Competitiveness

star gazer

It is hard to believe that we have become one of the most expensive countries in Europe. Indirect taxes, chrges increases and uncompetitive industries have all contributed to a scenario when businesses don't earn their profits, they get them for simply being there. Product innovation, R&D are central to vibrant expanding industries. When it comes to providing workers and businesses with an environment conduscive to working well and being enterprising, Ireland is begining to fall short of the best. We have very competitive direct taxation rates, but costs after that are losing Ireland her edge. Economists say it's the low wage economies that are to blame for job losses, but when you look at our tax system it appears to be anti-job. PRSI adds directly and indirectly to the cost of employing, many benefits in kind are about to be taxed as income, the cost of living here is way up on even five years ago which increases wage expectations, research funding is not a priority for this government, evidenced by proposed cutbacks for next year this affects universities most and without the best universities in the world our ability to add value to goods and services becomes more limited. We have the opportunity to make ireland a leading economic light, all we need is the vision to see it.

BigEejit

That ..er .. rant ... looked very newspapery ... you should put in a link to where-ever it came from ... if you wrote it yourself I apologise for any slight to your character

star gazer

That ..er .. rant ... looked very newspapery ... you should put in a link to where-ever it came from ... if you wrote it yourself I apologise for any slight to your character
BigEejit

Thanks for the insult/complement. Does that mean you agree or disagree with the points made?

star gazer

The minister for enterprise and employment has no direct control over the day to day workings of the Competition Authority. It's not her fault it doesn't tackle the big boys when it comes to cartels. We basically are meant to sleep better knowing there is a Competition Authority even though it has had only one conviction. When Ireland has an economy with free trade and competition we will prove to the rest of the world the Celtic tiger hasn't lost its roar.

Victor

Originally posted by star gazer
Indirect taxes, chrges increases and uncompetitive industries

Indirect taxes encourage lower factory prices, not increas them (look at VRT). I imagine on average indirect taxes a similar overall in other countries (note residential property has no taxes).

The real problems are high wages and middle and senior management taking too big a cut and investing it in glorified (overpriced) property and flashy (imported) cars, not productive capital.

star gazer

Indirect taxes encourage lower factory prices, not increas them (look at VRT).
Victor

The real problems are high wages
Victor

One of the critical factors in people demanding higher wages is the cost of living, indirect taxes increase the cost of living, hence higher wage demands.
For the relatively small decrease in factory prices for cars, the irish car buyer is gauged with VRT, i don't think many people would be that impressed by VRT reducing factory prices. Given the choice they motorists would take higher factory prices (relative to EU) over VRT any day.

The property market is a worry for sustainable Irish growth, tying up capital in non productivity.

ur mentor

SG,
You appear to think all businesses should be expanding, investing in R and D etc
why do you think this?
All business have a life cycle and those that are steady can be very profitable- cash cows as it were.
how do you know how much R and d is going on anyway?
If a business owner sees that they are making profits and likely to continue to do so then they may be quite happy to leave it alone. there were plenty of lean years in the past after all.

Victor

Originally posted by ur mentor
You appear to think all businesses should be expanding, investing in R and D etc

Yes it would be imprudent for a typewriter manufacturer to be spending a lot on R&D on typewriters (obsolete for 15 years).

However, every business should spend even a few hours a month on R&D, seeing where trends are going, what’s new on the market and how to sensibly shave a little off costs or improve their product, it's just common sense. Even if a market is static, you can still improve margins.

star gazer

You appear to think all businesses should be expanding, investing in R and D etc
ur mentor

There is an expression, expand or die. If businesses don't keep up with trends, eventually they will lose customers and close. With globalisation a factory can be set up in cheaper labour markets than here, we need to invest in the irish worker to get the most capacity to add valiue out of each worker. The tools they use from corporate structures to broadband internet connections have to be the best in the world to retain and stimulate the best entrepreneurs and bring on a new version of the celtic tiger. We have a unique opportunity to catch up with the best economies in the world and learn from the mistakes they made in getting to where they are now. We could be learning from their transport mistakes, privatisation mistakes, competition law mistakes, immigrant treatment mistakes, etc. We didn't learn.
The irish economy and business and political leaders should focus on certain directions, of course each business is different and will be impacted differently by a focus on R&D, employee training etc.

Floater

Originally posted by Victor
Yes it would be imprudent for a typewriter manufacturer to be spending a lot on R&D on typewriters (obsolete for 15 years).

However, every business should spend even a few hours a month on R&D, seeing where trends are going, what’s new on the market and how to sensibly shave a little off costs or improve their product, it's just common sense. Even if a market is static, you can still improve margins.

Look at Kodak, a company that is dieing a slow death because of the move to digital photography. They were slow off the mark in coming out with digital cameras - probably because they didn't want to cannibalise their high margin film business. They have lost the digital market to the Japanese and others. The company is now virtually a "liquidating trust".

One can see similar patterns in Ireland as labour costs increase. Instead of the Irish subsidiary being proactive and outsourcing the labour intensive elements of their operations to low labour cost countries and retaining control over the overall product, they wait until the operation becomes uneconomic and has to be forcibly shut down by the corporate headquarters.

Floater

De Rebel

Originally posted by Floater
One can see similar patterns in Ireland as labour costs increase. Instead of the Irish subsidiary being proactive and outsourcing the labour intensive elements of their operations to low labour cost countries and retaining control over the overall product, they wait until the operation becomes uneconomic and has to be forcibly shut down by the corporate headquarters.

Floater

Thats a very interesting point. In fact, it looks as though history could repeat itself. In the 1920s and 1930s this country developed a whole swath of heavy industry. Ford, Dunlop, Verlome, Irish Steel, The Sugar Company, NET, etc. etc. For many years these and their like (together with agricultue) kept the economy running. It was obvious from the 1960s (and to some long before that) that these were not viable long term employers/wealth generators. The country suffered terribly in the 1970s and 1980s as these industries imploded and there was nothing to replace them. In effect, we wasted the breathing space that these companies gave us in their dying days when we should have been hard at work planning their replacements.

We got out of the mess through a mix of circumstances. (Luck or Skill.... thats another argument)

We are now relying on a small number of industries/employers to keep the engines running. There appears to be an assumprion that these engines will continue at their current pace, even if growth has tapered off. I believe that this assumption is flawed. And seriously flawed at that. In 5/10 years we could face the 70/80s all over again. For example:

The Pharma/Chemical sector - a huge contributor to the economy. Relativly mobile, located here mainly for tax reasons. Would take about 3/4 years for the entire sector to move elsewhere. (New Jersey, Porto Rico, Singapore are existing locations, and it is inevitable that east europe will offer a location at some stage, with most of our advantages, and none of the disadvantages.

The IT Sector. Dell employ 4,500, would take about 6/12 months to relocate manufacturing. Many of the other low-ish value-added operators in the sector would take a bit longer. And even the "further up the food chain" call centre stuff can be relocated and is bening relocated. Even Intel could move in a single investment cycle (4-8 years).

Finance/IFSC etc. Could move in minutes...... Well perhaps not quite, but there are few impedements.

I'm not a pessimist, and believe that we have everything to play for. But the warning signs are there.................


Appaling performance on delivering infrastructure improvements. Sorting out road transport bottlenecks and shocking broadband roll-out are but two examples. Everything we touch appears to be going pear shaped.

No serious strategy about creating the wealth engines for the next decades.

A complete lack of foresight/vision/future thinking/leadership at the top. Bertie/Harney et al. appear to have lost the run of themselves. There is NO future thinking at all going on.

A general complacency and a return to the "the world owes us a living" mentality. Enjoying our "richely deserved" rewards and convincing ourselves that we are worked to the bone, while the reality is so often different...

Its not an open and shut case, but if I was a doctor and Ireland Inc. was my patient I'd be issuing some very stern wake up calls. At present, the big wealth creators/employers are giving us breathing space. We should be using it to plan their replacements.

In my opinion, its time for Ireland to get a MITI

Victor

Originally posted by Floater
Look at Kodak, a company that is dieing a slow death because of the move to digital photography. They were slow off the mark in coming out with digital cameras - probably because they didn't want to cannibalise their high margin film business. They have lost the digital market to the Japanese and others. The company is now virtually a "liquidating trust".

Like the electrical valve business (now almost exclusive to very high value sound systems as they are analogue, not digital and give "purer" sound) in the 1970s-80s, this could actually provide an opportunity for someone to do a huge M&A on the traditional photography business (while in decline, it won't disappear). One avenue of attack Kodak is using is getting people to develop their digital photos onto tradition paper mediums.

Originally posted by De Rebel
Thats a very interesting point. In fact, it looks as though history could repeat itself. In the 1920s and 1930s this country developed a whole swath of heavy industry. Ford, Dunlop, Verlome, Irish Steel, The Sugar Company, NET, etc. etc. For many years these and their like (together with agricultue) kept the economy running. It was obvious from the 1960s (and to some long before that) that these were not viable long term employers/wealth generators. The country suffered terribly in the 1970s and 1980s as these industries imploded and there was nothing to replace them. In effect, we wasted the breathing space that these companies gave us in their dying days when we should have been hard at work planning their replacements. We got out of the mess through a mix of circumstances. (Luck or Skill.... thats another argument).

To a degree, EEC competition from 1973 and the removal of import duties killed them as they were de facto being protected up until then. Politicians were blinded by EEC agriculture subsidies and side issues and "didn't realize" the heart was being torn out of manufacturing. It took 10 years and more to structurally adjust to open market realities.

Originally posted by De Rebel
Finance/IFSC etc. Could move in minutes...... Well perhaps not quite, but there are few impedements.

The main one being the lack of airport access to the IFSC. Like it could take an hour at least to move the business Some companies have already gone as they are making losses in their home market and there is no reason to pay even low taxes here when making losses elsewhere.

star gazer

floater
outsourcing the labour intensive elements of their operations to low labour cost countries and retaining control over the overall product

in a sense, irish workers become managers and service providers rather than traditional production line workers. New, innovative ways of planning, designing and prototype production would be the focus and the investors and workers share in the proceeds of subsequent outsourcing to mass produce the product. There would be a moral obligation for the outsourcing operation to pay a relatively good wage and perhaps even a share options scheme.

The service industry is obviously our biggest employer and maybe it is here that our competitiveness is suffering most. There seems to be a lack of key professionals like Doctors, Lawyers, Accountants etc. The inflation of prices because of limited numbers in such sectors undermines the cost-effectiveness of doing business in the country and the cost of living for workers in this country. Efficient public services would also do a lot for the entrepreneurial spirit in business, with a reduction in bureaucratic red-tape and speed of response of state agencies to problems. There is no reason why ireland should accept second best any more.

star gazer

In fairness to mary Harney she seems to be committing herself to increased R&D funding over the next few years. The university chiefs had been going crazy about the prospect of losing the €50million grant from the Irish American philanthropist Chuck Feeney. phew, that was close

ur mentor

looks like this thread is designed to focus on growth.
everybody agrees the heavy industries like steel, ford, that were around in the 50's and 60's are gone for ever.
from this thread it appears the service sector is also an inch away from going.
is r and d is the only future?
will 50 million really matter in terms of global r and d?
this is only €12 or so per man woman and child in country per year.
i agree innovation is important but govt must ensure we remain stable in terms of inflation, planning, currency, borrowings, availability of employer friendly and skilled labour. they are only beginners after all. In over 70 years they have never had to manage rapid growth- only slow growth or recession.
if we can maintain a balance and keep compettitive against other nations then we may hold onto 80% of the jobs in the value added chain. It looks like this recession is now over and if we can quickly pick up the pace we can get some cash in the bank for investment. Perhaps we should not be looking backward to new eastern europe countries but forward to emulating the productivity of the Americans with the quality of the Japs and the design of the germans. most of these earn the kind of money we feel we should earn.;)

star gazer

originally posted by ur mentor
from this thread it appears the service sector is also an inch away from going.

There will always need to be a services industry and it will not necessarily be so that we would lose net jobs to lower wage economies in the services industries. One could say that we will have more and more immigrant workers working in our services industries in the lower wage brackets as has happened elesewhere. So maybe in a sense that is importing from low wage economies.

i agree innovation is important but govt must ensure we remain stable in terms of inflation, planning, currency, borrowings, availability of employer friendly and skilled labour.

unfortunately our government no longer have as much control over interest rates and currency movements since we became part of the euro and when inflation nearly hit 7% there was nothing we could do. (if you exclude the stealth taxes issue).

R%D will not only be in the conventional interpretation of technology but also in management and organisational structiures so that the value added by each worker is considerably more than the wage they get. A person that is educated to in the irish education system will be compatable with an organisational culture and job description designed around and by Irish people other low wage (by implication poor education) economies would not be. Since the larger cut usually goes to the patent and it's development, that is where a worker can add most value.

However Ireland has lost sight of competitiveness in recent years. It has become easier (and seemingly more rewarding)to invest in housing than in enterprises. Without creatin the new products and services for people, the irish economy is in danger of stagnating like the germans and japanese. The tendancy to squeeze as much profit out of the consumer in the short term should be lessened to allow long-term strategies for growth to build up a new generation of competitive and lean major irish enterprises capable of adding more value than our global competitors.

Victor

Originally posted by star gazer
There will always need to be a services industry and it will not necessarily be so that we would lose net jobs to lower wage economies in the services industries.

I think he means internationally traded services (banking, call centres, etc.) - the section that makes the most money for the country. I wouldn't rely on selling cappuccinos to tourists for a service industry.

Floater

Originally posted by Victor
I think he means internationally traded services (banking, call centres, etc.) - the section that makes the most money for the country. I wouldn't rely on selling cappuccinos to tourists for a service industry.

Capital formation is vital for any economy to provide equity funding for investment in new projects.

People working in a call centre or in the IFSC are part of a "wage economy", which has very little opportunity for capital formation. i.e. all their earning power is used up in repaying their mortgage, general living costs, the inflated cost of running a car and pension / retirement savings.

Someone with a successful tourist business (eg a hotel) will add a lot of value to the local economy in terms of payroll and other inputs which are largely home produced. They will also build up substantial capital which is available for investment in other projects.

Call centres are low skill and are headed for india since 2000. Lloyds TSB Bank in England transferred much of the branch work to call centres in the 1990s. They are now closing the English call centres and re-routing the call traffic to India. Dell have done the same thing from Ireland. English speaking countries are far more vulnerable to this. If you call Dell support in Belgium, France or Switzerland (FR) you get connected to Dell Montpellier. No chance that will be moving to India or anywhere else cheap.

Tourism is also firmly bound in the country.

Floater

star gazer

originally posted by victor
I think he means internationally traded services (banking, call centres, etc.) - the section that makes the most money for the country. I wouldn't rely on selling cappuccinos to tourists for a service industry.

work in the right place selling cappuccinos and you probably earn only a little less than call centre work, especially with the minimum wage. Net service sector jobs, in other words sure we wil lose some to english speaking low wage economies.
Tourism was just an example, Health sector, financial & PR & marketing consultants, are a part of the service industry too and there seems to be a myriad areas of expansion in services that could be provided. Shifting the focus into R&D will take a culture shift, but it will provide for sustainable growth.

originally posted by floater
Someone with a successful tourist business (eg a hotel) will add a lot of value to the local economy in terms of payroll and other inputs which are largely home produced. They will also build up substantial capital which is available for investment in other projects.

The danger is that the profits made are not reinvested in productive business and are instead put into unproductive assets. The problem of saddling workers with the big mortgage is that they will not be as willing to take the risk to start a business off and grow from scratch. Sitting on laurals doesn't mean the economy will grow. Dell might stick around here for a while with our corporation tax rate here, at least until Eastern European countries copy our economic models.

originally posted by ur mentor
forward to emulating the productivity of the Americans with the quality of the Japs and the design of the germans. most of these earn the kind of money we feel we should earn.

you mean be more like the Finns?

Floater

Originally posted by star gazer

The danger is that the profits made are not reinvested in productive business and are instead put into unproductive assets.

While quite often one hotelier will set-up (or buy and improve) another hotel, there has been unfortunately an increasing trend to follow the British pattern of selling out and taking the cash. Britain has ended up as a country of poorly managed chains as a result. Unlike continental Europe where business frequently stay in the family.

Berkshire Hathaway provided an alternative to American entrepreneurs who wanted to diversify their position after establishing a successful business by buying a minority stake in companies usually in exchange for Berkshire shares. This provided a win-win situation for all concerned.

(a) The entrepreneur got his hands on publicly traded shares for a slice of his business while retaining control of the company. He could sell these shares when he needed cash and had few of the problems or costs associated with floating a public company.

(b) Berkshire Hathaway built up a portfolio of investments in well managed businesses which continued to be well managed because the same people who created the business remained at the helm.

(c) Additional capital was available at low cost for the development of the business.

(d) The Berkshire Hathaway shares grew year by year in value because of this strategy creating a virtuous circle.

If only Ireland had a Berkshire Hathaway or two!

Floater

star gazer

originally posted by floater
If only Ireland had a Berkshire Hathaway or two!

There is and there needs to be a greater emphasis on growth (long-term profit) over short-term profit by gauging consumers. Give the consumer what they want, take a profit and get good at streamlined fulfilling of delivering the product/service. World class companies come from more than just the product they sell. The ability to maintain a status as a world class company is the ability to continually reinvent the the product/service being sold and always being aware of what the consumer is and will be looking for.

There also needs to be a focus on the entrepreneur before they get to be good enough to be an interest for a berkshire hathaway-type business. Business friendly govt departments, top class advice centres and focussed incentives for expansion are crucial.