The 'sad side' of foreign direct investment

Analysis: the job losses and retrenchment in the Irish tech sector which we are currently seeing is the other side of the State's FDI success

By Marty Reilly, DCU; Esther Tippmann, University of Galway and Pamela Sharkey Scott, DCU

Ireland is a major international success story for attracting foreign direct investment (FDI). According to the Department of Enterprise, Trade and Employment, it is estimated that 20% of jobs in Ireland can be attributed directly or indirectly to FDI. Data from the American Chamber of Commerce further highlights the positive impact by US multinationals alone bringing direct and indirect employment of 324,000 to Ireland.

Foreign direct investment in the tech sector in particular has been especially strong in Ireland. Employment has peaked recently, with an additional 25,000 employed in the tech sector here compared to pre-pandemic levels. To a large extent, it has been a positive story - with IDA Ireland (IDA) continuously reporting on the extraordinary delivery of FDI. The exchequer has also seen larger-than-expected tax returns from multinationals, especially in 2021 and 2022 when the global tech sector performed strongly.

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From RTE Radio 1's News At One in Jukly 2020, RTÉ Business Editor on IDA Ireland warning of a 'challenging' FDI outlook

FDI in Ireland has also been unusually resilient by international standards with many subsidiary operations evolving over the years to retain their relevance to their parent organisation. For example, the American Chamber of Commerce reports that one third of US multinationals operating in Ireland have been here for more than 20 years. Intel's continued investment in Ireland, spanning more than three decades, represents just one example of the sustained contribution that FDI in the tech sector has made to Ireland Such longevity is not the norm: a study of divestments by US multinationals has found that more than 20% of their foreign subsidiaries were closed within 15 years of observation.

This is the positive or happy side of FDI, and typically what we see celebrated in media reports. But the tech sector is now experiencing a major rebalancing globally, and Ireland is becoming a victim of its own success. The high levels of FDI attracted make Ireland vulnerable to decisions made in Silicon Valley and like Meta, Twitter, Stripe, Amazon and Microsoft of impending layoffs are also impacting their Irish operations. We are seeing a wave of redundancies hitting the tech multinational sector in Ireland that is unprecedented.

From RTÉ Radio 1's The Business, Patrica Scanlon from Soapbox Labs and Patrick Walsh from Dogpathc Labs on turbulence in the tech sector

From a broader, macro perspective, these lay-offs can be regarded as part of the normal life cycle of FDI. Multinational corporations undertake foreign investments to create value for their organisation, such as capturing opportunities for growth in international markets. The accelerated shift to online working and ecommerce prompted by the pandemic led to phenomenal growth in the tech sector.

This has now come to a halt and inflation, concerns of a widespread and deep recession and growing political uncertainty have resulted in many tech firms becoming more cautious about the future business outlook. In response, tech multinationals are taking decisions to protect the future of their organisations overall: they are battening down the hatches, introducing cost saving measures and retrenching global operations. It is important to note this does not excuse such organisations from irresponsible ways of reaching and executing retrenchment and restructuring decisions. Rather, it is about recognising the economic reality of running multinational corporations.

For Ireland, these lay-offs reveal the sad side of FDI. For the employees affected, the job losses are a cause of dismay and individual distress - the layoffs are an emotional journey. Our recent research on subsidiary closure found that for those directly involved, especially employees who are leaving involuntarily, feelings such as anger, shock and betrayal come to the fore. The emotions felt by employees facing subsidiary downsizing or closure is often similar to the loss felt when someone very familiar, like a close friend or relative, dies.

From RTÉ Radio 1's Morning Ireland, Dr Jean Cushen from Maynooth University on what's behind the recent job losses in the technology sector in Ireland

Those departing employees are losing not just their primary source of income, but also a major social arena. Their employment provided a social network of like-minded peers and accumulated shared experiences through working with their teams and colleagues often over years and decades. While each affected employee will experience the emotional journey in her own way, we observed a sadness and sense of loss experienced en masse. Employees move through the stages of grief, that encompass denial, anger, bargaining, depression and finally, acceptance.

Our study found that local managers play a key role in easing the transition for those leaving. Foremost, appreciating and engaging with the emotional journey and stages of grief is fundamental. Then, there are a few measures that can help. They can help by reassuring those to be laid off about their financial compensation and remuneration packages.

They can also encourage engagement with counselling and support services to allow employees to assess their self-worth and to take pride in their achievements with the organisation. Finally, the provision of structured and funded programmes for training and professional development can provide emotional and practical support for those now faced, often unexpectedly, with entering an uncertain job market.

From RTÉ One's Six One News, 29,000 new jobs were created by multinational companies with operations in Ireland in 2021

Those employees who are remaining also experience the stages of grief: denial, anger, bargaining, depression and finally, acceptance, albeit to a lesser extent. The subsidiary that they knew - the one many believed to be an integral part of the multinational’s international operations - has revealed itself as vulnerable. Local managers are pivotal in providing the reassurance and commitment needed for these employees to be resilient in the face of an increasingly uncertain future.

The job losses and retrenchment that we are facing now is the sad side of Ireland’s FDI success. Unfortunately, we must accept that the sad side is also part and parcel of FDI, and work through it knowing that many of these multinationals have been here for several decades, their roots are strongly embedded and that Ireland can continue to offer a strong value proposition for future FDI.

Dr Marty Reilly is Assistant Professor of International Business at DCU Business School. Prof. Esther Tippmann is Professor of Strategy, Leadership and Change at University of Galway. She is a former Irish Research Council awardee. Prof. Pamela Sharkey Scott is Professor of Strategy & International Business at DCU Business School.

The views expressed here are those of the author and do not represent or reflect the views of RTÉ

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