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Management article
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Reference no. SMR47203
Published by: MIT Sloan School of Management
Published in: "MIT Sloan Management Review", 2006
Length: 3 pages

Abstract

Savvy multinationals opening up overseas operations should look for more than just a low-cost environment, say three researchers at the Irish Management Institute. They should look for a long-term relationship. In their 2005 Irish Management Institute working paper, Matching MNC Subsidiary Location and Host Economy Development, they document the more than 80 responses they received from Chief Executive Officers and Chief Financial Officers for each of the past seven years, in which the executives ranked the factors considered most important for Ireland''s competitiveness. Not surprisingly, the foreign executives reported the labor force to be among the most important issues. But it''s not just the cost of labor that''s on their minds. The quality of the labor force and particularly the quality of the management pool were critically important. The education system, skills, flexibility and availability of the labor force all counted among the top 10 of the 27 issues under consideration, along with corporate tax rates, and the transport and telecommunications infrastructure. Furthermore, the rankings have remained relatively consistent over the period of the study, despite the dynamic structural change that Ireland''s economy has undergone in that time. The authors suggest that the best offshoring decisions consider a number of factors that might outlast their transient cost-savings advantage. Those factors will necessarily differ depending on the situation. Of course, since a company''s needs change over time, managers have to forecast future requirements. Other companies might look for marketers who can tap into future domestic or regional consumer markets. Over time, manufacturing migrated away as lower-cost nations opened their doors. Still, multinationals didn''t pull up stakes. Their long-term advantages are now starting to come from areas like services, research and development, and innovation. The question is whether or not the multinational and the economy can grow together. Because the potential match between a company''s future needs and a country''s potential capabilities is a moving target, companies have to look at not only current conditions in a country, but also at the plans of the economy''s policy-makers.

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Abstract

Savvy multinationals opening up overseas operations should look for more than just a low-cost environment, say three researchers at the Irish Management Institute. They should look for a long-term relationship. In their 2005 Irish Management Institute working paper, Matching MNC Subsidiary Location and Host Economy Development, they document the more than 80 responses they received from Chief Executive Officers and Chief Financial Officers for each of the past seven years, in which the executives ranked the factors considered most important for Ireland''s competitiveness. Not surprisingly, the foreign executives reported the labor force to be among the most important issues. But it''s not just the cost of labor that''s on their minds. The quality of the labor force and particularly the quality of the management pool were critically important. The education system, skills, flexibility and availability of the labor force all counted among the top 10 of the 27 issues under consideration, along with corporate tax rates, and the transport and telecommunications infrastructure. Furthermore, the rankings have remained relatively consistent over the period of the study, despite the dynamic structural change that Ireland''s economy has undergone in that time. The authors suggest that the best offshoring decisions consider a number of factors that might outlast their transient cost-savings advantage. Those factors will necessarily differ depending on the situation. Of course, since a company''s needs change over time, managers have to forecast future requirements. Other companies might look for marketers who can tap into future domestic or regional consumer markets. Over time, manufacturing migrated away as lower-cost nations opened their doors. Still, multinationals didn''t pull up stakes. Their long-term advantages are now starting to come from areas like services, research and development, and innovation. The question is whether or not the multinational and the economy can grow together. Because the potential match between a company''s future needs and a country''s potential capabilities is a moving target, companies have to look at not only current conditions in a country, but also at the plans of the economy''s policy-makers.

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