Market research analysis is a remarkably sophisticated field, and a leading company has found great success by basing its European headquarters here, taking advantage of smart graduates and beneficial tax structures. But Hourly Analytics is facing a difficult decision over its future here.
HOURLY ANALYTICS is a market research company set up in the early 1990s in the UK. It was founded by two pharmaceutical industry marketing professionals who foresaw the potential value of using IT to offer customers very detailed analysis of market data.
For a number of years the mainstay of their operation was conventional market research. At the same time they were developing new software-based analytical tools with the assistance of two whizz kid computer programmers hired to kick start the process. When the internet arrived they were quick to seize the opportunities it presented to develop more penetrating analysis of buying habits and market trends. More recently they have become involved in analysing the whole social media phenomenon and have been advising clients how to work social networks such as Twitter and Facebook for maximum business advantage.
Hourly Analytics prospered in the years following its formation and in the space of a decade it had become a significant player not just in the UK but in overseas markets as well. Rapid expansion occurred in the late 1990s with new contracts being won in a number of European countries, including Spain, France, Germany and Italy. As far as the founders were concerned, however, the really big bucks were to be made in the US and the Far East. However gaining access to these markets was proving to be a tougher challenge than they had imagined. It was eating up their time and they were conscious that while new markets were important, they couldn’t afford to take their eye off their European operations either.
The answer to their problems was Irish-born research scientist Dr Jim McGlinchy who joined the company in 2001. McGlinchy was bright and very capable and he quickly became a trusted right-hand man in the rapidly expanding firm. He was effectively left to run Europe while the founders focused their attention elsewhere. After a year in the job McGlinchy pitched an idea to the board that they should establish a subsidiary in Ireland.
He sold Ireland Inc on three main criteria. The first was the quality of the young people emerging from Irish universities. For a company whose competitive advantage lay in the quality of its analytical research, he argued it was essential to have access to the brightest and best minds. The contribution of well-qualified young Irish graduates could make to the company in the area of RD was second to none.
His second argument was that the cost of setting up would be relatively low because of the availability of grant incentives to high-growth potential start-ups. Finally, and most crucially, Ireland’s tax efficiency could not be bettered. Locating new RD activity in Ireland would confer tax benefits, as would making Ireland the European HQ for the European side of the business. McGlinchy maintained that this was potentially a huge money-spinner for the company and that failure to seize the opportunity would be the equivalent of throwing away significant profits.
Not surprisingly this last point really struck a chord and McGlinchy’s employers agreed to his proposal. An Irish subsidiary was set up with McGlinchy at the helm and from 2003 onwards all European profits flowed through Ireland. McGlinchy was given official responsibility for day-to-day European operations which left the founders free to focus on cracking the potentially lucrative markets of the US and the Far East.
The next few years were exciting for the company which grew rapidly. A number of new offices were established in key overseas locations and the company also made several strategic acquisitions which boosted turnover and gave it access to Canada and parts of South America. New corporate structures were created to support this growth and as part of this process (thanks to successful lobbying by McGlinchy) a significant investment was made in establishing a software RD centre in Dublin.
Hourly Analytics is still financially sound despite recent sharp economic downturns in some of its bigger markets. In part this is because its customers see an even greater need for its services to ensure that their restricted marketing resources are accurately targeted to achieve optimum return.
However, the business has felt the cooling winds of recession and is not generating anything like the same level of return on investment it did even up to three years ago. As a consequence the UK founders, who are still majority shareholders, have been thinking hard about the future.
In particular they believe that in their drive for expansion they have not been sufficiently cost-conscious. Now they believe the time has come for a rigourous strategic review. It is clear that they believe a more streamlined operation, with fewer international offices, would generate significant cost savings with little enough impact on revenues.
McGlinchy is very anxious about these developments. It has become clear to him that the owners are far from convinced that they should continue to run Europe through an Irish subsidiary. On several occasions they have pointed to the contrast in cost efficiencies between Dublin and the RD facility they established in India in 2005. They do not disagree with McGlinchy’s assertion that the quality of the work undertaken in Ireland is of a very high standard but they are increasingly asking how much better it is than work undertaken in India at approximately half the cost.
Recent economic events have shaken their confidence in continuing to do business in Ireland and talk of a change in Ireland’s corporate tax rate is potentially the final nail in the coffin. As they see it, Ireland’s competitive advantages are fast being seriously eroded.
McGlinchy has a staff of close to 200 people reporting to him in Ireland and he feels a huge responsibility towards them. At the same time, as head of European operations, he can see exactly where his bosses are coming from. He knows that the presentation he has to make in three months’ time could well be his final opportunity to influence the fate of the Irish operation.
The Irish RD facility is currently engaged in leading-edge development work on two important projects. One involves developing tools to evaluate the effectiveness of social media and the other involves next-generation telephony. McGlinchy thinks these two projects are sufficiently self-contained and potential profit centres in their own right that it might be possible to spin them out as a separate business venture. He thinks he can raise the money required to fund the process and he feels he can make it attractive to Hourly Analytics by entering into some kind of licensing agreement with them to protect the potential future value of patent income.
By bringing in outside investors it would be possible to take the 25 employees involved in the RD centre off the company’s payroll while still deriving the expected benefits from their work.
On the other hand, McGlinchy wonders whether it would be better to propose major cuts in Irish staffing levels across the board in order to achieve dramatic cost savings while undertaking to drive up efficiency to compensate for the reduced numbers.
McGlinchy is also wondering how robustly he should keep defending Ireland’s corporate tax rate. Should he go in with all guns blazing arguing that the supposed threat to the tax efficiency of the Irish operation has been exaggerated and that they shouldn’t make any decision until something concrete emerges which would force them to reconsider their position?
McGlinchy is really only sure of one thing in these uncertain times. He is going to need more than the luck of the Irish if he is to convince his company’s owners that Ireland should remain part of the geographical mix.
