(Continued from Part 2/3)

Similar to the fact that Ireland has a binary system of higher education, the business sector in the country is also divided into two, with one being foreign-owned and the other being indigenous.

The historical success of Ireland in attracting a substantial amount of FDIs has led to an industrial base strongly dependent on multinationals and oversea exports. It is not difficult for one to find that a relatively small number of foreign-owned companies are responsible for the majority of Business Expenditure on Research & Development (BERD) in Ireland, an indication to show not only the strong performance of multinational firms but also the ‘unsatisfactory’ performance of the so-called indigenous firms.

More interestingly, it seems that foreign-owned firms and indigenous firms are concentrated in distinct sectors; for example, high-tech sectors like ICT and pharmaceutical are obviously dominated by multinationals.

A comparison of the amount of expenditure on R&D by sector reveals that the higher education sector, which is, in this regard, largely dominated by the seven universities plus the Dublin Institute of Technology, outperforms the indigenous business sector and the government (and public) sector.

The strengths of Irish universities have further been intensified after nearly a decade of state support in the area of research and development. Admittedly, the Irish government has also called for, and indeed made some efforts in supporting the growth of indigenous small to medium-sized firms, this sort of investment is not comparable to what universities have been receiving.

It is based on these facts that we argue that it is time Irish universities build closer relationships with foreign-owned companies during a period when previous advantages of the country are in the risk of weakening. In particular, we would like to introduce an embeddedness approach which is adapted from the ‘Triple Helix’ model popularised by Etzkowitz and Leydesdorff in 1997.

Figure 1 A ‘Node-Channel’ model of G-U-I interactions in Ireland (Foreign-own firms on the left; Indigenous firms on the right)


Figure 1 above shows a ‘Node-Channel’ model of interactions of three main regional stakeholders in Ireland – government, university, industry – in which node stands for strength of each sector and channel refers to linkages between each other. Following the categorisation of many previous studies, in this figure we divide the industry node into two smaller nodes (foreign-owned firms and indigenous firms). In relative terms, we consider that Ireland has R&D strength in the university sector and foreign-owned firms, less so in domestic firms and the government sector, however there is plenty of room for improvements in inter-firm linkages and university-industry collaborations.



(Continued from Part 1/3)

To a certain extent, the comparative advantages of those areas where Ireland used to be perceived as having significant strength are now diminishing, or more accurately, weakening. In their book – The Economy of Ireland – O’Hagan and Newman (2011) have made it clear that great challenge is currently faced by Ireland as the EU puts more pressure on the country ‘to harmonise corporation tax rates and increased restrictions on the provision of grants: two important policy tool options in relation to FDI for the Irish government in the past’.

The authors have also addressed the possibility of changes which could be made to the corporation profit tax rate. A general concern is that, if ‘firms are forced to pay taxes on profits in the country where they are earned and can no longer process profits through Irish subsidiaries’ (O’Hagan and Newman, 2011), the attractiveness of Ireland as a place to invest may decrease. The Irish Independent recently published a statement made by the U.S. President Obama which proposed exactly this idea.

Nevertheless, it has also been pointed out that, the end of transfer pricing may actually increase the level of actual economic activity that takes place in Ireland, ‘given the firms will be forced to site their real activity in Ireland to avail of the low tax rate’ (O’Hagan and Newman, 2011).

In our perspective, an increased level of economic activity shown by foreign-owned firms in the absence of transfer pricing would only come true if those firms are effectively embedded within the national innovation system, which comprises horizontal and vertical knowledge and production networks. In particular, the benefits from being engaged with innovation activities should be perceived by those firms to outweigh the potential loss from being without the low tax rate, although the comparison is subjective to firms themselves.

Those networks in essential bring foreign-owned firms, indigenous firms and key innovation actors (e.g. universities and public research organisations) together, through which knowledge is exchange and innovative products and services are created. Without these interactions, FDIs are not deeply embedded in the territory; instead, the main reason for their presence is finance related. Therefore, it should not come as a surprise when they (FDIs) are found to shift away to wherever they could pursue those benefits.

Limited study has been found to focus on the importance of embedding FDIs in influencing Ireland’s economic development in especially mid- to long period. A wider search for empirical analysis of other nations or regions has been done in the hope that those studies are able to shed some light in the direction.

An interesting article is that by Simmie and Martin (2010), in which the authors compared regional economic resilience of two UK city regions – Cambridge and Swansea – that have experienced quite different economic histories and outcomes over the past 40-50 years. It could be argued that the case of Swansea shows, to a certain degree, some similarity to what approach Ireland has been undertaking. To be more specific, Swansea turned to FDI from the 1970s and offered relatively cheap land and labour to attract inward investments, in particular Japanese investments in the electronics sector.

After examining the growth of the two city regions during the last 50 years, the authors tended to conclude that Cambridge has been more resilient than Swansea. The conscious decisions of local entrepreneurs making use of endogenously created new knowledge, the co-evolution of the attitude of Cambridge University to commercial exploitation of IPRs, and the facilitation of the development of science parks were considered by the authors to be the major driving factors of the long-term development of adaptive and resilience capacities in Cambridge. By contrast, whilst FDIs brought sufficient codified external knowledge for the establishment of manufacturing branch plants into the Swansea area, the region became locked into the technological paradigm owned by foreign firms.

The authors concluded the decline of the Swansea economy by stating, ‘the shock of the recession exposed the weakness of relying on exogenous knowledge generated by multinational companies’ (Simmie and Martin, 2010).

Since the launch of the National Development Plan in the 2000, much effort has been devoted into investing research and development (R&D) in universities and domestic business sector. All of these could be seen as part of government’s commitment to building the so-called smart economy. A functional, sustainable, and competitive smart economy should be one in which not only both endogenous and exogenous knowledge is created but they are also exchanged and shared effectively.

Although we do not underestimate the importance of indigenous firms in any way, we argue that Irish universities (or the Irish higher education sector) are best placed to build high-level research-intensive partnerships with foreign-owned firms in Ireland, as means of both embedding FDIs and building the smart economy.

(To be continued…)


There has been an extensive body of literature investigating the importance of foreign direct investments (FDIs) in the Irish economy. Since the 1960s onwards, the continuing dedication of the Irish government to attracting investments from overseas, in particular from the U.S., has transformed the country significantly.

In terms of GDP per capita, Ireland has made impressive progress during the last few decades, climbing from one of the poorest countries in western Europe to one of the richest in the world. As recent data from World Bank shows, Ireland’s GDP per capita (current US $) in 2012 stood at 45,921, in comparison to 38,920 in the UK.

Much of the extant literature attributes the economic development of Ireland to the success of attraction of FDIs, which could be evidenced by the fact that “the overall stock of FDI in Ireland has averaged just below 100% of GDP over the 10-year period from 1999 to 2009, reaching a peak of 149% of GDP in 2002” (Gray et al., 2010).

In their book entitled “Economic Analysis of Ireland’s Comparative Advantages for Foreign Investment”, Gray et al. (2010) selected a list of milestones in Irish policy which resulted in the attraction of multinationals. Figure 1 below shows the detail.

Figure 1 Selected milestones in Irish policy which have impacted on foreign investment

Figure 1

Source: Adapted from Gray et al. (2010).

Nevertheless, there has always been some concern with regard to an increased dependency on foreign investment. Some have argued that a practical matter for Ireland is that it has less and less room for pursuing independent economic policies. For many others, there is a question mark over the long-term impacts of FDIs on the Irish economy, especially in the face of declining flows of foreign investment after the 2008 economic crisis.

The underlying reason for these worries is related to the mobility of FDIs. Understandably, FDIs are attracted into a certain region or nation due to a number of comparative advantages demonstrated by that area. When those comparative advantages diminish or become unsustainable, FDIs may be relocated into wherever else showing them. In order to attract new FDIs and to maintain current investments, a crucial task is to understand what key elements of Ireland have been perceived by multinationals as of significant strength.

A comprehensive survey with the chief executives of foreign-owned plants in Ireland was conducted by Indecon to capture what are the key factors which determine the relative attractiveness of Ireland as a location for FDIs. The main results of the Indecon survey have been presented, in much detail, by Gray et al. (2010) and are shown here.

Figure 2 Foreign firms’ rating on elements of comparative advantage of Ireland for investment

Figure 2

Source: Adapted from Gray et al. (2010).

Whilst it remains unclear for us to say whether the foreign firms surveyed are representative enough of the whole sector, Figure 2 indeed shows some interesting results. The top three elements perceived by foreign firms as significant strengths are comparative corporate tax rate, English-speaking population and government support for foreign direct investment. At a less level, foreign firms also regard skilled employees, membership of Euro and stability of exchange rates, flexible labour force and commitment from Industrial Development Agency as significant strengths in Ireland. Quality of universities and quality of research and development (R&D) are the two factors that are least frequently perceived by foreign firms as where Ireland has significant strength and as their reason to make the investment decision.

It is obvious that universities, and probably the higher education sector as a whole, have not become a key factor, in relative to elements such as corporate tax rate, considered by those multinationals when they attempt to decide whether or not to invest in Ireland. Although it is too arbitrary to assert now that foreign firms do not collaborate closely with Irish universities, it is fair to say that how companies perceive the relative importance of university research and development (R&D) would to a certain extent influence their later decision on working with those universities.

(To be continued…)


(Continued from Part 1)

Table 1 below shows the locational characteristics of USOs for the 11 Irish HEIs (Appendix I breaks down into more details). If all institutions are taken into consideration, the average distance between a USO and its parent university in Ireland is 31.27 Km (about 19.43 Miles), while the median distance is much shorter which stands at 4.31 Km (about 2.68 Miles). Furthermore, in Ireland, the shortest distance between any USO and its parent university is only 230 Metres, with the longest distance being 229 Km (about 142.29 Miles). The fact that the median distance is less than 3 Miles seems to indicate a dominant presence of geographical proximity between Irish USOs and institutions.

Table 1 Locational characteristics of university spinouts in Ireland, 2007-2011

Institution Number of USOs Shortest distance (Km) Longest distance (Km) Average distance (Km) Median distance (Km)
DCU 10 0.25 66.10 13.66 9.11
DIT 6 0.77 57.50 15.04 9.77
ITTRALEE 1 2.29 2.29 2.29 2.29
NUIG 11 0.77 194.00 42.70 3.06
NUIM 9 0.23 185.00 44.98 23.00
RCSI 1 218.00 218.00 218.00 218.00
TCD 17 0.23 208.00 13.65 0.59
UCC 7 1.07 229.00 78.85 4.77
UCD 18 2.21 197.00 33.15 5.03
UL 6 1.50 76.80 15.23 2.91
WIT 4 0.32 17.20 5.22 1.68
All institutions 90 0.23 229.00 31.27 4.31

Source: Author’s own elaboration.

As two institutions – ITTRALEE and RSCI – have only a single spinout company during the period, their data should be treated with special cautions. For the rest nine institutions, some interesting patterns emerge. First, the longest distance between any spinout from WIT and the institution is 17.20Km, much shorter than the number for the other eight HEIs, suggesting that there is a strong tendency for academics based at WIT to locate their businesses within a relatively short distance from the institution.

Second, UCC shows the longest average distance from its spinouts among the nine HEIs, which could be understood as an indication that USOs from UCC, in comparison with their counterparts spun from other Irish HEIs, are less concerned about the importance of geographical proximity with their parent university. As explained, the underlying factors that determine the location choice could vary from one firm to another, but it could be argued that spinouts founded by academics based at UCC are relatively further away from the institution than the rest cases.

Last but not least, the median distance shown by TCD spinouts (590 Metres) is the shortest among the institutions. A closer examination of the locations of those spinouts reveals that many of them are housed by the Trinity College Enterprise Centre, which has circa 16,000 sq.m. of lettable space for small and medium-sized enterprises in the heart of Dublin. The Centre was purchased by Trinity College in 1999 to be converted to a knowledge-based company generation and support facility.

The availability of university-run incubation space, which has been claimed by many scholars to be an essential way to strengthen and support academic entrepreneurship, seems to explain, at least in part, why USOs from TCD tend to be agglomerated around the university. To this end, future study could investigate the scale and quality of incubation facilities which could be used by USOs in Ireland.

Appendix I Locational characteristics of university spinouts in Ireland, 2007-2011

Institution <1 Km 1-5 Km 5-10 Km 10-20 Km 20-50 Km >50 Km Total No. of USOs
DCU 3 1 2 2 1 1 10
DIT 1 1 1 2 0 1 6
ITTRALEE 0 1 0 0 0 0 1
NUIG 1 5 1 1 0 3 11
NUIM 1 0 1 1 4 2 9
RCSI 0 0 0 0 0 1 1
TCD 10 4 2 0 0 1 17
UCC 0 4 0 0 0 3 7
UCD 0 9 2 2 2 3 18
UL 0 4 1 0 0 1 6
WIT 1 2 0 1 0 0 4
All institutions 17 31 10 9 7 16 90

Source: Author’s own elaboration.


The implicit assumption of theories of agglomeration from evolutionary economics is that spinout firms tend to take root near their parent, similar to apples falling close to the tree.

To locate nearby their parent university, academics who establish businesses will continue to enjoy the advantages of being proximate to their colleagues, social connections and the overall environment. Similarly, as scholars in support of localised knowledge spillovers argue, knowledge – in particular that in tacit forms – is spatially bounded, suggesting that geographical proximity is an important determinant of knowledge exchange.

It has also been indicated that geographical proximity is not alone in influencing the effectiveness of collaboration, but accompanied by many other types of proximity such as organisational, cultural and technological proximity.

This article presents some preliminary findings of the geographical proximity choice of university spinouts (USOs) in Ireland between 2007 and 2011. In other words, we would like to measure the distance between USOs and their parent university.

According to Enterprise Ireland, there are a total of 117 USOs created during the four-year period. With the use of the FAME database, we are able to identify more detailed information on these firms. FAME (Financial Analysis Made Easy) provides information on major public and private UK and Irish companies, including company profiles such as subsidiaries and directors, accounting and financial information, ratios and trends, shareholder details and latest company news.

Our search in the FAME database leads to an exclusion of 27 USOs which have either been dissolved or not been in existence in the database. Therefore, the analysis here is based on a total of 90 USOs which have been established by academics in Irish HEIs between 2007 and 2011 and are still in operation. For each of these firms, we also collect information about their addresses registered for business. Using Google Map tools, we could then calculate the real distance between the firms and their parent university.

Figure 1 below shows the trend of establishment of spinouts by academics in Irish HEIs. In total, 11 Irish HEIs report that their academics have been involved with spinout activity. UCD and TCD are the two institutions leading the performance, with 18 and 17 firms being founded respectively. NUIG and DCU are also each responsible for more than 10 spinouts created during the period.

Figure 1 Establishment of university spinouts in Ireland, 2007-2011

Figure 1

Source: Author’s own elaboration.

Figure 2, in much more detail, shows the exact locations of spinouts from each of three leading institutions in this activity, namely UCD (1st row), TCD (2nd row), and NUIG (3rd row). In particular, each entire row represents one university, the situation of which is illustrated by three different maps which are at national, regional, and local levels respectively from left to right.

For example, all of the three maps on the first row in Figure 2 show where spinouts from UCD are located, although they differ at the scale of the map. For each university, i.e. each row, the first column – the map at the national level – could comprehensively show how concentrated or dispersed its spinouts are situated within the country. The maps at the regional and local levels are drawn to reveal the exact locations of firms.

Figure 2 Location of spinouts from UCD, TCD and NUIG (row) viewed at national, regional and local level (column), 2007-2011

Figure 2-1

Figure 2-2

Figure 2-3

Source: Author’s own elaboration.

It could be easily seen from Figure 2 that most USOs are located nearby their parent university, a trend holds for all of the three HEIs. However, for each of the three universities, there are a couple of spinouts situated relatively farther away. It would be interesting to look deeper into the choice of those firms as to the reasons why they are located somewhere else rather than nearby their parent university. One may expect that the location choice of any firm is impacted by a number of factors which are dynamic and often intertwined.

(To be continued…)