Cost Management In Ireland

Posted on 11th September 2019
Cost Management In Ireland

Cost management is probably one of the most complex tasks in business.  And it has never been as challenging as it is now with the completion of Brexit.  Despite the upheaval caused by the withdrawal of the U.K. from Europe, the costs of setting up and maintaining companies in Ireland have improved greatly in recent years. As a result, Irish firms have become more competitive internationally.  Similarly, Ireland has also become a more attractive location for overseas firms to base their operations. The benefits that Ireland offers to businesses (including a skilled workforce, low corporate tax regime and supports for business) go a long way to offset some of the costs of operating a business in Ireland

The Importance of Cost Management

Cost management is by necessity the cornerstone of the business planning process.  Simply put, cost management allows you to optimise available resources, make sound judgements and control project costs effectively.  It is the process that ensures that business activities are completed within the predetermined parameters of budget, scope and timing.  One of the reasons businesses fail is often due to a lack of capital and funding.  There are many reasons why this might happen but two of the most frequent are: a) cost of sales not in line with sales prices and b) failure to track and monitor expenses.  Both reasons lead straight back to effective cost management.

The Role of Cost Management in Competitiveness

But there’s another reason why managing your costs is critical to success:  constant monitoring of costs allows you to take corrective action when appropriate.  Have costs increased?  Are we maintaining a profit margin?  Are we cost-competitive? Is our location cost-competitive? – these are all questions that should be asked continually.  When costs are monitored and controlled properly, issues will be flagged ahead of time enabling corrective action.  Therefore, managing costs is key to remaining competitive in an increasingly pressurised global marketplace. It is often the difference between success and failure.

Is Ireland A Cost Competitive Location?

However, it’s not just companies that need to manage costs. As the “global village” becomes reality, the onus is on countries to maintain their cost competitiveness. For small open economies like Ireland, this poses something of a challenge. But, ultimately Irelands’ cost competitiveness is what determines the ability of Irish companies to compete in domestic and international markets. Ireland offers key benefits to startups and multinationals such as the relatively low cost of incorporation and tax registration and the ease of setting up a business.  And in fact, Ireland is holding its own in the competitiveness tables as illustrated below:

  • Forbes recently ranked Ireland 11th globally in their Best Countries for Business report
  • The Institute for Management Development (IMD) ranks Ireland as the 2nd most competitive country in the EU (World Competitiveness Rankings report 2019)
  • The IMD also ranked Ireland 7th most competitive economy globally out of 63 economies (a jump of 5 places from 2018)
  • With regard to the rate of inflation, prices increased by only 0.7% in 2018. And, although this was faster than price growth in previous years, it was still well below the inflation rate for the euro area as a whole (1.8%) and the UK (2.5%)
  • As of July 2019, Ireland’s annual inflation rate dropped to 0.5 percent, its lowest level since June 2018
  • Consequently Ireland’s cost profile can be described as “high cost, slowly increasing” – similar to Iceland, Denmark and Sweden. 

Key Business Costs to Consider

The National Competitiveness Council (NCC) release its Cost of Doing Business in Ireland in 2019 report in April. It compares the costs faced by Irish based businesses relative to costs in key competitor jurisdictions. Using the latest available international data, the report benchmarks a range of indicators from labour costs to business services costs. See the infographic below:

Cost Management infographic

Labour Costs:

Labour costs can be difficult to control and often represent a significant portion of a company’s overheads. Since 2014, Irish labour costs have started to increase in line with the growth in labour costs in other jurisdictions. The last data shows that Irish labour costs increased by 2.9% in 2018. This is concerning as it is four times higher than the inflation rate. Labour costs vary considerably between sectors. In Ireland, labour costs are highest in the utilities sector (€55/hour) and are lowest in the accommodation and food sector (€16/ hour). In most sectors, labour costs were greater than, or equal to, the UK.

Property Costs:

Currently, prices in Ireland are comparable to other jurisdictions that would traditionally be thought of as high cost, such as Japan, the UK and the Netherlands. Global mobility expert, ECA International, recently published new research indicating that Dublin is now the 5th most expensive city in which to rent in Europe. In fact, it is more expensive than cities such as Amsterdam, Paris and Stockholm. In 2018, the cost of living in Dublin was 18% more expensive than living in Brussels.

Over the last year, there has been a steady increase in commercial property prices and the cost of constructing office space. In the office rental market, prices are up 15.9% in Dublin (suburbs) and up 16.5% in Galway since 2014. Despite a relatively steady pace in growth, rental prices of prime Irish office space are still lower than Paris and London (although considerably higher than Amsterdam, Berlin and Brussels).

Transport Costs:

In recent years, aggregate transport sector prices in Ireland have increased moderately. Prices in all transport sectors (except sea and coastal transport) have steadily increased. While postal and courier services recorded the highest price increase, followed by warehousing, storage and cargo services. Nonetheless, Irish administrative processes are highly efficient and compare very favourably with processes in competitor markets.

Utility Costs:

Certain utility costs (including electricity and gas) tend to be higher in Ireland than in other jurisdictions. However, Ireland is more competitive regarding other utility costs (telecoms). The EU is among the most expensive locations for electricity and gas globally. Within the EU, Ireland is one of the most expensive countries for electricity for both large and small users. In all sectors, competition is fuelling the pressure on price increases.

Business Services and Other Input Costs:

In Ireland, the overall price of services is rising much faster than the price of goods. In total, the price of services has increased by 7% since 2015, but this masks widely different changes in the price of certain services. For example, the price of warehouse, storage and cargo handling services increased by 6.2%, while sea and costal transport prices declined by 0.2%.

Moreover, services prices in Ireland are rising relatively quickly compared to other EU countries. Luxembourg is the only economy measured where services prices increased faster than Ireland.

In conclusion, Professor Peter Clinch, Chair of the National Competitiveness Council stated earlier in the year that “we can’t be complacent.  The importance of staying competitive must remain a constant focus….and is the only response to the serious and imminent danger presented by Brexit”.  Ultimately cost management plays a vital role at every level so that we don’t price ourselves out of international markets.

Whether you are an Irish or overseas business contact us for help and advice in setting up your company in Ireland. o’donnell+co provides a full range of accounting services backed by fast, professional customer service as well as sound business and financial advice.

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