Organising Telecommunications Business in Ireland
EXECUTIVE SUMMARY

Ireland is a European country which achieved extraordinarily high levels of economic growth in recent years so many economists compare it with the Asian 'tiger' economies. The Irish Republic has population of 3.5 million people. It has close historical relationships with UK, English is one of the official languages. GDP growth for 1997 predicted at 7%. Telecom and electronic indusries are of main importance. Ireland has a number of positive ecomomic parameters and trends eg low inflation and budget surplus.

Ireland is a target for big capital investment particularly in hi-tech industries. Telecom companies enjoy reduced corporate tax rate of 10% and is supported by the government. During last years call centers in Ireland were in strong demand. Ireland is preferable to other European nations for its lingusitically and technically higher skilled labour force with lower wage rates; availability of advanced telecom facilities and favourable taxation and economic conditions. Ireland is recommended as country suitable for setting telecom business.

INDEX

Introduction
1.0 Country Brief
1.1 General Information
1.2 Historical Background
1.3 Politicals Situation
4. Economic Outlook
2.0 Telecommunications In Ireland
2.1 Industry Conditions
2.2 Call Centres Prospects
3. Recommendations
Conclusion
Bibliography

1.0 COUNTRY BRIEF

1.1 GENERAL INFORMATION

Ireland (Eire) is situated northwest off the Europe's coast. It occupies most part of the isle Ireland. The northeastern region of the island known as Northern Ireland is a part of the United Kingdom. The area of the country is more than 70,000 sq. kilometres. Dublin is a national capital, largest city and main port. Other significant cities are Cork, Limerick, Galway, Waterford. Population of Ireland is over 3.5 million people with density of 51 persons per sq. kilometre. Infant mortality is at 8 per 1000, average life expectancy 75 years. The climate is wet and mild which contributed to appearance of vast pasture lands.

The currency is Irish pound (punt) divided into 100 pence. There are two official languages English and Irish, English being predominant. Irish Republic is a member of European Union (EU), UN, Council of Europe, NATO, OECD and other international organisations (MiniWorld Factfile:1996).

Main exports are machinery, electronics, transport equipment, food products and chemicals. The industrial sector of the economy primarily consists of hi-tech foreign owned enterprises with the large amounts of invested capital. Electronics and telecommunications industry now make up a quarter of national exports. Financial services and tourism also play significant roles.

Ireland's political status is republic. Head of the state is President. Head of the Government is Taoseach (Prime Minister) elected by parliament. The parliament is nationally elected every five years. There are no state official religions, Ireland has freedom of religions. However, the influence of the largest confession group, Roman Catholic Church is still essential. The largest minority are followers of Protestant Church of Ireland. (Ireland Today).

1.2. HISTORICAL BACKGROUND

The immediate closeness to one of the Europe's superpowers played the vital role in the history of the island. The presence of the British was observed since the 12th century. Since that time Ireland persistently fought for its independence from Great Britain. The last collision during World War I finally resolved in signing the Anglo-Irish Treaty of 1921. Under this agreement the most of the island, 26 counties were given status of dominion within the British Commonwealth and became known as the Irish Free State. Six counties of the Northwest province of Ulster with a large proportion of Protestants loyal to the Union were given their own parliament and in fact remained under the British rule.

The partition of the country lead to immediate civil war between supporters and opponents of the Treaty. The conflict lasted up until 1923 when Free State Army, pro-Treaty side took control over the country defeating the Irregulars, most commonly known as Irish Republican Army. Subsequently, the IRA was outlawed, however, illegally it continued its strife against Irish Government well up until 1950s.

The violent struggle, however, did not stop in Northern Ireland, where IRA chose the terrorist tactics of fighting for independence both on Irish and British shores. Ireland virtually did not take part in the World War II taking up a neutral side. In fact, nevertheless, it allowed its port and airstrips facilities for the American and British troops (Dana).

In 1965 Ireland and United Kingdom signed the Anglo-Irish Free Trade agreement which marked a new era in bilateral relationship. In 1973 Ireland joined the European Community. Both factors contributed to the positive transformations in the Ireland's industry and trade patterns (Ireland Today).

1.3 POLITICAL SITUATION

Ireland is a Western-type democratic society. The country is a presidential parliamentary republic. Political system is fairly stable. Ireland had last parliament elections in June this year. The ruling Fianna Fail party gained majority of votes (46%) with the Fine Gael slightly behind (32.5%). The division of seats did not change significantly since 1992 elections. There are 8 parties presented in the parliament. Sinn Fein, the political wing of IRA obtained one seat. The country, however, acquired a new Prime Minister (Taoseach): Bertie Ahern (leader of the Fianna Fail). (Ireland Today).

Ireland will have Presidential elections in October 30, this year. All four major nominees are female: Mary McAlesse (Fianna Fail), Mary Banotti (Fine Gael), Adi Roche (Labour) and Dana (independent) (Lambert:1997). The acting president now is Mary Anderson. Both the Irish and British authorities are trying to resolve the ongoing confrontation in Ulster, but the recent IRA's terrorist act in Belfast again disrupted peace negotiations.

1.4 ECONOMIC OUTLOOK

Today many economists refer to Ireland as the Celtic Tiger. During 1990s Ireland showed exceptional economic growth not in other European nations but similar with that of South East Asian countries (Economist: 1997).

The average GDP growth rate in that period was 5.3%. Exports since 1986 increased from 60% up to 80% of GDP and reached 60 billion pounds last year. The growth figures are twice large than the OECD average. Ireland has a trade surplus with all trading partners in the EU. Total surplus is about 10 million pounds (Beggs:1997).

Economic and financial figures suggest that 1997 will be also a successful year for the Irish economy. The growth is forecast similar to 1996's i.e. at 7%. This will make up a 27% overall growth since 1995. Consumer spending is expected to rise by 5.5% and fixed investment by 11%. The similar outlook is likely for 1998 (AIB).

The improvements were observed also in the retail sector. In the first half of 1997 the overall growth was 5.1%. The government's fiscal policy also proves to be successful. A surplus of L929 million was achieved during 7 months of 1997 against L36 million for the same period of 1996 (AIB).

Private sector is strongly growing. By June 1997 lending amount increased by 20.6%. Mortgage increase of 14.6%.

Inflation rate for the first 6 months of 1997 was 0.8%. In July consumer prices fell by 0.1% but have gone up by 1.2% since August 1996. Analysts, however, predict that inflation will come up to 3% due to the depreciation of the exchange rate. Following the weakening of DM and strengthening of GBP, pound appreciated against DM and felt against GBP and USD.

Irish economy qualifies for the membership in the EMU. However, for the purposes of smooth entering into the single European currency the pound will be revaluated. The Government plans to announce the entry rate of exchange by May 1998. In the short term GBP/ IEP rate will likely stay within L0.89 - 0.91 range. The USD/IEP will likely to be under $1.45 (AIB). The AUD/IEP exchange rate for September 15, 1997 was $2.0877 (Ireland On Line).

The official interest rates for September 15 were at 6.75%. Interest rates are expected to remain unchanged or change very slightly in the immediate future (AIB).

2.0 TELECOMMUNICATIONS IN IRELAND

2.1 INDUSTRY OVERVIEW

One of the most advanced industries of the Irish economy is telecommunications sector (alongside with electronics). Prominent government policy directed towards attracting foreign investment and some special conditions made it one of the centres of telecommunications industry in Europe. Multinational companies (mostly American) started their expansion into Ireland since early 1970s. Today 40% of American investment into these industries in Europe are in Ireland. The success takes its start back in 1960 when the Irish government's Industrial Development Authority designed a special program under which all companies engaged in software manufacturing, computer and telecommunications services were granted full tax exemptions on export for 15 years. The massive influx of foreign investors started to flow in early 1970s. In 1981 Government replaced this schedule with a 10% income tax rate for those industries. Planned firstly until 2000 it was then extended up to 2010 (O'Riain:1997). The tax cut is essential as normal rate is 38% (Bartolomew:1996).

For example these multinational corporations are now operating in Ireland: Digital, Apple, Motorola, Dell, MTC Communications, Novell, AT & T, Hewlett Packard, Sony, Ericsson, Northern Telecom, BT, 3Com, Siemens, Nokia, Seagate, Frontier Communications and many others.

Ireland's national telecommunications provider and network facilitator is Telecom Ireland (TI). While cooperating with the overseas telecoms TI has developed unique expertise and knowledge and now is considered as the most advanced network in Europe (Molloy:1995). The company has recently undergone a massive modernisation program of US$3.7 billion.

The industry is supported by the Government: subsidies are estimated at US$3.5 billion. Education is also heavily invested in especially in high-skilled technical education. The Regional Technical College system created in late 1960s and two National Institutes of Higher Education aimed at the developing of technical skills played their vital role in providing well-trained specialists and therefore facilitated the growth of the industry.

2. 2 CALL CENTRES

Due to these factors international companies (American Airlines, Rands McNelly Media Services) choose Ireland as a location of telemarketing call centres. AA for example set a US$7.8 million center in Dublin employing over 200 multilingual agents which handle around 2.5 million calls per year. The service carries ticket reservations from passengers and travel agencies across Europe. The site was chosen after profound research and analysis. Amongst proposed locations were London, Paris, Zurich, Frankfurt, Maastricht, Marseilles, Belfast and Brussels The AA's regional manager for distributions noted that choice was made for such reasons: a higher level of labour force's linguistic skills in combination with average salaries; lower costs of telecommunications facilities, lower real property prices and the presence of advanced telecom carriers. AA is using AT&T network (Corporate Location:1996).

Another American company located its call centre in Shannon. Rand McNally Media Services, a major software producer and distributor established its facilities in Shannon to provide customer assistance and technical support for the customers in Europe, Middle East and Africa. This company also undertook a research for choosing the best location. The reasons for choosing Shannon were alike as for the AA's call center. Amongst them are three major contributors: availability of multilingual employees with good linguistic and technical skills but with competitive salaries level. Secondly: local and cheaper access to the most sophisticated telecom networks which it turn grows from the third advantage: strong support from the Irish Government expressed in minimising of business set-up time. Finally and very importantly are the low rates of income tax. There are a large number of companies which seek to open call centres in Ireland. Even companies which already have European call centers plan to additional ones. It creates a huge opportunity for the telecommunications providers. The market for call centres is estimated at a level of US$2 billion annually and by 2000 is predicted to double. Other options of European call centres are usually rejected for example because of higher labour cost in Scandinavia, Benelux states and UK. France falls behind in the development of mobile networks. German market is affected by cultural terms: public is not wiling to do business over the phone. There are also restrictions on working hours (8 am -5 pm only) and obligations to receive written permission from customers so the marketers could call them (Murdoch:1996).

2.3 RECOMMENDATIONS

The presented findings suggest that Ireland is a very favourable place to do business in, particularly in telecommunications industry. There is a strong demand for high-tech advanced telecom providers in Ireland. As multinational businesses continue to expand their business in Europe, they require network support. Such area as call centres - which are intermediaries between corporations and large number of customers - promises strong growth. As competition tightens organisations look for more effective means of serving customers. Especially it is relevant for services such as airlines and other transport sectors as well as hi-tech goods eg software and all sorts of computer related products. A number of large companies preferred Ireland for the location of their call centres and the further expansion is predicted.

Though the entrance to this market will be connected with strong competition from AT&T, today's main provider of such facilities, the outlook of the venture is likely to be successful.

Ireland possesses highly skilled workforce particularly in telecom and electronic industries. Important enough is that English is an official language . Average salaries are below than those in North America, Australasia and most of EU. There is also a large percentage of employees who speak more than one or two foreign languages. Currently Ireland has a high level of unemployment at 11.9% which adds to the greater competitiveness of the workforce. Another significant factor is a relaxed tax regime under which telecom enterprises pay 10% rate on income and export sales. The condition is guaranteed until 2010 with further prospects of extension.

As a member of the European Union, Ireland will likely to benefit from free trade within EU and with other regions. There is a slight uncertainty about rate at which Irish pound will enter the EMU. This will be cleared out by next May.

Drawing on the results of the study it can be concluded that prospects for entering telecom market are potentially successful. The best form would be the fully-owned foreign enterprise as there are no obligations from the state authorities to set up a joint venture and due to attractive tax regime. The past experience of similar enterprises shows that this pattern is most suitable for the Ireland's conditions.

CONCLUSION

The report was attempted to give information and suggestions concerning the feasibility of investing in telecommunications market of Ireland. This country has many advantages including tax climate and high workforce skills level. Ireland enjoys high growth rates, low inflation, positive economic trends and political stability. Telecommunications industry is actively supported by the Government and is one of the major industries in the country. However, most enterprises are subsidies of the large multinationals mainly American firms. While mainland Western Europe is enduring phase of stagnation, Central and Eastern European countries still lack necessary infrastructure Ireland seems a favourable destination for investing in the telecom industry.

Bibliography

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University of Technology, Sydney
© 1997 Andrei Sidorenko