FDI and the Competitiveness challenge Martin Cronin CEO Forfas Labour Relations Commission Symposium 11 Nov 2004.

FDI and the Competitiveness challenge

Martin CroninCEO Forfas

Labour Relations Commission Symposium

11 Nov 2004

11 Nov 2004Labour Relations Commission Symposium 2

A tale of two countries………..


Country 1: THE BOOMTOWN

It was the best of times……

• High income

• Near full employment

• Strong base of modern

industry


Benchmarking the Boomtown

• Levels of corporation tax 1/16

• FDI net inflows 1/16

• Labour productivity per person employed/hour 2/16• GDP per capita 2/16

• Unemployment rate 3/16

• Government debt as % GDP 3/16

• Entrepreneurial activity 4/16


• Employment in internationally

trading sector falling

• Rate of pay/price increases

(and their absolute level?)

unsustainable

• Inadequate infrastructure

Country 2: THE BASKET CASE

It was the worst of times……


Benchmarking the Basket Case

• Cluster Development 8/16• US Patent applications 10/12• Value Chain presence 11/16• Business expenditure on R&D 11/16• Cost of broadband 12/13• Intensity of local competition 13/16 • Broadband access 13/16• Overall infrastructure quality 15/16• Efficiency of distribution infrastructure 15/16• Growth in nominal compensation per employee 15/16


Are there any certainties out there?


CERTAINTY #1

Economic Development will be

increasingly Technology Driven

Iron Age

Bronze Age

Information Age

Bioengineering Age

Stone Age

???


US internet bandwidth demand growth (%pa)

30 33 3542

50

6270

7990

40

55

0102030405060708090100

'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06


Economic Development will be increasingly Technology Driven

http://www.sunburstbottle.com/product644.html


CERTAINTY #2Globalisation will continue

U.S Singapore

ThailandChina


Emulating Ireland/Singapore

Moving the goal posts

JORDAN ESTONIA

CHINA INDIA


Parts of Asia + Central Europe winning much

of “our” high tech & services FDI business.

- National Instruments

- P + G

- G.E., Dell, Ford

- China/semiconductors

- Singapore/pharma


We are still in the FDI business

Life Sciences : Centocor / Merit Medical / Guident

Web Services : Google / Overture / Amazon

Software : McAfee / Business Objects

Financial Services : Harford Financial Services


How should we respond to sustain Competitiveness and Growth?

11 Nov 2004Labour Relations Commission Symposium

16

Future Global Scenarios

•Faster, faster

•Rough neighbours

•Comparative Advantage


‘Ahead of the Curve’- Enterprise Strategy Group

Competitiveness

Comparative Advantage


1 Build Comparative Advantage

• Tax

• Flexible Regulatory and

Business Environment

• Relevant skills


Tax rates


Tax Rates

Effective Marginal Tax Rate (EMTR) of European Competitor Countries

Country Corporation Tax rate % EMTR %

Austria 34 20.9

Denmark 32 21.9

Finland 28 19.9

Ireland 10 11.7

Luxembourg 37.45 20.7

Netherlands 35 22.6

Spain 35 22.8

Sweden 28 14.3

UK 30 24.7


Tax RatesCorporation Tax Rates, in Competitor Countries

Country Standard Rate

Preferential Rate

Qualification

Czech Republic 28% 5% Profits from investment funds

Hungary 16% To be supplied

Poland 19% none -

Switzerland 24.1% 0% Tax holidays of up to 10 years

China 33% 15-24% For foreign investment in the Special Economic

Zone

Puerto Rico 20% 0%-7% Manufacturing products new to the island

Singapore 24% 0%-5% For ‘pioneer industries’ and those engaging in new high-value added

projectsSource: KPMG Corporate Tax Rate Survey 2004, PwC Corporate Taxes 2003-2004


Labour Market Regulation

Labour Market Regulation (10=flexible)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

US

Den

mark

Hu

ng

ary

Irela

nd

UK

Fin

lan

d

New

Zeala

nd

Jap

an

Neth

erla

nd

s

Sp

ain

Italy

Sw

ed

en

Po

lan

d

Ko

rea

Fra

nce

Germ

an

y

Source: IMD World Competitiveness Yearbook 2003


Extent of Labour Market Regulation (2003)(Source: IMD World Competitiveness Yearbook 2004)

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00


Burden of Regulation

Burden of Regulation (7=low)

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Fin

lan

d

Irela

nd

UK

US

Hu

ng

ary

Sp

ain

New

Zeala

nd

Den

mark

Ko

rea

Sw

ed

en

Neth

erla

nd

s

Po

lan

d

Fra

nce

Germ

an

y

Jap

an

Italy

Source: World Economic Forum


Burden of Regulation (2003)(Source: WEF Global Competitiveness Report 2003-2004)

0.0

1.0

2.0

3.0

4.0

5.0

6.0


26

A FEW EXAMPLES

Financial Services

Management of IP

Medical Devices Functional foods

E-Learning

Biotech/pharmaManufacturing

‘Spheres of business’ where Ireland is or could become an internationally significant location

Established

Communications Management

Software

‘Locally Delivered’ Internationally Traded

Services

Emerging/Future possibilities


27

Some Characteristics

Specialised Skills

Knowledge Intensive

Niche Markets Low Labour Content High Skills

High Margin


Service Intensive

Customised Products/Services


28

Comparative advantages

Indepth Market Knowledge

Responsive Regulation

SpecialisedInfrastructure

RelevantSkills and Training

Specialised Services

Relevant Researchand Development

Strengths



29

High Value Manufacturing - Examples of sectors and activities that offer significant opportunities


30

Services - Examples of sectors and activities that offer significant opportunities


2 Boost productivity

• Infrastructure

• Research

• Innovation

• Competition

• Education and skills


The “National System of Innovation”

Public R&D

Training &Education

Firms system

Large, small, MNCs, NTBFs, …

VentureCapital

Intermediaries

Incubators,Mentoring…

Businesssupport

MARKETS

Humancapital

Rules &Regulations

Framework conditions

Innovationpolicy


3 Maintain an attractive cost environment

• Fiscal policy

• Public Sector

efficiency

and responsiveness

• Pro competitive

regulatory policies


Consumer Price Inflation (HICP) December 1999-December 2003

0.02.04.06.08.0

10.012.014.016.018.020.0

Ireland

Portugal

Greece

Spain

Netherlands

Italy

Luxembourg

Denm

ark

Finland

Sweden

Belgium

France

Austria

Germ

any

UK

National HICP EU15 HICP


Index of Consumer Good and Services Eurozone, 2003 (Ireland = 100)

62

67

69

79

81

83

83

84

85

85

100

101

50 60 70 80 90 100 110

Portugal

Greece

Spain

Italy

Belgium

Luxembourg

France

Austria

Germany

Netherlands

Ireland

Finland


5 Compete for FDI

• Tax and other Comparative

Advantages

• Costs

• Infrastructure (sites, services)

• Flexibility, agility, speed

• “Selling” (Development

Agencies)


Conclusion

We must apply both economy wide and sector specific

strategies to build competitive advantage……….

……………………in activities for which this country is

or can become an internationally significant location


Forfás

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Wilton Place

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www.forfas.ie

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FDI and the Competitiveness challenge Martin Cronin CEO Forfas Labour Relations Commission Symposium 11 Nov 2004.

Documents

labour productivity

pa slide

singaporepharma slide

business expenditure

fdi business life sciences

economic development

fdi net inflows

overall infrastructure