The Republic's shared services industry will begin haemorrhaging jobs to low-cost economies in Eastern Europe and Asia unless radical and imaginative steps are taken to arrest wage inflation, rein in costs of living and overhaul sub-par infrastructure, an expert on the sector has warned.
Multinational companies seeking to establish shared service offices are increasingly overlooking the Republic and choosing competitive developing nations such as Hungary, the Czech Republic and India, said Dr Martin Fahy of NUI Galway's department of accountancy and finance and a member of the Brussels-based Shared Services Business Process Outsourcing Association."Ireland has been an attractive location in the past but firms are now looking to a range of new locations," he said.
In recent months, Diageo, owner of Guinness, and Rhodia Pharmaceuticals had located shared services divisions in Budapest, he said. Other corporations were likely to follow their lead and choose emerging economies over Ireland, he said.
An ominous trend towards outsourcing to third-party providers based mainly in the developing world has emerged, Dr Fahy added.
"These have strong leanings towards offshore locations such as Madras and Bangalore in India, where office rental and labour costs make them attractive centres for shared services."
Several thousand people worked in shared services in the Republic. However, IDA Ireland said it was impossible to establish an exact number of people employed in the sector because shared services were often annexed to other departments.
It has become apparent that the Republic's low-tax regime is not sufficient to attract foreign investment ahead of countries with lower labour costs and better infrastructure, Dr Fahy said.
The deepening global downturn and the eastward expansion of the European Union made the outlook even bleaker for Ireland, he said.
The State's attractiveness as a tax shelter had waned as the slowing world economy diminished multinationals' profits.
The imminent accession of eastern europe nations into the EU would shift the centre of power in the continent further towards the centre, leaving the Republic on the periphery, Dr Fahy warned. Dismissing the warning as "nonsensical", IDA Ireland insisted multinationals were clamouring to locate shared services centres here.
Labour costs remained competitive outside Dublin, while the mix of work skills available in Ireland was unsurpassed anywhere in the world, a spokesman said. He added: "Ireland offers an outstanding package that continues to be highly attractive to multinational corporations."
In the past year alone, some 250 shared services jobs had been created here, the spokesman said.
Scoffing at claims that India in particular was a major threat to inward investment, he claimed most back offices in the sub-continent had been opened by British firms attracted by historical ties between the two countries.
