Scaling in Europe: New challenges for US companies
A guest blog by Michael Kelly and Clare Kelly, originally posted on Silicon Republic.
Glandore directors Michael and Clare Kelly reflect on discussions from the Scaling in Europe breakfast events hosted in the US.
Established in 2012, Ireland Gateway to Europe is a collective of Irish service providers who showcase Ireland as Europe’s premier investment location through events in the US and UK.
According to marketing director for Ireland Gateway to Europe, Jamie Harnett, the collective “provide companies of all sizes and stages of development with the information and contacts they might need to expand into Europe, using Ireland as a base”.
Glandore has been a member of Ireland Gateway to Europe since it was established in 2012 by Sigmar Recruitment, EisnerAmper, The FKM Group and ByrneWallace.
This year marked the seventh annual trip to the US, and we were joined by representatives from William Fry, Bank of Ireland (BOI) and AIB along with top representatives from US companies including Salesforce, Twitter, Silicon Valley Bank, IDA, Wrike, Asana, Actifio, New Relic, AdRoll and former chief talent officer of Netflix, Patty McCord.
According to Harnett, this is ‘Team Ireland’ in action: “A major collaborative business initiative where we all pull together for the common good, which is attracting that all-important foreign direct investment to our shores.”
Panel discussions were expertly moderated by Robert MacGiolla Phadraig, COO of Sigmar Recruitment, and Aislinn Marron of Irish Network Bay Area. Topics included the post-Brexit European landscape, how US policy changes will affect transatlantic trade, and the challenges and opportunities of scaling and operating in Europe.
The future of the European economic landscape post-Brexit
As Brexit looms, the situation for US firms in the United Kingdom is becoming more and more uncertain. While Brexit developments pose some challenges for existing US firms in the UK and firms looking to expand, some of these challenges can also be seen as potentially beneficial for Ireland.
Following Britain’s withdrawal from the EU, Ireland will be the only English-speaking member country. This in itself will be a strong pulling factor for US companies looking for a base in which to internationalise and expand.
According to BOI vice-president for foreign direct investment, Deirdre Ceannt, Ireland remains a safe harbour for US investment despite constant economic and political change across Europe, Britain and the US. “The country continues to attract high levels of foreign direct investment, the largest percentage of which comes from the US … With regards the financial services sector, post-Brexit, BOI expects to see companies move to a more decentralised model whereby they will split their operations across three or four centres – of which Dublin will be one.”
Currently, the European Medicines Agency (EMA) is located in the UK. It has already announced that it will move to an EU member state by 2018, with a decision of where it has chosen expected this November. Ireland has made a strong case to host this agency and is hopeful of securing it. According to Páraic Hayes, west coast SVP at IDA Ireland, if successful, this would be an added incentive for emerging US pharma companies to choose Ireland as a European base, as many of these seek a speedier EMA approval in advance of FDA approval for their products.
New data protection legislation, the General Data Protection Regulation (GDPR), will come into effect in the EU on 25 May 2018. These new regulations will be the same throughout the EU, with the regulator for each company being the regulator where the county is based. This is another incentive for US companies to base themselves in Ireland. Due to the high amount of possible fines, and even higher fines for non-EU companies, US companies will want to have one regulator in the EU.
A recent report by William Fry in association with Forbes Insights explains why so many leading international organisations have already established their European HQs in Ireland as a decision centre for their EMEA and EU data strategies.
The survey reflects positively on Ireland’s high rating in terms of the merits of its data-related regulatory climate overall and its data privacy regulatory regime. Specifically, 82pc of respondents rate Ireland’s data regulation regime as good or excellent. According to David Carthy of William Fry, given that concern over privacy-related issues is a key driver for international organisations, the reputation of Ireland’s regulatory regime as firm but fair, together with its ranking internationally as good to excellent, sees Ireland well placed as a jurisdiction of choice for the location of data operations for the European region.
Importantly for Ireland, the most frequent form of data-driven expansion is an investment in facilities (including physical facilities and commercial property), cited by 75pc of survey participants.
How will US policy affect transatlantic trade?
Last month, US president Donald Trump vowed to cut the corporate tax rate in the US to 20pc. This has been proposed in a bid to encourage US companies to locate and invest in the United States. Despite the implications it could have, many in Ireland remain untroubled by the move.
While tax rates remain a factor for US companies when considering a move to Europe, it is not their sole focus; commercial reasons also play an influential part. Regardless of the cut to US tax rates, many believe Irish operations of US companies will continue to play a critical role in their global success.
The new framework represents the biggest overhaul of the US tax system in years; however, many firms believe the objectives and principles it suggests lack detail. One such example of this is an objective to tax overseas profits as they arise. However, the lack of detail regarding this suggestion means it is difficult to know what impact this will have.
While these changes may impact US firms abroad, we are assured it will not affect how the US views Ireland as a base for expanding into Europe. Our reputation as a location of choice is continually growing and we are confident it will continue to grow.
Challenges and opportunities of operating and working in Europe
Ireland continues to be a prime location for US firms looking to expand into Europe. Currently, 150,000 people are directly employed by US firms and a further 100,000 people are indirectly employed in the 700 US companies based in Ireland.
Last year, the IDA announced 242 investments into Ireland. Of these, 74pc were US-based. Since 2008, US firms have invested nearly $280bn in Ireland, and the country remains one of the prime locations for US foreign direct investment. According to Hayes, 2017 marked the third year in a row of record growth for the IDA, with a new company setting up in Ireland every two to three weeks.
Access to a skilled workforce is a strong pull for US firms to Ireland. According to Sigmar Recruitment CEO and founder of Ireland Gateway to Europe, Adie McGennis: “From a recruitment perspective, top talent from overseas are really attracted to come and work and live in Ireland. 11pc of people employed in Ireland are from other EU countries, compared to 5pc in Germany and 2pc in France and the Netherlands.”
McGennis also spoke of Ireland’s attractive tax rates and the fact that we are a modern, stable and infrastructurally sound nation as other important factors US firms consider when deciding where to establish their European base.
Our proximity to mainland Europe with a sophisticated market of more than 500m people and the number of potential business locations around the country are also some of the reasons Ireland is enticing US firms. Many companies at the Gateway to Europe event spoke of these reasons as opportunities for their businesses.
Online project management tool Wrike and CRM software firm Salesforce both listed the country’s talent pool as being one of the primary reasons why they chose to set up in Ireland. Strong local hires with local knowledge are hugely valuable in terms of speed to the market.
Ireland’s location was also a strong factor. For Wrike, Dublin acts as the “connective tissue” between its research and development hub in Russia and its headquarters in the US. For project management tool Asana, Ireland’s location within the EU – where 50pc of its customers are based – also formed its decision.
Here at Glandore, we have seen a steady stream of US companies come through our doors and expand further. Past examples include Twitter, Facebook and Asana. All of these companies chose Dublin and Glandore as the base for their first European office. Choosing the right base from which to expand is one of the most crucial steps when expanding into Europe.
Recently, Glandore has welcomed Kroll Bond Rating Agency (KBRA) to our Dublin office space. KBRA chose Glandore as the destination to set up its EMEA headquarters and to expand into Europe. IDA CEO Martin Shanahan listed this as another Brexit win for Ireland, and believes it indicates financial institutions may now view Dublin as their viable post-Brexit solution.
Along with these opportunities also come some challenges for expanding US firms. During panel discussions, one of the biggest challenges that arose was the shortage and high prices of residential accommodation in Ireland. This is something that could deter US firms from investing here. We have been assured that the Government is urgently working to address this issue. We believe it is important that significant progress is made quickly as not to deter any future business expansion in Ireland.
Despite these challenges, the future of US companies establishing offices here looks bright as Ireland continues to be a prime destination for US foreign direct investment.