What inspires American companies to choose to locate in Ireland?

Colm Greaves, a former tech sector executive and now a full-time journalist, revisits an MBA exam question that he faced some years ago

American enterprises account for 70% of FDI jobs and 55% of inward-bound companies in Ireland and contributed substantially to Ireland's €39bn in corporation tax receipts in 2024.

Final Exam. Masters Degree in Business Administration. One question to be attempted. Workings must be shown.

Why do American companies choose to locate in Ireland?

Or ... Why do people rob banks? 

*** 

Tread carefully candidates, there may be mischief afoot. The answers to both questions are exactly the same, and that answer is blindingly obvious: ‘Because that’s where the money is!’ This will earn you full marks, but the workings differ wildly. 

The downside is that you risk getting done for plagiarism because this response has been used before.

It gained fame in the middle of the last century when a newspaper reporter asked the notorious Brooklyn-born bandit, ‘Slick’ Willy Sutton, why he had chosen to rob banks for a living. Willy, whose Irish parents had earlier chosen to locate in America long before their firms started to come here, was puzzled by the absurdity of the question. 

A recidivist criminal from his early days, he spent over half of his 80 years in prison for robbery of one sort or another, although he was always proud to point out that he had never actually shot anybody during the course of his work.

His purported wisdom has entered common parlance as an example on how to handle an irrational question. It was even formally adopted into medical teaching and honoured with the title ‘Suttons’ Law’, which states that the most likely diagnosis should be emphasised rather than wasting time and money investigating every other conceivable possibility.

So, why do American companies choose to locate in Ireland? Because it’s a rational financial decision when made within the parameters of the fundamental economic principle, The Theory of the Firm. 

This holds that the guiding principle in every decision made by a commercial enterprise should be to maximise returns for its shareholders and investors, which will, in turn,  increase the share price and improve the market capitalisation of the company. Or, to put it in more vulgar terms, find out where the money is and go there.

Some industry sources estimate that 650 Irish companies currently employ more than 100,000 people across all 50 states in the US. Ireland, despite its small size, is currently the ninth-largest source of foreign direct investment to the US, with a value of $240 billion.

The perpetual challenge for the framers of Irish industrial policy is how best to sustain the high level of US investment that has empowered our economy for six decades. In times of significant disruption to the technology, communications and geopolitical certainties we have come to know and love, how do you decide upon the positives that should be accentuated and the negatives to be eliminated?

  You can’t rob banks with charm and personality 

This creates an awkward conundrum for the government and the institutions such as IDA whose mission it is to sell Ireland as a desirable location for foreign direct investment (FDI). ‘Come to Ireland, because that’s where the money is’ would not be an elegant marketing slogan. 

Promoting Ireland to prospective inward investors has always emphasised the holistic benefits of a long-term and coherent industrial policy and the relatively low cost of doing business here — not just the positive effect on profit margins.

Relatively competitive corporation tax rates have always been pivotal to the offering, but this advantage has been diluted by last year’s implementation of the OECD ‘Pillar 2’ agreement. This increased our corporate tax rate from 12.5% to 15% for the largest companies and there are 1,600 entities in Ireland now paying tax at the new, higher level. 

The cosy old Irish ‘courting’ pitch of ‘come for the tax, stay for the lower costs and the lovely people’ is beginning to blunt with age because as Willie Sutton also once remarked, ‘you can’t rob banks with charm and personality.’ There is little a small domestic economy like Ireland can do that will materially impact top-line revenue and drive market growth for giants the size of Apple, Meta, Microsoft, Intel or Pfizer. What it can do is control the controllable, which largely comprises of domestic input costs.

Ask any ‘Ireland curious’ American CEO to describe what elements are most important to her and the response is likely to include some or all of the following,  and everything on this list will directly or indirectly lower the overall cost of doing business. 

Stable government. Predictable tax rates that survive general elections. Availability of high-quality, flexible workers with the necessary skill sets to develop and grow in a high-velocity technology and customer environment. Large investment in STEM education to ensure that the national skills inventory is continuously replenished and refreshed. Progressive and rapid visa processes so that scarce talent can be recruited globally.

The quality of infrastructure, particularly energy supply, communications, transportation and housing. Mature and well-defined international travel routes, both for human beings and freight. An experienced and capable network of relevant indigenous suppliers of products and services. 

A legal system that guarantees contracts and protects intellectual property (IP). Meaningful support structure for research and development activities. Financial and social assistance at start up. An absence of corruption in the legislature and in the institutions of state.

That CEO wish list can be implemented in full with the appropriate level of political will and expenditure allocations. If Ireland continues to deliver and improve on this rich basket of blended goodness, then it is likely that American companies will continue to come here to kick tyres and hopefully plenty of them will stay to buy a car.

There are other less tangible but equally powerful forces that come up in the location conversation with US firms. Two of these are particularly important, the ‘variety of capitalism’ (VOC) model practiced in Ireland and, secondly, the ability of domestic institutions to work together coherently for the lifetime of an investment project.

Capitalism comes in many shapes and sizes and individual nations generally assume a position that suits their needs on the VOC spectrum. ‘Hyper globalist’ companies prefer to work with states that are fully liberal market economies; for instance, Singapore and (old) Hong Kong. They require the host to behave as a ‘constrained bystander’ — in other words, provide a warm welcome, offer attractive tactical and fiscal supports and then, politely, step aside. Their profit outcomes are driven by supply and demand curves for their products rather than non-market relationships.

The opposing philosophy is ‘coordinated market economies’ who opt for a higher degree of intervention in the transactions of the inward investing company. France and Belgium are examples. Profit outcomes are impacted by the nature and depth interfaces with the state and other actors operating in the host economy.

Managing somehow to look both ways at once, Ireland has typically positioned itself as a liberal market, co-ordinated economy ever since we first began to lure American enterprises here seriously in the 1960s. There has been a global drift towards increased co-ordination levels since ‘light touch’ regulation became unfashionable following the financial crash in 2008, but cross-national differences still matter and are likely to matter long into the future.

Domestic institutional cohesion will continue to matter into the future too. FDI despises bureaucratic silos when they need to move fast. For instance, if an American firm wants to build a factory in Ireland, their project management will need to liaise with multiple agencies, so their overriding requirement is that these institutions complement each other and don’t needlessly become an administrative burden. 

An example of this policy positively in practice was a recent IDA initiative to work proactively with Local Authorities to provide a network of 19 advanced units in the regions so incoming clients can enjoy a seamless ‘plug and play’ start-up experience. 

The good news is that Ireland consistently scores well on the ‘ease of doing’ business measurements. In its annual ‘Attractiveness Survey Ireland’ published last July, Ernst and Young found that eight in ten FDI decision makers are planning to establish or expand operations in Ireland over next 12 months and that two-thirds of FDI investors expect Ireland’s attractiveness to increase in the coming three years. 

Both results have moved positively on the previous year, so maybe Willie Sutton was wrong after all. Maybe you can actually rob a bank with personality and charm.

The scoreboard 

How are we doing?

The pivotal global role that Ireland plays in the movement of goods, services, capital and intellectual property is inarguable and a swift glance at some key metrics confirms the value of locating a business here. Sixteen of the world’s most valuable technology companies have a permanent entity in Ireland and half of them have been here for at least a decade.

The world’s top three software publishers all have international headquarters in Ireland. There are almost one hundred non-domestic Pharma companies here, employing 45,000 workers and billing revenue of €116 billion. This makes Ireland the third biggest exporter of pharmaceuticals in the world. 

In the medical technology sector, 14 of the top 15 manufacturers have bases here, employing 50,000 people, billing €15 billion in annual revenues. American enterprises are significantly overrepresented in these totals, accounting for 70% of FDI jobs and 55% of inward-bound companies and contribute substantially to last year’s €39 billion in corporation tax receipts. 

IDA clients spend €4.2 billion on high-value R&D activities annually and 20,000 jobs have been created in this area, up by 55% over the last five years.

According to the ESRI, ‘relative to Irish-owned firms, foreign-owned firms are more productive, pay higher wages, invest more in tangible and intangible assets and import and export more goods and services.’ A supporting analysis by the CSO has found that productivity by workers in FDI firms are up to six times higher than domestic enterprises.

The argument is fully settled; foreign direct investment, particularly from US firms, is a core national asset and crucial to Ireland’s continued economic wellbeing. But with the tide of globalism ebbing and a growing drift towards financial nationalism and protectionist policies, the challenge now is to retain the value of hard-won FDI. 

Failure is not really an option because just ten multinationals account for 60% of Ireland’s corporate tax receipts and a central campaign pledge from the newly installed American president was to ‘reshore’ this revenue. Howard Lutnick, who Mr  Trump has appointed to lead the Department of Commerce, said recently that “it is nonsense that Ireland, of all places, runs a trade surplus at our expense”. 

The trade surplus he refers to is noticeable. € 45.5 billion worth of goods were exported from Ireland to the US in the first eight months 2024, compared with imports of €11bn for the same period.

  This is a stark number that will attract unfriendly scrutiny and it’s going to be an interesting challenge for Ireland just to remain where we now stand; the place where the money is. 

There are some annoying pesky bandits heading towards town and there is mischief afoot. They may be planning to rob our banks. 

A brief history of US investment in Ireland

1949: The Industrial Development Authority is formed to support export led industrialisation.

1956: Training grants and tax benefits are implemented.

1960s: Larger enterprises begin to arrive in Ireland; they’re attracted by the export tax levels and the availability of low labour cost mostly for manufacturing operations.

1970s: Many of the major US mainframe and minicomputer giants begin to establish Irish operations, final assembly and test. Among them Wang, Amdahl and DEC. Large Pharma then follows, including MSD, Eli Lilly and Allergan.

1980s: Specialisation in key tech sectors such as software production (Microsoft, Oracle and semiconductor fabrication and test, (Intel, Mostek).

1990s: New IFSC structure attracts some major players in international finance, including Citibank, State Street and Mastercard.

2000s: Digital revolution attracted by knowledge economy; Google, Yahoo, Twitter and Facebook arrive and consolidate.

Present: Knowledge economy expansion and growth of major Medtech and Pharma, AI.