Irish Economy: Facing
weak growth rates at home, business leaders in mature economies like Ireland are
looking for international expansion opportunities in higher growth emerging
economies, according to the latest
Grant Thornton International
Business Report (pdf: IBR). Targeting emerging economics remains a key focus for
Irish exporters, and was assisted in last Wednesday’s budget by the extension of
the Foreign Earnings Deduction for employment related travel to additional
The IBR results reveal that, globally, 57% of those business leaders considering
international expansion are looking at the five biggest emerging economies - -
China, India, Russia, Brazil and Mexico - - compared with 38% looking at Western
Europe and 33% at North America. The research shows 19% of business leaders are
looking at opportunities in Africa.
Commenting on the analysis Grant Thornton partner
Patrick Burke said: “Irish businesses are no exception in relation to this
global trend, with Irish exporters constantly looking for growth opportunities
particularly in China and India. Emerging economies traditionally offer low-cost
inputs such as labour and land, and also vast consumer markets. The extension of
the Foreign Earnings Deduction in the Budget to new countries in Africa adds to
the pool of emerging markets that the government is incentivising Irish
businesses to access.”
Prior to the Budget the Foreign Earnings Deduction applied to employees working
for part of the year in Brazil, Russia, India, China and South Africa. The
deduction has now been extended to cover Algeria, Democratic Republic of Congo,
Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania. It gives employees tax
relief on the portion of their income earned whilst on business in the
designated countries provided they are there for a minimum of 60 days.
Irish exports to Africa grew by 50% in 2010 and 2011
(Irish Exporters’ Association 2011 Year End Review, page 8) and stronger annual GDP
growth forecasts of 6% in sub-Saharan Africa between 2013-17 compares favourably
with less than 3% growth in the Eurozone economies.
help investors understand which emerging economies offer the greatest potential
for business investment, in 2008 Grant Thornton developed
the Emerging markets opportunity index. Updated for 2012, this third iteration
sees China once again top the index,
followed by India and Russia. Brazil has moved above Mexico into fourth place.
The biggest movers include the ‘frontier economies’ of Indonesia (up two
places), Chile (up two), Nigeria (up nine) and Peru (up five).
The IBR also shows that international expansion is no longer a one-way street.
Increasingly cash-rich businesses in emerging economies are looking for
expansion opportunities in mature markets, whether through opening premises or
buying distressed assets. Businesses in Turkey (59%), Russia (37%), India (33%)
and China (27%) are looking at opportunities in Western Europe. And 33% of Latin
American businesses, rising to 58% in Mexico, are looking at North America.
Patrick Burke added:
“Investment from mature economy businesses offers peers in emerging economies
significant productivity gains in the form of technology transfer and access to
new skills and processes. We should not be surprised if investors from China,
India and other emerging economies start to look much more closely at possible
opportunities to make acquisitions and invest in Ireland.”
Data collection is managed by Grant Thornton
International's core research partner -Experian. Questionnaires are translated
into local languages with each participating country having the option to ask a
small number of country specific questions in addition to the core
questionnaire. Fieldwork is undertaken on a quarterly basis. The research is
carried out primarily by telephone.
Sample: The data for this release are drawn from
interviews conducted between May and September 2012 with over 6,000 businesses
from all industry sectors. The target respondents are chief executive officers,
managing directors, chairmen or other senior executives.
Finfacts Comment: Developing new export markets in
emerging economies is not for the faint-hearted. I am based in Kuala Lumpur
and I lived in Saudi Arabia in the 1990s.
Irish export data is no guide to the challenges. For example,
about 95% of Irish exports to China are made by foreign-owned firms in Ireland
and generally decisions regarding the destination of exports from Ireland are
not made in Ireland
Putting Mandarin on the school curriculum is a
typical proposal from armchair ‘experts’ who have no experience of the
challenges of selling in China - - 1.3bn consumers and all we need is a very
tiny slice of the pie!
November 2009, Irish companies were warned by
several senior executives who run some of the country’s most successful
indigenous companies, to be cautious about expanding into emerging markets and
focus instead on developed markets.
“More fortunes have been lost than made by getting in too early,” former CRH CEO
Liam O’Mahony told a conference on making businesses international at UCD’s
Michael Smurfit Business School.
O’Mahony, who ran the world’s second biggest building materials company from
2000 to 2008 and now chairs IDA Ireland, said Irish companies should consider
expanding into the US, UK and other mature markets before looking at countries
such as China. “Some of these markets are very
large and there is still scope to grow as long as you have value propositions,”
O'Mahony’s advice was repeated by Glanbia chief executive John Moloney and Glen
Dimplex boss Seán O’Driscoll. “China is a
long-haul, a slow-burn,” O’Driscoll said.
Glanbia has a small
presence in Asia.
India is to some a more
difficult market than China. Ireland's exports are insignificant at about €300m
- - Michael Hennigan.
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