Irish companies investing abroad is good for the Irish economy, says Eoin O'Driscoll
Companies such as CRH, Kerry Group, Ryanair and Riverdeep are competing in global markets and forging ahead as market leaders and innovators in their sectors.
These companies all share a common trait: they understand that the development of bases and operations overseas is crucial to their growth strategies.
They understand that outward direct investment (ODI) can make companies stronger. By doing so they do not show a lack of commitment to Ireland, but rather work to position their Irish-based operations as the hub of successful multinational businesses.
For decades Ireland has been the beneficiary of investment by US, European and Asian multinational companies choosing Ireland as a base for their European operations. This foreign direct investment (FDI) into Ireland fuelled much of our economic growth.
Opening up our economy and adopting policies that embraced multilateral trading, either within the EU single market or the WTO, contributed to our success in attracting FDI. Now, as a developed economy, we can continue to benefit from the globalisation process, not only through FDI but also increasingly through ODI.
In 2001, when Forfás published a statement on ODI, investment by Irish companies abroad was an emerging trend.
Six years on, Ireland is a net international investor - with outward investment levels exceeding inward investment since 2004.
This recent trend has quite rightly raised questions and concerns about the impact of this substantial change on the economy.
The Ictu, in its publication Offshore Outsourcing, pointed to two opposing views on the effects of ODI: mainstream economists arguing that it will lead to higher economic growth and even to more jobs in the offshoring country (Ireland, in this case); and others suggesting that it will lead to rapid economic decline and massive job losses.
The Ictu suggests that the answer is in between, but closer to the first view, as jobs have been offshored for decades and new jobs have replaced those lost.
Recent research conducted by Forfás supports this view, and suggests that the net impact of Irish investment abroad on our home economy is positive.
ODI is often a logical and inevitable stage in the development of an enterprise driven by competitive forces and customer demands. ODI is one sign that our companies are moving along a development path, and that the Irish economy is maturing.
Successful firms with the capacity and competence to internationalise can undoubtedly contribute to long-term growth.
To succeed, companies need to implement strategies that enable them to be nimble and efficient. Multi-country presence has become international best practice for fast-growing companies and an important strategy in keeping domestic companies globally competitive.
Companies can gain advantage by investing in overseas operations and by accessing foreign market opportunities and lower cost of production inputs. This can facilitate the Irish operation to restructure towards higher-skill, higher-value activities, which result in improved productivity and wealth creation. The State development agency Enterprise Ireland, through its network of overseas offices, works with companies seeking to develop their businesses, and recognises that company strategy may include investment overseas.
Companies are motivated to establish overseas operations for different reasons.
Many companies invest overseas to enter new markets and increase sales. Companies also establish operations overseas out of necessity when faced with competitive pressures. In the global market place many Irish companies compete directly with companies with operating bases in lower-cost locations, including China, India and eastern Europe. With such competition, establishing operations in lower-cost locations is critical for the survival of many Irish businesses.
While the net impact of ODI is positive on the home economy, it should be acknowledged that there are some potentially negative effects, as in some cases it can be accompanied by job losses. The employment churn that can arise from ODI has implications particularly for those in low-skilled employment, especially in regional locations.
We must work to address these issues. We must focus on training and support for the labour force to ensure a smooth transition to higher-skilled and high-value activities. Our objective should be that no one is left behind.
The State cannot, and should not, prevent this mostly positive shift. The focus should be on continuing to support companies to avail of the opportunities that ODI offers, and on ensuring that the accompanying shift towards a higher-skills profile in Ireland is matched with a pro-active programme of upskilling.
Eoin O'Driscoll is the chairman of Forfás, the policy board for enterprise and science. He was also chairman of the Enterprise Strategy Group