Yesterday morning, Simon Coveney arrived back in Ireland after a whistlestop three-day tour to the west coast of the United States.

Appointed Minister for Enterprise, Trade and Employment in December, after a lengthy and well-received tenure in the Department of Foreign Affairs, Coveney has found himself dealing with high-profile job losses across multiple multinational technology giants.

The publicity around the job cuts has outweighed their numbers; unsurprising perhaps given the importance of a small cohort of tech companies to Ireland’s taxation receipts.

However, to get a sense of what was really happening in the sector, and the potential impact on Ireland, Coveney flew to San Francisco to meet senior executives at a host of companies with significant Irish operations.

Coveney was particularly anxious to see what it would mean for future employment trends, with reports that the negative publicity around the sector at the moment might deter students from pursuing careers in software and tech.

So, over the three days, Coveney and his officials met 14 companies, that, combined, employ 26,000 people in Ireland. This included high level meetings with Apple, Meta, Stripe, Cisco, eBay, VMware, Airbnb and Guidewire.

The discussions ranged from the short to medium-term outlook, while the minister also fielded questions from executives about the various flashpoints in terms of future investment: housing, cost of living, planning around data centres, and EU regulations.

Overall, however, Coveney returned with optimism. “The big takeaway of my trip was that tech likes Ireland and that tech companies want to continue to build and grow a presence here. And they wanted to provide some reassurance to me and through me, to the Irish government, that the adjustments that they felt they needed to make to remain credible as companies, for their investors, and for their funders, was a necessary adjustment globally,” he said.

“But it certainly wasn’t a reflection on how they see Ireland as a destination for their growth and investment in the future. And that was reassuring.”

However, the minister was equally aware of the negative narrative around the sector at present, something he believes is unwarranted. “These are massive employers, they’re investing billions of euros in Ireland, and I think it’s important that people understand what’s actually happening rather than trying to create headlines out of something.”

Over the course of a lengthy interview with The Currency, Coveney discussed these issues, as well as the issues raised by multinationals about the investment climate in Ireland.

We begin, however, by asking about the recent retrenchment across the technology sector.

Ian Kehoe (IK): Many of the companies you met have retrenched. What was their view on what had happened?

Simon Coveney (SC): Some of them have made adjustments over the last number of months because they would recognise – and they are quite open about it – that the pace of growth over the last two years happened too quickly – now, with the benefit of hindsight. It was described to me by one CFO as a stampede for talent internationally. It meant that a lot of businesses grew at a pace that was just unsustainable, and now they need to correct that. In a real sense, what has been happening for the last four or five months is that most of the announcements are equivalent to giving back somewhere between 15 and 25 per cent of the growth last year.

“The way in which we manage data will be part of how we manage energy in the future.”

Simon Coveney

Take the Microsoft numbers or the Google numbers, for example, you see an addition of maybe 30,000 jobs last year, and now, a reduction of 10,000 or 12,000; recognising that the pace of growth was just too fast, and that correction is needed. That was the first thing that was clear.

The second thing was that the financial markets have changed as well. Investors are now more demanding, as indeed are banks. And, of course, the cost of finance is higher. But the measurement of success against that debt is it is now as much about profitability as it is about growth. Whereas, 12 months ago, or 24 months ago, it was all about the pace of growth in the sector. Now, it is about profitability and return on investment. And I think that’s also driving what companies will describe as efficiencies.

In real terms, this means, of course, some people losing their jobs. But I think the message to those that are impacted in Ireland should be that there’s strong demand for their skills. The tech sector in Ireland is very, very strong, despite the global adjustments that are taking place. And I don’t think that there will be very many people losing their jobs in the tech sector that would find it difficult to find employment elsewhere. I also think it’s true to say that the vast majority of people who are losing jobs in the tech sector will be well supported by their company in terms of getting redundancy payments way beyond what is statutory.

IK: If you look at the Stripe package, it was very generous.

SC: There are multiple examples, but I mean, even Argos, which isn’t really in the tech sector at all, it’s a retail announcement. They’ve been insistent on very generous redundancy packages as well.

This is something that, of course, we need to be aware of. There is a significant adjustment happening in the tech industry across the world, and we shouldn’t ignore it, or dismiss it as not important. I think it is important, but it is certainly not a reason to overreact. The message to me was that the tech sector as a whole really likes Ireland. They see Ireland as a very competitive destination to build a global business.

One of the big companies put it to me best; when they’re considering where to build a global business, they think about political stability. They think about skills, they think about a competitive tax environment. They think about an English-speaking country, they think about a country that is part of the European Union. When you start adding all of those considerations up, there aren’t too many countries that can compete with Ireland. And so that’s not to say that we don’t have some challenges here. We do. We need to continue to work on keeping Ireland competitive and growing. But the overall sentiment towards Ireland, in terms of the success of business here for the multinational tech sector, was very, very positive and very strong. And while there is a correction underway, the commitment to Ireland is as strong as it’s ever been. In fact, I would say it’s probably stronger.

Numbers and outlook

IK: You spoke about the pace of growth. In fact, many of the companies have just moved back to pre-Covid levels globally.

SC: Even less in terms of time. If you look at last year, there was an extra 32,000 jobs in the multinational sector last year – IDA client companies and a net 24,002 extra. About half of that was tech. So there are now 116,000 multinational technology jobs in Ireland, the highest number ever. There are going to be some job losses in some of the big names that have announced global reductions. But in general, the percentage of reductions globally, will not be reflected in Ireland. it’ll be a smaller percentage.

IK: From speaking to executives in the US, do you think Ireland will be better insulated from the job losses? And also, what was their outlook going forward?

SC: If you take Microsoft’s announcement this week. They employ 3,600 people in Ireland. They’ve announced a reduction of 120, which was 3 per cent. But internationally, they had announced a 5 per cent reduction in Microsoft jobs worldwide. And that kind of number has been replicated with other companies. When it was a five or 7 per cent cost, there might be a two or 3 per cent cut in Ireland. And again, that is because of the value that they’re getting in Ireland, the importance of their presence here, and the jobs and the skills here are disproportionately positive in terms of contributing to the overall company.

That’s a good reflection on Ireland. I would caveat everything by saying, of course, that for anyone who loses their job, it’s not a good news story. And we need to support them, and we will. But, I think the skills that we’re talking about here mean that the people who are impacted, while this is unwelcome, will have multiple other job opportunities having come from these companies.

IK: And in terms of the medium-term outlook?

SC: First of all, there’s no absolute certainty. There is a sense that this was a necessary adjustment; that the cost of money and access to money has changed and is likely to stay changed for a while. The years of very, very cheap money are behind us for now. And so, I think there will continue to be a focus in the tech sector on efficiency, and return on investment. You will see in some companies anyway, a move away from the more risky investments that don’t have a clear route to market or a route to a product return. In some of these big companies that would have had a number of projects that they were able to fund in the boom times, but that didn’t have a clear market, you might find them paring back some of those projects to focus on the ones that have more clarity in terms of return on investment. That’s the message I was getting.

“I don’t want to be overly positive. This is a reality check in some ways for a sector that grew too quickly, during and post-Covid.”

Simon Coveney

There is a focus on the centrality of business, within most of these companies, and on return on investment. And on growing those areas, not shrinking, but growing those areas rather than the appetite for risk and moving into new and different areas that weren’t core to the business. I think we’ll see a slight pullback in some of those areas.

That being said, when you spend a bit of time with Apple or you spend a bit of time with Meta, Google, or Salesforce, these are companies that are all of the time pushing new boundaries, thinking about and designing and managing new products. And increasingly more, more and more, they’re actually developing some of those products out of Ireland, which is interesting.

Unpicking the narrative

IK: Are you concerned about the narrative around the tech slump or the tech crash? Particularly what this may mean for people looking at entering those sectors or studying software? Because that skills issue has emerged in other sectors that experienced a downturn.

SC: That’s why I travelled to the west coast of the States. I wanted to be able to come back and speak with some authority on what’s actually happening there, rather than allow a narrative to gain traction that perhaps doesn’t reflect what’s really happening and may impact on the career choices of many young people. For me, if you’re a young software engineer in college at the moment, you have a very bright future in terms of employment opportunities. And that needs to be a message, that goes out to young people and their parents; while we’re seeing a correction in the tech sector because of extraordinary and unsustainable growth over the last couple of years, technology is going to continue to drive our economy.

Data and digital industries will be what continue to grow and expand Ireland’s economy into the future. I would encourage young men and women to think about the tech industry, to think about engineering, to think about the industries that are linked to data management and the broader digital economy. Because Ireland is going to be one of the global centres of activity for digital growth in the future. We are going to be effectively regulating the European Union in terms of how data is managed, and how the digital economy operates across the EU single market. We’re a big, big player internationally in this space. That is why all of these huge multinationals have a big presence in Ireland. It’s why the top ten tech companies in the US all have a big presence in Ireland and for most of them, it’s their EU headquarters.

For Irish people who are thinking about career choices, they should not be put off by this correction that’s taking place at the moment. Because I think the medium-term story for the tech sector out of Ireland will be very positive. It’ll be strong growth and more jobs. Perhaps not at the pace of 2022. But that pace was not sustainable in terms of jobs growth. But I think we will see steady growth, and perhaps more importantly, the continued transition in Ireland from a tech sector point of view, from manufacturing to more R&D, more new product developments, and more innovation.

And of course, we’re going to see more and more Irish companies as well, spinning out multinationals and building their own businesses. And one of the really exciting things from the last few days was that in all of these big tech companies, there were Irish people in middle and senior management.

I don’t want to be overly positive. This is a reality check in some ways for a sector that grew too quickly, during and post-Covid. But it certainly isn’t the crisis. And the way Ireland is seen by these companies is as strong if not stronger than ever. They see Ireland as a place for investment and growth when they start growing again, which hopefully we will see towards the back end of this year.

Houses, regulations, and data centres

IK: And on that point. Obviously, we want to maintain our FDI levels here, but we also want to grow them. You spoke earlier about what was bringing them here. But what did the companies tell you we need to do better – I am thinking housing, regulation, and planning around data centres.

SC: We had a lot of discussion in terms of the EU regulatory environment. The European Commission, along with member states and the European Parliament, are doing a lot of work in terms of trying to develop a single market for data and for digital services. That’s a really complicated thing to do. It involves the regulation of artificial intelligence, of data, of digital services. And we’re in the middle of a lot of that discussion at the moment. And so, a lot of the tech companies watching from afar want a predictable and stable regulatory environment that offers a level playing field across the EU. They also want to avoid over-regulation in this space. That’s no surprise. But I think they see Ireland as a country that is advocating to try to get the balance right here in terms of protecting consumers, and protecting privacy while delivering a fair and competitive market across Europe, but also recognising the commercial realities of keeping the EU competitive versus other parts of the world as well.

Housing was an issue and is an issue for companies. I wouldn’t like to overstate that. I mean, it didn’t come up in every meeting. But it came up in some, where they wanted to increase their headcount in the medium term in Ireland. They wanted to grow and expand here, and they wanted to understand the housing market. Don’t forget, if you live in San Francisco, the cost of houses, they are multiples of what they are here, including rents. They did want to hear the government’s plans in terms of how we’re going to manage the housing market into the future and how we’re going to deliver more homes. And of course, you know, I was happy to give them some reassurance on that because the government is obviously very invested in taking this to a point where we’re building more than 40,000 houses a year.

They see Ireland as very stable politically, which I think is a big asset now – particularly given the increased geopolitical instability that we’ve seen, because of the war in Ukraine, because of the tension between the US and China, supply chains, how they operate, where they source products. All of that is being reconsidered by a lot of companies. And Ireland is very well placed because we’re seen as predictable and solid on issues like political stability, taxation, membership of the single market, and so on. So that was a big positive.

IK: Did data centres and issues around planning come up? It is obviously a contentious issue here.

SC: The reason why data centres in Ireland have been controversial is that a big percentage of the energy demand growth in Ireland in the last few years has come from data centres. That is true. For me, the way Ireland needs to respond to that is to produce a lot more clean energy. The idea that we can build an economy that’s based on data management and digital services, and not have data centres in Ireland – or not have more data centres in Ireland – is simply not realistic. The way in which we manage data will be part of how we manage energy in the future.

The answer to this, for me, is to accelerate the delivery of renewable clean energy. We are planning now to deliver seven gigawatts of electricity generation offshore by 2030. In my view, at some point in the next decade, Ireland will have become an energy exporter. And, so we should be able to facilitate the building of new data centres – within reason – in Ireland, to allow our digital economy to grow, to allow data to be stored here safely. And we need to ensure that they are powered in the future by renewable power generation. In my view, a lot of that new renewable power generation will come from offshore wind, but there’ll be other sources as well.

I think we can get ourselves tied up in knots in the context of data centres, energy usage, and emissions management. We know what we need to do from a climate perspective –  we need to reduce our emissions by 51 per cent by 2030. We need the enterprise sector to be reducing its emissions by 35 per cent. We can do that. But we’ve got to accelerate the delivery of renewable power.

That’s not to say that we have an unbridled growth of data centres in Ireland. Of course, we need to do it sensibly. But I am not one of these people who believes that we should stop building data centres in Ireland. We need to be smarter than that; the way to do it is to produce enough renewable energy to drive our economy, and of course, to become an exporter of green energy in the future. And I think we can do both of those things.

IK: What was the big takeaway from your trip?

SC: The big takeaway of my trip was that tech likes Ireland and that tech companies want to continue to build and grow a presence here. And they wanted to provide some reassurance to me and through me, to the Irish government, that the adjustments that they felt they needed to make to remain credible as companies, for their investors, and for their funders, was a necessary adjustment globally. But it certainly wasn’t a reflection on how they see Ireland as a destination for their growth and investment in the future. And that was reassuring. Tech is going through a bumpy period at the moment. And we’ve seen that in the decisions that the companies have taken, but I think that the medium-term outlook was very, very clear –  technology will continue to grow as an economic driver. And Ireland will be a place where the biggest tech companies want to maintain and grow a presence.

Further reading:

Big Tech is behaving badly. But they are still good businesses