Episode Sixty-Five: The Value Of Consistency and Certainty In Business

Exploring Ireland’s Unique Economic And Business Evolution

Ireland is incredibly business-friendly and a property-right protective society. I think that's really significant when you've got something as amorphous as intellectual property - that you're in a stable certain environment.
 

In this episode of The Power of Data Podcast, Danny McCoy, CEO of the Irish Business and Employers Confederation shares his unique insights on the success around the driving forces across Ireland’s thriving business and economic landscape. Danny shares Ireland’s unique growth story of the past decade, dealing with COVID-19 and the value of data in digitizing economies.

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The Power of Data Podcast

Episode 65: The Value Of Consistency and Certainty In Business

Guests: Danny McCoy, Chief Executive Officer of the Irish Business and Employers Confederation
Interviewer: Sam Tidswell-Norrish, International CMO, Dun & Bradstreet

Sam 00:00
Welcome back to The Power of Data Podcast. You're joined today by me, Sam and Danny McCoy, who is the Chief Executive Officer of the Irish Business and Employers Confederation. Welcome, Danny.

Danny 00:11
Thank you very much, Sam.

Sam 00:12
It's great to have you today and I'm particularly excited about this, not just because St. Patrick's Day is upon us, which is one of my favorite days of the year, but namely, because of what we're going to talk about today. You've got an incredibly strong background in economics, and you've held multiple economist positions before joining Ibec, which is the contraction of the Irish Business and Employers Confederation and then becoming CEO. Could you give our listeners just a brief rundown of your career today and how you got all the way to the top of Ibec?

Danny 00:41
Yeah, so I'm Irish, and from the west of Ireland, and initially, my interest was in business, even though I wouldn't know what business was at that point. So I did my primary degree in commerce, but I quickly found that I enjoyed the economics of it, so I moved to University College Dublin to do economics. And then coincidentally, when I was quite young as 21, I got a lectureship at Dublin City University. That kind of set me on my way on an academic move and from there, I went to the Economic and Social Research Institute in Dublin around the time of the art summit back in 1982. So I was interested in the application of economics to environmental issues and sustainable development, that's all of 30 years ago. And then from there, environmental economics, I ended up getting a lectureship at University College London, then at Oxford, before returning to Ireland in the mid-1990s to become a central banker in the run up to monetary union, it was an interesting time. And then I returned to the ESRI as a macroeconomic forecast or short-term economic forecasting would have led to the European Commission's short-term forecasting network of Institute's like London's National Institute for Economic and Social Research, among others. And then in 2005, I moved to Ibec, the business representative organisation, probably best described as confederation of British Industry equivalent. And it was really also an employer's organization as well as a business organization. So a trade union of employers dealing with trade union of employees, something is coming back into vogue again, which I'll happily talk about later on. And then I became the Chief Executive of Ibec in 2009, which is probably useful to have the kind of lingua franca to be able to talk to the IMF, because as you know, the financial crisis Ireland ended up in the hands of - the strikers was called the IMF, European Central Bank in European Commission with the bank bailout. But the Irish economy has been remarkable in the last 10 years, to the point where in GDP terms, it's grown by over 100% in six years. So we're dealing with a kind of a phenomenon of a frontier economy, with the new oil, the new resources, the intellectual property invested in corporate balance sheets, which have moved to Ireland in a really significant way.

Sam 02:49
Fantastic, thank you, Danny. And let's just talk a little bit about what Ibec does. It's Ireland's largest lobby and business representative group. So yeah, it would be useful to hear a little bit more about the purpose, the mission, and ultimately, particularly at this time in our economic cycle, how are you supporting businesses and putting their interests first?

Danny 03:09
Yeah, so I've got the pleasure of leading Ibec, which is a business itself, and maybe just to talk about the business itself, we've 247 employees and seven locations, six of them on the island of Ireland, headquartered in Dublin. But also we've got an office in Brussels, with joint ventures and particularly in the states with some other representative organisations, we do quite a lot of work with the OECD in Paris, and the International Labour Organization in Geneva. The business itself has about a €32million turnover business. And that's been quite profitable. In recent years, we've invariably been running a 10% EBIT, earning about €3 million profits. So having had accumulated a debt prior to the financial crisis, we're all clear again, so that, as Ibec the business is an interesting business to run, because we're by far the largest lobbying organisation in Ireland, but our type will be the third biggest in Europe because we agglomerate a lot of the businesses that happened there, so we own 38 brands. So we'd have things like biopharma Ireland, med tech, Ireland, food, drink, Ireland retailer, and etc. And so you get to see a lot of those businesses and a lot of those entities have become global forces, because the Republic of Ireland has become quite a global hub. So it's been really exciting to be involved with those foreign direct investors. But we also then have our domestic businesses who have we gone through the same kind of travails during COVID of lockdown, the retailers, the hospitality, the pubs, the restaurants. So we're getting to see that kind of what we would call a K-shaped recovery. The upward arm is we're heavily exposed the pharma companies to tech companies, and they've just had a really boom of a COVID. And then in contrast, you've got your domestic mom and pop type businesses who are really suffering from restrictions, that means they can’t trade. So our role is really to give expression to try to lobby on their behalf but also to give voice to their business model. So it's been a real dichotomy in the last year, a really strong story. Overall, Ireland is the only country in the EU to have recorded a growth rate in 2020. So the numbers came in last week from the Statistical Office, GDP growth was in the order of about 3%, plus 3%, volume growth that hit the story of the case shape, you know, the domestic companies were down around eight or 9%, on average. But you know, even within that, on those sectors that have suffered during COVID, you go from the wild numbers of you know, minus 60s in the aviation to, they're 80% for anything got to do with congregated event type situations. But then when you come back, even some domestic businesses would have had a growth year. Because while retail just take that, as an example, there was 12 categories of retail by European definitions, only about three of them have actually were done last year. There's a very obvious ones, so restaurants, pubs, department stores, but then you know, supermarkets are up, as are electrical equipment, lifestyle, and DIY. They were recording growth rates of 50-60% growth rates, because you've got a population who's restricted, but also one that's actually still getting high incomes. I think that's one of the real distinctions between the UK and the Republic, actually, in the last number of years is that the business model in Ireland has been very cash generative. In truth, that's because of the uncertainty created by the breakup potential of the United Kingdom. And that's not even Brexit, this goes back to 2014. And the Scottish independence vote, created uncertainty to investors or trying to figure out you know, where to place their bets with the OECD work on corporate tax, that initiated around 2012. And so those two years 12,13 to 14, the tournament was really between the UK and Ireland, as to where these companies which were, you know, invariably leaving the Caribbean Islands where they had their headquarters couldn't show substance there with this new eighth erosion, profit shifting as it's called from the OECD, you must show substance where you've got your tax strategy. So instead of going back to the United States, and a lot of these companies, really big brand names wanted to come to a jurisdiction like the EU, but they wanted to land in the EU in somewhere that was compatible, like the common law, legal system, Anglo Saxon view the world. And so you really have two choices. And Malta provides an opportunity as well. But fundamentally, it was Ireland or Britain. And the act of 2014, meant that Ireland actually won really big in 2015. And we saw the corporate balance sheets that moved into Ireland was a stark change, but 60% and the P&L extraction from that that kind of flow concept gets caught as GDP. We saw GDP rise by 36% in a single year. And so people looked around and said, you know, normally economy can grow by 1/3 in a single year? And the answer to that is correct. No normal economy can, but when an economy that is experiencing a resource boom, like an oil find, or some other such, can do. And so in this case, the Irish version was an intangible asset, the intangible assets been an intellectual property embedded in corporate balance sheets. And so with our stable corporate tax environment, progressive society, the stability that the peace process actually on the island had given Ireland as well over the last number of years, these were all conditions that really Ireland got lucky. But we got lucky by practicing for a long time to be ready because the history of Ireland over the last century was one have not even being able to didn't keep our population, hence the asp around the St. Patrick's Day phenomena talked about at the start Sam.

Sam 08:44
What a fascinating set of events, macro events over the last decade that have resulted in Ireland's positive economic results for 2020. And positive being a somewhat relative word. But when it comes to the SME community, many SMEs are in dire straits finding times really, really difficult. And I'd love to know, from your perspective, what are some of the challenges these SMEs are facing? And how is the Irish public sector dealing with it? What support has been put in place?

Danny 09:13
Yeah, so again, entering into the kind of the macro before getting specific access to finance that the state providing is the backdrop I gave there meant that Ireland's context in dealing with the pandemic was quite different to other nations in that it was on the crest of a boom. And then as I said, the start COVID itself actually enhanced some of those sectors we were overexposed to as in biopharma, tech. So the resources that were generated by those sectors meant that there's quite a lot of liquidity during 2020 for the state to be able to recycle back into the private sector. But that phenomenon I talked about, which was building over six years also meant that by the time the crisis happened, and the pandemic crisis happened, quite a lot of SMEs were debt free. So you know, up to 50% of SMEs have no borrowings in the Irish context. And so while the state has rolled out like in other jurisdictions, debt based solutions, offering loans, the take up has been incredibly low. Despite the fact that some of these businesses are shut down and not capable of being cash generative. They haven't opted to take up some of the schemes that the government have been putting in place. And so sometimes you see, I just last week, I saw a kind of a link to say that the supports from government to Irish business will be one of the lower ones. I think, in that the fact that the take up of the loan options in Ireland’s being probably disproportionately lower than other jurisdictions, is reflective of it.

To contrast it with the UK, I suppose the main intervention that's held businesses and particularly SMEs in the pandemic crisis has been two schemes and effect two that our alternative to the UK is use of the furlough scheme. You know, the concept of furlough is that you still remain an employee the business but you're at home and not working effectively. And the payment goes through that mechanism. The two things that had similarities, but we're different to that: one was what we call the temporary wage subsidy scheme was you stayed with your employer, but you actually could work. So if you're in a service based activity on web, on zoom, or whatever, so you're working, and your wages are being subvented, subsidized by the state a temporary wage subsidy scheme, or alternatively, you could lay off your workers on to a special welfare payment called the pandemic unemployment scheme. And just to contrast this, because I was centrally involved in it with the government, because we've got a social dialogue structure of trade unions, employers and government work together, is that payment was €350 a week, no questions asked, because it's an emergency, nobody thought it was going to last as long as it has, but that scheme is still in place. And so the state's been capable of sustaining that level of subvention for what's now heading for a year. And if you contrast that to the unemployment benefit that you know, in Northern Ireland as part of the UK. €350, it's a 3.5 times differential. We also then as a result of that, if you look at who's unemployed, when we have the restrictions, the unemployment rate in Ireland is now about 25%. Now, that's an artificial number, because of the schemes we're using or the way we're doing it, that we actually create unemployment by this generous welfare payment. But when we open up as we did before Christmas, those sectors like construction, and retail, and hospitality, which are very labor intensive, they all come flooding back into work. And the unemployment rate, you know, shoots back down again to for its natural rate at the moment is probably about 10%. So it's an exaggerated reading as a function of how we've been doing it. So really substantial amount of funds going from the state into businesses, mainly around the employment aspect of it.

Sam 13:00
Understood, and I mean, I think that's probably largely what I expected to hear, given what's happening in the UK and other regions around the world. And if we turn our attention now to opportunity, always there's opportunity somewhere and a time of crisis, you just have to know where to look. Where in your view as some of the most exciting opportunities facing business today. And what role can data play in creating a path forward?

Danny 13:27
Yeah, so data obviously is, I'm stating the obvious here, data is what we're talking about in terms of digitalization of our economies. But in that context, digitalization by itself is intangible, and that intangibility is where, you know, the Irish story has become supersized on the back of intangible assets. The data centers in Ireland as a location is to the point that over 30% of European data is now stored in Ireland, which makes the Irish regulator on data protection, quite a significant player in the digital wars that are going on between the United States and the EU, on digital services, the Digital Service market and so on. But to your point about opportunity, so the clarity is opportunities if you go big on digital and be the host, but in truth, what we're observing as well is that the reach and the different channels and in terms of meeting wealth, is that that opportunity that digitalization has given to our proximity, we're seeing the proximity to a market, particularly one that's based on services, or capital is having a peripheral location like Ireland still has physical peripheral location is not a barrier as it would have been in a more tangible world where you'd be trading products. And so Ireland never had any natural resources of significance for the industrialization of the past in terms of coal, but what we see now is that we have those opportunities for creating more value added and that's clearly The opportunities in the digitalization. But ironically in the world we now live in is that intangibility is also about brand or copyrights, patents and so on. And so one of the only features that Ireland would have had a natural advantage on is grass is actually a great place to grow grass, that's what makes it green. And in the past, the value-added export out of Ireland – I’m born in 1967 so I looked at that particular year once and saw that the biggest export out of Ireland at that point was cattle, but live cattle, you know that they would actually and I do remember, as a kid, when I'd come to Dublin, you'd see them getting onto the boats, you know, cows getting walking down the street to Dublin getting on boats to be exported, no value-added at all, you know, cows eat the grass, then they get exported, and all value-added activities from the meat and so on would be done in other jurisdictions. Now we see a lot more value added put into meat is one but actually the value-added coming from the grass itself in the dairy sector. So not exporting actually the liquid, we're burning off the liquid and getting the nutrients. So Ireland would be one of the world's largest exporters of infant formula. But in addition, with a new gym bunny phenomenon of the last decade, it is also the world's largest sports and nutrients businesses with the company Glanbia being particularly world leader there as is other iconic companies like Kerry Group.

Sam 16:25
Well, firstly, I've learned a lot about Ireland, and a ton of stuff there I just didn't know which is which is fantastic, thank you, Danny. At the end of 2020, Ireland looks on course to have strong export growth and a growing economy as you mentioned earlier, what were some of the factors that contributed to that a strong position for Irish exports, specifically?

Danny 16:45
I think the buildup on the sectors that have occurred over a generation. Ireland has been very open right from the 1960s. And then through the period of the joining the European Union in the 1970s. But a bit like Britain at that time, it had quite a lot of difficulty with angst between trade unions and employers and also be noncompetitive. And I think that the renaissance in Ireland actually correlates - causation might be a different issue - but the correlation is very high with renaissance in Britain from the Thatcher era and into the 90s. And then one of the tragedies I suppose of Brexit is that when you look at the joint production function that has been Britain and Ireland over the last number of generations within the EU, if the only places that have really significant population increases are kind of a dynamism from being a globalized hub. In that context, Ireland ended up with sectors like tech, biopharma, medtech, and its own natural food and drink industry, which went from our high value-added activities. It was really set for a pandemic as happens because we all know, tech became so important. Pharma products became so important. Medical technology in the sense of ventilators even, Ireland was the largest ventilator producer globally. And so it just happened to be in the right sectors at the right time. And so that's why it bucked the trend, and became the only country to be able to grow through 2020.

Sam 18:15
Forgive me for asking this, but I'm gonna put you on the spot. Danny, if I had to ask you to give the doing business in Ireland elevator pitch, just 30 seconds on what makes Ireland a great place to do business? What does it sound like?

Danny 18:27
Yeah, so I think past performance is probably the best indicator. No other society has transformed itself on the back of a business model than Ireland, by being open, by being globalized and having an education system where there's no challenges to a natural capital labor split. Because we missed industry revolutions in the past, we didn't have that legacy of trying to divide the cake up before it was even baked. And so in that regard Ireland is incredibly business friendly and property-right protective society. I think that's really significant when you've got something as amorphous as intellectual property, that you know, you're in a stable certain environment. I think that's been the proposition probably Sam, Ireland has remained very stable over the last 10 years, in terms of its position within the EU, in terms of holding on to Corporation taxes not flip flopping, and its industrial policy doesn't get torn up every couple of years. It's consistent. So consistency and certainty over those two characteristics.

Sam 19:29
I love it and spoken like a true economist, so thank you, Danny. To finish, I always like to think about taking a piece of advice away, and particularly for our listeners. If you'd speak to our listeners today about a piece of advice for someone starting out in their career, what would it be?

Danny 19:45
It's the same advice I'd give to any first-time parent, everything changes. Going through, if you're going through a good phase, it'll change. If you're going through a really bad phase, it'll change and so you know, be willing to ride out the changes. Just hold your nerve be resilient and just deal with changes. It's, it's, it's up and down. You can't monotonically have a trend all the time. So, so that's kind of resilience and just embrace change. You know, nothing lasts forever. And so enjoy it as you're going through as much as you can.

Sam 20:16
I love it. Danny, one final question, what does a pandemic St Paddy’s Day celebration entail this year?

Danny 20:23
Oh, I'd love it to be a zoom-free one, whatever fashion it is, I really wouldn't like to be looking into a screen. So I guess it's get out there be socially distant, but at least try to physically see somebody and raise a glass from a distance with each other. But try not to unless you can't do it any other way trying to avoid the screen.

Sam 20:42
I think that's a good piece of advice for anyone who has Irish friends or colleagues. Make sure it's zoom-free. And yeah, I'll certainly be raising a glass you Danny, thank you very much indeed. It's been such a pleasure.

Danny 20:53
Thank you, Sam.