Irish Economy
Report on Irish Entrepreneurship: Misguided over-focus on tech sector
By Michael Hennigan, Finfacts founder and editor
Jan 23, 2014 - 2:25 PM

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Report on Irish Entrepreneurship: The Government's forum for new ideas to raise the business startup rate has some suggestions that are worth trying but there is a misguided over-focus on the tech sector.

We have said many times that the Government's flagship enterprise policy, expecting university research to create a jobs engine, is delusional while research in the US and UK shows that high growth firms are not typically in high tech.

We reported this week that Berlin is vying to become Euro's tech startup hub and according to McKinsey, the consultancy firm, it could add 100,000 new jobs by 2020. However, in a blog post for the World Economic Forum, in advance of this week's 44th annual meeting of the forum in the Alpine resort, a digital insider who lives in Berlin said: "Many are looking to the technology industry for solutions, hoping to replicate the success of Silicon Valley. However, while there is no doubt about the size and importance of technology as an industry, copying the US model will not solve Europe’s problem."

Finfacts : Davos 2014: Copying Silicon Valley no jobs engine solution for Europe

The number of full-time jobs in services and manufacturing added by Irish firms in information and communications technology (ICT) in the period 2007-2012 was 1,600 [pdf].

The Government says 69 recommendations have been put forward by the forum in their report. While many of the recommendations require Government action, "there are also recommendations aimed at businesses, entrepreneurs and industry representative bodies to engage them in building a stronger entrepreneurial culture in Ireland.

Included in the report’s recommendations are:

  • Use of unoccupied and NAMA buildings for a total of 50,000 square feet of co-working space;
  • Mandatory training in commercialisation of business ideas for all third-level science, technology, engineering and maths students;
  • Changes to law to support employee stock option programmes;
  • A national education strategy for entrepreneurship at all levels of the education system;
  • A mentoring network driven by entrepreneurs;
  • Tax incentives for investment in enterprise;
  • In the long-term – a flat tax of 15-20% on all types of income.

“Two thirds of all new jobs come from startup businesses in the first five years of their existence," Richard Bruton, enterprise minister, said today quoting from American research as comparable data for Ireland isn't available. "Entrepreneurs are the heroes of the economy, creating businesses, jobs and growth from which the rest of us benefit, and Ireland has some amazing entrepreneurs, but not nearly enough."

“We believe that Ireland has the opportunity to become the most competitive country in Europe if it adopts - - and embraces -  - some key structural changes," Seán O'Sullivan, forum chairperson, said.

Report [pdf]

Ireland needs to have vibrant startups in all main sectors of the economy but most public funds are going to the high tech sector even though spinout firms from research seldom grow beyond low single digit job numbers.

Finfacts: Patent filings were at a 30-year low in 2012 - - the report says "academic institutions should consider incentivising researchers to commercialise and to reward them not just for publications and citations but also for licenses, spinouts, patents etc." That would not make any material difference.

What are the metrics after spending an inflation-adjusted  €24bn in a decade?

There is a case study in the report on food but the focus is on science graduates; tech visas for foreign entrepreneurs; accelerators and collaboration between academic and business.

There is an obsession about exports in Ireland but startups serving the domestic market are also important,

While it's debatable that, "the environment created over the last 5 years may have placed Ireland on the cusp of a similar innovation revolution," to 80s and 90s, "an exciting time in Ireland for entrepreneurship in the technology sector," many of the firms from that period were either were bought by an overseas firm or went bust.

There is no simple prescription to boost growth and competitiveness across an entire economy, according to James Manyika, a director of McKinsey Global Institute. Each sector requires its own approach, he says. A country’s success, depends much less on what it does than on how well it does it: “All too often policy makers think ‘Do we have the right mix of industries?’ and don’t think ‘Are those industries globally competitive?’”

There are relevant links to several reports here:

Finfacts: Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3

Programming languages or foreign languages?

Learning programming language more important than being able to sell overseas without having the local language? The forum's report says:

In an ever-changing technological world, children should be exposed to a broad range of ICT skills to understand their application in the workplace. With English now the primary language of today’s world economy, learning a programming language has arguably become more important than learning a second spoken language."

Companies such as Google and Apple have the majority of their staffs in Ireland from overseas because of the limited local language skills.

In a recent EU Eurobarometer Report, which surveyed companies across 27 EU countries employing more than 50 employees, only 9% of Irish companies surveyed considered that foreign language skills would be essential for future graduates over the next 5-10 years – compared to a 31% EU average.

In 2010, approximately 3% of Irish primary school students were studying a foreign language - compared to the UK 69%, and an EU average of 79%.

An EU survey of more than 16,000 small and medium size companies in 2007 (SMEs, < 250 employees) found that in Estonia, 23% of companies generated turnover from exports, Slovenia: 21%, Finland: 19%, Denmark: 17% and Ireland 11%. The proportion of SME revenue generated from exports in 2005 was Belgium: 15%, Estonia: 12%, Slovenia: 11%, Iceland: 10% and Ireland: 4.2%.

Almost half the exports from indigenous firms go to the UK and more than 60% to English speaking countries. Britain is the destination of a massive 75% of all consumer foods exports and in recent years the traditional surplus in the food and drinks trade has been eroded through imports made by groups such as Tesco.

Enterprise Ireland said in 2009 that the markets, Germany, France, Benelux, Italy and Spain, collectively represent a gross domestic product (GDP) 3.9 times the size of the UK, yet the non-food exports by clients companies of the agency for these countries, was 40% of that of the UK.

US startups in 2013

A US Kauffman Foundation survey [pdf] on startups in 2013, published this week, shows that personal savings as a means for funding the startup jumped from 66% in 2012 to 86% in 2013.

Other funding sources included credit cards at 16% (10% in 2012), retirement savings at 8.5% (6.5% in 2012) and bank or home equity loans at 6.5% (4.5% in 2012).

Survey findings also showed that businesses with one to four employees increased from 25% in 2012 to 26.5% in 2013. Twelve% of the respondents – whose nascent ventures naturally are small – had revenues above $100,000, a 4 percentage point increase over 2012.

Finfacts: More US VC-backed new companies fail than succeed

According to Kauffman Foundation, America's leading entrepreneurship think-tank, less than 1% of US companies have raised capital from VCs, and the VC industry is contracting.

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