Ireland-The Attac Of The Celtic Tiger

Developing viable regions:

Ireland - the attack of the Celtic Tiger

INDEX

1. Introduction......................................................................................................................... 3

2. Economic history...................................................................................... 4

2.1. Overview........................................................................................... 4

2.2. Reasons for the Irish success story............................................................. 6

2.2.1. The impact on production through FDI.......................................... 6

2.2.2. The impact of foreign owned companies........................................ 7

2.2.3. External trade........................................................................ 8

2.2.4. 'Tax-cut policies'................................................................... 9

2.2.5. Changes in education............................................................... 9

3. FDI from a Government perception................................................................. 10

3.1. Policies attracting FDI............................................................................ 8

3.1.1. Pricing Strategy..................................................................... 11

3.1.2. Differentiation Strategy............................................................ 12

4. FDI from a company perception..................................................................... 13

4.1. The theory behind: Why companies do FDI................................................ 13

4.2. Company background.......................................................................... 15

4.2.1. IDA's effect on the Microsoft's Investments to Ireland....................... 16

5. Conclusion.......................................................................................................................... 17

6. Bibliography/Internet sources................................................................................... 19

1. Introduction

Ireland has faced extremely fast development in many industrial sectors during the last decades. This has not happened by accident and that is what made it for us an interesting case to study in more detail. The Irish government policy towards Foreign Direct Investments (FDI) has affected in large extend to Multinational Organizations' investment decisions into Ireland. The FDI is one of the main focuses through the paper as we see that they have had a major impact on the development of Ireland during the 80's and 90's.

In this paper we will focus on three main areas. First area is a view to the historical development of the country from the mainly agricultural driven society in the 50's to a highly developed industrial country in the 21st century. The second part of this paper will focus more carefully on the reasons why this development has been possible. We will go through some theory about government policy in attracting Foreign Direct Investments. The last part of this paper will focus on the company point of view of FDI. We will go through one company example and discuss this according to an introduced theory of companies doing FDI.

With this paper the group wants to give the reader a more specific view to the fast and well-planned development Ireland has been able to reach during the recent decades. We hope that this view encourages the reader to take a closer look to the fascinating Irish culture and we hope that the reader will get some perception what possible tools a government has to attract foreign firms to invest in the host country.

2. Economic History

2.1 Overview

Ireland will go down in economic history as the economic miracle in the last decade of the twentieth century.

For most of the 20th century although, even well into the late 1980s, Ireland was in economic terms quite unsuccessful. Chronic unemployment led to large emigration flows and dampened entrepreneurial activity. The country's economic situation eventually reached crisis levels because of the spillover effects of the two oil shocks of the 1970s and the high interest rates resulting from the United States' anti-inflationary policies of the early 1980s. By 1988, the public debt exceeded 140% of Irelands gross domestic product. But the unemployment situation was also serious, emigration resurged, the economy stagnated, and living standards deteriorated. Between 1979 and 1988, the GDP only grew 2.1% and the unemployment rate reached in the late eighties levels close to 15%. No wonder the country was counted among the 'sick men of Europe'.

In 1987, taking advantage of a broad consensus for change that had emerged among all the major domestic policy actors, the newly elected Prime Minister Charles Haughey pushed through a set of dramatic actions. He introduced large tax cuts, and as GDP growth responded to tax cuts and wage moderation, the budget deficit was slashed and the debt to GDP ratio shrank. By 1990 the budget deficit had dropped from 7.9 percent in 1986 to 0.6 percent of GDP, while the public sector borrowing requirement declined in the same time from 14.2 to 2.8 percent of GDP.

Several other factors also played an important role in Ireland's spectacular development. These included opening up toward Europe, breaking with British currency, granting massive incentives to foreign direct investment (FDI), engaging in technological development and investing in education.

The result of the Irish economy is quite impressive. From 1991 to 2000 annual real growth averaged 8%, compared with the