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Executive Report on Strategies in Ireland
ICON Group International, June 2007, Pages: 391
How to Strategically Evaluate Ireland
Perhaps the most efficient way of evaluating Ireland is to consider key dimensions which themselves are composites of multiple factors. Composite portfolio approaches have long been used by strategic planners. The biggest challenge in this approach is to choose the appropriate factors that are the most relevant to international planning. The two measures of greatest relevance are “latent demand” and “market accessibility”. The figure below summarizes the key dimensions and recommendations of such an approach. Using these two composites, one can prioritize all countries of the world. Countries of high latent demand and high relative accessibility (e.g. easier entry for one firm compared to other firms) are given highest priority. The figure below shows two different scenarios. Accessibility is defined as a firm’s ease of entering or supplying from or to a market (the “supply side”), and latent demand is an indicator of the potential in serving from or to the market (the “demand side”).
Framework for Prioritizing Countries
Demand/Market Potential Driven Firm
Relative Accessibility
Accessibility/Supply Averse Firm
Relative Accessibility
In the top figure, the firm is driven by market potential, whereas the bottom figure represents a firm that is driven by costs or by an aversion to difficult markets. This report treats the reader as coming from a “generic firm” approaching the global market - neither a market-driven nor a cost-driven company. Planners must therefore augment this report with their own company-specific factors that might change the priorities.
Latent Demand and Accessibility in Ireland
This report provides an extremely detailed overview of factors driving latent demand and accessibility in Ireland. Latent demand is largely driven by economic fundamentals. But, latent demand only represents half of the picture. A country may at first sight appear to be attractive due to a high latent demand, but it is often less attractive when one considers at the macro level how easy it might be to serve that entire potential and/or general business risks.
Chapter 2 deals with macro-accessibility. While accessibility will always vary from one company to another for a given country, the following domains are typically considered when evaluating macro-accessibility in Ireland:
Openness to Trade in Ireland
Openness to Direct Investment in Ireland
Local Marketing and Entry Strategy Alternatives
Local Human Resources
Local Risks
Across these domains, a number of not-so-obvious factors can affect accessibility and risk. These are also covered in Chapter 2, which is presented from the perspective of an American firm, though it is equally applicable to most firms entering Ireland. This chapter has been authored by local offices of the U.S. Government. I have included a number of edits to clarify the provided information as it relates to the general strategic framework.
In Chapter 3, I summarize the economic potential for Ireland over the next five years for hundreds of industries, categories, and products. The goal of this chapter is to report my findings on the real economic potential, or latent demand, represented by Ireland when defined as an area of dominant influence. The data presented are the result of various spatial econometric and time-series forecasting models which, for each category presented, are applied to forecast and allocate latent demand across all countries of the world and major distribution centers or centers of dominant influence within each country. This is accomplished knowing that economic fundamentals (e.g. income) generally vary from one country to another within a given country over time. In this chapter, I report the allocation for each category for Ireland as an area of dominant influence in Europe and, potentially, the world.
The report concludes with trade indicators for Ireland. Often, the amount of trade flowing into and out of a country is a strong indicator of trading partners, trade openness, and related latent demand. Trade indicators are purely statistical in nature. Although international trade is not a direct measure of latent demand, it does provide an indicator of general market conditions with respect to trade flows and trade openness in Ireland.
As a whole, this report presents a strategic assessment of Ireland by considering an extremely broad set of factors affecting both latent demand and accessibility, as outlined in the following chapters.
MACRO-ACCESSIBILITY IN IRELAND
Political Risks
Ireland is a parliamentary democracy. Under the Irish Constitution, the head of state is the President, which is a largely ceremonial position with a seven-year, elected term. Under the Irish Constitution, the President needs advance cabinet approval of speeches and travel.
Ireland’s Bicameral Parliament is comprised of a 60 member Seanad (Senate) and a 166 member Dail (House of Representatives). Dail representatives are elected by universal suffrage to 5-year terms. Members of the Seanad also hold 5-year terms of office. The Prime Minister directly nominates eleven Seanad members, and the remaining 49 are nominated by local universities and by panels with expertise in the areas of Culture and Education, Agriculture, Labor, Industry and Commerce, and Administration. The Dail, as the more powerful parliamentary body, elects the Prime Minister and has the greater authority to revise legislation introduced by the government. The Irish electoral system employs a “single transferable vote” system, which provides proportional representation from multi-candidate constituencies.
Economic Relationship with the United States
Ireland and the United States enjoy excellent bilateral relations. The two countries share the same language and similar values. There is a high level of exchange between business people, students, and tourists, and nearly forty-four million Americans claim some measure of Irish ancestry. On the basis of these links, a close relationship between Ireland and the United States has flourished. There are, at this time, no major outstanding bilateral economic or political disputes between the two countries. When issues do arise, they are normally addressed in a spirit of frank cooperation that reflects the strong cultural, historical, and political ties between Ireland and the United States.
As a member of the European Union (EU), Ireland has been a party to a number of significant U.S.-EU trade disputes such as Foreign Sales Corporation (FSC), the EU ban on U.S. agricultural biotechnology products, U.S. Section 201 tariffs on steel imports, and the EU ban on U.S. hormone-treated beef. As a EU member, Ireland is bound by EU policy on these disputes. Nonetheless, the traditional Irish approach has been to engage constructively with the U.S. and the other EU Member States to find solutions to these disputes and minimize the negative impact on transatlantic trade and investment. This policy, together with the Irish commitment to WTO mechanisms and the reservoir of goodwill built up between the U.S. and Ireland has tempered the direct impact of U.S.-EU trade disputes on U.S.-Irish relations.
Ireland shares U.S. views on human rights, the development of the world economy, and many other global issues. However, on other issues, such as the Kyoto Protocol and the International Criminal Court, we agree to disagree. As a member of the EU and because of its relatively small size among the world’s nations, Ireland prefers to pursue its foreign policy objectives through multilateral diplomacy, i.e., the EU or United Nations, rather than through direct bilateral engagement.
The U.S. Role in the Northern Ireland Peace Process
Achieving a peaceful and democratic solution to the violence and political instability that have plagued Northern Ireland for the last thirty years is a priority objective of both the Irish and U.S. governments. Both Ireland and the United States have worked to sustain and encourage the Northern Ireland Peace Process, cooperating with the British government and with parties in Northern Ireland.
The U.S. government was a strong supporter of the multiparty political negotiations, which, under the aegis of former U.S. Senator George Mitchell, produced the historic Good Friday Agreement, signed on April 10, 1998. President George W. Bush has reaffirmed America’s commitment to the Agreement, which includes supporting peace, and promoting economic initiatives in Northern Ireland and in the border counties of Ireland. Although the Peace Process has seen disagreements and problems over the years, there is continuing cross-community and cross-party support for the Agreement’s overall objectives. There are still issues, however, such as the decommissioning of paramilitary weapons and the ongoing reform of the police service of Northern Ireland, which must be resolved to the satisfaction of all parties to the Agreement before Northern Ireland achieves full, long-term stability.
In the past, political instability and violence in Northern Ireland were often thought to affect the Republic of Ireland. In reality, however, there has been little spill over of violence or instability, especially since the late-1970s. No violence related to the situation in Northern Ireland has been specifically directed at U.S. citizens or firms located in the South.
The growth of business investment and confidence in Northern Ireland after the cessation of widespread violence in 1994 undoubtedly benefited the Republic of Ireland. The economic environment of the Republic is now so strong and self-sustaining that it would take dramatic and long-term deterioration in the security and political situation in the North for the Republic’s overall business environment to be affected.
Already low prospects for violence in Ireland were further diminished with the 1998 ratification of the Good Friday Agreement, accepted by large majorities in both Ireland and Northern Ireland. Splinter groups opposed to the peace process have continued to commit occasional terrorist attacks in Northern Ireland and on mainland Britain. There have been no serious incidents in the Republic of Ireland. Until there is a full cessation of violence, the potential for disturbances in the North does, of course, remain. While there is some potential for spill over into the Republic of Ireland, such an occurrence is unlikely.
Government Intervention Risks
Ireland has an open and transparent business climate. Surveys by private sector consultants and others, such as the OECD, consistently find that Ireland has one of the most supportive environments for business in Europe. This is due, in part, to the country’s broad, bipartisan political support for pro-business policies. Both foreign and indigenous businesses, and their business confederations and chambers, have broad access to government officials to discuss immediate business concerns and broader government economic policies. Ireland’s unique social “Partnership Programs” provide a forum for business, government, labor, and the farming sector, as well as other “social partners,” to come together for discussions and an exchange of views. The Irish Business and Employer’s Confederation (IBEC), which represents the interests of Irish business to the government and media, is open to all businesses in Ireland, domestic or foreign. Other groups, such as the American Chamber of Commerce, also have broad access to Irish government officials.
Government decision-making remains centralized in Dublin, although local zoning and development decisions are generally made at the local or county level. Lines of authority and decision-making hierarchies with relation to business concerns are clear. There are generally good relations between officials at the national level and regional, county, and city level officials. The government has begun an effort to decentralize government agencies and departments in order to encourage development outside of Dublin.
The Ahern government remains committed to attracting foreign direct investment (FDI) through generous support programs and special low corporate tax rates. The government has, however, instituted some significant modifications to its FDI policies. For instance, increasing importance is placed on encouraging foreign investment in the relatively under-developed northern border counties and parts of Western Ireland, whereas incentives to invest in the already developed Irish East are being limited. The government is also placing greater focus on supporting foreign firms that are already operating in Ireland and are considering expanding their Irish operations. This policy is an effort to “embed” these firms in Ireland. Value-added services and the establishment of new R&D operations are a key focus.
Given Ireland’s extensive social welfare system, U.S. employers often find that the marginal cost of employing another worker is high. Labor unions strenuously oppose proposals to layoff or dismiss workers, and significant severance packages for “redundant” workers are a common industrial practice in Ireland. The Irish constitution gives workers the right to form and join labor unions, but employers in Ireland have the right to not recognize unions, and to deal with employees on an individual basis. The issue of mandatory trade union recognition remains high on the Irish labor union agenda. Wages are rising, as are indirect costs such as insurance.
Marketing Strategies
Ireland is a small open economy with a heavy dependence on international trade. As a result, the introduction of products and services into the Irish market is relatively uncomplicated. Standard international marketing and distribution practices are widely utilized in the Irish market. Moreover, e-commerce practices are being adopted by the Irish government and in the business community. American companies with quality products and services will receive enthusiastic support from local business partners toward achieving their goals and objectives in Ireland.
The opportunities for the establishment of business relationships are unique in that Irish firms are interested in representing U.S. companies both within the Irish market and, in many cases, in the larger European market. While numerous U.S. firms are already represented by agents and distributors or have direct sales in Ireland, local manufacturers are now seeking relationships such as technology transfer, licensing, and strategic alliance agreements with U.S. companies.
Given the close economic, political, and cultural relations that exist between Ireland and the United States, business opportunities for U.S. companies are broad based and easily accomplished. In general, Irish business executives are less formal than their European counterparts and the use of first names at an early stage of a business relationship is acceptable. Friendship and mutual trust are highly valued and once an American has earned this trust, a productive working relationship can usually be expected. However, principles of customary business courtesy, especially replying promptly to sales orders and requests for price quotations, are a prerequisite for success and should be practiced.
Given Ireland’s high level of international trade, Irish firms have significant expertise in international business. Irish buyers appreciate quality and service and are willing to pay extra if they are convinced of a product’s overall superiority. Care must be taken to ensure that delivery dates will be closely maintained and that after-sales service will be promptly honored. Since Irish wholesalers and retailers generally do a lower volume of business than their American counterparts, the U.S. exporter should be prepared to sell smaller lots than is the custom in the United States.
U.S. firms should maintain close liaison with distributors and customers in order to exchange information and ideas. In most instances, communication through telephone or e-mail is sufficient but the understanding developed through periodic personal visits is the best way to keep distributors apprised of new developments and to resolve any problems quickly. Prompt acknowledgement of correspondence is recommended.
Vigorous and sustained promotion is often needed to launch products. Products must be adapted to both technical requirements and to consumer preferences. It is not sufficient to merely label a product in conformity to national requirements. For the development of a product’s full market potential, quality, price, packaging and after-sales service are key. U.S. exporters may also wish to consider warehousing in Ireland for expeditious supply and service for customers in Ireland and Europe.
Distribution Channel Options
Product representation throughout Ireland is facilitated by the compact size of the market and, depending on the expected sales volume and use of marketing techniques, may be achieved through any of the following distribution methods:
Establishing a local sales office to serve Ireland and provide a distribution point for Western Europe,
Selling through an agent or distributor whose activity may cover specified areas, the entire country, or include Western, Eastern or Central European markets,
Selling directly to department stores, chain stores, retailer cooperatives, consumer cooperatives, or other organizations.
Distribution methods vary by product, as well as with individual commercial relationships. Methods must be tailored to fit market conditions in each instance. U.S. companies can utilize successful distribution techniques practiced in the United States as a threshold for approaching the Irish market. Generally, consumer goods are best sold through a distributor carrying stock for immediate delivery and sale, whereas capital goods and industrial equipment are more effectively marketed through a commissioned agent. In the case of certain raw materials with low mark-ups, or for capital goods and supplies for which there are limited numbers of potential users or buyers, direct sales techniques are effective.
Regular communications and visits to a newly appointed representative in Ireland are useful to establish successful relationships, get a better understanding of market specifics, trends, and developments, and to assist in the resolution of any early problems. Irish importers are generally experienced in purchases from international sources and expect well-designed, high-quality products, with efficient after-sales service. An effective and responsive after-sales-servicing system also should be incorporated into distribution plans.
Agents and Distributors
As noted, Ireland is a compact market of 3.9 billion people. International firms customarily have one exclusive representative for the entire country, although it is common for the representative to appoint sub-agents to cover certain sectors of the market, if sales and profit margins warrant. In addition, a sales representative located in Ireland may be in an ideal position to market a product throughout the European marketplace. Frequently, U.S. firms will rely on the Irish distributor to handle the details of labeling and packaging for European preferences regarding the product and, if necessary, registering the product. The familiarity and fluency of many Irish business firms with the varied languages of Europe also underline Ireland’s capacity as a springboard for sales to continental Europe, as well as to Central and Eastern Europe.
The careful selection of a dynamic representative is important for successful sales over the long term. The selection of a good sales representative is also essential because European Union (EU) legislation is restrictive regarding the termination of agents and distributors. As a member of the EU, Ireland is obligated to incorporate all European directives into Irish corporate law. Therefore, U.S. companies seeking to do business in Ireland must comply with the laws and regulations of both the EU and Ireland. The Council Directive EEC 86/653 sets forth conditions on termination of a commercial agent and provides for appropriate compensation. In addition, Irish legislation protects the interests of distributors.
Before entering into any agreement with a partner, the American principal should first review the provisions of Irish and EU law with a qualified attorney. Legislation regarding unilateral termination of distribution agreements is designed to provide the local distributor with some degree of protection and monetary compensation when an agreement is terminated for reasons other than cause. The legislation will apply regardless of any clause in the agreement itself, and the parties may not deviate from the legislation as long as the distribution agreement is in force.
Three kinds of distribution agreements are covered by Irish legislation: exclusive, quasi-exclusive, and informal. In an exclusive distributorship, the distributor has the sole right to sell specified goods within a defined area. Quasi-exclusive distributorships allow the distributor to sell almost all the specified products within a defined area. Informal distributor arrangements impose heavier obligations on the distributor. If contractual obligations are not met in a distribution agreement of indefinite term, it cannot be terminated until reasonable notice and/or fair compensation is provided. In general, grantors should consider protecting themselves by entering into agreements for definite periods rather than an indefinite period. In addition, specific minimum performance clauses should be considered, such as minimum annual sales or the number of business contacts to be made.
Wholesale and Retail Channels
Approximately 52,000 retail outlets and 2,500 wholesale outlets sell and distribute goods in Ireland. While the distribution system, especially at the retail level, still consists of small outlets by American standards, it is moving toward larger, more economically viable units to satisfy changing market needs. The increasing tempo of commercial and industrial development, as well as suburban development, is bringing about significant changes in the distribution system. Wholesalers supply a variety of services to associated small retailers, including sales promotion, advertising, and retail training. In some cases, they combine small retailers into a buying group in order to achieve purchasing economies and increased purchasing power with manufacturers.
Retail outlets in Ireland range from the large department stores to the small shop owned and operated by an individual. Although most retail outlets are small, such enterprises are decreasing in number, as efficiencies of scale and purchasing power become the major competitive factors bearing on profit margins. A trend toward larger outlets has been underway, with the formation of chains, expansion of existing department stores, and the establishment of medium-sized department stores.
The number of discount firms, especially those stocking consumer electronics and domestic appliances, continues to increase, and the number of self-service stores is rising steadily. Self-service is not confined to small merchandising units as department stores and gas stations also have incorporated this sales technique in their operations.
The Irish food retail trade is very receptive to new food product ideas and is constantly monitoring developments in new products in the international marketplace. As few chains import directly, the major food retail chains often use specialized importers to administer the logistics of importation and distribution. As a result, there are a large number of food importers, many of whom are quite small, serving the retail trade. Some of these importers are also distributors of Irish produce and, indeed, some also are local manufacturers. Most importers/distributors have adequate distribution facilities to most parts of Ireland.
There are over 9,000 food retail outlets of varying sizes in Ireland. Two distinct segments exist within the sector -- the supermarket multiples, and independent retailers. The food retail sector is dominated by three multiple chains, while a number of smaller chains also operate. The multiples dominate the grocery trade in the greater Dublin area accounting for about 75 percent of retail sales. A number of smaller EU-based retail chains (e.g., Lidl and Aldi) have also entered the market, establishing medium-sized stores in the smaller towns around the country. Outside of the main urban areas, many of the independent retailers are affiliated to “symbol groups” which facilitate the attainment of purchasing economies of scale through procurement from a central purchaser.
Pricing Issues
Sales quotations are usually given on a c.i.f. (cost, insurance, freight) basis. This is the sales price plus costs, insurance, and freight to point of importation. The c.i.f. quote is generally preferred by Irish importers as they are familiar with the customs charges and taxes on the product that are levied at the time of importation, but may not be acquainted with U.S. trucking and ocean or air charges. Large firms and department stores, however, may purchase on f.o.b. (free on board) terms when they prefer to arrange for shipping and insure the goods themselves. Quotations and invoices can be made in U.S. dollars.
European Union Legislation on Agents
Under EU legislation (Commercial Agents Regulations 1994), a commercial agent is a self-employed intermediary who has continuing authority to negotiate the sale or the purchase of goods on behalf of another person, or to negotiate and conclude such transactions on behalf of the principal. Each party is entitled to a written document setting out the terms of their contract. The minimum termination notice is one month for the first year of service, two months for the second year, and three months for the third year and subsequent years. Agents must be compensated if they brought the principal new customers or increased the volume of existing business. The amount of indemnity may not exceed a figure equivalent to an agent’s annual remuneration over the preceding five years or the average of the period in question. The indemnity is not payable if the principal has terminated the contract because of default by the agent or if the contract is terminated on grounds of age, infirmity, or illness of the agent.
Finding a Partner
Manufacturers seeking an Irish agent or distributor to service the domestic and European markets should consider visiting Ireland to appraise the relative merits of prospective agents. In addition to acquainting the U.S. exporter directly with local market conditions and special sales characteristics, a visit also provides an opportunity to discuss policy and sales campaigns with the agent or distributor, review responsibility for customs fees, taxes, labeling, transportation modalities, business procedures, payments and, if necessary, registration. These responsibilities should always be clearly defined before undertaking a long-term relationship.
U.S. firms are strongly encouraged to maintain close contact with newly appointed agents or distributors throughout their working relationship. Since certain products and equipment require servicing to maintain their useful life, the U.S. exporter should determine when this is needed and develop a distribution network to include such servicing by qualified personnel. To develop trust, loyalty, and marketing skills, U.S. producers frequently bring their agents or distributors to the United States for training and marketing assistance.
Checking Bona Fides
Large Irish companies have listings on the Dublin and London stock exchanges and in recent years, emerging high technology and Internet companies have secured listings on the Nasdaq and German Neuer markets. Publicly traded companies must publish substantive annual reports which meet the reporting requirements laid down by the accounting bodies and which comply with stock exchange regulations. In addition, company legislation requires that every registered company both privately held and publicly traded must file a set of audited accounts annually with the Companies Registration Office. Copies of such audited accounts can be obtained directly from the Companies Registration Office for a specified fee at www.cro.ie. In addition, mercantile agencies such as Dun & Bradstreet Ireland will undertake commercial credit reporting on any company in Ireland. These reports are available on-line at www.dbireland.com.
Franchising Activities
Substantial opportunities exist for U.S. companies to establish franchise systems in Ireland across a wide range of industries. The sector has experienced steady growth in recent years as the number of international franchise systems operating in Ireland continues to grow and indigenous franchise operations continue to expand both in Ireland and overseas. The growth of the economy and the resulting increased disposable incomes, together with the many changes in consumer buying patterns and the spread of suburban living, have all contributed to the growth of the franchise sector.
There are few regulations concerning franchising and none that limit market access to U.S. firms. The EU Regulation 4087/88 EEC regarding franchising provides a unified code for the 15 member states. Its primary focus concerns price fixing, transfer pricing, non-competition clauses and exclusive dealing. It also exempts certain franchise agreements from the EU anti-trust regulations.
Direct Marketing Options
Irish companies spend in excess of $244 million on direct marketing services annually. The Irish Direct Marketing Association (www.idma.ie), the representative body for direct marketing in Ireland, has 350 members ranging from financial services firms to telecommunications companies and law firms. Telemarketing, in particular, has spearheaded the growth of the direct marketing sector in Ireland as a large number of companies, including Dell, United Parcel Service and American Airlines are now providing telemarketing services from Ireland. These international firms are serving both the Irish and European marketplaces from their Irish telemarketing operations.
Mail-order sales are small. Certain firms have used this technique successfully in combination with their usual retail outlet operations. Promotion is carried out by catalog, or by newspaper advertisements with no personal contact. Hobby centers, Do-It-Yourself (DIY) or home improvement stores, auto supply centers, and discount stores are also enjoying success.
E-Commerce
The deferment of broadband infrastructure investment by local telecoms, as well as the closure of several e-business firms, has shaken local confidence in the sectors, as well. Nevertheless, the Irish Government remains strongly committed to its policy of ensuring that Ireland becomes a major hub for e-commerce in Europe. To achieve this goal, the government developed a comprehensive e-commerce strategy that includes: (a) world-class international telecommunications connectivity, (b) pro-active e-commerce legislation (Electronic Commerce Bill 2000), (c) an e-commerce campus in a 100-acre National Digital Park, (d) support for SMEs to develop e-commerce strategies, and (e) an ‘Information Age’ program for the educational sector. According to a recent Legg Mason international study, Ireland was ranked among the top four countries in the world along with the U.S., the U.K., and Canada in terms of creating very hospitable environments for high growth prospects in the new information economy.
Joint Ventures and Licensing Options
No formal regulations relating to joint ventures in Ireland currently exist. In each case, the terms of the joint venture are the subject of a co-operation agreement between the parties concerned. Generally, the agreement sets out the basis on which the parties are to co-operate on a particular joint venture. Numerous international firms have joint venture and licensing arrangements with manufacturers based in Ireland.
Government approval is not necessary for licensing agreements and no statutory restrictions are imposed on the amounts of royalties or other details of licensing arrangements. However, an international firm intending to license the use of its trademark to a company based in Ireland must designate the licensee as a registered user
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