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The ‘tiger’ accolade has been awarded to Asia for a while now, but Tim Harcourt finds that Ireland has taken huge leaps in economic reform.

Active ImageUnfortunately, Ireland’s success is still quite a well kept secret so far as Australian business is concerned

While Australian business focus has been on Asia—particularly with the rise of China and the recent emergence of India—another economic success story has been unfolding on the other side of the world.

Ireland, a small open economy, which for many years suffered from poverty, famine and drastic population loss, has become a Celtic tiger, emulating a lot of the feats of the Asian tigers (such as Singapore, Hong Kong, Korea and Taiwan) in recent decades.

Ireland is constantly ‘top of the pops’ when it comes to studies by the OECD (Organisation for Economic Cooperation and Development) and other think tanks on economic growth, competitiveness, and business attractiveness for foreign investment. The Irish economy outperformed all other European Union (EU) economies in the 1990s, recording an economic growth rate throughout that period that was three times the EU average. Ireland’s average annual growth rate over the past decade was, and is still, over seven percent, and unemployment is 4.5 percent—the fifth lowest in the EU 25 and compares to a ‘euro zone’ average (the EU countries that share the common currency) of 8.8 percent. In short, after many years of suffering, including being the butt of jokes, the Irish with their strong and consistent economic performance are having the last laugh.

Economic Reforms

So, what is the secret of Ireland’s success? There are four reasons. Firstly, human capital. Ireland has made important investments in skills, education and training. It invested in schooling and computer education at an earlier time than other OECD economies and was well placed when the information revolution and the ‘knowledge economy’ took off. Traditionally a poor agrarian economy, it had attempted an export-led industrialisation strategy from the 1950s. However, a radical change in the Irish education system in the mid-1960s led to an emphasis on engineering, science and information technology. Ireland’s economic renaissance (it is now a major exporter of computer software) is due in large part to the investment it has made in the skills of its people. According to the 2005 IMD World Competitiveness Yearbook, Ireland’s education system was ranked second in a survey of 60 advanced economies. It also ranked fifth in terms of the proportion of university education graduates.

Secondly, the Irish are good at knowledge transfer. They developed strong links between commerce and education, allowing companies to make the most effective use of the well-educated workforce.

Professor Roy Green, dean of the Macquarie Graduate School of Management (MGSM), recently head-hunted from the National University of Ireland at Galway, said: "The Irish also made sure that knowledge was shared regularly and openly throughout the economy."

Green also highlighted the importance of Ireland’s ‘social compact’, which enabled widespread diffusion of knowledge and technology by encouraging cooperation between all elements of society. "The Irish institutions ensure that employees, employers and government all take responsibility for economic outcomes. The ‘social partnership agreement’ between the Irish Congress of Trade Unions and the Irish Business and Employers Confederation regularly negotiate wage agreements, and Ireland has enjoyed strong employment growth and wage and price stability as a result."

Thirdly, they strongly promoted close links between universities and business with industry clustering, technology transfer, and the building of supply chains with an active role for industry development. The Irish experience shows that it is not just education and training that is important, but how you turn those human capital investments into successful commercial ventures. Forging strong links between education institutions and innovative enterprises is a key part of this strategy.

This has long been the case in Silicon Valley, but the Irish experience shows you don’t need to be a large nation like the US to forge these links. Similarly, Israel, another small nation, has been successful at commercially exploiting its knowledge capital. As in Ireland, education in science and engineering has been the key to Israel’s success. It has also successfully encouraged its graduates to establish global companies through venture capital and private business ‘incubator’ programs promoted by the Israel Export Institute.

Both Ireland and Israel quickly built policy institutions suitable to the post-industrial age and took advantage of their strong educational focus to build commercial advantage in the global economy.

Lastly, it’s about openness, as Ireland has always been open to trade and investment and therefore open to new ideas and technology.

Investment & Export

Ireland ranks 10th in the IMD World Competitiveness Index in terms of exports as a percentage of GDP, and almost half (47 percent) of Ireland’s medium-sized businesses export, which is high by global and European standards. Ireland mainly exports within the EU, which takes almost 63 percent of its exports, followed by the US on 19 percent, Switzerland on just under four percent, Japan on almost three percent, and Hong Kong and Singapore making up almost two percent in combination.

Ireland has also enjoyed high levels of foreign direct investment in its emerging industries with impressive government assistance agencies such as Enterprise Ireland and the Irish Development Agency (IDA Ireland). Companies like Apple, Microsoft, Lucent Technologies, Oracle, Pfizer, GlaxoSmithKline, Citigroup, Analog Devices and Takeda Chemicals made Ireland their European headquarters, being attracted by the young, highly skilled workforces and favourable business environment.

According to the Irish Development Authority, some 1,050 global businesses have their headquarters in Ireland, with strong representation in industry sectors such as e-business, ICT, pharmaceuticals and medical technologies, as well as finance, business and professional services.

The US leads the way with 473 multinationals based in Ireland, followed by Germany with 135, the UK with 114, France with 43, the Netherlands with 42, Japan with 30, and Switzerland with 25.

Of course, EU membership and assistance has helped. But let’s give credit to the Irish for their own reforms, particularly in education and training, which are clearly the key driver of their recent economic success. And after their many years of suffering, it’s good to see them have some success, particularly in providing opportunities for young people who would otherwise have had no option but to emigrate to the new world as they did for many years in recent Irish history. In fact, on the emigration side, Ireland is now reversing this trend and its population is growing strongly. According to IDA Ireland, it has one of the youngest populations in Europe with over 40 percent of the population being under 25. This has not only helped attract foreign companies because of the skilled workforce, it also helps lower Ireland’s ‘dependency ratio’, meaning that there will be no fiscal problems in having enough workers to support pensions and healthcare as has occurred in other nations with ageing populations.

Australian Trade

So, what has the Celtic tiger’s rising star meant for Australia? According to Austrade research, there are around 485 Australian companies exporting to Ireland (which is low compared to 4,808 for the UK, 2,507 for Germany and 1,407 for the Netherlands), and about half a dozen Austra
lian companies have located their regional headquarters there. However, according to Melissa Moloney of Austrade Dublin, Ireland is proving to be a good place for niche players among small and medium-sized enterprises (SMEs) in areas such as ICT and pharmaceuticals as well as the usual suspects such as food, beverage and fashion. "Australia has a strong brand and is naturally popular in Ireland because of a common culture and ancestral links. But many Australian players who cross the Irish Sea realise how much has changed in Ireland and what a vibrant entrepreneurial place it is," she says.

Indeed, Ireland is a good benchmark for new entrepreneurs from Australia. For example, Daryl Bubner who runs Wave Global, which designs research technology that can assist SMEs in developing their business benchmarking strategies, says Ireland is a great place to start from. "It’s an open place, with many small businesses getting a start, so it was a logical place for Wave Global to set up," he said. Wave Global is running a pilot program with 100 Irish SMEs in conjunction with Chambers Ireland and the Bank of Ireland.

Irish eyes are still smiling on the economic front, thanks to openness, innovation, and a strong belief in education and knowledge. With a bit of Irish luck and Aussie pluck, many Australian companies are starting to see the benefits of doing business with the Celtic tiger.

* Tim Harcourt is chief economist for Austrade, and the author of Beyond Our Shores. Thank you to Melissa Moloney of Austrade Dublin for her assistance with this article.

Tips to Doing Business in Ireland

Business hours: Most offices (including post offices) in Dublin are open Monday to Friday, 9am–5:30pm. Banks are open Monday to Friday, 9am–5pm. Traditionally Dublin shop opening hours have been Monday to Saturday, 9am–6pm, with late-night shopping on Thursdays until 9pm. Most city centre shops are open on Sundays from 12pm–6pm.

Etiquette: While general business rules apply internationally, it helps to keep a few things in mind when doing local business.

      • Do not refer to the UK or England as ‘the mainland’! The Republic of Ireland’s autonomy can be a sensitive subject.

      • On the first meeting, businessmen will always wear a suit and tie. Businesswomen always dress smartly. During the winter months, in such cold climates, gloves and scarf are the norm.

      • Lunch tends to be short with limited alcohol. A small tip when eating Chinese food: in Ireland, people tend to each order their own dish, as in any other restaurant, rather than sharing.

      • Smoking is banned in all workplaces. This includes restaurants and bars, so it is not unusual to see a group of people standing outside a pub having a cigarette. However, many pubs have covered outdoor smoking areas.

      • The day tends to start a little earlier than nine, and business people tend to work past 5:30pm. However, if you are expecting to have a meeting after 5:30pm, it may be in the local pub over a drink.

      • Dinner is often proceeded by drinks at the local pub so don’t be surprised if dinner begins a little later than usual. Pub culture is very much alive in Ireland, so if you are invited for pre-dinner or post-meeting drinks, it is considered polite to accept, even if only for one drink or soft drink (which is entirely acceptable). If you are staying around for a few drinks, it is customary to each buy a round of drinks, rather than buying your own.

      • In general, the Irish are renowned for having a laidback approach to punctuality. But it would not be appropriate to expect this in a business context and tardiness should not be encouraged.

      • As Dublin has become a multicultural city within the last five to 10 years, don’t be at all surprised if you meet with an Australian, South African, Chinese, Indian, or Pakistani representative.

      • Irish business people are not ambiguous, they will tell you if your product is not suitable for the Irish market. They may appear blunt, but believe it is better to be honest than trying to be polite and giving the client false hope.

* Courtesy of Austrade Dublin.

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