Rapid change and intense competition are key considerations in driving Ireland’s status as a tech hot spot, says Anna Scally of KPMG.
The tech sector is a ray of light in an Irish economy often short of good news. When Fortune lists Dublin as one of the six best cities in the world to start a business, those already in the know nod. That Ireland is increasingly seen as a hub for tech business is reinforced by the recently launched Global Entrepreneurship Monitor (GEM) report. This research shows that a significantly higher proportion of Irish entrepreneurs work in medium or high technology sectors (11%) when compared with an OECD average of 7.3% and a European average of 7.9%.
The pace of innovation in this sector has been to Ireland’s advantage as we are seen as nimble, business friendly and capable of supporting those looking for the best tech friendly inward investment locations. The list of players operating here in areas such as social networking, gaming, apps and cloud is certainly impressive. However, despite our successes, to maintain our appeal we need to continually assess the context in which the tech sector operates. For example, the business implications of disruptive technologies have far reaching implications for future economic performance including inward and domestic investment patterns and employment.
Disruptive technology has become a game changer in sectors as diverse as tourism and leisure to financial services. In some cases, business models have changed forever. In other scenarios it’s not necessarily recession that is having the most significant impact on businesses - it is simply that those who are slow to adapt run the grave risk of extinction.
Our recent global research entitled Mobilising Innovation highlights some key trends, which if properly understood can help us leverage greater opportunities. The backdrop to such change is the inexorable and sometimes frenetic move to a new cycle of convergence and consumer connectivity driven in particular by cloud computing and the mobile web.
All of our insights both in terms of client behaviour and market research highlight the cloud as being the next indispensable consumer technology and the most powerful driver of business transformation. The cloud has emerged as a platform for new business models and the resulting disruptions in enterprise and consumer markets will continue unabated.
What is also clear is that countries that were never part of the technology innovation map are gaining high and rapid profile. Familiar names, many of whom have invested in Ireland, are being joined as global players by companies such as Tencent and Baidu from China and Yandex from Russia. Technology visionaries are no longer solely linked to Silicon Valley as the profile of technolo-gists such as Japans Masoyoshi Son and Chinas Jack Ma make the headlines.
Not surprisingly - there is also great interest in where the new tech hotspots will be. Our research indicates that the global tech sector sees the United States remaining as the world’s technology leader, but countries such as China and South Korea are investing at a level that will inevitably increase the number and geographical spread of such hotspots.
So what of Ireland? For a small country we are continuing to make an impact. We account for a significant level of all inward investment in Europe. The American Chamber of Commerce in Ireland notes that investment from the US in Ireland has grown five fold in the past 10 years, and is now worth $190 billion - more than the US has invested in the four BRIC nations combined. It also accounts for about a quarter of Ireland’s gross domestic product.
Events such as the Dublin Web Summit have helped put Ireland on the innovation map and gain us an exposure that many other countries and cities can only aspire to. Recent job announcements across the sector show how a virtuous circle that includes a rehabilitated reputation and a competitive tax environment delivers measurable benefits - particularly in employment terms.
The often clichéd role of people in realising our innovation potential cannot be underestimated. Recent research from Forbes reaffirms what is already widely understood by the most successful tech businesses - diversity in the workforce both in general and within companies is a key driver of innovation. Thus Ireland needs to be seen as a place not just in which to invest and recruit successfully from within our shores, but also to encourage mobile talent of every hue to see us as a highly worthwhile career destination. Inevitably personal tax rates are a key factor in this equation. Very high taxes on high earners in a small peripheral economy run the risk of talented and ambitious individuals deciding against choosing Ireland.
With a widely flagged tough budget ahead, we need to be acutely aware of our relative position Vis a Vis competitors. The National Competitiveness Council recently reviewed the effect of labour tax changes from 2008 to 2012. In its view, the reductions in net pay caused by increased taxes over that period mean Ireland does not have scope to increase taxes on labour when competing for mobile talent with highly valued skills.
Other aspects of the tax code can also play a key role in attracting talent, fostering innovation and encouraging export led growth. Earlier this year, the government introduced welcome changes in the R&D tax credit, some tax exemptions for those travelling overseas to develop markets in the BRICS countries and a further extension of the tax exemption for new start ups. Inevitably the beneficial effect of some initiatives may not be felt immediately. Indeed as with most changes to the tax code, it can take some time to work through the potential pitfalls or unintended consequences of any new measure.
It is vital is that government retains its openness to continually reviewing the tax code and its impact on fostering innovation, growth and jobs. The need to make positive changes quickly and effectively when the need arises is particularly vital when competing markets for investment and talent are upping their game and moving with pace.
Anna Scally is a Partner with KPMG in Ireland and will be speaking at the Dublin Web Summit.