1

Survey of MNCs in Ireland 2010

Results of the Annual Competitiveness Survey

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3Part of the Danske Bank Group

Multinational Banking with us isn’t just different.

It’s unique.

Cash Management with National Irish Bank features everything you should

expect, and more, from one of Europe’s strongest banks:

• Online Trade Finance and Foreign Exchange

• Multicurrency Interest Netting

• Cross Border Account Sweeping

• Cross Border Cash Pooling

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allows you to have visibility and control of all your corporate accounts in Ireland,

the UK and Europe from wherever you are.

To find out more, speak to a member of our International Corporate Banking team

on 01 484 2832.

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Survey of MNCs in IrelandResults of the Annual Competitiveness Survey

Conducted by

Irish Management Institute & National Irish Bank

November 2010

4

Acknowledgements

The authors would like to thank IMI Chief

Executive Dr Tom McCarthy for supporting

this research project, and for all of his help

and advice. Additional thanks are offered to

the chief executives and senior managers who

completed the questionnaire. The assistance of

Elaine McMahon, Dr Deirdre Crowe and Eva

Maguire at earlier stages of this project is also

very much appreciated.

About the Authors

Frank Condon

Frank Condon is Information Officer at the IMI

Knowledge Centre and is involved in a range of

research in the general area of management for

the IMI. A graduate of Sociology and Political

Science from Trinity College Dublin as well as

the Postgraduate Diploma in Statistics, Frank

also holds a MA in Political Communication

from DCU.

Dr. Ronnie O’Toole

Dr Ronnie O’Toole is the Chief Economist at

National Irish Bank, and was formerly a Senior

Economist with Forfás. Ronnie regularly

publishes articles and reports on Ireland’s

trade, productivity and competitiveness

performance. He has a Ph.D. in Economics from

the University of Dublin, Trinity College.

© Irish Management Institute 2010 ISSN: 1649-2404

Irish Management Institute

Sandyford Road

Dublin 16

Phone +353-1-207 8400

Fax +353-1-295 5150

Email knowledge@imi.ie

Web www.imi.ie

5

Table of contents

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Foreword & Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Chapter 1: Transnational Economic Activity . . . . . . . . . . . . . . . . . . . 10

Chapter 2: Issues of Importance for Competitiveness . . . . . . . . . . . . . 14

Chapter 3: Prospects for Irish Subsidiaries . . . . . . . . . . . . . . . . . . . . . 18

Chapter 4: Linkages and Management Expertise . . . . . . . . . . . . . . . . 22

Appendix: Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

6

For the third year in a row the Irish

Management Institute, in partnership with

National Irish Bank, has carried out a

survey of the attitudes and experiences of

Chief Executives and senior management of

multinational companies (MNCs) operating

in Ireland. The purpose of this survey is to

understand the main factors which influence

the choice of Ireland as a location for MNCs,

whether these companies are foreign- or

indigenously-owned.

The last twelve months has seen a rebound

in the volume of world trade following the

dramatic slump witnessed in 2008/2009. Trade

volumes in the first half of 2010 have now

regained much of this loss. There has also been

a stabilisation in cross-border investment flows

after the sharp falls in 2009. While the prospect

for 2011 is for a continuation in this improving

trend, the global economic rebound has lost

steam in recent months, and great uncertainty

remains.

As in previous years, respondents to the

survey indicated that Ireland’s cost base was

significantly higher than comparable locations.

When asked how a number of elements of cost

to their Irish operation compared with those of

sister plants overseas, the most expensive area

highlighted was labour.

Cost is only one factor which determines a

country’s competitiveness. While Ireland’s

infrastructure would historically have been

seen as poor relative to competitors, none of

the elements of Ireland’s infrastructure were

perceived by respondents as being highly

inferior or superior compared to competitor

countries. Labour-force flexibility is seen as the

major area of priority in terms of improving

Irish MNC operation’s competitiveness.

Executive Summary

7

The negative publicity surrounding Ireland’s

economic crisis has clearly had an impact

on Ireland’s standing within MNCs. The

majority of respondents felt that Ireland’s

reputation within their global organisation had

diminished over the past year, though this has

decreased slightly since 2009. The majority of

respondents in 2010 see Ireland’s long term

economic stability as moderate (63%), an

improvement on 2009.

The short term prospects for individual

subsidiaries depend on changes in the role

and importance of the Irish operation vis-à-

vis global operations, as well as the market

conditions facing the company as a whole.

Almost two out of every three responding

companies (62%) characterise their operations

in Ireland as being of either global or regional

significance, including in the production of a

particular product or service. This points to

the success of Ireland in attracting higher value

investments over the last decade.

Irish subsidiaries are very actively pitching for

new investment within their parent companies,

despite the challenging economic environment.

Eighty one percent of respondents have tried,

or are currently trying, to win new mandates

for their Irish operations. For these, three

quarters were successful, a significant sign

of improvement on 2009 when only 60% of

those foreign firms that had pitched for new

mandates succeeded in securing them. For the

second year in a row, UK-based subsidiaries

remain the greatest competitive threat for Irish

based MNC operations.

The improved business outlook globally is

reflected in the survey, with expectations

around short-term business prospects

stabilising among responding executives this

year. While the 2009 survey indicated the

extent to which companies were cutting staff

in the face of falling order books, this year over

half of respondents do not foresee any change

in the size of their workforce over the coming

year. More respondents see their employee

numbers increasing (26%) than decreasing

(23%). Forty seven percent of respondents

predict that their turnover will increase in the

coming year.

The 2010 survey asked a number of questions

to gauge how important respondents rated

certain accepted elements of management

best practice and how much scope existed for

the interchange of expertise between these

executives and domestic organisations.

The survey suggests that MNCs operating

in Ireland are doing so at an advanced level

of management practice, though the level of

interactivity with local firms is often limited,

which reduces the opportunities for the

transfer of this expertise. This is consistent

with other research which shows that

despite the very large MNC sector in Ireland,

management practices among local firms

remain poor.

8

For the third year in a row the Irish

Management Institute, in partnership with

National Irish Bank, has carried out a

survey of the attitudes and experiences of

Chief Executives and senior management of

multinational companies (MNCs) operating in

Ireland.

The purpose of this survey is to understand

the main factors which influence the choice

of Ireland as a location for MNCs, to gauge the

short-term prospects for these companies and

to highlight the main issues that will impact on

Ireland’s competitiveness in the future.

Chapter 1 of this report sets out the general

context for transnational economic activity

over the past twelve months. While there

has been a strong rebound in trade following

the collapse in 2008/2009, there are signs

that growth in some key global markets is

weakening in the second half of 2010.

Chapters 2 to 4 present the results of the survey

carried out in July and August this year. The

responses of MNCs in the survey relating to

competitiveness of the Irish economy in 2011

are presented in Chapter 2. This section also

identifies the attractiveness of Ireland for

expatriate staff, the quality of infrastructure,

reputational factors and finally cultural

factors which are believed to impact on the

productivity of the Irish operation.

Chapter 3 deals with respondents’ views as to

the prospects for their subsidiaries. It opens by

assessing the strategic importance of the Irish

subsidiary for their parent companies, and the

extent to which local management have been

trying to win new mandates. The chapter closes

by asking companies about the short-term

prospects for turnover and employment.

To a large extent, the focus of this report in

previous years has been on economic factors

external to the firm on the performance of

MNCs. The success of these companies also

depends on internal operational practices,

in particular through the quality of the

management practices they employ. Further, a

‘spill-over’ of positive management and other

practices to the domestic economy depends

on the extent of these companies’ interactions

with domestic small and medium sized

companies.

With this in mind, Chapter 4 examines a

number of elements of management practices

within these MNCs, and assesses what

conditions exist for the transfer of international

best practice management to domestic

companies.

The 2010 survey was carried out using an

online questionnaire during July and August

and circulated to Chief Executive Officers and

senior managers in 418 MNCs drawn from IMI

Member companies and the published list of

IDA supported companies operating in Ireland.

Of these, 124 Chief and senior executives

responded to the survey, with 114 completing

it fully. A copy of the questionnaire is included

in the appendix of this report.

The firms surveyed employ over 54,000

workers which represents over one-third of

aggregate MNC employment in Ireland. The

average number of employees per respondent

Foreword & Introduction

9

was 438. These companies have highly skilled

workforces, with 88% estimating that over a

quarter of their workforce have a third-level

qualification. One third of the companies

surveyed can be characterised as very intensive

users of high skills, with over half of all

employees having a graduate qualification.

As in previous years, the companies

responding this year were drawn from all the

main exporting sectors of the economy. Almost

nine out of ten (88%) of these firms are foreign-

owned organisations with a base in Ireland,

while the remaining 12% are Irish-owned firms

operating on a multinational basis.

Fifty percent of respondent companies were

subsidiaries of a United States-based parent

company, with the next largest proportion

being of German origin (12%). Nine percent of

responding companies originated in the United

Kingdom.

Responding companies were a mix of

manufacturing and services companies. The

largest proportion of companies described their

operations as being entirely services-based

(44%), whereas 26% were engaged entirely in

manufacturing. This compared to the 44% of

those who described their operations as either

entirely or mostly manufacturing. Six and a

half percent described their operations as an

equal mix of manufacturing and services.

The ‘Chemicals & Pharmaceuticals’ sector had

the largest representation in this year’s survey

at 17% of responding companies. This was

followed by ‘Information & Communication’ at

15% and ‘Other manufacturing’ also 15% while

the ‘Computer, Electrical and Transport

Equipment’ and ‘Financial, Insurance or Real

Estate Services’ sectors both represented 13%

of responding companies. The full sectoral

breakdown of responding firms is shown in

Table 0.1 below.

Table 0.1:

Sectoral breakdown of responding companies

Source: Survey

0%

20%

40%

60%

80%

100%

Entirely Services

25% Manu/75% Serv50% Manu/50% Serv

75% Manu/25% Serv

Entirely Manufacturing

Figure 0.1: Manufacturing/Services breakdown of responding companies

Source: Survey

SECTOR %

Chemicals and Pharmaceuticals 17

Information and Communication 15

Other Manufacturing 15

Computer, Electrical and Transport Equipment 13

Financial, Insurance or Real Estate Services 13

Medical Devices 10

Other Services 8

Professional and Support Service Activities 5

Trade, Transport and Construction Services 3

Food, Drink and Tobacco 2

Total 100

10

Chapter 1:

Transnational Economic Activity

Section 1.1 Introduction

The last twelve months has seen a rebound

in the volume of world trade following the

dramatic slump witnessed in 2008/2009. Trade

volumes in the first half of 2010 have now

regained much of this loss. There has also been

a stabilisation in cross-border investment flows

after the sharp falls in 2009. While the prospect

for 2011 is for a continuation in this improving

trend, the global economic rebound has lost

steam in recent months, and great uncertainty

remains.

Section 1.2 Global Trade

Global trade suffered a dramatic collapse in

2008/2009, with the volume of trade falling by

one-fifth. There are a number of reasons why

the world suffered such a dramatic fall. Most

obviously, global demand fell across virtually

all countries in a highly synchronised manner.

Exports and imports of all countries fell at the

same time, leaving no region untouched. World

GDP declined 2.3% in 2008, compared with an

average growth rate of 3% from 2000-2008.

1

11

The composition of the fall in demand also

contributed to the scale of the collapse.

Demand for investment goods and consumer

durables fell dramatically, which is

unsurprising given that these goods tend to be

very sensitive to the economic cycle and to the

availability of credit. These goods account for

a far larger portion of global trade than they do

global output. Services exports, which account

for around one-quarter of total world trade,

showed a far smaller decline.

Irish exports have fared relatively well during

the recession, posting the smallest fall in the

eurozone. The fall in export volume from 2008

to H1 2010 of 5% for Ireland compares with a

14% fall for the Eurozone as a whole. At the

other extreme, Finnish exports in the first half

of 2010 were still one-third lower in volume

terms than in 2008.

The crisis resulted in an unprecedented

loosening of fiscal and monetary policy to

support global demand which has arrested

the decline and returned global trade to

growth. This recovery is being led by emerging

economies, though merchandise trade volumes

for developed countries remain (as of July

2010) below pre-crisis peaks.

What is surprising about the crisis is that

the feared rise in beggar-thy-neighbour

protectionist trade policies of the kind

seen during the Great Depression have not

materialised. The evidence from the Global

Anti-Dumping Database, which tracks

protectionist measures, is that in 2009 there

was no evidence of a deviation from pre-

crisis trends. This is despite the emergence of

high and persistent unemployment in most

developed countries.

Section 1.3 Foreign Direct Investment

Global investment flows fell sharply as a result

of the financial crisis. While some signs of a

pick-up in Foreign Direct Investment (FDI)

flows have been observed since the second

quarter of 2009, their overall level in mid-2010

remained lower than two or three years ago.

There are two principle categories of FDI

investment. Merger and Acquisition (M&A)

FDI relates to the purchase of the controlling

interest or ownership of a company based

in another jurisdiction. Greenfield FDI is

where a parent company starts a new venture

in a foreign country by constructing new

operational facilities from the ground up.

Aggregate FDI flows are dominated by M&A

flows, though Greenfield investments have a

much greater economic impact as they involve

the creation of new facilities, rather than just a

transfer of ownership.

The dramatic fall in global investment was

driven by the large decline in M&A activity.

M&A activity tends to be more sensitive to the

economic cycle, and was also the most affected

Figure 1.1: Volume of OECD-Country Exports,

2007-2010

Source: OECD

500

1000

1500

2000

2500

3000

Q1Q4Q3Q2Q1Q4Q3Q2Q1Q42007 2008 2009 2010

Goods Servics

€ billions

12

by the deterioration in credit conditions. While

Greenfield investment contracted in 2009 it has

already returned to growth, with a forecast of

3%-5% more projects globally in 2010.

As with global trade, there is little indication

that the fall in the global economy has led

to the emergence of significant new barriers

to Foreign Direct Investment. The OECD

Restrictiveness Index, a measure of the

barriers to investing cross-border, shows a

reduction in barriers between 2006 and 2010,

notwithstanding that changes in methodology

makes a direct comparison between the two

years difficult. Further, survey evidence

suggests that companies did not disinvest

significantly during the crisis, and that they

remain committed to expanding their presence

abroad.

Section 1.4 Future Prospects

While the global economy showed strong

signs of recovery in the first half of 2010, fears

have been growing as to the sustainability of

this growth. A flow of disappointing news –

particularly in the US – has led to downward

revisions of global growth expectations.

The evidence in weakness in the US comes

from three sources. First, employment growth

has been weaker than expected, with average

private payroll gains averaging 95k, around 50-

100k below expectations. This is critical as an

improvement in the labour market is needed to

support customer demand after the initial effect

of the Government stimulus fades away.

Second, leading indicators have declined

earlier and faster than expected. The Eurozone

debt crisis during the spring has probably had

the effect of making companies more cautious.

Finally, US housing data has cooled more than

expected after the expiry of the first-time home

buyer credit.

In Asia there have also been signs of cooling,

especially in China where import growth has

slowed and leading indicators fell sharply

during the spring. However, more recently,

imports have started to improve again, which

is consistent with improving manufacturing

PMIs.

Euroland has been the main source of good

news in recent months, driven by a very strong

export recovery and rebuilding of inventories.

While concerns remain about the timing of a

recovery in domestic demand in peripheral

0

200

400

600

800

1000

1200

1400

1600

1800

Figure 1.2:

Growth in Global Investment, 2003-2010

Source: M&A data: OECD, Greenfield data:FDI Intelligence

7

9

11

13

15

17

19

21

23

20102009200820072006200520042003

Greenfield (RHS) M&A Investment (LHS)

€ billions thousands of projects

13

countries like Ireland, the performance of

Germany in particular has been better than

expected.

Table 1.1 Global GDP Growth Forecasts

Source: Danske Bank Forecast

The improved economic outlook is reflected

in the outlook for global trade with the WTO

forecasting that global trade will rebound by

10% in 2010. Investment prospects also look

brighter. The World Investment Prospects

Survey reports improved optimism among

MNC executives regarding the prospects for

global flows for the period 2010-2012.

Irish prospects for trade are also influenced

by the strength of the euro and the domestic

cost level. Ireland’s competitiveness on these

measures deteriorated sharply over the course

of the last decade, and as of mid-2010 was

still 15% less competitive than in 2000. At

its worst in mid-2008, Irish competitiveness

was 30% worse than in 2000. The principle

source of this loss was the strength of the euro,

accounting for over three-quarters of the loss

of competitiveness, with relatively high price

rises in Ireland accounting for the remainder.

The improvement in competitiveness from

-30% to -15% since 2008 has been due both to

falling prices in Ireland relative to our trading

partners, and to a weakening of the euro. In

fact, all of the price competitiveness lost from

2002 to 2008 had been reversed by 2010. The

expectation is that Irish prices will continue

to fall relative to those of our trading partners,

which will further improve competitiveness

into 2011. Offsetting this will be recent

strengthening of the euro which, if maintained,

will again reduce Ireland’s competitiveness.

2010 2011

US 2.6 2.3

Eurozone 1.7 2.0

Japan 3.1 1.9

China 9.9 9.0

Global 4.1 4.1

Figure 1.3: Expectations for FDI for next year

Source: World Investment Prospects various editions, UNCTAD

0 50 100 150 200

WIP 2010

WIP 2009

WIP 2008

WIP 2007

Decrease Same Increase

14

Section 2.1 Introduction

This survey has, over the years, highlighted the

main factors which affect Ireland’s competitive

position in attracting and maintaining

international companies within the economy.

Chapter 2 presents the views of MNCs on Irish

competitiveness in 2010. It examines the cost

of doing business, the quality of infrastructure,

the impact of reputational factors, the ease with

which expatriate staff can be enticed to come

and work in Ireland, and the impact of cultural

factors.

Section 2.2 Cost Base

Frequently the greatest competitors for Irish

subsidiaries are sister plants within the same

multinational company, rather than external

companies. This year’s survey again looked at

cost issues for Irish-based MNCs in comparison

to competing international locations within the

same global company.

As in previous years, respondents to the

survey indicated that Ireland’s cost base was

significantly higher than comparable locations.

When asked how a number of elements of cost

to their Irish operation compared with those of

sister plants overseas, the most expensive area

highlighted was labour.

Seventy nine percent of respondents indicated

that labour costs were more expensive in

Ireland than in competing locations. Energy

costs, at 77%, were rated as the next most

expensive operational cost in Ireland relative to

sister operations. Property / construction costs

2Chapter 2:

Issues of Importance for Competitiveness

15

were the third most expensive area of cost at

67%.

None of the areas that respondents were asked

to rate were thought of as less expensive in

Ireland compared to competing locations.

However, the cost of professional services

was seen as being in line with comparative

international levels by 47% of respondents,

while telecommunications costs were seen as

generally comparable by 43%.

“Cost competitiveness is our major goal.

The readjustment of labour costs and

energy in the next two years will define the

future.”

“Unfortunately due to the non-competitive

pricing of labour and services (electricity,

engineering services etc.) I believe that we

will be closed or downsized in the next 3

years.”

Section 2.3 Infrastructure Quality

The survey asked respondents to compare a

number of elements of Ireland’s infrastructure

relative to the facilities available to overseas

operations, including accessibility, air access,

energy and telecommunications.

Accessibility for staff was the one area of

infrastructure which was seen as superior

by a significant number of respondents.

Accessibility for goods was generally seen as

being on par with competing locations by 71%

of respondents.

In general, none of the elements of Ireland’s

infrastructure was perceived by respondents

as being highly deficient. However, the quality

of air access for executives was highlighted

as inferior by 44% of respondents, while

the quality of Ireland’s telecommunications

(28%) and energy (27%) infrastructure were

considered inferior to competing locations.

Section 2.4 Attracting Expatriate Staf f

Ireland’s attractiveness to expatriate staff

is an important element in the country’s

competitiveness in terms of encouraging the

relocation of suitable business talent to work

in global organisations operating from Ireland.

As in 2009, this year’s survey asked about the

Figure 2.1: Ireland’s Cost Base

Property / Construction

Professional Services

Energy

Telecommunica -tions

Transport

Labour Costs

Less expensive Same More expensive

Source: Survey

0% 20% 40% 60% 80% 100%

Figure 2.2: The Quality of Ireland’s

Infrastructure

Energy

Telecommunica-tions

Air access for executives

Accessibility

for staff

Accessibility for goods

Inferior Same Superior

Source: Survey

0% 20% 40% 60% 80% 100%

16

impact of a number of potential barriers or

attractions to attracting or retaining expatriate

staff in senior positions in Ireland.

The perception of security in Ireland was again

the highest-rated attraction as expressed by

39% of respondents.

The largest barrier to attracting expatriate staff

to Ireland was seen as the personal taxation

system. This issue has grown in importance

since the last survey. In 2010, 44% identified

personal taxation as a barrier to attracting

people to Ireland, compared to 40% in 2009.

The second most significant barrier was seen as

the standard of air transport links into Ireland.

However, opinion was divided on this. While

a quarter of respondents saw the availability of

air links as a barrier, this was identified as only

a minor relevance by most respondents.

The cost of housing was identified as a barrier

by 42% of respondents in 2009, but was seen

as a minor relevance by 58% of respondents in

2010, as would be expected with falling house

prices.

While the personal taxation system may have

been identified as a barrier to attracting staff

to relocate to Irish operations, the corporation

tax regime is still regarded as a key element in

securing MNC investment in Ireland.

“Ireland’s corporate tax regime is still the

major positive in the investment case over

other locations.”

“Our company has the potential to

increase growth globally, and due to

the low corporate tax base in Ireland

running our head office here makes it very

competitive.”

The level of internationalisation among the

cadre of senior executives leading MNCs in

Ireland at present can be measured by the

level of oversees experience gained by those

who responded to the survey. Just under half

of respondents had worked oversees in their

current industry for more than a year, while a

small majority (54%) had not.

There are a number of ways this could be

interpreted. On the one hand it might indicate

that over half of local management have

not been exposed to best practice within

their organisations or across their respective

industries. On the other hand it might reflect

the success of Irish-born managers in taking

leadership roles, particularly in more mature

companies who have been established in

Ireland for a long time.

Figure 2.3: Ireland’s Attractiveness for

Expatriates

Air transport links

Personal taxation

House prices

Perception of security

Attraction Minor Relevance Barrier

Source: Survey

0 20 40 60 80 100

17

Section 2.5 Reputational Factors

Ireland’s reputation as a suitable place to

locate and do business is an important yet

ephemeral asset to gauge. The negative

publicity surrounding Ireland’s economic crisis

has clearly had an impact on Ireland’s standing

within MNCs. This survey was taken prior to

the sovereign debt crisis in September/October,

and Ireland’s reputation may have worsened

since then.

The majority of respondents felt that Ireland’s

reputation within their global organisation

had diminished over the past year. Forty four

percent believed its reputation had worsened,

while 42% felt it was broadly similar now as

it was a year ago. The overall proportion has

decreased slightly since 2009 when 57% of

respondents indicated that they felt Ireland’s

reputation had diminished.

Opinion was equally divided between those

who believed this had a material effect on their

operation’s ability to attract further investment

from within the global company through

securing new mandates, and those who didn’t

see Ireland’s reputation having that effect.

However a further 57% of those respondents

who tried but were unsuccessful in securing

new mandates blame Ireland’s reputation, in

part for this outcome.

The majority of respondents in 2010 see

Ireland’s long term economic stability as

moderate (63%), an improvement of over 11%

on 2009. There was also a reduction in the

proportion of respondents who consider our

long term economic stability to be weak, from

42% in 2009 to 29% in 2010.

UK companies were the most pessimistic

about Ireland’s prospects. Forty percent of

respondents from UK parent-based companies

consider Ireland’s long term economic stability

to be weak, while just over a quarter (26%)

of US origin company respondents are as

pessimistic.

Section 2.6 Cultural Factors

While it is may be easy to quantify some

aspects of competitiveness, other factors such

as culture may be important determinants in a

company’s decision to invest in a country. In

the survey, respondents were asked to identify

the cultural factors that they consider affect

their organisation’s performance in Ireland

either positively or negatively. The responses to

this were generally very positive:

“Irish people’s open communication style

allows us to connect easily with partners in

the UK, Europe, Eastern Europe, US, South

America and Asia Pacific.”

“Irish people have the ability to think

around problems and come up with

solutions. Creativity is excellent. An

excellent mix of Celtic Mystic and anti-

authoritarian attitudes”

"Strong flexibility, individual ownership,

risk taking."

“The positive attitude of the workforce

has allowed the facility to maintain

competitiveness in times of decreasing

volumes. Facility is also to the forefront of

continuous improvement efforts.”

18

3Chapter 3:

Prospects for Irish subsidiaries

Section 3.1 Introduction

The short term prospects for Irish subsidiaries

depend on changes in the role and importance

of the Irish operation vis-à-vis global

operations, as well as the market conditions

facing the company as a whole.

Section 3.2 assesses the strategic importance

of the Irish subsidiaries, while Section 3.3

looks at the companies’ ability to secure further

investment from their parent companies

through securing new mandates. Section 3.4

asks which countries are the major source

of competitive threat. Section 3.5 examines

the short term business outlook in terms of

employment and turnover for these MNCs in

Ireland for the coming year.

Section 3.2 Strategic Importance of the Irish

Operation

When asked to characterise the nature of

their Irish operation in terms of its position

within the global company of which they are

a part, just under 10% described themselves

as the strategic centre of the global company.

However, the strategic importance of these

companies’ operations in Ireland is seen by

the fact that almost two out of every three

responding companies (62%) characterise

their operations in Ireland as being of either

global or regional significance, including in the

production of a particular product or service.

It is also worthy of note that less than one

fifth of companies surveyed characterise their

Irish operations as being ‘basic mandates’.

19

More strategically important companies are

likely to provide better quality, more highly

paid employment, such as activities related to

Research and Development. Basic mandates

which are placed further down the value chain

tend to be more prone to competitive strain and

more likely to relocate as market conditions

change.

Disaggregating the survey based on ownership,

as expected the majority of indigenous Irish

companies (53%) see themselves as the

strategic centre of the global organisation.

However, there is a large proportion of these

that see their Irish location as less strategically

important, with 33.3% seeing their home

based operation as a strategic centre for a

region, product or service and 13.3% as a basic

mandate.

Companies which were entirely services-based

were less likely to see themselves as globally

strategic than firms which were partially or

wholly manufacturing. This reflects the fact

that Irish firms are less represented in this

cohort, and that many of the companies longest

established in Ireland are manufacturing-based.

Fifty six percent of wholly manufacturing

operations see their Irish-based operation as

strategically important in terms of the region or

product, while 68% of companies describing

themselves as three quarters manufacturing-

based also regard their Irish operation

strategically important in this way.

A practical measure of the importance of

locally-based operations in their global

organisations is the level to which decisions

are made or overseen from Ireland. Fifty two

percent of all respondents to the survey, and

49% of foreign-owned companies, manage

overseas executives from Ireland. This high

level of overseas management of personnel

is consistent with the reported high strategic

importance of Irish operations and the nature

of the activities carried on from here.

Section 3.3 Attracting Further Investment

While factors external to the firm such as

Ireland’s infrastructure and cost base can

make this country more attractive to MNCs,

the ability of companies already located here

to secure and grow their ongoing operations

is also vitally important to Ireland’s economic

growth.

Eighty one percent of respondents have tried,

or are currently trying to win new mandates

for their Irish operations. For these, three

quarters were successful, a significant sign

of improvement on 2009 when only 60% of

those foreign firms that had pitched for new

mandates succeeded in securing them.

Eighty seven percent of entirely manufacturing

operations reported that they had tried or were

Figure 3.1: Strategic Role of Irish Subsidiary

Source: Survey

The strategic centre of global company

A strategic centre for a region, product or service

Higher value support function

Basic mandate

20

trying to secure new mandates for Ireland. At

74%, a slightly smaller proportion of entirely

services operations had tried, or were currently

endeavouring to secure new mandates.

However, more services-based operations

(83%) actually succeeded in securing this

further investment than those manufacturing

operations that had sought to (65%).

“In general terms; Irish MNC’s are facing

more intense competition from existing

and new sites within their respective

corporations. There is a huge need to

expand their charter and value add to their

corporations.”

Companies were asked which areas of their

businesses would need to be prioritised

to improve their chances of winning new

mandates. Labour-force flexibility is the

major area of priority identified by the 2010

survey, with 39% of respondents indicating

that they saw this area as the most important

in terms of improving their Irish operation’s

competitiveness. One third of respondents

see improving management skills as the most

important factor, while 27% see labour force

skills as the area to improve upon.

Section 3.4 Geographical Threats

In 2009, when asked the location of the plant

that was the greatest competitive threat to their

Irish operation, the UK was by far the single

most important country identified (by 28%),

followed by the US (17%). This year’s survey

paints a similar picture in terms of the threat

of competition from the UK (mentioned by

15% of respondents), while operations based

in China (14%) and India (11%) are considered

more of a competitive threat to Irish-based

ones. Only nine percent identified plants in

the United States as being the prime source of

competition.

“A continued threat to manufacturing

companies due to low cost environment

elsewhere (Asia; India).”

Table 3.1 Location of Greatest Threat

to Irish Operation

Source: Survey

Section 3.5: Employment and Turnover

Expectations

The improved business outlook globally is

reflected in the survey, with expectations

around short-term business prospects

stabilising among responding executives this

year.

Figure 3.2: Attempts at Attracting

New Mandates

Source: Survey

Won new mandate

Did not try to win new mandate

Tried, but did not win new mandate

Percentage

UK 15.0%

China 14.3%

India 11.3%

United States 9.0%

Singapore 5.3

21

Just over half of respondents do not foresee

any change in the size of their Irish workforce

over the coming year. More respondents see

their employee numbers increasing (26%) than

decreasing (23%).

This is a welcome improvement on the outlook

given in last’s year’s report when 43% of

respondents (20% more) expected the numbers

they employed to decrease over the past year

and only 11% (or 15% less) predicted their

workforce would expand over that same

period. The companies that took part in the

2010 survey employ 54,310 workers in Ireland.

Table 3.2: Business Expectations

Source: Survey

In terms of predicted business performance

among MNCs for the coming year, the 2010

survey also indicates more optimism than

in the 2009 survey. Forty seven percent of

respondents predict that their turnover will

increase in the coming year. This is four

percent more than those who see their turnover

remaining unchanged. Just under 11% predict

their turnover in Ireland will decrease over the

coming twelve months.

This is a positive improvement from 2009,

when over a third of respondents said that they

expected their turnover to decrease. The figures

also suggest an increased focus on productivity

among companies operating here, given their

general prediction of increased output built on

similar human resource levels.

Employment Turnover

Decrease 22.8 10.6

Broadly Unchanged 50.9 42.5

Increase 26.3 46.9

Total 100 100

22

Section 4.1Introduction

To a large extent the content of this report in

previous years has looked at the impact of

local economic factors on the performance

of Multinational Companies operating out

of Ireland. Given the contribution these

organisations make to the Irish economy, it

is also valuable to examine how these MNCs

affect the conduct of business here. This

can be done on an operational level through

the quality of the management practices

they employ, and on a wider level via their

interaction with domestic small and medium

sized firms.

With this in mind, the 2010 survey asked a

number of questions to gauge how important

respondents rated certain accepted elements of

management best practice and how much scope

existed for the interchange of expertise between

these executives and domestic organisations.

Section 4.2: Management Expertise

In ‘Management Matters in Northern Ireland

and Republic of Ireland’, McKinsey &

Company observe that the presence of MNCs

tends to impact positively on locally-based

organisations.

“The presence of multinationals within a

region is associated with better management

practice in domestic firms, possibly

transmitted through migration of employees

and knowledge and through commercial

interactions between the two groups.”

(DETINI 2009)

4Chapter 4:

Linkages and Management Expertise

23

Other factors contribute to better management

practices in firms and include skills levels:

firms using better management practices tend

to have more educated employees and utilise

them more effectively, labour flexibility: firms

operating in more flexible labour markets

tend to utilise better management procedures;

and competition: whereby high levels of

competition encourage better management.

Multinational copanies tend to outperform

domestic companies, which McKinsey &

Co and the London School of Economics

in their work on management practice and

productivity, see as a result of the demands

of international competition. However, the

management practices in local firms in Ireland

are not as good as would be expected given the

significance of MNCs to the Irish economy.

“the relatively high prevalence of MNEs

(Multi-National Enterprises) in ROI and NI

does not seem to be linked with as high a

level of management practice in domestic

firms as you might reasonably expect.” ibid

With a view to exploring this phenomenon,

this year’s MNC survey asked respondents to

rate the importance they placed on a number of

procedures.

Successful management requires the setting,

observing and achieving of clearly articulated

goals for the organisation. The survey results

show that multinationals in Ireland have a

strong culture of goal-setting and monitoring.

When asked if they had a defined set of

goals, 68% of respondents strongly agreed.

The nature of these goals is also, however,

important to overall business success. Over

half of respondents disagreed that their goals

were entirely financial in nature, which

indicates that these MNCs measure their

business performance on more than just bottom

line results.

Furthermore, 44% of respondents indicated

that objectives and business goals in their

organisations cascade from top management

through the various other levels. While

93% either agreed or strongly agreed that

management goals clearly cascade from

corporate level to the individual within their

firms.

In terms of planning and monitoring of goals,

40% of respondents strongly agree that goals

are set with clear timelines and are clearly

organised over multi-annual, yearly and

monthly timeframes. In addition, 58% of

respondents agreed that their own personal

performance along with that of others was

made visible across their organisation. The

combination of these factors indicates that the

MNCs responding to the 2010 survey display a

high performance measurement culture.

24

Table 4.1 Organisational Practices within

MNCs in Ireland

Source: Survey

A further aspect of successful management

relates to effective people management

procedures. Sixty one percent of the CEOs and

senior managers agreed that they are evaluated

on the capabilities of their workforce, which

indicates a strong commitment on the part of

these MNCs to attracting the best staff.

However, when it comes to dealing with

underperformance, MNCs tended towards

redeployment (78.3% agreed / strongly agreed)

rather than retraining (65.8% agreed / strongly

agreed). A fifth of respondents strongly agreed

that such underperformance was dealt with

through redeployment.

Section 4.3 SME Interaction

While the evidence above suggests that

MNCs operating in Ireland are doing so at

an advanced level of management practice,

the survey reveals that there are limited

opportunities for the transfer or ‘spill-over’ of

this expertise.

When asked about their level of interaction

with domestic SMEs on a number of fronts

respondents indicated that the largest part

of this activity relates to the engagement

of suppliers for non-product related parts

or services (61%). Forty six percent of

respondents indicated that domestic SMEs

were rarely among their customer base,

although 30% indicated that a lot of their

customers were local SMEs.

Half of the respondents indicated that they

engaged local SMEs as third party vendors

of their products, a positive manifestation

of the potential for sustainable engagement

between both sectors. Almost sixty percent

(59%) indicated that they sometimes sought

input from local professional advisors, while

almost 40% rarely engaged with SMEs through

business networks or similarly through

education programmes.

Defined Goals

Goals Financial

Evaluated on Talent

Failure moved out

Failure retrained

Time horizons

Goals Cascade

Perfor-mance visible

Strongly Agree 68 7 32 21 8 39 44 28

Agree 32 36 61 58 58 53 49 58

Disagree 1 53 5 18 32 6 7 12

Strongly Disagree 0 4 3 4 3 2 0 3

Total 100 100 100 100 100 100 100 100

25

Section 4.4 Performance levels required

from local f irms

The final area for which information was

sought from this year’s respondents relates

to the standard of service MNCs expect from

domestic firms that supply them with products

or services. In this regard, the CEOs and senior

executives were asked to rate a number of Key

Performance Indicators (KPIs) that they might

employ when evaluating local suppliers.

Quality (84%) was the single most important

issue by which MNCs evaluate their

commercial interactions with local firms, with

responsiveness (65%) the second-most rated

measure. Cost is only placed third among the

main KPIs by which MNCs evaluate domestic

suppliers, which is somewhat surprising

in light of the emphasis placed on Ireland’s

cost based as shown earlier in this report.

This may support the view that higher value

chain activity such as in Ireland is not very

price sensitive. Supplier responsiveness and

compliance with certification standards, while

important, are less important than the other

KPIs.

Figure 4.1: MNC Interaction with Domestic

SMEs in Ireland

Ed Programmes

Business Networks

Training

Prof Advisors

3rd party vendors

Customers

Suppliers non-inventSuppliers inventory

A Lot Sometimes Rarely

Source: Survey

0% 20% 40% 60% 80% 100%

Figure 4.2: Evaluating Commercial Links with

Domestic Suppliers

Source: Survey

Certification Standards

On Time Delivery

Responsiveness

Quality

Cost

1 (Very Important) 2 3 4

5 (not at all important)

0% 20% 40% 60% 80% 100%

26

This year the IMI has again partnered with

National Irish Bank to survey the attitudes

and experiences of the senior management of

multinational companies operating in Ireland.

This research is intended to gauge the short

term prospects for multinational companies

here and to survey companies on the strengths

and weaknesses of the Irish economy.

This survey seeks information on the main

factors that underpin Ireland as a location

for these operations, the impact of recent

developments on the competitiveness of the

Irish economy and to highlight the some of the

main issues impacting on competitiveness.

I invite you to complete this short online

survey, which will take about 5 minutes of your

time and take this opportunity to thank you for

your participation. The information provided

will be treated in the strictest confidence.

Appendix:

Questionnaire

27

Q1: Is your operation foreign owned or Irish owned?

Section A: Profile of Operation

Q2: In what sector is your Group / Company primarily engaged?

Choose One

Foreign Owned

Irish owned

Choose One

Food, drink and tobacco

Chemicals and pharmaceuticals

Computer, electrical and transport equipment

Medical Devices

Other manufacturing

Financial, insurance or real estate services

Information and communication

Professional and support service activities

Trade, transport and construction services

Other services

Specify Other:

Choose One

Entirely Manufacturing

75% Manufacturing/25% Services

50% Manufacturing/50% Services

25% Manufacturing/75% Services

Entirely Services

Q3: What proportion of your Irish operations is manufacturing based, and what proportion is services

based?

28

Q5: To what extent does your firm engage with small to medium sized domestic firms:

Please answer rarely / sometimes / a lot for the level of interaction you have with domestic

SMEs in the following areas:

Q6: To what extent does your firm engage with small to medium sized domestic firms through

the following activities:

Rarely Some-times

A Lot

a Suppliers of Inventory or product related parts

b Suppliers - other non-product related (eg. office supplies) parts or services

c Customers

d 3rd Party Vendors

e Professional Advisors

f Training

Rarely Sometimes A Lot

a Business Networks

b Education Programmes

c Other – Please Specify

Q4: How would you characterise your Irish operation:

Choose One

The strategic centre of global company

A strategic centre for a region, product or service

Higher value support function

Basic mandate

29

Section B: Key Personnel

Q7: Please rate the following KPIs in terms of their importance when sourcing from local SMEs:

Q9: Please indicate if the following are major attractions or barriers to attracting or retaining

expatriate staf f in senior positions into Ireland;

1Very

Important

2 3 4 5Not at all

Important

Cost

Quality

Responsiveness

On Time Delivery

Certified Standards (eg. ISO)

Please specify any other KPIs you use for local SME suppliers

Attraction Minor Relevance

Barrier

Perception of security

House prices

Personal taxation

Air transport links

Q8: Are any overseas management personnel managed from your Irish operations?

Choose One

Yes

No

30

Q10: Organisational practices and process: Please indicate how relevant the following are to your

own role as a manager within your organisation, by indicating whether you strongly agree / agree /

disagree / strongly disagree with each statement:

Strongly Agree

Agree Disagree Strongly Disagree

I have strongly defined goals and performance measures

I am evaluated and held accountable for the strength of the talent pool I build

A failure to meet targets has resulted in the past in an individual being moved out of a position

A failure to meet targets has resulted in the past in an indi-vidual being retrained

Time horizons of management goals are clearly linked through multi-year, annual and monthly goals

Management goals clearly cascade from corporate level to the individual

My performance and that of others is made visible across the organisation

Q11: Have you personally ever worked over-seas in your industry for more than one year?

Q12: What cultural factors af fect your organisation’s performance in Ireland (either positively or

negatively)?

Choose One

Yes

No

31

Section D: Business Environment

Q16: Cost: How do the following elements of cost to your Irish operation compare with those of

your sister plants overseas?

Less expensive

Same More Expensive

Labour Costs

Transport

Telecommunications

Energy

Professional Services

Property / Construction

Q14: What proportion of these have as a third level degree?

Q15: In terms of improving your Irish operation’s competitiveness, which of the following is the

most important:

3rd level (Primary Degree) Choose One

>75%

50-75%

25-50%

<25%

Choose One

Management skills

Labour force skills

Labour force flexibility

Section D: Labour Force

Q13: How many people do you employ in Ireland?

32

Q17: Quality: How do each of these elements of infrastructure serving your Irish operation

compare to those of your sister operations overseas?

Superior Same Inferior

Accessibility for goods

Accessibility for staff

Air access for executives

Telecommunications

Energy

Q18: How do you see the position of MNCs in Ireland changing over the next two years?

Q19: In what country is the operation that represents the greatest threat to your Irish operation located?

Q20: Have you tried in the past 12 months, or are currently trying, to win any new mandate(s) for

your Irish operation?

Q21a: In terms of employment numbers how do you expect your business to perform in the coming year?

Q20a: Did you succeed in winning any new mandate(s) in the past 12 months?

Choose One

Yes

No

Employment Choose One

Increase

Broadly Unchanged

Decrease

Choose One

Yes

No

33

Q21b: In terms of turnover how do you expect your business to perform in the coming year?

Q22: How has Ireland’s reputation within your parent company changed over the course of the last

twelve months?

Q23: Has this reputational change materially af fected your ability to attract new mandates to Ireland?

Q25: How do you rate Ireland’s long run economic stability?

Section E: Perception of Ireland in 2010

Turnover Choose One

Increase

Broadly Unchanged

Decrease

Choose One

Radically Improved

Improved

Worsened

Radically worsened

Choose One

Yes

No

Choose One

Strong

Moderate

Weak

Q24: What is the greatest opportunity for your Irish operation, as the global economic situation stabilises?

End

34

Bibliography

DETINI (2009), "Management Matters in Northern Ireland and Republic of Ireland,

March 2009", Department of Enterprise, Trade and Investment (DETINI), Department

of Education and Learning (DELNI), Invest Northern Ireland, InterTrade Ireland,

Forfas and the Managment Development Council.

Danske Bank A/S (trading as National Irish Bank) is authorised by The Danish FSA in Denmark. www.nationalirishbank.ie

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