risk
The 2021 KPMG CEO Outlook shows that CEOs in the Republic of Ireland and Northern Ireland have become more optimistic about the future performance of their local economies, a significant change since the start of the year.
Confidence levels are now at or near pre - pandemic levels with over seven in ten (72 percent) of CEOs surveyed in the Republic of Ireland optimistic about domestic growth prospects compared to just over half (56 percent) in 2020. A similar number in Northern Ireland (72 percent) show the same enthusiasm – up from 44 percent in 2020 not quite at pre-pandemic levels but a very significant improvement.
According to Emer McGrath, Co-Head of Markets with KPMG in Ireland, “The pandemic has been a continuous test of leadership for CEOs: from helping protect the health and well-being of their employees, to making big decisions amid uncertainty, and adapting their leadership approach in a virtual environment - it has been a long and difficult road.”
It is testament to the resilience and underlying strength of the Irish economy that confidence levels have returned. “CEOs are facing new challenges as their organisations manage the ongoing impact of the pandemic. They’re balancing the potential to drive growth and transform their business with uncertainty around the potential of an uneven global recovery and the impacts of new virus variants and vaccine inequality.”
From an business perspective, McGrath says the Republic is in a relatively good place “Our sectoral success lies in areas of strong global demand – pharma, tech and healthcare for example are all in robust shape given the appetite for what Ireland has to offer.
However, McGrath also notes the challenges faced by hardest hit sectors. “There is no doubt that travel and tourism and other parts of the services sector will take longer to recover and a return to international travel for example will be essential for the future viability of many businesses in these sectors.”
The NI perspective
Meanwhile in Northern Ireland, Johnny Hanna, Partner in Charge with KPMG in Belfast says, “Northern Ireland is relatively well positioned to return to more normal patterns of business activity. Our CEOs are actively looking at growth strategies to help them get ahead of the competition while being acutely aware of that they also need to deliver on issues such as the future of work and cyber security. A big differentiator now is that businesses established here have an unfettered ability to sell into both the EU and UK markets and that’s a unique benefit. However, there is a need as a matter of priority to find workable, pragmatic solutions to the challenges being experienced in particular by those importing goods from Britain.”
Underpinning the positive outlook, Hanna references KPMG's own commitment to Belfast as evidenced by the significant investment by the firm earlier in the year with 200 new jobs created via the establishment of a Centre of Excellence based at the firm's Belfast offices. “CEO focus in major growth areas including cyber security, AI and digital transformation and significant client demand and market opportunities for digital consulting services made Belfast a relatively easy decision.”
Capital & strategy
In terms of growth strategies, 69 percent of CEOs worldwide (84 percent in the Republic of Ireland and 68 percent in Northern Ireland) have identified inorganic methods such as joint ventures, M&A, and strategic alliances as their main post-pandemic growth strategy and just under half (44 percent) of CEOs in both the Republic and Northern Ireland have said that they are likely to undertake a major acquisition, which will have a significant impact to their organisation in the next 3 years (50 percent worldwide).
Commenting on the data, Mark Collins, Head of Deal Advisory at KPMG in Ireland says, “Significant levels of available capital, together with inorganic led growth strategies, are fueling a tremendous wave of M&A in Ireland at this time. Strategic and trade concerns are competing for assets to shape, progress and accelerate their strategic objectives – particularly in the post pandemic environment where decisive and bold investment actions will be rewarded.”
As CEOs look to drive growth, they also face the significant task of leading companies in a time of great uncertainty, where assumptions and forecasts are subject to constant change.
With uncertainty about the post pandemic world, it is not surprising that no single risk emerged on top either globally, in the Republic of Ireland or Northern Ireland. Worldwide there is a three-way tie for threats to growth: supply chain, cyber security, and climate change. They were closely followed by disruptive technology, regulatory and operational risk. In the Republic, cyber security, emerging/disruptive technology, and supply chain issues were listed as the top three risks to growth. In Northern Ireland, the risks posed by cyber security was the most cited followed by operational issues and then a bunching of concerns tied for third place such as interest rates, reputation, and emerging/disruptive technology.
Cyber & preparation
For Dani Michaux, KPMG’s EMA Cyber Leader Head and Head of Cyber Security in Ireland, cyber has remained a massive threat to organisational health throughout the pandemic and she is not surprised that it remains a constant feature at the top of CEO concerns. “Some organisations have yet to realise that the landscape is shifting and the need to ensure that their cyber technology is working to the best of its ability. For example, in many cases they are deploying cloud services without exploiting their full security characteristics. They are probably a little behind in thinking due to the pace of change and they need to catch up.”
Michaux believes that businesses need to ask themselves if they are equipping their people with the skills and knowledge to use the technology and to be cyber aware. “Many businesses are not doing enough simulated events to train people. They need to run more simulations and to focus on resilience. The answer is preparation. Take the finance function, for example. How can it do the payroll if the finance system isn’t running? What are they doing to become more resilient in that situation? Some organisations are complacent. Some are well prepared, and others have maybe not done a deep dive into the different scenarios. The more complicated the scenario the less prepared you are. If the event lasts two days, you might be prepared. If it’s six weeks, you are probably not prepared.”
The challenge pre-pandemic is that the critical role supply chains play in our everyday lives has been underestimated. Thus it’s no surprise that supply chain matters have seen a marked rise in importance amongst many of our CEO respondents.
Supply chain has always been the lifeblood of so many organisations in the delivery of services and products to end customers. 56 percent of global CEOs (56 percent in Republic of Ireland and 64 percent in Northern Ireland) say that their business’ supply chain has had increased stress during the pandemic.
According to KPMG partner and supply chain specialist Owen Lewis, “What the pandemic has done is seismically shifted many of the long-running demand levels that have hidden the true complexity of supply chains, and at the same time disrupted many of its core building blocks. Raw material shortages, factories closing down, driver shortages and many other systemic issues have justifiably elevated supply chain to the forefront of the CEO agenda.”
Ireland is impacted in similar ways to most other countries given the globalisation of industry and reliance on major manufacturing countries dominated by China. Owen Lewis says that the supply chain relationship with the UK has obviously been adversely impacted post-Brexit “with many challenges emerging and smaller organisations re-evaluating cross-border trading due to increased costs and administrative burdens”. In the context of the impact of COVID he says, “As the mass vaccination programmes help us shift from a crisis locally, we are still impacted globally, the extent of which we are yet to fully understand.”
Meanwhile, from a Northern Ireland perspective, KPMG’s Belfast-based tax partner Frankie Devlin says, “One of the impacts of Brexit for business in Northern Ireland has been a renewed focus on understanding all the components of the supply chain and identifying risks or costs that may not have previously been so obvious and this remains highly relevant.”
Supply chain transparency
In considering whether supply chain risks can be mitigated by CEOs, Owen Lewis says that supply chain transparency and mutually beneficial relationships have long been the secret of successful supply chain strategies.
“Building relationships along the supply chain where value is shared - in the way that successful organisations such as Toyota have mastered - result in loyal supply base and joint problem-solving capabilities that outpace any savings that cost stripping strategies have achieved.” Whilst he believes that this alone cannot solve macroeconomic issues, it can help to reduce the impact overall, Lewis says that “Even Toyota, the world-leader in supply-chain optimisation, is suffering from the global supply shortage of micro-chips despite early visibility and stockpiling delaying this impact.”
According to Lewis, “Geographical supply chain diversification is the likely countermeasure that the leading organisations will consider. CEOs should look to fully understand their supply chains, ensure that they are valued in the overall relationship and have understood the risks in each of their dependent suppliers and taken appropriate mitigation strategies.”
Lewis also argues that supply chain issues can’t be seen in isolation from other risks. He believes that it should be no surprise that climate change is the biggest risk facing our planet and threatening all of the norms we have become accustomed to over the past decades.
“Climate risk has been accelerated by the seemingly limitless globalisation of trade, based on an ability to buy anything from anywhere and at quicker and cheaper prices. We’re now facing a significant global risk profile that must be addressed through changes in our global supply chain ambitions, and radical changes in consumer demand. COVID has acted as the canary to signal what we should expect if we do not act to mitigate this risk. The question is do we heed the warning?”
For what’s next…
COVID-19 has challenged business leaders at home and abroad like never before, accelerating change and creating potential risks and opportunities in every sector. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch. We’d be delighted to hear from you.