US President John Fitzgerald Kennedy in Patrick Street, Cork, Ireland, June 28, 1963 - - Photo: John F. Kennedy Presidential Library and Museum, Boston

Irish Economy: Twenty-eight years ago, Ronald Reagan declared in his first inaugural address that "government is not the solution to our problem." Last Tuesday, Barack Obama said: "The question we ask today is not whether our government is too big or too small, but whether it works." Many Irish people likely nodded approval to this sentiment at a time of peril, when Ireland's political leader, Taoiseach (Prime Minister) Brian Cowen, has been frozen in indecision, since the onset of economic meltdown in 2008. Obama said America, had "chosen hope over fear" and while Ireland can also look to hope in the increasingly important services exports' sector, Professor Robert E. Kennedy of the University of Michigan, warns that value added is a key metric for assessing the impact of services exports.

In common with people across the globe, Irish people are inspired by Barack Obama. In the early 1960's, the election of Irish-American John Fitzgerald Kennedy, had been a seminal event for Irish people at a time when it had a leader in Seán Lemass, who was leading the modernisation of the economy and challenging vested interests. Ireland could sorely do with a leader of comparable calibre today.

On Saturday, the Irish Independent said critical talks aimed at salvaging the economy descended into farce on Friday night. No details of the Government's plan to save €2 billion through public sector pay cuts were given to the social partners, and neither Taoiseach Brian Cowen nor any of his ministers were present.

An editorial in the newspaper said:"There is a prevailing feeling that weeks and months have been allowed to slip by and opportunities for action lost. If the current talks, on which the Taoiseach has laid such store, are allowed to degenerate into an inconclusive exchange, then the Lord help us all."

Independent Newspapers Group Business Editor Brendan Keenan commented: "They say of poor Christopher Columbus that, when he set sail, he didn't know where he was going, didn't know where he was when he got there, and didn't know where he'd been when he got back. The social partners taking part in yesterday's preliminary talks on the public finances will know the feeling."

While, President Obama's promise of change and reform will not be replicated in the Irish political permafrost, vision must be found elsewhere and the trend in Irish exports, which are dominated by US firms, is away from manufacturing to services.

This week, a new book - - The Services Shift: Seizing the Ultimate Offshore Opportunity,  was published and it focuses on one of the most important trends in the global economy today—the globalisation of services, and in particular, of offshore outsourcing.

Robert (Bob) Kennedy, the lead author, is Executive Director of the William Davidson Institute (WDI), a non-profit research and educational institute that focuses on business and policy issues in emerging market economies. He also serves as the Tom Lantos Professor of Business Administration at Michigan's Ross School of Business, where he teaches corporate strategy and international business courses in the MBA, EMBA, and Executive Education programs.

Excerpt

Prof. Robert E. Kennedy

Foreign firms, mainly American, are responsible for 90% of Irish exports, and services - - financial services, software, tourism, administration, research and development - - have expanded more than fivefold over the last decade and now account for 45% of total exports.

Prof. Kennedy told Finfacts this week, that the recently announced closure of Dell's Limerick plant was part of an inevitable trend, but the fact that the PC giant has retained more than 2,000 services jobs in Ireland, is a signal of Ireland's potential to take advantage of the shift to services in developed countries.

Kennedy said there is a trend among US firms to concentrate in one or two locations in the European Union and he said that IDA Ireland does a very good job in getting foreign firms to choose Ireland.

On the issue of losing significant manufacturing firms, which may not be compensated in job terms by services firms with similar export value levels, Prof. Kennedy said in relation to trading firms, a key metric is the value added that accrues in Ireland - - in effect the net export value.

For example, two of Ireland's biggest companies by revenue, are owned by Microsoft and operate from a Dublin law firm. They are used to channel overseas patent income and funds revenues from other Microsoft companies into Ireland. Microsoft also has significant software operations in Ireland and employs over 1,200. However, there are other companies that have high revenues booked in Ireland but operate with a small local staff.

The authors of Services Shift, explain that the current (and exploding!) wave of services globalisation is simply the next logical step in the evolution of international trade, which began with the extraction and exploitation of natural resources, continued through the rationalization of manufacturing around the world—a process that continues today—and now is expanding rapidly into the services sector.

They says that the huge software firms have moved into the back-office business. US Fortune 100 firms are rushing over in large numbers, as well to India. (IBM now has 53,000 people, or 17.6% of its global workforce, in India, and has described India as a linchpin in its strategy to serve the “globally integrated enterprise.”) But there are also a host of very small firms in niche roles—market research, medical transcription, and so on. There are also reconfigurations within this cast of characters—for example, GE’s spin-out of Genpact (from captive to independent), and R.R. Donnelley’s recent acquisition of Office Tiger (from independent to captive).

Today, much of this activity is centered in India. But more and more countries are playing, or trying to play, in the offshoring game. China and the Philippines are already important offshore destinations, and countries such as Hungary, Russia, Morocco, Brazil, South Africa, and Mauritius are gaining ground.