Why is Ireland not getting a proper rate of return on its investment in enterprise, technology and the knowledge economy

August 20, 2010

I am going to spend the next few posts talking about enterprise policy in Ireland and the gaps and possible opportunities available in my home country. Ireland has a long tradition of publicly-supported foreign direct investment (FDI) which was initially hoped to spur the development of indigenous down-stream enterprises. To some extent this has worked successfully. However, there are a number of gaps in the policy of promoting indigenous enterprise development. It is not that Ireland does not produce start-up businesses, it does but the recent economic downturn has demonstrated that there are new initiatives needed in a number of key ‘transmission’ issues. By a transmission issue I define the ability of indigenous Irish small-to-medium sized businesses (SME) to transmit their growth beyond the SME stage and develop into larger internationally-trading enterprises. Put another way, how can we get our indigenous entrepreneurs to bring their businesses and business ideas to the next level. I am sure that others may point to different problems but let me start by examining 2 key issues:

• The lack of successfully converted high-potential start-up enterprises (HPSU)
• The low number of indigenous Irish enterprises that actually engage in international trade (exporting in particular)

There has been a lot of talk about the ‘knowledge economy’ and Ireland Inc. has spent a lot of time and money establishing an infrastructure to promote high-potential start-up (HPSU) enterprises. Ireland’s national enterprise agency has established a number of programmes to support HPSU development such as:
• Creating a policy framework for HPSU enterprises
• Worked with the third-level universities and Institutes of Technology to establish incubation centres and fund the management and running of same
• Established ‘best practice’ programmes for the management of these incubation units
• Created funds to assist and train nascent HPSU entrepreneurs
• Including a number of high-end enterprise platform programmes run through the third-level colleges, essentially high-end start your own business programmes

However, for all the good work done Ireland is not producing the number of real HPSU that it should expect from the investment made and we are seeing frighteningly too few trade sales and almost no initial public offerings (IPO), where enterprises make their initial appearance on a stock market, or a ‘float’.

Another area of improvement relates to indigenous exporters. Statistically, Ireland has a very strong export sector and in general this is correct. The problem is that the majority of our exports are done by FDI companies’ not indigenous enterprises. Depending on the statistics you wish to select, only around a quarter of the companies in Ireland that export are Irish owned. Thus, to follow the logic, only a very small fraction of indigenous Irish-owned enterprises actually export.

If Ireland is to generate the economic success and jobs necessary to address the current fiscal and employment problems, it seems clear that we will need to export a lot more. Ireland is a classic example of an open economy but we have seemingly failed to take advantage of this. Neither of these issues of themselves will solve the problem but both are key transmission issues in moving the Irish economy forward, creating more exports and more confidence and optimism, things that are currently in apparent short supply.

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