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Ireland's Innovation Performance: 1991 to 2005

24/06/2008

By Dr. Nola Hewitt-Dundas ( Senior Lecturer in Innovation, Queen's University Belfast) and Stephen Roper (Warwick Business School, University of Warwick).

Special Article in the Quarterly Economic Commentary, Summer 2008.

(Members of the Media should note that neither Nola Hewitt-Dundas nor Stephen Roper are staff members of The ESRI. Whilst this Article has been accepted for publication by The ESRI, the views expressed are not the views of The ESRI.)

Synopsis
Data suggests that over the 15 year period to 2005, there has been only a moderate increase in product innovation activity among Irish manufacturing firms. Over the same period the figures reveal a decline in the extent of process innovation activity.

These findings are the result of a 15 year investigation into the level of innovation activity among manufacturing firms in Ireland and Northern Ireland. Tracking back over the 15 year period, the data highlights a steady increase in the proportion of innovation active plants in Ireland and Northern Ireland throughout the 1990s. At the turn of the century however, the global economic downturn had a disproportionate impact on innovation in the Irish economy relative to that in the North. Although innovation activity - in terms of the introduction of new or modified products - improved markedly to 2005, this 'recovery' was not evident for process innovation. Instead, it appears that the economic downturn has had a prolonged effect on innovation in Irish manufacturing plants, and in particular on innovation in the foreign owned sector.

Over the 1991 to 2005 period, there was a 5 per cent increase in the proportion of manufacturing plants in Ireland performing product innovation. Over the same period however, process innovation activity declined by 7 per cent. These changes have contributed to a convergence in innovation activity between Ireland and Northern Ireland. Indeed, manufacturing plants in NI are now more likely to be undertaking process innovation than plants in Ireland.
A lower level of innovation in the economy is also reflected in business sales. While until 2002, new or improved products accounted for around 46 per cent of business sales, this value has now dropped to around 34 per cent. As a result, standardised and unchanged products which typically have lower profit margins, now form a larger proportion of firms' sales.

The research goes on to stress the importance for plants of investing in research and development (R&D) activities, whether formally or informally. Similarly working closely with suppliers or customers is found to have a positive impact on innovation activity, but in many cases firms are unable to find suitable partners with which to innovate.
It is still too early to know how the innovation landscape has changed since 2005. One thing is clear however, if Ireland is to build a strong knowledge-based economy, achieve projected levels of economic growth and remain competitive internationally, then innovation must rise to the top of the policy agenda.

Key Findings

  • Innovation Activity - Despite significant economic growth over the 1991 to 2005 period, innovation in Ireland has remained relatively static.
  • Product Innovation - Between 1991 and 2005 the proportion of manufacturing plants in Ireland making changes to their existing products or introducing new products has risen only marginally, from 63 to 68 per cent.
  • Process Innovation - The proportion of manufacturing plants in Ireland making changes to their existing processes or introducing new processes has declined from 58 per cent in 1996 to 51 per cent in 2005.
  • Innovation Sales - in the early 1990s 46 per cent of sales from manufacturing plants were coming from products that had been improved or newly introduced. By 2005 this proportion of sales had dropped to 34 per cent. This means that plants in Ireland are becoming more dependent on established products for which the profit margins are typically lower.
  • The data provides support for the Government's Strategy for Science, Technology and Innovation 2006-2013 in emphasising the importance of firms investing in R&D as a driver of innovation.
  • Working with suppliers as well as customers is also found to positively affect innovation activity. At the same time, plants state that a lack of partners with which to innovate is a significant barrier to their innovation efforts.

Notes to editors:
Data - The data for this study comes from the Irish Innovation Panel, a longitudinal investigation into the innovation performance of firms in Ireland and Northern Ireland from 1991 to 2005. Over this period data has been collected through a series of five plant-level surveys. These have collected information on manufacturing (and more recently service) firms' technology adoption, networking, innovation and business performance.

For further information contact:

Nola Hewitt-Dundas +44 (0) 7763 242940, nm.hewitt@qub.ac.uk
Stephen Roper +44 (0) 7801 553374, Stephen.roper@warwick.ac.uk




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