Friday, July 08, 2022

Ireland's low number of multinational firms and poor exporting record since 1932

In the European Union, large companies only account for 0.2% of enterprises but almost 36% of employment.

In August 2021 the CSO (the Irish national statistics office) under the headline 'Almost 1.2 million persons employed in Irish multinationals abroad' reported that "In 2019, there were 1,168,733 persons employed in Irish multinationals abroad, 33.2% of them in the US or the UK ...Employment in Irish affiliates in the US increased by 29,773, or 12.8% ...Irish multinationals abroad had a turnover of almost €256bn, with US and UK affiliates accounting for 56.6% of this."

The claim of almost 1.2m employed by Irish multinationals abroad was of course a fairytale as was the claim by the Irish ambassador in Washington DC in recent years, that Ireland is among the top 10 FDI (foreign direct investment) investors in the United States.

In a report for the Irish Government in 2004, 'Ahead of the Curve,' the authors noted "Ireland’s principal enterprise strengths have been in the operational aspects of manufacturing and services, rather than in markets and product development. This is particularly true of the foreign-owned sector, which accounts for most of our exports and which, for the most part, produces goods that were designed elsewhere, to satisfy market requirements that were specified elsewhere, and sold by other people to customers with whom the Irish operation has little contact and over whom it has little influence. It is also substantially the case in the indigenous sector."

Eighteen years later not much has changed.

The foreign sector is important for Ireland. For example, foreign firms account for more than 80% of annual corporation tax receipts of about €15bn with the top 10 biggest firms accounting for just over half the revenue. Foreign exporting firms account for over 11% of the total Irish workforce.

However, it would be foolish to continue to ignore the Cinderella status of the indigenous exporting sector.

A 2018 paper from the Economic and Social Research Institute (ESRI) noted that "Overall, we find fairly limited evidence of a link between the presence of foreign-owned firms and the performance of domestic firms with considerable sensitivity of results to changes in specification. Examining forward and backward linkages through supply chains indicates some negative impacts from obtaining supplies from and supplying foreign-owned firms although these are mitigated for domestic firms which invest in R&D, which appears to increase the absorptive capacity of the firms to benefit from productivity spillovers."

Digital Era — Poor productivity and rising economic inequality

Poor indigenous employer firm entrepreneurship and a small number of firms engaged in R&D (the CSO's data are misleading) are persistent.

The OECD has reported that in 2019 with a population of 5.1m Ireland had 10,800 merchandise and services export firms (including foreign-owned); Denmark with 5.8m was at 26,400; Finland with 5.5m was at 21,600; Estonia with 1.3m was at 13,400 and Sweden with 10.2m was at 47,800.

Exports by Irish-owned firms typically are valued at below 10% of the value of exporting by foreign-owned firms while over two-thirds of Denmark's merchandise and services exports are from Danish-owned firms.

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Irish-owned multinationals

In Ireland, big companies do not have to disclose the number of local employees and contractors. Headcount is typically on a continent-wide basis. Share ownership information is also limited.

Eurostat, the EU's statistics office, defines a multinational firm: "A multinational enterprise, abbreviated as MNE and sometimes also called multinational corporation (MNC), just multinational or international corporation, is an enterprise producing goods or delivering services in more than one country."

However, the MNE is typically a large firm in a country with several foreign affiliates. Expenditure on research and development where applicable can also be a factor.

For example, the European Commission's Joint Research Centre (JRC) in its 2021 ranking of the World 2500 business R&D spenders included 4 Irish-born (excluding 2 banks) firms and the minimum spend annually was €36.5m.

1) Kerry Group (466 rank; €299m annual spend) 2) Glen Dimplex (2119 rank; €46m) 3) Glanbia (2298 rank; €41m) and Fineos (2356 rank; €40m).

Kerry is the only authentic Irish firm in the latest Global 2500

The JRC has separate EU 1000 rankings and the minimum annual spend is €2m.

Excluding 2 banks, the 8 Irish-born firms in the EU were Kerry Group, Glen Dimplex, Glanbia, Fineos; Kingspan, Trinity Biotech, Smurfit Kappa and Oneview Health (Greencore is omitted as its headquarters is the only main activity in Ireland)

Eleven Irish multinationals

1932: The Irish Glass Bottle Company was founded in Dublin. In the same year, Guinness moved its headquarters to London in response to the Irish Free State's "Control of Manufactures Act."

Paul Coulson first invested in the company in 1998 and it was renamed Ardagh Group.

The plant in Ringsend, Dublin was closed in 2002.

The company says "Ardagh operates 65 metal and glass production facilities in 16 countries, employing 20,000 people with sales of approximately $10bn."

It is headquartered in Luxembourg and has no industrial activity in Ireland. However, it announced in 2021 a plan for a new metal beverage packaging plant near Belfast, Northern Ireland.

1934: Smurfit Kappa was founded in 1934, making cardboard boxes and packaging boxes for the Irish market.

Jefferson Smurfit, an English entrepreneur, acquired the firm in 1938 and it had significant commercial success, becoming one of Ireland’s leading manufacturers, and listed on the Irish Stock Exchange in 1964.

In 2005 Smurfit and Kappa of the Netherlands decided to merge.

In 2021 Smurfit Kappa had about 48,000 employees with 30,000 in Europe and 18,000 in the Americas. The headcount in Ireland was above 3,000.

The group has manufacturing locations in 23 countries in Europe and 13 countries in the Americas.

A significant shareholder on January 1 2022 was Blackrock Inc at 5.6%.

Irish revenue in 2021 was €109m from a total of just over €10bn.

The headquarters are in Dublin.

1964: the genesis of Glanbia was the creation of the Waterford Cooperative Society.

Glanbia plc (public limited company) is Ireland's second-biggest food firm with about 6,000 employees.

This year Glanbia plc sold its 40% interest in a joint venture with Glanbia Cooperative which focuses on dairy and has about 2,000 employees.

Glanbia plc is mainly an American-based operation. The company says that it has operations in 32 countries.

The significant shareholdings on January 1 2022 were Glanbia Co-operative Society Limited at 32.48% and Black Creek Investment Management Inc. at 4.14%.

Revenues were €4.2bn in 2021. The United States accounted for €3.4bn and Ireland €7.7m.

The headquarters is in Kilkenny in southeast Ireland.

1965: Eugene Murtagh founded Kingspan in County Cavan which has a border with Northern Ireland.

In 2021 the group had revenues of €6.5bn and 19,000 employees. Eugene Murtagh had the biggest stake in the group at nearly 15%.

The Group operates from 198 manufacturing sites and has operations in over 70 countries.

Building insulation, flooring, water and energy, are the main areas.

The headquarters is in Kingscourt, Co. Cavan

1970: The CRH building materials multinational was formed through a merger of two leading Irish public companies, Cement Limited (established 1936) and Roadstone Limited (established 1949).

Sales in Ireland in 2021 were $706m from a total of $31bn.

The Irish resident shareholdings were 3%. The UK and North America account for 60%.

CRH employed 77,400 in 2021 and about 1,900 were located in Ireland. It has c.3,235 locations in 28 countries.

CRH has headquartered in Dublin.

1972: The Kerry Cooperative Society was founded and it is the biggest shareholder in Kerry Group with a 11.6% stake.

Kerry Group has 22,000 staff and last year it sold some of its consumer foods, meats and meals business in Ireland and the UK. About 4,500 employees were involved.

The staff numbers are roughly split between Europe and the Americas.

Kerry says it is the world's leading taste and nutrition partner for the food, beverage and pharmaceutical industries. It has manufacturing locations in 36 countries.

The company says it has 1,100 R&D scientists and about 800 are based in Ireland — this is unique among indigenous firms and few or no American affiliates in Ireland can match it.

In 2021 revenues were €6.2bn with Ireland at €459m.

Kerry Group is headquartered in Tralee, County Kerry in southwest Ireland.

1973: Glen Dimplex is the world’s biggest electrical heating business. The private firm employs about 8,500 people and has annual sales of €1.5bn.

It was founded in Newry, Northern Ireland, in 1973 by Martin Naughton KBE (Knight of the British Empire) as Glen Electric and in June 1978 became Glen Dimplex after a merger with Dimplex, a large electric heating appliance manufacturer in May 1977.

It later opened its headquartered in Dublin.

Glen Dimplex's holding company has 29 subsidiaries in Ireland, Northern Ireland, Britain, Germany, Austria, Canada, Holland, France, Norway, the United States, New Zealand, Australia, China and India.

It has plants in Dunleer (Ireland), Portadown and Newry (Northern Ireland), Kulmbach (Germany), Kalamazoo (USA) and Shenyang (China).

1976: DCC was founded in Dublin by Jim Flavin as Development Capital Corporation Limited. Initially, the company focused on providing venture capital to startup firms.

DCC is now involved in international sales, marketing and support services and it operates through three divisions: Energy, Healthcare and Technology.

It employs 13,700 people in 20 countries — 7% were based in Ireland in 2021. Revenue was at £13.4bn in March 2021.

BlackRock Inc is the biggest shareholder at 7.5% and shareholdings in Ireland in 2021 were at 10%.

1984: Ryanair was founded in 1984 by a group of Irish business persons led by Tony Ryan, founder of aircraft leasing company Guinness Peat Aviation. It began flying in 1985 between Waterford and Gatwick Airport to compete with British Airways and Aer Lingus.

The low-cost airline now with a fleet of over 500 aircraft, is the top airline in Europe in terms of passengers. In 2021, 72.4m passengers flew with Ryanair — around 20m more than the nearest European competitor.

Ryanair's route network covers about 40 countries in Europe, North Africa (Morocco), and the Middle East (Israel, Jordan and Turkey). It has a staff of 15,000.

Michael O'Leary became CEO in 1994. 

Revenue to March 2021 was at €7.7bn and the top 10 shareholders including Michael O'Leary (3.9%) had 59.3% of the shares in March 2021.

Ryanair is headquartered in Dublin.

1990:  ICON was launched in Dublin to engage in medical research.

Last year it merged with an American firm and the group has over 38,000 employees.

It was agreed that the ICON name would be retained and headquarters would be in Dublin.

1993: Michael Kelly, a past winner of Ireland’s EY Technology Entrepreneur of the Year Award, is the founder and CEO of Fineos Corporation.

The fintech company provides claims management software for insurance and insurance-related organizations in Europe, North America, and Australasia.

The Irish Times reported last year that Fineos surpassed €100m in annual revenues for the first time. It employs over 1,000 people.

Michael Kelly owns most of the company's shares.

Fineos is headquartered in Dublin.

From 11 groups over a period of 90 years, Ardagh in modern times doesn't even have a headquarters in Ireland and both Smurfit Kappa and ICON have had significant mergers with foreign companies.

1) In 2016 a writer in the Irish Times called Primark "the Irish fashion juggernaut." While there was a strong Irish influence the brand was always owned in Britain.

In 2021, there were 398 Primark store locations worldwide with 71,000 staff.

The low-cost fashion brand began in Dublin as Penneys in 1969, and later as Primark internationally.

Galen Weston of the Anglo-Canadian retailing family lived in Dublin for a time during the 1960s and he married an Irish woman. In his 20s he opened supermarkets in Dublin.

Weston got the family business Associated British Foods (ABF) to fund Arthur Ryan, a buyer in Dunnes Stores, who was eager to start the low-cost fashion project.

In 2021 ABF's revenues were at £13.9bn and Primark accounted for £5.6bn of the total. 

The family retain more than 50% of the equity.

2) In 2016 Paddy Power merged with Betfair of the UK to create Flutter Entertainment. The new company then began acquiring other betting enterprises.

3) Total Produce is now part of Dole, the American fruits company. In the 1890s Samuel Dole lobbied Washington to annex Hawaii, which happened in 1898.

In 1888 Edward Wathen Fyffe began the Canary Islands-London banana trade. In 1986 Fyffes is acquired by Fruit Importers of Ireland (FII) under the leadership of Neil McCann and is renamed Fyffes plc. Total Produce was created after a demerger in 2006. Sumitomo Corporation of Japan now owns Fyffes. 

Both Flutter and Dole plc have headquarters in Ireland to benefit from the corporate tax regime.

Disappearing Irish affiliate staff 

This year in a June report on 2020 foreign direct investment (FDI), the CSO repeated the "1,168,733 persons employed in Irish multinationals abroad" but it arrived at the total by categorising 774,640 persons working in so-called Redomiciled firms and 394,093 as the number of people working in foreign-owned affiliates in Ireland.

1) Redomiciled firms are foreign firms that become Irish for tax purposes. They may have some activity in Ireland but all that is necessary is a headquarters with a few employees 2) Based on a government report, I estimate that there were 285,000 (including part-time staff) working in the foreign-owned exporting sector in Ireland in 2021 and 109,00 in foreign-owned retail activities and other non-exporting firms with foreign ownership.

For years the figure of 140,000 persons employed in the United States by Irish-owned companies has been bandied about by politicians, enterprise agencies, Big 4 accounting firms, the American Chamber of Commerce in Ireland and journalists.

The CSO says the number is 87,473.

CRH has 35,000 staff in the United States; in the Americas, Smurfit Kappa has 18,000; Kerry Group has 6,000 in the US and Glanbia has a global total of 6,000.

Adding 35,000 to estimates 9,000 (SK); 6,000 (KG) and 4,000 (Glanbia) gives a total of 54,000. Enterprise Ireland, the Irish state agency for indigenous firms says it has about 900 client firms in the US. That would mean the remaining 33,000 would have an average of 37 persons.

Enterprise Ireland: Ireland is the ninth largest source of foreign direct investment in the United States — the funny thing here was that the 2020 supposed inward historical investment of $317bn for Luxembourg was a third higher than the Irish level.

Discussion

During the Celtic Tiger period a group of Kerry farmers, presumably in receipt of European Common Agricultural Policy subsidies, bought a supermarket in Saarbr├╝cken, Germany. County Kerry is good for tourism but with an abundance of mountains and rocky land, less so for farming.

However, the Kerry Group is the milk cow!   

Irish farmers are the big gainers from globalisation and last year the Irish Independent reported  "Farming families own nearly €5bn worth of shares in the biggest Irish publicly-listed companies across all sectors, making them a lynchpin of the market alongside US fund managers, according to research by the Irish Independent.

Major stakes held by large co-ops in world-leading food companies Kerry Group and Glanbia, alongside shareholdings by farmer-run investment vehicles in FBD Group, place agricultural interests among the leading stakeholders in the Irish corporate world."

In 2018 when the American firm International Paper made a hostile bid for Smurfit Kappa, Tony Smurfit, chief executive, told the Financial Times “I’m the only Smurfit in the business and we have a very de minimis shareholding in the company, so, therefore, there is no family control.”   

Compared with Ireland's 4/8 research and development according to European Commission scorecards, Denmark has 29 firms in the World 2500 R&D rankings and 64 in the EU 1000 (see above).

Ireland also does poorly in the FT 1000 annual rankings where tech firms account for a fifth. 

Big 4 countries account for 73% of Europe’s fastest-growing firms

Denmark has a world-class knowledge economy that Ireland cannot match.

The top 10 firms on the Dublin stock exchange are valued at US$118bn in July 2021 compared with the top 10 at  $489bn in Copenhagen.

The Innovation Scoreboard for the EU in 2014-2020 has Sweden, Finland and Denmark in the lead as Innovation Leaders.

FDI firms typically retain most innovation activity in the main country and when they do significant research in other countries they tend to be big markets.

Most startup firms either don't grow, or they die while a small number of high-growth firms are responsible for rising employment. However, in Ireland the SMEs [micro (1-9 employees) small and medium-sized firms have a low rate of exporting. Over time this impacts the number of large indigenous firms that develop. 

Entrepreneurship falls as reliance on high-growth firms rises

Many countries aspire to develop tech hubs but scale-ups can be rare.

Irish digital economy firms account for 1.4% of employment