How did Ireland convince firms to come? [TOP]
Starting in the late 1970s, Ireland began to improve its telecommunication system. According to one source (Electronic News, 1991), "Ireland’s favorable infrastructure was created from what was considered a terrible high-tech environment in the late 1970s." After the education programs in 1967, Ireland began to lose more than just people to other countries, they began to lose highly educated people to other countries. "Over the past two centuries, its [Ireland] principle export has been people, so the government has set a goal to retain talented citizens while luring back some of those who have emigrate." (Software Magazine, 1989) The government began to lure back people, when it began the telecommunications improvements. By the late 1980s, Ireland was able to attract 80 foreign software companies.
The government began investing over $3 billion, in 1981, to overhaul the nation's telephone system. (PC Week, 1992) Ireland now possesses one of the most modern fiber-optic networks in Europe. The network is luring US computer and software companies to shift technical support, telemarketing operations and data-processing tasks to Ireland. Many Irish university graduates will actually leave Ireland, after their education is done, and go to the US for work. Many of them return with work-related experience. This enables the Irish workforce to be even more educated.
The Industrial Development Agency (IDA) also has always given firms good incentive to come to Ireland, as well.
The IDA offers the following:
grants
2000 (the low rate has currently been extended to the year 2003)
There were other, less obvious, incentives for firms to come to Ireland.
The Economy
The Irish economy has been in a boom for the past 5 years. (see graph) It's English speaking and the overwhelming majority of firms turn profits today. Output growth has averaged over 9% increase in GDP per year from 1994 to 1998. At least half of that growth can be attributed to employment gains and labor productivity growth. The labor force has grow due to a reversal of traditional emigration. Ireland is know keeping its educated citizens home, while others, that left, are coming back to Ireland. (see graph) The unemployment level has dropped to an astonishingly low 5%. Along with the low unemployment level, the consumer price inflation is still a low 2%.
The Corporate Taxation Plan
Ireland has the lowest corporate tax, for manufacturing and selective services, among other leading industrious countries. The low rate of 10% will be effective until January 1, 2003. For Irish firms, the tax rate is place on all profits. For foreign firms, the tax is only place on profits generated by the Irish branch of the firm. (see graph)
A Qualified Work Force
Ireland has one of the youngest populations in Europe. (see graph) Over 40% of the population is under the age of 25 years old. There was a baby boom in Ireland in the 1970s, which has resulted in a youthful population. Due to the high level of education in Ireland, the young work force will also be well educated, especially in the field of technology. (see graph) One of the best things about the young, well educated work force is that wages are really low (see graph), therefore cost of production will be low.
Infrastructure
The Irish government has worked with private firms to create quality property, throughout Ireland. They have developed the telecommunications systems and financial services systems to attract firms. Ireland now offers one of the most advanced digital telecommunications system in the world and is now a center for digital technology. Ireland attracts companies due to their logistics. Exports are estimated at 90% of Ireland's GDP. They have a very good transportation network throughout Europe, as well. 70% of Ireland's exports go to other European Union countries. (see graph) Its export oriented economy and its good networks throughout Europe are attracting many firms that want to continue competing in Europe.
. Where did the investment come from? [TOP]
In 1998, there was a total of 1,288 foreign firms operating in Ireland, and they employed 128,964 Irish men and women. (IDA Planning, 1998) The US had the most firms investing in Ireland, with 501 or 39%. UK firms accounted for 18% of the investment, Germany accounted for 14%, while the other European Union accounted for 16% of the investment. The other 13% of the firms came from the rest of the world. (see graph)
Where did investment go?
Electronics, financial services and pharmaceuticals is where half of the investment went. Other sectors include healthcare, consumer services, engineering, software, and call centers for services. (see graph for breakdown) Some of these sectors will fall under the same firm. For example, a Microsoft plant may design (engineering) both software and hardware (electronics) in the same place, so investment in that plant would increase investment in three of the sectors within the graph.
How has international investment helped the Irish? [TOP]
Lets take the example of the computer industry to see how foreign investment has spurred local growth and local connections. The computer industry has grown a lot since the first firms began to come in the 1970s. Lets look at Digital Equipment Corporation (DEC), out of Maynard, Massachusetts. (Forbes, 1987) In 1972, they opened an assembly and test plant in Galway. They then began to manufacture components. Then in 1979, they opened a second plant in Clonmel, a suburban setting between Dublin and Cork, which designed and built network connection and power supplies. The firm began by assembling parts they imported. About seven years later, they were now designing and building, with parts that were made in Ireland. In some cases, these parts were being produced by Irish firms, not foreign firms in Ireland.
Mentec, an Irish software and hardware company was created in 1977 with the assistance of the IDA’s Enterprise Development Program. It was started by an Irishman. Its primarily function was originally to supply DEC with computer-integrated manufacturing software systems. (Forbes, 1987) They now design their own computer system, that is installed into some DEC computer systems. They also build systems for Michelin, Unilever, Guinness, and General Electric Co., all British firms. Mentec was created to support DEC, foreign firm. Mentec is a good example of how foreign investment can have a positive effect on local investment.
Microsoft is a good example of the Irish worker influencing a firm to expand. (PC Week, 1992) The European Microsoft offices were opened in 1985. The plant just manufactured imported parts. Three years later they were translating products, for sale mainly in Europe. As of 1992, the translating department had 350 employees, while it was projected to only have a total of 50, once it began. The plant itself had a labor force of 700, by 1992. The firm was producing "more than 80 product types on 20 million disks each year.." (PC Week, 1992) Fintan Reddy, Microsoft’s local materials manager in the Irish plant, was quoted in Software Magazine as saying that the Irish plant was Microsoft’s only non US manufacturing plant and suggested that "our employees will eventually work in their own companies." In the same article, the author notes, that some firms are moving their ‘software-intensive’ offices to Ireland, to take advantage of the software industry, so Ireland is also attracting non-computer oriented firms.
Although Irish firms are small in size, they benefit greatly from the large foreign firms. Foreign firms are demanders for many products Irish firms produce, and they benefit from the multiplier effect of the computer industry. Agglomeration economics says that multinational companies will tend to look to areas where their rivals are, because they tend to be areas where similar firms can benefit from the same infrastructural elements of the area. In Ireland they group together because of the advance telecommunication system and networks. "Executives in newly arriving foreign computer, internet engineering, pharmaceuticals, and chemical companies indicated that their location decision was strongly influenced by the fact that other key market players are already in Ireland." (Barry, 1999) The US, for example, is one of the biggest source of computer hardware and software, and the majority of firms are located in Silicon Valley, in California. The computer industry needs each other to survive and supply themselves with materials for production. Ireland is turning into the computer center of Europe. This will allow European customers much better and faster service. They will be able to call Ireland to get computer assistance, and they can send components that need servicing to Ireland, instead of the US.
