Investment Development Agency Ireland: Seeing Green - Barry O’Leary
For over a decade Ireland has been a hub for companies looking to develop their global presence but it is increasingly facing competition from Asia and Europe. Investment Development Agency Ireland CEO Barry O’Leary tells Nigel Ash how Ireland’s strong track record is still its trump card.
In any discussion of outsourcing the issue of labour cost arbitrage soon comes up. Cost is still a key factor in such decisions, but when a company is looking to set up its own regional headquarters or invest in large service centres, innovation hubs or manufacturing facilities, cost is only one consideration among many.
‘When multinationals look around the globe they have a checklist to score places against. They want talent, technology, tax incentives, a good track record and a place where it is easy to do business. Ireland provides those things, and we have seen many businesses set up here and then build their operations further,’ says Barry O’Leary, CEO of the Investment Development Agency Ireland (IDA).
Ireland has had great success in attracting businesses in the life sciences, financial services and ICT sectors, but continues to prove itself as a comfortable home for global enterprises in many industries. Despite the trials of the global downturn and the crisis in financial markets, Ireland has maintained a strong appeal for many multinationals.
In September 2009, for instance, Dublin saw the official opening of a new global research, development, innovation and learning centre by leading financial services company Citi. The centre represents a $24 million investment supported by the government through IDA Ireland, and will focus on creating the next generation of the company’s financial products and solutions. In total, Citi’s R&D investment in Ireland totals $100 million throughout its 45-year history of operations there.
The list of global companies that have set up in Ireland is certainly impressive. Facebook has its international headquarters for all non-US business there. The country also houses major operations for eight of the world’s top ten pharmaceutical companies. ‘Technology and life sciences companies have been very successful in Ireland. Over the last six years we have seen the biopharmaceutical industry invest $5 billion here. That is a capital intensive business and it needs highly skilled people. We have also seen a huge growth in financial services, and that area has remained solid.
There have also been developments in digital media, with companies such as Google, Amazon, Yahoo, PayPal and eBay,’ O’Leary remarks. Google’s presence includes its European service centre, while PayPal/eBay employs over 1,300 people in its European operations centre. Leading technology companies such as Microsoft and HP also have European or global headquarters in Ireland. These enterprises, and many others, have not only set up large operations in Ireland, but have also continued to expand their presence there. Take healthcare giant Johnson and Johnson, for instance, which has expanded its operations from pharmaceuticals into eye care, biopharma and orthopaedics.
Weather the storm
IDA Ireland and the Irish Government have continued to make sure that the country is an easy place to do business. Not only are there skilled people available to work in demanding industries such as pharmaceuticals or ICT, but companies setting up in Ireland can reap obvious fiscal benefits.
‘The tax treatment that domestic and international companies get here is a key factor. There is a maximum corporation tax rate of 12.5%, which is one reason we have a lot of high-value investment. Furthermore, companies can write off R&D costs against the corporation tax rate, and there are tax credits available. The government’s commitment to attracting investment is very strong, and was recently reiterated by the finance minister,’ O’Leary says.
The R&D tax credit scheme ensures that Irish-resident companies within the European Economic Area can claim 25% against qualifying R&D expenditure. If a company’s corporation tax liability is insufficient there is enough flexibility in the system to enable them to claim the credit by a refund by revenue commissioners over three accounting periods.
Furthermore, Ireland has an extensive double taxation treaty network with over 50 countries to ensure that double taxation is eliminated or mitigated. This agreement continues to expand, with a further eight jurisdictions recently signed and six more to be added in the future. Ireland has certainly not been immune to the recent fluctuations in the global economy. Like many countries in Europe it has seen its property market suffer and has had to bear the burden of lower tax revenues and, therefore, budget deficits.
Nevertheless, it has remained a profitable place for multinationals to do business. ‘The economy grew very well for 15 years up until the end of 2007. In the early part of this decade construction played a significant role in the Irish economy, but it has been hit by the collapse of the property boom. Also, Ireland’s open economy is export-led, and is reliant on international markets growing. We had one of the lowest rates of public sector borrowing in the EU until 2007, but we need to sort out our national balance sheet and deal with the banks’ overexposure to the construction market,’ admits O’Leary.
‘But the benefit of what is happening is that competitiveness is improving. The costs of building offices, restaurants or retail space here have fallen dramatically, and multinationals are still attracted by our talent pool, tax regime, our technological capability and our track record,’ he adds. IDA Ireland continues to partner with foreign investors to help them set up and develop their businesses. Its current strategy is to continue building on key business sectors and expand into related industries.
‘Our role is to help with innovation in industries such as biopharma and high-tech. Cleantech, for example, is very important. We need to spot the trends in these sectors early and ride the wave of new technologies and business models,’ O’Leary says.
Stay ahead of the game
O’Leary is, of course, aware that Ireland faces stiff competition from many other locations around the world, not least in Europe. He nevertheless feels that Ireland’s history of successfully attracting major inward investment stands it in good stead even though the globalised market can change quickly. Singapore, for instance, has built up its strength in life sciences, while economies in Eastern Europe are offering significant cost arbitrage as they open up to global investors. O’Leary believes, however, that Ireland has many advantages over these competitors, not least because of its history of success.
‘We must stay ahead and we constantly monitor how the competitive environment is shaping up on fiscal issues, for instance. But for the sectors that we have targeted already have many large companies in Ireland. A software company, for example, will see that Microsoft, Symantec, SAP, Oracle and many others are here and are succeeding,’ he remarks.
‘Our sector focus is broadening to include new areas such as greentech, partly because we are seeing convergence in ICT and life sciences. There is an opportunity to expand into innovation and related services, for instance, and we have seen PayPal set up a global innovation centre here. We can build out into industries that have synergies with the industries that are already here.’
In some ways the focus on innovation is not new. Ireland has gone a long way to position itself as a knowledge-based economy since the government’s launch of the national strategy for science, technology and innovation in the 1990s, which put in place funding and support to fuel innovation across industry, research and education.
This strategy is now paying dividends as a new generation of innovative companies bring new projects to the market. In October, for example, Nobel prize winner Walter Kohn opened a science lab to support R&D into new energy technologies at University College Dublin (UCD). The aim is to tap into the renewable energy market, which some analysts believe could grow to over €113 billion in the next five years. Its key focus will be the exciting new realm of nanotechnology.
The new facility will give multinationals, SMEs and start-up companies in the energy technology sector the change to work with scientists at the UCD Nanovation Laboratories. The facility may also prove a major boon to companies in the healthcare and IT sectors, in which nanotechnology could play a major role in the years ahead.
There is little doubt that Ireland offers international businesses a firm foundation for their future, and its commitment and success in attracting inward investment in innovative industries is unlikely to wane.