When Spanish telco Telefónica recently produced a report on the world’s top digital ecosystems London, Berlin and Paris were all represented but, no doubt much to its chagrin, Dublin didn’t make the top 20.
There are valid reasons why it should have. The Irish capital, as well as playing host to Web Summit, Europe’s largest start-up conference, is arguably unique among tech clusters in Europe in having so many tech giants headquartered in the city or nearby.
Ireland plays host to a who’s who of tech including Facebook, Google, PayPal, Airbnb, Zynga and Etsy to name but a few. Some nine of the top 10 global software companies are located in Ireland, alongside three of the top five U.S. games makers and 15 of the top 20 global medical companies, according to figures from IDA Ireland, the country’s state agency charged with bringing foreign direct investment (FDI) into the country.
Persuading overseas companies to set up shop in Ireland has proved highly beneficial to the Irish economy and, given the fallout the 2008 economic crisis had on the economy, on the jobs market. IDA Ireland estimates some 170,000 jobs are directly attributable to FDI.
Given a working population of 2.2 million, that represents about 8% of the workforce, and a recent study suggested that for every 10 jobs directly attributable to FDI, another seven were indirectly attributable, according to the country’s Central Statistics Office.
Furthermore according to a 2013 report by The Wall Street Journal, Ireland is Europe’s most entrepreneurial country when measured on venture capital funding per capita. Ireland attracted four times the European average and some 680 times more per capita than Bulgaria, the bottom-ranked country.
New funds such as Frontline Ventures, formed by Shay Garvey, a former partner at Ireland’s Delta Partners, and those of Will Prendergast, a former partner at NCB Ventures, and entrepreneur William McQuillan, are setting up shop in Ireland. The U.S.’s Polaris Venture Partners decided to set up Dogpatchlabs in Ireland.
Attracting Big Name Investors
Another impact of the cluster is the network effect. Ireland’s tech ecosystem structure, with start-ups at the bottom and tech giants at the top, means a ready supply of talent to populate not just start-ups but the up-and-coming tech companies looking to expand, typically out of the U.S., into Europe and beyond.
One example is Nitro, a Valley-based document-handling company. According to John O’Keefe, Nitro’s VP EMEA, the key factor for locating its EMEA HQ offices in Dublin was the talent.
“The Salesforces, the Googles, the Facebooks, and the like, they have been here for up to 10 years and those companies have produced a lot of great talent who, over time, have become great leaders,” says O’Keefe.
O’Keefe, who joined Salesforce in Dublin in 2000 as its ninth employee in Europe, says he learned how to build a growth company. Working in the tech sector in Dublin “is like an extended master’s degree; it’s one of those places where you learn how to do that.”
“First and foremost [working in Dublin has given me] an understanding of who to hire. A company like Salesforce or Google has a huge focus on hiring, onboarding, and really making people productive,” he says. “We are looking to take this organization from 30 people to at least 100 within 12 to 18 months. That takes a lot of hiring. That was a key factor.
Dublin Won Because Of The Ecosystem
“The second thing is you build up a knowledge on the market, you understand what works, what does not work. You understand growth. You understand what it takes to grow something from something small to high revenue.”
Job site Indeed.com considered three cities for its EMEA headquarters, says Aidan McLaughlin, who heads up international communications for the Austin, Texas-based company. “It was between London, Dublin and Geneva. Dublin won because of the ecosystem here.”
Start-ups are also benefiting from the network effect. “What we are beginning to see is that people are leaving Facebook, Google, Twitter, and they are joining small Irish companies or they are creating their own,” says Karl Aherne, director of the Dublin branch of Wayra, Telefónica’s global start-up accelerator program.
Aherne says he is already seeing a change in the kind of entrepreneurs coming through Wayra’s program in Ireland, which has so far hosted three cohorts.
“In our first cohort we had a younger-profile entrepreneur. We funded their learning curve,” says Aherne.
It Is Tough To Poach People
“What is happening now is that we have moved up the value chain just a couple of steps and the people now getting into Wayra have already learned from their mistakes somewhere else. We are now benefiting from that and that’s why we are seeing start-ups coming in with revenue already, with a product, with market fit,” he says.
But is there a risk that with all these companies chasing after the same talent, salaries will be driven up, and Dublin could price itself out of the market?
Indeed.com’s McLaughlin said that despite Dublin’s cluster of large tech companies, it is still hard to find the right people.
“It is very competitive here. It is tough to poach people.” Indeed.com originally staffed its executive positions from the U.S. but, says McLaughlin, has begun to hired locally, either from Dublin or from Cork, Ireland’s second city, three hours to the south.
But as Aherne points out, while the presence of so many company HQs is bound to have an impact on prices, “if those U.S. companies were not here, then there would be no tech talent in Ireland at all.
“People coming out of Trinity College with a computer science degree would be heading off to Singapore, London, Amsterdam, Berlin… They would not be staying in Dublin, they would not stay in Ireland; the opportunities for them would not exist.”
The elephant in the room when it comes to talking about companies setting up in Ireland is, of course, the country’s very favorable corporate tax rate — at 12.5% it isn’t the lowest in Europe, but it is among the lowest.
End Of The Double Irish
Ireland additionally offers some controversial tax arrangements, in particular the so-called “Double Irish,” an arrangement that lets companies send royalty payments for intellectual property from an Irish-registered subsidiary to another that resides for tax purposes in a country with no corporate income taxes.
Last month Irish Finance Minister Michael Noonan shut that door, saying it would no longer be available for new companies setting up in Ireland from next January, and giving existing companies six years to change their tax arrangements. Would this make any difference to Dublin’s lure?
No, says Wayra’s Aherne emphatically. “Even without the Double Irish we are still competing with our corporation tax rates.
“It is better to be here than in the UK outside of the Eurozone dealing with Sterling, dealing with currency exchanges, or being in France with the labor laws, or being elsewhere.
“Then layer in on top of that the business-friendly environment that we have here. Dublin is not built on a tax scheme.”