CRITICAL COMPARISON OF FOREIGN DIRECT INVESTMENT IN NORTHERN IRELAND AND THE REPUBLIC OF IRELAND

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CRITICAL COMPARISON OF FOREIGN DIRECT
INVESTMENTIN NORTHERN IRELAND AND THE REPUBLIC
OF IRELAND
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CONTENTS

• BACKGROUND TO FOREIGN DIRECT INVESTMENT
• NORTHERN IRELAND - OVERVIEW
• IDB - IMPACT, INCENTIVES, VISION
• REPUBLIC OF IRELAND - OVERVIEW
• IDA - IMPACT, INCENTIVES, VISION
• DIAMOND OF COMPETITIVE ADVANTAGE
• CRITICAL COMPARISON
• FUTURE

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EXECUTIVE SUMMARY
FOREIGN DIRECT INVESTMENT IS NOW A VITAL TO THE
ECONOMY OF BOTH NORTHERN IRELAND AND THE REPUBLIC
OF IRELAND BOTH COUNTRIES HAVE MADE CONTINUOUS,
COMMITTED EFFORTS TO ATTRACT FOREIGN INVESTMENT,
BY PROMOTING AND IMPROVING THE COMPETITIVE
ADVANTAGE THAT THEY HAVE OVER OTHER NATIONS
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Foreign Direct Investment
Basis of FDI is the desire of a home country firm
to obtain and manage an asset in a host
country Renato Ruggiero - General-director of
the World Trade Organisation There can be no
doubt that foreign direct investment has joined
international trade as a primary motor of
globalisation Deregulation and privatisation
have played key roles in the continuing growth of
FDI
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Factors in Investment Decisions

• Market Size
• Cost Differentials
• Knowledge-Based Assets
• Factor Endowments
• Trade Endowments
• Process and Product Innovations
• Managerial and Marketing Skills

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Trends in Foreign Direct Investment

• Physical, Technological and Administrative
  barriers in Europe have reduced
• Advances in transport and communications
• Globalisation
• USA has been a major source of new investment in
  UK
• Continental Europe and Asia Pacific have had an
  impact e.g. Fujitsu, Daewoo and Ryobi
• Europe remains the major recipient of FDI, and
  within Europe, the UK and ROI have had most
  success

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NORTHERN IRELAND - OVERVIEW

• WELL EDUCATED HIGHLY MOTIVATED WORKFORCE
• FAST GROWING ECONOMY
• SOPHISTICATED DIGITAL TELECOMMUNICATIONS
  INFRASTRUCUTRE
• TAX INCENTIVES
• IDB SUPPORT
• IMPROVING INFRASTRUCTURE AND TRANSPORT NETWORK

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Industrial Development BoardNorthern Ireland

• AIMS AND OBJECTIVES
• Attract new, first time inward investment, which
  will lead to
• Further growth
• Sustainable Employment
• Enhanced Job Quality
• Strengthened Northern Ireland Economy
• Implement programmes that will ensure equality
  of opportunity
• Emphasis on the Targeting Social Need Initiative

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ROLE OF IDB
TO HELP COMPANIES COMPETE GLOBALLY BY PROVIDING A
BROAD RANGE OF EXPERT ADVICE AND PRACTICAL
SUPPORT TO ATTRACT NEW FOREIGN INVESTMENT TO
NORTHERN IRELAND FROM MANUFACTURING AND TRADABLE
SERVICES COMPANIES
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IDB - TRACK RECORD

• INWARD INVESTMENT PROJECTS INCREASING YEARLY
• 1998-99 - 21 NEW INVESTMENT PROJECTS INVOLVING
  NEARLY 3000 NEW JOBS
• MAIN INWARD INVESTMENT SECTORS
• SOFTWARE
• NETWORK SERVICES
• TELECOMS AND ELECTRONICS

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IDB - STRUCTURE

• INWARD INVESTMENT GROUP - promotes NI as an
  investment location
• HOME INDUSTRY GROUP - promotes development of
  companies already located in NI
• TRADE INTERNATIONAL NORTHERN IRELAND -
  responsibility for trade and exports

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GROWTH SECTORS
In recent years, as a result of IDB inward
investment, a number of growth sectors have
become very well established, most notably

• Software
• Electronics
• Telecommunications
• Aluminium Castings
• Network Services

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Significance of FDI to NI Economy

• Over the period 1993-1998 IDB client companies
  promoted over 21,000 jobs
• FDI enables the introduction of
• New Technologies
• New Markets
• Management Skills
• Development of local linkages through the
  supplier base

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The Impact of FDI - An Evaluation

• Extent to which it affects productive capacity
• Number of new jobs created by inward investment
• Extent to which it creates new capacity
• Extent to which it acts as a channel through
  which new ideas, technologies and working
  practices can be established in host country

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IDB - Financial Incentives

• Every package of financial incentives is
  tailored to meet the special needs of the
  specific investment project concerned
• level of grant offered varies according to the
  precise location within Northern Ireland
• Influencing Criteria
• Number of jobs to be created
• Extent of the capital investment committed
• Level of unemployment in the location selected

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Financial Incentive Package

• IDB offers one of the most attractive and
  substantial incentive packages in Europe
• CAPITAL - Cash Grants For Building, Machinery
  and Equipment, up to 50 in high unemployment
  areas
• REVENUE - Grants towards
• Start up costs
• Interest Relief
• Factory Rents
• Company Development Programmes
• Market Entry

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FINANCIAL INCENTIVES

• RESEARCH AND DEVELOPMENT
• TAX - Grants Towards
• Depreciation Allowances
• Industrial De-Rating

• FINANCE
• Loans
• Share Capital

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Financial Incentives

• LAND - IDB has an extensive range of sites
  available which have been strategically located
  near ports, motorways etc
• MAJOR BUSINESS PARKS - property is available in
  some 50 locations throughout Northern Ireland
  including
• Antrim
• Ballymena
• Coleraine
• Newry
• Omagh

• Northern Ireland has Zero property tax for
  manufacturing projects

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IDB - VISION
To see a larger base of world class companies
in Northern Ireland, both locally and externally
owned, in the manufacturing and internationally
tradeable service sectors IDB (1998)
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Republic of Ireland - Overview

• One of the most favoured locations for
  investment in Europe
• A stable economy, consistently high growth and
  low inflation
• 40 of population under 25 years
• Average growth GDP (1990 - 98) is 7.3 compared
  to 2.4 EU average
• Labour costs among the most competitive in
  Western World
• Stable political environment

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Industrial Development Agency

• IDA is a government agency which has helped over
  1200 companies to set up in Republic of Ireland
• It employs approximately 125,000 people directly
• FDI has been critical to the Republic of
  Irelands economic success, and accounts for
• 65 of manufacturing output
• 47 of manufacturing employment
• 82 of manufactured outputs

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Why Choose ROI ?

• Government Incentives
• Population - 40 under 25 yrs
• Highly Educated Workforce
• One of the lowest labour turnover rates in
  Europe
• Payroll costs - one of the lowest in Europe
• Well Developed Infrastructure
• World competitiveness Yearbook 2000, ranks ROI
  7th most competitive economy of 47 states
  surveyed, ahead of UK and Japan

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IDA - TRACK RECORD

• IDA HAS HAD CONSIDERABLE FDI IN THE FOLLOWING
  SECTORS
• CHEMICALS AND PHARMACEUTICALS
• E-COMMERCE
• ELECTRONICS AND SOFTWARE
• INTERNATIONALLY TRADED SERVICES SECTOR
• MEDICAL DEVICES

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GOVERNMENT INCENTIVES

• INFRASTRUCTURE - Government development support
• CURRENCY - Only English speaking member of EMU
• BANKING - Excellent banking infrastructure
• TRANSPORTATION - Huge government support for
  improved transportation
• TELECOMMUNICATIONS - Huge investment in networks
• E-COMMERCE - Pro-active approach to legislation
  and investment
• INDUSTRIAL PROPERTY

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After Tax Return on US investment in EU
Return
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GOVERNMENT FINANCIAL SUPPORT

• IDA CAN PROVIDE
• CAPITAL GRANTS - Subsidise expenditure on land,
  buildings, plant and machinery
• EMPLOYMENT GRANTS - Available where permanent
  full-time positions are created
• R D - Helps fund high quality, risk intensive
  projects
• TRAINING - Help train employees in new
  industries
• Key factor in deciding the grants package is the
  number of jobs to be created by the investment

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GOVERNMENT INCENTIVES
MAIN GOVERNMENT INCENTIVE FOR FDI IS TAX
INCENTIVES, IT HAS ONE OF THE MOST BENEFICIAL
CORPORATE TAX RATES IN THE WORLD CORPORATION TAX
CURRENTLY 10 FROM JAN 2003 RATE WILL BE
12.5 TAX INCENTIVES FOR SOME PROJECTS E.G. R D
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Corporate Tax Rate Comparison
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GOVERNMENT INCENTIVES
FDI IN THE REPUBLIC OF IRELAND HAS A GOOD
INDUSTRIAL RELATIONS RECORD ROI HAS LESS ONEROUS
EMPLOYMENT LEGISLATION COMPARED TO OTHER EU
COUNTRIES ROI HAS ONE OF THE LOWEST PAYROLL
COSTS IN EUROPE
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Comparison of Payroll Costs in US
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PORTERSDIAMOND OF COMPETITIVEADVANTAGE
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Chance
Firm Strategy, Structure and Rivals
Firm Strategy, Structure and Rivals
Factor Conditions
Demand Conditions
Related and Supporting Industries
Gov
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PORTER - ROI

• FACTOR CONDITIONS
• Excellent, human, knowledge, capital conditions
• DEMAND CONDITIONS
• International demand to avail of their
  incentives
• FIRM, STRATEGY, STRUCTURE RIVALRY
• With so much inward investment, structure will
  be similar and rivalry will be increased

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PORTER - ROI

• RELATED AND SUPPORTING INDUSTRIES
• Continually improving, excellent supporting
  industries in terms of banking and financial
  services
• CHANCE
• Exchange rates and EMU decisions
• GOVERNMENT
• Excellent incentives and commitment to FDI and
  E-Commerce

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PORTER - NI

• FACTOR CONDITIONS
• Basic factors are good, knowledge is high,
  capital is improving, infrastructure is good.
• DEMAND CONDITIONS
• Due to size of population, demand is small
• FIRM STRATEGY, STRUCTURE AND RIVALRY
• Again due to size, rivalry is low resulting in
  lower standards

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PORTER - NI

• RELATED AND SUPPORTING INDUSTRIES
• Support skills are improving, especially in
  computers
• CHANCE
• Unstable political environment
• GOVERNMENT
• Incentives not as good as ROI, but investing in
  skills programmes such as RAP

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CRITICAL COMPARISON
BOTH HAVE YOUNG HIGHLY EDUCATED WORKFORCES BOTH
HAVE RELATIVELY LOW LABOUR COSTS HOWEVER,
GOVERNMENT INCENTIVES DIFFER GREATLY REPUBLIC OF
IRELAND LIKELY TO BE MORE SUCCESSFUL IN TERMS OF
FDI, DUE TO BETTER GOVERNMENT INCENTIVES AND
BETTER SUPPORTING INDUSTRIES
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FUTURE

• INCREASINGLY COMPETITIVE ENVIRONMENT - OVER 1000
  AGENCIES IN EUROPE COMPETING FOR INWARD
  INVESTMENT
• ROI IS THE MAIN COMPETITION FOR ALL AGENCIES
• NI SHOULD PROMOTE ITS INCREASING SUCCESS IN NEW
  TECHNOLOGIES
• SUSTAINED COMPETITIVE ADVANTAGE IS INCREASINGLY
  IMPORTANT

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FUTURE

• GREATEST RESOURCE FOR BOTH ROI AND NI IN THE
  FUTURE WILL BE ITS PEOPLE
• GOVERNMENT INCENTIVES IN NI WILL NEED TO IMPROVE
  IF IT IS TO ACT AS A REAL THREAT TO ROI
• INCREASED CROSS BORDER INITIATIVES?