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Analysis/Comment Last Updated: Sep 17, 2010 - 5:39:44 AM

Irish Economy: IBEC and understanding the world East of Suez
By Michael Hennigan, Founder and Editor of Finfacts
Mar 26, 2008 - 7:13:44 AM

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Export Performance and Competitiveness of the Irish Economy Central Bank of Ireland Quarterly Bulletin 3 2005 - - - It is foreign-owned firms that are driving Irish exports and most of them don't have or need a marketing function in Ireland. The Irish firms are flatlining.
Ship me somewheres east of Suez, where the best is like the worst,
Where there aren't no Ten Commandments an' a man can raise a thirst;
For the temple-bells are callin', an' it's there that I would be --
By the old Moulmein Pagoda, looking lazy at the sea;
    On the road to Mandalay,
    Where the old Flotilla lay,
    With our sick beneath the awnings when we went to Mandalay!
    On the road to Mandalay,
    Where the flyin'-fishes play,
    An' the dawn comes up like thunder outer China 'crost the Bay!

On the Road to Mandalay, Barrack-Room Ballads (1892),by Rudyard Kipling (1865-1936)

IBEC, Ireland's principal business representative organisation, has played a role characterised by timidity in recent decades as it succumbed to the paralysing embrace of social partnership consensus and as the Irish economy falters, it has also fallen for the delusions of political leaders who misrepresent the challenges for the Irish economy when it comes to the opportunities in the world East of Suez.

To Kipling, the "somewheres" in the world east of Suez, were in Asia beyond the rich oil sands of the eastern Arabian Peninsula. Today, twelve countries in Asia, account for half the world's population and few people there, could place Ireland on the map of the world.

In the past year, IBEC, the Irish Exporters' Association and three of the four ministers in the Department of Enterprise, Trade and Employment, have commented on trade with Asia, as if a) decisions on the destination of most exports from Ireland, are made in Ireland b) the exports are made by Irish-owned firms or there is no relevance in distinguishing between exports by the likes of Microsoft, Intel, HP and for example food group Glanbia, shipping milk powder to Asian markets.

Irish industrialist Eoin O'Driscoll, who is chairman of the Irish Government science and policy advisory agency Forfás and headed the Enterprise Strategy Group (ESG), which reported in 2004, told a conference in 2005, that most of the products we manufacture, are designed elsewhere and the bulk  of our exports, are marketed/sold by organisations outside Ireland.  

The Enterprise Strategy Report noted that:

Over the past decade, the overall value of exports from Ireland has grown very substantially. The figures, however, tend to mask two important facts:

  • Export growth in most indigenous sectors has been negligible

  • Exports from foreign-owned companies have been largely directed and managed from outside Ireland.

The ESR said that "the majority of these companies do not conduct their sales and marketing activities from Ireland. These activities are usually managed and executed elsewhere within the corporate family. The resulting lack of direct customer interaction limits their ability to innovate and to influence their future development in Ireland."

Micheál Martin TD, Minister for Enterprise, Trade & Employment
In June 2007, Micháel Martin, Minister for Enterprise, Trade and Employment, said at a conference on China at University College Cork:
"Ireland’s knowledge–based economy, built on innovation and technology, is substantially shaped by the emergence of strong technology-led and export-focused Irish companies. Companies, which have become world leaders in their respective industries.

Ireland, thus, has much to offer the Chinese market - and China recognises that fact.

Irish innovation in key sectors- information and telecommunications technologies, education and training, environmental and engineering, life sciences and medical devices, aviation, electronics, industrial machinery and food and drinks products- have resulted in steadily increasing sales to China."

In simple terms, the former schoolteacher was saying that Intel, Microsoft, Pfizer, Boston Scientific and so on, are Irish firms. In legal terms, their  Irish units are Irish companies but to claim that "Irish innovation in key sectors," is the reason for the rise of exports to China is dangerous delusion.

In February 2007, IBEC published a report on the potential of trade with Asia, to coincide with the Chinese New Year. There was no distinction made between exports by the foreign owned sector, which was responsible for more than 90% of total exports (merchandise and service) from Ireland in 2006.

The policy prescriptions put forward, including improving air links, implied that most exports to Asia were made by indigenous Irish firms.

Eoin O'Driscoll is Forfás Chairman, Managing Director of Aderra and formerly a Senior Vice President with Lucent Technologies. He chaired the Enterprise Strategy Group.
Later in 2007, the Irish Exporters' Association said that the successful"Asia Strategy" should be emulated in Europe to support faltering Irish exports to countries such as Germany.

IBEC Head of Trade and International Relations Pat Ivory said on Thursday, March 20th, 2008: “The Euro has gained almost 20% on the dollar and 15% on Sterling over the last twelve months: 2008 will be a very tough year for Irish exporters coping with these currency difficulties and a US recession. However, large emerging economies and new markets in the EU offer substantial trade opportunities.”

Exports to six rapidly growing economies, targeted through Government lead trade missions and the setting up and strengthening of Enterprise Ireland offices, recorded very strong growth rates. Irish goods exported to the key emerging markets of China, India, Russia, South Africa, Mexico and Brazil were up 21.8%, worth €3.6 billion, equivalent to 4% of total Irish exports. These six emerging economies with 2.9 billion people, 44.6% of world population, offer enormous potential for further Irish export growth. Our exports to China (including Hong Kong) alone reached €1.95 billion in 2007, a dramatic 30% increase on 2006.

Ivory continued: “A further encouraging trend in today’s data is the increase in our exports of goods to the new EU member states, up 19.3% and now worth €1.6 billion or nearly 2% of the value of total exports in 2007. This reflects strong double-digit retail sales growth in a number of these countries, for example in Poland the volume of retail trade was up over 12% per month during the second half of 2007. Exports to these countries will be less impacted by currency difficulties.

“The combined dramatic 21% growth in the export of goods to these two groups in 2007 - emerging economies and new EU member states - is very significant given our overall export growth of just 2%. The huge potential for further exports growth in all these new markets could significantly reduce our high dependence on the US and UK. If the 2007 trend were to continue to 2012, annual Irish exports to these new emerging and EU markets could be worth over €13 billion or around 13.5% of our total exports. It is vital therefore that the Government, state agencies and the EU Commission do everything in their power to further open up these important new markets to Irish exports”.

Here again, there was no differentiation made between the indigenous sector, which is still mainly dependent on the UK market, and the foreign-owned sector.

There is no official breakdown of exports from Ireland to Asia but following contact with Enterprise Ireland, CSO, Forfás, ESRI and IDA Ireland, it is estimated that exports from Ireland are less than 10% of the total.

Any chance that a significant part of the jump of 40% in exports to Poland, relates to the opening of the Dell plant in Lodz?

Belgium is the third largest destination for Irish merchandise exports and exports to another important regional freight hub, the Philippines, increased by 67% in 2007.

It may be a surprise but people who should know better are not aware of the implications for the trade figures of goods transported by DHL via Brussels or FedEx via its hub at the former US naval station at Subic Bay, north of Manila.

There are big opportunities in Asia, which both Australia and New Zealand are grasping as the demand for food products grows.

Tommy Doherty, partner at business consultant Mazars,  highlighted on Monday how New Zealand is taking advantage of markets in Europe.

New Zealand’s success has been its innovative approach to new markets especially but not only in Asia, where growing wealth is seeing consumers shift their eating habits from root vegetables to dairy and meat products.

 “The food industry in New Zealand developed specific measures and worked with external partners to develop new technologies and new products. They created specific products for specific markets and created best practice dairy markets in Asia. And despite being 12,000 miles away from European markets, New Zealand has become increasingly competitive for its chilled lamb and their lamb exports to the EU have increased 40% in the last two years”.

The Irish Farmers' Association is stuck in the past, seeking retention of protections and supports with the aid of the Irish Government. Banning Brazilian beef is seen as a panacea but if you are looking for a steak house across Europe, what's the chances of finding an Irish one compared with a Brazilian one?

How can we appreciate the challenges if we continue to delude ourselves that exports by foreign-owned firms in Ireland are as Irish as French wine exports are French?

Service Exports

Pub-stool economists and some professional ones, sing the latest mantra that the fall in merchandise exports is no big deal because service exports are firing ahead.

Again we are dealing with business that is overwhelmingly foreign-owned and directed from outside Ireland.

US chipmaker Intel is Ireland's biggest industrial employer and has a payroll of about 5,000, west of Dublin.

There are finance and aircraft leasing companies based in Ireland that have large flows of capital through Ireland but with small staff levels.

Do we understand the job implications of a big fall in merchandise exports?

Two of Ireland's biggest companies by revenue are owned by Microsoft and in 2004 had Irish revenues of about $16 billion - revenue that was channeled into Ireland from other Microsoft units outside Ireland. (last year the companies became unlimited and financial data is no longer publicly available). They have no direct staff and operate from the offices of a Dublin law firm.

So, it's not as simple a world as it may seem.

IBEC in state of chassis

IBEC is like the two principal Irish political parties in having to appeal to the various interests among its diverse membership.

It has been in a comatose state over the past decade as Taoiseach Bertie Ahern and the public sector trade unions, have blocked any significant change in the public sector.

The partnership process has produced nothing of substance in this area and in early 2007, the Taoiseach requested the OECD, the Paris-based think-tank for 30 member governments, to put forward proposals for public service reform. Will IBEC insist on the Government enacting unpopular suggestions? Extremely unlikely.

However, whether it is an €8 billion knowledge economy plan that may well result in 10,000 publicly funded researchers in 2013, with aspirations rather than results to show for the huge expenditure, or an input into the direction of Irish export strategy, it can still make some difference. Dealing with the facts would be a start. Challenging the delusions of politicians would also be a new departure.

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