Can Romania follow the economic blueprint that Ireland recently established? John Walsh, IMD’s Executive MBA Program Director and Coca-Cola Professor of Consumer Insights and Customer Marketing answers questions on the issue
How was Ireland able to go from an economic backwater in the early 1990s to its leading economic position in the EU?
Stability is the key. This was the policy of Ireland over the last 20 years. Regardless of which coalition or party was in power, the country maintained consistency in legislation and economic policies. Businesses took advantage because they knew the policy would remain, while Governments changed. What I have understood in Romania is that it’s not just that policies and laws change when new political parties come into power, but also during the term of one office. In Ireland the authorities have done a great job in educating the population about economic priorities so that the electorate isn’t advocating change. When you talk to anyone in the street in Dublin, from beggars to doctors or police officers, they will tell you 12.5 per cent corporate tax is the key to their economic success.
How can Romania learn from Ireland’s success at attracting foreign investment?
Attracting investment in Ireland was due to an active Industrial Development Agency (IDA). This was a one-stop-shop for businesses, which liaised between Government departments on legal and infrastructure issues. They understood the strengths and weaknesses of Ireland.
For example, as a little island off a bigger island close to an even larger continent, Ireland didn’t want to make heavy machinery for export, because it would be expensive to transport. Instead they focused on financial services, IT&C and pharmaceuticals. Then the country pursued an ‘anchor tenant’ such as Intel or pharma firm Wyatt, with an intention to focus on winning other firms in the sector resulting in a cluster. Software in Ireland now includes Microsoft, Google, E-bay and Paypal. A mistake would be to target industries, win the market leader and then stay content with this situation. This should only be the beginning.
Selling a service and then the country that can deliver that service is a great strategy. Ten years ago the IDA toured multinationals explaining the importance of shared services where – for example – a large company will centralise all its international payroll activity in one location. Representatives of the IDA explained to CEOs how they would save money with shared services and then explained Ireland was the European leader – so why not locate to Ireland?
Ireland is such a small country, that an entrepreneur has to think about the export market, then he or she starts having offices abroad, in large markets like the UK or France, and then the company becomes an acquisition target for multinationals. Romania is a bigger economy and could become a regional leader because of its market size.
It’s even possible that Serbian or Bulgarian companies could expand and eventually operate out of Bucharest.
What should be Romania’s top priority ?
A target for Romania is to attract mobile investment – money that could go anywhere in the world. Now the lower end of activities is moving out of Ireland as salaries rise. From these, call centres are attractive for Romania. These investors can move on when the wages rise. But while they are present they bring new skills. Ireland’s salaries have now risen so high, the country is trying to attract research and development and is spending billions of Euros to create R&D clusters with universities. The aspiration here is centres with few jobs, but highly paid. The result is value in intellectual property.
Under debate in Romania is the quality of the education system. What new measures should be adopted?
There needs to be a powerful education system in an emerging market. If labour costs are increasing, there must be an educated workforce so that labour can easily move to the next step.
In Romania the education system used to be powerful and is now slipping. It may not be receiving the attention it deserves, although the Government has increased the budget for education to six per cent of GDP, this will take time to see results.
The mistake is to reduce funding in education because of the assumption that people will go elsewhere - I understand that 25 per cent of the Romanian workforce is abroad. This is unfortunate, but is an opportunity for the future. As salaries increase and living standards improve, which will undoubtedly occur, these people will come back to Romania with new skills.
IMD is a leading global business school based in Switzerland running executive MBA programmes. 64 of its participants recently visited Ireland and Romania.