Microsoft and its investment in Ireland - Essay Example

?Microsoft and its investment in Ireland Contents Contents Introduction 2 History of Microsoft’s Investment in Ireland 3 Reasons for Investing in Ireland 4 Outcome for Microsoft 6 Outcome for Ireland 8 Conclusion 10 Reference 12 Introduction Globalization has paved the way for companies to invest and expand across the international frontiers. Companies generally expand to various countries to tap the favourable business condition of the foreign land. Foreign investments not only influence the business prospects of the foreign company but also have a strong impact on the overall economic, social and technological performance of the host country. In other words foreign direct investments influence the performance of the company as well as the performance of the country too. Foreign investments are generally made in that country which has good business prospects in other words where the company can expect good returns and where the business is hassle free. On the other hand a country also encourages foreign direct investments in those sectors which is expected to support and promote the overall development of the economy as well as the generation of employment. This paper is aimed at identifying and assessing the investment made by the global software giant Microsoft in Ireland. The impact of these investments on Microsoft as well as to Ireland has been analyzed in detail to assess the impact of these investments on both the company and the country. Moreover the history of investments made by Microsoft has been discussed in order to identify the type of investments made by Microsoft in Ireland. The prospects of Ireland in terms of being a host to foreign investment has also discussed in this paper. History of Microsoft’s Investment in Ireland One of the world’s largest software products and services providers Microsoft has expanded itself around the world. Among all its expansions and investments the investment of Microsoft in Ireland in forms of establishing various units and other centres is quite significant. Microsoft established its office in Ireland in the year 1985. At that time the Ireland unit of Ireland had only a manufacturing unit which was quite small and only 100 employees. Since 1985 the number of employees in Microsoft Ireland had increased to 1900 out of which 1200 are full time staffs and the remaining are contract employees. A lot of work is done in Ireland unit of Microsoft which ranges from software development to operations, finance to localization, marketing etc (Microsoft, 2011). The first significant investment done by Microsoft since its inception in Ireland was the establishment of the EMEA Operation Centre. The European development centre which is the research and development centre for entire Microsoft Europe was established in 1988. The research and development work for the large range of products like windows, MS Office, Windows Live, Forefront, XBOX, MSN etc. About five hundred people are employed in this centre. This centre provides a vast variety of activities which ranges from customer support to providing business services, manufacturing to financial activities, billing, supply chain management activities etc. This is one of the important investments made by Microsoft in Ireland. The second significant investment done by Microsoft Ireland during the early nineties was setting up the ‘Sales, Marketing and Service Group’. The group offering sales, marketing and other related services are operating in Microsoft Ireland since 1991. The main activity of this group is to do the total sales and market the products and the services to all the customers and other business partners across Ireland. The customer group ranges from small personal computer user to business enterprises. This group comprises of a varied group of professional such as sales professionals, marketing professionals, technicians, and finance professionals etc who with their special skills and experience add value to the organization and its products and services. This was a very special and important investment for the company in terms of promoting its products and services across the Ireland. The next significant investment made by the company in Ireland was establishing the EMEA Data Centre in Dublin in 2009. It was the main centre of Microsoft’s strategy of cloud computing for next ten years. This investment was done to enable the company to grow in the sector of online services like Windows live, cloud services, Windows Azure, Bing etc. about 500 million US dollar was invested to built and develop this centre. Data Centre have been awarded for been fifty percent more efficient than the other data centre by the by European Commission (Microsoft-a, 2011). In 2009, Microsoft IP Ventures collaborated with Enterprise Ireland to start up a new company named InishTech. The main activity of this company is to provide software licensing and protection services. This company provides SLP services to the existing clients and customers of the company as well as the new customers of the company (Microsoft-b, 2009). Reasons for Investing in Ireland When a company wants to invest in a country then would take interest about the fact that how business friendly is the country. They would see that how efficient is the workforce there, what is the present economic condition and what are the probable economic condition there (United Nations, 2006, p.155). When a country wants to improve the economic condition that is huge growth of GDP or want to achieve the economic growth then the economical policy needs to be changed. In the year 1993 Ireland government has changed its policies for the economic growth of the country. The economical recovery also taken place in U.S.A. and Europe. As a result the foreign direct investment increases from the European countries and U.S.A. In the 1990s Ireland has started some policies which include openness in international trade and the foreign direct investment. The tax regulations also made favourable for the multinational companies. If a company wants to start operations in a country then they also need the efficient manpower of that country. In the 1990s Ireland made the secondary education free and the cost of the higher education decreased (Fortin, 2000, p.6-8). As a result the literacy rate of Ireland increased, so the educated manpower needed for efficient business operation. Because of solid economic recovery in Europe and America the interest rate became lower in Ireland, as well as the public financing and the international cost competitiveness of Ireland increased. For attracting a company in a country some factors are needed like the tax regime, business friendly government, well educated population, high skilled and motivated workers. The factors are described below for Ireland. It would describe that why Ireland is a good investing area for the multinational companies like Microsoft. Tax Regime: When a company wants to start business in a country the company would look for what is the tax rate there. If it is high then there is a chance to generate less profit. So a company would choose a country where they have to pay less tax and Ireland is the country where the corporate tax rate is lowest among the world. The corporate tax rate in Ireland is 12.5%. Though the tax rate of Ireland is less, they are able to collect a sufficient percentage of GDP from the corporate tax. There is zero tax rate for the foreign dividends, also there is 25% tax credit on research and development which is refundable over three year period (IDA Ireland-a, 2011). The tax policy of Ireland attracts the multinational company like Microsoft whose expenditure in Research and development is much. Well Educated Population: It is necessary for a company that in which country they are operating a well educated population is there as it would be helpful for the company as they can communicate with the people effectively. For maintaining their core strength in technology and science the government has taken the initiatives for raising the awareness among public about science, engineering and technology. They have made the secondary level education totally free and the cost become lower for the higher level education. The educational courses of Ireland are industry specific which make it easy for the companies as they don’t need to provide much training to the people. For a company like Microsoft Ireland is the ideal country for doing business as the company is totally technology oriented company. High Skilled Workers: The companies who are operating their business in Ireland are getting the workforce which is highly skilled and motivated. As the education provided by the Irish government is industry specific, it becomes helpful for the companies. 35% of the people are under 25 years who are suitable for the multinational and technology based companies like Microsoft. Moreover they have multilingual skills as well as there are research talents who are of the highest level. In the area of availability of the skilled workforce and innovative ideas Ireland is fourth in the world according to the IMD World Competitiveness Yearbook 2011 (IDA Ireland-b, 2011). Professional Business Environment: A multinational company needs a stable political environment, modern infrastructure apart from the skilled workforce. All these are available in Ireland including the political backup, strong legal framework, the modern infrastructure which is available in a low cost. Also the government is ensuring that through an efficient educational system would result in the high skilled workers. In Ireland, company like Microsoft get the proper infrastructure for doing business as a result one third of exports is accounted by technology (ICT Ireland, n.d.). Outcome for Microsoft When a company is doing business in a country like Ireland where the government support, the well educated population and the modern infrastructure is readily available then the business become easier for the company. Microsoft started its business in Ireland from the year 1985 and till now there are three divisions in Ireland where more than 1200 staffs are working with Ireland. As the workforce is skilled and the common people have good basic knowledge Microsoft also started some training courses for the common people which are in turn helpful for the people of Ireland and also for Microsoft as they can get highly qualified staff from there. There is effective tax regime in Ireland for the companies and company like Microsoft is enjoying low corporate tax there, as well as there are zero tax rates for the foreign dividends there. Microsoft can also enjoy the tax credit for the research and development in Ireland. Therefore Microsoft is exporting goods worth of €8bn from its business in Ireland which is accounted for just fewer than 90% of its business in Europe Middle east and Africa, this also contributes 5.6% of Irish GDP. The quantitative figures show the effect of Microsoft Ireland’s business in the company overall and its effect on Ireland. In the year 1985 the Microsoft European Operation Centre established in Ireland which provide sales and support in 85 different countries. In Sandyford the employees of European Product Development Centre developed and localized more than 100 products in different languages (Business and Finance, 2010). In the year 1991 the marketing, sales and services operation of Microsoft has started in Ireland. For targeting the customers of both north and south the marketing team of Microsoft has started to market all the products and services in Ireland. The marketing team of Microsoft targets all level of customers in the country which includes the business enterprises, the home computer users and the business of every type like small and medium. The 1990s was such a time when the organizations and the home computer users have started to use computer more as the information technology boom has taken place time. Microsoft has captured the Irish market that time also started to export from there as that is an ideal place for an I.T. company like Microsoft for conducting business as they can get the professional business environment there. In Ireland Microsoft also provide consultancy services to the business enterprises which are a great source of revenue along with developing the desktop products. Microsoft has already captured the market of Ireland as maximum number of the top 100 companies is the client of Microsoft. The government enterprises like the Dublin based civil service commission and the department of education of Northern Ireland are among the clients of Microsoft (Microsoft Corporation-1, 2010). From these facts it can be derived that though Ireland is an ideal company for the multinational companies, more precisely for the Information Technology companies but Microsoft is the holds the lions share in the IT industry of Ireland. So it can be concluded from the above mentioned facts that along with providing training and the certification courses to the people of Ireland which in turn add more skilled employees for the company itself, the company is able to capture the maximum market share in the country and it is a major source of supply the products to the other countries where Microsoft operates. Outcome for Ireland Foreign direct investments are always beneficial for every country. Foreign investment not only brings inflows of foreign currency but also promote the overall development of the country. Foreign direct investment helps to generate employment opportunities for the host country, latest technology, other facilities and amenities for the host country. Foreign investment made by one company also attracts other foreign investor to invest in the host country which in turn helps to boost up the foreign direct investment of the host country. Thus the investments made by Microsoft had also contributed to the overall development of Ireland in a number of ways. Ireland which was suffering from brain drain and weaker economy witnessed a drastic positive change during the last two decades. The expansion of Microsoft in Ireland attracted other foreign investors to invest in Ireland as a result Ireland has become the largest exporter of software in the world. More and more foreign companies are ready to invest in Ireland. As a result the gross domestic product has increased three times in 2005 compared to that of 1985. From 1985 to 2005 the volume of export has increased by eight times. Moreover, the employment level has increased by about seventy percent (ICPR, 2010). Figure 1: Economic Performance of Ireland (Source: Tansey, 2005, p.13) From 1985 to 2005 the exports of Ireland had a continuous and steep increase. One of the important factors behind the increase of the exports is the boom of the software industry in Ireland. The investment of Microsoft in Ireland had a major role in increasing the overall exports of the Ireland as Ireland has become one of the biggest exporters of software due to international investment in information technology and software sector has tremendously increased during the last three decades. High exports have in turn strengthened the economy of the country as a result from 1985 that the year of inception of Microsoft Ireland to 2005 the gross domestic product which is an important indicator of the economy had a steady and continuous rise. The spending of the consumers has also increased during this period. This shows that the overall economy and the standards of living have also increased since 1985. One of the major features and significant development which Ireland witnessed during this period is the rise in employment level. In 2004 employment level of Ireland grew by 2.6% where as the employment level grew by 2.4% in 2005. In the figure given also it can be seen that the employment level has risen continuously since 1985. The unemployment level has declined from 17.6% in 1986 to 4.4% in 2004. This highlights the economic and social development of Ireland in which the foreign direct investment like expansion of Microsoft has played a major role in this significant improvement of the labor force in Ireland. The foreign direct investment which was about 140 million dollar in 1980s rose to around 2700 million dollar every year during the 1990s especially during the latter half of the period. In 2002 the amount5 of foreign direct investment has matched up to that of the Hong Kong which is the highest in this regard. This has resulted in the steep decline of migration of the Irish resident which was considered as on of the big problem (brain drain) during the 1980s. In fact from 1998 to 2003 there has been a constant inflow of foreign direct investment in Ireland. The improved economy has in turn boosted up the growth of the local industry. The foreign direct investment has also resulted into an increase in the total industrial output of the country. In 2001 out of the total units produced in Ireland about 79.5% was contributed by the foreign companies operating in the country. More over the foreign companies like Microsoft has contributed about 82.6% of the total gross value added of Ireland in 2001 (Tansey, 2005, p.12-21). Thus it can be concluded form the discussion in this segment that with the investments in Ireland not only the foreign companies like Microsoft have gained but also Ireland has also gained a lot from the foreign direct investment by flourishing foreign companies like Microsoft. More over Microsoft has also contributed in the social sector of Ireland through its community programs like celebration of ‘Internet safety day’ in which around 88 volunteer of Microsoft has visited a number of schools and had trained the teachers and students on safe usage of internet. Microsoft also organizes various training programs with FIT to support the unemployed people by imparting various IT skills. Microsoft also provides various useful programs to school students (Microsoft-c, 2010). Thus Microsoft has not only contributed to the development of the economy and employment level but has also provided various social benefits through its community programs in Ireland. Conclusion From the year 1985 Microsoft has started its business in Ireland and after then the country becomes an important base for Microsoft. Microsoft has continued to invest more and more in the country as the revenue from the country also increased. In the 1990s Ireland becomes an attractive country for the multinational companies for doing business especially the information technology based companies as the Irish government has started many policies, as a result of which the population become more educated and the education was more industry oriented. Therefore it becomes easy for the companies to provide training to the employees as well as they used to enjoy better tax regulations than doing business in other countries. As a result Microsoft has made the country an important base of its global operations, thus the revenue from Ireland is contributing a major amount to the total revenue of the company. For the economical development of Ireland from the 1990s the unemployment rate has decreased a lot and the GDP has increased gradually. Thus from the strong partnership of Ireland and Microsoft both get benefited a lot. Reference Business and Finance. (2010). The Top 1000 Companies. [Online]. Available at: http://www.businessandfinance.ie/index.jsp?p=110&n=196&a=263. [Accessed on: December 17, 2011]. Fortin, P. (2000). The Irish Economic Boom: Facts, Causes and Lessons. [Pdf]. Available at: http://www.csls.ca/ipm/3/fortin-un-e.pdf. [Accessed on: December 16, 2011]. ICPR. (2010). FDI. [Online]. Available at: http://www.icpr3.org/en/foreign-direct-investment/ireland/. [Accessed on: December 17, 2011]. ICT Ireland. (No Date). Why Ireland Should be Your Location of Choice. [Pdf]. Available at: http://www.idaireland.com/news-media/publications/library-publications/external-publications/ICT_Ireland_Ireland_as_a_location.pdf. [Accessed on: December 16, 2011]. IDA Ireland-a. (2011). Tax Regime. [Online]. Available at: http://www.idaireland.com/why-ireland/tax/. [Accessed on: December 16, 2011]. IDA Ireland-a. (2011). Young, Talented Workforce. [Online]. Available at: http://www.idaireland.com/why-ireland/young-talented-workforce/. [Accessed on: December 16, 2011]. Microsoft Corporation-1. (2010). Microsoft Ireland. [Online]. Available at: http://www.microsoft.com/ireland/casestudies/content/Biznet.html. [Accessed on: December 17, 2011]. Microsoft. (2011). About Microsoft. [Online]. Available at: http://www.microsoft.com/ireland/about/ [Accessed on: December 16, 2011]. Microsoft-a. (2011). What We Do. [Online]. Available at: http://careers.microsoft.com/careers/en/ie/whatwedo.aspx. [Accessed on: December 16, 2011]. Microsoft-b. (2009). Our Company. [Online]. Available at: http://www.microsoft.com/presspass/press/2009/jun09/06-09InishTechPR.mspx. [Accessed on: December 16, 2011]. Microsoft-c. (2010). Microsoft in the community. [Online]. Available at: http://www.microsoft.com/ireland/community/. [Accessed on: December 17, 2011]. Tansey, P. (2005). Productivity: Ireland’s economic imperative. [Online]. Available at: http://download.microsoft.com/download/1/6/f/16. [Accessed on: December 17, 2011]. United Nations. (2006). World Investment Report. Switzerland: United Nations Publications. Read More