Survey: Multinationals express concern at cost base in Ireland

A survey of multinationals in Ireland for 2008 shows that multinationals in Ireland remain confident that Ireland can continue to attract foreign direct investment, though warned that the high cost base in Ireland must be tackled.

The Irish Management Institute/National Irish Bank Survey, launched today, revealed that multinationals thought Ireland could continue to attract and retain foreign-owned business to Ireland.

Dr Tom McCarthy, Chief Executive, Irish Management Institute, said: “There are some positive messages in this survey, though there are warnings too.

"Most positively, the transformation of Ireland’s export sector from a location for low value-added production to high value-added activities is evident in the survey. In the 2005 survey only half of all companies said that their Irish operation was either strategically important or very important in terms of their global operation.

"This has now risen to two in three. For example, virtually all pharmaceutical companies surveyed said that their Irish operation was either strategically important or very important to their global operations."

However, the results showed that the respondents believed that the costs of doing business in Ireland must be controlled while maintaining the low corporate taxation rate and investing in human capital.

The issue of wage costs was reported as the most important issue identified by respondents for Ireland's competitiveness, a position it has held since the survey was last conducted in 2005.

Five of the 'top ten' factors of most importance to Ireland’s competitive position are related to the cost of doing business in Ireland, as they were in 2005.

These include: wage costs, the rate of inflation, energy costs, corporation tax and non-labour costs.

Dr Tom McCarthy said: "Clearly, the cost environment remains one of the top concerns of firms based in Ireland. The issue of companies’ access to a sufficient quality of management skills has shot up in terms of importance, which reflects the higher value-added activities now taking place in Ireland."

The report was launched by the Chief Executive of IDA, Mr Barry O’Leary.

Mr O’Leary said: "While over three quarters of the companies expected to see revenue growth this year, more impressively 37% of them expected double digit percentage increases in turnover, demonstrating the growth multinational companies can achieve by moving up the value chain, helping Ireland’s to become a leading 21st century economy."

The survey reveals that the slowdown in the international economy is having a noticeable effect on multinationals' perceptions of how their business would fare in the coming year.

Co-author of the report, Dr Ronnie O’Toole, Chief Economist of National Irish Bank, said: "In terms of the future prospects of this workforce, just over 36% of respondents to this year’s survey expect the numbers they employ to decrease over the coming year. A little over a quarter expect the number they employ to rise over the same period."

He said that any economic recovery in Ireland from 2010 onwards will depend on the performance of the exporting sector.

Dr O’Toole said: "The export sector is possibly the only one that will show any growth next year, and will be key to driving an economic recovery.

"Since the last economic downturn at the start of the millennium, Ireland has managed to re-orientate its export sector away from low value-added computer hardware production, to higher value-added pharmaceuticals and business services.

"In the upcoming Budget the Government can cement this success by tackling the rising cost base facing multinationals, though investment in physical capital and education must continue."