Chapter 12: Ireland And The ASEM Process: The Case Of The Asia-Europe Foundation ~The Irish Asia Strategy And Its China Relations

IrishAsiaIreland’s Asia Strategy is also embedded in the context of the wider relationship between the European Union and Asia. The relationship has been dramatically transformed from one of European political and economic dominance to a partnership of equals”. Dermot Ahern, Minister of Foreign Affairs, 2006.[i]

The inaugural Asia-Europe Meeting (ASEM)[ii] was convened in Bangkok, Thailand, in 1996, in a uniquely ambitious endeavour to build a multi-faceted platform where Asia and Europe could encounter each another in a modern context. This innovative model of engagement, with its emphasis on a flexible structure and informal dialogue, arose from a mutual recognition that the relationship between the two regions needed to be strengthened in light of the increasing interdependence in the economic, social and political spheres. The ASEM process as it has developed is based on an equal partnership and its activities are grouped into three pillars: political, economic and socio-cultural.

ASEM has its roots in the recognition in Asia and in Europe that the relationship between the two regions requires strengthening taking into account the growing importance of Asia and the integrating and enlarging Europe.
The three pillars of ASEM – political, economic, social/cultural/intellectual – have allowed for increasingly intensive engagement between the two regions since the outset of the process.
The process was driven largely from the Asian side with much of the initial impulse coming from Singapore. On the European side the push for improved interaction and greater co-operation came from the European Commission. Despite preoccupation with the implementation of the Maastricht Treaty provisions for the launching of the single currency programme, the European Commission responded positively and facilitated the inaugural meeting of the Heads of Government from the EU and East Asia in Bangkok. The fact of the meeting taking place was an important indicator of a readiness to engage more effectively in mutually beneficial interaction. Subsequent discussion between officials from both sides set out tentative procedures to be pursued.

In the words of Kishore Mahubani, the Singaporean diplomat charged by his Government with the task of convincing the European and Asian Governments to join in the initiative to develop ASEM, the rationale was simple. “There were three major growth centres in the world: North America, East Asia and Europe. In this triangular relationship, the connection between North America and Europe was strong, so too was the transpacific connection between North America and East Asia. The missing link was the relationship between Europe and East Asia”[iii]. Three years into the process, a review of the progress by a Vision Group of eminent persons was initiated. The report of the Vision Group makes interesting reading; the Group saw
“the gradual integration of Asia and Europe into an area of peace and shared development, a prosperous common living sphere in the 21st century, a sphere in which our knowledge, wealth, cultural heritage, democratic ideals, educational assets, intellectual aspirations are closely intertwined and exchanged without barriers or constraints. [The group] envision the active integration of our intellectual forces and a vibrant exchange of culture and the arts between Europe and Asia…[and] also visualise the progressive opening of markets with the eventual goal of free flow of goods and services by the year 2025”.[iv] Read more

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Chapter 13: Ireland’s Unique Asia Strategy – The Irish Strategy In European Comparison ~ The Irish Asia Strategy And Its China Relations

IrishAsia13.1 Introduction
Historically, Ireland’s human and cultural links with Asia have been underdeveloped[i] The Irish Asia Strategy, launched in 1999, was designed to strengthen Ireland’s ties with Asian nations. Until 2004, the fundamental aim of the strategy involved outlining a series of challenging targets and objectives, with a view to increasing Ireland’s political, trade and investment connections with Asia. Several new embassies [ii] and consulates[iii] were founded in order to achieve this end, and there was a notable increase in trade-related and high-level political visits between Ireland and the continent. Efforts were also made to heighten awareness of the Irish national brand through a state-funded campaign. The first phase of the strategy resulted in the doubling of the average value of exports to China (2003–2005), compared to the trade statistics for the previous 3 years[iv]. Two-way trade between Pakistan and Ireland also increased: By 2006, exports to Pakistan were valued at € 67.8 million, and sales by Irish companies in Pakistan more than doubled over the last three years.[v] However according to the Irish Exporters Association’s (IEA) annual report, 2005 exports to Asia fell by 1% to € 6.6 billion, with exports to Thailand and South Korea falling the most. Exports to Japan remained fairly static during this period[vi]. What about India and other Asian nations? Why only mention these nations?
The second phase of the strategy (2005-2009) has been designed to encourage Irish foreign direct investment (FDI) in Asian countries, and vice versa. “The objective at this stage of the strategy is to intensify the wider range of interaction with the priority Asian countries and to encourage indigenous Irish companies to avail of business opportunities there”[vii]. Sectors such as education, tourism and R&D have been targeted as key sectors of the Irish economy where Ireland can attract investment from Japan, China, India, South Korea, Thailand and the Philippines. Enterprise Ireland’s 2002 report indicates a stark lack of awareness of Ireland inside Asia[viii]. To counteract this trend, the Department of Arts, Sport and Tourism has established a new organization named Culture Ireland/Cultúr Éireann to promote awareness of Irish arts and artists abroad, as embedded in the second phrase of the Asia Strategy[ix]. Thus far, the success of phase two is difficult to judge. Exports to China and Hong Kong rose by 38%, while exports to the Philippines surged ahead with a 106% increase[x]. Following Japan[xi] and China, Singapore ranks as the third most important Asian market for Irish exports. The average value of Irish goods exported to Singapore per annum during the period 2003–2005 was € 792 million, up 25.9% on average annual exports in the previous three years, with the result that Singapore now accounts for 12% of total Irish exports to the Asian region[xii].

However in his 2007 article “Irish Trade Statistics: Policymakers opt for spin and delusion rather than confront challenging facts,” Michael Hennigan highlights that many of these trade statistics can be misleading. He illustrates his case regarding the aforementioned 106% rise in trade with Philippines, pointing out that “former US naval base north of Manila, at Subic Bay, is a major Asia-Pacific hub for FedEx, one of the world’s biggest airfreight companies. Therefore shipments from Irish-based multinationals to Subic likely have ultimate destinations elsewhere in the Region”[xiii]. He also points to the fact that “foreign-owned companies account for about 87% of total exports from Ireland”[xiv].
This raises some interesting questions: Who does the Irish-Asia Strategy serve? Is it designed to promote Irish companies in the Asian Market, or to retain foreign companies in Ireland by providing them with logistic and marketing support in Asia, thus allowing multi-national companies to operate in Ireland while competing in the Asian market? Should Ireland try to compete in Asia and gain market share in these emerging markets, or should Irish companies only enter these markets to benefit from low-cost labour intensive manufacturing?
In order to gain some insight into these topics and approach these questions, we will first closely examine Italy’s and Germany’s relations with arguably the most highly-profiled Asian market, China, and explore whether Ireland can learn any lessons from our European neighbours’ experiences. Both countries have enjoyed a long history of trade with China and both have dealt with China’s rise as a superpower in alternative ways; one cooperating with China in low-cost high-labour production through a lattice of industrial organisations; the other attempting to use China’s growth to increase its percentage share of the world market. China by no means represents Asia as a whole. Each country in Asia produces its own opportunities and challenges, but it would be beyond the scope of this paper to analyse Italian and German trade history with each country in Asia. China however does represent a wide range of the opportunities, as well as a variety of the challenges, which are  experienced by participating in business in Asia. And China clearly enjoys a very prominent position within the Irish Asia Strategy. Read more

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Chapter 14: Ireland, China And The EU – Foreign Policy In A Europeanised Context ~ The Irish Asia Strategy And Its China Relations

IrishAsia14.1 Introduction
The ever-expanding economic and political strength of China has garnered high levels of interest from the heads of the European capitals, including Ireland, over the past decade. Over the past deacde or so, a series of programmatic policy papers from the EU and bilateral agreements have established an increasingly institutionalised relationship. From the European perspecitve, China has provided a test of European strategy of constructive engagement, with the EU being characterised as a civilian, normative or soft power. Where, then, does Ireland fit into this framework? Since the early 1990s, Ireland has increasingly sought to engage China as part of its wider Asia strategy, which has involved meetings with heads of state, diplomatic conferences, as well as bilateral political dialogue on issues such as environmental protection, human rights and education policy. From these emerged one of the the most significant policy documents with regards China in Irish history, the Asia Strategy. This document laid out plans for business agreements, economic benefits and cultural dialogue between the two countries. It has been one of the most successful policies in relation to China and its relations between a member of the EU since 1985. In order to assess the relationship between Ireland and China, the wider context of EU relations with China must first be assessed. It will then become possible to understand the ever-growing relationship between China and Ireland on the individual level.

14.2 EU – China Relations: A Brief Overview
What is now called the European Union first officially recognised the government of the People’s Republic of China as the legitimate government of China in 1975 and concluded its first bilateral trade agreement in 1985. Since the 1980s, the European Union has developed its long-term relationship with China based on political, social and economic developments[i]. This has involved numerous diplomatic and political meetings and agreements that have included the signing of a Trade Agreement on April 3 1978, an EC-China agreement on textile trade signed on July 18 1979 and the creation of a delegation of the European Commission in Beijing on October 4 1988. However this relationship was not always as amicable as initially invisioned. Following the June 4 1989 incident in Tiananmen Square, relations cooled between the two, with the EC imposing a number of sanctions on China, including an arms embargo[ii]. It was not until October 1990 that the Council and European Parliament decided to gradually re-establish bilateral relations with China.

There was not much significant political activity between the two until the EU-China Energy Dialogue that was established in 1994 and as a result bilateral relations expanded at a rapid pace. In June of that same year a new bilateral political dialogue opened between the EU and China. This was accompanied, on July 15 1995, with the publication of the European Commission’s first official communication on China entitled ‘A Long-Term Policy for China-Europe Relations’. Increasing relations resulted in the creation of a Dialogue on Human Rights issues, which was released in January 1996. In 1998 the next official Communication was released by the European Commission entitled ‘Building a Comprehensive Partnership with China’. One of the most important bilateral agreements took place on May 19 2000 with China concluding a market access agreement with the EU, which was an essential milestone in China’s WTO accession process. The EU has opened its markets to China, since then, because of the benefits to its citizens as well as to obtain reciprocal market access. It has also used this as a way of promoting economic and political lineralisation within China. 2001 saw the European Commission publishing the Communication ‘EU Strategy towards China: Implementation of the 1998 Communication and Future Steps for a more Effective EU Policy’. This was followed by the March 1 2002 European Commission China Country Strategy Paper 2002-2006. On September 10 2003 the European Commission adopted a policy paper entitled ‘A Maturing Partnership: Shared Interests and Challenges in EU-China Relations’. This was followed, on October 13 of the same year, with China releasing its first ever policy paper on the EU. In March 2004 the European Union becomes the biggest trading partner of China, with China becoming the second largest trading partner of the EU. In February 2005 the first ever EU-China Financial Dialogue meeting was held. On March 20 2006 the first ever EU-China bilateral consultations with a focus on Climate Change Partnerships were held. October 24 of that year saw the Commission adopts its Communication entitled ‘EU-China: Closer Partners, Growing Responsibilities’, as well as a policy paper on trade and investment. Over the years the EU has become one of the most significant trading partners of China. Read more

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Irish Investment In China. Setting New Patterns ~ Contents, List Of Abbreviations & Glossary Of Terms

IrishAsia2Now online:  Nicholas O’Brien – Irish Investment in China. Setting new patterns. 

Consideration of Irish investment in China will be located within the context of investment theory. Accordingly, chapter two examines the seminal literatureon foreign direct investment and sets out an appropriate model of investment theory within which this research shall be considered. The limited literature on Irish outward FDI is also considered, with specific emphasis on Barry et al’s model on Irish outward FDI.
Chapter three outlines the results of this research and emerging themes are identified. This allows conclusions to be drawn as to whether Barry et al’s model holds in the case of Irish FDI into China. It should be stressed that this is not in any manner a judgement on Barry et al’s model. Rather, it is a reflection on the nature of China as an emerging economy and the unique political economy which it enjoys.
Chapter four draws on the research to explore the opportunities and challenges which China represents. The principal locational advantages and disadvantages which China poses are set out. It is argued that the major potential which China represents for Irish investors lies in market opportunity rather than in low labour costs, an opinion which is supported by the relevant literature on FDI in China. The principal locational disadvantages are identified as existing in the regulatory, cultural and legal environments. This allows conclusions to be drawn on our sub-hypothesis, namely the challenges which China poses for investors.
Chapter five explores the nature of Irish FDI into China. The non-application of Barry et al’s model to China is discussed together with our prescriptive research question, namely the desirability of state involvement in outward FDI. This chapter also seeks to explain why Irish FDI into China is different from that in the traditional destinations for outward FDI.
The concluding chapter draws on previous chapters to identify conclusions which can be drawn. Key findings are highlighted and potential areas for further research suggested.

Abstract & Acknowledgements

Chapter 1 – The Giant Arises
Introduction
Research Methodology
Outline

Chapter 2 – The Nature of Outward FDI
Introduction
Investment Defined
Dunning’s Eclectic Paradigm
Investment Theory
The Role of the Multinational Enterprise in FDI
Why FDI Occurs
Irish Outward FDI
Barry’s Model on Irish Outward FDI
China and Inward FDI
Relationships and Contract Law
Conclusion

Chapter 3 – The Views of Investors
Introduction
Profile of the MNEs Included in This Research
Structure of the Chinese Subsidiaries
Rationale for Investing and Incentives
Incentives
Experience Since Investing
Disincentives and Barriers to Investing in China
Guanxi
Intellectual Property Rights
Contract Law
Role of the State
Investors in Eastern Europe
Conclusion

Chapter 4 – A land of Opportunity and Challenge
Introduction
Locational Advantages which China Offers
Locational Disadvantages which China Poses
The Regulatory Framework
China’s Culture
Contract Law
Intellectual Property Rights
Corruption and the Giving of Gifts
Regionalism – Advantages and Disadvantages for FDI
Conclusion

Chapter 5 – Irish FDI into China–Evidence, Potential and Policy
Introduction
Barry’s Model
Irish FDI into China and Barry’s Model
The Potential for Irish Investment
Home Country Effect
Irish Public Policy
Conclusion

Chapter 6 – Conclusions & Bibliography
Introduction
Main Findings
Conclusion

Bibliography Read more

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Irish Investment in China. Setting New Patterns ~ Abstract & Acknowledgements

IrishAsia2Abstract
According to the Industrial Development Path Hypothesis (Dunning, 1981, 1986, 2001), outward Foreign Direct Investment is symptomatic of successful advanced industrialised economies. After a decade of unprecedented growth and prosperity from the mid-1990s, the Irish economy had reached a sufficient level of maturity that Irish firms were beginning to seek new markets in which to invest.

Barry et al’s (2003) authoritative work states that Irish outward FDI is disproportionately horizontal and oriented towards non-internationally traded sectors. This study was based exclusively on developed economies – Europe and North America, rather than developing economies or emerging markets. Such countries have not yet featured in the literature on outward Irish FDI. Given the importance of China as the largest global recipient of inward FDI, this book explores the nature of Irish FDI into China and specifically considers whether Barry et al’s model on Irish outward FDI holds for current Irish investment into China. This consideration will be conducted within the framework of Dunning’s Eclectic Paradigm, which contends that locational, ownership and internalisation advantages must exist for successful investment to occur.

While the level of Irish FDI into China is limited, research was conducted among all Irish firms which had invested in China (this research was conducted in 2006 and 2007). It was found that the nature and scope of Irish FDI into China differs from earlier patterns identified by Barry et al in the case of developed economies. Irish FDI into China is found to be predominately in the traded sector and can be described as only marginally horizontal.

In order to gain a deeper understanding of this development, the locational advantages and disadvantages which China poses are explored. The principal locational advantage is identified as market opportunity. Perhaps the most significant challenge facing investors is the risk to the protection of intellectual property rights (IPR). It is argued that this has the potential to affect the ownership advantage which Irish MNEs possess. Accordingly, there is a need to utilise internalisation advantage to protect IPR. Consideration is given to the role which the state can play in the provision of ‘soft supports’ for investors, primarily through the provision of market information.

Acknowledgements
The experience and insight offered by senior business executives offered a valuable and unique perspective on the world of private sector decision making. I am particularly grateful for the level of access and openness which I received. I would also like to thank senior staff in the Irish Government state agencies, Enterprise Ireland and the Industrial Development Agency for the valuable information and assistance provided. Without the openness and positive disposition of my interviewees, this research would not have been possible.

I wish to acknowledge the support and encouragement of my doctoral thesis supervisors Dr. Andrew Baker, Queen’s University Belfast and Dr. Michael Mulreany, Institute of Public Administration, Dublin. Their guidance and support were particularly important and insightful in helping me develop my line of argumentation. I should also like to acknowledge the support of the Department of Foreign Affairs for their positive attitude and support towards continuing professional education. A special word of thanks is due to the staff at the Department’s library, who aided my search for literature in a professional and helpful manner.

Finally, I should like to thank my wife Caroline who, on a snowy afternoon in Monscheau, Germany, suggested that I pursue a doctorate. Together with my daughters, Ciara and Niamh, she provided support, encouragement and especially the time to facilitate my studies.

Nicolas O’ Brien

For anybody with an interest in investing in or doing business in China, Nicholas O’Brien’s scholarly and informative book should be essential reading. Given the growing importance of China in global trade this is a very timely work which I highly commend.
Dick Spring, former Deputy Prime Minister and Foreign Minister of Ireland

This book identifies clear differences between Irish investment into China and that into traditional FDI locations such as the US and UK. It is an authoritative work, particularly in view of the author’s experience as a senior diplomat in China and offers clear conclusions as to the benefits and challenges of investing in China”.

Dr. Michael B. Murphy, President, UCC

This is a must read for Irish people considering investment in China. The author discusses why considerable challenges still remain. A very comprehensive insight into informed investment in China.
Donal O’Callaghan, former Chairperson, Ireland China Association

Dr Nicholas O’Brien worked at the coalface of the transformation of modern China during his four years as Irish Consul General in Shanghai. His work is a testament to intelligent observation and the insight that experienced observers can have. The sideline sometimes brings more perspective than those on the pitch have. His book greatly expands our store of knowledge on this subject in an accessible manner with lucid division of what he is discussing and crystal clear conclusions.
Richard Barrett, Treasury Holdings

This admirable book charts the experience of Irish investors in China and has valuable pointers and good advice for business investors planning to invest in the Middle Kingdom. Given the author’s wide international experience, in particular his unique insight as Irish Consul General in Shanghai, this book is an authoritative source on the challenges and opportunities which China offers.
Dr T P Hardiman, Asia Europe Business Forum

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Chapter 1: The Giant Arises ~ Irish Investment in China. Setting New Patterns

IrishAsia2Introduction
The introduction of the ‘opening-up’ policy by the Chinese authorities in 1979 heralded an era of economic reform and ‘symbolised China’s sharp turn towards participation in the world market to speed to economic growth and technological modernisation’. (Riskin, 1987: 316) Since then, China’s economic story has been a remarkable success, growing on average over eight per cent per annum. Central to this economic success was the attraction of inward foreign direct investment. Such was the success of this policy that in 2003 China overtook the US as the largest global recipient of foreign direct investment (FDI), attracting $53 billion in that year (OECD, 2004).
On the other side of the globe, the Irish economy was also going through its own transformation. The 1970s and ‘80s were a period of high inflation, unemployment and the presence of large-scale emigration. In contrast, the 1990s was an era of unrivalled economic growth, with double digit GNP increases for most of this decade. Central to this transformation was the high level of inward FDI which Ireland attracted. Building on the strength of the economy, outward FDI continued to grow to such a degree that in 2004 Ireland became a net exporter of FDI for the first time.
Given the importance which both inward and outward FDI plays in economic development, the drivers and patterns of Irish FDI into the surging Chinese economy are worthy of examination. Barry et al’s (2003) seminal work on Irish outward FDI focuses on FDI into the US and UK, both of which are developed economies. Barry et al show that Irish outward FDI has been disproportionately horizontal (focused on replicating production facilities in third countries rather than moving an entire component of the production chain) and oriented towards non-internationally traded sectors.

Given the importance of China, as the largest recipient of inward FDI and the world’s second largest economy, it is opportune to explore the nature of Irish FDI into China and specifically whether or not the model identified for developed economies by Barry et al holds for Irish investment into China. ‘As Dunning (1997) has emphasised, full account must be taken of location factors, such as the structure of the host economy, the policies of the host government  and the nature of local business culture, in explaining the comparative success and failure of FDI’. (Buckley and Casson, 1998: 27) However, ‘China’s size makes it different from nearly all other developing and developed countries’. (Eckaus, 1987: 117) It is important therefore for investors, policy makers and commentators on FDI to be conscious of the challenges and opportunities which China holds. While China displays the hallmarks of a market economy, it is a unique political economy. The State is still heavily involved in virtually all facets of economic life. In addition, China has a strong cultural tradition which places an emphasis on relationship building.

The author conducted research into Irish investment during the period 2006-2007 among the relatively small number of Irish investments in China. In the intervening period, the pattern of investment has not appreciably changed and the findings are still valid. The author had the good fortune to witness at first hand the rapid advances which the Chinese economy is experiencing over a four-year period. The rationale motivating this research is the importance of China in the study of FDI and the potential modifications to theory which China may necessitate, because of its status as a developing economy and its non-adherence to the Weberian concept of contract law. Read more

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