Increased labour costs hurting indigenous businesses

KPMG Enterprise Barometer 2024 unveils optimism and ambitious growth among Ireland's indigenous businesses, with nearly two-thirds (65 percent) expecting to increase turnover within the next 12 months, compared to 55 percent in 2023. On behalf of KPMG, RED C surveyed nearly 200 decision-makers in indigenous businesses and entrepreneurs across a broad range of industries.  

Almost two-fifths (39 percent) plan to recruit more staff, and seven in ten (71 percent) expect to increase staff salaries in the next year. Meanwhile, over half (58 percent) plan to grow their business and nearly seven in ten (69 percent) intend to finance their expansion primarily through their own balance sheets or internally generated funds. 

Most (85 percent) say increased labour costs will be their most significant business challenge this year, doubling from 43 percent in 2023. Other business challenges that could impede growth and profitability include staff recruitment and retention issues (68 percent) and rising inflation (64 percent).

Speaking about the KPMG Enterprise Barometer 2024, Alan Bromell, Head of Private Enterprise at KPMG in Ireland, acknowledges the resilience of indigenous businesses and entrepreneurs but says, “Entrepreneurship lies at the heart of the Irish economy, and understanding entrepreneurs' aspirations and concerns is vital for informed policymaking. There is a need for more proactive measures to support domestic entrepreneurship grappling with the cost pressures on business operations."

The majority (86 percent) have been impacted by the current cost inflation, regardless of their number of employees or location in Ireland, indicating they are still struggling to cope with the impacts of the cost-of-living crisis.

Over half (53 percent) attribute the escalating cost of doing business to wage inflation, a significant increase from 22 percent in 2023, while energy costs have decreased as a concern from 42 percent in 2023 to a modest 16 percent in 2024, reflecting possible stabilisation in this sector.

Leo Clancy, CEO, Enterprise Ireland said, ““It’s positive to see from the research that the majority of Irish businesses are optimistic for the next 12 months, expecting increased turnover against the backdrop of a challenging global economic environment for businesses. The business optimism is a credit to the underlying strength and flexibility of Irish businesses. It’s vital that businesses continue to focus on execution, operational excellence and innovation, in order to sustain and grow employment opportunities across Ireland. Enterprise Ireland continues to work closely with our clients to help them succeed and scale.”

Our research shows a decline in management team diversity amongst respondents. Two-thirds (65 percent) have a diverse management team, a decrease from 76 percent in 2023.

Meanwhile, only half have policies and strategies to address any gender balance gap in their management team, a fall from 62 percent in 2023. 

Resilience will be critical as businesses adapt to sustainability, cybersecurity, digital transformation, and AI. Most (84 percent) of the surveyed enterprises feel prepared for a potential cyber-attack, with only 1 in 5 (23 percent) having experienced a cyber security attack.

Our respondents, while recognising the role and potential of technology, maintain a cautious stance towards the immediate impact of AI. In terms of its integration into strategy and operations, it is still in the early stages for most domestic businesses; only one-fifth (21 percent) have a defined AI strategy, with 1 in 5 attributing their competitive advantage to AI. Only 15 percent anticipate employing fewer staff due to AI.

Sustainability remains a crucial issue for a vast majority, with 8 in 10 supporting more action on climate change. However, concerns persist regarding the financial implications of green initiatives, with 57 percent worried that an increase in green initiatives will lead to a rise in costs for their business.