Ireland’s Tech Sector: A Glimmer of Hope Amidst the Economic Crisis
Ireland’s Tech Sector: A Glimmer of Hope Amidst the Economic Crisis

As Ireland accepts an 85 billion euro rescue package from EU and the IMF, the country plans to address its debt crisis brought upon by the collapse of the banking and real estate industries. Ireland’s financial sector experienced high rates of return on financial investments, which made the country a top destination for financial investment, especially by European banks.

Furthermore, Ireland’s low corporate tax rate made it an attractive location for subsidiaries of major multinational corporations, including technology firms. Foreign investment in Ireland from 1995-2007 fueled its economy, helping it achieve an annual growth rate of 6-11 percent.1

This prosperity faltered when Ireland’s real estate bubble burst in 2007, threatening the whole economy. In 2008, Ireland’s biggest banks were either nationalized or were bailed out by the government. Additional bank bailouts continued through 2010.2 Austerity measures were passed by the government in 2009 and 2010. Finally the government accepted the EU/IMF aid package to get the economy back on track and to appease the bond market. Despite all the dismal news, one sector that has not only weathered the crisis, but continues to grow is the technology sector.

History of High-Tech Investment in Ireland

From the late 1950’s onward, the Irish government sought to attract foreign capital through policies to encourage export-oriented investment by foreign and local manufacturing companies. In the 1960s, foreign direct investment (FDI) focused on textiles, plastics and light engineering. The emphasis shifted in the 1970’s to electronics and chemicals, based on research and development (R&D) conducted outside Ireland.3

A macro-economic crisis hit Ireland in the 1980s, FDI decreased sharply, and Ireland’s indigenous technology base remained weak due to decreased government investment in science and R&D. Science, technology and industrial policy were not integrated. In the 1990s, Ireland did not offer specific public assistance for high-tech start-ups, although it did encourage local collaboration by funding technology projects that were partnerships between companies and higher education institutions. The cumulative effect of this policy was a high-tech industry, consisting mainly of foreign companies using Ireland for manufacturing, rather than indigenous firms developing new products.4

By 2000, Ireland made substantial efforts to develop the technological capacity of indigenous industries. Ireland offered investment incentives up to 20-25 per cent of initial capital cost, as well as a ten percent corporate tax rate (which is now a mere 12.5 percent). Ireland also retained a comparative advantage on low labor costs (compared to other European countries).5 These policies coupled with Ireland’s EU membership and English-speaking workforce made it a very attractive spot for foreign subsidiaries.

Ireland’s Tech Sector Today

Today, there are more than 600 firms in Ireland, including Intel, Google, and Hewlett-Packard. U.S. investment in Ireland is higher than Brazil, Russia, India and China combined.6 Ireland though is still a major hub for manufacturing and sales, not for research and development.

Only two-thirds of the Irish population (4.6 million) are connected to the Internet and only 1.5 million are connected to Facebook (a metric for an engaged Internet population), which is a smaller percentage of the population than the UK or the U.S. Thus, Ireland only has a small pool of technology expertise and many organizations have a hard time filling tech positions.7

Filling senior positions is even more challenging, because there is a not a critical mass of qualified applicants. One reason is because of Ireland’s bankruptcy laws, which requires a person/family to pay back mortgage debt, even after declaring bankruptcy and even if the bank dissolves. Executives worry about losing their job and missing a mortgage payment, a factor for emigration in this current economic downturn.8

Another challenge for Ireland’s tech sector is the lack of protection against copyright and defamation suits. Intermediary websites, which host discussions or reviews, as well as search engines, content aggregators and hyperlinks, are not protected under Irish law. Websites, such as TripAdvisor.com, have not set up shop in Ireland in fear of lawsuits for unfavorable reviews. Other sites (content aggregators) fear prosecution for copyright infringement. Defamation laws are print-centric and offer a grey area of applicability for websites. Ireland has simply followed EU directives, without making significant changes to reflect the new realities of e-commerce. Many recommend that Ireland adopt a fair-use policy, similar to that found in the U.S., for the use of reprinting materials online.9

There are though a number of conditions that make Ireland an ideal location for technology start-ups:

  • Banks do not traditionally lend to start-up companies, most tech start-ups in Ireland plan to seek other sources of funding, hence the current crisis will not affect access to funding10
  • Ireland’s low corporate tax rate of 12.5 percent is less than half the average rate across the rest of Europe and Ireland would need to significantly raise that level to discourage foreign investment11
  • Internet start-up in Ireland are not reliant on the local economy for business, so these companies can look abroad for revenue
  • Ireland has an incredible cloud computing infrastructure, which has barely been tapped
  • Ireland’s cool environment is ideal for technology companies because it will take less energy (and therefore funds) to maintain massive server farms.12

Moving Forward

Ireland’s development agency, Enterprise Ireland, supports most of Ireland’s start-ups and its budget has remained more or less intact for 2011 (in 2009, it invested €280,000 into 73 Ireland-based startups).13 The agency is targeting overseas start-ups to invest in Ireland as well; it has a 10 percent target for 2011.

Ireland’s tech sector clearly still has its challenges, from copyright and defamation laws to a small pool of highly qualified “techies,” which will inhibit the growth of indigenous start-ups as well as prevent Ireland from becoming an R&D hub, rather than a manufacturing and sales hub. The presence though of foreign tech firms and start-ups will continue to rise though, especially because of the low corporate tax rate.

If Ireland wants to increase its value in the technology supply chain, significant investments will need to be made in education and R&D. If this is done, then Prime Minister’s Cowen’s hope to make Ireland ,“a global innovation hub and the best place in Europe to turn research and development into world-class goods and service14 has a chance of becoming a reality.


1 Abadi, Cameron. “Bumbliners: How Ireland’s economic miracle went bust.” Foreign Policy. November 26, 2011.
2 Ibid.
3 Roper, Stephen and Amnon Frenkel. “Different Paths to Success – The Growth of the Electronics Sector in Ireland and Israel.” Environment and Planning C, February 2000.
4 Ibid.
5 Ibid.
6 Cowen, Brian. “Ireland’s Low-Tax Path to Fiscal Health.” Wall Street Journal. December 8, 2010.
7 Arthur, Charles and Jemima Kiss. “Ireland’s boom, and its banks, have gone. But it still has the web.” The Guardian. November 28, 2010.
8 Ibid.
9 Lillington, Karlin. “Copyright and defamation law is repelling investors.” The Irish Times. November 26, 2010.
10 Arthur, Charles. “Testing the mood of Irish tech startups: the Celtic tiger isn’t dead.” The Guardian. November 23, 2010.
11 Arthur, Charles. “Ireland’s boom, and its banks, have gone. But it still has the web.” The Guardian. November 28, 2010.
12 Arthur, Charles. “Testing the mood of Irish tech startups: the Celtic tiger isn’t dead.” The Guardian. November 23, 2010.
13 Arthur, Charles and Jemima Kiss. “Ireland’s boom, and its banks, have gone. But it still has the web.” The Guardian. November 28, 2010.
14 Cowen, Brian. “Ireland’s Low-Tax Path to Fiscal Health.” Wall Street Journal. December 8, 2010.

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