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

Labour Relations Commission Symposium 2 A tale of two countries………..

11 Nov 2004 Labour Relations Commission Symposium 3 Country 1: THE BOOMTOWN It was the best of times…… High income Near full employment Strong base of modern industry

11 Nov 2004 Labour Relations Commission Symposium 4 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

11 Nov 2004 Labour Relations Commission Symposium 5 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……

11 Nov 2004 Labour Relations Commission Symposium 6 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

11 Nov 2004 Labour Relations Commission Symposium 7 Are there any certainties out there?

11 Nov 2004 Labour Relations Commission Symposium 8 CERTAINTY #1 Economic Development will be increasingly Technology Driven Iron Age Bronze Age Information Age Bioengineering Age Stone Age ???

11 Nov 2004 Labour Relations Commission Symposium 9 US internet bandwidth demand growth (%pa)

11 Nov 2004 Labour Relations Commission Symposium 10 Economic Development will be increasingly Technology Driven

11 Nov 2004 Labour Relations Commission Symposium 11 CERTAINTY #2 Globalisation will continue U.S Singapore ThailandChina

11 Nov 2004 Labour Relations Commission Symposium 12 Emulating Ireland/Singapore Moving the goal posts JORDANESTONIA CHINA INDIA

11 Nov 2004 Labour Relations Commission Symposium 13 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

11 Nov 2004 Labour Relations Commission Symposium 14 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

11 Nov 2004 Labour Relations Commission Symposium 15 How should we respond to sustain Competitiveness and Growth?

11 Nov 2004 Labour Relations Commission Symposium 16 Future Global Scenarios Faster, faster Rough neighbours Comparative Advantage

11 Nov 2004 Labour Relations Commission Symposium 17 ‘Ahead of the Curve’ - Enterprise Strategy Group Competitiveness Comparative Advantage

11 Nov 2004 Labour Relations Commission Symposium 18 1 Build Comparative Advantage Tax Flexible Regulatory and Business Environment Relevant skills

11 Nov 2004 Labour Relations Commission Symposium 19 Tax rates

11 Nov 2004 Labour Relations Commission Symposium 20 Tax Rates Effective Marginal Tax Rate (EMTR) of European Competitor Countries CountryCorporation Tax rate %EMTR % Austria Denmark Finland Ireland Luxembourg Netherlands Spain Sweden UK3024.7

11 Nov 2004 Labour Relations Commission Symposium 21 Tax Rates Corporation Tax Rates, in Competitor Countries CountryStandard Rate Preferential Rate Qualification Czech Republic28%5%Profits from investment funds Hungary16%To be supplied Poland19%none- Switzerland 24.1%0%Tax holidays of up to 10 years China33%15-24%For foreign investment in the Special Economic Zone Puerto Rico20%0%-7%Manufacturing products new to the island Singapore24%0%-5%For ‘pioneer industries’ and those engaging in new high-value added projects Source: KPMG Corporate Tax Rate Survey 2004, PwC Corporate Taxes

11 Nov 2004 Labour Relations Commission Symposium 22 Labour Market Regulation

11 Nov 2004 Labour Relations Commission Symposium 23

11 Nov 2004 Labour Relations Commission Symposium 24 Burden of Regulation

11 Nov 2004 Labour Relations Commission Symposium 25

11 Nov 2004 Labour Relations Commission Symposium 26 A FEW EXAMPLES Financial Services Management of IP Medical DevicesFunctional foods E-Learning Biotech/pharma Manufacturing ‘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

11 Nov 2004 Labour Relations Commission Symposium 27 Some Characteristics Specialised Skills Knowledge Intensive Niche Markets Low Labour Content High Skills High Margin ‘Spheres of business’ where Ireland is or could become an internationally significant location Service Intensive Customised Products/Services

11 Nov 2004 Labour Relations Commission Symposium 28 Comparative advantages Indepth Market Knowledge Responsive Regulation Specialised Infrastructure Relevant Skills and Training Specialised Services Relevant Research and Development Strengths ‘Spheres of business’ where Ireland is or could become an internationally significant location

11 Nov 2004 Labour Relations Commission Symposium 29 High Value Manufacturing - Examples of sectors and activities that offer significant opportunities

11 Nov 2004 Labour Relations Commission Symposium 30 Services - Examples of sectors and activities that offer significant opportunities

11 Nov 2004 Labour Relations Commission Symposium 31 2 Boost productivity Infrastructure Research Innovation Competition Education and skills

11 Nov 2004 Labour Relations Commission Symposium 32 The “National System of Innovation” Public R&D Training & Education Firms system Large, small, MNCs, NTBFs, … Venture Capital Intermediaries Incubators, Mentoring… Business support MARKETS Human capital Rules & Regulations Framework conditions Innovation policy

11 Nov 2004 Labour Relations Commission Symposium 33 3 Maintain an attractive cost environment Fiscal policy Public Sector efficiency and responsiveness Pro competitive regulatory policies

11 Nov 2004 Labour Relations Commission Symposium 34

11 Nov 2004 Labour Relations Commission Symposium 35

11 Nov 2004 Labour Relations Commission Symposium 36 5 Compete for FDI Tax and other Comparative Advantages Costs Infrastructure (sites, services) Flexibility, agility, speed “Selling” (Development Agencies)

11 Nov 2004 Labour Relations Commission Symposium 37 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

11 Nov 2004 Labour Relations Commission Symposium 38 Forfás Wilton Park House Wilton Place Dublin 2, Ireland Tel: +353 (0) Fax: +353 (0) Alerts For regular updates on Forfás announcements, press releases, publications and events, subscribe to Alerts by ing with ‘subscribe’ in the subject or body of the .