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Submission to the Innovation Task Force

American Chamber of Commerce Ireland Submission to the  Innovation Task Force on The Framework for Sustainable Economic Renewal  (SMART Economy)

For more information please visit our R&D Working Group page.

 

Background



With over 580 US companies employing over 100,000 people directly, it is estimated that a further 225,000 jobs are directly supported by US companies based in Ireland. The contribution these companies make to the Revenues of the State in terms of corporation tax, PAYE, VAT and other taxes is considerable.


With over 580 US companies employing over 100,000 people directly, it is estimated that a further 225,000 jobs are directly supported by US companies based in Ireland. The contribution these companies make to the Revenues of the State in terms of corporation tax, PAYE, VAT and other taxes is considerable.

US foreign direct investment has been a driver of innovation and research in the private sector. It contributes and supports Ireland's dynamic enterprise infrastructure through the transfer of technology & commercial know-how, skills development, and the injection of an ethos of change, innovation, continuous learning and a global perspective into working life.

Total US investment in Ireland is US$146 billion[1].  Continued investment is crucial to Ireland's current and future success, both as an investor and a significant trading partner. Ireland continues to face increasing competition from other economies for this investment.  

The American Chamber of Commerce continues to work with its members to identify how, in the light of our rising cost base and knowledge-based competition, Ireland can implement innovative policies and initiatives which will help us to remain an attractive location for foreign direct investment.

American Chamber of Commerce Ireland

6 Wilton Place

Dublin 2

Telephone: +353 1 661 6201

Contact : Brian Cotter, Government Affairs Manager, b.cotter@amcham.ie  www.amcham.ie       
            
                                                                                                     

Submission

 

Taking Decisions to Position Ireland Positively for the Next Global Economic Upturn

 

In the context of the Government's Framework for Sustainable Economic Renewal, Building Ireland's Smart Economy and the Strategy for Science, Technology and Innovation, and drawing on lessons from successful international and national models, the American Chamber of Commerce Ireland is pleased to make its submission to the Innovation Task Force.

 

While Ireland continues to face increasing competition from lower cost economies for foreign direct investment, its Strategy for Science, Technology and Innovation has successfully transformed our economic aspiration to develop a credible base, in a global context, of research and innovation. We share its underlying and critical objective that this investment in our future must create economic success.

 

The American Chamber of Commerce is strongly of the opinion that a competitive cost base is a necessary starting condition for industry to retain and grow employment in Ireland. We believe that there is considerable potential for the cost-base to be re-engineered to maintain high standards of living with greater employment levels. Industry has considerable experience of this in its own environment and is willing to share this practice if the public system is flexible and motivated enough to commit itself to reform.

 

Given a competitive cost base, the American Chamber believes that there is significant opportunity for an innovation-led industrial strategy focused on creating enterprise and jobs in high-value, export-led sectors making use of research, science and technology with a significant tax and incentive bias. Importantly, it believes that the Foreign Direct Investment (FDI) base can provide an important conduit to expedite the creation of a new indigenous base of enterprise that is significant (employment) in scale and globally focused.

                                                                                                                                                  

COMPETITIVENESS
 
                                                                                                                                                  

 

 

VERIFICATION

 

Reflecting on the mandate of the Innovation Task Force, the American Chamber of Commerce Ireland request the verification and testing of all recommendations with a representative panel of multinational and indigenous export-focused industry. This will increase the likelihood that policy or resource allocation decisions taken on foot of its deliberations quickly have the desired positive impact. It is important that the core value propositions within Ireland's innovation strategy have international business credibility in terms of cost-base, excellence and uniqueness.

 

COST-BASE

 

Cost competitiveness is a key test for Ireland's offering and is a minimum basic condition for any investment. Assumptions being made on Ireland's competitiveness, credibility and uniqueness must be systematically benchmarked and validated with the multinational companies that make up the international business community in Ireland. Any incentives being proposed to stimulate investment in target areas must demonstrate a truly compelling business proposition, i.e. the incentive must strengthen the return on investment (ROI) of the investment and not used to mitigate an unsustainable cost base.

 

EXCELLENCE

 

Ireland's capability to differentiate itself will be founded upon areas of scientific, operational and business excellence that are genuinely recognised internationally. The Strategy for Science, Technology and Innovation (2007) has successfully transformed our economic aspiration to develop a credible base, in a global context, of research and innovation. To complete this transformation it is a reasonable expectation that we should now begin to articulate the gain we expect from the investment in terms of how it will transform the industrial base. That base must be increasingly acknowledged as innovative, as well as being knowledge/skills intensive to gain worldwide attention for the;

 

  • Unique global competence that Ireland is building,
  • Expected effect of the new human capital in attracting new investment,
  • Number of new start-up companies in new areas of competence,
  • Increasing investment of multinationals in sustainable research,
  • Number of venture or spin-out/in activity associated with the research.

 

UNIQUENESS

 

The uniqueness of Ireland's offering will depend on the international appreciation that Ireland has available and/or underutilised resources that present the opportunity to sustain its SMART economy ambitions. These include the availability of skills, infrastructure, natural resources, the commitment of the State and established industrial, scientific and business networks to support the scale of that ambition.

                                                                                                                                                  

INDUSTRY STRATEGY

                                                                                                                                                  

 

The American Chamber believes strongly that the creation of new enterprise focused on Market and Technology Convergence is a significant opportunity for the established industrial base in Ireland. Furthermore, to rapidly create new exporters of scale in terms of employment, it is necessary to engage multinationals to generate new companies that can focus on convergent solutions for existing and new markets.

 

These New Companies would be of Global Scale, Ireland Based, and leverage the IP/Technologies, resources and collective assets of the State and its institutions, the indigenous entrepreneurial base and the pool of multinational companies in established industrial clusters.

 

The successful introduction of collaborative research programs under the SFI CSET program serves as a good foundation new enterprise creation. It is now recognised that the path to Commercialisation for those Research Programs requires new applied research infrastructure and significant resources. There are a significant number of ways that the multinationals can support this commercialisation infrastructure.

 

This FDI base has access to a global perspective on technology evolution, supply chain innovations and purchasing behaviour. We believe that the collaborative research practice established under the SFI program can be further extended to enable different multinationals to work together with State companies and SMEs to create new applied technologies. The effective development of this practice will have significant upside for both the companies and the State.

 

 

 

Collaborating with multinational companies will provide a significant steer to this new applied research activity and ensure that the activity is market-led, has access to customers and resources, and can avail of international management capability. Encouraging this practice through incentives greatly increases the opportunity for new ventures to achieve scale quickly.

 

 

 

  • Key Contributions from the Multinational Base

     

    Collaboration - The application of the principal of collaboration, sharing of assets and the mitigation of costs can broaden the commercialisation capability without adding significantly to the investment and cost base. Those principles need to be defined and promoted, to ensure the fast and effective development of the commercialisation infrastructure and eco-system.

     

    Market Access - It is sensible and appropriate for the most new companies to use the established channels to market. The foreign direct investment (FDI) base can address this most significant challenge facing start ups and growth companies. Creating a practice and incentive policy to allow this to occur would increase the new ventures' opportunity to succeed significantly.

     

    Market Intelligence - Equally there is a significant challenge for new ventures to acquire the right market intelligence to allow for the development of a successful market strategy. Access to the resources and collective intelligence of the FDI base will greatly advance the new venture and improve its ability to target the global market and establish its brand.

 

 


                                                                                                                                                  


INCENTIVES

                                                                                                                                                  

 

To support the creation of new enterprises in the SMART economy it will be necessary to rethink the instruments of support for the creation, development and growth of the new ventures. Some of the existing support agencies and structures will need to be restructured and refocused to support this initiative, specifically ensuring that their competence and mandate is relevant to the challenge.

 

While research activities and programs in Ireland will generate intellectual property (IP) in various forms it will be insufficient to fuel and expedite the level of enterprise creation required to address the economy's employment ambitions without the engagement of the FDI base. It will be necessary to avail of a much wider Pool of relevant IP to support the development of new and/or "convergence" technologies. This pool can include the existing store of IP and Technology that is resident within multinationals, the indigenous base and in some cases the State (Universities, Research Institutes).

 

The development of new ventures based on those new technologies, leveraging the investment and assets of both the State and private sector, will emerge in different forms but will require a new model (interim vehicle) to encourage investment. This new model should protect stakeholder interest during the technology development stage and maximise the international valuation of the entity when it begins to trade. Therefore the essence of any incentive based measure must be to provide relief on the basis of investment in technology development and increase the future ROI based on a successful launch of a new trading and sustainable enterprise.

 

The emerging new enterprise will establish itself in three forms and will require a package of incentives and reliefs that are specific to attracting investment, leveraging technology or market linkage to multinational companies, as well as strengthening their own balance sheet in their formative years.

The emerging new enterprise should be clustered on certain likely technology "hot spots" that can leverage the IP and technology of the stakeholders, can emerge as international players, and can create significant and broad employment opportunity. The likely categories include;

 

a)        Indigenous Based Spin-Out Companies from multinationals - products, technologies and teams managing a viable enterprise that not are core to the corporate interest;

 

b)        Restructured or New Indigenous small and medium enterprises (SME's) - reinvent an existing enterprise through the acquisition of new technology and/or the provision of existing or modified technology to new markets;

 

c)        New joint ventures, including multinational companies - emerging convergent technology opportunities that are cross sector and require a combination of existing and new IP/Technology to develop and test a new market solution.

 

Each new enterprise/venture may be described as above or a hybrid of the above and must be capable of addressing global market opportunities. In this context those new companies must have the opportunity to use the island as a test market to validate the potential of their products and services.

 

Encouraging multinationals to create and locate IP within Ireland is currently an important challenge. The enhanced incentive package in the 2009 Finance Act to locate IP in Ireland is a significant first step. Additional relief (such as an increase in R&D tax credits) should be specifically devised to encourage the creation of new foreground IP that addresses a key market need and can be licensed to the constituents listed above. This will provide a key incentive to stimulate and differentiate those new ventures. 

 

Recognising that this contribution can be the most important factor in the creation of the new venture, we need to find other innovative ways to link the tax relief to commercial success. The multinational investor must be encouraged to release useful IP (by market definition) and have it licensed to the new venture. Creating a safe environment for developing and licensing IP, including effective disclosure and management, is a basic requirement of the commercialisation infrastructure and eco-system. This will require the development of Ireland's legal and commercial court infrastructure to support collaborative arrangements in a SMART economy.

 

An agreed coherent and informed strategy for research to commercialisation that provides all stakeholders (private and public) with the opportunity to align their investments and resources is the single and most basic requirement for investor/stakeholder participation. Providing an effective bridge to market for the research will require the participation of multinationals but this must be based on a solid return on their investment. Equally the State must achieve its return on investment in the form of significant job creation, exchequer revenue, and sustainable economic export growth.

 


[1] Bureau of Economic Analysis (2008) at the US Department of Commerce.