Companies could save millions by outsourcing manufacturing to emerging eastern European economies, a conference has been told.

With a plentiful supply of cheap labour, businesses can cut overheads substantially by shifting low-skill operations to eastern Europe while building research and development and management expertise in the Republic, Mr Michael Counahan, president of the Irish Exporters Association (IEA), told a briefing in Dublin.

He said: "There is a significant opportunity for Irish companies to re-configure their manufacturing processes and to re-establish their cost bases using the low-labour costs advantages the region offers."

But Irish industry has been relatively slow to recognise eastern Europe's potential, he said.

Exports from the Republic in fact declined 14 per cent in 2002 to €809 million - less than 1 per cent of total overseas sales.

While up to 90 firms have established operations in the former soviet bloc, the Republic is still trailing behind other EU states, most of which have a heavy presence in accession countries, Mr Counahan said.

There is much suspicion towards eastern Europe because of fears the region is wooing multinational investment away from the Republic. But its competitive edge should be regarded as an opportunity, not a threat, said Mr Counahan .

"The low labour costs in these countries, seen by many... as an increasing threat... must be built into your export strategy and developed as an advantage," he told business leaders.

Joint ventures and strategic alliances with indigenous companies may help open the door to eastern Europe, both as an operational base and a market, he said.

However, companies venturing into accession states should be aware that business practises there often varied wildly from those in the EU, the meeting heard.

"The legal regime in many of these countries is historically quite different to those we are used to in terms of systems and structures," said Mr Anthony Hussey, of international business consultants Hussey Fraser.