Knowledge is a state's best friend

The brains race is on. Gabrielle Monaghanhears what Ireland has to do to compete.

The loss of thousands of jobs at multinational companies in the last few weeks has prompted Ireland Inc to question whether it can ever compete with cheaper locations in Asia and Eastern Europe.

However, if Ireland seeks to compensate for its lack of appeal as a manufacturing base by becoming a knowledge-based economy it must realise this strategy immediately as countries such as China, Russia and India are offering cheap brain power and new technologies at a dizzying pace, according to a leading expert on global competitiveness.

"Today, competition is moving from cheap labour costs to cheap brain power and it has a direct impact on Ireland," Stéphane Garelli, an IMD professor and director of IMD's World Competitiveness Center in Lausanne, said in an interview.

"We used to think the best educated people in the world were in Europe and the US, but Russia, China and India are together producing 14 million students a year - the same as the US. And they are just as intelligent, cheap, and highly motivated to work hard and succeed."

While Mr Garelli, a former managing director of the World Economic Forum and the Davos Symposium, advocates that Ireland continues to invest heavily in education, he says we must acknowledge that emerging economies are not only doing the same but are more ambitious.

"Ireland was eager to succeed but now that it is successful, people want to preserve their work-life balance and think about their families, which is natural," he said.

"However, you are competing with other nations that still have the work-hard get-rich-quick attitude. Take the Polish people in Ireland - they are educating themselves and moving up the ladder very quickly. One of the very few things given to people by Communist countries was a good level of education, especially in engineering and science." Emerging economies are also investing in new technologies and ideas at a rapid rate. China spent more money on research and development (R&D) last year than Japan, with expenditure in China climbing to $136 billion compared to $130 billion for Japan, Mr Garelli pointed out. China is expected to spend more on R&D than the entire European Union by 2010. India, meanwhile, has opened 120 telemedicine centers to serve the world health community.

Mr Garelli addressed the impact of the changing nature of global competitiveness yesterday at the MBA Association of Ireland's National Competitiveness Conference, where speakers included Anthony O'Reilly.

"My message is that we are about to see the biggest economic redistribution worldwide that we have seen in decades," the professor said. "More and more competitors are being born outside the traditional markets of US, Europe and Japan." China, for instance, has passed the $1 trillion threshold in foreign currency reserves, the largest in the world. Russia, Taiwan, Korea, India, Hong Kong and the Gulf countries are also stacking up money at an impressive rate.

Traditionally, these countries invested their surpluses in US Treasury bonds or in American and European property. They are now using their new-found wealth to develop their own industrial assets at home and abroad. As a result, the world will see a proliferation of new brands and companies from Asia, Russia and the Gulf countries.

These new companies are likely to become formidable competitors for established organisations in the West. And when they cannot compete, they will buy rivals or industrial assets, Mr Garelli said.

More than 700 Chinese companies are now operating in Africa, mostly accumulating energy assets. India is focusing on buying technology and service companies, while Dubai is diversifying from oil into everything from shipping to finance. Investment in the Gulf is already booming, with $700 billion worth of industrial projects being conducted in the region.

Ireland's strategy of investing in biotechnology, medical devices, health, nanotechnology and finance in a bid to differentiate itself from rival economies is "the way to go," Mr Garelli believes.

"There is no alternative to that," he said. "And Ireland has a true competitive advantage in its service sector, especially in financial-based activities, which is limited in countries like India and China. The problem lies, however, in the fact that economies of a similar size, such as Denmark, are developing the same strategy to remain competitive, according to the professor.

"The winners in the game will be those that can develop their strategy faster," he said.

Ireland currently ranks 11th in the IMD World Competitiveness Yearbook, which Mr Garelli publishes. The US tops the list, though the professor points out there is very little difference between Ireland and the countries ranking in the top 10.

The professor has been dubbed a "practising academic" due his involvement in both the world of academia and in business. He has worked for some of the world's leading companies, including a 14-year association with the European management of Hewlett-Packard, where he advised two chief executives for the region.

He was also advisor to the managing director of the Société Générale de Surveillance (SGS), the world's largest inspection company, in the early 1990s, where he developed projects for the unit in charge of government contracts.

In the banking industry, Mr Garelli designed and implemented a new strategic management process at the Swiss Bank Corporation head-office in Geneva. The SBS, formerly one of the three largest Swiss banks, has since merged with the former Union Bank of Switzerland to form UBS.

He conducted a competitiveness audit for the management board of Nestlé, a project that focused on the food company's relationships with key suppliers and top customers.