Back to Innovation in Ireland

Tax Scrutiny Highlights Need to Boost Ireland’s Homegrown Tech Scene

Tax Scrutiny Highlights Need to Boost Ireland’s Homegrown Tech Scene
National Story

Ireland has spent years wooing international tech companies to its shores, offering famously friendly tax rates and an able workforce for anyone looking to open an office across the Atlantic.

That recipe has worked wonders.

Today, Ireland boasts that it’s host to nine of the technology industry’s top 10 companies. An industry study last year found that Ireland’s tech sector was responsible for a whopping 40 percent of the entire country’s exports, worth roughly $99 billion annually—in a country with about the same number of people as Alabama.

But in a competitive global economy increasingly hungry for innovation jobs, Ireland is starting to feel the squeeze, from competitors and regulators alike.

Last year, when U.S. senators grilled Apple CEO Tim Cook about the company’s sweetheart overseas tax arrangements, the country in the crosshairs was Ireland. The European Commission followed up on the American investigation, accusing Ireland of using its tax code to effectively hand Apple illegal corporate subsidies.

Just a few weeks ago, the growing criticism over big-business tax schemes forced the Irish government to scuttle its now-infamous “Double Irish” tax loophole, an accounting flourish that was used by foreign companies like Google to dramatically lower their tax bills by shifting revenues from one foreign subsidiary to another.

All of this political attention probably won’t harm Ireland’s standing as a top destination for foreign tech company offices. But it does highlight how heavily the country leans on outside investment to carry the load for its high-tech economy, and how far the country has to go in boosting homegrown technology companies.

That puts Ireland in a pretty healthy competition, of course—there aren’t many economies in the developed world that aren’t trying their damndest right now to grow a technology and innovation sector. Some of them will certainly be able to undercut even the business-friendly Irish on costs. But Ireland definitely has a head start, both in infrastructure and people, that many economies would kill for.

Officials estimate that there are over 105,000 people in Ireland’s tech workforce today, but less than a third of them work for companies founded in Ireland.

The country’s indigenous tech companies look even smaller when you consider their revenue: annual sales by Irish-born tech companies amounts to about $2.7 billion, industry figures show, a small fraction of that nearly $99 billion in overall tech-industry exports.

Think of it this way: If you asked a random business observer what they knew about Ireland’s tech sector, would they be more likely to mention Apple’s tax bill or RedHat’s $81 million acquisition of Irish mobile app technology company FeedHenry?

That deal, announced about a month ago, is the kind of success story that makes local tech boosters puff their chests out a little bigger.

FeedHenry started as a spinout from the Waterford Institute of Technology, supported in part by research-commercialization money from the government agency Enterprise Ireland. The company was already selling an early version of its product in Ireland when future CEO Cathal McGloin got involved around the beginning of 2010.

“They had a very, very good team. The technology itself, when we spun it out, was good technology focused on the wrong problem—telecom and media. At the time, you couldn’t have picked two worse sectors,” recalls McGloin, who had founded and served as CEO of call-center software developer Performix Technologies in the dot-com era. “We took the underlying technology, the engine, and enhanced it, repositioned it. And it became what it is today, which is a mobile application platform.”

Encouraging more FeedHenrys is an obvious goal for Ireland’s tech sector. But, as you’ll find in almost every high-tech-focused region in the developed world, fulfilling that goal comes with a near-constant hunger for qualified employees.

In a study of the Irish software industry conducted by the Irish Software Engineering Resource Center, homegrown and multinational tech companies alike said a lack of technical employees was the number one limitation on their potential growth.

The survey also found that 40 percent or more of technical jobs in the country were being filled by migrant workers. That figure is lower than in past studies, but it still means Irish schools aren’t turning out enough qualified people to fill the jobs.

In a study published last month, researchers for consulting firm McKinsey & Company found that Ireland has “a considerable advantage” in the tech sector, “but it is one that could be quickly eroded by neighboring regions.”

“In order to attract the world’s best students and to deliver more qualified homegrown graduates, Ireland must rapidly address the erosion of its education system,” McKinsey reported. “Irish universities do not place atop international rankings …. With competing countries making rapid gains, Ireland urgently needs to turn its attention to its educational standards.”

Industry leaders have some prescriptions of their own. In an opinion column for the Irish Independent, David Coghlan, CEO of major video-game software company Havok, laid out a detailed set of goals for growing Ireland’s own technology industry.

Along with a stronger education system, Coghlan called for better support of companies trying to grow internationally, real estate subsidies for startups in clusters of like-minded industries, and a more efficient, ruthless attitude that encourages startups to look for big opportunities and retool or fail fast if they don’t hit the mark.

McGloin, the FeedHenry CEO, remains optimistic that more success stories like his will follow along in the coming years.

The challenges Ireland faces in growing its local tech sector—education, available investment cash, affordable rent, and so on—aren’t much different than you’ll find in any other part of the Western world looking to emulate Silicon Valley. But today’s near-ubiquity of cheap computing power, fast digital distribution, and speedy connectivity is also giving small countries like Ireland much more ability to play catch-up than in the past.

“In the old days, when you were selling software, you couldn’t stay in Ireland. You had to have a sales team in the U.S. or the U.K. or Europe,” he says.

But today, “Even in the Waterford region, there are companies that are international already because the cost to build a company has come down. You’re going to find a lot more innovation coming out of Ireland, because you can be anywhere.”

Special Report Sponsors

Sponsored Links