International Business Environment Ireland Thesis

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International Business Environment

Ireland was one of the poorest countries in European Union (EU) two decades ago (Berry, 2001). In 2004, the country has been rated as the best place to live in the world by the Economist Magazine as a result of a "quality of life" survey, adding that Ireland wins because it successfully combines the most desirable elements of the new, such as low unemployment and political liberties, with the preservation of certain cozy elements of the old, such as stable family and community life" (BBC news channel, 2004).

The country has used foreign direct investment as a strategic tool to foster development so well that it can be said that it wrote the best practices in this area. Currently FDI accounts for 65% of exports and roughly two thirds of total net manufacturing output (O'Connor, 2001).The authorities adopted measures meant to attract multinational corporations to locate their business inside the country, while keeping the state interventionism in economy limited. Competition and good market circumstances turned Ireland into an attractive business environment.

FDI evolution in Ireland

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In 1930s after the country gaining its independence from Britain, an economic strategy of self-sufficiecy was embraced. This strategy was meant to help indigenous industries grow. Protectionsm, however, discouraged foreign trade and foreign investors (Hill, 2007). The Irish economy deteriorated slowly until 1956, when the country was confronted with deep financial crisis. An outward looking policy emerged from this situation and the Industrial Development Authority (IDA) was established and encharged with industrial development. Electronics, pharmaceutical and chemicals were the industries found to match the best choice for the country. Additionally, U.S. was identified as the country with highest likelyhood to become a foreign direct investor in Ireland.

The foreign trade policy was successful from the 1960s until the late 1980s when the country was confronted with financial crisis again. However, major cutbacks in government expenditures coupled with national wage agreements between unions and authorities guaranteed wage stability providing conditions for economic growth.

Thesis on International Business Environment Ireland Was One of Assignment

FDI determinants - Ireland

The Workforce

Irish workers are english speaking natives and highly skilled and in the 1990s they were one of the cheapest workforce in EU, which constituted a major incentive for FDI.

The focus on education started in the 1960s, when the free secondary education was introduced, more specifically 1967. Later on, the third-level education was developed through the establishment of nine Regional Technical Colleges known today as Institutes of Technology, two National Institutes of Higher Education known today as Universities and the expansion of existing universities (O'Connor, 2001). In addition to the third-level efforts mentioned, the Vocational Education and Training was created and allocated many resources to train and retrain the workforce.

The education and training programs has a high rate of success as the programs were syncronized with the industries' needs. Thus, the education system was focused to deliver a high number of graduats in engineering, chemistry, computer science and general science.

The government's involvement in building a highly skilled workforce was also materialized into grants that IDA offered to companies for training employees in new industries. This measure was meant to both improve skills and support the new industries.

Finally, the workforce quality improved via increased immigration. A study showed that irish and non-irish immigrants usually have higher education than the local workforce adding value to this later one (Cassidy, 2002).

Government taxation and bureaucracy

In 1981, the government introduced a low 10% tax rate for international manufacturing companies meant to attract FDI in the country. Currently there are two tax rates, one that is 10% and one that can go as far as 25%, but which is rarely paid by foreign companies as the term 'manufacturing' has a very wide definition. Ireland's dual tax system has been accused to offer tax favoritism and therefore not concurential within EU framework. Consequently, some changes were made in the 10% low tax rate, but not major. Also, an additional tension reason between Ireland and U.S. IRS and EU was generated by the "transfer pricing" accountability technique, through which companies defer as much income as possible in the country with the lowest taxes, which in this case is Ireland. The "transfer princing" led to lower tax revenue for U.S. And EU countries. The country's tax advantage is expected to deteriorate in time as a pressure from EU to level tax rates within the economic block.

Irish government saw the importance of reduced bureaucracy in attracting FDI. Thus, in its efforts to reduce "red tape," this institution empowered and increased accountability for each department to remove frivolous laws in their jurisdiction that could potentially hinder market entry or the development of small business (Berry, 2001).

U.S. leadership

In the 1970s, U.S. has been identified as the most likely source for FDI, given Ireland's strategic industries: electronics, pharmaceuticals and chemicals. The U.S. FDI in the country was mainly export oriented. Thus, over 96% of its output was destined to export, and over half of it went to EU (Barry & Bradley, 1997). Consequently, Ireland became U.S.' export platform in Europe and an export-driven economy (Berry, 2001).

The European Union adhesion

The country's adhesion to the economic block had a positive impact on its economy in general and its foreign trade in particular. After become an EU member, Ireland's exports in EU rose to 47%, whereas before this step its economy was highly dependent on UK exports.

The country integrated EU in 1973 and the Economic Monetary Union (EMU), which is also known as the euro zone in 2001. The EU membership was beneficial for the country not just from the international trade perspective, but also is increased access to structural funds provided by the union to develop and restructure industries/policies that were considered of strategic importance for its development. The EMU membership, however, had both positive and negative effects on the country's economy. One of Ireland's weeknesses was its high inflation rates, much above EU average. Thus, whenever EU pursues an expansionary monetary policy, this tends to accelerate Ireland's inflation problems. Given this, it has been suggested that Ireland dealt with its inflationary problems via its fiscal policy, rather than its monetary one. But this would erode the country's fiscal advantage even faster.

High tech services and clusterization

In the 1970s, when electronics, pharmaceuticals and chemicals sectors were identified as strategic for the country's development, the strategic plan was focused on building clusters around this industries. The current strategy targets the building and strengthening of these clusters and the promotion of outsourcing and linkages to domestic firms (O'Connor, 2001). Additionally, the government is looking to incentive the location of headquarters (HQ) and R&D facilities on its territories. The location of HQs is correlated to increasing tax revenues and that of R&Ds with the level of technological development.

Conclusion significant number of political decisions made by Ireland were closely related to economic management. In the 1960s the government chose FDI as a strategy for economic development and many of the political decisions that followed after that were meant to stimulate foreing investment and foreign trade.

The country started as one of the poorest countries in Europe with a rather poorely educated workforce and a low technological development, but managed to exploit some of the advantages derived from these apparent drawbacks to attract multinational companies. The poverty was translated into cheap labor costs, the poorely educated workforce disadvantage was compensated by workers that spoke English and an aggresive policy focused on education and training and the low technological development was compensated by a focus on R&D and attraction of multinational companies coming from certain industries, such as electronics, pharmaceuticals and chemicals, which were identified as strategic for the country's development. Additionally, the authorities adopted a fiscal policy which was very friendly to international manufacturing companies.

In the future, Ireland's growth presents… [END OF PREVIEW] . . . READ MORE

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