Market research analysis is a remarkably sophisticated field, anda leading company has found great success by basing its Europeanheadquarters here, taking advantage of smart graduates andbeneficial tax structures. But Hourly Analytics is facing adifficult decision over its future here.
HOURLY ANALYTICS is a market research company set up in the early1990s in the UK. It was founded by two pharmaceutical industrymarketing professionals who foresaw the potential value of using ITto offer customers very detailed analysis of market data.
For a number of years the mainstay of their operation wasconventional market research. At the same time they were developingnew software-based analytical tools with the assistance of two whizzkid computer programmers hired to kick start the process. When theinternet arrived they were quick to seize the opportunities itpresented to develop more penetrating analysis of buying habits andmarket trends. More recently they have become involved in analysingthe whole social media phenomenon and have been advising clients howto work social networks such as Twitter and Facebook for maximumbusiness advantage.
Hourly Analytics prospered in the years following its formationand in the space of a decade it had become a significant player notjust in the UK but in overseas markets as well. Rapid expansionoccurred in the late 1990s with new contracts being won in a numberof European countries, including Spain, France, Germany and Italy.As far as the founders were concerned, however, the really big buckswere to be made in the US and the Far East. However gaining accessto these markets was proving to be a tougher challenge than they hadimagined. It was eating up their time and they were conscious thatwhile new markets were important, they couldn't afford to take theireye off their European operations either.
The answer to their problems was Irish-born research scientist DrJim McGlinchy who joined the company in 2001. McGlinchy was brightand very capable and he quickly became a trusted right-hand man inthe rapidly expanding firm. He was effectively left to run Europewhile the founders focused their attention elsewhere. After a yearin the job McGlinchy pitched an idea to the board that they shouldestablish a subsidiary in Ireland.
He sold Ireland Inc on three main criteria. The first was thequality of the young people emerging from Irish universities. For acompany whose competitive advantage lay in the quality of itsanalytical research, he argued it was essential to have access tothe brightest and best minds. The contribution of well-qualifiedyoung Irish graduates could make to the company in the area of RDwas second to none.
His second argument was that the cost of setting up would berelatively low because of the availability of grant incentives tohigh-growth potential start-ups. Finally, and most crucially,Ireland's tax efficiency could not be bettered. Locating new RDactivity in Ireland would confer tax benefits, as would makingIreland the European HQ for the European side of the business.McGlinchy maintained that this was potentially a huge money-spinnerfor the company and that failure to seize the opportunity would bethe equivalent of throwing away significant profits.
Not surprisingly this last point really struck a chord andMcGlinchy's employers agreed to his proposal. An Irish subsidiarywas set up with McGlinchy at the helm and from 2003 onwards allEuropean profits flowed through Ireland. McGlinchy was givenofficial responsibility for day-to-day European operations whichleft the founders free to focus on cracking the potentiallylucrative markets of the US and the Far East.
The next few years were exciting for the company which grewrapidly. A number of new offices were established in key overseaslocations and the company also made several strategic acquisitionswhich boosted turnover and gave it access to Canada and parts ofSouth America. New corporate structures were created to support thisgrowth and as part of this process (thanks to successful lobbying byMcGlinchy) a significant investment was made in establishing asoftware RD centre in Dublin.
Hourly Analytics is still financially sound despite recent sharpeconomic downturns in some of its bigger markets. In part this isbecause its customers see an even greater need for its services toensure that their restricted marketing resources are accuratelytargeted to achieve optimum return.
However, the business has felt the cooling winds of recession andis not generating anything like the same level of return oninvestment it did even up to three years ago. As a consequence theUK founders, who are still majority shareholders, have been thinkinghard about the future.
In particular they believe that in their drive for expansion theyhave not been sufficiently cost-conscious. Now they believe the timehas come for a rigourous strategic review. It is clear that theybelieve a more streamlined operation, with fewer internationaloffices, would generate significant cost savings with little enoughimpact on revenues.
McGlinchy is very anxious about these developments. It has becomeclear to him that the owners are far from convinced that they shouldcontinue to run Europe through an Irish subsidiary. On severaloccasions they have pointed to the contrast in cost efficienciesbetween Dublin and the RD facility they established in India in2005. They do not disagree with McGlinchy's assertion that thequality of the work undertaken in Ireland is of a very high standardbut they are increasingly asking how much better it is than workundertaken in India at approximately half the cost.
Recent economic events have shaken their confidence in continuingto do business in Ireland and talk of a change in Ireland'scorporate tax rate is potentially the final nail in the coffin. Asthey see it, Ireland's competitive advantages are fast beingseriously eroded.
McGlinchy has a staff of close to 200 people reporting to him inIreland and he feels a huge responsibility towards them. At the sametime, as head of European operations, he can see exactly where hisbosses are coming from. He knows that the presentation he has tomake in three months' time could well be his final opportunity toinfluence the fate of the Irish operation.
The Irish RD facility is currently engaged in leading-edgedevelopment work on two important projects. One involves developingtools to evaluate the effectiveness of social media and the otherinvolves next-generation telephony. McGlinchy thinks these twoprojects are sufficiently self-contained and potential profitcentres in their own right that it might be possible to spin themout as a separate business venture. He thinks he can raise the moneyrequired to fund the process and he feels he can make it attractiveto Hourly Analytics by entering into some kind of licensingagreement with them to protect the potential future value of patentincome.
By bringing in outside investors it would be possible to take the25 employees involved in the RD centre off the company's payrollwhile still deriving the expected benefits from their work.
On the other hand, McGlinchy wonders whether it would be betterto propose major cuts in Irish staffing levels across the board inorder to achieve dramatic cost savings while undertaking to drive upefficiency to compensate for the reduced numbers.
McGlinchy is also wondering how robustly he should keep defendingIreland's corporate tax rate. Should he go in with all guns blazingarguing that the supposed threat to the tax efficiency of the Irishoperation has been exaggerated and that they shouldn't make anydecision until something concrete emerges which would force them toreconsider their position?
McGlinchy is really only sure of one thing in these uncertaintimes. He is going to need more than the luck of the Irish if he isto convince his company's owners that Ireland should remain part ofthe geographical mix.
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