Digging deeper: how Irish subsidiaries drive international expansion
Ireland has built on good location to provide action mechanisms for high-growth firms
The Silicon Docks cluster of high-growth technology firms already in the heart of Dublin is among the factors attracting high-growth technology firms to Ireland. Photograph: Cyril Byrne
For more than 70 years, Ireland has been incredibly successful in attracting and retaining foreign direct investment. In its recent report on 2018 activity, IDA Ireland outlines the creation of more than 22,000 jobs in the multinational sector last year.
An important source of these new jobs comes from young technology firms, primarily from the United States, locating in Ireland. The emerging business team at the IDA focuses specifically on attracting investment from these young but rapidly growing firms. It is a considerable achievement that more than 120 such companies have now located in Ireland, including many high-profile companies such as Squarespace, Etsy, New Relic and Qualtrics.
With a scalable business model, these firms seek rapid international expansion as part of their high growth ambitions.
Ireland has been a key location for these firms, often chosen as the location for their first subsidiary over European alternatives such as London, Berlin or Amsterdam. Typically, this Irish subsidiary serves a very strategic role, namely the European regional headquarters tasked with masterminding and executing the rapid growth across Europe.
How and why has Ireland and its managers proved such a successful launchpad for international growth of many technology companies?
We undertook a detailed investigation of eight high-growth US technology companies that set up a subsidiary in Ireland in the last five years. Not surprisingly, we confirmed the evident factors which attract firms to Ireland. These included a rich talent pool, including the supply of multilingual skills, the Silicon Docks cluster of high-growth technology firms already in the heart of Dublin, the role of IDA Ireland and the American Chamber of Commerce.
On closer examination, however, our findings show how Ireland has effectively enhanced these basic advantages of location to provide some key mechanisms of action for high-growth firms to achieve and sustain international growth and success.
In particular, we identified two reasons why these factors enable Ireland to serve as the first choice for many high-growth firms seeking to build an international presence rapidly. We labelled these factors as quick cycles of action and regulation of speed.
First, high-growth firms require quick cycles of action to allow them to experiment with ideas, such as new product features and improved processes that can better cope with a sharp increase in customers. Also, these firms must embrace flexibility to enable quick responses to market changes, unexpected challenges or unforeseen opportunities.
The managers of these subsidiaries play an important role in this, as they undertake specific initiatives and share their gained knowledge directly with headquarters.
The availability of talent, especially of experienced senior leaders, in Ireland is critical to this. Their exposure to the global environment and experience from other firms that have previously scaled globally from Ireland allows them to quickly access the expertise needed to decipher results of their initiatives and enact a timely response. Moreover, cognisant of the network of existing companies in Ireland and the level of support for foreign companies, these managers are more attuned to take important and ambitious initiatives to accelerate decisions within the subsidiaries.
Second, we found that managers of the subsidiaries based in Ireland support high growth through the regulation of speed. While moving fast is the central mantra for high-growth firms, they also need to be able to make strategic choices on when to slow down and retreat from particular decisions or initiatives.
While their primary agenda for the Irish subsidiaries is to grow and expand, particularly across Europe, there are important subtleties to their pacing which Irish managers were acutely aware of and well positioned to respond to.
As a beacon of international activity and endowed with the role of international growth, the managers of subsidiaries in Ireland regulated the speed of the company’s international activities. This was achieved, for example, by managing the pace of growth, shifting investment from one location to another or retreating from a market if performance is suboptimal.
As such, Irish managers effectively choose when to accelerate, or decelerate, to ensure ambitious performance targets in international markets are met.
Overall, our findings show that managers in the Irish subsidiaries of high-growth firms play a central role in driving their international expansion by leveraging the conditions available in Ireland to deliver a strong and timely performance in those firms that rapidly become multinationals.
Dr Sinéad Monaghan is assistant professor of international business at Trinity Business School. Prof Esther Tippmann is professor of strategy, leadership and change at the Cairnes School of Business and Economics, NUI Galway