Country Comparison Ireland - Portugal

Political/Government system
The political background of a potential investment country is of major importance when it comes to the decision-making of Foreign Direct Investment because it provides information about the countries’ stability and makes future changes predictable. Due to experience it might be easier to invest in a host country with a similar political structure as the home country. Nevertheless, this would limit the amount of possible host countries and reduce the chances to find the optimal investment opportunity.
In the following section, the political structure of Ireland and Portugal will be presented to provide useful advice for the investment decision in the chemical industry. Therefore, information about overall politics, specific economic policies and tax arrangements will be stated.
Ireland
Ireland is a parliamentary democracy which is based on the National Parliament consisting of the President, the House of Representatives and the Senate. The election system is organized in a five-year term with a possible re-election procedure. The system is mostly influenced by the Republican Party, the Labor Party and the Progressive Democrats. This has proven to provide a stable political basis over the last decades. Over the last ten years, the FDI inflows have been ‘substantially higher as a percentage of GDP than inflows into other OECD economies’ (Anderson, 2012). Ireland aims to give the opportunity for a predictable business environment for Foreign Direct Investment. It tries to generate an attractive FDI atmosphere as it reduces taxes and is committed to stick to minimum regulations, for example they use limited tariffs or quotas. After the financial crisis of 2008, Ireland keeps on being one of the most attractive FDI host countries due to these policies. Nevertheless, as Ireland is a member of the European Union, it might be the case, in the future, that the low tax rates will be adjusted to the higher ones of the other European Union member states. This would result due to attempts to coordinate the European fiscal policies in the same way.
The reflection of FDI investments in Ireland is also show through the increase in the technology and service sectors which is linked to highly developed skilled labor offers. The World Bank Group’s Global Analysis and Indicators Department stated that Ireland supports to ease the start of foreign businesses more than other high-income OECD countries. It is measured that it only takes ‘5 procedures and 14 days’ to start a new firm and business (World Bank Group, 2013). Moreover Ireland is ranked on place 15 ‘in the world for ease of doing business for locally owned firms by Doing Business 2013’ (Anderson, 2012). This sets a clear statement that this country wants to maintain a welcoming attitude towards local and foreign firm co-operations.
Portugal
Similarly to Ireland, Portugal is a parliamentary democracy with a National Parliament which is elected for a four-year term. The major parties which are represented in the Parliament are the Social Democrat Party, the Socialist Party, the Portuguese Communist Party, the Social Democratic Centre – People’s Party, the Left Alliance and the ‘Green’ Ecology Party. Thus, the overall political system provides a strong basis for controlled future developments. It is structured in a way that political unrests are extremely unlikely. The crisis led to a stagnation of FDI inflows. Nevertheless, Portugal was able to regain access to large amounts of foreign investment. These inflows are mostly linked to new technologies and further improvements of quality standards. Portugal especially benefitted from its membership in the European Union which symbolizes political continuity and security even in cases of a crisis. But most important is that Portugal tried to diminish ‘conflicts and tensions’ within the public sector by reducing corruption levels, increase property rights, and it supports the ease of doing business (Júlio, Pinheiro-Alves and Tavares, 2011). This is shown by its rank in the ease of Doing Business 2013 at level 30. The same rank was reached in 2012 which leads to the conclusion that Portugal reached some balance to attract investments.
Comparison
The investment demand of both countries, Ireland and Portugal, is relevant for a stabilized economy because they are net recipients of FDI. This means that more FDI flows in than out. Therefore, FDI becomes a highly influential factor which is also taken into account in the political decisions-making process. As the political situation in general is quiet similar due to their membership in the European Union and in the World Trade Organization, other factors need to be stressed to decide which country will be best for investments in the chemical sector.
The Ease of Doing Business index involves several categories including the starting of a business, dealing with construction permits, registering properties, protecting investors and paying taxes. As already stated, Ireland reached rank 15 while Portugal is on rank 30. In total 183 countries are analyzed which indicates that both countries are highly attractive when it comes to decreasing barriers to engage in the countries businesses. Portugal is named to be on place 30 and 31 in the subcategories ‘registering property’ and ‘starting a business’. In ‘dealing with construction permits’ and ‘paying taxes’ it is ranked worse, on position 78 and 77. In contrast, Ireland is listed on 10 and 6 in ‘starting a business’ and ‘paying taxes’ while it is on place 53 and 106 in the categories ‘registering property’ and ‘dealing with construction permits’ (The World Bank, 2013). Again, it should be pointed out that the low corporate tax rate of Ireland is stable on 12.5%. This has not changed from 2006 to 2013. In contrast, Portugal lowered its tax rate in 2007 to 25% which is double of Ireland.
Also the wage rate is an influential factor to decide where to invest. The payment developments from 2011 showed an overall increase in wage rates, also in the chemical industry. But in Portugal and Ireland the ‘collective bargaining in the chemical sector has recently came to halt’ (Cabrita and Fric, 2012). The negotiations in Portugal stopped in 2009 and ‘no pay increases have been collectively agreed in 2010 and 2011’ (Cabrita and Fric, 2012). In Ireland the formation of a Service Industrial Professional and Technical Union has been finalized. They agreed on an average increase of 2% per annum in the chemical industry. These arrangements are in return combined with ‘exceptional productivity measures’ which ensure the control of the employees in the chemical industry (Cabrita and Fric, 2012).
Legal system
The legal system provides a basis for the opportunities of the home in the host country. It will affect the possibilities and duties that an investment firm has in relation to its employees, other stakeholders and shareholders. Therefore, an overview about the legal situation in Ireland and Portugal will be provided hereafter. It will contain basic legal elements related to Business Law in both countries.
Ireland
The legal system of Ireland is founded in the Anglo-American Law while its law-making processes are situated in the National Parliament. The common law system is based on case law and precedent which is made by judges in courts and tribunals. Similar situations will be more likely to be treated equally because it takes into account the decisions already made.
Portugal
The Portuguese Law is based on the Roman one. Therefore, the German and French system might be comparable to it, whereas the Anglo-American system is irrelevant for Portuguese Law-making. As well as in Ireland, law-making takes place in the Parliament. The laws are written down in a statute which is the primary source of law.
Comparison
The European Union Law as well as WTO rules and regulations do not have to be evaluated due to similar effects on both countries. Therefore, no further comments will be made regarding the Union and agreement laws in this section.
The differences between the common law and civil law system should not be minimized. The rights and duties of a company, the access to information and the influence a firm can take on governmental decisions differs between both systems.
Firms in common law countries are said to have generally more ‘governmental decision-making influence than their counterparts operating in Civil Law origin countries’ (Bushman and Piotroski, 2004). This results in better access to government information and control. Moreover, the Common Law system is held reliable for an improved ‘government efficiency by decentralizing decision-making authority and shifting power from government to the governed’ (Bushman and Piotroski, 2004). This is questionable because firms are already involved in the legal system. It might also be interpreted in the way that employees have better mechanisms to defend their perceived rights.
About 60% of firms in common law countries indicate that they feel ‘influential’ to ‘very influential’ ‘in affecting new national laws, rules or regulations across governmental decision-making entities’ (Macher, Mayo and Schiffer, 2011). The same question was asked in civil law countries where only 40% answered it in a similar manner. Nevertheless, in both legal systems the influence of economic entities increased over the last decades. Lobbying and other methods are allowed to gain the optimal outcome for the industry.