JIM McGLINCHY faces a dilemma, protecting what he has built while ensuring the financial performance of the company as a whole. He has a good story to tell and he has personal credibility with the owners as a result of his performance. He also knows that in order to maintain the trust that he has established with the founders, he must demonstrate that he is acting in the best interests of the firm.
In influencing this decision, McGlinchy can deploy both rational and personal influence tactics. What McGlinchy needs to do is to reaffirm the arguments that convinced the founders to establish the Irish subsidiary and also to augment these arguments to convince the founders that maintaining their commitment to Ireland makes great business sense. In this process, he will also reveal that maintaining the commitment to Ireland, for good business reasons, is also personally important to him, a trusted manager and by all accounts an exceptional performer.
In reaffirming the arguments that brought the company to Ireland, McGlinchy needs to highlight the quality of the people he has recruited and to highlight their key achievements in RD. Second, he needs to establish or at least demonstrate that the cost of doing business in Ireland has actually decreased since the company’s first move to Ireland, particularly in terms of accommodation costs. Moreover, he should continue to explore any further support that State agencies could provide. Finally, he needs to remind the founders that the tax regime has not changed, and he needs to compare tax rates at other potential locations where the owners are thinking of establishing future operations.
In augmenting these baseline arguments, McGlinchy needs to clearly establish that he has a winning strategy for the Irish operation. First of all, when comparing costs against India it is important to compare not just the input costs, such as the wage rates, but also the relative efficiency and value-added contributed by the work-force. The owners are convinced that the quality of work carried out by the Irish office is superior to the Indian centre. McGlinchy needs to demonstrate that this quality is, or could be, the basis for a premium price offering – thereby demonstrating that superior margins can be made in Ireland.
Finally, he needs to show that future potential business is being generated in the Irish operation. He needs to link the development of the two leading-edge projects to the quality of the staff that he has recruited. These innovative projects undoubtedly are produced in an organisation culture that he has helped create and sustain and that this culture would be difficult to replicate or to establish elsewhere.
– Prof Patrick Gibbons
McGLINCHY HAS every right to robustly defend Ireland’s tax rate to his superiors. There is no doubt that the 12.5 per cent corporation tax rate will be retained. International confidence in Ireland as a place to do business remains high. He should point out that the World Bank ranked Ireland first in the Eurozone for ease of doing business in its report for 2011. In the widely respected 2011 Index of Economic Freedom, the Heritage Foundation and the Wall Street Journal recently ranked Ireland first in Europe for economic freedom.
In 2010 Ireland even became the second most attractive country for foreign direct investments in the world, according to the FDI Intelligence Inward Investment Performance Monitor. These are all independent, objective observers, clinically looking at both the positives and negatives for each country.
It is also true that costs in Ireland have decreased significantly, increasing its attractiveness even further. Ireland continues to produce talented and highly skilled graduates. The country has certainly moved up the value chain in terms of the quality of work which is carried out here and this is an important differentiator between us and our competitors.
The idea of spinning two of the projects out as separate businesses should be considered under three headings: the benefits of generous tax credits for research and development activities; the attractiveness of Ireland’s regime for intellectual property; and the corporation tax exemption for start-up companies.
A tax credit is available to companies in relation to expenditure on their RD activities. In order to qualify for this the activities must seek to achieve scientific or technological advancement and involve the resolution of technological uncertainty. It appears that both projects would fall within this category and the spin-off companies could potentially claim significant tax credits. Net tax relief of 37.5 per cent of the qualifying spend could be achieved provided the credit is combined with the regular tax deductions available for the expenditure.
IP developed out of the RD activity in Ireland and the subsequent licensing of same would also qualify as a trading activity and attract the 12.5 per cent corporation tax rate. As the business expands into other jurisdictions it may be possible to licence this IP to entities and subsidiaries in those locations.
Start-up companies can claim an exemption from corporation tax up to a limit of €40,000 and the Finance Act 2011 has extended this to companies starting up this year. The relief is linked to PRSI paid and as McGlinchy is going to create employment he would be setting up exactly the type of company intended to benefit.
– Ursula Tipp
THE BENEFITS OF Ireland that McGlinchy sold to his colleagues remain relevant today. What has changed is the explosive growth of social media and mobile computing. McGlinchy should continue the social media and next-generation telephony projects in-house rather than spinning off these critical operations. In addition, McGlinchy needs to identify ways to leverage Hourly Analytics’ capabilities globally.
Social media usage in developed economies has infiltrated all niches of the internet: social media in the US is used by 90 per cent of 18-24 year olds and 64 per cent of all internet users. Developing countries are poised for similar penetration: the largest social media network in China, Tencent’s Qzone, grew 31 per cent in the past year with about half a billion active users. Yet Qzone has achieved only 33 per cent penetration of the Chinese population.
Furthermore, social media sites such as Facebook, Twitter and Foursquare are increasingly accessed via mobile phones. This combination of social media and mobile telephony is growing faster than any new product ever. The mobile internet is vastly important to marketers.
The recession has not dampened long-term mobile internet prospects. Firms are expected to double their 2009 online data spend ($420 million) by 2012. Companies want analysis yielding identification of connections and trends influencing their success. Social media’s early-warning capability is valuable to firms as they provide a head-start in responding to problems. It is no wonder, then, that “market research analyst” is a top growth career with a projected growth rate of 28 per cent through 2018.
Hourly Analytics needs to leverage its market research analysis capabilities globally. Considerable growth is expected in regions such as Central and South America, but only for savvy firms that “internationalise” social media elements by incorporating regional traditions, holidays and language. Clearly global social media sites require local adaptation. Hourly Analytics should identify ways to incorporate regional differences into its leading-edge market analytics. Rather than setting up branches around the world, the firm should keep costs low by developing alliances with local partners who supply region-specific data.
To assuage his colleagues’ cost concerns, McGlinchy should identify and implement other cost savings and recommend postponing a decision about the Ireland location until the Irish corporate tax rate situation is resolved. Doing so will not only position Hourly Analytics for profitable growth, but also leveraging regional capabilities will reduce overall corporate costs while further improving the firm’s competitive position.
– Dr Gina C McNally
