Economics 03/03/2010: IDA's new campaign

IDA have launched their new long-term strategy document that is worth taking a look. Here are my own observations:

“I am delighted to take up the role of chairman of IDA as we launch a new strategy... There are great challenges before us but there are also great opportunities. The sweeping changes in technology and the world economy outlined in this document promotes [sic] an increased sense of urgency as we change the way IDA performs its mission. I have full confidence that the expertise and energy IDA staff bring to the task will ensure we remain one of the world’s most admired agencies for promoting FDI.” [a bit of self-loving here?]

Liam O’Mahony, Chairperson, IDA Ireland

I must confess, I like IDA guys. They and Enterprise Ireland side are the exceptionally rare parts of the public sector that actually work. One can question them from the point of the return on the euro spent (I have no knowledge of the metric, so this is a rhetoric question) but one cannot question their engagement with their work.

Thus, I actually looked forward to today’s release of the IDA strategy 2020 document. And as before, I loved the core theme of their imagery – signifier (perhaps too optimistic) of what Ireland should look like – modern, expressive and smart (not just in terms of technical brains, but in terms of broader, diversified creativity - alas, the signifiers did not match the strategy exactly).

Now, IDA has two very competent, and professionally admired people at the helm – Liam O’Mahony and Barry O’Leary. This should get IDA moving. Maybe not quite into 2020, but certainly into 2010-2011.

So let me not pour too many accolades, and focus on what I usually do – challenges. And there are some in the 2020 strategy document. These are, as I say, challenges. It would have been nice to see them addressed in greater depth in Horizon 2020 document.

Tax policy - absent

Take the first and foremost policy instrument for IDA and for general economic development in Ireland – tax. IDA is keen to recognize the overarching importance of tax policy to attracting MNCs. But it fails to take stock of the more recent changes in tax regime and the ongoing changes in the business development and corporate investment environments.

“We have a young, highly skilled workforce and easy access to the best young talent across Europe. Our tax regime is compelling,” says strategy document.

Really? At 50%+ marginal tax rate on highly skilled and experienced talent? "Compelling" as in second highest in Europe? And adjusted for benefits what do we, the taxpayers, get in exchange for this rate?

Spatial Pipe Dreams

Oh, and there is another little thingy there – the mandate to “support regional development”. Yes – the Spatial Development Plan (or rather our Spatial Development Pipe Dream) is still there, folks. Hasn’t gone away along with all those empty country-side estates that were supposed to be ‘Gateways to Excellence”.

Of course, this is not IDA’s fault - both tax policy and spatial development illusion are domain of policymakers, but still – couldn’t internationally-aware guys like Barry O’Leary and Liam O’Mahony quietly slip this ‘regional development’ schlock into an addendum to an appendix of sorts?

Human capital? Whoa?!

Another interesting omission – also relating to the tax on human capital – is the lack of analysis of the threat to our demographic base from foreign competition for talent.

“With a comparatively younger population, with just 14% of Irish people over 65, Ireland will have a relatively larger proportion of highly skilled and educated workers from which to draw. [Well, that is actually not a foregone conclusion – having younger population does not mean one automatically ends up with a relatively larger proportion of highly skilled and educated workers] Ireland also remains a vibrant and attractive place for younger workers from within the EU, making it easier for multinationals locating here to attract young talent from the whole of the 500 million-strong European Economic Area.”

Really? Are we sure this will be the case? Even when Germany, France, and the rest of ageing EU starts paying higher wages to younger workers to attract them from abroad and to keep their own? Even when other locations worldwide start offering better quality of life and higher wages to younger workers? No, folks, to get that ‘demographic dividend’ we need to work hard to compete for talent globally. And this means putting in place things that IDA strategy does not mention:

• lower tax on higher skilled and better educated workers;
• greater quality of public services for lower price to the taxpayers;
• greater quality of goods and services delivered within domestic economy (competition and market liberalization agendas come to mind here),

and so on.

BRICs: back to the future

I liked IDA’s specific focus on BRICs, but the section on these countries is too thin on details as to how the agency plans to make serious in-roads in these markets. And there are deeper questions here:

• By 2010, BRICs are hardly a new frontier - these are middle income (in case of Russia, officially a developed country) economies with steep competition from other locations for their investment. Shouldn't IDA aspire to broader geographies?
• BRICs are heterogeneous and lumping them into one section is a difficult task - more definition is needed to understand what exactly is the strategy that IDA is planning to pursue here

Regulation - spot on

I liked that IDA is pragmatic – in this age of regulatory hype, this is an achievement – when it comes to recognizing the need for flexible, functional and not-too-burdensome regulation: “Ireland must ensure that it remains at the forefront of creating a regulatory environment that is robust, credible and ‘fit for purpose’ – one that does not place undue burdens on business.”

Creativity mark - C

In a departure with the past, IDA strategy does attempt to deal with the issue of business processes innovation and even strays into business model innovation. This is a fitting change from traditionally 'hard' innovation-driven agency. And it might, just might, sound like a warning shot to domestic sectors - 'Shape up, or lose out'.

But I thought a major weakness of the strategy can be found in the fact that in the entire document, words

• ‘creative’ – as in creative industries/sectors, and as in the business-operative word relating to creative innovation;
• ‘design’ –as in the driver of new products and markets;
• ‘management innovation’ – as in a major driver of systems productivity;
• ‘traded services’ – as in the areas that account for more than 50% of global trade already (note, ‘manufacturing’ is featured in 8 instances in the report),
• 'urban' - as in ca 80% of our economic activity will be by 2015

are not mentioned even once and

• 'high value' - as in high value added sectors

is mentioned only once.

In the age of Twitter, technology is a direct outcome of creativity, not the other way around. In fact, the failure to more comprehensively deal with non-ICT, non-biotech, non-labcoat innovation and sectors puts a massive dent into the entire document. It makes me wonder – does IDA realize that Google, Twitter, Facebook, Apple, IBM, Microsoft – you name a success story in today’s IT & ICT world – are driven more by ‘soft’ innovation and only as a corollary – by technological platforms? I think they don’t – and this mutes that wonderfully designed, creative and aesthetically sophisticated advertising campaign that they feature on the inside cover of their report.

Again, to be fair to IDA - good effort is made to move from previously undefined 'Financial Services' objective toward more specific services-related areas. A bit of an eye-catching is the focus on Financial Analytics - an area where much needs to be done before we can attract into the country leading financial analysis firms. Perhaps, more realistic here would be to develop capabilities by using Ireland as a platform for attracting start-ups and early-stage companies in this area. Bary O'Leary does mention the latter (although not specific to the Fin An sector) in his key note, but again, the document could have had this specified in more detail.

So overall, a slight sense of disappointment, but also some hope that next time (and before 2019) IDA strategy will reflect deeper and more real change in the way the organization is actually starting to see the future. Encouraging signs are present in today’s document.

Economics 16/09/2009: IDA's latest news... breaking

I will blog on Nama latest figures tomorrow afternoon, so stay tuned, but for now - a piece of better news:

IDA will be launching a new campaign promoting Ireland as investment destination in the USofA. The campaign was prelaunched tonight for bloggers in advance of the official launch. It is impressive in scope (all top notch business media on top of the reliables – Airport ads etc – plus a bit more serious effort to build online presence) and relatively mild in message (more below). So mild, it seems to be slightly underwhelming.

Fair play to Barry O’Leary (Chief IDAologist) and his crew and campaign designers (McConnells) for actually braving the small crowd of usually unruly and unpredictable, often cranky and always suspicious bloggers. Trevor Holmes – IDA’s chief communicatologist, aka PR man – was actually very good in answering pointed stuff and taking a bit of a role of really giving us (the bloggers) some of our own medicine.

So the launch itself was a brave change of heart from the usually rather closed organization like IDA.

Let’s get to the substance.

Corporate brand advertising that is people-centric can be corny. Country brand advertising based on ‘Invest not in dollars, but people’ stuff is a bit corny and old. IDA used to do the same back in the 1970s and 80s, so what’s the BIG IDEA this time around?

Ok, on their web banners they have Facebook chieftain talking about what the company found in Ireland. Guess what – it is European workforce (same is the 1980s ads) and it is not Irish (novelty factor on the 1980s), but the one speaking 48 languages with native skill. You might as well be in London for that.

Microsoft’s Head is talking about how IDA is number one conduit for companies into Irish Government. I though that sort of ‘facilitation’ – important as it is to the companies – is not exactly something we want to highlight as a major selling point, at least not publicly in the airports. Children might conjure the imagery of Bertie Ahearne ‘facilitation’ at a football game somewhere in the UK, or our regulatory authorities engaging in banking sector ‘facilitations’ signing off on intra-banks deposits flows of slightly unusual variety. All fresh in the media minds internationally.

Funnily, when I asked the guys if they can ‘facilitate’ a financial funds management company with speeding up regulatory clearance to trade in Ireland, they immediately stressed that Ireland is not that sort of a country… Innocent me, I couldn’t see much wrong with helping companies to file papers at the FR office, especially when the same FR office got so facilitative of the banks in the recent past… Oh, but IDA can help with preparing documents and reasoning to be brought to the FR “to make the case for…” Hmmmm. Ok.

“Talents, scope and depth, languages spoken, diversity… and foremost Irishness…” are the themes. Judge for yourselves if this really confuses Ireland with a D2 - D4 (Googleland, language schools and TCD/UCD) cluster.

‘Natural creativity and curiosity of Irish’ themes. I know, it sounds bad. But do trust me, the ads are well designed and speak modern, clear and crisp language as are online materials - McConnells delivered again. IDA opened up their closed doors a bit here too with online campaign aiming to be more interactive with target audiences. Cuddos to McConnells Digital on that one - hard client to get to smile, but smiling is what IDA are doing with some parts of the campaign and it is good to see the Big Boys of Ireland Inc getting a little of confidence back. On the net, a good balance of simple messages, simple imagery and compelling arguments.

But there are few things that troubled me and some other bloggers.

1. Are these ads truthful: IDA referred in presentation to IMI research that allegedly proves these directly. I am not sure – would have to see this piece of research to believe it. But the campaign itself does not mention any research. So you are invited to find out for yourself and herein opens a world of our low achievement in the areas of science, relatively average achievements in education and an abysmal record on early and continued education.
2. The ads mention Ireland’s promise in Green energy (not as a distant future, but as current reality). In a country with ESB plants belching smokestacks and heavy reliance on oil to generate one of the most expensive power supplies in Europe, this sounds slightly funny. To be truthful, we had Airtricity – an international success story, but it barely had any significant investments in Ireland proper, preferring to do business in… you’ve guessed it – UsofA. And UK. So who’s ‘greener’?
3. On the same day of the IDA blogger launch, I was speaking to the National Advisory Science Council about my view as to why our R&D and science policies (core innovation inputs) might be in trouble. Innovation Ireland, my eye.
4. Funnily, me recalls seeing in Fortune and Forbes ads for Azerbaijan and Kazakhstan as places where you too can invest not in dollars but in people and innovation... not exactly in same words, but the same message.

While I am on the topic of press, IDA will follow up these adverts with a full frontal media assault taking ‘articles’ in the likes of WSJ and other business media and getting Brian Lenihan (who can do some good) and Barry O’Leary (who really does know his stuff). But also Mary Coughlan (I know, don’t start, please... oh, the hell - as Donald Rumsfeld remarked once "As you know, you go to war with the army you have, not the army you might want or wish to have") on the international media ‘telling the Irish side of the story’. I am not sure what it will look like? Advertorials, interviews, hired hacks, ads, talking sale pitches from politicos… It makes me feel like being made a small tangential part of some PR blitzkrieg. Trust, me I am not!

One question I did ask Barry O’Leary was “IDA campaign is going to court Human Capital-intensive businesses for whom the costs of skilled labour and key talent are the main line of spending. Our Government officials will be talking about how we are doing the necessary things to restore economic growth and confidence. Are you concerned that this is the same Government that raised taxes on labour income impacting ‘knowledge’ economy’s future returns to human capital here?” The response I got suggested that yes, the IDA are concerned about the erosion of competitiveness (I presume that does include erosion of our competitiveness in ability to attract highly paid talent). So “tax increases are a concern, but [not too much as IDA prefer for the] …focus to remain on total offering and proposition of Ireland across different value chain segments”.

Is then IDA feeling boxed by the Government perverse policies and are searching to offset the cost of income tax and payroll costs with other concessions? Most likely.

Barry didn't mention if the ‘competitiveness’ concern also covers corporate tax. After all, given the hole Mr Cowen got this country into fiscally, and given that our households are already struggling under the massive burden of Nama and public sector wage bills and welfare rolls, what can be done next to ‘improve’ our fiscal situation other than start dipping into corporate Ireland’s pockets. Indirect taxes will rise for businesses and, quite possibly, there will be a push for higher corporate tax rate too.

A birdie told me that the Government has already discussed (at not a full Cabinet level, though, and I stress that is a tip-off that I am yet to fully confirm) a chance of raising a special corporate tax surcharge on domestic firms, but that they were told that this won’t fly with EU. Don’t worry – most likely, they’ll try again.

Barry was talking some good facts, though, and made a serious pitch as to why we need to get Ireland Inc back into raising the FDI game – something that has been hard to get (although IDA did achieve good progress this year against all odds) in the first 6-8 months of this year. I agree with him fully – and I must add that IDA and EI are about the only two agencies in town that are still doing their jobs (I am sure improvements can be made in both, but hey, in the age of FAS, Forfas, HSE, and the rest of public sector, at least IDA and EI give us some return for money).

When it comes to target businesses, again, there was no BIG NEW THEME – IDA is going after reliable favorites: life sciences (pharma, biopharma and medical devices), ICT&IT, global services (SCM, technical support, financial & shared services). Not a hell of a lot of ‘innovation’ stuff? True, but they are looking at the “Innovation sector: IT&ICT primarily, Hewlet Packard, Intel, IBM, etc; life sciences area (pharma, biopharm, medical devices), international financial services, globally traded business services – digital media, etc and old engineering portfolio.”

So everything flies. A true picture of diversity? I’ve asked the guys: “Loads of smaller companies would probably like to enter European markets through Ireland. What are you doing for them?” It is a loaded question and Trevor Holmes was good answering it – to the point: “can help with limited pilot, test beds”. Better than nothing, but, honestly, not much. The mandate, you see, is still about bringing Big Sharks in, not the smaller Barracudas.

There was a hint of something yet to come – Trevor mentioned that the IDA are working on several new ideas as to how they can facilitate incubation of smaller promising start ups willing to settle in Ireland. That’s the stuff I would love to find out more about. Some years ago I mentioned the idea of incubator for Ireland-bound startups in financial services in a conversation to Barry O’Leary. May be finally the idea has sunk in? Alas, no details were given.

Per Barry O’Leary: “Competition globally for FDI – OECD says it is down globally 30% in 2009, and more competitors in the market – margin squeeze on both ends.” Fair point and the timing of this campaign is spot on too – the US market is about to go into new investment cycle, and we should be ahead of the curve (although the IDA team failed to actually identify this as an opportunity explicitly when they were probed by the bloggers). “We are competitive in combined development and manufacturing, but not in manufacturing alone”. Another good point, and backed by the evidence on what IDA has been bringing into the country over the last year.

Final point – per Barry O’Leary – is that “Strategic review of IDA is 6-8 weeks before conclusion looking at changes and adaptations to such new product offerings in Ireland as smaller digital media companies…”

Looking forward to hearing more on that one.