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 African countries.

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.

To 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:

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!

In 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,” he said.

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 annually.

- - Michael Hennigan. 

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