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The Irish Model

The Irish Model

Ireland has a good product, but needs to spend more time marketing

by Mark Godfrey

It little known that China owes much of the success of its economic model to Ireland. Back in the 1960s Ireland turned economic track by dropping tariffs and welcoming foreign investment particularly from the US with tax breaks and ready-built ree industrial zoneswhich offered concessions to foreign investors. 

A 1978 delegation of Chinese officials led by then rising-star cadre by the name of Jiang Zemin was impressed by the free economic zone in Ireland to lure FDI, and the approach was quickly imitated in Shenzhen. The rest is history.

Ireland and China have shared something in common ever since: theye been favorite destinations for American overseas investment though Ireland has taken the high-end software and pharmaceutical investments and China the heavier manufacturing projects. While Ireland hopes Chinese corporations will follow the lead of earlier FDI inflows from North America and Western Europe, the Chinese entities are small players in terms of investment into Ireland.

Nonetheless some have made the move to the Emerald Isle. Low corporate tax and government transparency to foreign investors were the key draws for Hangzhou REACH Product Technic, a firm registering Chinese chemicals for compliance with the EU onerous REACH regulations on chemical product safety. Based in Hangzhou, two hours drive south from Shanghai, the firm is building an R&D and sales presence in its office in Dublin, explains managing director Jim Wei. The Chinese firm hires two dozen chemical engineers in Ireland to research and interpret the REACH regulations for the firm head office in Hangzhou.

Set up by two former staffers at China Inspection & Quarantine (CIQ), a government standards body, the firm chose Ireland for its can-do business attitude but not necessarily for wage costs. While theye slipped by 5% since the onset of the economic crisis, Irish salaries are on average six times those paid in China, points out Wei. ut the Industrial Development Authority (IDA) has been very helpful since we set up in Dublin

A mark of the firm satisfaction with its choice perhaps, the two meeting rooms in the CIQ base in the southeasterly city of Hangzhou are named after Irish cities: Dublin and Cork. Wei choice of location shows there are compelling reasons to invest in the Irish pharmaceutical sector. Data from Pharmachemical Ireland, a trade body, shows exports of pharmaceutical products rose by 7% in 2009 to EUR47 billion, dwarfing figures in this sector from larger economies, including China. Head of Pharmachemical Ireland, Matt Moran, points to his memberstrack record for quality can remember when we had a problem with the FDA [Food & Drug Administration] as proof of Ireland pool of talent and expertise for would-be investors in the sector.

Would-be foreign investors pointed by Irish officials towards the Science Foundation of Ireland which uses state funding to spur R&D in its 27 laboratories has focused on biotechnology, energy and ICT. Among the funded projects: a collaboration between Ireland national utility firm ESB and Japan Mitsubishi, on recharging solutions for electrical cars.

On the face of it Ireland trade with China is looking increasingly in favor of the west European island nation of five million. In 2010 Ireland shipped EUR2.5 billion to China, an increase of 10%. Chinese imports were down 7% - inevitable perhaps given Ireland economic crisis but in face more to do with Dell shifting operations to China, obviating the need to import components to its Irish operations.

MNC operations aside, education remains the key plank in Ireland trade with China according to Alan Buckley, who heads up the China office of Enterprise Ireland, the state body helping domestic Irish firms build global market share. While the numbers are comparatively small - Ireland issued 1,200 students visas to Chinese citizens in 2010, whereas Australia took in 100,000 Chinese students in the same year those figures will continue to rise, explains Buckley. While Irish classroom space for foreign students is ultimately limited, Chinese students make up the country second largest non-EU foreign student population, after the US. Irish universities (14 of whom have offices in China) are also keen on research collaborations with Chinese counterparts, adds Buckley.

Aside from education Buckley sees Chinese interest in Irish medical devices and financial services sectors. Finance-focused firms Monex and Norkom have grown healthy business with Chinese banks for their foreign exchange and security software solutions respectively. Buckley is also keen that Ireland becomes a base for Chinese financial institutions: Bank of China has an office in Dublin Financial Services Centre to run its European aircraft leasing business.

Funds

Though Chinese overseas money flows remain restricted while the country keeps its capital account closed, Ireland hasn joined the fight for offshore Chinese money. Chinese firms who then reinvest back into China as oreign Direct Investmentamong low-tax havens like British Virgin Islands and Mauritius.

Favored by western multinationals as a headquarters due to its 12.5% tax rate, Ireland may find its fellow EU member Malta has already gone after the Chinese offshore market. Malta is claiming a 40% discount on Western European costs of doing business and while the corporate tax rate is 35% (compared to Ireland 12.5%) companies can claim most of it back goes the line being spun in advertorials in the Chinese business press.

Brendan Waldron, head of Asian New Tigers, the Shanghai-based business consultancy advising Irish firms investing in China has yet to see significant traffic in the opposite direction. e haven had any specific interest for investment in Ireland but wee spoken to Chinese companies about using Ireland as a base for their European set up. This is an area that is likely to grow more and more. Wee worked with Ernst &Young and KPMG as well as the IFSC [Dublin International Financial Services Centre] in promoting Ireland, but it a case of ut of sight, out of mind as there is no real presence here promoting the country in that way.

Given its current predicament Ireland would surely like some largesse from China, which has been promising big-cash injections to EU struggling economies like Greece and Spain the latter has been touted by China Premier Wen Jiabao as China best friend in the EU.

Clearly Ireland has its attractions, but given the competition for Chinese money, Ireland will have to shift more resources, still concentrated on US corporate world, to the East. Waldron, who also chairs the Ireland China Chamber of Commerce, says Ireland lacks the resources to promote itself effectively in China. uropean countries have invested heavily, with a large well resourced presence here working with their governments in promoting their country. Wee got the IDA [Industrial Development Authority, see separate Q&A] working hard, but they are on their own./p>

Ireland predicament

Though it boasts a lively export sector, a skilled workforce and 12.5% corporation tax rate Ireland has found itself at the eye of the storm over Euro zone debt worries. While similarly stressed Greece and Portugal have foundered on huge state debt the Irish crisis came about from the country bailing out its banks, who recklessly borrowed from international markets to fund a decade-long real estate bubble which burst when the world financial markets tanked in 2008 in the wake of Lehman Brotherscollapse. Ireland is savagely cutting state spending to finance the EUR100 billion bank bailout - which cuts cash needed to stimulate the economy back to health while also dealing with unemployment that soared with the collapse of a construction sector that once employed a fifth of the labor force, along with many immigrant workers. Ireland is expected to return .8% GDP growth in 2011, a long way from the 10% posted in 1996 when its successful attraction of FDI, low inflation and political stability led to it being dubbed Europe Celtic Tiger economy.

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