Ireland remains the most globalised western economy


Ireland is the world’s third most globalised nation in terms of GDP, and remains the most globalised nation in the western world according to Ernst & Young’s latest globalisation Index released at Davos. The report also confirms that Ireland is forecast to maintain its overall ranking until at least 2015 due to continued projected growth in trade and capital.

The globalisation Index has five measurements to assess a country’s individual global ranking including: openness to global trade, global capital movements, global exchange of technology, global labor movements and cultural integration. The report, drafted in collaboration with the Economist Intelligence Unit (EIU), confirms that Ireland is the second most globalised economy in culture and joint third with Singapore in the global movement of finance and capital.

Mike McKerr, Managing Partner at Ernst & Young comments: “Despite having been hit hard by the recession, research confirms that Ireland is well placed to compete with larger economies worldwide. globalisation continues to define our business landscape with increasing levels of cross-border trade, capital and labor integration. This is underpinned by the number of multinationals located within Ireland”. 

Since 1995 Ireland has remained within the top three globalised nations based on our overall score; it has risen by 1.21 points above the global average of 0.70 points.  Globally, Ireland ranks sixth overall in terms of Trade (+0.91 out-performing the global average +0.63) and it ranks first on openness and ease of trading.

McKerr comments: “These rankings demonstrate how well positioned Ireland is to build on this brand and grow its fledgling trade links with fast growing emerging economies such as China and India. These rankings will be further strengthened, with the IDA currently broadening its global focus to support high-growth companies, emerging from these economies. They have indicated 20pc of all Greenfield investments will come from these regions by 2014”.

Ireland is highly dependent on foreign direct investment (“FDI”).  Despite being a small open economy, it has managed to attract a disproportionate amount of high value FDI in the last decade.  However, Ireland’s goods export performance is heavily dependent on the export of medical and pharmaceutical products.  This sector is dominated by mainly foreign-owned multinationals and with patents on several major drugs manufactured here due to expire, this could potentially take a toll on Ireland’s export pharmaceutical market.

The existence of the International Financial Services Centre has been a positive factor for Ireland’s consistently strong performance in openness to movement of capital and finance.  This is largely driven from the rise in FDI flows (ranking fourth globally) and portfolio capital flows (ranking first globally).

McKerr continued: “Ireland faces a highly competitive landscape, with notable strong competition arising from the UK, the Netherlands and Switzerland.  We can’t afford to rely on our previous success.  We need to think of more innovative ways to differentiate ourselves from our international competitors, through a combination of cost-competitiveness, enhancing our tax offering and addressing any perceived skills shortage”.

While most forecasters believe global GDP will be in the range of 3% – 3.5% in 2013 with a modest increase in subsequent years, the Index suggests that globalisation will continue to advance driven primarily by technology and the cross-border flow of ideas. It also highlights the improved globalisation scores in the last 12 months for medium sized rapid growth markets like Vietnam, Malaysia, Thailand and Philippines as well as smaller European countries including Belgium, Slovakia and Hungary.

However there are real concerns from the survey respondents that continuing weak growth combined with increased global competition could spark more protectionism in the next 12 months. The respondents also specifically pointed to the increasing challenges of operating in some BRIC economies as well as slowing growth in some BRIC markets. As a result nearly half of the survey’s respondents expect an increase in protectionism in the BRIC countries as well as an increase in developed markets. In contrast, respondents see a decline in protectionism as more likely in other smaller rapid growth markets.

Mike McKerr, Managing Partner of Ernst & Young Ireland comments: “Despite the highly volatile economic backdrop the trend for greater integration and closer co-operation continues to outweigh the threat of protectionism for the majority of the world’s markets.”

Rise of the second tier?

The Index highlights that non-BRIC rapid-growth markets are emerging as hot spots for global business, thanks to a perception of being more globally integrated on a range of trade, investment, cultural and technological criteria than the BRICs. These markets also show consistently high economic growth close to that of the leading BRICs. Turkey, Mexico and Indonesia closely shadow China and India in terms of GDP growth from 2000 through 2015. Peru, Colombia, Venezuela, Malaysia and Vietnam, as well as several countries and regions in Africa are all shaping up to be among the most dynamic parts of the world for investment.

The number of executives questioned who view rapid-growth markets, other than the BRICs, as the most important source of new revenue nearly doubles from 26% today to a projected 45% in three years time. And they are planning accordingly with South Africa, Indonesia, Mexico and Turkey reported to be the most competitive locations. Executives from all geographies expect to increase investment in these markets – 82% plan to do so, and 4 in 10 expect to increase it by more than 10%.

McKerr explains: “Leading companies are adopting a multi-market approach. While the BRICs remain critical to their strategy, executives are also looking closely at opportunities in non-BRIC emerging markets, where they are seeing improvements in the ease of doing business, infrastructure, government policies and labor productivity.”

They’re also discovering that a standard strategy for a group of markets — e.g., an “emerging markets” strategy — no longer works. Instead, what they will need are nuanced and customised strategies for different markets, areas, regions, sectors and countries.”

Mature markets remain critical

While many of the non-BRIC rapid-growth economies are worth a big, mostly long-term bet, the report reinforces that they are only part of the picture. To create a well-rounded portfolio, investors will need to diversify their bets to include several mature markets, which are making a comeback in certain areas and sectors.

The report also highlights how innovation and exchange of technology and ideas can give developed markets an edge over their rapid-growth counterparts. The diffusion of broadband, social, digital and mobile technologies is much higher in these markets, enabling them to retain a high share in the export of goods and services.  Ireland has improved in terms of broadband penetration from 24% to 26.4% and in internet subscriptions from 73.7% to 77.2%.  However, Ireland’s overall ranking in Technology stands at 22nd globally.

Where next?

As the trade in goods and services is returning to pre-financial-crisis levels, and the flow of capital shows a steady increase, technology and the cross-border flow of ideas will continue to shape the growth and character of globalisation. As trade integration stabilizes, a shift between import and export countries is forecast, with rapid-growth markets emerging as stronger consumer markets and developed markets regaining strength as producers and exporters of goods and services.

McKerr concludes: “The nature of globalisation continues to evolve and change. Technology continues to enable and enhance the flow of capital, ideas and innovation in ways that are increasingly hard to anticipate. The challenge for business is how to monitor, evaluate and respond as rapidly and effectively as they can, to a dynamic environment that cannot be dealt with by an “off the shelf solution”.

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