Comment: I often hear the Republic referred to as Ireland Inc. So, assuming Ireland Inc was looked at in business terms, how is it doing? What's driving the business - what are its competitive advantages? Most importantly, can Ireland Inc return superior performance over the long term.

In 1993, unemployment was nearly 16 per cent. In 2003 it was under 5 per cent. In 1993, government debt as a per cent of gross national product was 93 per cent. In 2003 it was 34 per cent. In 1993, Irish gross domestic product (GDP) per capita as a per cent of the average EU GDP per capita was 69 per cent. In 2003 it was 125 per cent.

An impressive performance, no question. However, that's only half the story. The reality is that indigenous industry remains relatively small and has seen little real growth over the past 15 years.

Make no mistake about it, Ireland Inc's ability to attract foreign direct investment has been the cornerstone of its success. In business terms, we are talking about a very important set of customers for the Republic.

So what is Ireland Inc's competitive advantage? In my view, the identification of our competitive advantage lies in the answer to a simple business question: "What important needs of the very important set of customers we have identified does Ireland Inc meet better than its competitors?"

Is it physical infrastructure, skilled people, economic and social stability? No. Although all these elements are essential, they would be met by most developed countries in Europe. Is it cost competitiveness? Perhaps once, but certainly not for some time. Is it Government grants? A little, but these pale into insignificance compared to what has been on offer in certain parts of Europe. Is it access to the EU? No question that this is critically important but you can access the EU through any EU country. Is it agile government/government agencies? Again, very important but not enough on its own.

The key differentiation is of course taxation. All the other factors are important, essential even, but the competitive advantage of Ireland Inc lies not only in its ability to meet all these essential conditions but to deliver on the tax needs of its customers as well.

The reality is that for corporations, big or small, tax is a cost, not a social responsibility, not a moral issue and not a public good. Not only is tax a cost but the market judges the performance of companies on an after-tax basis. This is especially so in decisions relating to the location of foreign direct investment. The economic success of Ireland Inc is based on taking advantage of this fact.

So, can the Republic sustain superior performance over the long term? Five years ago, my answer would have been an unequivocal yes and I very much doubt if there was any serious international tax practitioner who would have disagreed. However, things have changed.

The competition is catching up and, in some cases, it is cruising past. Switzerland, Luxembourg and Singapore, to mention a few, are better meeting the important needs of the very important customers we have identified.

Compared to their offerings, the Republic's 12.5 per cent corporation tax rate, the Holy Grail, begins to lose its gloss. This is not to say that Ireland Inc is no longer a formidable contender but it is not the force it was.

Bearing in mind the upbeat outlook presented in IDA Ireland's 2004 annual report, this might seem a little alarmist. However, against the backdrop of an actual $12.8 billion (€10.6 billion) fall in foreign direct investment in the Republic for 2004, reported by the OECD, I don't think so.

Quite simply, Ireland Inc is losing its competitive advantage. If it aspires to long-term superior performance, it needs to wake up to this reality, identify the reasons for it and take corrective action - urgently.

Specifically, Ireland Inc appears to be operating on some fairly fundamental misconceptions. For example, there seems to be an assumption that Ireland Inc's buyers are captive customers. In fact, the opposite is true. There seems to be an assumption that the needs of Ireland Inc's customers don't evolve over time. They do. There appears to be an assumption that the strategy and the practices that brought Ireland Inc to where it is today will only need to be tinkered with to guarantee its success in the future. They won't.

It also seems to me that there is a lack of commitment within the Republic, or, at the very least, an underestimation of the commitment required to ensure that it can best meet the important needs of its most important customers.

For example, Ireland Inc says it wants to attract international capital, yet it has a capital tax. It says it wants its customers to use Ireland as a holding company location, yet it persists with a credit system instead of an exemption system. Ireland Inc says it wants to be in the knowledge economy business, yet it introduces an overly complicated R&D product.

Ireland Inc also needs to be cognisant of some other important business realities. For example, the threat of substitute products. Countries such as China and India and eastern European countries represent a serious threat - cost competitiveness is a substitute product for tax savings.

In terms of winning new business, Ireland Inc must concentrate on its strengths, on the activities that are compatible with its competitive advantage. If low tax is the source of its competitive advantage this means focusing on profit-centric not cost-centric activities. Ireland Inc cannot cherry pick the business it wants to attract in isolation from its competitive advantage.

Unless Ireland Inc is clear on its goals and objectives and has a strategy to achieve these, and unless it is committed to executing that strategy, Ireland Inc will fail to meet the important needs of its important customers and it will not return superior performance over the long term.

Liam Quirke is managing partner at Matheson Ormsby Prentice