Is Ireland's ride on the gravy train coming to an end? The answer, according to Prof Michael Porter, one of the world's leading economic strategists, is that this phase is drawing to a close and the prognosis is for a much bumpier journey as Ireland strives for the next tier of economic progress.
Prof Porter, who was in Cork this week for a seminar, predicts Ireland will have to reinvent and resell itself if it is to compete successfully in the new economic world order. This, suggests the professor of business administration at the Harvard Business School, will require a greater emphasis on infrastructure, innovation and research as well as greater productivity and better managerial skills.
The time has come, he says, to face the fact that Ireland no longer holds the attraction it did for foreign investors, and the likelihood is that the influx of capital will begin to taper off.
As the end of the initial surge nears, there will be pressures such as those already showing in terms of rising inflation and increased wage demands. While there are inflationary elements outside the State's control, opening the economy to even greater competition is one tool at the disposal of the Government and it should be used, Prof Porter says.
"I think there's no cause for alarm . . . From what I've read and heard, my understanding is that Government policy is starting to address some of these issues.
"As the economy is restructured around the next stage of development, we may see fewer companies coming in for the same reasons that they came in the past . . . the good scenario would be that some of the companies that are established here already - the EMCs and the others - would start to change the character of how Ireland fits into their overall strategy.
"Instead of Ireland being the manufacturing site, Ireland will hopefully take responsibility for certain product lines; it will become a global site, or headquarters, for certain product lines. There will be more design done here, more services here and hopefully one will see the growth of a stronger supplier base. In the surveys we have done, one of the areas of weakness in Ireland consistently is the quality and quantity of local suppliers that firms can depend on without having to import everything. "I have a very optimistic view of Ireland. I think there seems to be a self-criticism and recognition that more is necessary and I find that very encouraging.
"A lot of countries that are rapidly growing think that's the way it's going to be and believe the formula will continue to work. But the formula doesn't continue to work - you've got to keep changing it," Prof Porter added.
Ireland was no longer the place to go for low-cost labour, he said. "So for an American company coming to Ireland, it's a new sell and that sell has to be based on skill pools that are available here, particular specialties, software, electronics, life sciences, a critical mass or cluster of companies that one can be part of, and I think it's also going to be necessary to build university research and training capacity to support some of the emerging clusters.
"It seems to me that tax incentives are no longer going to persuade companies to come here. Companies will be persuaded to come here in the future if they feel they are in the middle of a very productive and vibrant business environment in their field.
"It seems to me that in order to compete in these new ways, the quality of management in Ireland will have to improve dramatically . . . Ireland is no longer the obvious choice for anyone who wants to manufacture and get into Europe, so I think you will see a different type of company here bringing a different type of operation from what they brought in the past."
On inflation, Prof Porter said Ireland had basically run out of resources. "The labour is now employed. Whenever you're in an economy growing so rapidly, at some point you will run out of resources and that will initially create inflationary pressures. But that pressure and rising wages are actually a trigger that tends to start the economy transforming itself into a new structure . . . One of the biggest mistakes governments make is trying to manage prices too closely rather than let market forces trigger transformation in the economy.
"The average worker in Ireland has to become more productive if Ireland is to become wealthier, so the things the average Irish worker does now are going to have to evolve over time and become more sophisticated . . . The one thing the Government could do in fighting inflation which would be powerful is to open up competition. My impression is there are still many local businesses that are not fully exposed to competition," he said.
