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Diaspora investment promotion via public–private partnerships: Case-study insights and IB research implications from the Succeed in Ireland initiative

  • Elena Poliakova
  • Liesl Riddle
  • Michael E. CummingsEmail author
Article
Part of the following topical collections:
  1. Migrants, Migration Policies, and IB Research

Abstract

Recent research in international business and related fields suggests that a country’s overseas migrant populations can facilitate its inward flow of foreign direct investment (FDI). How do recipient-country governments interested in attracting more migrant-facilitated FDI respond? We provide the first exploratory study of recipient-country response by examining a public–private partnership (PPP) between government-run investment promotion agencies and diaspora-focused non-governmental organizations (NGOs). Evidence from a review of the Succeed in Ireland initiative, a partnership between the Investment Development Agency of Ireland and an NGO called ConnectIreland, provides novel insights into PPP strengths and weaknesses. We use these insights to develop propositions for future research and practical guidance on the optimal PPP design to attract more migrant-facilitated FDI.

Keywords

migrants foreign direct investment investment-promotion agencies principal-agent theory public–private partnerships case study 

Introduction

We present a case study demonstrating how government-run investment promotion agencies (IPAs) work with diaspora-focused non-governmental organizations (NGOs) to attract foreign direct investment (FDI) from countries where their migrants live and work. The story of the “Succeed in Ireland” initiative in the 2010s illustrates the strengths and weaknesses of such public–private partnerships (PPPs) designed to serve investing firms’ private profit goals, recipient countries’ public economic development goals, and “hybrid” social advancement goals of transnational migrant communities, linking friends and family of similar national heritage. Our story is timely for international business (IB) research on whether and how multinational enterprises (MNEs) and other foreign investors respond to outward FDI “push” factors from migrants living abroad and to inward FDI “pull” factors from IPAs and diaspora-focused NGOs back home. To date, little theoretical guidance or empirical evidence has provided answers.

We offer both in the form of a case study on a recent PPP called Succeed in Ireland. Our narrative is guided by theories from different research fields: political science and economics research on the role of migrants in directing outward FDI (Javorcik, Özden, Spatareanu, & Neagu, 2011; Leblang, 2010); public policy research on the role of IPAs in attracting inward FDI (Harding & Javorcik, 2011; Morisset & Andrews-Johnson, 2004); and management research on PPP structure and the prioritization of public and private interests (James & Vaaler, 2018). Applied to the Succeed in Ireland initiative, this guidance leads to valuable insights into how PPPs designed to attract more migrant-based FDI emerge, operate, and dissolve, and how they serve important private, public, and hybrid goals. This guidance also leads to research propositions that might guide future broad-sample statistical study of PPPs as policy responses that can attract migrant-based FDI and broader “diaspora engagement”, benefiting firms, governments, and migrant communities (Gamlen, Cummings, & Vaaler, 2019; Riddle, 2017).

The Succeed in Ireland initiative brokered by Irish business executive, Terry Clune, paired his diaspora-focused NGO, ConnectIreland, to the Investment Development Agency of Ireland (IDA), a national Irish government IPA with a broad public mandate to increase inward FDI and promote faster economic growth, particularly by attracting FDI in high-technology industries. Clune’s ConnectIreland became an IDA agent that enlisted “connectors” to refer FDI projects from Irish migrant business executives and their connections around the world. Promising up to €3,000 in IDA funds per job created from a successful referral, ConnectIreland took credit for 95 projects that created more than 1500 jobs in the first full year of operation (2012), prompting commendation from the Irish government and media, and an extension of the initial contract between IDA and ConnectIreland.

Despite this apparent initial success, the PPP created interorganizational tensions that ultimately led to its collapse. ConnectIreland favored FDI referrals in the financial technology (“fintech”) sector, where Terry Clune had been a successful entrepreneur. IDA personnel criticized ConnectIreland’s apparent business portfolio “imbalance” and the apparently “lax” standards for including fintech rather than other firms in the portfolio. IDA personnel also questioned whether ConnectIreland actually deserved credit and compensation for referring firms that the IDA was already considering. By the time the extended contract between IDA and ConnectIreland expired in 2017, the two organizations could not even agree on the number of new jobs generated by the PPP: ConnectIreland claimed approximately 2,500, while IDA claimed approximately 500 (O’Halloran, 2017).

The emergence, operation, and dissolution of the Succeed in Ireland initiative highlights the value of combining organizations with differentiated but complementary capabilities: private sector business executives able to identify firms with high-profitability, high-employment potential; public-sector IPAs able to offer extrinsic financial and regulatory incentives to those firms; and civil society sector, diaspora-focused NGOs able to offer intrinsic incentives to those firms based on the shared ethnic heritage of founders and key employees. However, this case study also highlights tensions arising from inadequate principal-agent monitoring and incentives alignment, leading to conflicts over performance metrics and PPP players’ compensation. The Succeed in Ireland narrative prompts several directions for future quantitative research on PPPs: player selection and PPP governance design, that might better exploit complementary abilities and better manage inevitable player conflicts, and environmental factors that might magnify or diminish the impact of such complementary abilities and player conflicts. The Succeed in Ireland narrative also invites practical suggestions for how business executives, government officials, and migrant community representatives might cooperate effectively to promote migrant-based FDI in an era when migrants are increasingly important as transnational business players influencing the “push” and “pull” of FDI, which is so critical to sustained economic growth and poverty alleviation around the world (Kolk, Rivera-Santos, & Rufín, 2018).

To elaborate these points, the remainder of this study presents four additional sections. In “Foundational Concepts and Literature”, we define core concepts and contributing literatures that underlie our case study. In “Succeed in Ireland Case”, we tell the Succeed in Ireland story and highlight its elements illustrating PPP and the principal-agent theory issues summarized above. In “Theory Development”, we use the story to generate propositions for future theoretical work and empirical study based on quantitative approaches. We then conclude in “Concluding Discussion” by summarizing key points from the case study, implications for research and related practice on migrant-based FDI, and suggest avenues to advance this research.

Foundational Concepts and Literature

IPAs are public-sector (government) organizations typically intended to attract investors and firms and to promote capital investment, technology transfer, employment, and their resulting economic development (Morisset & Andrews-Johnson, 2004). IPAs are relatively new as, until the early 1990s, there were almost no IPAs (Riddle, Brinkerhoff, & Nielsen, 2008). By the end of 2018, there were over 170 national IPAs representing countries like Ireland and over 250 subnational IPAs representing regions (e.g., Wallonia, Belgium), provinces (e.g., Ontario, Canada), states (e.g., Victoria, Australia), metropolitan areas (e.g., Twin Cities of Minneapolis-St. Paul, USA), and cities (e.g., Johannesburg, South Africa). Some IPAs are independent, but most are members of international associations that promote standard services to clients (WAIPA, 2018).

Despite early scholarly enthusiasm for IPA study in the 1990s and early 2000s (Coughlin & Segev, 2000; Head, Ries, & Swenson, 1999; Morisset, 2003; Wilkinson & Brouthers, 2000), interest apparently dropped off. A similar shifting of interest characterizes IPA publication trends by economic development and MNE policy analysts at international organizations (Wells & Wint, 2000; Loewendahl, 2001; Morisset, 2003). We find few recent academic studies in IB beyond case-study anecdotes (e.g., Anderson & Sutherland, 2015) and insufficient focus on diaspora investment-focused PPPs.

A primary goal of most IPAs is to attract more inward FDI. It is a virtual axiom of IB research that FDI responds to host-country policy incentives (Buckley, 2018). For example, Morisset and Andrews-Johnson (2004: 13) conclude that “for each 10 per cent increase in the [investment] promotion effort, the level of FDI increases by 2.5 per cent.” Such conclusions and their underlying assumption of government policy effectiveness explain why so many countries have established IPAs (Head & Ries, 2010).

Typical IPA performance metrics include the volume of foreign investment and the total number of jobs created (Guimón & Filippov, 2017). Even when successful, investment promotion can be expensive. For example, the reported total expenditure per job created over the period 1997–2003 for IDA was USD 19,000 (IDA, 2003). IPA incentives do not assure firm investment, success, and job creation in each instance. IPAs pay for unsuccessful initiatives producing no jobs and for successful ones producing new jobs. That prospect prompts many IPAs to prefer larger, more experienced investors and firms as clients (Riddle, Brinkerhoff, & Nielsen, 2008). Appealing to different types of investors – not only large MNEs but also small and medium enterprises and individual investors – requires a different organizational and incentive structure, as the Succeed in Ireland case study will illustrate.

A second foundational concept is the PPP. Garvin and Bosso (2008: 163) define PPPs as “long-term contractual arrangement[s] between the public and private sectors where mutual benefits are sought and where ultimately (a) the private sector provides management and operating services and/or (b) puts private finance at risk.” PPPs are common in infrastructure–investment settings. The construction, ownership, and operation of power generation, water and sewer, telecommunications, transportation, and energy projects were historically the province of governments in many countries seeking the “commanding heights” of the national economy (Yergin & Stanislaw, 1998). Fiscal stress and shifting ideologies about a government’s proper role in the economy in the late 1980s promoted alternative project-investment strategies whereby host-country governments shared project ownership and operation with private, often foreign-domiciled investors. Esty (2004), Musachio and Lazzarini (2014), and others (e.g., James & Vaaler, 2018) describe these now-common cooperative arrangements in PPP terms. In the 2000s, some of the largest PPP project investments also included non-governmental international organizations as project lenders and advisors with substantial say in longer-term project goals and daily operations. An illustrative case is the Chad–Cameroon pipeline project, which included two host countries, three oil-industry MNEs, and the World Bank in different PPP roles (e.g., Esty & Ferman, 2001).

Advantages related to role complementarity come with challenges related to incentives alignment. Private firms pursue profits, governments pursue broader welfare goals, and NGOs pursue a specific aspect of welfare (e.g., jobs for host-country government citizens). In a PPP setting, these divergent interests require adroit ownership and operational agreements so that conflicting orders from heterogenous principals do not stymie managerial agents (Rufin & Rivera-Santos, 2012). For some, a solution to this principal-agent (Jensen & Meckling, 1976) challenge is to place government in a substantial but non-controlling minority ownership role (Musachio & Lazzarini, 2014). Private project owners then retain control over managerial operations but still enjoy government financial and related political support. Others make that prescription contingent on the strength of local regulatory institutions and related project contracts that reinforce private-firm control over managerial operations (James & Vaaler, 2018). For these and other IB researchers, the common project goal in PPP design is governance that promotes a dominant owner or coalition of owners that will provide consistent operational guidance to project managers.

A third foundational concept is diaspora capital. This refers to money and other valuable resources provided by migrants, that is, individuals living outside their country of birth or youth. IB and related work in development economics, political science, and public policy has identified and analyzed distinctive resources that these often transnational individuals contribute (Boly, Coniglio, Prota, & Seric, 2012; DeBass & Ardovino, 2009; Graham, 2014; Martinez, Cummings, & Vaaler, 2015; Saxenian, 2006; Vaaler, 2011; 2013). For example, Vaaler (2011) has identified and analyzed the impact of migrant remittances to home countries in the developing world. He documents their positive effects on home-country venture funding and founding rates and on broader openness to international trade. Follow-up research demonstrates that such effects are more pronounced when migrants live in more concentrated communities abroad (Vaaler, 2013), and when their remittances go to home countries with larger informal economies (Martinez et al., 2015). The transnational nature of migrant life endows diaspora capital with connectivity: money that can connect migrants abroad to venture funding and founding opportunities back home, and knowledge of how to connect migrant business executives abroad to places and people back home where a new plant or office park might emerge.

IPAs organized into PPPs with diaspora-focused NGOs seek to harness that diaspora capital. They are one type in a broader category of diaspora engagement institutions (Agunias, 2013; Agunias & Newland, 2012; Gamlen, 2006; Gamlen, Cummings, & Vaaler, 2019). This PPP variation seeks to promote remittances, tourism, skills transfer, philanthropy, portfolio investment, and direct investment in migrant home countries (Cummings & Gamlen, 2019; Brinkerhoff, 2011; Riddle, 2017). Indeed, these PPPs’ scope of engagement often goes beyond harnessing the capital of first-generation migrants actually born or raised in the home country, and can extend to migrant descendants – second, third, and fourth generations living abroad – connected increasingly by sentiment for, rather than actual ties to, the home country.

Diaspora capital is not limited to money. Other resources linked to transnational knowledge and connections may better facilitate trade and investment between home and host countries. Gould (1994) asserts this proposition in the context of international trade. Leblang (2010) does so in the context of FDI, theorizing that migrants in host countries help direct investment into their home countries by reducing transaction costs. He documents evidence for this claim by analyzing US migrant communities and patterns of outward US FDI. Tung and Chung (2010) make similar claims and marshal similar foreign investment evidence for Chinese migrant managers in Australia and investment in China. Li, Hernandez, & Gwon (2019) do the same in the context of historical patterns of Korean migration and expansion of Korean banks in China. When IPAs engage diaspora-focused NGOs as PPP partners, they look for the same connective diaspora capital, to attract inward FDI from migrants and their firms abroad. In this way, IPAs harness the diaspora as an overseas investment-promotion lobby.

Investment-promotion PPPs between IPAs and diaspora-focused NGOs seek to achieve complementarities similar to those described for project-investment-based PPPs, and face all the same governance challenges as those described in a project-investment context. The solution to these challenges with IPAs centers on contracts rather than on ownership considerations. Agreements between government officials, diaspora-focused NGO representatives, and perhaps others such as firm executives seek to anticipate and control for inherent biases. Contracts linking the two or three players set incentives for NGOs’ and other private players’ recruitment of firms and for government subsidies to firms recruited by IPAs.

Contractual terms evolve through greater mutual familiarity, as do other relational contracts based on knowledge and trust (Deakin & Michie, 1997) rather than on expensive and detailed performance monitoring (Walsh, 1995). Contracts that fail to evolve often lead players to feel “trapped” by initial terms that appear to deny them a fair say in collective operations and/or fair compensation for contributions to those operations (Lonsdale, 2005). From a transaction-cost economics perspective (Williamson, 1985), failure to evolve leads to incentives for one or more players to breach terms opportunistically, to shift would-be losses to other players unexpectedly. From a principal-agent perspective (Jensen & Meckling, 1976), failure to evolve undermines incentive alignment that holds the PPP together.

Transaction-cost and principal-agent theories inform our approach to PPP-based IPAs in the Succeed in Ireland case. We think those theories are best suited to this case, but acknowledge others. Mudambi and Pederson (2007), for example, prefer resource dependency theory (Pfeffer and Salancik, 1978) to explain intraorganizational relationships in IB contexts. They hold that contracting constitutes a “hard control” in transaction costs and agency theory that has limited use when players often settle differences based on conventions and understandings. We acknowledge their criticism and modify our own view of “contracting” to include both formal negotiation of terms in a written agreement linking PPP players as well as informal discussion and adjustment of often unwritten conventions and understandings that permit PPP players to work together for mutual benefit. With this in mind, we next present our illustrative case.

Succeed in Ireland Case

Case Background and Methods

We use the Succeed in Ireland initiative to explore the theoretical and practical challenges of forming PPPs to attract migrant-based FDI through agreements linking IPAs to other organizations in the private and NGO sectors. Several factors related to our foundational concepts above (IPAs, PPPs, and diaspora capital) make Ireland an interesting context for the study of PPPs that promote migrant-based FDI.

Perhaps the main factor is the Irish diaspora. Approximately 70 million people around the world claim Irish descent, 14 times the current population of Ireland. A significant share of Ireland’s historic economic development has been attributed to the knowledge and skills of this diaspora (ConnectIreland, 2012a; McWilliams, 2007), which is among the most highly educated in OECD countries (DIOC, 2011). Although Ireland was hard hit among European countries by the Great Recession of the late 2000s (Aalbers, 2009), it managed to continue receiving a disproportionate share of OECD FDI (Iammarino, 2018). These distinctive diaspora characteristics help us understand why the Irish government was an early adopter of PPP-based initiatives, including diaspora-focused NGOs, in the design of domestic university institutions and other educational infrastructure (Deloitte, 2007).

We use case-study methodology (e.g., Yin, 2012) to develop research and related practice and public insights into how to attract more migrant-based FDI via IPAs in PPPs. Cases use empirical evidence from real people facing contexts in which underlying causal and even correlative factors are not well defined (Myers, 2013). Case-study approaches are appropriate when the “boundaries between phenomenon and context are not clearly evident” (Yin, 2012: 16). The Succeed in Ireland case fits this description. The phenomenon of interest is difficult to separate from its context of migrant-based FDI contributing to economic development in Ireland.

Case studies are especially useful in the early stage of research on a new topic (Myers, 2013). Although significant prior work on both IPAs and PPPs exists, studies of their combination in the diaspora investment arena are less common. The Succeed in Ireland case again fills this gap. A study of connections among the Irish business executive, Terry Clune, the ConnectIreland diaspora-focused NGO, and IDA provides interesting material to develop preliminary evidence, theory, and related tools that will be useful in follow-up quantitative research.

In developing the case, we draw on different sources: personal interviews and correspondence with Joanna Murphy, the former CEO of ConnectIreland; semi-structured interviews with IDA employees and experts on diaspora capital and the Irish economy; reports and press releases from web pages of ConnectIreland and IDA; and popular media coverage of this PPP in the 2010s. In laying out our case narrative, we sought to analyze these sources for information on IDA and ConnectIreland separately and as a PPP dyad. Some of our informants are identified, as they are in publicly available information, while others are not. We look for recurring insights across different data sources, a form of “triangulation” (Patton, 2002). In a broader sense, our case-study analysis seeks preliminary, exploratory insights on “what happened” (Yin, 2012), to guide future research and practical action.

IDA

IDA is a noncommercial, government IPA. The agency was established as part of the Department of Industry and Commerce and initially focused on supporting and promoting export-led business (Barry & Fathartaigh, 2015), although it has since become more independent and has expanded its scope of influence to include all aspects of industrial development, including FDI. By 1984, IDA was characterized as “probably the most powerful governmental agency in Ireland,” and at least one scholar observed that if “IDA supports a particular investment, other officials rarely withhold their approval or consent” (Fanning, 1984: 573).

IDA has been remarkably successful in attracting many of the largest multinationals to Ireland. In 2012 alone, IDA facilitated major investments from large global firms such as PayPal, Fidelity, Amgen, Apple, Cisco, and Eli Lilly (IDA Ireland, 2012). Like many IPAs, these large multinationals are more-typical targets for IDA than are smaller and younger organizations.

A typical investment setup process includes introducing a prospective investing firm to an expert in the relevant sector, discussing the feasibility of the proposed project, and arranging for key firm decision-makers to visit Ireland. During this visit, IDA matches key elements with the company’s needs and organizes meetings with IDA clients who have already established or expanded their companies in Ireland. After the site visit, the proposed investment project, with all the necessary details, such as number of employees, skill sets, desired location, and relevant financial information, is presented to the IDA management and board. If the proposal is approved, IDA actively helps the company start its operation on Irish soil. In addition to developing strong relationships with large MNEs, IDA has also enjoyed a friendly and productive relationship with the Irish diaspora around the world (IDA Ireland, n.d.).

ConnectIreland

ConnectIreland is a nonprofit organization based in Dublin and founded in 2012 by Irish entrepreneur, Terry Clune, who previously founded Taxback.com, a company that facilitated the recovery of excess tax paid by foreign nationals while working abroad (Monagan, 2013). This experience gave Clune familiarity and connections with foreign nationals, and he thought he could apply that expatriate expertise to facilitate diaspora investment promotion. Initially, IDA contracted with ConnectIreland to deliver the Succeed in Ireland initiative as a pilot, but the program’s success during its trial period led IDA to grant a contract extension until 2017.

Clune himself funded all the up-front operational costs of ConnectIreland. These included the costs of more than 30 full-time staff and several worldwide investment-promotion campaigns. One of our informants observed that “the uniqueness of [Succeed in Ireland] was an individual willing to put his hand in his pocket [and] very often when other countries come to us [to discuss similar initiatives], they’re very interested in all the different elements of ConnectIreland, but they can’t find anybody who will play the role that Terry Clune played.”

Yet, for Clune, ConnectIreland was a high-risk venture. If ConnectIreland could capture new, unique job-creation opportunities that IDA would miss, at a reduced cost (given that the networking function was outsourced), it would create net positive tax revenues. Moreover, part of the excess tax revenues could be split between connectors and ConnectIreland, eventually allowing ConnectIreland to become self-sustaining. However, if the organization did not meet its targets or if the cost savings did not occur, the PPP agreement would likely reach an early end, leaving Clune to foot the bill.1

Although the Succeed in Ireland initiative allowed anyone to register as a connector and make investment referrals to ConnectIreland, it was marketed more explicitly to the global Irish diaspora as an innovative way to create new jobs in Ireland (IDA Ireland accused, 2017). One informant echoed the importance of the diaspora role, remarking that “one of the big mistakes that a lot of countries or agencies tend to make is that they look solely at the finances of [investment], but the social capital that the diaspora has can be incredibly important” for the success of the investment-promotion initiative. Barry O’Leary, the CEO at IDA, described the Succeed in Ireland initiative as “a very tangible way for the global Diaspora to support job creation in Ireland” (ConnectIreland, 2013). The Taoiseach, the prime minister and head of the Irish government, similarly emphasized the importance of Succeed in Ireland’s diaspora orientation for the Irish economy: “It is a great credit to the diaspora and connectors worldwide that we are now looking at a potential 1,000 new jobs for Ireland” (ConnectIreland, 2014b).

ConnectIreland used creative marketing campaigns to motivate diasporans to participate in their program, such as an integrated marketing campaign in Ireland’s airports and taxis, promotional events, and social media campaigns (Riddle, 2017). The start of the initiative included a high-profile advertising campaign featuring stars such as Saoirse Ronan, Martin Sheen, and Michael Flatley (ConnectIreland, 2012c). These Irish “ambassadors” even appeared in a video posted on St. Patrick’s Day, inspiring people around the world who claim Irish ancestry to leverage their connections to help create new jobs in Ireland (ConnectIreland, 2012b).

The messaging from ConnectIreland to its cadre of potential connectors was simple. As Michael McLoughlin, the first CEO of ConnectIreland, noted, “by asking the question ‘have you considered Ireland,’” people can help “to create job opportunities in their own counties” or ancestral hometowns (ConnectIreland, 2014c). One local chamber of commerce CEO added, “everyone has contacts overseas and now is the time to see if we can draw on these connections to help create new jobs in Ireland” (ConnectIreland, 2012a).

Diaspora members responded favorably. Brian Surgue, an equity analyst from Dublin residing in Boston, also emphasized the system’s feasibility: “I knew straight away it was something I could do . . . I believe in promoting Irish business interests and ConnectIreland really gives us something concrete to do. We will reach out to our extensive network of contacts in US and beyond to find connections in companies that are thinking of expanding into Europe.” (Griffin, 2012). This feasibility gave both Irish residents and the Irish diaspora a strong sense of purpose and a simple task to perform, rather than simply waiting and hoping for a recovery from the financial crisis.

ConnectIreland’s campaigns even leveraged sport culture. In December 2014, they formed a marketing campaign involving nineteen emigrant players returning to Ireland to play hurling2 for a fundraiser. Passengers at the airport could take pictures with the Liam McCarthy and Sam Maguire3 cups and learn more about ConnectIreland and the possibilities of attracting expanding companies to Ireland. Joanna Murphy, ConnectIreland’s CEO, encouraged potential onlookers with the following call to action: “We need to play our part now so that these players gathered here today, players in clubs and communities all over Ireland and many more scattered around the globe, have jobs and a future in Ireland. All someone has to do is pass on the information about an expanding company. We will partner with IDA and do the rest and bring those jobs home.” Liam O’Neill, president of the Gaelic Athletic Association, added, “As we enjoy our games at home and look forward to celebrating Christmas in our clubs and in our communities, we spare a thought for the many players we have living abroad at the moment. They watch our games in far-flung places. We would love to have them back at home with us again but in order to do that, we need to create jobs. ConnectIreland is a simple way to make those jobs a reality” (ConnectIreland, 2014a).

The typical “successful” connector process proceeded as follows. An individual (often but not necessarily an Irish citizen or of Irish descent) registers as a connector and refers a foreign company to ConnectIreland. If the company establishes in Ireland and creates new, sustainable jobs and IDA approves the project, the referring individual is paid €1,500 per job, up to a maximum of 100 jobs, while ConnectIreland receives €1,000 per job. Both the connector and ConnectIreland are paid from the increased tax revenues. The process for a successful “connector” referral is summarized in Table 1.
Table 1

Steps of a successful connector referral

1.

Individual registers as a “connector” with ConnectIreland

2.

Individual refers a foreign company considering international expansion to ConnectIreland.

3.

CI and IDA collaborate to provide information/services to the investor, who decides to enter Ireland

4.

IDA reviews the project for potential eligibility (If approved, go to steps 5 and 6; if not, the foreign firm may still enter Ireland with IDA’s help, but connector ineligible for reward)

5.

The jobs are sustainable (lasting for 2 years)

6.

The connector receives a reward from the Irish government. Half the money is paid a year after the jobs are created, and another half at the end of the second year

On June 1, 2012, less than three months after the initiative was launched, the first foreign investment was announced: Intergeo Services, a United States engineering firm, was moving its international headquarters to Ireland, which would create 30 jobs in Carlow (ConnectIreland, 2012d). Reacting to the announcement, the Irish prime minister confidently characterized this as the “first of many jobs announcements” (ConnectIreland, 2012d). He was not wrong. One of the most prolific connectors was an auctioneer, Hugh Morris, who brought 150 jobs to Ireland through his referrals: Mafic (70), Clearplas (40), Deco (20), and Ultramain (20).4 These initial successes generated a great deal of enthusiasm for the Succeed in Ireland initiative, and the initial contract between IDA and ConnectIreland was extended until March 2017. According to ConnectIreland, during five years of operation, more than 80,000 potential connectors registered, and more than 2,500 new jobs were created. IDA’s perspective was drastically different: it had only verified just over 500 jobs at the time the contract expired in 2017, approximately one-tenth of its contracted target of 5,000 new jobs (O’Donoghue, 2017a).

Partly driving this discrepancy was the fact that IDA, in numerous cases, blocked investment referrals from connectors who ConnectIreland argued should have been eligible for a reward. One such connector was Sean Moran, who contacted ConnectIreland and referred an e-commerce company named eComm, owned by his brother Noel and based in London. Although eComm eventually moved, creating 30 new Irish jobs, IDA determined that Sean was not eligible for a tax incentive reward, ostensibly because one of Noel Moran’s other firms was already on a list of potential IDA targets. Yet, Noel claimed he had not discussed this specific venture at all with IDA. In addition to damaging both organizations’ reputations (IDA Ireland accused, 2017), the broader dispute about reward eligibility resulted in an ongoing legal battle between the two organizations (O’Connor, 2017) and was subjected to a detailed ministerial review.

Theory Development

In “Foundational Concepts and Literature” above, we highlighted several elements of transaction-cost and agency theory perspectives on interorganizational and intraorganizational relationships. We now revisit those theoretical frames in light of the case to generate theoretical propositions and practical recommendations for diaspora investment PPPs.

As Gereffi (2019: 199) observed, most large organizations take a structured, top–down approach to implementing their objectives, while “new ideas or contending approaches, however, typically enter [international organizations] at lower levels in the organizational hierarchy” or from outside the organization. Succeed in Ireland’s distributed referral process and split “finders fee” approach to investment-lead generation is unique among IPAs, perhaps because most IPAs are wholly governmental or semi-autonomous bureaucratic state agencies. One informant echoed this sentiment in terms of the Succeed in Ireland initiative, saying that “sometimes those in the public space . . . are hindered by what they can do and people within the private sector are those with a bit more creativity who can act more quickly,” and concluded that “ConnectIreland would never have come out of the Department of Foreign Affairs and Trade, and probably wouldn’t have come out of IDA because it’s a semi-state organization.” Therefore, we offer the following proposition:

Proposition 1:

Diaspora investment-promotion PPPs will result in more nnovative approaches to investment promotion than will investment-promotion efforts led solely by governmental IPAs.

The general case for pursuit of a PPP is that it is faster, easier, and more efficient than the government’s traditional public procurement of the same services. Yet, because a PPP requires coordination and contracting, in order to achieve the stated efficiencies, a well-designed PPP must overcome transaction costs and principal-agent conflicts, possibly via more “relational” forms of contracting involving trust and cooperation (Reeves, 2008), or by explicitly aligning their incentives to reduce principal-agent conflict (Rufin & Rivera-Santos, 2012). The potential for these conflict points is higher in an investment-promotion PPP because, in many instances, the public and private entities are competing with each other to “create jobs.”

Although the Succeed in Ireland initiative was designed with the assumptions that both IDA and ConnectIreland would be altruistic in their pursuit of job creation in Ireland, in our case analysis ,we observe several conflict points inherent in the PPP’s structure. First, because ConnectIreland jobs did not count toward IDA’s own job targets, it created an incentive for IDA to under-count them. In addition, IDA’s resource demands increased through its required sponsorship of ConnectIreland’s marketing campaigns, but IDA had insufficient additional financing from the government to support the initiative.

The partnership agreement outlined that IDA had the option to block a foreign company’s eligibility for rewards if the company had already been a client or a target of IDA in the previous six months. This rule was designed to minimize duplicated efforts whereby both organizations expended resources on the same foreign investor. The chances of this were relatively low given that IDA and ConnectIreland generally targeted investing firms of different sizes. Yet, this did happen, as in the eComm example and the resulting legal battle described above. In fact, IDA field office employees told us that, in some overseas locations, because of the limited pool of interested companies, both IDA and ConnectIreland targeted firms of all sizes for potential investment in Ireland. Therefore, we present the following proposition:

Proposition 2:

The degree of incentive alignment between the two parties in a diaspora investment PPP is positively related to the quality of their relationship and the long-term viability of the PPP.

Unlike some typical PPP contexts, such as infrastructure, hospitals, or schools, where the private party makes investments in assets that have value outside the partnership, ConnectIreland’s registration of connectors and their potential referrals involved making investments with high levels of asset specificity (Artz & Brush, 2000). The organization’s raison d’etre was the participation in the Succeed in Ireland initiative with IDA, and without the partnership, ConnectIreland’s assets had little or no value to them or anyone else. A comment from Joanna Murphy, ConnectIreland CEO when IDA announced the end of the arrangement, reflects this: “Should the programme be discontinued in March, all of our progress will wither and die” (O’Donoghue, 2017a). Conversely, many of IDA’s activities supporting the Succeed in Ireland initiative, such as marketing campaigns, policy advocacy, and relationship-building, generated residual value that supported their future efforts to encourage FDI and global trade with Ireland. The persistence of this value after the PPP’s expiration reduced IDA’s reliance on the relationship. For these reasons, the resulting power imbalance increased ConnectIreland’s potential for contractual lock-in (Lonsdale, 2005; Reeves, 2008). If, instead, ConnectIreland had a significantly broader set of activities that predated and existed alongside its participation in the Succeed in Ireland initiative, it may have been able to insist on more autonomy from IDA, which would have preserved its ability to create and retain the value of its diaspora network building (Mudambi & Pedersen, 2007). Therefore, we present the following proposition:

Proposition 3:

The degree of specialization of the private entity in a diaspora investment PPP is inversely related to the quality of the relationship and the long-term viability of the PPP.

Concluding Discussion

This study contributes to research and practice of diaspora investment-focused PPPs in several ways. First, prior research on PPPs has identified the need to reevaluate the traditional understanding of PPP success and to identify best practices of public–private strategic alliances (e.g., Hodge & Greve, 2007, 2017). We contribute to this research by elucidating factors leading to the success and failure of diaspora investment-promotion PPPs. We suggest that the PPPs’ institutional structure (e.g., distribution of incentives and power) can account for some of these factors, and we provide a framework and recommendations for how to structure the partnership more effectively and facilitate cooperation between the public and private actors. Specifically, insights into role distribution at different phases of the PPP life cycle will help policy-makers decide whether to choose a PPP or a traditional IPA approach. Future research could build on our study by exploring how the PPP model of Succeed in Ireland can be applied elsewhere, perhaps via a comparative study of two or more investment-promotion PPPs in different institutional fields.

Our study also contributes to the broader literature on the design and effectiveness of stakeholder engagement efforts (Bingham, Nabatchi, & O’Leary, 2005). The Succeed in Ireland initiative appealed to diaspora members’ altruistic motivations to do the work of identifying and referring potential investment sources. By some measures, the initiative succeeded, with 80,000 connectors registered and indicating interest in participating, which increased the chances that ConnectIreland could identify valuable potential investments beyond what IDA could do on its own. Yet, as prior research shows, crowd-sourced stakeholder engagement can result in a larger volume of ideas with higher-quality variance than more focused processes (Rawhouser, Cummings, & Marcus, 2018). Reviewing and screening out these potential referrals required resource commitments from both ConnectIreland and IDA. Perhaps incentive levels were so high that they encouraged over-registration of connectors and too many low-quality referrals. Future research on diaspora engagement for investment promotion could productively explore optimal levels or types of “connector” rewards.

Our practitioner informants also addressed the future of diaspora investment more broadly, although this was not our paper’s central focus. Perhaps influenced by the example of Clune’s support for ConnectIreland, diaspora philanthropy was characterized as an “incredibly powerful pathway to diaspora investment” that informants predicted would be particularly topical and meaningful “in the next … 10 to 15, 20 years.” Future research could explore alternative arrangements, in addition to the Succeed in Ireland model, through which philanthropists can magnify the impact of their funds to facilitate others’ investments.

Our case and research propositions suggest numerous practical recommendations for designing and implementing a diaspora investment PPP in a way that reduces incentive misalignment, power imbalances, and resulting conflict. First, the PPP agreement should demarcate the roles and tasks of the public and private actors. The greater the explicit or implicit overlap, the greater the potential for competition rather than cooperation and for duplication of efforts rather than efficiency. This demarcation in part requires clearly delineating separate types of investors targeted by the public and private actors and separate marketing channels. This approach is likely to decrease the potential for direct competition; see also Table 2 below. Second, the PPP should implement a shared database of companies and connectors with which each investment-promotion agency is working. This helps to reduce duplicated efforts but can be especially important for resolving competing claims to the same potential investors and for expeditious resolution of legal disagreements. Third, whenever possible, the PPP agreement should create shared goals for the private and public actors so that jobs created by the private actor should also count toward the public-sector benchmarks and performance goals, to avoid internal competition and multilayered principal-agent problems. Shared successes are better than drawn-out turf wars over credit. Lastly, because ConnectIreland was founded specifically to engage in the PPP, it was vulnerable to contractual lock-in and decreased bargaining power to renegotiate the agreement. The private actor in an investment-promotion PPP should ideally have an operational existence that predates, extends beyond, and is expected to outlast the PPP, to ensure that the parties are on equal footing in contractual negotiations and enforcement.
Table 2

Optimal task distribution in an investment promotion PPP

Public actor

Private actor

Typical IPA marketing

Diaspora-focused IPA marketing

Traditional b2b marketing

Global consumer marketing approach

Targets foreign MNCs whose motivation is pecuniary

Targets transnational individuals whose motivation is both pecuniary and altruistic

Offers contacts to service providers and government officials

Leverages diaspora members’ existing contacts

Represents interests of local entrepreneurs and firms to local government

Represents interests of transnational entrepreneurs and firms to local and foreign government and multilateral agencies

Adapted from Riddle et al. (2008).

Any scholarly endeavor has limitations, and this study is no exception. Although a single case-study approach offers advantages, such as rich detail and depth of understanding, it has limitations to generalizability. For example, although we attribute the decline of the Succeed in Ireland PPP to a misaligned incentive structure and contractual arrangement, it is possible, as Joanna Murphy has argued, that additional time is all the effort needed to achieve success. Our practitioner informants also indicated the importance of long-term perspectives on diaspora investment promotion by pointing out that IPAs tend to “invite diaspora and potential investors to a big event” to encourage them to invest in projects, and “the selling cycle for investment promotion is . . . months and even years.” Future research could use longitudinal or ethnographic perspectives to study relationship-building in diaspora investment contexts.

Another limitation of our study is that, although our data suggest that incentive structures and measurement systems played a role in the breakdown between ConnectIreland and IDA, we lack access to internal organizational documents regarding individual or departmental tracking that would allow us to better isolate causal mechanisms. We attempted to mitigate this limitation by conducting detailed interviews with key informants, but future research regarding diaspora investment-focused PPPs could, for example, use field experiments, ethnographies, and different, explicit incentive structures to more closely identify the conflict or ways to overcome it.

We set out in this paper to illuminate one policy channel through which governments in prospective FDI recipient countries seek to attract investment from countries to which the former’s citizens have migrated: initiation of formal PPPs between government-run IPAs and diaspora-focused NGOs. To do so, we provided evidence from an in-depth case study of the Succeed in Ireland initiative, and developed novel insights into the opportunities and limitations of its policies. Our study adds credibility to the argument that migration policy and IB policy are deeply interconnected, and we encourage additional exploration of this unique, important research area.

Notes

  1. 1

    According to one estimate, the cost for IDA to create a job is about €10,500, while for ConnectIreland this cost was about €4,000 (O’Donoghue, 2017b). Numerous factors drive this difference, including IDA’s broader mandate and higher fixed costs by design and the more nimble functioning of ConnectIreland’s dependence on (admittedly expensive) resources provided by IDA and free referrals from connectors across the world.

     
  2. 2

    A traditional Gaelic sport with elements similar to field hockey and lacrosse (Reilly & Collins, 2008).

     
  3. 3

    Trophies named after famous hurling athletes.

     
  4. 4

    Appendix contains a more detailed listing of major job announcements by ConnectIreland.

     

Notes

Acknowledgements

We thank Joanna Murphy and our expert informants for their cooperation and support on this project. We indebted to the editorial guidance of Paul Vaaler and two anonymous reviewers for their feedback and recommendations. This research has also benefitted from helpful comments by conference attendees at the Academy of International Business and the International Association for Business and Society. All errors are ours.

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Copyright information

© Academy of International Business 2019

Authors and Affiliations

  • Elena Poliakova
    • 1
  • Liesl Riddle
    • 2
  • Michael E. Cummings
    • 3
    Email author
  1. 1.J. Mack Robinson College of BusinessGeorgia State UniversityAtlantaUSA
  2. 2.School of BusinessGeorge Washington UniversityWashingtonUSA
  3. 3.Walton College of BusinessUniversity of ArkansasFayettevilleUSA

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