KPMG: Ireland and innovation – leader or follower?

Ireland still lags behind a number of our EU neighbours when it comes to innovation, according to a recent study from the European Commission.

The Innovation Union Scoreboard classifies Ireland as an “innovation follower” along with countries such as France, the Netherlands and the United Kingdom.

The scoreboard assesses the performances of EU member states and shows Ireland as one of 10 countries close to but behind the EU average when it comes to innovation.

First published in 2009, it combines 25 factors including entrepreneurship, intellectual assets and R&D and ranks Sweden as the most innovative country in the EU, followed by Denmark, Finland and Germany.

This situation could be changing according to data gathered by KPMG.

"What we're seeing now is a lot of high tech FDI innovation and an increasing number of domestic businesses placing more emphasis on innovation as well" says KPMG managing partner Shaun Murphy.

The KPMG Innovation Monitor is the result of research carried out by RedC into Irish business attitudes to innovation. It shows that seven out of 10 Irish companies believe that recession has made them more innovative.

Furthermore, 84 per cent of companies are innovating or planning to innovate in the near future.

“Not surprisingly, funding for innovation is a challenge in many cases,” Murphy notes.

This point is confirmed by the research which revealed that almost 90 per cent of respondents believed funding was important to bringing their projects to fruition.

Notwithstanding the difficulties some businesses have in accessing finance, Murphy believes there are emerging positive signs for those looking for funding for business.

He points out that there are high levels of innovation investment in areas other than technology. “Agribusiness stands out as a huge Irish success story and the innovation that has driven that success isn’t as widely appreciated as it might be.”

He also points to the impact of middleclass population growth in non-traditional markets such as those in Asia and Africa and the implications this has for Ireland.

“Meat and dairy consumption typically rises with affluence and the opportunity for Irish agribusiness is huge,” he says.

“Innovations in new product development in areas such as nutrition are creating major opportunities to add value to our already superb raw materials. The success of companies such as Kerry and Glanbia, which invest massively in innovation, shows the benefits of innovation as a driver in helping Irish companies achieve global scale.”

Meanwhile, in the case of start-ups and early-stage businesses, Murphy and his colleagues at KPMG are looking at how they can act as a conduit for innovation across sectors, including between fast growth technology companies and financial services organisations.

“We work with all the leading financial services businesses and we’re also heavily engaged with many companies which are developing emerging technologies. Our helicopter view of the economy helps identify new opportunities for innovation.”

Small tech

He cites the example of smaller technology companies who can develop solutions for major financial businesses but in many cases they need an introduction or indeed investment to bring such projects to fruition.

“We’re actively looking at ways of bringing the two sectors together for mutual benefit and there’s a lot of interest from both areas about the possible opportunities.”

He also mentions the firm’s early commitment to the Summit, formerly the Web Summit, as a sign of its intent around the innovation agenda.

“We’ve been involved from the beginning,” he says. “The success of things like the Start programme at the Summit really brings home how Dublin has become an innovation hot spot. It’s also where many of the tech companies get a real view of the funding opportunities that might be available.”

Murphy believes there’s a correlation between entrepreneurship and innovation but notes that Ireland faces some specific challenges in encouraging both.

“Irish levels of entrepreneurship have ebbed and flowed significantly over the past decade according to the Global Entrepreneurship Monitor (GEM) report,” he says. “The evidence suggests that many of our entrepreneurs have become business owners as a result of circumstances rather than ambition.”

He argues that government needs to keep its foot on the pedal to help encourage more entrepreneurship.

“Inevitably tax plays a role in the message Ireland sends out to the world about setting up and succeeding in business here. The fact remains that employees pay high rates of tax relatively early on the earnings curve. Furthermore, a successful disposal of a business incurs a far higher level of Capital Gains Tax than is the case with the UK, our nearest neighbour and competitor.”

Murphy acknowledges the competing priorities faced by government, but he contends that encouraging innovation and entrepreneurship needs more recognition.

“There are a lot of graduates out there who have great ideas and there are other talented people looking at Ireland as a place in which to live and work. Budding entrepreneurs and innovators should have a reasonable expectation that Ireland won’t tax their ideas and the fruits of their hard work more than in other countries.”

So is Ireland a leader or follower in innovation?

Murphy believes that Ireland is much more than a follower, notwithstanding the results in the EU’s Innovation Union Scoreboard.

“The innovation infrastructure and people are here, our reputation is acknowledged globally and the efforts of IDA and others have made a huge difference. Our biggest enemy is complacency.”