FDI 2.0 - What Would It Look Like?

The facts about Foreign Direct Investment (FDI) in Ireland are very impressive. At the end of 2015, the Industrial Development Agency (IDA) had over 1,254 client companies in Ireland, directly employing 187,056 people. Despite this, Ireland's FDI policy has perturbed me for a long time. In a world where the pace of technology is relentless and personal devices are replaced almost every year, it's ironic that the FDI model that underpins much of this progress has hardly changed in forty years. If it was to change what would FDI 2.0 look like?

I'm not an economist, so this article is not about topical issues such as tax or how to police it. In a word, this article is about autonomy. It's about how much trust multinationals bestow on their foreign subsidiaries and the impact this has on a country's economy and its development potential, in this case Ireland's. FDI 2.0 would be characterised by more autonomy, more origination, increased integration with local businesses, greater local investment in IPR and increased revenue retention in Ireland, resulting in more long-term benefit for the Irish economy.

According to Dr Craig R. Barrett, a former CEO and chairman of the board of Intel: “You can’t fault the country for trying to be a good place for FDI, but you can say with some certainty that FDI in the future will be more difficult to obtain, therefore you need to do your own growing." Indigenous growth would be enshrined in FDI 2.0. Apart from fiscal planning, multinationals make decisions about which countries to place certain functions in. In many cases, Ireland is the default location for customer service. In the high-tech Internet firms that now operate in Ireland, the emphasis is mainly on establishing user support services, marketing and sales.

As a nation, the Irish are a customer service dream, affable, friendly and helpful, willing to go beyond the call of duty. Ireland has developed a track record as a global customer service hub. For generations the Irish have had an international reputation for great service. The best barmen, the best nurses, the best secretaries were all Irish. When I worked for the European Commission, most of the Director Generals, regardless of their own nationality, had Irish PA's.

Today customer service in a multinational perspective means speaking multiple languages, which Irish people don't do very well. About two-thirds of Irish indigenous exports go to English-speaking countries and language is a factor in the poor export performance in mainland Europe. So there has been a massive influx of multicultural workers from all over the world, many of whom speak several languages fluently. This has beget call centres, and it all works so well that we tend to forget that other multinational functions like product development and marketing are rarely placed in Ireland.

This lack of autonomy means that most strategic planning happens at multinational HQ back in the home country, predominantly the US, and implementation happens overseas. This also affects the types of roles that multinationals recruit in Ireland, and this has spawned large numbers of recruitment agencies happy to help them find employees. One multinational recently opened in Cork with two jobs advertised - Customer Service German and Customer Service French.

Parent companies grant their Irish subsidiaries considerable autonomy over decisions concerning output and local market development but much less autonomy in export market development and additional capital financing. In the late nineties, Ireland was the biggest exporter of software in the world which sounds impressive but in reality involved the localisation and shrink-wrapping of manuals and disks.

Increased autonomy at a more strategic level could lead to more local innovation, with some IP being generated in Ireland, in turn leading to more wealth creation for Irish workers. Ideas would be encouraged and rewarded, workers would become intrapreneurs and more spin-ins and spin-outs would be created. Integration with universities, SME's and the local communities would become more embedded in a national ecosystem that would embrace all regions.

In 2013, IDA-supported companies accounted for 161,000 jobs and exports of over €121bn; by comparison, indigenous companies supported by Enterprise Ireland accounted for 175,000 jobs and exports of €17bn. Denmark, a country similar in size to Ireland has 30,000 companies that export, Ireland by comparison has only 4000.

So what do exports of €121bn mean in real terms for the Irish economy or for the average Irish worker? Despite the importance of small businesses to the economy, there are no serious strategies aimed at creating a sustainable digital economy based on SME's. Despite the fact that 80% of the value of the global digital economy will be generated by traditional businesses less than 10% of Irish SME's can process sales online.

Autonomy first came to light in my career when I convinced a couple of multinationals to allow my company to originate some material for them. It impressed them that we had the latest technology and we became a trusted source with the local managers. These managers really wanted an opportunity to show their bosses in the US that they could be trusted to originate material in Ireland. For the first time the US parents delegated origination of material to their Irish subsidiaries.

So what else can multinationals do to embed themselves more deeply in Ireland's ecosystem? They can genuinely engage with the development of a regional digital economy. Thanks to the launch of the Ludgate Digital Hub, some people are predicting that Skibbereen can produce the next Google or Facebook. When I lived in Brisbane there was talk that it would happen there, but mainly among the media and the politicians.

There's no doubt that something special is happening in Skibbereen and that its digital hub, its rowing champions, its digital champions and its wonderful lifestyle can combine to create something unique. But it won't be the next Google or Facebook. That's not a motivation for most digital start-ups, it's a distraction. I recently surveyed one hundred digital start-ups and not one expressed an ambition to be the next Google or Facebook. In fact some were intimidated by it.

The next Google or Facebook will be like their predecessors - born in the US. Then they will come to Ireland, where they will continue to establish their international operations. One of the main things that multinationals based in Ireland can do is to help indigenous Irish companies to scale, at the right pace, collaborating with them and supporting them as they do.

One of the main reasons Irish start-ups don't scale is because they can't compete with the multinationals for talent and using recruiters is too expensive. Originally seen as a golden ticket for Irish digital agencies, multinationals are now seen as a detrimental drain on talent. Everyone wants to work for the big multinationals and it can be very difficult, and expensive, for indigenous companies to attract and retain skilled staff members who are key to their business.

On the subject of jobs, the quality and quantity of jobs in the digital area in Ireland is disappointing. The population of Australia is five times that of Ireland yet there are fifteen times as many digital jobs advertised on Australia's number one jobs website Seek.com.au as there are on Ireland's number one jobs website Irishjobs.ie. On LinkedIn there are thirty times as many digital jobs in the UK section than in the Irish section , for only ten times the population. This despite the stellar figures regarding multinational presence and FDI performance in Ireland.

The level of the jobs is perhaps a reflection on the requirements of the FDI and call centre culture. Many recruitment agencies could help by encouraging their clients to raise the bar so we might see a Chief Digital Officer role being advertised every now and then. But for this to happen there would need to be more autonomy. A trend I've noticed lately is recruitment agencies recruiting their own digital consultants, while aping call centres and multinationals by showing what fun environments they are to work in. A comfort zone now exists around the multinational sector, the call centres and the recruitment agencies, which needs the inclusion of SME's, start-ups and regional digital hubs to flesh out the FDI 2.0 landscape.

In 2014 the European Commission's Joint Research Centre ranked the top tech hubs in Europe as being in Munich, London, Paris, Karlsruhe, Cambridgeshire, and Stockholm. Dublin got a 16 rank. The capital's under-achievement as a digital hub combined with the decentralisation of multinationals indicates that Ireland's fragmentation into a regional digital economy may prove to be more effective in the long run than one driven from the centre.

In the coming years, we will witness a network of local digital hubs emerging organically and taking root in refurbished bakeries, bus depots and breweries all over the country. A matchmaking programme would encourage multinationals to support this regional revolution by developing deep-seated relationships with their local digital hub, based on shared productivity and discovery. And perhaps by providing subsidised language courses to make us all multilingual. Increased autonomy would be the reward for growing trust and proven indigenous capability. In this way, a long-term commitment to regional collaboration would become an integral part of FDI 2.0.