The dragging economy, the technology bust, and increasing competition in the global market have not stopped businesses from locating their operations in Ireland. In fact, despite the draw of cheap labor in Asia, in 2003 the United States invested 2 1/2 times more money in Ireland than in China. This figure is surprising when you consider the cost of living and the relatively high salaries Irish people are paid compared to their Asian and Eastern European counterparts.
And on May 1, 2004 the European Union expanded by 10 countries, eight of which are former Communist nations with large and inexpensive labor forces ready to do business. Observers wonder if these nations will compete with Ireland, which started out as one of the poorest nations in Western Europe and has transformed itself into a wealthy and successful country. Its cost of living has since risen accordingly, and Ireland is now changing gears in the kind of industry it is attracting.
The Irish government founded an organization specifically designed to keep Ireland at a competitive advantage relative to other countries. The IDA Ireland (Industrial Development Authority) attracts and retains businesses to Ireland. Its many achievements include the huge plants, development and business centers that companies like Intel Apple, and Microsoft have located in Ireland.
Eamonn Ryan, the executive vice president of IDA Ireland, is at the forefront of attracting these businesses and communicating to companies about the virtues of moving into Ireland. Having spent three decades working for the IDA, Ryan is based in New York City and is responsible for Asia Pacific, North America and Europe. Part of the IDA’s strategy that he is implementing tackles the new issues Ireland faces in the global economy.
And the burning question now is, will the big companies disappear and move to Poland for cheaper labor? Ryan doesn’t think so. He explains, “We know that manufacturing in Ireland doesn’t make sense, you’ll do that in Asia or Eastern Europe. But why not set up your European headquarters in Ireland?”
A company’s headquarters manages its finances, personnel, management structure, intellectual property, and the company’s entire supply chain. By setting up a European headquarters in Ireland, a business can find the highly skilled, English-speaking accountants, managers, and technicians it needs for these jobs. Says Ryan, “When that adds up, it becomes a substantial structure. It’s not just about going to Ireland to save money. It’s about putting part of your strategic business over in Ireland.”
And businesses have responded to this suggestion. Among many other successful U.S. companies, Netscape, Doubleclick, and Google have placed their European headquarters in Ireland. Aside from these high-tech firms, a plethora of pharmaceutical companies have set up shop in Ireland also, and aim to stay because of their requirement for a skilled workforce. Says Ryan, “Ireland has become a high quality, knowledge intensive country.”
There is no doubt that Ireland needs substantial U.S. investment and depends on American businesses to keep its economy strong. Ireland currently derives 32.5 percent of its total revenues from North America, making it the second most dependent country in Europe on the U.S. behind the Netherlands. The exposure of the Irish economy to the whims of U.S. businesses is huge, so Ireland must constantly adapt to the needs of the American economy.
So far Ireland has done so. It began in manufacturing-based jobs in the 1960s and 1970s and progressed into call centers in the 1980s. In the 1990s Ireland graduated into the high-tech boom. Today, Ireland has positioned itself as a knowledge economy, one with a highly educated and highly skilled workforce, which will continue to command higher salaries for more complex labor. This trend will in turn boost Ireland’s standard of living, which has been steadily on the increase since the early 1990s.
This may be good news for Ireland, but it also is beneficial for American businesses. U.S. companies go to Ireland to help their bottom line, and maintaining a healthy profit margin is foremost in their mind. Recent data shows that they are getting their money’s worth. U.S. affiliate earnings in Ireland reached record highs in 2003, and with the help of a weak dollar, profits earned in Ireland rose 45 percent.
The challenge now is for businesses to understand what Ireland has to offer so that they can take advantage of Ireland’s labor force and tax incentives. Ireland has repositioned itself to attract the core functions of multinationals and process complex transactions, but it is vital for businesses to be aware of Ireland’s strengths in order to consider moving into it. Ryan concludes, “It’s a world economy out there. So as well as the old reliable strengths, with the headquarters expertise, we have a new product line that we can chase, and the future is brighter for us.” ♦