In the 70-plus years since the government moved away from import substitution strategies and foreign ownership restrictions to foreign direct investment (FDI), Ireland has benefited greatly. Today, 60 per cent of the gross value added in this country comes from 2 per cent of foreign owned companies.
Yet with our 12.5 per cent corporate tax advantage coming to an end in 2023, now is the time to take what we’ve learned and focus on building new, indigenous, high value companies.
The revolving door
Research shows how large enterprises can serve as a breeding ground for local entrepreneurship. They attract skilled employees, they teach them new skills and provide the ecosystem with business opportunities by connecting them to global customers. Visit Silicon Valley and the people you meet have moved fluidly from large companies to startups and back again throughout their careers. This is not the case in Ireland.
This revolving door is a critical component of Silicon Valley’s success. And it’s not just good for the startups, but for the companies too — the entrepreneurs sharpen their skills, return to corporate life, and are often solving a problem they found while they were employed.
Meanwhile, indigenous innovation breeds more indigenous industry. We need only look at Stockholm to see the impact home grown companies can have on an ecosystem. Sweden is home to giants IKEA, Electrolux, Spotify, Volvo, Vattenfall, Ericsson and H&M. Crucially, this means that Swedish startups have ready access to the VC arms, M&A departments and other intrapreneurship functions of those companies.
This kind of support and exposure makes it a little easier for employees and others to get involved in the startup ecosystem, whether through internal Spin-offs or by founding companies. Ericsson alone has created 183 founders and 80 brand new companies.
The interaction gap
As Innovation Director in Dogpatch Labs, I get to watch large firms and startups interact daily. And what I see are both multinational and home-grown companies like ESB, Unilever, and Alltech contributing to and working with the start-up community for mutual benefit. It’s a critical component of a healthy start-up ecosystem.
But I just don’t see enough corporate engagement with the startup ecosystem. And it’s a problem. For example, out of 50,000 employees in large multinational tech companies in Ireland, only 50 have turned their hand to trying to build a startup. That’s not a typo.
This is a problem for indigenous industry and multinationals alike. All large enterprises need to look to the future, and entrepreneurial innovation — working with or working like startups and creating new spin-outs — is the key to creating new, meaningful lines of revenue. It’s good for the company, it’s good for the startup community and it’s good for the country.
A collaboration dividend
What does this look like? Well let’s take corporate-backed accelerator programmes — of which there are fewer than five years ago. Partnerships between large-scale employers in Ireland and startup incubator schemes can result in win-wins for both parties; startups can solve big problems quickly and founders tend to be highly motivated and goal oriented. Corporates have resources and a customer base that start-ups can only dream of.
A thriving startup ecosystem also attracts big thinkers from corporate Ireland into the community, who can absorb this start-up mentality and bring it back to their employers, driving change and creating the revolving door we need so badly. For multinationals in particular, this increased interaction and entrepreneurial dividend can help them demonstrate the value of the local office.
There are many other ways in which companies and their employees can contribute to our startup ecosystem, and many of them do. For example, Google has been a long time sponsor of First Friday’s for startups, the largest startup/corporate mentorship programme in Ireland.
While there are some examples we don’t currently see enough direct participation by these companies in new company creation. For US multinationals, that tends to happen back home in the States, where their VC arms and M&A functions reside along with their intrapreneurship functions that create new spinouts.
A 15 per cent Corporation tax is certainly going to pose a challenge for a country that relies so heavily on FDI. Now we need to use it as an opportunity, and work harder to unlock the potential within multinationals and indigenous companies alike.
The ask for everyone? Lean in. Engage with startups, create new spinouts, tap the wealth of entrepreneurial talent we have in this country — that’s what real innovation looks like. It’s so important that we get that revolving door moving.
We need more Irish unicorns like Intercom or LetGetChecked. They can become the foundation of a new Irish economy, and corporates in Ireland both multinational and home-grown have a greater role to play in their creation and facilitation. Our economic growth depends on it.