Competitive Analysis of the Polymer Plastics Industry on the island of Ireland

Published: June 2006

Executive Summary

Introduction

This report was commissioned by InterTradeIreland, in association with the Northern Ireland Polymer Association and Plastics Ireland. It is designed to provide an overview of the polymer and plastics sector on the island of Ireland, comprising Ireland [1] and Northern Ireland, assess its competitiveness and make recommendations for improved performance through all-island collaboration. The study was conducted through 5 work streams:

1. A review of global industry trends through a desk-based analysis of key documents and data;
2. The construction of a comprehensive profile of the all-island sector by collecting and analysing data on the sector’s firms, North and South;
3. A benchmarking exercise, using statistical data on key competitor nations, to assess the international competitiveness of the all-island sector;
4. A series of consultations with firms, industry experts, and key intermediary bodies to provide qualitative information on the performance of the sector; and finally
5. A workshop for industry experts calibrated the findings of the study and helped to develop recommendations to improve competitiveness through increased all-island collaboration.

Global trends

Demand for plastics applications looks set to increase in the medium-to-long term, fuelled by substitution in mature markets like Western Europe, and volume growth in developing markets, such as China.

The price of commodity plastics will remain high as long as global demand increases and while the oil price stays high. This is likely to squeeze margins for the processors unless they can pass on increased costs.

Environmental issues, already a significant factor for the industry, will continue to grow in importance. Environmental regulations are likely to remain a major cost to the industry, while the changing attitudes of consumers may open up new markets for recycled polymer materials.

Energy is a major cost to the industry. The lack of competitive energy pricing in some of the more mature processing countries is a serious obstacle to business competitiveness in the global marketplace.

The all-island sector

The all-island processing sector comprises 283 firms, with a total turnover in 2003-2004 of £2,081m (€3,008m). The sector employs 18,750 people, equivalent to 5.4 per cent of the island’s total manufacturing employment.

The polymer and plastics industry on the island of Ireland is a varied one. A number of differences are apparent in terms of markets served and processes used between Ireland and Northern Ireland. There is also a clear difference in scale of activity - a 70/30 split between Ireland and Northern Ireland respectively - which is indicative of the relative size of their respective economies.

Yet, despite these differences, the profile indicates that there is much about the industry that is similar across the island of Ireland. This suggests a level of commonality, in some respects of business performance, which could be built on to develop a more collaborative all-island sector.

Data on exports is not readily available, but the indications are that the sector could do more to improve its exploitation of international markets, especially where there are logistical advantages to the island’s location near key European markets, particularly Great Britain.

International benchmarking

The all-island sector compares well in productivity terms to the leading competitor, Germany. It has the characteristics of a mature manufacturing sector, with high and rising labour costs driving a reduction in the overall workforce. Two areas of major concern are the need to maintain pressure on the overall manufacturing cost base and the importance of greater innovation.

The key issues for the sector’s cost base are labour and energy. In both of these areas the all-island sector is uncompetitive.

Labour costs are rising and, in the face of these higher costs, it will be vital for the sector to improve its competitiveness through more efficient, automated production processes.
High energy costs are predominantly due to the structure of the energy production sector on the island of Ireland, but this should also act as a driver for greater energy efficiency measures within the sector until the wider strategic problem is resolved.

While the all-island sector’s labour cost profile suggests that it is a mature manufacturing industry, levels of innovation appear to fall behind other key mature competitors, such as Germany. The performance of the sector here is reflected more broadly in the relatively low levels of innovation and research and development within the all-island economy as a whole.

Qualitative issues

The following characteristics were identified as being crucial to the performance of highly competitive firms in the all-island sector:

1. Diversification of customers and customer markets to reduce the reliance on a single end-user, thereby improving the chances of business survival in the event of the loss of a contract;
2. Regular investment in new machinery to minimise operating costs. Increasing automation reduces labour and energy use, both major costs to the sector;
3. A high level of customer service; and
4. Product differentiation, for example through the use of proprietary designs or materials, which requires close collaboration between suppliers, customers and research bodies.

Intermediaries made a number of observations on the prospects for future collaboration and industry competitiveness:

1. Attention must switch to exploiting markets where cost is less of a comparative advantage, such as highly specialised and niche products;
2. The industry must become more internationally-focused, both in terms of customer markets and potentially using the global market to the sector’s advantage by outsourcing high volume, low quality and price sensitive work to low cost markets;
3. There is significant process and materials science expertise on the island of Ireland, which should provide the research and academic foundations for the industry to increasingly characterise itself as a global centre of excellence. However, collaboration between academic institutes and firms needs to be deeper and wider;
4. The industry must consider whether it will have access to a sufficiently well-trained workforce in the future. This will require significant consideration of the industry’s skills needs in the medium term; and
5. Encouraging firms to take a longer term approach to business planning is an absolute priority if the industry is to improve its competitiveness in the longer term.

The case for all-island collaboration

The benefits of industry collaboration across the island of Ireland cannot be taken for granted.
The participation of firms in collaborative activity will only happen if there is a clear business case for doing so. It must be assumed that firms will only engage in greater cross-border activity if they consider it to be in their commercial interests to do so. The public sector has an important role in helping to signpost opportunities and address barriers to cross-border trade and collaboration.

To date, there has been relatively little firm level interaction between Northern Ireland and Ireland, except where firms have sites in both jurisdictions. There is also a lack of knowledge about the opportunities that might exist on the other side of the border, both in terms of new
markets, sourcing supplies and potential collaborative business partners. These deserve
further investigation by the sector. In addition, many of the issues raised as problems, such
as labour supply, skills and training and energy costs are common across the island of Ireland. The sector is a diverse one, with a lack of direct competition between firms; this will help to encourage collaboration on these common issues, which would benefit from being tackled at the all-island level.

Recommendations

Based on its findings, the study proposes 18 recommendations. These are to:

1. Establish an all-island forum to take forward collaboration and develop the other recommendations of this report. The forum should provide clarity, consensus and visibility in the allocation of responsibility for the activities described below.
2. Create an all-island Foresight Programme to allow greater consideration of, and planning for, future developments in the industry, its technologies, and key markets. The programme should be led by the private sector, supported by the Higher Education community and by facilitation from the public sector.
3. Improve the signposting and tailoring of public sector innovation support, bearing in mind the specific needs of the polymer and plastics industry.
4. Encourage greater academic collaboration in support of the industry, especially between key process and materials centres such as Trinity College Dublin and Queen’s University Belfast, and firms through technology transfer, spin-outs and the development of intellectual property.
5. Investigate the viability of a sector sponsored chair in polymers and plastics at one of the key higher education institutions on the island of Ireland.
6. Drawing on the experience of the Irish Best Practice Forum, establish an all-island benchmarking scheme to improve competitiveness, using evidence from within the sector and drawing where necessary on useful comparisons from other industries.
7. Encourage inter-governmental co-ordination of energy policy to increase energy sector competition and thereby reduce costs.
8. Consider ways in which the sector can improve its environmental image while cutting its own energy use through collaboration with bodies such as the Carbon Trust.
9. Encourage and co-ordinate government support to provide all-island trade promotion schemes, including all-island trade missions.
10. Facilitate wider adoption of lean manufacturing and automation techniques throughout the sector’s base.
11. Focus on up-skilling current employees to meet future customer and market needs.
12. Improve the marketing of the sector as a positive, rewarding and exciting career choice through the use of promotional materials, mentors and advocates.
13. Investigate the potential for the joint and shared recruitment of specialist staff through collaboration between small firms with mutual skills needs, for example in the field of design or marketing.
14. Conduct a joint assessment of future skills needs by the sector skills bodies of Northern Ireland and Ireland. This activity could logically flow as a practical action from the Foresight Programme described at Recommendation 2.
15. Establish the extent to which all-island labour mobility exists, and how it may be exploited or encouraged.
16. Establish a fast track promotion scheme for the sector’s high flyers to encourage the retention of high quality business leaders.
17. Conduct an all-island survey on levels of industry investment and attitudes and barriers to increased investment.
18. Prepare a monitoring and evaluation framework to underpin the economy, efficiency and effectiveness of the delivery of the activities set out above. 

Notes

[1] The term “Ireland” throughout this report refers to the Republic of Ireland.