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Back on the Map

Ireland's domestic economy may be in shambles, but expansion-minded U.S. firms see plenty of opportunity.

Ian Curley, CFO of Dublin-based Smurfit Kappa Group, has it better than most of his peers. Like many of the other companies in the ISEQ 20 — the Irish Stock Exchange’s benchmark index — SKG, a $9.3 billion packaging firm, has managed to survive Ireland’s economic meltdown by outgrowing its home market. Today, markets in other European countries and Latin America have become far more important to both its top and bottom lines. What’s more, he says, “90% of our funding comes from outside Ireland.”

But after three years of recession in their home country, Corporate Ireland’s CFOs — even those in the ISEQ 20 — can’t ignore the beating the country has taken since the global economy hit the rocks in 2008. Ireland’s spate of reckless bank lending, shoddy regulatory oversight, a bursting property bubble, and dangerously high levels of government debt are taking their toll, with little relief in sight. Irish taxpayers are facing several more years of belt-tightening, thanks in no small part to the near-blanket guarantee their government gave to the senior bondholders of Ireland’s six domestic banks on September 30, 2008 — “the blackest day in Ireland since the civil war broke out,” according to Michael Noonan, Ireland’s minister of finance.

Since that watershed moment in 2008, the bad news has kept coming. Moody’s Investors Service downgraded Ireland’s sovereign debt to a notch above junk status, and kept its outlook negative. The rating agency said that despite the €70 billion rescue deal the country put in place late last year, there are concerns that the country will need further austerity measures. It also warned that the government’s financial strength could decline further if economic growth is weaker than expected, or if fiscal adjustments falter. And although Ireland’s Central Bank forecasts modest GDP growth (0.9% in 2011 and 2.2% in 2012), employment is expected to continue falling. In seasonally adjusted terms, the unemployment rate increased from 13.7% in the third quarter of last year to 14.7% in the fourth.

It’s a dramatic turn of events for a country once hailed as Europe’s roaring “Celtic Tiger,” and one that offers a snapshot of the new, unexpected complexity facing CFOs around the world today. Many finance executives seeking new manufacturing or back-office sites overseas might now see once low-risk countries like Ireland in a different light.

But a second look might reveal reasons to embrace the country rather than avoid it.

“Ten years ago, everyone was running to Ireland,” says Scott Davidson, CFO of California-based Quest Software, who years ago helped a previous employer set up an Irish shared-services center (SSC). “There are political and economic risks now that weren’t there then; the economy is a lot more complex; and there are other factors at play, including the shift to the euro.”

But Davidson isn’t complaining. A year after that “blackest day” Noonan cited, Davidson developed a short list of countries in which Quest might locate an SSC, and Ireland made the cut. Among the factors in its favor: a government more eager than ever for new employers and investment.


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