Time to change economic development strategy?

As Jo has pointed out, the Belfast Telegraph reports that the Prudential initially expanded their operation in Belfast in 1998, with the assitance of £2.5million of public funds provided through the Industrial Development Board. Their subsequent decision to concentrate their operations elsewhere provides a better context for this quote from InvestNI chief executive, Leslie Morrison, announcing the expansion by Reed Managed Services – “They chose to expand their Belfast operation because of the strength of the labour market here, the availability of relevant skills and the support being offered by INI.” – The expansion by Reed is backed by £1.925m in assistance from Invest NI.

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  • Depends where the money is going. In the South, the Enterprise Board has long been concerned and aware of the problems of Foreign Multinationals buggering off to the far east, and have focused their development assistance on research and development, subsidising high skilled jobs and R&D effort generally. The theory therefore is that the investment is in the skills of the people, using the company as a vehicle, and when the company ultimately leaves, the people will invariably remain behind, skills intact. Similarly, the low corp tax environment affords the exchequer a significant revenue boon in the short-medium term. These kind of investments make sense, and packaged with other appropriately and innovatively targeted incentives can account for an attractive proposition.

  • seabhac siulach

    The problem is that the six counties is not getting investment from the type of companies that are involved in R&D or that offer hi-tech skilled jobs. These companies are all going south due to the corporation tax differential. Until that is changed the administration in the six counties would be better off putting those millions it is now giving to call-centres and HR companies into low-level research and development in universities, etc. This will eventually pay dividends. Otherwise, it is money down the drain. While the tax differential exists the South will always out perform the North in terms of attracting high quality jobs.

  • Cataegus

    Here we go again. To assess this you need to do a cost benefit analysis and set all grants and incentives against the revenue gained through income and other tax and the possible cost of unemployment. In these terms it probably makes sense, but must be galling for employees to think their tax is subsidising the firm employing them.

    Like many others I feel that it would be better to set up a pro investment and enterprise environment and rather than favour one particular firm make it better and easier for everyone to do business here. Why favour this firm or that?

    You need to encourage people here to save and invest and have a go at setting up their own business and take the necessary risks.

    It really doesn’t matter the size of the business, it could employ 1 person or 200. We need to make it attractive for people to take the risk and it is a risk.

    In my own experience in the early days in most businesses it is access to funds and cash flow that limits growth, perhaps there is a need to look at the role of Banks and assisting future business expansions accessing loans. And of course all the usual tax incentives etc. Stronger the economy the more revenue to pay for services.

  • idunnomeself

    In a really back of an envelope way:

    500 jobs, 20k each (say), for 8 years:

    500 X 20,000 X 8 = £80 million

    Government tax take of around 20-30 million, never mind the income it brought to tax payers and their famalies in NI.

    2.5 million well spent I’d say

  • Cataegus, there are many types of business, and indigenous industry is attractive because of its stickiness. A Belfast born firm is unlikely to emigrate to Bombay. However, start-ups are risky, and prone to failure. Therefore from a state perspective, investment needs to be cautious in this area, while acknowledging (as venture capitalists do) that a number of investments will fail, and that the price of high risk is a significant return on the ones that do in fact succeed.

    The state needs to invest then across the board – in existing indigenous businesses with proven track records that are looking to expand; in existing foreign owned businesses in a way that can extend their tenure and contribute to the continual return on investment modelling that companies perform; and in attracting new overseas companies to the area.

    The Corporation tax thing is not the end of the world. There are many countries with low corporation tax just like Ireland, such as in the Carribbean, through which the same advantages can be achieved. In addition, large companies have offices all over the world that are located there for reasons other than the tax rate.

    idunnomeself, with respect it can never be that simple. 500 jobs for eight years would command a far greater incentive, and the ratios would be significantly less. In addition, if the types of hires are unskilled, and they are out of a job in their late thirties / early forties after eight years, you’ve made the problem worse for those people. And then you’ve got to look at the millions invested, and ask where best to actually put that money.

  • Jo

    Here we have a group of people who were told to value customer service, who more than likely excelled in their jobs (the NI and Scottish voices being extremely well thought of in the call centre business) who staked a lot of personal investment (homes, families etc) on the basis of doing a brill job….

    ….and in the end were dumped when the money from government ran out and any contractual obligations from the Pru passed their deadline.

    Smacks of complete cynicism and I daresay the Investor In People plaque (if the Pru had one) should be torn down by the last employee walking out to get blocked in Muldoons.

    A classic example of the old adage, updated for these gender-indifferent times:

    She who tries and does her best
    Goes down the road with all the rest.

  • john doheny

    That really is back of the envelope stuff. Sorry, doesn’t work that way the ‘counterfactual comparison’ is not that everyone employed by Prudential would not be contributing to the economy. The NET benefit is what counts and this is not represented by your back of the envelope stuff.

  • Cataegus

    Anthony B

    “ The state needs to invest then across the board – in existing indigenous businesses with proven track records that are looking to expand;”

    Don’t disagree with that, but I have a soft spot for start ups perhaps due to personal recollections of times past.

    It is more than just grants I think we need a better overall environment and a more positive attitude towards the needs of business. I have been involved in quite a number of projects over the years and have encountered major problems with government departments. I would emphasise that it is not due to major breaches of legislation, just inconsistency in advice being given and a really bad attitude by a few state employees. Very unprofessional and almost amateurish.

    I agree local business is less likely to move to India but as it would happen I know one investment that has and this amounts to about 5 million capital loss, lost of construction employment, loss of fees to professions and loss of employment in the completed project. Nothing to do with lack of grants or tax structures it moved because the time period being factored in (based on previous experience) to obtain statutory approvals was too long and by the time they would have all the approvals the scheme will be build and up and running elsewhere. It is also costing a LOT less in India. Sad really.

    The role of Universities and how they integrate with the commercial sector is worth detailed consideration.

  • mnob

    Pete, Mick et al.

    You are missing the point entirely with these entries. The contact centre and ICT sectors are *booming* in NI, outsripping any other region in the UK and the ROI for growth. We live in a global economy, jobs will come and go. To concentrate on the jobs going and drawing conclusions from one side of the equation for the sake of a good story and to support a particular argument is disingenuous in the extreme.

  • Cataegus,

    I have a soft spot for start ups perhaps due to personal recollections of times past

    As do I…

    On ‘infrastructure’ generally, I agree. Government and services need to be business friendly. Heard a guy on Joe Duffy the other day complaining about a successful business in Dublin where he needed to move location because traveller families behind his building were constantly hurtling bottles over the wall onto his offices and employee cars (http://www.rte.ie/radio1/liveline/damastown.html). Part of his problem was that he couldn’t move because Eircom would take up to 3 months to put in a phone line. These issues are real barriers to businesses getting set up, and illustrate in microcosm what you are talking about.

    Universities, to expand a little, need two things. They need investment in world class research centres – there is simply no point in having research centres that are not world class, because you won’t attract the researchers, and you won’t invent anything new. Second, you need improved commercialisation skills – we need them in the south too – so that research can be guided to develop things that people need, and, once developed, the benefit can accrue to the society within which it was developed, however this manifests itself.

  • Jo

    I simply canot say my customer satisfaction level has been higher dealing with an Indian call centre than a local/Scottish one.

    There are certain barriers to building a rapport and a shared understanding when talking about a complicated issue with someone, however techincally proficient they may be, on the other side of the world.

  • Jo, if it’s any consolation, the Eircom call centre in Dublin now appears to have more non-Irish/British working there than (probably) your Indian one. That’s globalisation for you!

    As for shared understanding, the last time I heard that used in connection with a telecom company was from a comedian, who promptly got booed off 🙂

  • idunnomeself

    yeah, i said it was back of the envelope, so I know it isn’t perfect.

    My objective was to show that the order of the Prudential’s inverstment in NI was much, much larger than the grants, and so the ending of the grant probably didn’t have much to do with their decision.

    But I see that the union is hopeful that it might not happen.

    These aren’t just call centre jobs, I know people there who are proper insurance professionals on decent salaries who work there.

  • Cataegus

    Anthony B

    Agree about the World class research centres and commercialisation skills. Also need to set up such centres so they are free from most of the vicious internal politics that can consume academia. It would be well worth looking at successful models elsewhere and seeing what we can learn and improve on, but will the political class up here do this? More chance of hell freezing over.

    One other aspect is setting up structures that encourage personal motivation in academia. Why would a bright young scholar bother themselves, pay comes in, squash at 10am, and enough to do already. Need to reward real tangible success.

  • Cataegus, academics are academics because being smart gets them off. That’s how they motivate themselves. Otherwise they’re not academics. Having world class facilities allows them to show off, and this will be motivating. Politics in academia is inevitable, happens everywhere, so can’t really do much about it. Better than shooting each other and that kind of politics anyway 🙂

  • Screw Prudential — keep your eyes on the prize.

    I just looked over Invest NI’s corporate report. Unless they are using Ken Lay for an accountant, they are really scraping up some serious cash for NI. The ROI (the initials say it all) received one billion Euros in venture capital during the last decade, the decade in which the Tiger leapt.

    Invest NI states that they “leveraged” nearly 300 million Stg. in private investment during the last year, four times the Republic’s VC funding rate. Moreover, that money went into a population 1/3 of the Republic and just a wee bit under the population of the San Francisco peninsula where it all started.

    They brag that they got 28 companies to start R&D programs and assisted 3921 startups. That’s a hellova lot of money and a hellova lot of startups. The hard disk bubble here was only 25 or so 5-1/4 inch startups at the peak.

    So when do we get to see the new silicon chipper van?